Closing Stock Market SummaryThe S&P 500 advanced 0.7% on Thursday, setting intraday and closing record highs in a bumpy session. The benchmark index started with a 0.9% gain amid a host of positive-sounding developments, then turned negative on no specific catalysts, and finally staged a comeback in the second half of the session.
The comeback effort was uneven, though, as the Nasdaq Composite (+0.2%) closed well off opening (record) highs, the Dow Jones Industrial Average (+0.7%) closed near session highs, and the Russell 2000 (-0.4%) closed lower. Notwithstanding the mixed results, the news flow was pretty good for the market.
Briefly, Apple (AAPL 133.48, -0.10, -0.1%) and Facebook (FB 329.51, +22.41, +7.3%), among others, reported earnings that exceeded expectations. Advance Q1 GDP increased at a 6.4% annualized rate (Briefing.com consensus 6.5%). President Biden outlined his $1.8 trillion American Families Plan to Congress, but some Senate Democrats were reportedly against the idea of significantly raising taxes to help fund the plan.
All this preceded the record-setting open in the S&P 500 and Nasdaq, and the disappointing price action afterwards gave credence to the view that the market was tired and still in consolidation mode. The uneven rebound also suggested that parts of the market, like Apple, remained subject to fatigue.
The communication services sector (+2.8%) was easily the top-ranking sector today due to Facebook's 7% gain. The financials sector (+1.8%) followed suit and was the key difference maker in the index performances since the S&P 500 and Dow are more exposed to large-cap financial stocks than the Nasdaq.
Conversely, the health care (-0.4%) and information technology (-0.03%) sectors were the lone sector holdouts, with the former pressured by disappointing Q1 results from Merck (MRK 73.68, -3.41, -4.4%).
In other earnings news, Qualcomm (QCOM 142.68, +6.11, +4.5%), Caterpillar (CAT 227.47, -4.83, -2.1%), and McDonald's (MCD 73.68, -3.41, -4.4%) beat top and bottom-line estimates. CAT was the only one from this group that closed lower.
U.S. Treasuries settled mixed and little changed, with buying interest pulling yields off early highs as the session progressed. The 2-yr yield decreased one basis point to 0.16%, and the 10-yr yield increased two basis points to 1.64%. The U.S. Dollar Index was little changed at 90.61. WTI crude futures ($65.04, +1.18, +1.9%) settled above $65 per barrel.
Reviewing Thursday's economic data:
- The advance Q1 GDP report showed economic output increasing at a 6.4% annualized rate (consensus 6.5%), paced by a 10.7% increase in personal consumption expenditures and a 6.3% increase in government spending. Real final sales of domestic product, which exclude the change in private inventories, surged 9.2%. The GDP Price Deflator was up 4.1% (consensus 2.6%).
- The key takeaway from the report is that it is indicative of an economy that is bouncing back sharply with the help of stimulus payments and reopening activity that has been catalyzed by the COVID vaccines.
- Initial jobless claims for the week ending April 24 decreased by 13,000 to 553,000 (consensus 530,000). Continuing claims for the week ending April 17 increased by 9,000 to 3.660 million.
- The key takeaway from this report is located in the four-week moving average for initial claims. It is still too high at 611,750, which is why the Fed isn't going to be in a rush to tighten policy, but at the same time, market participants may warm to the understanding that it's the lowest since March 14, 2020.
- Pending home sales increased 1.9% in March (consensus +7.2%) following a revised 11.5% decline in February (from -10.6%).
Looking ahead, investors will receive Personal Income and Spending for March, PCE Prices for March, the Employment Cost Index for the first quarter, the final Univ. of Michigan Index of Consumer Sentiment for April, and the Chicago PMI for April on Friday.
- Russell 2000 +16.2% YTD
- S&P 500 +12.1% YTD
- Dow Jones Industrial Average +11.3% YTD
- Nasdaq Composite +9.3% YTD
VW’s electric cars spared in chip crisis
Semiconductor shortage ‘not influencing’ likelihood of meeting EU emissions targets
The rollout of Volkswagen’s flagship electric cars has been unaffected by the semiconductor shortages roiling the industry, easing investor concerns that bottlenecks would leave the company unable to meet strict EU emissions targets.
VW has been forced to cut overall production by at least 100,000 vehicles this year, and 7,500 workers at its Emden plant in Lower Saxony have been furloughed because of a lack of components.
But the brand’s chief executive, Ralf Brandstätter, told the Financial Times the chips crisis had so far only hit combustion engine models such as the Passat.
“At the moment it is not influencing our [CO2] target,” he said, referring to the annual EU standards with which VW must comply or face heavy fines. However, he added that the company’s entire chip supply chain remained volatile.
The next few months will “continue to be challenging”, Brandstätter said, after unusually cold weather in Texas and a fire at a Japanese plant exacerbated the shortages, but VW hoped for an “improvement” in the second half of the year.
The wider Volkswagen group, which includes Audi, Porsche and Seat, is heavily reliant on the success of VW’s new ID.3 and ID.4 electric vehicles to counterbalance combustion-engine sales in Europe.
The group was handed more than €100m in penalties after its fleet of cars sold in the EU last year missed a CO2 target by just half a gramme per kilometre driven.
The VW brand, however, surpassed its individual target by 5g of CO2/km, equating to a 22 per cent drop on 2019. In the first three months of 2020, the marque almost doubled its deliveries of fully electric cars, to 30,700.
Brandstätter’s comments came as the marque announced it would launch a new electric vehicle each year this decade, by the end of which it would have reduced its carbon footprint per vehicle in the EU by a further 40 per cent against 2018 levels.
The Volkswagen group accounts for more carbon emissions per year than many big countries. It was responsible for 369m tonnes of CO2 last year — about the same amount as the UK. Passenger cars made up 60 per cent of that measure.
The VW brand, by far the largest in the group’s portfolio, said it would invest €14bn in decarbonisation by 2025, mostly on building electric cars and converting factories to run on cleaner energy sources. The company also pledged to invest €40m in renewables, including wind farms and solar panels.
Brandstätter also welcomed plans by President Joe Biden’s administration to commit to achieving net-zero emissions across the US economy by 2050, and the EU’s proposed Green New Deal. But he called on governments to do more to make sure battery-powered vehicles ran on clean electricity.
“We need to challenge the energy sector as well. We can’t push every day for more electric cars if we’re not at the same moment pushing infrastructure for charging and green energy availability,” he said.
“It doesn’t makes sense to charge an EV with coal-based energy in Poland, for example.”
In a separate development on Thursday, VW was revealed to be under investigation by the Securities and Exchange Commission for an April Fool’s joke, in which the company said it was changing the name of its American operations to Voltswagen.
The marketing stunt was followed by a sharp rise in the price of US-registered shares. The SEC’s probe was first reported by Der Spiegel, and confirmed by people with knowledge of the matter. Volkswagen declined to comment.
Bernard Arnault and Jean Pierre Mustier Spac raises €500m in Amsterdam listing
Flagship European listing comes as the US private placement boom loses steam
The special purpose acquisition vehicle created by LVMH chief executive Bernard Arnault and former UniCredit chief Jean Pierre Mustier to invest in European financial companies has listed in one of the largest European Spacs placements on record.
Pegasus Europe raised €500m in its listing on Euronext Amsterdam on Thursday morning, making it among the largest European Spacs in the year’s crop of the vehicles. Spacs list on stock markets and then hunt for acquisition targets to take public. Shares were priced at €10.
The deal reflects European efforts to mimic the explosive growth in Spacs in the US. “We have a lot of SMEs in Europe which need gross capital to grow,” Mustier said. “The Spac is an important and good instrument for Europe.”
The listing was sponsored by Paris-based asset manager Tikehau Capital, Financière Agache (a holding company controlled by Arnault and Mustier’s business group) and former Bank of America dealmaker Diego De Giorgi.
The sponsors jointly invested €55m in the private listing and €12.75m for warrants to cover commissions and costs. They also pledged an additional investment of €100m, to be used by Pegasus when a suitable target company is found.
“We have been missing skin in the game [in Spac investing], people putting their own money in,” said Antoine Flamarion, co-founder at Tikehau Capital.
Spacs have largely listed in US markets, including more than 300 blank cheque IPOs since the start of the year. They accounted for almost half of the record fundraising through public offerings so far in 2021.
But Pegasus is part of an expected European wave, with Tikehau Capital among those planning additional blank cheque vehicles. 2MX Organic, a Spac founded by telecoms billionaire Xavier Niel to invest in organic food, raised €300m last year in the largest public offering on the Paris market in 2020.
“Our expectation is the European market will continue growing. From here to August we expect in excess of 30 Spacs, market permitting,” said Giacomo Ciampolini, head of alternative capital at Citi, which were bookrunners on the deal alongside JPMorgan. “Europe is still a relatively virgin hunting ground.”
The decision to list Pegasus in Amsterdam, which has already benefited when euro-denominated equity trading moved out of London following the UK’s exit from the EU, could mark it as Europe’s emerging centre for Spacs.
In the US, however, Pipe funding — short for private investment in public equity — has dried up after the proliferation of deals in the past year. The Securities and Exchange Commission has also raised concerns about revenue and profit projections for the deals, increasing investor uncertainty.
“We expect more clarity on accounting within the next few weeks, which should lead to an acceleration in US market issuance,” said Ciampolini.
Binance/cryptocurrencies: regulator interest is more than a token gesture
Exchange draws scrutiny over concerns whether it breaches securities rules
Democratising value transfer is anything but seamless. Binance boss Changpeng Zhao makes it sound peachy but his foray into trading stock tokens has attracted the attentions of European regulators concerned whether it breaches securities rules.
Taken at face value, trading in these tokens — which track the movement of shares in Tesla, Coinbase and MicroStrategy — represents regulatory arbitrage.
Clashes were a long time coming. Tech moves at warp speed, regulators limp. In its short life Binance, founded by 44-year-old Zhao, has offered mining, trading in fractions of shares as well as issuing coins such as Venus. Along the way it has become one of the world’s biggest cryptocurrency exchanges.
With no official headquarters and trades in coins and tokens, Binance believes itself outside the remit of securities watchdogs and the concomitant need to issue lengthy new prospectuses. Many initial coin offerings have relied on little more than a single sheet of A4 and a handful of influencers championing their launch.
German watchdog BaFin, leading the regulatory charge, says Binance has probably violated securities rules over its launch of trading in stock tokens. The UK’s Financial Conduct Authority is also looking to get a better handle on applicable rules. These tokens walk and talk like securities although, unlike shares, they are not transferable to other customers. Traded as over the counter swaps, they are in some ways more akin to contracts for differences (CFDs). This does not mean they should escape scrutiny. The FCA has put restrictions on the sale of CFDs to retail customers.
Zhao is doing what any under-fire boss does: painting his company as a social good and supplementing its ranks with illustrious names and one-time politicians: former US senator Marcus Baucus and Brian Brooks, a former official at the Office of the Comptroller of the Currency. The latter is chief executive of its American affiliate, Binance.US.
As crypto exchanges and products grow in popularity, regulators are being forced into swift catch up. Levels of understanding fall far short. But the battle lines are being drawn.
Early premarket gappers
- Gapping up:
- GRTX +38.6%, NOK +17.4%, OSTK +10.5%, CAKE +8.8%, FLWS +8.8%, ECHO +7.8%, FB +7.1%, CCS +7.1%, MTH +6.5%, SNN +5.6%, AKBA +5.3%, LC +5.3%, GNRC +5.3%, QCOM +5.1%, AXTI +4.8%, STM +4.6%, ATKR +4.1%, ALGN +3.6%, UL +3.6%, TWTR +3.3%, AVTR +3.3%, WST +3.2%, TWOU +3.1%, BHLB +3%, CLR +2.9%, ESI +2.9%, MDC +2.9%, AAPL +2.8%, WELL +2.8%, CARR +2.6%, CAT +2.4%, ACIU +2.3%, EQNR +2.3%, NOC +2.3%, LOGI +2.2%, MUSA +2.2%, LOGI +2.2%, LKQ +2.2%, INVH +2%, MC +2%, CCOI +2%, MTDR +1.8%, WRE +1.8%, PEGA +1.8%, NWG +1.8%, TRTN +1.8%, PQG +1.6%, SAVE +1.6%, MRNA +1.6%, AB +1.6%, CLII +1.5%, HUN +1.5%, MXL +1.5%, BC +1.5%, FWRD +1.4%, BHC +1.4%, TROX +1.4%, AMZN +1.3%, MOH +1.3%, NFBK +1.2%, MGM +1.1%, CVX +1%
- Gapping down:
- ADVM -50.1%, BCOV -13.3%, AZPN -11.2%, EBAY -7.6%, PI -6.7%, NOW -6.7%, CMCO -6.4%, CREE -5.2%, ALDX -4.6%, TDOC -4.5%, HOLX -4.4%, INOV -4.3%, FORM -4.2%, EEFT -4%, PLBY -3.5%, JHG -3.3%, OMF -3.2%, ASH -3.2%, NVCR -2.7%, MRK -2.7%, F -2.3%, PTC -2.2%, UCTT -2.1%, FIX -1.6%, COR -1.6%, AM -1.4%, SJW -1.4%, DCRB -1.2%, CNO -1.2%, TMO -1.2%, KBR -1.1%, PPC -1.1%, KALU -1%, TTEK -1%