>>> TradeGate Pre-Market Indications

DAX:
  • Henkel (HEN3 TH) +2.9%
    • Henkel 1Q Sales Grew Twice the Rate Market Expects on Adhesives
  • Delivery Hero (DHER TH) +1.3%
    • Prosus Raises Stake in Delivery Hero to 24.99%
  • BMW (BMW TH) +1.1%
    • Auto CEOs See EV Profit Potential After Years of Discouragement
MDAX:
  • Thyssenkrupp (TKA TH) +1.4%
  • Lufthansa (LHA TH) +1.3%
  • Nordex (NDX1 TH) +1.2%
    • Nordex Receives Order for 50MW in Spain
  • Telefonica Deutschland (O2D TH) +1.1%
SDAX:
  • LPKF (LPK TH) +2.3%
  • Takkt (TTK TH) +1.9%
  • Deutz (DEZ TH) +1.6%
  • Hamburger Hafen (HHFA TH) +1.1%
  • VERBIO Vereinigte (VBK TH) +1.1%
  • SGL (SGL TH) -1.5%
  • SAF-Holland SE (SFQ TH) -2.6%

WSJ : Evergrande’s Debt by Any Other Name

Evergrande’s Debt by Any Other Name
Despite its ambitious debt-reduction targets, China’s largest property company is still building up liabilities

China Evergrande Group EGRNF -3.65% aims to slash its debt load at a rapid clip to meet government-mandated targets. But beneath the headline metrics, the group is still accumulating leverage in disguise.

Evergrande currently finds itself breaching all three “red line” metrics for property companies that Beijing began monitoring last year, constraining its capacity to issue more bonds. With its annual results on Wednesday, the company said it intends to trim its liability-to-asset ratio to below 70% by the end of next year—from around 85% at the end of 2020—and move the two other debt metrics out of the red zone this calendar year.

On Monday, the company announced a sale of shares in subsidiary FCB Group to support that deleveraging. That raises a little over $2 billion for 10% of the online platform for home and car sales, a rather lofty valuation. If there’s no IPO in the next 12 months, the investors are entitled to demand the shares be repurchased at a 15% premium.

That might ring a bell for readers who have followed the Evergrande saga. Last year the company ran into trouble with strategic investors in Hengda, a subsidiary it had promised would go public as long ago as 2016.

In both cases, though the arrangements are technically equity investments, they start to look rather a lot like debt—at a very high interest rate—if the subsidiaries aren’t floated.

Rebranding debtlike arrangements is central Evergrande’s deleveraging effort. Another crucial element of financing, presales of not-yet-built housing, is also excluded from the three red lines.

That may explain why Evergrande’s borrowings have fallen by around 10% since the end of 2019, while contract liabilities—typically dominated by presales—rose 43%. Trade and other payables, typically owed to contractors, rose by around 16%. These are liabilities but without fixed maturities, allowing the company to perform well on debt metrics while the amount it owes actually rises.

Evergrande is the white whale for dozens of funds and skeptical analysts who have decided that the company’s financial model isn’t sustainable. But the harpoons have repeatedly failed to pierce the company’s hide.

The conclusion from their attempts, unsatisfying as it is, can only be that Evergrande’s financial health is a function of its political support and little else. It lives at the nexus of China’s biggest financial and arguably political frailty: the dependence of local governments on land sales, and the fact that the vast majority of household wealth is tied up in a real-estate market that bears the hallmarks of speculation.

As befuddling as it may be to true believers in markets, Evergrande can survive—and keep shuffling its significant liabilities around—as long as Chinese officials want it to.

>>> What to look at today - 1st of April 2021

Stocks rose Thursday and U.S. equity futures were steady as the global recovery and President Joe Biden’s infrastructure plan helped traders look past escalating curbs from Covid-19 flareups. Bonds trimmed losses.
A gauge of Asia-Pacific shares was set for its first climb in three days, with Hong Kong leading gains, after data signaled regional manufacturing picked up. S&P 500 contracts were little changed while Nasdaq 100 and European futures edged up. The tech-heavy U.S. index rallied overnight, beating the S&P 500.
Ten-year Treasury yields dipped after sealing the worst quarterly performance since 1980 for the Bloomberg Barclays index tracking U.S. government bonds. Oil gained ahead of a high-stakes OPEC+ meeting that will debate whether to extend supply curbs. The dollar ticked higher.
Traders monitored halts in a number of Hong Kong-listed stocks, with some attributing the move to their failure to report earnings in time.
US After Hours GES +6.1%, MU +2.6% higher on earnings; QS +9.7% jumps as it meets technical milestone; WING +3.8% higher on good Q1 comps

Nikkei +0.69% Hang Seng +1.13% CSI +0.33% Shanghai +0.25% Shenzen +0.57%

Eur$ 1.1725 CNH 6.5784 CNY 6.5689 JPY 110.66 GBP 1.3780 CHF 0.9454 RUB 75.7369 TRY 8.2615 WTI$ 59.51 +0.57% GOLD 1,711.80 +0.24% BTC 59,230 +212

S&P +0.06% Nasdaq +0.36% EuroStoxx +0.15% FTSE +0.02% Dax +0.06% SMI +0.14%

Macro :
- France Heads Into Monthlong Lockdown as Virus Spirals in Europe
- Biden Pitches $2.25 Trillion Plan to ‘Bring Everybody Along’

Spacs :
- U.K.’s Giant Battery Factory Developer Looks for a SPAC Deal

Keep an eye on :
- ACS SM : ACS CEO Marcelino Fernandez Verdes Steps Down
- AED BB : Aedifica Buys 19 Care Homes in Germany; EU245M Investment
- AIR FP : Boeing CEO Warns of Lost Sales From U.S-China Trade Impasse
- AMUN FP : Amundi Is Said to Lead Bidding for SocGen’s Lyxor Fund Business
- ARL GY : Petrus Raises Aareal Bank Stake; Seeks Supervisory Board Change
- AGL IM : Autogrill to Sell U.S. Motorways Unit for $375m
- ATO FP : Atos 2020 Financial Statements Unchanged, No U.S. Misstatements
- ATL IM : Italy State Lender, Funds Agree on Revised Bid for Autostrade
- BARC LN : Barclays Plans to Hire Several Private Bankers in Singapore
- BIOF SS : BioFrigas Sweden Offers SEK15m Shares
- BOTB LN : Best of the Best Holders Offers 2.5m Shares at GBP24/Share
- BRE IM : *PIRELLI CEO RULES OUT COMBINATION WITH BREMBO
- BRBY LN : China Cotton Issue a ‘Wakeup Call’ for Burberry, Others: Analyst
- CATE SS : Catena Offers Up to 3m Shares via ABG Sundal Collier, Kempen, Offering of 3m Shares Prices at SEK360/Share
- CBK GY : Commerzbank to Lose 3 More Supervisory Board Members: FAZ
- CVAL IM : Credit Agricole Confirms Strategic Rationale of Creval Bid
- DAI GY : Daimler Supervisory Board Names Bernd Pischetsrieder Chairman
- ROO LN : Deliveroo IPO Crash Damages London’s Tech Hub Dreams: ECM Watch
- DHER GY : Prosus Raises Stake in Delivery Hero to 24.99%
- DBK GY : Deutsche Bank Dodged $4 Billion Archegos Bullet With Quick Sale
- ERICB SS : Ericsson Sued by Royal KPN Over 5G Networking Patents
- FWD Groip IPO : Richard Li’s FWD Is Said to Lean Toward U.S. for $3 Billion IPO
- HEN3 GY : Henkel 1Q Sales Grew Twice the Rate Market Expects on Adhesives
- HOFI SS : Hoist Finance Reports SEK350 Million Negative Impairment
- MSFT US : Microsoft $22 Billion U.S. Army Deal for HoloLens Moves Forward
- MITRA BB : Mithra Pharma Offering by Holder Alychlo Prices at EU25.5/Share
- NESN SW : Nestle Is More Buyer Than Seller of Assets, CFO Tells Le Figaro
- NDX1 GY : Nordex Receives Order for 50MW in Spain
- BNB BB : National Bank of Belgium Cuts Dividend to EU105.77/Share
- PRX NA : Prosus' Delivery Hero Spending Unlikely to Dent Discount: React
- RB/ LN : Reckitt Gender-Pay Gap Narrows in Favor of U.K. Women (1)
- RN O FP : French March New Car Registrations Rise 192%: CCFA
- SIE GY : Siemens CEO Sees Room for Software Acquisitions: Handelsblatt
- GLE FP : Amundi Is Said to Lead Bidding for SocGen’s Lyxor Fund Business
- SW FP : Sodexo 1H Revenue Meets Estimates
- S30 FP : Solutions 30 Says External Review Clears Company of Wrongdoing
- STLA IM : Chip Shortages Force More Cuts at North American Auto Plants
- STLA IM : Stellantis to Offer New Vans Pairing Hydrogen and Battery Power
- TSLA US : Evergrande’s Goal of Toppling Tesla Looks More and More Unlikely
- 2330 TT : TSMC - Said to be requesting that clients accept higher prices - Nikkei
- TIT IM : Telecom Italia to Appoint Gubitosi As CEO for a Second Mandate
- VK FP : New Shares To Be Issued At Price of EUR8.09 a Share, Also Considering New Share Issue of EUR300 Mln, Subject to AGM Approval
- VWS DC : Vestas Signs 102 MW Order With Rokas for Greek Wind Projects

>>> Europe : Brokers Upgrades & Downgrades - 1st of April 2021

>>> Up
* Aveva Raised to Overweight at Morgan Stanley; PT 3,925 pence
* BMW Raised to Buy at Deutsche Bank; PT 105 euros
* Empiric Student Raised to Buy at Berenberg; PT 100 pence
* Fortum Raised to Reduce at AlphaValue
* Foxtons Raised to Add at Peel Hunt; PT 70 pence
* Premier Oil Raised to Overweight at Barclays; PT 30 pence
* Sumo Raised to Buy at Peel Hunt; PT 402 pence
* Victrex Raised to Outperform at Exane; PT 2,450 pence

>>> Down
* Global Petroleum Cut to Hold at Panmure Gordon; PT 2 pence
* Peach Property Cut to Accumulate at SRC Research
* Pirelli Cut to Hold at Stifel; PT 5.40 euros

>>> Initiation
* Aveva Resumed Overweight at Morgan Stanley; PT 3,925 pence
* Barratt Rated New Neutral at Exane; PT 786 pence
* Bellway Rated New Neutral at Exane; PT 3,560 pence
* Berkeley Rated New Neutral at Exane; PT 4,842 pence
* Carnival Rated New Buy at Citi; PT $30
* Cint Group Rated New Hold at Jefferies; PT 85 kronor
* Heidelberger Druck Rated New Buy at Stifel; PT 1.50 euros
* Persimmon Rated New Outperform at Exane; PT 3,445 pence
* Redrow Rated New Outperform at Exane; PT 726 pence
* Science Group Rated New Buy at Stifel; PT 422 pence
* Taylor Wimpey Rated New Outperform at Exane; PT 220 pence
* Titan Cement International Rated New Outperform at Oddo BHF
* Vistry Group Rated New Outperform at Exane; PT 1,236 pence

>>> Call
* Aveva Can Be Manufacturing Digitalization Leader: Morgan Stanley
* Empiric Raised to Buy at Berenberg on Sector Demand Tailwinds
* Foxtons Purest Way to Play London Market Recovery: Peel Hunt

WSJ : Micron, Western Digital Looking at Possible Deals for Chip Maker Kioxia

Micron, Western Digital Looking at Possible Deals for Chip Maker Kioxia
A deal could value Kioxia at around $30 billion; Japanese company also considering IPO

Micron Technology Inc. MU 1.93% and Western Digital Corp. WDC 1.97% are each exploring a potential deal for Kioxia Holdings Corp. that could value the Japanese semiconductor company at around $30 billion, according to people familiar with the matter, as a global scramble for memory chips used in smartphones and other devices heats up.

A deal for Kioxia, controlled by private-equity firm Bain Capital, isn’t guaranteed, and it isn’t clear how one might be structured. Should a deal come together, it could be finalized later this spring, some of the people said.

The Tokyo-based company had been planning an initial public offering before shelving it in late September, citing the coronavirus pandemic and market volatility.

An IPO later this year is still a possibility should the company fail to reach agreement on a deal with one of the suitors, the people said.

Kioxia is considered a crown-jewel asset in Japan, and—given the additional political sensitivities of transferring ownership of key technology like that in chips—any transaction would require the blessing of the government there. Washington would also likely play a role, but a deal could fit with a push by the U.S. to boost its chipmaking capabilities to increase competitiveness with China.

Kioxia makes NAND flash-memory chips used in smartphones, computer servers and other devices. It’s become a hot area in part because of increased demand during the coronavirus pandemic for personal computers, with people working remotely and distance learning, as well as gaming and the growing popularity of 5G smartphones.

That has helped Kioxia’s valuation soar since it backed away from the IPO. It was expecting a valuation then of around $16 billion. Its business had been hit by U.S. export restrictions on China’s Huawei Technologies Co. that threatened to lead to excess supply and price drops for flash-memory products.

Micron shares have also shot up since then, almost doubling to give the company a market value of about $100 billion. Western Digital’s WDC 1.97% shares have surged too, giving the company a valuation of around $20 billion.

Kioxia, formerly part of Toshiba Corp. and known as Toshiba Memory, was purchased in 2018 by a group led by Bain that included Apple Inc. , Dell Technologies Inc. , Kingston Technology Co. and Seagate Technology PLC, in a deal worth around $18 billion. Toshiba Corp. retained a 40% stake in the business, which was renamed Kioxia the following year.

There has been other deal making since.

South Korea’s SK Hynix Inc. agreed last year to pay around $9 billion for Intel Corp. ’s NAND business, in a deal that would make it one of the world’s largest players in the market—a list that also includes Samsung Electronics Inc.

Consolidation has swept through the broader semiconductor sector as industry players seek scale and expand their product portfolios to support the increasing number of everyday items that are connected to the internet. The industry has accounted for several of the biggest deals worldwide in recent months, including Advanced Micro Devices Inc. ’s roughly $35 billion purchase of Xilinx Inc., Nvidia Corp. ’s roughly $40 billion buyout of SoftBank Group Corp. -backed Arm Holdings and Analog Devices Inc. ’s $20 billion acquisition of Maxim Integrated Products Inc.

Bain has been an active dealmaker lately, including backing component maker II-VI Inc. in a heated public bidding war for rival Coherent Inc. II-VI agreed to buy Coherent for nearly $7 billion last week, outbidding Lumentum Holdings Inc.

Micron, one of the world’s largest memory-chip makers, is a big player in DRAM, another major type of memory used in devices. A combination with Kioxia would expand its NAND capabilities.

Western Digital, which makes hard disk drives, solid-state drives and NAND chips, has a joint venture with Kioxia for manufacturing and research and development that was set to expire starting in 2027.

Micron reported second-quarter results Wednesday that included a roughly 30% increase in revenue to $6.24 billion. Chief Executive Sanjay Mehrotra said the results reflect “rapidly improving market conditions and continued solid execution” and pointed to increasing demand from artificial intelligence and 5G. Micron shares rose 2.6% in after-hours trading on the results.

>>> After Hours Summary: GES +6.1%, MU +2.6% higher on earnings; QS +9.7% jumps

After Hours Summary: GES +6.1%, MU +2.6% higher on earnings; QS +9.7% jumps as it meets technical milestone; WING +3.8% higher on good Q1 comps

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: GES +6.1%, WING +3.8% (Q1 domestic same-store sales increased +20.7%), MU +2.6%, SPWH +1%

Companies trading higher in after hours in reaction to news: QS +9.7% (meets technical milestone to close additional $100 mln investment by Volkswagen), FUBO +2.9% (announces carriage agreement with Marquee Sports Network), SNY +1.9% (receives FDA approval for Sarclisa), STRL +1.6% (awarded $10.5 mln contract by City of Phoenix), CPB +1.5% (to sell Plum Organics to Sun-Maid Growers of California), LLNW +0.8% (names new non-executive Chairman), CWH +0.2% (to acquire multi-location Hilltop RV Superstore), INSP +0.1% (announces FDA approval for new Inspire physician programmer platform), DDOG +0.1% (extends Network Performance Monitoring to Windows)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: XL -12.3%, NCNO -4.5%, BOLT -1.2%, PLAY -0.2%, VRNT -0.1%

Companies trading lower in after hours in reaction to news: CTIC -10% (stock offering), BTAI -8.5% (announces topline results from its Phase 1b/2 proof-of-concept RELEASE study of BXCL501), TLS -7.7% (stock offering), EBS -5.3% (JNJ vaccine shipments delayed by mix-up at US factory run by EBS, according to NY Times), TTOO -4.3% (files for $150 mln mixed securities shelf offering), ATEC -3.1% (files for resale of up to 15.12 mln shares of common stock), ARCE -3.1% (receives approval to increase share repurchase program limit), AL -1% (delivers new Boeing 787-9 aircraft to Air Premia), GTLS -0.9% (acquires 5% ownership in Transform Materials for $25 mln), SBGI -0.9% (SBGI and BALY rebrand its regional sports network as Bally Sports), NOC -0.9% (awarded $260 mln Air Force contract), LMT -0.8% (awarded $610 mln Missile Defense Agency contract), SXI -0.5% (divests Enginetics for approx. $11.5 mln in cash), JNJ -0.4% (vaccine shipments delayed by mix-up at US factory run by EBS, according to NY Times; also Nigeria aims to obtain up to 70 mln doses of JNJ vaccine, according to Reuters), SNE -0.3% (acquires Paul Simon catalog; terms not disclosed), BALY -0.1% (SBGI and BALY rebrand its regional sports network as Bally Sports), XOM -0.1% (provides summary of factors that may impact 1Q21 results), AAL -0.1% (has repaid in full $2.8 billion of revolving loans)

>>> Pres Biden: infrastructure plan is a once in a generation investment; we are

Pres Biden: infrastructure plan is a once in a generation investment; we are not tinkering around the edges
- Discussing the 'American Jobs Plan' today and will talk about the 'American Family Plan' a few weeks from now
- 'American Jobs Plan' will modernize, repair and upgrade transportation network
- Will improve 20K miles of roads, fix 10 most economically significant bridges in the country and repair 10K other bridges
- Will build new rail corridors

>>> US Close Dow -0.26% S&P +0.36% Nasdaq +1.54% Russell +1.13%

Closing Stock Market Summary

The S&P 500 (+0.4%) set an intraday record high on Wednesday on the back of renewed strength in the mega-cap/growth/technology stocks, but the market pared gains into the close. The Nasdaq Composite (+1.5%) and Russell 2000 (+1.1%) outperformed the benchmark index, while the Dow Jones Industrial Average (-0.3%) closed slightly lower. 

Today's price action appeared heavily influenced by rebalancing activity on the last day of the quarter, suggesting money managers re-allocated funds into quarterly laggards given the sheer outperformance from many of the value/cyclical stocks this quarter. In other words, today was a growth-stock day. 

The S&P 500 information technology (+1.5%) and consumer discretionary (+0.8%) sectors finished atop the sector standings, the Vanguard Mega Cap Growth ETF (MGK 207.07, +2.90, +1.4%) rose 1.4%, the ARK Innovation ETF (ARKK 119.95, +5.53, +4.8%) rose 4.8%, and the Philadelphia Semiconductor Index rose 2.6%. 

Conversely, the energy (-0.9%) and financials (-0.9%) sectors -- the Q1 winners -- underperformed alongside the materials (-0.5%), industrials (-0.3%), real estate (-0.5%), and consumer staples (-0.5%) sectors. 

Besides rebalancing activity, Apple (AAPL 122.15, +2.25, +1.9%) and Microsoft (MSFT 235.77, +3.92, +1.7%) benefited from an analyst upgrade and encouraging corporate news. Specifically, Apple was upgraded to Buy from Neutral at UBS. Microsoft was awarded an augmented-reality contract with the U.S. Army, reportedly worth close to $22 billion over ten years. 

In other developments, Pfizer (PFE 36.23, +0.12, +0.3%) and BioNTech (BNTX 109.19, +4.75, +4.6%) said their COVID-19 vaccine trial for adolescents ages 12-15 demonstrated 100% efficacy and robust antibody responses. Walgreens Boots Alliance (WBA 54.90, +1.92, +3.6%) beat EPS estimates and raised its FY21 guidance. 

Separately, many investors were waiting for President Biden to unveil a $2 trillion infrastructure plan in a speech after the close. Reports indicated the bill would call for increases in corporate taxes to help finance the spending. 

In the Treasury market, yields settled the session slightly higher amid some selling interest. The 2-yr yield increased two basis points to 0.16%, and the 10-yr yield increased two basis points to 1.75%. The U.S. Dollar Index decreased 0.1% to 93.22. WTI crude futures decreased 2.3%, or $1.38, to $59.19/bbl.

Reviewing Wednesday's economic data:

  • The ADP Employment report pointed to the addition of 517,000 private payrolls in March (consensus 525,000) while the February increase was revised up to 176,000 from 117,000.
  • The Chicago PMI for March increased to 66.3 (Briefing.com consensus 60.0) from 59.5 in February.
  • Pending home sales dropped 10.6% in February (consensus -2.6%) following a 2.4% decline in January (from -2.8%)
  • The weekly MBA Mortgage Applications Index decreased 2.2% following a 2.5% decline in the prior week. 

Looking ahead, investors will receive the ISM Manufacturing Index for March, the weekly Initial and Continuing Claims report, and Construction Spending for February on Thursday. 

  • Russell 2000 +12.4% YTD
  • Dow Jones Industrial Average +7.8% YTD
  • S&P 500 +5.7% YTD
  • Nasdaq Composite +2.8% YTD