Closing Stock Market SummaryThe S&P 500 advanced 0.7% on Monday, as quarter-end rebalancing efforts drove the mega-caps higher and suppressed Treasury yields, although it did close off session highs (+1.1%). The Nasdaq Composite increased 1.2%, while the Dow Jones Industrial Average increased just 0.3% and the Russell 2000 (-0.9%) fell victim to rebalancing activity.
In the home stretch of the first quarter, which has greatly favored cyclical/value/small caps stocks, money appeared to disproportionately flow into the mega-cap/growth-stock laggards like Apple (AAPL 123.39, +3.40, +2.8%) and Tesla (TSLA 670.00, +15.13, +2.3%) as well as U.S. Treasuries. The 10-yr yield decreased five basis points to 1.68%, which was a double-bonus for growth stocks.
In terms of sector performances, the information technology sector (+1.9%) was the most influential gainer given it's the most heavily-weighted sector in the S&P 500. A strong showing from the semiconductor stocks supported the cause. The Philadelphia Semiconductor Index advanced 2.2%.
The consumer staples (+1.2%), real estate (+1.1%), health care (+0.9%), and communication services (+0.8%) sectors followed suit, but there were still more declining issues than advancing issues at the NYSE and Nasdaq. The financials (-1.3%), energy (-1.0%), industrials (-0.1%), and utilities (-0.1%) sectors closed lower.
The underperformance of the cyclical stocks despite encouraging U.S. Phase 3 trial data for AstraZeneca's (AZN 51.20, +1.99, +4.0%) COVID-19 vaccine supported the view that price action was more technically-oriented than fundamentally-driven. AstraZeneca plans to file for emergency use authorization in the coming weeks.
In addition, growth stocks barely reacted to the initial release of a New York Times report that President Biden is considering tax increases to help pay for an infrastructure/climate change bill. The administration later called the report "premature and not a reflection of the White House's thinking."
Separately, Kansas City Southern (KSU 249.09, +24.93, +11.1%) agreed to be acquired by Canadian Pacific (CP 356.53, -21.95, -5.8%) in a cash and stock transaction representing an enterprise value of $29 billion. The agreement valued KSU at $275 per share, or a 23% premium from Friday's close, but regulatory risks kept shares below this price.
The 2-yr yield was unchanged at 0.15%. The U.S. Dollar Index declined 0.1% to 91.80. WTI crude futures settled little changed at $61.47/bbl.
Reviewing Monday's economic data:
- Existing home sales decreased 6.6% m/m in February to a seasonally adjusted annual rate of 6.22 million (consensus 6.50 million) from a downwardly revised 6.66 million (from 6.69 million) in January. Total sales in February were up 9.1% from a year ago.
- The key takeaway from the report is that the supply of existing homes for sale remains near all-time low levels. That is driving up the pace of price increases well beyond the pace of income gains, which is going to create affordability pressures for prospective buyers along with rising mortgage rates.
Looking ahead, investors will receive New Home Sales for February and the Current Account Balance for the fourth quarter on Tuesday.
- Russell 2000 +14.8% YTD
- Dow Jones Industrial Average +6.9% YTD
- S&P 500 +4.9% YTD
- Nasdaq Composite +3.8% YTD
Suez/Veolia: avoid more stress, pay the excess
Messy back and forth suggests paying more now rather than later would be better
Solutions are part of the everyday business of French water and waste groups Veolia and Suez. But solving the deal deadlock between these two has proved elusive. Formal proposals for a long-mooted alternative offer for Suez arrived from Ardian and Global Infrastructure Partners over the weekend. These were swiftly brushed aside.
Veolia has no interest in helping Ardian and GIP break up Suez when it still hopes to do so single-handedly. A value for Suez of €20 a share suggested by Ardian and GIP is more than Veolia has offered, suggesting how this saga will conclude.
The pair must have guessed Veolia would turn down their invitation. Instead, the move appears to validate Suez’s claim that a higher price is justified. The board has set €22.50 a share as the price where it would willing to open its arms to Veolia.
That combination would create a hoped-for national champion in water and waste that is better equipped to take on global competitors. A faster than expected recovery in the sector’s earnings alone suggests a higher price is warranted. Suez shares trade at 19 times two-year forward earnings just a hair above the average of the past three years.
Suez has also upped the stakes by saying it has activated the Dutch foundation into which it has placed its French water business. This poison pill defence has the potential to make life difficult for Veolia even if it succeeds with its existing bid at €18 a share.
It is clear that remains too low. Targeted returns on investment of 9 per cent at Veolia mean it can afford to pay more. It could raise its bid to €21 and still exceed that threshold say analysts at Jefferies. Veolia’s chair Antoine Frérot will have to decide whether he agrees with that view, boosted by cost cuts.
Otherwise, more tiresome wrangling lies ahead. The six months of messy back and forth between Veolia and Suez suggests he would be better off paying more now rather than later.
>>> Up
* ASML Raised to Outperform at Cowen; PT 550 euros
* Deutz Raised to Buy at HSBC; PT 7.70 euros
* Elisa Raised to Buy at Goldman; PT 65 euros
* Kojamo Raised to Overweight at Barclays; PT 20 euros
* Lenzing PT Raised to 149 euros from 123 euros at Baader Helvea
* Lloyds Raised to Overweight at JPMorgan; PT 51 pence
* National Express PT Raised to 385 pence at Liberum (+)
* Outokumpu Raised to Buy at Kepler Cheuvreux; PT 6 euros (+)
* Richemont Raised to Outperform at Bernstein; PT 116 Swiss francs
* Softcat Raised to Neutral at Citi; PT 1,600 pence
* Swatch Raised to Outperform at Bernstein; PT 353 Swiss francs
* Talanx Raised to Buy at SocGen; PT 45 euros
* Talanx Raised to Buy at SocGen; PT 45 euros
* Travis Perkins Raised to Outperform at RBC; PT 2,000 pence
* VW Raised to Add at AlphaValue
>>> Down
>>> Down
* ABN AMRO GDRs Cut to Hold at KBC Securities (+)
* ASTM SpA Cut to Hold at SocGen; PT 25.60 euros (+)
* Autoliv GDRs Cut to Hold at Nordea (+)
* Boliden Cut to Sector Perform at RBC; PT 385 kronor
* IAG Cut to Hold at Deutsche Bank; PT 220 pence
* Central Asia Metals Cut to Sector Perform at RBC; PT 310 pence
* Evonik Cut to Hold at M.M. Warburg; PT 32 euros (+)
* Genel Cut to Hold at Canaccord; PT 195 pence (+)
* Mayr-Melnhof Cut to Hold at Deutsche Bank; PT 190 euros
* Mayr-Melnhof Cut to Hold at Deutsche Bank; PT 190 euros
* Plastic Omnium Cut to Neutral at JPMorgan; PT 38 euros
* SGS Cut to Hold at Bank Vontobel; PT 2,900 Swiss francs (+)
* Telenor Cut to Neutral at Goldman; PT 167 kroner
* Telia Cut to Neutral at Goldman; PT 40 kronor
* Virgin Money UK Cut to Underweight at JPMorgan; PT 180 pence
* Wallenstam Cut to Underweight at Barclays; PT 120 kronor
>>> Initiation
* Arctic Bioscience Rated New Buy at ABG; PT 57 kroner
>>> Initiation
* Arctic Bioscience Rated New Buy at ABG; PT 57 kroner
* Catena Rated New Buy at Handelsbanken; PT 460 kronor
* CompuGroup Rated New Equal-Weight at Morgan Stanley; PT 66 euros
* Foresight Group Rated New Buy at Jefferies; PT 520 pence
* Helios Towers Rated New Buy at Berenberg; PT 203 pence
* Mears Rated New Buy at Panmure Gordon; PT 308 pence (+)
* Nexus Rated New Buy at Pareto Securities; PT 70 euros (+)
* Novartis Rated New Market Perform at Bernstein
* NP3 Fastigheter Rated New Hold at Handelsbanken; PT 140 kronor
* Sagax Rated New Hold at Handelsbanken; PT 195 kronor
* Science Group Rated New Buy at Stifel; PT 42,200 pence (+)
* Stendorren Fastigheter Rated New Buy at Handelsbanken
>>> Call
* ASML Upgraded at Cowen on Improving EUV Momentum From Next Year
>>> Call
* ASML Upgraded at Cowen on Improving EUV Momentum From Next Year
* Astra Vaccine Trial Analysis Better Than Expected: Jefferies (+)
* CompuGroup Needs Innovation to Boost Growth: Morgan Stanley
* Helios Towers Gets Another Buy as Berenberg Sees Strong Growth
* Softcat Can Sustain Premium Valuation, Upgrade to Neutral: Citi
* Stendorren and Catena Favored in Industrial Real Estate: SHB
* Travis Perkins Upgraded With Wickes Demerger Key Catalyst: RBC (+)
* Richemont, Swatch Upgraded at Bernstein on Scope For Rebound
* U.K. Equity Risks Are Skewed to the Upside, Berenberg Says (+) PDF Attached
* Wallenstam Cut, Kojamo Raised as Barclays Switches Preferences (+)
Audi aims to steal march on Tesla after bold electric profit prediction
German group expects margins of battery powered models to match traditional vehicles in 2 to 3 years
Audi expects profits from its latest electric models to match those from traditional vehicles in as little as two years as the premium brand embarks on a bold battery car offensive designed to steal a march on Tesla.
The premium brand’s newest electric car, the Q4 E-tron, will have the same margins by 2023 or 2024 enjoyed by its combustion engine equivalent, the brand’s chief financial officer Arno Antlitz told the Financial Times.
“Scale is really important, and so we expect to see margin convergence in two to three years,” he said. “The price reflects the cost, and battery electric vehicles are just at the beginning.”
The premium carmaker is one of the few leading groups to make such a bold forecast on electric profits as most industry players warn of depressed margins from battery cars for several years.
However, some models are at parity. Renault chief executive Luca de Meo told the FT in January that the brand’s electric models such as the Zoe already make as much profits as their gasoline equivalents.
Audi expects a third of its annual sales, which last year were 1.7m, will be fully electric by 2025.
Its battery car push is tied to parent group Volkswagen’s ambitions to dominate electric sales, with recent plans for six battery gigafactories in Europe alone and a total of 20m global electric sales by 2030.
Rival BMW also set out its electric strategy recently, with half of all sales to be electric by the end of the decade, and the Mini nameplate to become a battery-only brand in the early 2030s.
Shares in VW and BMW have climbed following their electric presentations as those of Tesla and several other electric-only start-ups have come under pressure in a sign investor sentiment may slowly be tilting back towards the industry’s established players.
VW’s rally means its shares have climbed by about 50 per cent since the start of the year, placing them at their highest level since 2015.
Tesla has also suffered a blow after its models were excluded from sales subsidies in the UK following a government cut.
The valuations of Tesla and other electric-only carmakers that ride on its coat-tails has frustrated the established industry, which believes upstarts will struggle with the basic rigours of mass manufacturing.
While traditional carmakers have produced dozens of new electric models in the past year to meet emissions requirements, industry sales are still small, with manufacturers concerned that the transition to battery cars will lead to a short-term drop in profits until sales pick up.
Audi’s margins will be improved by sharing technology with its parent group VW, which has created two company-wide systems for building electric cars, one for smaller mass market vehicles, and one for high-end performance models.
The Q4 will sit on the mass market MEB platform, while some other Audi models will use the higher-end PPE platform.
VW expects other models, including several VW branded vehicles, to use the MEB system, allowing the cars to be made on the same production lines and reducing cost as the production volumes increase.
Falling battery prices will also help reduce electric car costs and raise margins, while the price of traditional vehicles is being pushed up by new technology installed to meet tightening emissions regulations in Europe.
“There will be a margin curve, you will see combustion engine cars slightly going down due to regulations and CO2 standards, and the margin of battery electric cars will be steeper,” Antlitz said.
- Porsche SE (PAH3 TH) +3.7%
-
VW (VOW3 TH) +3.4%
- Apple Car Would Be Welcomed by This Parts Maker Pivoting to EVs
- Ashtead (0LC TH) +3.1%
- Ryanair (RY4C TH) +3%
- Rolls-Royce (RRU TH) +2.7%
- TeamViewer (TMV TH) +2.5%
- BAE (BSP TH) +2.4%
- BAT (BMT TH) +2.2%
- Rio Tinto (RIO1 TH) +2.1%
- Imperial Brands (ITB TH) +1.9%
- ING (INN1 TH) -1.3%
- Lloyds (LLD TH) -1.3%
- Iberdrola (IBE1 TH) -1.3%
- Orsted (D2G TH) -1.3%
- Voestalpine (VAS TH) -1.8%
- Watch European Miners as Iron Ore Slumps on China Pollution Woes
- Leonardo (FMNB TH) -2%
- Faurecia SE (FAU TH) -2%
- Scatec ASA (66T TH) -2.5%
- Barclays (BCY TH) -2.7%
-
TUI (TUI1 TH) -3.9%
- Watch U.K. Leisure Stocks on EU Vaccine, Summer Vacation Concern
DAX:
- VW (VOW3 TH) +3.4%
- Infineon (IFX TH) +1.1%
- Delivery Hero (DHER TH) -0.7%
- Deliveroo Sets IPO Price Range at GBP3.90 to GBP4.60 Per Share
MDAX:
- Porsche SE (PAH3 TH) +3.6%
- Encavis (CAP TH) +1.8%
- Evotec SE (EVT TH) +1.8%
- Evotec and Takeda Form Strategic RNA Targeting Alliance
- Zalando (ZAL TH) +1.2%
- Watch German Lockdown Winners as Merkel Seeks Extended Lockdown
- MorphoSys (MOR TH) +1.1%
- Aroundtown (AT1 TH) -0.8%
- Siemens Healthineers (SHL TH) -0.9%
- Lufthansa (LHA TH) -1.1%
- Watch Turkey-Exposed Stocks After Central Bank Chief Replaced
SDAX:
- Befesa (BFSA TH) +2.7%
- Deutz (DEZ TH) +2.6%
- Deutz Raised to Buy at HSBC; PT 7.70 euros
- Hamborner REIT (HABA TH) +1.9%
- Hamborner REIT Proposes Dividend of EU0.47 Per Share
- Corestate (CCAP TH) +1.5%
- Instone Real Estate (INS TH) +1.4%
- ADVA Optical (ADV TH) -1.4%
- Jungheinrich (JUN3 TH) -1.5%
- 1&1 Drillisch (DRI TH) -1.5%
- SGL (SGL TH) -2.8%
- Borussia Dortmund (BVB TH) -4.1%
Japan Charges Father-Son Team With Aiding Ghosn Escape
Michael and Peter Taylor were charged with harboring a criminal
TOKYO—Japanese prosecutors on Monday formally charged an American father-son team with aiding the December 2019 escape of former Nissan Motor Co. Chairman Carlos Ghosn.
Michael Taylor, 60 years old, and Peter Taylor, 28, were charged with harboring a criminal, an offense that carries a maximum sentence of three years.
The Taylors were arrested in Massachusetts in May 2020 and fought unsuccessfully to block their extradition to Japan. They arrived in Japan on March 2 and since then have been held in a Tokyo jail undergoing interrogation by prosecutors.
Prosecutors said the Taylors helped hide Mr. Ghosn as he traveled from his Tokyo house by bullet train to the Osaka international airport, where he was hidden in a musical-equipment box and flown out of the country on a private jet. At the time, Mr. Ghosn was out on bail and facing trial over financial charges, which he has denied.
The Taylors haven’t denied helping Mr. Ghosn escape, but their U.S. representatives have said that what they did wasn’t a crime under Japanese law.