Gapping down
In reaction to disappointing earnings/guidance:
- HSBC -3.9%, PHG -3%, CHKP -2.1%, CNA -1.9%, AWI -1.8%, CAJ -1%, DO -0.7%
M&A news:
- PLD -4.2% (Liberty Prop to be acquired by Prologis (PLD) for approximately $12.6 bln in all-stock deal) CETV -2.2% (to be acquired by PPF Group for $4.58/share in cash, or approximately $2.1 bln)
Other news:
- PCG -28.4% ("historic wind event" in California this weekend)
- NOK -2.1% (continued weakness post earnings)
- AGEN -1.2% (files for ~11.11 mln share common stock offering by holders)
- BUD -1.1% (continued weakness post earnings)
- AMZN -1% (Microsoft awarded $10 bln DOD cloud computing contract beating out Amazon (AMZN) and Oracle (ORCL))
Analyst comments:
- TPR -3.3% (downgraded to Hold from Buy at HSBC Securities)
- ALK -2.9% (downgraded to Neutral from Overweight at JP Morgan)
- COG -2.4% (downgraded to Neutral from Positive at Susquehanna)
- AEO -1.8% (downgraded to Neutral from Buy at Citigroup)
- LULU -1.7% (downgraded to Neutral from Buy at Citigroup)
- PVH -1.5% (downgraded to Neutral from Overweight at JP Morgan)
- ALB -1.3% (downgraded to Underperform from Buy at BofA/Merrill)
- VTR -1.1% (downgraded to Neutral from Buy at Citigroup)
Gapping up
In reaction to strong earnings/guidance:
- SSL +13.2%, SPOT +8.2%, CTB +7.6%, ON +1.7%, WBA +1.4%, T +1.2%, DTE +0.6%, L +0.5%
M&A news:
- TIF +29.2% (LVMH (LVMUY) confirms that it has held preliminary discussions regarding a possible transaction with Tiffany)
- LPT +14.5% (to be acquired by Prologis (PLD) for approximately $12.6 bln in all-stock deal)
- CRCM +12.7% (reports of sale exploration )
Other news:
- ATNX +37.4% (highlights progress update from partner Almirall on tirbanibulin ointment for the treatment of actinic keratosis)
- BCRX +8.5% (announces results from ongoing three part Phase 1 trial of BCX9930 in complement-mediated diseases)
- TGTX +8.1% (announces that the follicular lymphoma cohort of the UNITY-NHL Phase 2b pivotal trial evaluating single agent umbralisib met the primary endpoint of overall response rate)
- AGIO +6.6% (reports Phase 1 Study of AG-270; combination arms initiated)
- OSTK +5.3% (said it continues to work and consult with regulators to ensure the dividend is implemented in compliance with applicable laws and corporate requirements)
- SIG +4.3% (in sympatthy with TIF)
- GLPG +3.3% (continued strength)
- MSFT +2.7% (awarded $10 bln DOD cloud computing contract beating out Amazon (AMZN) and Oracle (ORCL))
- AXSM +2.5% (announced results of MINDSET survey)
- IRBT +2.4% (continued strength)
- ATH +1.2% (Apollo (APO) to take 18% incremental stake in the co; will acquire 7.5 million Athene shares for cash at $46.20 per share) GM +1.1% (General Motors and UAW ratify new collective bargaining agreement ending the longest automotive strike in 50 years)
Analyst comments:
- QEP +6% (upgraded to Overweight from Neutral at Piper Jaffray)
- FSLR +2.7% (upgraded to Mkt Outperform from Mkt Perform at JMP Securities)
- ROKU +2.5% (initiated with a Buy at BofA/Merrill)
- JBLU +2.3% (upgraded to Overweight from Neutral at JP Morgan)
Early premarket gappers
- Gapping up:
- TIF +29.4%, LPT +20.6%, OSTK +11.6%, CMCM +8.8%, SPOT +6.2%, GLPG +3.1%, SIG +3.1%, MSFT +3%, VNRX +3%, EPD +2.8%, FSLR +2.5%, T +2.4%, VIPS +2.1%, STM +2.1%, SHOP +2%, STT +1.9%, IRBT +1.7%, MT +1.6%, RIO +1.4%, BHP +1.3%, BABA +1.3%, BBL +1.2%, MU +1.2%, AMD +1.2%, TSM +1%, C +1%, TWTR +0.9%,
- Gapping down:
- PCG -17%, HSBC -4.1%, PHG -4%, LULU -2.6%, NOK -2.6%, AU -2.2%, AMZN -1%, ALB -1%, BUD -0.9%, VOD -0.9%, AZN -0.8%, DO -0.7%, SNY -0.6%, TSLA -0.5%
Brussels close to agreeing Brexit extension until January
Meeting of EU leaders on Monday will rule out any further deal negotiations
Brussels will seek EU agreement on Monday for a plan to grant Britain a Brexit extension until January 31 2020 while ruling out any renegotiation of the UK’s divorce deal.
Under a proposal circulated to EU27 governments on Sunday, and seen by the Financial Times, the EU would grant Britain’s request for a Brexit delay to the end of January, while leaving open the possibility for it to leave on December 1 2019 or on New Year’s Day if its withdrawal treaty has been ratified.
The plan, which is set to be discussed by national ambassadors in Brussels on Monday, would also see EU leaders “firmly” exclude any reopening of UK prime minister Boris Johnson’s Brexit deal, ruling out further negotiations on the terms of the UK’s departure after more than two years of talks.
Leaders would also underline Britain’s obligation to nominate a member of the next European Commission — something Boris Johnson has so far refused to do.
The proposal is an attempt by Donald Tusk, European Council president, to forge a consensus among EU capitals on an extension date, after France clashed with the rest of the EU last week over how much time should be given to the UK. Paris has asked for more clarity from London over whether new elections will be held before the end of the year.
EU diplomats said that the plan now on the table had been drawn up with French involvement.
EU capitals on Friday were already in “full agreement” that there was a need for an extension beyond October 31, according to one EU official, but they differed on how long the extension should be.
An extension requires unanimous approval by EU27 leaders.
One EU diplomat said they expected the deal to win the necessary support at the ambassadors meeting on Monday morning. “Constructive talks have gone on throughout the weekend. There is now a good proposal on the table that should make it possible to find consensus,” said the diplomat.
Under the plan, the extension would run to January 31 inclusive at the latest, meaning the UK’s exit treaty would take effect on February 1. A further UK request and EU decision would be needed to extend any further beyond this.
As well as ruling out any further negotiation on the UK’s withdrawal agreement, the text seen by the FT also reiterates requirements attached to previous Brexit extensions for Britain to behave in a “constructive” way during its remaining time as an EU member state, and to “refrain from any measure that could jeopardise the attainment of the Union's objectives”.
The move to agree a joint EU27 position and win over France comes as the Liberal Democrats and Scottish Nationalists on Saturday said they would support a motion to hold a UK general election on December 9.
One EU diplomat said that tougher language on the nomination of a UK commissioner was demanded by France as it seeks to exert pressure on the House of Commons to agree to the deal.
Mr Tusk has been pushing for an extension to January 31, in line with Mr Johnson’s request this month. The French government declined to comment.
Germany’s annual EU budget bill set to double to €33bn
Europe’s largest net contributors resist demands for steeper payments after Brexit
Germany is facing a steep 100 per cent increase in its payments to the next EU budget to €33bn, leading Berlin and a group of four other rich governments to step up their resistance to Brussels’ first draft spending plans after Brexit.
German government estimates seen by the Financial Times show Germany would be hit with a sharp rise in its net EU budget contributions, from €15bn in 2020 to upwards of €33bn in 2027 — the last year of the EU’s next long-term budget. The Netherlands would face a rise of 50 per cent, from just under €5bn to an estimated €7.5bn net contribution by 2027.
Angela Merkel, German chancellor, last week told EU27 leaders at a summit in Brussels that the European Commission’s plans meant Germany would leapfrog the Netherlands as the biggest per capita contributor to the budget, according to diplomats. As the EU’s largest economy, Germany is already the biggest contributor on a gross basis.
The estimates are based on the commission’s proposal to increase the size of the long-term budget to 1.11 per cent of the EU’s gross national income (GNI) to plug the financial hole left by the UK and boost Europe’s spending firepower on climate and border control. The next budget runs from 2021 to 2027.
The German finance ministry said: “Due to Brexit and the commission’s proposal to abolish the permanent rebate, the financing burden on Germany would disproportionately rise, in comparison to other member states.”
Brussels’ draft plans, which were first revealed last May, have been beset by conflict. Five net contributors — Germany, the Netherlands, Austria, Denmark and Sweden — have demanded a pot no larger than 1 per cent of GNI and are fighting to keep hold of their prized rebates after Brexit.
The calculations will further embolden the so-called “Frugal Five” governments as negotiations enter a crucial period early next year. “When we plan our national budgets we will have to take away billions from healthcare and other national spending. There is no way our parliaments will accept this,” warned one senior EU diplomat.
The commission said it had not yet calculated the rise in net contributions of member states, which measure how much a country gets back from what it puts in. Instead, Brussels hit back at the claims of the five rebate countries. Mina Andreeva, commission spokeswoman, said the rebate recipients were “paying a lower share of their income to the EU budget than the other member states, despite being among the top eight EU countries in terms of relative prosperity”.
Brussels calculations show that without the rebates, the five governments would pay an average of 0.91 per cent of GNI over the course of 2021-2027, compared with 0.9 per cent for the other 22 countries.
“Under our proposal everybody will be contributing an equal share of their GNI,” said Ms Andreeva.
The calculations show that France, another net payer, would face a less dramatic increase in its net contributions, rising from about €7.5bn in 2020 to just over €10bn at the end of the spending term in 2027. France stands to gain from plans to scrap rebates for the Frugal Five, which cap their annual contributions to prevent “excessive” payments.
Paris is among the countries that foots the bill for these so-called “correction mechanisms”, which were first established by Margaret Thatcher to limit UK farming subsidies to the EU 35 years ago. Ms Merkel has said Germany will not accept any budget deal that does not contain a rebate. At the summit last week, French president Emmanuel Macron warned that 1 per cent could not fulfil the EU’s ambition to act as a “geopolitical” power, according to diplomats familiar with the discussion.
The calculations also show that Poland, which is among the biggest net recipients, will gain additional billions rising from net payments of just under €10bn a year to €12bn in 2027.
Entrenched divisions mean EU officials are bracing for a bruising round of negotiations next year once the UK formally leaves the bloc and when EU27 leaders will be confronted with a hard deadline of the end of 2020 to find an agreement.
After a year of stalled talks, positions remain more polarised than ever. Spain and Portugal have demanded a budget size in the range of 1.14 per cent to 1.16 per cent of GNI, while the European Parliament wants 1.3 per cent.
A failure to agree an overall size means the most sensitive negotiations over volume of cohesion payments for eastern Europe or prized farm subsidies have yet to begin. One diplomat predicted a “night of the long knives” late in December 2020 when capitals will be forced to horse-trade and find a consensus.
If an agreement cannot be reached by the end of the year, spending thresholds from 2020 will be rolled over to 2021. In another possible complication, European Parliament officials have warned that MEPs may hold up the final agreement, ensuring that the first year of the new budget retains higher spending for key areas such as cohesion and the common agricultural policy.
“There is little incentive for the parliament to agree on a smaller budget,” warned one official.
What will Christine Lagarde’s ECB look like?
The former IMF chief’s more conciliatory approach could ease tensions within the central bank and with Germany
When Mario Draghi was asked last week whether his successor as European Central Bank president, Christine Lagarde, would have as dramatic an eight-year term as he had, he replied that he “would not wish that on anyone”. Yet when Ms Lagarde takes over as the head of Europe’s most powerful financial institution on Friday, she will know that while Mr Draghi is credited with rescuing the euro, the ECB still faces some daunting challenges.
The job brings with it responsibility for setting eurozone interest rates, controlling the supply of euros and overseeing the biggest banks in the 19-country group. Ms Lagarde’s every word will be closely scrutinised by investors for clues on the direction of financial markets.
But she is also walking into one of the most vicious, internecine feuds in the bank’s two-decade history, something that overshadowed Mr Draghi’s final days in office.
Mr Draghi has spent the past eight years stretching the limits of his powers as he has defended Europe’s single currency against the worst financial crisis since its creation two decades ago. The 72-year-old leaves knowing that the job is only partially complete.
Global growth is slowing at a time when economists believe central banks are running out of firepower to stimulate their economies and criticism of their actions is becoming louder.
“Monetary policy is almost out of ammunition, but if the central banks say this too explicitly, the markets may freak out,” says Olivier Blanchard, who was chief economist at the IMF for four of Ms Lagarde’s eight years as managing director. “So, Christine Lagarde has to do this delicate balancing act of saying there is more she can do, while insistently asking others, including fiscal policymakers, to help.”
The IMF warned this month that the world economy was in a “precarious” situation and cut its growth forecast to the lowest level since the 2008 crisis, blaming the US-China trade war and uncertainty over Brexit. Germany’s export-dependent economy has been hit particularly hard, with the eurozone’s engine room now on the cusp of recession.
Under Mr Draghi the ECB moved into the topsy-turvy world of negative interest rates, which forces many large depositors to pay for putting money in banks, while massively expanding the ECB’s balance sheet through the purchase of €2.6tn of bonds issued by governments and companies.
Mr Draghi often cites the 11m European jobs created in the past decade as proof that these policies are working, while the ECB estimates that without its actions the eurozone economy would today be almost 1 per cent smaller.
Yet banks and insurers complain bitterly about the corrosive impact of negative interest rates on their business models. Others worry that the ECB’s flow of cheap money is creating bubbles in property markets and supporting zombie companies that would otherwise collapse.
The ECB’s deposit rate is at a record low of minus 0.5 per cent and its bond-buying programme is close to self-imposed limits on how much of each country’s debt it can own. Economists believe its toolkit is almost empty. The US Federal Reserve and the Bank of England avoided negative rates, so have more capacity to respond to any crisis.
“There is a limit to how far and how deep you go into negative territory,” Ms Lagarde said in a recent interview with CBS. “There is a bottom to everything, but we are not at that bottom at this point in time.”
Further complicating Ms Lagarde’s task is the fact that the central bank’s decision last month to cut interest rates and to print €20bn a month to buy more bonds has opened divisions within the top echelons of the central bank itself.
The heads of the German, French, Dutch and Austrian central banks — representing over half of the eurozone by population and economic output — criticised parts of the package. The ECB’s decisions went against the advice of its own staff and were even attacked by a group of retired ECB grandees.
“I would expect the level of disagreement to increase, not because people are becoming more extreme, but because the benefits and costs of additional policies are much less obvious,” says Mr Blanchard, now a senior fellow at the Peterson Institute for International Economics in Washington.
The unusually intense debate within the ECB governing council, its main decision-making body that includes the eurozone’s 19 national central bank heads, is likely to make it harder for Ms Lagarde to loosen monetary policy further. This could frustrate investors, as markets are pricing in another rate cut by next spring.
“There is no doubt that improving team spirit on the governing council is an important challenge for Christine Lagarde and for all of us,” says Olli Rehn, head of Finland’s central bank. “One of her outstanding qualities is team building and she is excellent at communications, so I very much look forward to her putting these to good use.”
Ms Lagarde is, in many ways, an unconventional choice to lead the ECB. Unlike most central banking heads, the 63-year-old is not an economist and she has never devised monetary policy. To make up for her lack of technical expertise, she is likely to rely on Philip Lane, the bookish former Irish central bank boss who this summer became the ECB’s chief economist.
“She is the anti-Draghi to some extent,” says Frederik Ducrozet, senior economist at Pictet Wealth Management. “She is not an economics expert and is not as much into central bank plumbing as Draghi. She represents a shift to a more political ECB.”
After studying law at University Paris X Ms Lagarde did a masters in political science in Aix-en-Provence. Twice rejected by the École Nationale d’Administration — the Parisian training ground for the French political elite — she joined US law firm Baker McKenzie in 1981. Ms Lagarde rose to chair its executive committee before leaving in 2005 to become a minister in the French government, under President Jacques Chirac. His successor, Nicolas Sarkozy, named Ms Lagarde as France’s first female finance minister.
She won plaudits among western leaders for the calm, competent way she navigated the financial crisis. This made her an obvious choice to replace Dominique Strauss-Kahn when he was forced out as head of the IMF over allegations of sexual assault in 2011. There she won admiration for her diplomatic skills and ability to find a consensus, such as during talks over the 2012 Greek bailout that helped avoid a break-up of the eurozone.
Investors believe Ms Lagarde represents continuity with Mr Draghi on the key areas of monetary policy, as shown by the bounce in stock markets when her appointment was announced. But in other areas she is expected to be very different. The incoming ECB president is a warmer, more outgoing personality than Mr Draghi. She has been known to lock the doors of a meeting room until those inside — often mostly men — reach a decision. When appearing on a US television chat show in 2009 she proceeded to whip out a French beret and started cracking jokes.
After Berlin last week nominated economics professor Isabel Schnabel to join the ECB executive board, Ms Lagarde will be one of only two women out of 25 people around its top table. She once quipped that the financial crisis may have been avoided if Lehman Brothers had instead been Lehman Sisters, and is likely to use her position to address gender imbalances in central banking, finance and the economy in general.
Appearing before the European Parliament in a confirmation hearing in September, Ms Lagarde also promised to make tackling climate change a “mission critical” priority at the ECB. She told MEPs it could “direct” its asset purchases towards green bonds once regulators agree a common framework for sustainable finance.
“Where she is likely to push and perhaps have some space for action is in directing asset purchases to address climate change,” says Lucrezia Reichlin, an economics professor at the London Business School and the ECB’s former head of research. “A lot of central banks are thinking about this.”
Such a move could encourage governments to invest more to meet their Paris climate accord targets for reducing carbon dioxide emissions, which would boost economic activity. However, if the ECB started buying green bonds from governments it could be accused of blurring the lines between monetary and fiscal policy, particularly by the Bundesbank, Germany’s central bank.
Criticism of the ECB has been fiercest in Germany, where it is regularly accused of penalising the country’s prudent savers while rewarding profligate southern European countries. Jens Weidmann, head of the Bundesbank, even gave evidence against the ECB in a constitutional court case on its bond-buying programme.
Attempts to explain monetary policy in Germany often generate a backlash from politicians and the media, says Marcel Fratzscher, the ECB’s former head of international policy analysis who now runs the German Institute for Economic Research in Berlin.
“My big hope for Lagarde is that she will be more successful at communicating to the average man in the street what the benefits of ECB policy are for them, even if they earn nothing on their bank deposits,” says Mr Fratzscher. “This is really hard, especially in Germany.”
A potential solution to some of the problems confronting the new ECB boss would be for northern European governments with strong budgetary positions — particularly Germany — to break with years of fiscal prudence and use fiscal policy to stimulate the economy, something Ms Lagarde has repeatedly advocated.
Mr Draghi has said US President Donald Trump’s tax cuts are the main reason that growth and inflation are higher in America than in the eurozone, while calling for European leaders to do more. But his pleas have fallen on deaf ears and economists expect Ms Lagarde to use her political experience and contacts to try to break the deadlock.
“The biggest challenge facing Christine Lagarde will be to get Berlin to do a major fiscal stimulus,” says Melvyn Krauss, a senior fellow at Stanford University’s Hoover Institution. “Germany’s continued refusal was the main reason Draghi couldn’t solve Europe’s too low inflation problem and why Ms Lagarde could face a similar fate.”
Ms Lagarde is also expected to embark on the ECB’s first strategic review of its main monetary policy objectives and tools for 16 years. This looks set to be the next battleground between the “doves” and the “hawks” — those in favour of more monetary easing and those against it.
A particularly contentious question is whether to take some pressure off the central bank by changing its core aim to achieve inflation of below but close to 2 per cent — something it has failed to do for years as consumer prices have stagnated across the world.
“The ECB faces the risk of monetary policy becoming overburdened while it experiences challenges in delivering on its inflation aim and the risks of pushing harder are mounting,” says Klaas Knot, the hawkish head of the Dutch central bank. He wants the ECB to target a range of inflation instead, so it can tolerate periods of lower price growth.
Some economists, such as Mr Krauss, say such a move would condemn Europe’s ageing population to a future of low growth, low inflation and low rates — similar to Japan’s sleepy economy.
When it was created in 1998, the ECB was modelled on the Bundesbank, with a narrow focus on keeping a lid on inflation and maintaining its independence from governments. This included a strict ban on any type of “monetary financing”, which means a central bank printing money to finance government spending.
Since he took over in 2011, Mr Draghi has reshaped the ECB more in the mould of the US Fed by increasing the tools at its disposal and bringing more flexibility to its mandate of “price stability”. When southern European countries were faced with ballooning borrowing costs and collapsing banking systems in 2012, Mr Draghi promised to do “whatever it takes”, a move widely credited with preserving the euro.
Ms Lagarde was in the room that day. When MEPs asked recently if she shared Mr Draghi’s determination to do whatever it takes to protect the eurozone, she responded that she aimed to avoid ever finding herself in such a situation.
“I hope I never have to say something like that because if I do it will mean that other economic policymakers have not done what they have to,” she said. As if to emphasise that the ECB cannot wave a magic wand and keep coming to the rescue, she added: “I am not a fairy.”
As Stocks Hover Near Highs, Past Pullbacks Worry Investors
Muted moves in S&P 500 highlight investor fears that stock market’s gains could be limited
Stocks are flirting with record territory but have been stuck in a narrow trading range since the beginning of last year, leaving investors grasping for a fresh driver that could propel the decadelong bull market to even greater heights.
The S&P 500 made a run at its all-time high of 3025.86 Friday but came up just short, closing up 0.4% at 3022.55. Hopes for lower interest rates and a resolution to the long-simmering trade dispute between the U.S. and China have pushed the broad equity gauge up 21% for the year.
But most of the index’s gains came in the first four months of 2019, following a brutal selloff in last year’s fourth quarter. Stocks have treaded water lately, averaging a daily move of 0.4% or less in five of the past seven weeks.
The recent muted moves reflect investor fears that a bleak outlook for global growth and corporate earnings will limit the stock market’s gains. The three-month stretch without a new high is the S&P’s fifth-longest in the past five years, according to Dow Jones Market Data.
Since the index leapt above 2750 for the first time in January 2018, it has generally stayed between that level and 3000, a threshold at which it has faced resistance. It retreated the three previous times it crossed that mark in 2019. The index is up just 5.2% from its January 2018 high.
The sideways trading pattern also shows how skeptical global investors are that incremental progress on a trade agreement will alleviate anxiety about tariffs. The possibility of another round of duties in December continues to fuel caution, offsetting some of the optimism about lower interest rates around the world.
“Everyone’s vision is very blurred at this point,” said Meghan Shue, senior investment strategist at Wilmington Trust. “At the first sign of trouble, we could head lower because what we have is a very tenuous trade pact, not a formal agreement and no deal.”
Wilmington Trust is neutral on stocks, meaning it holds a position in line with the benchmarks it tracks, given that it doesn’t see a recession in the coming months but is also cautious about the continuing back-and-forth on trade.
Bullish investors are hoping better-than-feared earnings results this week can power stocks higher. Roughly 150 companies in the S&P 500 are slated to report for the second consecutive week. The companies in the index are projected to report a 3.7% drop in profits from a year earlier—the largest decline since 2016, according to FactSet. Some analysts are particularly worried that dented corporate confidence will continue to limit business investment, removing a key driver of economic growth.
Heavy machinery maker Caterpillar Inc. and chip company Texas Instruments Inc. were among the firms that lowered future profit projections last week, citing ongoing economic uncertainty.
“At the end of the day, we really need progress on trade,” said Adam Phillips, director of portfolio strategy at EP Wealth Advisors, which reduced an overweight position on stocks to neutral at the end of September. “That’s what’s really going to restore business sentiment and restore capital spending.”
Bellwether companies Apple Inc., Facebook Inc., Google parent Alphabet Inc., AT&T Inc. and General Electric Co. are among the notable firms posting results this week.
The next Federal Reserve meeting will also be in focus. The central bank is expected to lower rates Wednesday for the third time this year. Federal-funds futures used by traders to wager on monetary policy show markets pricing in a 94% chance of a cut this week, CME Group data show. October’s jobs report on Friday could also influence expectations for the U.S. economy.
The figures come on the heels of fresh signs that a manufacturing slowdown is rippling to the labor market and crimping consumer spending. Also troubling investors: worries that lackluster economic activity could leave the Fed with insufficient tools to respond if a recession does occur. Those fears underscore anxiety that lower interest rates still won’t spur faster economic growth as trade uncertainty lingers.
“The jury is still out at this point, and that’s one of the things that makes this market environment really challenging,” said Emily Roland, co-chief investment strategist at John Hancock Investment Management.
Ms. Roland recommends investors favor stock sectors like technology and health care that can maintain healthy profit margins in a slowing economic environment. She also likes safer areas of the market with stable earnings and healthy dividends, such as shares of consumer-staples companies and utilities.
After climbing alongside the S&P 500 last week, the Dow Jones Industrial Average and tech-laden Nasdaq Composite are 1.5% and 1%, respectively, below their July highs.
Despite the market’s recent lull, some investors actually see muted sentiment and the relative strength of the U.S. economy as reasons for hope. Past stretches of muted market moves have often been followed by sharp rallies when interest rates decline and economic growth stays positive, these analysts argue.
“The fact that everyone seems to be looking for holes in the market and looking for reasons for it to go down gets us excited,” said Nancy Prial, senior portfolio manager at Essex Investment Management, which focuses on small-capitalization companies that have trailed the broader market in recent months. “We are optimistic that this is setting us up for a rally to fresh highs.”
“The U.S. economy is one of the best in the world right now,” Ms. Prial added. “Even though it has slowed modestly, it is still very, very strong.”
Tiffany expected to reject LVMH’s $14.5bn bid
Unsolicited approach is a premium of about 22% to US jeweller’s share price
Tiffany is expected to rebuff an unsolicited $14.5bn takeover approach from French luxury group LVMH, with the US jeweller believing the offer undervalues the company, according to people familiar with the matter.
Tiffany’s advisers were on Sunday still assessing the surprise indicative offer from Bernard Arnault’s LVMH, the world’s largest luxury group by sales, with the board set to consider the next move.
The all-cash offer came earlier this month and was pitched at about $120 per Tiffany share, a premium of about 30 per cent to Tiffany’s share price at the time.
However, the shares have since rallied and the offer today stands at a slimmer 22 per cent premium. It is also well below their closing high of $139.50 in July 2018.
Tiffany has since been hit by challenges including lower tourist spending, a strong US dollar and a trade war between the US and China.
Egerton Capital, a hedge fund that is the sixth-biggest shareholder in Tiffany with a 3.9 per cent stake, welcomed the approach.
“LVMH is the best luxury goods company in the world and has had huge success with Bulgari,” John Armitage, chief investment officer of London-based Egerton, told the Financial Times. “As Tiffany shareholders, we would like the value of a great brand and company maximised.”
Other large shareholders in Tiffany include Qatar Holding, an arm of the country’s sovereign wealth fund.
Over the past four decades Mr Arnault, Europe’s richest person, has built LVMH from a near-bankrupt French textile company to the world’s largest luxury group by revenues. Its brands include Dior, Louis Vuitton and Sephora.
A tie-up between LVMH and Tiffany would mark one of the French group’s largest acquisitions and strengthen its position in jewellery, adding to its $5.2bn purchase of Italian jeweller Bulgari in 2011.
The acquisition of Tiffany would give LVMH scale in hard luxury to rival that of Johann Rupert’s Richemont, which owns Cartier and Van Cleef and is the market leader in this part of the industry. Analysts say that Tiffany has scope to expand into watches, and it would increase LVMH’s client base in the core US market while opening up opportunities with customers who are unable to afford its more expensive Bulgari brand.
Under chief executive Alessandro Bogliolo, a former executive at Bulgari, Tiffany has attempted to push further upmarket.
LVMH and Tiffany declined to comment.