FT : Jackson Hole gathering looms for investors (Mohamed El-Erian)

Jackson Hole gathering looms for investors
The focus should be much more on ECB policy signals and less on the Fed

With a supportive US Federal Reserve, solid corporate earnings, a “goldilocks” global economy and ample liquidity muffling political and geopolitical spillovers, many investors head out on holiday with the comforting expectation of a quiet August for financial markets. Indeed, the only known major economic uncertainty this month relates to policy signals out of Jackson Hole, the annual central bank symposium. Even here, the focus should be a lot less on the Fed and more on the European Central Bank.

The past few months have been particularly pleasing for investors. Fresh records for major stock indices have come with low volatility and rotating market leadership that reduces concerns about dependence on a particular sector. Further boosting traditional investment portfolios, government bonds have behaved well rather than markedly sell off, as suggested by most historic correlation models. Orderly dollar depreciation has turbo-charged returns on US investors’ unhedged holdings of international securities in European, Japanese and emerging markets.

A mix of economic, policy and technical factors explain this comforting confluence. Last week’s solid US employment report offset some concerns about an economic soft patch there at a time of encouraging data out of Europe, also serving to feed the view that the global economy is enjoying slightly higher growth with no inflationary threat. This explains why the Fed, ECB, and Bank of Japan have signalled — yet again — that they are in no rush to moderate their exceptional stimulus. This was reinforced last week by the Bank of England deciding to leave rates unchanged despite inflation remaining above target.

Then there is the ample funding for markets. Corporate earnings have surpassed expectations with higher profits and bigger cash balances fuelling hopes for yet more dividend payouts, stock buybacks and M&A activity. Richer households continue to capture a disproportionate share of the incremental income generated by the economy, channelling a larger part of it into financial investments.

All of this could be disturbed by exogenous shocks (geopolitical or domestic politics) and/or endogenous ones (like a policy mistake or a market accident). Judging from history, August has tended to be a fertile month for this. Yet, this time, the outlook for August appears stable.

With plentiful liquidity having conditioned investors to “buy on dips,” it would take a major shock to dislodge investors from behaviour that, repeatedly, has proven highly remunerative, despite unusually fluid geopolitical, institutional and political conditions. While there is a limit to how far financial risk-taking can deviate from fundamentals, this gap has been adequately supported for now by central banks. All of which takes us to Jackson Hole, the most important event on markets’ August schedule.

At times, such as 2010 when Ben Bernanke introduced the move to “QE2,” this annual confab has been used to signal policy changes with implications for markets. But, this year, don’t expect this from Fed officials. They are more likely to reiterate the “steady as it goes” approach with the hope that the next monthly jobs report will contain more robust wage growth and higher labour force participation.

It is the ECB that could — and should — be signalling a higher probability of, and some greater details on, what it hopes will be two orderly policy transitions: a tapering of its large-scale securities purchases; and readying the market for interest rate rises. As the Fed has shown, this pivot can involve a “beautiful normalisation,” to borrow a term used elsewhere by hedge fund manager Ray Dalio — away from a period of prolonged reliance on experimental unconventional measures. But that’s easier to deliver on a standalone basis than in group dynamics.

Indeed, what should feature most among the market thoughts of investors on holiday, and I suspect it hasn’t done so sufficiently until now, is the question of how many systemically important central banks can effectuate the policy pivot without undermining the overall liquidity support that has been so critical for decoupling asset prices from fundamentals.

Mohamed El-Erian is chief economic adviser to Allianz and author of the book ‘The Only Game in Town’

>>> AB Inbev and Efes reach non-binding agreement to merge their businesses in R

AB Inbev and Efes reach non-binding agreement to merge their businesses in Russia and Ukraine
09 AUG 2017
Anheuser-Busch InBev (“AB InBev”) (Euronext: ABI) [NYSE: BUD] [MEXBOL:ANB] [JSE:ANH], the world’s largest brewer, headquartered in Belgium, has reached a non-binding agreement with Anadolu Efes [IST:AEFES], the leading brewer in Turkey, regarding a 50:50 merger of AB InBev’s and Anadolu Efes’ existing Russia and Ukraine businesses.

The announcement of this non-binding agreement follows AB InBev’s acquisition of a 24% stake in Anadolu Efes as part of the company’s combination with SABMiller, which completed in October 2016. The transaction remains conditional on the completion of satisfactory due diligence and is subject to regulatory approvals in Russia and Ukraine.

This intended combination of the companies’ operations in Russia and Ukraine would strengthen the competitive position of both AB InBev’s and Anadolu Efes’ brands in these markets, with the potential for further growth. The combined business’ ambitions would be to lead the Russian and Ukrainian markets, with a diverse portfolio of brands and a broader range of beers for consumers. In addition, the combination would enhance AB InBev’s existing relationship with Anadolu Efes and the value of its stake in Anadolu Efes.

Following the closing of the intended transaction, the combined business would be fully consolidated in the Anadolu Efes financial accounts. As a result, AB InBev would stop consolidating its operations in Russia and Ukraine and account for its investment resulting from this transaction under the equity method.

The name of the combined company would be AB InBev-Efes and both AB InBev and Anadolu Efes would have equal representation on the Board of Directors, with Tuncay Özilhan, current Chairman of the Anadolu Group and Anadolu Efes, serving as the Chairman.

Both AB InBev and Anadolu Efes have agreed in principle to the nomination of Dmitry Shpakov, the current president of the AB InBev Russia and Ukraine businesses, as the CEO candidate to lead and run the combined AB InBev-Efes business, and to the nomination of Roy Cornish, the current Managing Director of Efes-Rus, as its CFO candidate.

Commenting on the announcement, Carlos Brito, CEO of AB InBev, said: “Today’s announcement is a significant step in furthering the strategic partnership of AB InBev and Anadolu Efes and we look forward to a successful combination delivering a broader range of beer choices to consumers in both Russia and Ukraine.”

Tuncay Özilhan, Chairman of Anadolu Group and Anadolu Efes said: “We are delighted to further enhance our relationship with AB InBev and believe that the combination of our respective businesses, expertise and best practices in these markets will enable us to better capture the potential growth opportunities and add significant value to both Anadolu Efes and AB InBev Shareholders.”

Both AB InBev and Anadolu Efes will work towards agreeing binding transaction documents in due course and further announcements will be made as the process progresses. We anticipate the transaction could complete by the end of H1 2018. Until completion of the transaction, both AB InBev and Anadolu Efes’ businesses in Russia and Ukraine remain separate and continue business as usual.

Terms of the agreement will not be disclosed

FT : ‘Low for long’: Snoozy markets could be here to stay, says BlackRock

‘Low for long’: Snoozy markets could be here to stay, says BlackRock


No need to set the alarm clock just yet.

The 90-year low in volatility in US equity markets could be here to stay, according to BlackRock, which has dug into the history books to study patterns of market activity for the last 150 years.

Richard Turnill, chief investment strategist at BlackRock Investment, looked at bouts of volatility from 1872 to the present day, and concluded that “low realised volatility can last for years, even with sporadic bursts.”

He noted that low volatility often overlaps with “sustained economic expansions”, which “supports the case for risk taking”. (This is a point he’s made before. More here.)

“Historical volatility does not settle around a long-term average,” he added. “Instead, it is often low for long and sometimes high. History shows volatility regimes can last a long time.”

Volatility in the US equity markets is at its lowest since at least 1927, with the S&P 500 recording no fewer than 13 successive closes with moves of less than 0.3 per cent in either direction.

FT : SoftBank leads $1bn investment in US biotech group

SoftBank leads $1bn investment in US biotech group
Roivant stake is the first time conglomerate has used Vision Fund to back a drugmaker

SoftBank is leading a $1.1bn investment in a privately held US biotech company, marking the first time the Japanese technology conglomerate has used its $93bn Vision Fund to back a drugmaker.

The investment in Roivant Sciences, which is developing experimental medicines for a range of illnesses spanning Alzheimer’s to rare diseases, is the largest private financing in the healthcare sector and one of the biggest in any industry.

It is the latest in a string of investments by SoftBank and underscores the broad range of companies being backed by the tech-focused Vision Fund, which has raised capital from companies such as Apple and Qualcomm, as well as the state funds of Saudi Arabia and Abu Dhabi.

Other recent investments include Brain Corp, a robotics company, and Plenty, which develops agricultural technology. The fund is also close to making an investment in Fanatics, the online sports apparel retailer, according to people briefed on the plans.

Roivant was founded in 2014 with the intention of acquiring and developing promising unapproved medicines that had been abandoned by big pharma companies after falling victim to cost-cutting drives or corporate restructurings.

Vivek Ramaswamy, chief executive of Roivant, said the extra funds would allow the company to “double down on developing promising drugs that get stuck in an industry log jam that has nothing to do with science”.

A person briefed on the fundraising said SoftBank was by far the largest investor in the syndicate, which included early investors such as Dexcel Pharma, the Israeli drugmaker. The valuation of Roivant implied by the financing was not disclosed.

The biotech group is developing about 14 medicines through five private and publicly listed subsidiaries that are appended with the letters “vant”, such as Myovant, a women’s health group, and Dermavant, a dermatology specialist.


Its most advanced medicine is an Alzheimer’s drug being developed by the publicly listed Axovant. It could become the first new drug approved for the disease in more than a decade if it produces successful results in a clinical trial due to be unveiled next month.

The phenomenon whereby big pharma companies shelve encouraging drugs has long bedevilled the industry. In recent weeks GlaxoSmithKline, Lilly, AstraZeneca and Teva have announced they are abandoning some programmes to sharpen their focus on core areas.

The cutbacks have led to the creation of start-up companies, such as Roivant and Ovid Therapeutics, which are focused on buying the medicines — often at a large discount — and taking them through the development process.

Mr Ramaswamy said Roivant would use the funds to launch additional subsidiaries focused on new disease areas as well as developing a “computational research” system that can map the “full universe of drugs that are stuck in the industry traffic jam”.

He also announced the formation of Datavant, a technology-focused subsidiary that aims to partner with medical research institutions to aggregate sources of clinical data.

“Roivant has attracted world-class talent,” said Akshay Naheta, managing director of SoftBank Group International, referencing the company’s recruitment of industry veterans such as David Hung — who recently sold Medivation to Pfizer for $14bn — and Jackie Fouse, the former Celgene executive.

Mr Naheta added: “We look forward to supporting them in the next step of their journey, as they look to effectively harness technology and leverage big data across all aspects of their business.”

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:
  • FOSL -24.1%, TARO -13.2%, TRUE -12.6%, VSI -12.5%, MXL -12.3%, XCO -12.3%, WAIR -11.1%, ARTX -9.9%, SGRY -9.9%, MYL -9.6%, POLA -9.1%, KNDI -8.8%, JAZZ -8.1%, ODP -7.5%, NUAN -7.4%, TRIP -7.3%, CALX -7.3%, TWNK -7.3%, PCLN -7%, POWL -6.9%, POWL -6.9%, PLCE -6.8%, OCUL -6.7%, DIS -5.1%, (also acquires majority of BAMTech for $1.58 bln), BLCM -4.8%, TDW -4.2%, VSAT -4.1%, LITE -3.7%, CALA -3.4%, MNST -3.3%, BBSI -3.2%, CROX -3.1%, TAST -3%, WB -2.4%, MHLD -1.9%, RAS -1.8%, AVEO -1.8%, AFSI -1.6%, EGRX -1.6%, SINA -1.6%, LSCC -1.3%, YPF -1.3%, AXAS -1.2%, FLXN -1.1%, TLGT -1%, MRCC -1%, MYGN -1%, PGNX -1%, CYBR -0.9%, AAL -0.9%

Other news:

  • LOB -7.9% ( to offer approximately 4.5 mln shares of its voting common stock)
  • MBUU -6.1% (to offer 2 mln shares of the Company's Class A Common Stock; discloses prelim results, sees Q4 revs $74.7-75.1 mln vs $70.34 mln Capital IQ Consensus Estimate, believes unit volume will be approximately 1,004 units, sees gross profit of $19.6-20 mln)
  • HR -5.9% (prices 7.25 mln shares of common stock at $30.90 per share)
  • PRAH -5.1% (PRA Health Sciences announces secondary offering of 10,000,000 shares of common stock by stockholders, including an affiliate of, or a fund sponsored by, Kohlberg Kravis Roberts & Co)
  • ESPR -4.2% (to offer $150 million of its common stock)
  • NFLX -3.7% (Disney will end distribution agreement with Netflix in 2019)
  • H -2.4% (commences secondary offering 8,654,050 shares of Class A common stock )
  • TMO -1.2% (prices offering of 8,771,930 shares of common stock at a price of $171.00 per share)
  • MKC -0.8% (McCormick prices offering of 5,524,862 shares of its common stock at $90.50 per share)

Analyst comments:

  • AIG -0.9% (downgraded to Neutral from Overweight at Atlantic Equities)
  • SBUX -0.7% (downgraded to Market Perform from Outperform at BMO Capital Markets)

>>> US Gapping up

Gapping up 
In reaction to strong earnings/guidance:
  • ACHN +20.2%, OTIV +20.2%, OREX +18%, NOG +15%, ENG +13.8%, SSTI +13.5%, VCEL +13.3%, NVAX +11.2%, TROX +11.2%, TPIC +10.8%, ACAD +10.4%, HTGM +8.7%, PXLW +8.7%, EVRI +8.5%, GSVC +8.5%, NVTR +8.1%, RRGB +7.9%, GPOR +7.8%, REXX +7.7%, ALDR +7.6%, ALRM +7.6%, YUME +7.1%, NVO +6.7%, SN +6.3%, SSNI +6.2%, ATHM +6.2%, WWW +6.2%, WATT +5.5%, ARLZ +5.3%, KAR +4.8%, OMER +4.7%, NSTG +4.6%, (NanoString Technologies and Lam Research (LRCX) announce strategic collaboration to develop NanoString's proprietary Hyb & Seq next generation sequencing platform), TPVG +4.3%, SSYS +4.3%, HTZ +3.6%, CLDX +3.5%, JNCE +3.4%, PRSC +3.3%, ARRY +3.2%, GNCA +2.9%, ECYT +2.8%, PUMP +2.6%, ARDX +2.6%, HALO +2.5%, IOSP +2.5%, ABCO +2.4%, NKTR +2.3%, DRRX +2.3%, DXC +2.3%, CARS +2.3%, ENPH +2.2%, RELY +2%, DHT +2%, TGTX +2%, PRMW +1.9%, ARA +1.9%, ETP +1.9%, PTCT +1.9%, MGIC +1.9%, AIMT +1.8%, AVT +1.8%, XEC +1.6%, PLPM +1.6%, WEN +1.6%, PLX +1.5%, ERI +1.3%, BUFF +1.3%, (approves $50 mln share repurchase program), CEMP +1.3%, BCEI +1.2%, IPXL +1%, MDCO +1%, .

M&A news:

  • STS +35.4% ( Wabash National Corporation (WNC) to acquire Supreme Industries in cash tender offer for $21 per share -- represents equity value of $364 mln and enterprise value of $342 mln; to be accretive in first full calendar year after close)
  • TEVA +1.7% (reports the company may look to accelerate potential asset sales)
  • PLPM +1.6% (to explore and evaluate potential strategic alternatives)
  • CFMS +1.1% (acquires the machining and polishing assets of Broad Peak Manufacturing for approximately $6.5 million)

Other news:

  • XTNT +28.4% (FDA has cleared product line extensions for the Calix-C family of cervical interbody cages)
  • RXII +12.1% (enters into common stock purchase agreement with Lincoln Park Capital)
  • MBRX +8.7% (comments on 'several recent FDA approvals for new drugs for the treatment of acute myeloid leukemia')
  • ANTH +6.8% (granted orphan drug designation by the FDA for blisibimod for the treatment of patients with immunoglobulin A nephropathy)
  • YNDX +3.9% (Yandex N.V. and Sberbank (SBRCY) form JV; Sberbank to invest $500 mln into Yandex.Market)

Analyst comments:

  • RIG +1.2% (upgraded to Neutral from Sell at Goldman)
  • VOD +0.6% (upgraded to Buy from Neutral at BofA/Merrill)

>>> US Early premarket gappers

Early premarket gappers
Gapping up:
  • STS +29.3%, ACHN +22.2%, NVAX +17.4%, VCEL +16.7%, NOG +15%,ENG +13.8%, SSTI +13.5%, ACAD +11.7%, TROX +11.2%, TPIC +10.8%,ALRM +8.8%, PXLW +8.7%, GSVC +8.5%, NVTR +8.1%, REXX +7.7%,GPOR +7.7%, ALDR +7.6%, ODP +7.4%, PLPM +7.3%, PLPM +7.3%, YUME+7.1%, SN +6.3%, SSNI +6.2%, ARLZ +5.3%, OREX +5.2%, KAR +4.8%,OMER +4.7%, NSTG +4.6%, ATHM +4.5%, TPVG +4.3%, MACK +3.8%,HTGM +3.5%, CLDX +3.5%, JNCE +3.4%, PRSC +3.3%, ARRY +3.2%, INO+3.1%, ECYT +2.8%, HTZ +2.6%, PUMP +2.6%, ARDX +2.6%, HALO+2.5%, IOSP +2.5%, ABCO +2.4%, RRGB +2.3%, DRRX +2.3%, ENPH+2.2%, DHT +2%, PRMW +1.9%, ARA +1.9%, PTCT +1.9%, NKTR +1.8%,AIMT +1.8%, AVT +1.8%, PIR +1.6%, XEC +1.6%, ILMN +1.5%, PLX +1.5%,ERI +1.3%, CARS +1.3%, BCEI +1.2%, EVRI +1.1%, MDCO +1%
Gapping down:
  • FOSL -24%, TARO -13.2%, TRUE -12.6%, MXL -12.3%, ARTX -9.9%, SGRY-9.9%, POLA -9.1%, NUAN -8.3%, TRIP -8%, CALX -7.3%, TWNK -7.3%,PCLN -7.1%, OCUL -6.7%, VSI -6.3%, HR -6%, XCO -5.8%, JAZZ -5.7%,MBUU -5%, ADMS -4.9%, BLCM -4.8%, TDW -4.2%, VSAT -4.1%, DIS-3.8%, NFLX -3.7%, ESPR -3.7%, CALA -3.4%, PRAH -3.3%, BBSI -3.2%,TAST -3%, AVEO -2.9%, LOB -2.5%, MNST -2.5%, ETE -2.5%, OPK -2%,MHLD -1.9%, H -1.8%, AFSI -1.6%, EGRX -1.6%, MKC -1.4%, CROX -1.4%,YPF -1.3%, AXAS -1.2%, FLXN -1.1%, SINA -1.1%, TLGT -1%, MRCC -1%,MYGN -1%

Wash.Post : This is the moment of truth on North Korea

This is the moment of truth on North Korea

The North Korean nuclear threat is a “hinge” moment for the United States and China, and for the new international order both nations say they want.

If Washington and Beijing manage to stay together in dealing with Pyongyang, the door opens on a new era in which China will play a larger and more responsible role in global affairs, commensurate with its economic power. If the great powers can’t cooperate, the door will slam shut — possibly triggering a catastrophic military conflict on the Korean Peninsula.

President Trump’s bullying style, even in dealing with trivial matters of domestic politics, obscures the extent to which he has tried to marry U.S. policy on North Korea with that of China. For the most part, he has been surprisingly successful. Beijing and Washington have mostly been aligned, as in this past weekend’s unanimous U.N. Security Council vote in favor of additional sanctions against Pyongyang to punish its continued missile tests.

Washington’s diplomatic goal, although it hasn’t been stated publicly this way, is to encourage China to interpose itself between the United States and North Korea and organize negotiations to de-nuclearize the Korean Peninsula. The U.S. threat is that if China doesn’t help the United States find such a diplomatic settlement, America will pursue its own solution — by military means if necessary.

Trump amped up the rhetoric Tuesday, telling reporters: “They will be met with fire and fury like the world has never seen.”

The U.S. threat may be a bluff, but with Trump, you never know. Top U.S. officials understand that a preemptive war against North Korea could result in horrendous loss of life and a post-conflict outcome that would be worse for all parties. But when national security adviser H.R. McMaster says that a nuclear-armed North Korea is “intolerable” to Trump, one should assume he means it — and that he is preparing a menu of military options.

Now comes the moment of nuclear brinkmanship. North Korean Foreign Minister Ri Yong Ho said Monday, in reaction to the U.N. vote and Chinese-American calls for talks: “We will under no circumstances put the nukes and ballistic rockets on the negotiating table.” Is he bluffing? Again, we don’t know.

Some diplomats saw ambiguity in the vagueness of Ri’s conditions for any talks. But many leading analysts believe that North Korea, rather than stepping away from the edge, is racing toward having an operational nuclear-missile capability that can strike the United States, as a matter of self-protection.

Two intelligence assessments disclosed Tuesday added increased urgency to the crisis. The Defense Intelligence Agency concluded late last month that North Korea has mastered the technology for a miniaturized nuclear warhead that could sit atop a missile that could hit the United States, according to The Post. A white paper by Japan’s defense ministry reached a similar conclusion and warned that the nuclear threat was now an imminent problem.

North Korea’s rhetoric blasts the United States. But in a deeper way, it’s China that’s being put in an intolerable position by Pyongyang. China has been flashing red lights about the North Korean program for more than a year. President Kim Jong Un’s regime responded by conducting North Korea’s fifth nuclear test last September and continuing its missile tests, despite urgent Chinese warnings. Kim’s slap to Beijing even included assassinating his half brother Kim Jong Nam, who was under Chinese protection.

North Korea’s defiance of the United States and China is rooted in its ideology of “juche,” or militant self-reliance. The official North Korean website sums up the philosophy as “independence in politics, self-sufficiency in the economy and self-reliance in national defense” — a creed that promotes go-it-alone confrontation.

What’s at stake in this confrontation was underscored by discussions this weekend at an annual gathering of the foreign policy establishment called the Aspen Strategy Group. This year’s meeting included five Trump administration officials, as well as a collection of former top officials from previous Republican and Democratic administrations.

Among the clearest points of consensus among former officials was that the North Korea crisis provides what one participant called a “catalytic” moment. If China and the United States can find a common path and resolve the crisis peacefully, they will succeed in “modernizing the global order,” which was the broad topic of the Aspen discussions.

And if they fail? If Trump’s fiery rhetoric alienates Beijing rather than motivates it? If Pyongyang decides to test its doctrine of self-sufficiency with a roll of the nuclear dice? If Trump becomes the first president since John F. Kennedy to truly find himself at the nuclear brink? One way or another, the coming months will shape global security for many years ahead.