Closing Market Summary: Equities Open the Week FlatAfter settling at fresh record highs on Friday, the S&P 500 (unch) and the Nasdaq (unch) each eked out another record close on Monday. The Dow (unch) also finished just above its unchanged mark while the Russell 2000 (-0.4%) lagged.
The final round of the French presidential election went as expected on Sunday with Emmanuel Macron easily defeating Marine Le Pen. Mr. Macron's victory has been seen as a positive for the European Union, and global equity markets, as it lays to rest Ms. Le Pen's call for a French referendum on EU membership. France's CAC settled lower by 0.9% after hitting its best level in a decade ahead of the vote. Meanwhile, the euro (1.0932) lost 0.6% against the U.S. dollar.
Back in the U.S., seven of eleven sectors opened the week in negative territory. The materials (-0.9%), real estate (-0.5%), and health care (-0.6%) spaces finished solidly lower, but the remaining laggards finished with losses of no more than 0.3%. The health care group, which comprises around 14.0% of the broader market alone, suffered the most notable loss of the day at the hand of the biotechnology industry; the iShares Nasdaq Biotechnology ETF (IBB 289.45, -6.42) declined 2.2%.
At the opposite end of the leaderboard, the energy sector (+0.7%) rallied after morning headlines that the OPEC/non-OPEC production cut agreement, which is currently scheduled to end in June, may be extended for nine months or longer. Saudi Arabia's oil minister went as far as saying that oil producers would do "whatever it takes" to end the global glut. WTI crude ended pit trade 0.4% higher at $46.63/bbl.
Like energy, the top-weighted technology sector (+0.4%) finished ahead of the broader market. Apple (AAPL 153.01, +4.05) climbed to another fresh record high, extending its already impressive 2017 advance by 2.7%. The tech giant currently holds a year-to-date gain of 32.1%. Elsewhere in the tech group, chipmakers underperformed, pushing the PHLX Semiconductor Index lower by 0.4%.
The consumer discretionary (+0.3%) and telecom services (+0.2%) sectors also closed in positive territory. Coach (COH 44.71, +2.05) contributed to the consumer discretionary sector's positive performance, jumping 4.8%, after acquiring Kate Spade (KATE 18.38, +1.41) for $18.50/share, in cash. The purchase price represents a 27.5% premium to KATE's stock price seen in late December when takeover speculation surfaced in the media.
Outside of the stock market, U.S. Treasuries settled lower across the board, signaling a possible uptick in investor sentiment; the benchmark 10-yr yield (2.38%) added three basis points. Even more notably, the CBOE Volatility Index (VIX 9.72, -0.85, -8.0%) settled at one of its lowest levels on record, pointing to increased complacency.
Investors didn't receive any economic data on Monday. Tomorrow, market participants will receive March JOLTS and March Wholesale Inventories (consensus -0.1%). The two reports will both cross the wires at 10:00 ET.
- Nasdaq Composite +13.4% YTD
- S&P 500 +7.2% YTD
- Dow Jones Industrial Average +6.3% YTD
- Russell 2000 +2.5% YTD
Hertz Global misses by $0.77, misses on revs (14.91 -0.07)
- Reports Q1 (Mar) loss of $1.61 per share, excluding non-recurring items, $0.77 worse than the Capital IQ Consensus of ($0.84); revenues fell 3.4% year/year to $1.92 bln vs the $1.94 bln Capital IQ Consensus.
- U.S. Segment
- Total U.S. RAC revenues were $1.4 billion in the first quarter 2017, a decrease of 4%, versus the same period last year.
- Pricing, as measured by Total RPD, decreased by 3% in the quarter, impacted by an unfavorable customer mix, which the Company is currently addressing as part of its long-term improvement plan.
- First quarter 2017 Adjusted Corporate EBITDA for U.S. RAC was a negative $104 million, a $130 million decline versus the same period last year.
- International
- The Company's International RAC segment revenues were $411 million in first quarter 2017, a decrease of 5% from the first quarter 2016. The decline in the International RAC revenues reflect a tougher year-over-year comparison due to the additional Leap day in 2016, the Easter shift to second quarter in 2017, as well as the termination of certain contracts in the third quarter of 2016. First quarter 2017 Adjusted Corporate EBITDA for International RAC was $3 million.
Algebris head Serra says shorting gilts safest fixed income bet
Divorcing from the EU will cost the UK £140bn, or 7.5 per cent of gross domestic product, the head of the London-based Algebris hedge fund said on Monday, as he suggested betting against the country’s debt.
Davide Serra said at the annual Sohn Conference that the “safest fixed income bet globally” is shorting gilts.
Here are a few reasons he cited:
* Trade pacts historically take six to seven years to forge.
* The country’s “weak public finances”.
* “Stagnant productivity” in the labour market.
* “Growing social imbalances”.
* “High household leverage”.
* The more than 2 percentage point spread between the 10-year gilt yield, and 10-year inflation expectation.
The 10-year gilt yield, which trades in the opposite direction of the price, was up by 0.03 percentage point to 1.145 per cent on Monday. It traded at 1.311 per cent the day before the Brexit vote last June.
Jimmy Choo draws preliminary interest from Fosun – source
08 MAY 2017
The potential sale of London-based Jimmy Choo [LON:CHOO], the luxury shoemaker, has attracted preliminary interest from Chinese buyers including Fosun Group, a source familiar with the matter said.
Fosun is in contact with Citigroup, Jimmy Choo’s advisor, regarding the potential sale, and its internal team is examining a potential bid, the source said.
The deal size could be around GBP 800m which is about Jimmy Choo’s current market cap at GBP 790m, the source added. The figure does not take into account Jimmy Choo’s net debt which stands at GBP 139m as of December 2016.
Other interested Chinese bidders could include private equity firm Hillhouse which is in the process of buying out Belle International [HKG:1880], Chinese’s largest shoe retailer along with CDH Investments, the source and another source briefed on the matter noted.
The board of Jimmy Choo announced on 24 April to start a strategic review of the company, including a possible sale. Its majority shareholder JAB Luxury, with a 67.66% stake, has confirmed to be supportive of the process.
The announcement is also notable for revealing that the UK’s Takeover Panel has granted a dispensation from certain Code requirements such that any interested party participating in the formal sale process will not be required to be publicly identified as a result of this announcement and will not be subject to the 28 day Code deadline.
There have been no takeovers of UK listed companies by Chinese acquirers since 2012 because the two countries M&A regimes oppose each other, as previously reported by Dealreporter’s Asia Flash.
In 2011, for example, the Takeover Panel prevented China Guangdong Nuclear Power Holding Corporation (CGNPC) from reducing its offer for Kalahari Minerals following the Fukushima nuclear disaster, although the deal was eventually done at a later date. In 2012, Chengdu Geeya Technology [SHE:300028] successfully completed its acquisition of Harvard International but only after securing eight deadline extensions from the Takeover Panel to its 28 day deadline, allowing the buyer to secure regulatory approvals.
However, the Code dispensation and JAB’s position as controlling shareholder may facilitate a Chinese bid in this instance, this news service noted.
The potential sale has drawn strong Asian buyers interests because China and Japan were the fastest growing regions for Jimmy Choo due to strong brand awareness and weak sterling, the first source said.
However, there is also concern about the rising rental cost in first and second tier Chinese cities as well as the shifting taste of the younger consumers who favor boutique designer brands over traditional luxury brands, the source added.
Shanghai-based conglomerate Fosun has strong presence in global retail and fashion industry, the source pointed out. It is the second largest shareholders in Greek fashion brand Folli Follie which retails women’s handbags and accessories with strong presence in China and Hong Kong. It also invested in American high-end women's clothing brand St. John, Italian high-end custom men's clothing Caruso, and fashion lifestyle brand Tom Tailor, according to its public filings.
Apart from Chinese interested buyers, Coach [NYSE:COH] was reportedly mulling a possible acquisition of Jimmy Choo. Today, 8 May, Coach announced it would buy Kate Spade [NYSE:KATE] in a deal valued at USD 2.4bn.
JAB has retained BofA Merrill Lynch and Citigroup as financial advisors regarding the strategic review and it expects to complete the review in the second half of this year, according to the announcement..
Best known for its tottering heels for women, Jimmy Choo was founded in 1996 by former Vogue accessories editor Tamara Mellon and Malaysian designer Jimmy Choo. It retails menswear, shoes and accessories and runs licensing business including fragrance and eyewear, according to its website.
Fosun declined to comment. Hillhouse and JAB did not respond to a request for comment.