Closing Market Summary: Stocks Post Best Q1 Since 2013The stock market secured its best first quarter performance in four years on Friday, but it did so in a rather spiritless manner as the major averages held close to their unchanged marks from start to finish. The S&P 500 (-0.2%) and the Dow (-0.3%) settled with modest losses while the Nasdaq finished flat. For the quarter, the S&P 500 increased 5.5%.
Seven sectors settled within 0.3% of their respective flat lines. The remaining groups--financials (-0.7%), energy (-0.4%), telecom services (-0.5%), and real estate (+0.5%)--didn't do much to distinguish themselves from the pack, but in a day light on activity they're worth noting.
The rate-sensitive utilities (+0.3%) and real estate (+0.5%) spaces settled atop the day's leaderboard as comments from several Fed presidents increased buying interest in the Treasury market, which left yields modestly lower. New York Fed President William Dudley (FOMC voter), Minneapolis Fed President Neel Kashkari (FOMC voter), and St. Louis Fed President James Bullard (non-FOMC voter) laid the groundwork for the Federal Reserve to shift its focus from rate hikes to reducing its balance sheet. Specifically, Mr. Dudley said that the Fed could pause rate hikes while running off its balance sheet.
Shorter-dated issues saw the biggest increase in demand with the 2-yr yield (1.25%) closing four basis points lower while the benchmark 10-yr yield (2.40%) lost only two basis points. The buying steepened the yield curve, but that did little to help the financial sector (-0.7%) as the group closed with the telecom services space (-0.5%) at the back of the pack.
Crude oil achieved its fourth consecutive advance, rising 0.5% to $50.56/bbl. However, the energy sector (-0.4%) failed to capitalize on the positive performance, extending its first quarter loss to 7.3%.
On the corporate front, Amazon (AMZN 886.54, +10.20) put together another solid performance, climbing 1.2% to another fresh record high and extending its weekly gain to 4.8%. However, its peers failed to respond, evidenced by the 0.8% decrease in the SPDR S&P Retail ETF (XRT 42.24, -0.35).
On the data front, investors received a slew of economic reports, including February Personal Income, February Personal Spending, February Core PCE Prices, March Chicago PMI, and the final University of Michigan Consumer Sentiment reading for March:
- February personal income rose 0.4%, which is in line with the consensus of 0.4%. Meanwhile, February personal spending increased 0.1% while the consensus expected a reading of 0.2%. January Personal Income was revised to 0.5% (from 0.4%) while January Personal Spending was left unrevised at 0.2%. Separately, Core PCE prices for February rose 0.2% (consensus 0.2%). The January reading was left unrevised at 0.3%.
- While the report showed income growth, the uptick in the personal savings rate suggests that consumers have a somewhat cautious outlook. Furthermore, the decline in real PCE underscores the fact that overall economic growth remains subdued.
- Chicago PMI for March increased to 57.7 from 57.4 in February while the consensus expected a reading of 55.8.
- The key takeaway from the report is that four of five components showed improvement while Employment receded.
- The final reading of the University of Michigan Consumer Sentiment Index for March declined to 96.9 (consensus 97.6) from 97.6 in the preliminary reading.
- The key takeaway from this report is that a sharp partisan divide that was visible in the preliminary reading, remains in place. Respondents who identified as Democrat expect an imminent recession, higher unemployment, lower income gains, and faster inflation. Conversely, Republicans expect strong growth in incomes and job prospects, coupled with lower inflation.
On Monday, investors will receive March ISM Index (consensus 57.0) and February Construction Spending (consensus 1.0%) at 10:00 ET. Also of note, March auto & truck sales will be released throughout the day.
- Nasdaq Composite +9.8% YTD
- S&P 500 +5.5% YTD
- Dow Jones Industrial Average +4.6% YTD
- Russell 2000 +2.1% YTD
Germany's transport ministry has found a new "defeat device" in a Fiat car during emissions tests, it said on Friday, escalating a dispute with the Italian automaker.
The ministry declined to give details, but said it would send the results to the European Commission, which has reviewed a previous emissions case involving Fiat.
Fiat denied its cars were equipped with an illegal emissions test cheating device.
Germany widened vehicle pollution testing in the wake of Volkswagen's admission in 2015 that it had used a defeat device to rig U.S. emissions tests on diesel engines.
German weekly magazine Der Spiegel said recent tests on Fiat's 500X passenger car showed an exhaust treatment system switched off filtering after 90 minutes, citing results from a test conducted by Germany's KBA vehicle authority.
Der Spiegel said this amounted to a new defeat device. In a prior test, a Fiat vehicle was found to switch off its exhaust treatment system after 22 minutes, Der Spiegel said. An emissions test cycle in Europe lasts 20 minutes.
A spokesperson for Fiat Chrysler Automobiles (FCA) said: "We are not in a position to comment on the validity or accuracy of supposed KBA internal documents or on purported emissions tests that we have never seen."
FCA added that the 500X conformed to emissions rules "in all material respects to applicable emissions requirements" adding this has been verified and confirmed by the Italian ministry of transport, the vehicle's licensing authority.
Europe's attempts to crack down on vehicle emissions have been complicated by a loophole in EU law that allows carmakers to turn off emissions control systems under certain conditions - such as at temperatures where they might damage the engine.
Galaxy S8 facial recognition security system can reportedly be unlocked by a photo - industry blog
EDPR/EDP offer undervalues target, shareholders say
31 MAR 2017
- Fair value seen between EUR 7.20 – EUR 8.00 per share
- Comps point to higher premium
Energias de Portugal's [ELI:EDP] proposed offer for EDP Renovaveis [ELI:EDPR] undervalues the renewables group, said three of the target’s shareholders.
David Maywald of RARE Infrastructure, which holds 1.9% of shares in the renewables group, said that RARE will not tender into the offer at the current price.
Two other investors, Murray Rosenblith of the New Alternatives Fund and Thomas Perrotin of Moneta Asset Management, agreed that not tendering their shares was an option they could consider.
On Tuesday (28 March), EDP announced plans to acquire the 22.5% of share capital it does not already own in its subsidiary EDPR through a EUR 6.80-per-share tender offer, valuing the company’s total equity at EUR 4.36bn. EDP plans to delist the subsidiary if it crosses the 90% threshold.
“We think that EDP is getting a bunch of good assets for too little money,” said Rosenblith, whose fund owns around 1.5m EDPR shares, representing 0.17%.
EDPR's growth pipeline, strong track record and its assets mean the offer is very low, according to Perrotin, whose fund holds around 0.5% of EDPR shares. He noted that the company had already secured 65% of its 2016-2020 growth target.
Offer below recent deals on a EV/MW basis
The key valuation issue flagged by the three investors is that the deal values EDPR at less than EUR 1m enterprise value (EV)/mega watt (MW). This compares to the EUR 1.7m/MW at which EDPR sold assets in February, and an average of EUR 1.5m/MW for seven deals executed by EDPR since 2014, according to a recent company presentation.
This valuation gap was also raised on a 28 March conference call, by Maura Shaughnessy, of Massachusetts Financial Services, which owns 4.1% of EDPR.
The deal implies an EV of EUR 8.73bn. In the March investor presentation, EDPR says that its EV is EUR 11.3bn, and its EV “installed capacity” EV is EUR 10.95bn (based on equity at EUR 6.4 per share).
A fundamental value above the IPO price of EUR 8 per share can be justified based on the company's own analysis of EV/MW and capitalisation of retained cash flow, said Maywald. The group expects retained cash flow to grow by 10-15% in 2017, according to the same presentation.
Two sector bankers thought that EDP's offer was too low, as previously reported. But another banker said that recent renewable sector deal multiples have been unsustainably high and the price was reflective of a return to normal trading.
A more sensible offer price would be near EUR 7.20, it was said. The target's shares were trading above the offer price at EUR 6.90 on 31 March.
A spokesperson for EDP could not be reached for comment.
“It makes economic sense for EDP to do this now as it [EDPR] is at a low point,” said Rosenblith. The election of Donald Trump resulted in a dramatic fall in EDPR's share price due to concerns about changes to energy policy."
Despite this, Perrotin highlighted the resilience of the US market and noted EDPR's successful asset sales since the election. North America accounts for 48% of EDPR's 10.4 GW total installed capacity, according to the March presentation. The group plans to expand this capacity by 3.5 GW by 2020, with 65% of that planned capacity in North America.
Both Murray and Perrotin cited the examples of other diversified utilities that had listed renewables divisions, then taken them private.
In 2015, Italian group Enel [BIT:ENEL] announced an offer to minority shareholders of Enel Green Power, at a 17.1% premium to the share price one month prior to the deal announcement.
The EDPR offer represents an 8.45% premium to EDPR's closing price one day before the announcement and a 9.7% premium to the share price one month prior. Based on the volume weighted average price for the six months before, the offer is at a 10.5% premium, according to the announcement.
On the 28 March conference call, the EDPR offer was compared to the Enel deal. But Perrotin noted that this comparison was disappointing as Enel Green Power did not benefit from the same reputation as EDPR, with the latter deserving a higher premium.
Spain's Iberdrola [BME:IBE] bought back its Iberdrola Renovables unit in 2011, after a 2007 IPO. The offer was at a 14.26% premium to the renewables group's share price a month before the deal was announced.
Also in 2011, EDF [EPA:EDF] offered minority shareholders in EDF Energies Nouvelles EUR 40 per share in cash, at a 24.22% premium to the share price one month before the announcement.
FCA publishes near final rules on MiFID II and encourages firms to submit applications for MiFID II authorisation
Published near final rules on the implementation of the Markets in Financial Instruments Directive (MiFID) II. These include changes to the trading of financial instruments including issues affecting trading venues, transparency of trading and algorithmic and high frequency trading.
The near final rules cover:
- the new category of firms - data reporting services providers
- position limits and reporting for commodity derivatives
- systems and controls requirements for firms providing MiFID investment services
Early premarket gappers
Gapping up: SORL +24.8%, BDSI +14.7%, AKTX +14.4%, QHC +10.5%,CBIO +8.2%, MGNX +7.9%, PSTI +5.8%, BBRY +5%, CNAT +4.6%, EGLE+2.9%, QTNT +2.1%, NVO +2.1%, GFI +1.7%, MARK +1.7%, AU +1.4%,NH +1.2%, WWAV +0.9%, EXEL +0.6%, PRKR +0.5%
Gapping down: WYY -34.7%, AKER -18.8%, BLRX -18.3%, DRIO-16.7%, UNXL -14.4%, PTI -12.8%, APRI -10.7%, CTSO -8.3%, NOMD-3%, AEHR -2.2%, BHP -1.9%, BBL -1.9%, SBGL -1.9%, RIO -1.6%,OREX -1.3%, DB -1.2%, CS -1.2%, LYG -1.2%, OAS -1.2%, AG -1.1%,SAN -1.1%, BCS -1.1%, MS -1%, STO -0.9%
Gapping down: WYY -34.7%, AKER -18.8%, BLRX -18.3%, DRIO-16.7%, UNXL -14.4%, PTI -12.8%, APRI -10.7%, CTSO -8.3%, NOMD-3%, AEHR -2.2%, BHP -1.9%, BBL -1.9%, SBGL -1.9%, RIO -1.6%,OREX -1.3%, DB -1.2%, CS -1.2%, LYG -1.2%, OAS -1.2%, AG -1.1%,SAN -1.1%, BCS -1.1%, MS -1%, STO -0.9%