Closing Market Summary: Cyclical Sectors Lead Stocks HigherThe stock market began the week on a higher note with the Nasdaq Composite (+1.0%) showing relative strength on Monday. The tech-heavy index settled ahead of the S&P 500 (+0.6%), but both marked their highs during the initial hour, spending the afternoon inside narrow ranges.
Equity indices enjoyed an upbeat start, rising alongside European stocks, even though the results of the constitutional reform referendum in Italy will invite political uncertainty going forward. On Sunday, Italian citizens voted 59-41 to reject a proposal that would have reformed the country's Senate. Prime Minister Matteo Renzi offered his resignation, but Italian President Sergio Mattarella reportedly asked Mr. Renzi to delay his departure until after the approval of a budget for 2017. It is currently unclear what impact the results of the referendum will have on rescue plans for Banca Monte dei Paschi di Siena.
Italian stocks erased the bulk of their losses by the close while European sovereign debt retreated with Italy's 10-yr yield spiking nine basis points to 2.00%.
U.S. Treasuries also faced selling during the European session, but trends reversed shortly after focus shifted to the North American session. Treasuries spent the day in a slow climb off their lows with the 10-yr note ending flat. The benchmark yield settled at 2.39% while selling in the 2-yr note pushed up its yield two basis points to 1.12%.
Five of six cyclical sectors displayed relative strength from the start, which kept the benchmark index well above its flat line throughout the day. Sectors like financials (+1.2%) and consumer discretionary (+1.0%) rebounded from Friday's underperformance while energy (+0.7%) posted a solid gain even though crude oil reversed into the close. The energy component surrendered a 1.0% gain to settle higher by 0.2% at $51.79/bbl. Oil continued sliding in electronic trade and showed a 1.1% decline ($51.10/bbl) as the stock market closed for the day. The late afternoon decline unfolded even though the U.S. Dollar Index (100.13, -0.64) fell 0.6%.
The top-weighted technology sector (+1.0%) also had a strong showing with chipmakers displaying broad strength that sent the PHLX Semiconductor Index higher by 1.2%. This contributed to the relative strength in the Nasdaq Composite while biotechnology provided another measure of support, but the iShares Nasdaq Biotechnology ETF (IBB 271.93, +1.47) narrowed its gain to 0.5% by the close. Biotech names fared better than the health care sector, which shed 0.2%.
Like health care, the industrial space (-0.1%) lagged throughout the day, keeping the S&P 500 below its opening high. Dow components Caterpillar (CAT 94.45, -0.69) and General Electric (GE 31.11, -0.23) weighed, falling near 0.7% apiece. Airlines also pressured the sector with Alaska Air (ALK 83.12, -1.71) and Southwest Airlines (LUV 47.07, -0.84) ending with respective losses of 2.0% and 1.8%. Other transport stocks held up better, sending the Dow Jones Transportation Average higher by 0.4%.
Today's participation was just below average as 915 million shares changed hands at the NYSE floor.
Economic data was limited to ISM Services:
- The ISM Services Index rose to 57.2 in November from 54.8 in October while the consensus expected an increase to 55.6
- This report marked a 12-month high for the series, reaching levels from October 2015
Tomorrow, Q3 Productivity (consensus 3.3%), Unit Labor Costs (consensus 0.2%), and October Trade Balance (consensus -$41.80 billion) will be released at 8:30 ET while October Factory Orders consensus 2.5%) will cross the wires at 10:00 ET.
- Russell 2000 +17.7% YTD
- Dow Jones Industrial Average +10.3% YTD
- S&P 500 +7.9% YTD
- Nasdaq Composite +6.0% YTD
Hours Summary: COUP +7%, BOBE +6% following earnings/guidance... SB -13%, SBSI -9%, FET -5% following offering news
After Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: COUP +6.6%, BOBE +5.6% (also continues to evaluate all options to create shareholder value and is working with J.P. Morgan to review and evaluate potential opportunities for value creation; no formal timeline for the completion of the review), KMI +1.4% (expects to generate $4.46 bln of distributable cash flow for 2017)
Companies trading higher in after hours in reaction to news: TXMD +18.5% (announces 'positive' top-line results from its pivotal phase 3 Replenish Trial of TX-001HR; trial met primary endpoints), ACHN +4.5% (light volume; announces data presented at American Society of Hematology Meeting demonstrate potential advantages of factor D inhibition for the treatment of complement alternative pathway-mediated diseases), NVLS +2.9% (CFO discloses the purchase of 24K shares), SIEN +2.7% (confirms receipt of FDA pre-market supplement approval for four new breast implant styles in both shaped and round as well as additional profile and sizing options for nine existing implant offerings), BLCM +2.1% (presents clinical results to date of BPX-501 pediatric program and provides regulatory update)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: N/A
Companies trading lower in after hours in reaction to news: SB -13.3% (to offer common stock), LXRX -8.7% (announces top-line results today from a Phase 2 clinical study of sotagliflozin conducted by Lexicon in collaboration with JDRF), SBSI -8.6% (announces an underwritten public offering of approx. $60 mln of its common stock), FET -5.2% (announces a registered underwritten public offering by the co & certain funds affiliated with SCF Partners and Tinicum; 3.5 mln shares are being offered by the co and 3.5 mln shares are being offered by the selling stockholders), TEVA -4% (names Dipankar Bhattacharjee as President and CEO, Global Generic Medicines Group, effective today; reaffirms FY16 forecast), ASUR -3.7% (announces public offering of common stock), RCII -3% (CFO Guy Constant resigns), STWD -2.8% (commences 17.8 mln common stock offering)
Italian Dilemma: To Bend the Rules or Break the Banks
For Europe’s banks, it is now all about the politics
For Europe’s banks, it is now all about the politics. Italy voted “No” in a referendum that became a protest against the government and the restrictions of European Union membership.
To stop this drama turning into a crisis, eurozone politicians may have to allow Italy to use taxpayers’ money to shore up its sickest bank, Banca Monte dei Paschi di Siena.
This will be deeply uncomfortable because it lays bare the lack of trust in economic competence between eurozone countries and risks reviving fears about government exposure to local banking systems.
Those fears dogged the single currency five years ago. This time it is less a matter of survival—although many eurozone banks need more capital—than one of getting over the final hurdle of higher post-crisis capital requirements.
European banks’ very weak valuations illustrate how difficult and expensive it will be for some of the bloc’s largest lenders, like UniCredit and Deutsche Bank, to get the equity they need.
The first test is Monte dei Paschi. Italy’s “No” vote looks likely to derail its €5 billion ($5.3 billion)-capital raising plan because the uncertainty created by the resignation of Prime Minister Matteo Renzi will stop investors backing the deal—unless Italy can rapidly form a new, stable government.
On Monday, MPS’s bankers are trying to decide whether the deal will work.
If the bank fails to get funds from private investors, it will have to impose losses on bondholders to cover the capital it needs. That will mean some public money is used, because about half of MPS’s bonds are held by retail investors whose losses would be politically and economically painful.
Retail investors could be protected by a compensation scheme, or by Italy putting money straight into MPS in a precautionary recapitalization. This latter move is allowed under stiffer new European rules on bank bailouts, but only under certain conditions. The key one is that the money mustn’t cover known recent or likely losses, which is a problem at MPS because much of the money it needs is to fund provisions on bad loans that European regulators have demanded it takes.
There is however a financial-stability get-out clause behind most new European banking rules. That lets politicians get around the letter of the law when it threatens severe banking or economic turmoil.
This is where the politics counts. Turmoil for Italy would further provoke the anti-Europe feeling that has foiled Mr. Renzi. But allowing a bailout of the bank risks opening the door to public money being used elsewhere while eurozone governments are struggling to get their economies firing, keep voters happy and meet the bloc’s strict financing rules.
Italy’s largest lender, UniCredit, is waiting to launch a €13 billion-capital raising program and it isn’t alone among European banks in needing fresh equity.
A calming, technocratic administration in Italy could yet see MPS’s plan go ahead. If not, eurozone leaders will need to make some hard political choices—and quickly.
Italian referendum
Too many no's, Renzi goes After a strong rejection of constitutional reform in the Italian referendum, Prime Minister Matteo Renzi resigned. We still believe that there won’t be a snap election, as we do not think that the president will send the country to new elections before parliament has approved a new electoral law for the upper house of parliament. However, the strong rejection could open a new period of political instability in Italy, and the eurozone, causing a negative market reaction and possible concerns about the future of the single currency.
BAML
ACTELION - +9% on US close; spec JNJ bid raised to >$250. No update (214.2).+5%
ACTELION - +9% on US close; spec JNJ bid raised to >$250. No update (214.2).+5%
BURBERRY - Reportedly rejected multiple takeover offers from Coach (1470p)..+4%
AIXTRON - Obama blocked the acquisition of the US biz by Grand Chip (3.95)..+3%
HANSTEEN - Good letting progress post Brexit, cont to reduce vacancy (107)..+1%
NORWEGIAN AIR - Wins approval to expand flights to U.S Using Irish sub (262)+1%
BASF - We DOUBLE UPGRADE to Buy, taking our PO to €97 from €60 (€81.4)....+0.5%
MINERS - Copper +1.4%, Iron ore +4.6% with BHP OZ +0.6% and RIO OZ +1%......u/c
LANXESS - We UPGRADE to Buy, PO €70 from €49. Bullish on diversified (€57.8)u/c
RYANAIR - Nov traffic stats: +15% on volume and +2% on load factor (€13.82).u/c
INMARSAT - We roll back onto our Europe 1 list (best ideas) as BUY (703p)...u/c
ARKEMA - We reinstate coverage with a BUY rating and PO of €105 (€90.05)....u/c
COVESTRO - We UPGRADE to Buy, PO €70 from €44. Bullish diversified (€59.55).u/c
ST MODWEN - Nine Elms interest on site sale. Commercial still robust (280.9)u/c
ITV - Sunday Telegraph talking down ITV bid spec over the weekend (165.2)...-1%
RBS - FT; shareholder settlement uncertainty on '08 rights issue (190.5)..-1-2%
EVONIK - We DOWNGRADE to Neutral; PO €28 from €31. Outlook weak for N&C (25)-2%
GIVAUDAN - We DOWNGRADE to Neutral; turning more cautious cons chems (1754).-2%
EDF - Spec may cut div payout to 50% to conserve cash v BAML at 60% (€9.6)..-2%
AKZO - We DOWNGRADE to Underperform, reducing our PO to €56 from €60 (56.4).-2%
SYMRISE - We DOWNGRADE to Underperform. More cautious on cons chems (€55.2)-2%
UNICREDIT - Amundi said to be in the lead to buy co's Pioneer biz (1.98)....-5%
ITALIAN BANKS - No vote wins, 59-41. Renzi set to resign this afternoon.....-5%
RBC
ACTELION +7% Speculation after hours of J&J bid increase north of $250/shr
ACTELION +7% Speculation after hours of J&J bid increase north of $250/shr
AIXTRON +2% Obama confirms he is blocking Chinese takeover of US unit.
BURBERRY +1% FT report company rebuffed takeover approach from COACH in summer
BMPS -20% Poor take-up of Debt/Equity swap, €1bln v €1.5-2bln expectation
BTG +3% Inclusion of treatment w/ pneumrx coils for management Copd.
DT BANK -2% To pay $60m to settle gold price lawsuit
FERRARI +2% Chinese dealers sold 3-months of cars in a day to beat sales tax
IAG -1% US D.O.T. grants foreign air carrier permit to Norwegian air.
RENAULT +1% NISSAN Nov car sales +10.7% and weaker Euro should help.
UNA/D.TEL +1% Both included in Barrons top 10 stocks picks globally for 2017
Macquarie
* Genel GENL- Receives full Tawke payment for September. +1%
* Genel GENL- Receives full Tawke payment for September. +1%
*IAG- Norwegian Air Shuttle to increase Trans-Atlantic flights by 50% in 2017. -1%
* Purple Bricks PURP-Revenues grew 159% to £18.7m, confident outlook for future. Unch
* RBS- Reached settlement with 3 of 5 shareholder groups regarding the Shareholder Rights Litigation group (77% by value) Provisioned £800m -1%
* St Modwen SMP-Portfolio continued to trade well, expects H2 performance to be broadly inline. Unch
* Bookies: Stewart Kenny, Co-founder of Paddy Power writes an article to Irish Govt lobbying against FOBT’s (The Times). PPB, LCL, WMH all -2%
MainFirst
*AIXTRON-Obama blocks Chinese takeover of Aixtron (Confirmed).......+2%
*AIXTRON-Obama blocks Chinese takeover of Aixtron (Confirmed).......+2%
*ENGIE-US says Engie Unit violated Power Mkt Manipulation rules.....-0.5%
*NOVARTIS-CEO rules out counterbid for Actelion- SonntagsBlick.......+0.5%
*BURBERRY-Rejects multiple takeover offers from Coach(Comb $20b)....+1%
*BPOST-Intends to submit PostNL offer memo to AFM by 30th Jan.......U/C
*ACTELION-J&J's increased offer for Actelion to be north of $250....+7%
*HELLA-Read across from Panasonic buying ZKW for €834m..............+1%
*RYANAIR-Nov Passengers 8.8m,Load Factor 95%,Trafic +15%............+1%
*CS-To cut as many as 1,300 Swiss jobs - SamS reports...............-0.5%
Investec
UK
UK
* ANGLO-PIC to drop platinum spin off calls (S.Telegraph)...................+1%
* BOOHOO-Press reports is looking to acquire Nasty Gal Inc(US).............unch
* BURBERRY-Has said to have rejected approaches from Coach(FT)............+2-3%
* CAMBIAN-Sells adult service business for £377m cash.....................+5-7%
* ITV-Liberty Global "enough to do" without bidding for ITV(S.Telegraph)...-1/2%
* PURPLEBRICKS-H1. Rev ahead on increasing mkt spend. Confident outlook.....unch
* ROYAL MAIL-Seeks Private Company to run Public Pension(S.Telegraph)......unch
* RYANAIR-Stats. LF 95%(vs 93%) Traffic +15% vs '15.........................+1%
* ST.MODWEN-Q4.Expects performance in 2H to be broadly in line with 1H....unch
* TARSUS-Acq's of Connect($44m)Raising £24m at 235p(closed 248p)............-2%
* WANDISCO-Appoints new NED and SVP of Finance to be new CFO...............unch
* WIZZAIR-Stats.LF +1.1%, passengers +19.1% YoY. Launches Wizz Go...........+1%
Euro
* ACTELION-J&Jtlks said progress, offer seen >$250...........................+7%
* AIXTRON-Obama backs CFIUS to block US sale, Spec Sits comment follows.
* CSGN-to cut up to 1300 jobs (SaS).........................................-1%
* DBK-to pay $60m gold price fix fine.......................................-2%
* ENGIE- US says Engie unit violated mkt manipulation rules.................-1%
* INTERTRUST-Parvus raises stake above 5%...................................+1%
* NOKIA-pushed in Barron’s article today..................................+0.5%
* REPSOL-sells Indonesian LNG plant for $313m...............................U/C
* TOMTOM-plans major reorganisation of consumer unit........................+1%
* UNICREDIT-starts talks w/AMUNDI on Pioneer sale. Sector weak on referendum.-??
* ZALANDO-plans entry into cosmetics and personal care(EaS)...............+0.5%
* IAG-Traffic Stats due later
CS
Actelion +3% J&J’s Raised Offer for Actelion said north of $250/Shr, BB
Banks -2-3% Negative readfrom Renzi losing referendum
Burberry UNCH Rejected multiple takeover approaches from Coach, FT
Italy Banks -5-6% Renzi the lost the referendum as 59% voted 'NO'
Miners +0.5-1% Copper +1.50%, Brent -0.10%, Iron Ore +5.55%, China -1.85%
Oils UNCH US rig count +4, Brent -10bps to $54.1, WTI -40bps to $51.1
Prudential +0.5% Has begun a review of its £45bn pension liabilities biz
RBS M/P Settles 77% of 2008 shareholder rights issue litigation
Ryanair M/P Solid traffic stats Load factor +2% at 95% and Traffic 15%
TradeGate
DBK -2%
DBK -2%
ISP -7.7%
GLE -1.3%
BMPS -11%
RWE -1.4%
ENEL -1.5%
CBK -1.4%
DB1 -1.2%
PSM +0.5%
TLX -2.4%
ZAL -1.6%
SZG -1.6%
COV1 +3.1%
AIXT +2.5%
Julius Baer
ATLN +7.2%
Julius Baer
ATLN +7.2%
CSGN -1.7%
UBSG -1.8%
How to position for European policy uncertainty in 2017
Burberry spurned takeover approaches from bigger US rival Coach
A deal would have created a global fashion group with a market value above $20bn
Burberry, the UK’s biggest luxury goods retailer, rejected multiple takeover overtures from US fashion accessories group Coach in recent months, according to people briefed on the matter.
A deal would have created a group with a market value above $20bn, bringing together the US company’s leather goods, handbags and shoemaker Stuart Weitzman with Burberry’s trademark luxury outerwear and global retail footprint.
Talks are no longer active between the companies and that is not expected to change anytime soon after Burberry saw off the interest from its larger rival, these people added. Burberry and Coach declined to comment.
The Coach proposals, which peaked sometime after the summer, were informal and envisaged a cash-and-stock takeover of Burberry. It was unclear at what premium they were made or if Burberry ever engaged in serious talks with the US company.
One of the people following the process closely said Coach might have been more successful if had it acted on its interest in the British company earlier this year.
Burberry shares struggled in the first half of 2016, under pressure from a slowdown in luxury demand from Asia and questions over its leadership. The weakness in sterling after the UK’s vote to exit the EU has also hurt the value of its share price, though it has benefited from an exchange rate boost to its sales in dollars and euros.
Shares in the British fashion group have climbed a third since hitting their lowest level in mid-June to reach £14.11. The company has a market value of £6.2bn and has no debt.
Related article
How Coach Inc got its roar back
The US brand’s chief executive Victor Luis and designer Stuart Vevers discuss the house’s transformation
In July, Burberry said Marco Gobbetti, head of French luxury brand Céline, would become chief executive at the start of next year, replacing Christopher Bailey from the role he held since May 2014. Mr Bailey will remain the company’s chief designer and will add a new role of president when Mr Gobbetti begins.
Its finance director Carol Fairweather was also replaced by Julie Brown, who joined from Smith & Nephew, the UK medical device company. In September, Burberry unveiled a “see now, buy now” at London Fashion Week that allows consumers to buy products immediately after they are shown on the runway.
In an interview with the Financial Times last week, Victor Luis, chief executive of Coach, and designer Stuart Vevers declined to comment on rumours of its interest in Burberry.
However, the duo have been looking to expand Coach’s focus on outerwear, its European and developing market footprint and diversify its brands.
Mr Luis took over as chief executive of Coach in 2014 and helped bring the company back to sales growth after streamlining the business and promoting the brand’s status. Last year, Coach beat competition from rival retailers to acquire women’s luxury shoemaker Stuart Weitzman for $574m to bolster its footwear offering.
Shares in Coach have climbed 11 per cent since the start of the year, taking its market capitalisation to $10.1bn.
Coach was working with three investment banks including independent advisory group Evercore Partners on the situation. Burberry’s advisers included the London-based advisory firm Robey Warshaw.
Holding company discount update: back below its medium-term average
Our Hold rating on Dior is based on: 1) disappointing trends at Dior Couture (c.8-9% of EV), the only operating asset apart from the LVMH stake, on both revenues and profitability; 2) the unattractive current holding company discount (near the average at c.15%); and 3) a lack of catalysts for a major change in the holding company discount, i.e. no changes to the shareholding structure