>>> Liberty Global owner John Malone signals weakened pound increases prospects

Liberty Global owner John Malone signals weakened pound increases prospects of Vodafone takeover

Liberty Global (Nasdaq:LBTYA) owner John Malone has indicated that the weakened value of sterling following the UK’s Brexit vote increases the chances of the group attempting a takeover of Vodafone (LON:VOD), The Times reported. Malone travelled to London to meet employees of Liberty subsidiary Virgin Media this week; when asked privately at a gala dinner if a deal for Vodafone is more likely in the light of the falling value of the pound he said the weakened British currency “certainly” encouraged him to consider the situation and look at whether anything could be done, the item reported.

Malone last year said the two media and telecoms groups would be a “great fit” and they have already agreed to join forces on a Netherlands-based joint venture, the report noted.

Malone went on to say that Liberty would not necessarily wait to agree a deal with Vodafone and could instead opt to take over the Spanish-owned UK-based telecoms group O2. “Everything” is considered and evaluated, he said.

Vodafone Chief Executive Vittorio Colao stated yesterday, Friday 22 July, that he did not believe the prospects of a deal with Liberty to have been affected by the UK’s vote to leave the European Union, the item reported.

>>> Weekly Update

Weekly Market Update: Markets continue rally on solid data and corporate earnings

Political developments and quarterly earnings were the main focus this week, although incessant speculation surrounding foreign, Central Bank intervention swung investor risk sentiment. Thursday broke a string of record closing highs on the DJIA and S&P500, but by Friday the S&P was back at all-time highs. The Republican Party gathered in Cleveland to officially nominate Donald Trump as their presidential candidate, while in Turkey an attempted coup by the military was put down, adding to the endless turmoil in the Middle East. Crude prices retreated back below $45, marking six weeks of contraction after key benchmarks topped out above $50 in early June. About a fifth of the S&P500 have reported quarterly earnings, with average profits a bit lower y/y and revenue a shade higher. While tech and financials have been generally impressive, consumer discretionary stalwarts have hit a wall, and Starbucks CEO went as far as to cite deteriorating global conditions - terrorism, and Brexit included - as driving a cooling in consumer confidence. After another solid swath of US economic data, US Treasury prices moved marginally higher, but yields largely consolidated just below the recent one-month highs. For the week, the DJIA gained 0.3%, the S&P500 rose 0.6% and the Nasdaq added 1.4%.

Fresh off its big election win last week, the government of Japan PM Abe has been crafting yet another huge stimulus program to revive the domestic economy and slay deflation. Three years of Abenomics, promises of sweeping legislative reform and negative rates have failed to do the job, and this week press reports suggested Abe's people are designing a fiscal package valued up to ¥20-30 trillion ($186-280 billion) - well ahead of the ¥10T discussed in the immediate aftermath of the election, given that some of the government guarantees and other off-budget measures will run into 2017 and beyond. There has been plenty of talk that the Bank of Japan will also pursue additional measures, and Kuroda has repeatedly said the BoJ is prepared to push rates lower, although the most recent speculation has fixated on the possibility the bank might pursue direct financing of government fiscal measures, widely referred to under Bernanke's formulation as "helicopter money." Kuroda strongly pushed back against that idea again this week, reiterating that there is neither the need for or the possibility of helicopter money, having already emphasized several times that the approach would be illegal under Japanese law. The yen pushed out to six-week lows around 107.60 on speculative press reports about helicopter money, but Kuroda's denials pushed USD/JPY back toward the 105 handle on Friday.

Top Chinese planning agency NDRC forecasted China 2016 CPI to be around 2% - well below the 3% official target - and GDP in a range of 6.5-6.8%, compared to the official 6.5-7.0% forecast. The agency warned that China was still facing increasing difficulties in stabilizing growth with investment and the possibility of overheating home prices. Fitch released a report that cautioned measures by policymakers in Beijing to reduce debt-servicing costs were fueling the ongoing credit boom, warning that "risks of asset quality and liquidity shocks to the banking system will continue to grow the longer that total leverage grows." Fitch estimates that total loans to the private sector have almost doubled since the 2008 crisis, reaching 243% of GDP in 2015, likely to rise to 253% by the end of 2016.

An attempt by a faction of the Turkish armed forces to overthrow the government of President Erdogan late last Friday rattled investor sentiment coming into the week. The coup attempt saw violent confrontations in the Turkish capital of Ankara and in Istanbul and produced a sharp reversal in risk assets, but the uprising was contained and the market impact was fairly limited. Erdogan's government has detained thousands of military officers suspected of treason and dismissed tens of thousands of teachers and civil servants in a wide-ranging purge of those believed to be sympathetic to Fethullah Gulen, a US-based cleric and political oppositionist being blamed for the coup. Turkey declared a state of emergency for three months and tensions with the US are rising as the government demands the extradition of Gulen.

The first big batch of post-Brexit European economic data showed minimal impact on the Continent from the UK vote. France and Germany preliminary July Markit composite PMIs beat expectations. Meanwhile, the UK July Markit composite PMI sank into contraction and saw its lowest reading in seven years. The new UK government has gotten to work with minimal snafus, although given his gaffe-filled record the appointment of Boris Johnson as foreign secretary has raised some eyebrows. Prime Minister Teresa May reiterated her government would not invoke Article 50 to leave EU before the end of 2016. Cable remained in a fairly tight range after the volatility of the prior two weeks, with GBP/USD bouncing around between 1.3315 and 1.3065.

The overall tone of the June quarter earnings reports has been lukewarm, with banks and tech showing real pockets of strength and revenue levels seeing very modest growth. Bank of America, Goldman Sachs and Morgan Stanley managed to beat expectations, but all three had some problems in the quarter, with lower ROE levels on falling interest rates. Both GS and MS saw lower y/y revenues. In tech, Microsoft is seeing very strong growth in its cloud business, offsetting the declines in the Windows unit. IBM's revenue and earnings declined less than expected (although IBM's revenue has now fallen for 17 straight quarters). Qualcomm saw very good gains on strong outperformance.

Airlines got hit by problems in Southwest's earnings. Higher fuel prices are looming on the horizon for the industry, and while Southwest's quarterly numbers were good, the firm's outlook for Q3 anticipates fuel costs rising back above $2/gallon for the first time in a while and RASM in contraction. Results from American and United Continental beat expectations, although both firms said RASM levels would be lower in the second half of the year. Germany's Lufthansa also had a mixed earnings report, and predicted weakness in Q3 unit revenues.

Industrial firms Honeywell and General Electric had mixed results. GE reported lower quarterly profits and revenue in its core industrial business, weighed down by its underperforming oil equipment division. Honeywell cut its 2016 sales forecast amid sluggish global growth and lower demand for energy-related products. Meanwhile, General Motors raised its FY outlook and posted record second-quarter earnings, beating analysts' estimates by a wide margin as truck sales increased in North America and its European business managed a small profit.

The Department of Justice sued to block the Anthem-Cigna and Aetna-Humana mega mergers. US Attorney General Lynch warned that US consumers would suffer if the Big Five health insurance names became the Big Three and said her department would vigorously enforce anti-trust laws. Press reports early in the week hinted about the development, forcing shares of all four firms lower, although the confirmation of the DoJ's suit and statements issued by the firms promising to vigorously defend the deals helped the stocks regain all their losses. In other M&A news, after years of takeover speculation and a 70% decline in its stock price over the last half a decade, Joy Global agreed to be acquired by Japan's Komatsu for $28.30/share in cash, in a total deal valued at $3.70 billion. Japan's Softbank reached a deal to acquire UK technology company ARM Holdings for £17/share in a £24B deal, as the Japanese telco conglomerate aims to capture opportunities in the IoT market.

>>> US Close Dow +0.29% S&P +0.46% Nasdaq +0.52% Russell +0.75%


Closing Market Summary: Low Volume Affair Extends Recent Bull Run

The stock market ended an upbeat week on a higher note as the major averages soared to new all-time highs. The broader market maintained its bullish posture as investors examined a hodgepodge of quarterly earnings reports. Other focal points impacting today's trade included strengthening in the dollar, weakness from the oil pit, and key sector leadership from the technology (+0.5%), consumer discretionary (+0.5%), and financial (+0.6%) sectors. The Nasdaq Composite (+0.5%) finished in-line with the S&P 500 (+0.5%) and ahead of the Dow Jones Industrial Average (+0.3%).

Equity indices began the day on a choppy note as participants eyed a relatively flat finish in global bourses. Across the pond, the first batch of post-Brexit regional PMI readings came in on a mixed note as the United Kingdom's July Manufacturing PMI (49.1; last: 52.1) and July Services PMI (47.4; expected last: 52.3) each showed noticeable contractions. On the flipside, eurozone PMI fared better, but July Manufacturing PMI (51.9; last: 52.8) and July Services PMI (52.7; last: 52.8) both declined from their June readings.

The benchmark index slipped during the first hour of trade, finding its bearings after the preliminary reading of U.S. Markit Manufacturing PMI (52.9; last: 51.3) for July came in better than expected. The major averages rallied off their opening low as heavily-weighted industrials (+0.1%) and technology (+0.5%) erased their opening losses. All ten sectors finished in the green as financials (+0.6%), telecom services (+1.3%), and utilities (+1.3%) led the pack. The remaining gainers ended with upticks between 0.1% (industrials) and 0.5% (consumer discretionary).

The financial sector (+0.6%) extended its weekly gain to 0.7%, compared to a gain of 0.6% in the benchmark index. In the group, asset management companies outperformed as they rebounded alongside Bank of New York Mellon (BK 39.19, +0.59). Additionally, Dow component American Express (AXP 64.28, +0.85) outperformed as it rebounded in sympathy with Visa (V 79.91, +1.12). The credit service name beat bottom-line estimates for the quarter and announced an additional $5 billion in share buybacks. Separately, E*TRADE (ETFC 25.81, +0.59) climbed 2.3% as investors responded to a 10.5% increase in revenue year-over-year.

The consumer discretionary space (+0.5%) outperformed as restaurant names gained alongside Chipotle Mexican Grill (CMG 442.48, +24.41). The stock rallied 5.8% after reporting better-than-feared quarterly results. Elsewhere, Panera Bread (PNRA 215.54, +5.59) and Buffalo Wild Wings (BWLD 140.77, +6.12) gained 2.7% and 4.6%, respectively. The two names are slated to report earnings next Tuesday. On the flipside, 21st Century Fox (FOXA 27.11, -0.07) underperformed after Fox News CEO Roger Ailes resigned from his position.

In the technology space (+0.5%), Dow component Microsoft (MSFT 56.57, +0.77) outperformed, extending its weekly advance to 5.3%. The high-beta chipmakers ended the day in-line with the broader sector as the group moved higher in sympathy with Advanced Micro (AMD 5.84, +0.62). The stock spiked 11.9% after beating estimates for the quarter and raising its third-quarter outlook. On the flipside, Skyworks (SWKS 64.81, -6.11) underperformed as inventory fears outweighed positive quarterly results.

The heavily-weighted industrial sector (+0.1%) finished above its flat line as rail names and airlines rebounded. Union Pacific (UNP 92.85, +1.92) jumped 2.1% after falling 3.4% yesterday. Dow component General Electric (GE 32.06, -0.53) rounded out the price-weighted index after reporting a 16.0% loss in organic orders. Elsewhere, Honeywell (HON 115.61, -3.05) finished lower by 2.6% after its top line failed to impress investors.

The U.S. Dollar Index (97.36, +0.36) settled higher as the yen, euro, and pound each slipped against the greenback. The dollar/yen pair finished higher by 0.2% (106.07) while the single currency ticked lower by 0.4% against the buck (1.0978). Separately, sterling fell 1.0% against the dollar (1.3098).

The Treasury complex finished on a mixed note with the yield on the 10-yr note rising one basis point to 1.56%.

Today's trading volume was below the recent average as fewer than 733 million shares changed hands on the NYSE floor.

There was no economic data of note released today. Monday's economic calendar will also be empty, but data will pick up later in the week with a Wednesday release of the FOMC's July Policy Statement. 

Week in Review: Stocks Climb to Record(er) Highs

The stock market flirted with its first weekly decline in four weeks, but steady buying interest on Friday helped equities secure yet another round of weekly gains. The S&P 500 added 0.6% while the Nasdaq Composite (+1.4%) outperformed.

Quarterly earnings were in focus throughout the week, but more results will be released in coming weeks with 75.4% of S&P 500 members still due to report their earnings. So far, blended earnings for the second quarter are down 3.6% with energy (-78.2%) and materials (-10.1%) showing the largest blended declines while sectors like telecom services (+6.1%) and consumer discretionary (+8.5%) have shown blended earnings growth.

Next week will feature more quarterly reports, but central banks will be back in the spotlight, starting with a Wednesday policy statement from the Federal Reserve. The Fed will be followed by the Bank of Japan, which will announce the results of its meeting on Friday.

Investors have not shown much concern about the upcoming Fed meeting, considering the fed funds futures market implies just a 2.4% chance of a rate hike being announced on Wednesday. Rate hike expectations for the next two meetings remain subdued while the implied probability of a rate hike in December sits at 47.8%.

  • Russell 2000 +6.8% YTD
  • Dow Jones +6.6% YTD
  • S&P 500 +6.4 YTD
  • Nasdaq Composite +1.9% 

>>> Repsol disposals pressure easing due to rising oil price - advisers

Repsol disposals pressure easing due to rising oil price - advisers - Merger Market
The recovery in the oil price means that Repsol [BME:REP] can afford to keep its ambitious disposals program on ice for the time being, said two energy advisers and a person briefed on the situation.

Crude oil prices are currently trading around USD 45 after hitting a high of USD 50 a barrel in June. Prices have traded as low as USD 30 after collapsing below USD 100 in 2014.

The ratings agencies have worked on an oil price assumption in the “low 30s,” said the person, adding that any price above that level helps Repsol’s metrics. The company could accelerate its disposals programme if its investment grade rating came under threat, this news service reported in May.

The recovery means that the Spanish oil company is less stressed overall, said the first adviser.

The Madrid-based company plans to sell assets that are not linked to the oil price to raise EUR 3.1bn for 2016-2018 and a total of EUR 6.2bn by 2020. The company is closing deals that will bring its disposals so far to EUR 2.8bn, or 90% of its target for 2016-2018.

Repsol is highly unlikely to put its North Sea business on the block, said both advisers, the person and two bankers. There has been a question mark over the business since news broke in May that China Petroleum & Chemical Corp (Sinopec) [HKG:0386] is seeking USD 5.5bn repayment from a joint venture with Talisman, which was taken over by Repsol in 2015.

The company said that Sinopec’s claim is “baseless” and is a remote risk. The litigation means that it would be very hard to find a buyer, even if Repsol decided to sell, said the first adviser and one of the bankers.

A depressed post-Brexit UK pound also makes UK oil and gas more attractive in the near term, as reported. Oil is a commodity that is traded globally, so local issues tend to be less important, said the second adviser.

Repsol does not have any further disposals on its radar in the short term, the person said.

>>> Syngenta ready to acquire disposals from Bayer-Monsanto tie-up – CFO

Syngenta ready to acquire disposals from Bayer-Monsanto tie-up – CFO - MergerMArket
Syngenta [VTX:SYNN] will be first in line to acquire assets that will be offloaded to secure competition clearance if Bayer [ETR:BAYN] moves forward with its acquisition of Monsanto [NYSE:MON], Syngenta CFO, John Ramsay told this news service.

Competition authorities will make Bayer divest canola, cotton and potentially also vegetable seeds assets with a total acquisition value worth several billion dollars in the event of a deal, Ramsay said.

Syngenta is keen to acquire the assets should they come up for sale and would be backed with financing from ChemChina, Ramsay said.

In addition to anti-trust issues, opposition from the German pharmaceutical company's shareholders could also stall Bayer's attempts to buy Monsanto, Ramsay said.

Syngenta looked at the anti-trust issues facing various potential combinations during Monsanto's attempts to acquire the Swiss company, Ramsay said. Merger authorities will more likely look at combined market positions in seeds and chemicals for particular crops rather than assessing the market impact of deals on a product-by-product basis, Ramsay said. This would result in a combined Bayer-Monsanto having a stake in certain markets that could be viewed as anti-competitive behavior, he said.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: OLN -22.2%, SKX -15.5%, ATHN -11.1%, P -7.2%, ALV -7.1%, FLEX-5.6%, GEL -5.4% (also commences registered underwritten public offering of 8 mln common units representing limited partner interests), SWKS -3.9%, PYPL -3.8%, COF -2.9%, SBUX -2.7%, GE -2.1%, CMG -1.8%, HON -1.6%, T -0.8%.

Other news:
  • HTBX -25.2% (announces an underwritten public offering of common stock for an undisclosed amount of shares)
  • CFRX -19.3% (proposed underwritten public offering of common stock and warrants; terminates its sales agreement with Cowen and Company effective August 1, names Steven Gilman, PhD Chief Executive Officer effective immediately)
  • MCF -16% (entered into an agreement with a private oil and gas co to purchase one-half of seller's interests in ~12,100 gross undeveloped acres for up to $25 mln Southern Delaware Basin Acreage; commences 5 mln common stock offering)
  • OPTT -8.9% (announces proposed public offering of common stock and warrants)
  • BLIN -5.8% (discloses entry into a securities purchase agreement to sell an aggregate of 2,100,001 shares of common stock at $0.75/share)
  • VRX -2.8% (receives Complete Response Letter from the FDA regarding the New Drug Application for latanoprostene bunod ophthalmic solution)
  • BRKR -2.1% (still checking)
  • BA -1.5% (will record $2.1 bln in Q2 charges on 787, air cargo and KC-46 programs; reaffirms FY16 sales)
Analyst comments:
  • TWTR -1.6% (downgraded to Mkt Perform from Outperform at Raymond James)
  • FB -1.0% (downgraded to Neutral from Buy at BTIG Research)