Closing Market Summary: Indices End on Mixed Note as Biotech Continues RallyThe major averages ended the Tuesday session on a mixed note as a rebound in the health care space (+0.9%) and the outperformance of the technology sector (+0.1%) outweighed the initial selling pressure following news of a terrorist attack in Brussels. Meanwhile, sustained strength from the energy sector (-0.3%) also helped support the move higher in the broader market. The Dow Jones Industrial Average (-0.2%) ended its day behind the S&P 500 (-0.1%) and the Nasdaq Composite (+0.3%).
Today's session began on a shaky note as investors turned to safe havens following reports of terror attacks in Belgium's capital of Brussels. Explosions at the Brussels airport and a crowded metro station resulted in at least 30 deaths and more than 200 injuries. Terrorist organization ISIS has since claimed responsibility for the attack. Because of the attack, the major indices all opened beneath their flat lines and risk averse assets received a bid.
The consumer discretionary space (-0.2%) and the industrial sector (-0.3%) showed early weakness as lodging names and airlines displayed heavy losses. However, an extended rally in the recovering health care group (+0.9%) and sector leadership from the influential technology space (+0.1%) helped support the broader market. As a result, the remaining sectors were lifted from their session lows.
Health care (+0.9%), technology (+0.1%), and materials (+0.1%) ended in the green while consumer staples (-0.8%), telecom services (-0.5%), and financials (-0.3%) ended with the largest losses.
The heavily-weighted health care space (+0.9%) boosted investor sentiment as biotechnology extended this week's rebound effort. To that point, the iShares Nasdaq Biotechnology ETF (IBB 263.10, +6.61) extended its weekly gain to 5.0%. Meanwhile, health care large caps also outperformed with AbbVie (ABBV 57.50, +1.49) and Pfizer (PFE 30.38, +0.31) gained 2.7% and 1.0%, respectively.
In the technology space, heavyweight component Apple (AAPL 106.72, +0.81) gained 0.8% in the wake of yesterday's flat showing following its product event. Separately, data storage names like Western Digital (WDC 51.34, +2.05) and Seagate Technology (STX 37.04, +0.50) outperformed while the PHLX Semiconductor Index (-0.1%) ended modestly lower.
The energy sector (-0.3%) was able to avoid larger losses despite a downturn in oil. WTI crude ended its day lower by 0.3% at $41.45/bbl after reports indicated that Libya will not take part in a proposed supply cut between OPEC and non-OPEC countries. To be fair though, oil and gas pipeline companies ended with the largest gains as the names likely benefited from the 1.6% jump in natural gas ($1.86/mmbtu).
The U.S. Dollar Index (95.63, +0.35) ended off its best level of the day, but the greenback still remained higher against the yen and the euro. The dollar/yen pair traded higher by 0.3% (112.31) after rallying off the 111.55 level. Meanwhile, the euro/dollar pair finished its day lower by 0.2% at 1.1219.
The yield on the 10-yr note slipped to 1.88% (-4 bps) at the beginning of today's session, but Treasuries sold off as stocks rallied. The yield on the 10-yr note ended higher by two basis points at 1.94%.
Once again, today's volume was on the lighter side as fewer than 819.21 million shares changed hands on the NYSE floor.
Today's economic data was limited to the FHFA Housing Price Index for January, which rose 0.5% month-over-month after increasing a revised 0.5% (from 0.4%) in December.
Tomorrow's economic data will include the 7:00 ET release of the weekly MBA Mortgage Index and the February New Homes Sales Report (511k), which will cross the wires at 10:00 ET.
- Nasdaq Composite: -3.7% YTD
- Russell 2000: -3.4% YTD
- S&P 500: +0.3% YTD
- Dow Jones +0.9% YTD
Bayer/Monsanto talks more likely to result in sale than JV - MergerMarket
Talks between Bayer [ETR: BAYN] and Monsanto [NYSE:MON] would most likely result in a sale of the German chemical company’s crop-science division rather than a joint venture or partnership, according to a source familiar with the situation.
It was reported late last week that Bayer was in talks with Monsanto over a possible sale or joint venture around Bayer CropScience.
The talks are still at preliminary stage and there is no formal process yet, the source said. A sale would result in a better value for the German company Bayer, he added.
A spokesperson for Bayer declined to comment.
Monsanto has the financial fire power for an outright acquisition of the unit, which could reportedly be worth more than USD 30bn. The US group last year offered in the region of USD 45bn to acquire Syngenta [VTX:SYNN], but withdrew after continued opposition from the Swiss company.
Most major seeds and crop protection providers are talking to each other following the two recent mega mergers of Syngenta/ChemChina and Dow Chemical [NYSE:DOW]/DuPont [NYSE:DD], one sector banker said.
Reports last month had also flagged the possibility of Bayer and BASF [ETR:BAS] merging their respective agrochemicals units.
Monsanto is expected to make a move, this banker added, as the group is keen to focus on growing in the seeds business and needs to compete more efficiently.
There is a lot more value in Bayer CropScience versus BASF in terms of synergies and what it could bring to Monsanto, the source said in response to whether Monsanto may also be considering BASF’s agrochemicals unit.
Bayer is more of an innovator, the source said. Monsanto is clearly after these kind of high-end segments, as demonstrated by its relentless pursuit of Syngenta, which has similar high-end seeds treatments, he claimed.
But, a second sector banker did not rule out a tie-up between BASF and Monsanto. BASF is more eager to make a move and might approach Monsanto, this banker said.
Bayer CropScience has operations in crop protection, seeds and non-agricultural pest control. The unit reported EUR 10.4bn (USD 11.7bn) sales and EUR 2.42bn adjusted EBITDA last year, as reported.
A tie-up between Bayer and Monsanto is likely to create some antitrust issues, the source and the two bankers agreed. The companies’ activities mainly overlap in the production of cotton, weeds and vegetables, the second banker said.
Any tie-up with Monsanto would involve some divestments, the bankers and source said. But this will not stop Monsanto, the source said, adding that a deal of this kind is paramount to Monsanto, which will likely have a divestment plan if needed to satisfy the regulators.
TUI’s Hotelbeds to attract bids from HNA, Expedia, Priceline and PEs
Hotelbeds, the Spanish subsidiary of German travel group TUI [LON:TUI], is expected to attract first round bids from a number of US and China-based strategic players, including HNA International Investment Holdings [HKG:0521], Expedia [NASDAQ: EXPE] and booking.com’s owner Priceline [NASDAQ:PCLN], two sources familiar with the situation said.
A number of sponsors including EQT are also looking to get involved in the bidding process, both sources said. Cinven and Carlyle are also in the fray, the first source said. EQT, which agreed to acquire Swiss tour operator Kuoni for GBP 850m (EUR 1.11bn) in January, is reportedly planning to merge it with Hotelbeds.
Other Chinese players, including Fosun International [HKG:0656] and Ctrip [NASDAQ: CTRP] are also interested in Hotelbeds, the second source added.
Bids are expected after the Easter break, the first source said, adding TUI already received expressions of interest at the beginning of the month.
HNA, Fosun, Expedia and Priceline did not reply to emails and calls seeking comment. Ctrip, EQT and Cinven declined to comment.
TUI and Carlyle did not immediately reply to a request for comment.
The vendor is expecting a valuation in the double digits EBITDA multiple, the first source said. Hotelbeds reported EUR 117m in earnings before interest and tax in the FY to September 2015. It could fetch between EUR 750m and EUR 1bn, press reports said.
Bank of America Merrill Lynch and Deutsche Bank are providing sellside advice, as reported.
TUI, which has a market capitalization of EUR 7.5bn, is one of the world’s largest tourism business. It owns 1,800 travel agencies and leading online portals, six airlines with more than 130 aircraft, over 300 hotels with 210,000 beds, and 13 cruise liners in major holiday destinations around the globe.
The Time and Place for ‘Helicopter Money’
The promise of monetizing the debt is often too good to be true. That doesn’t mean it ought to be taboo, Greg Ip says.
With fiscal and monetary policy reaching their limits, the search for new solutions to the world’s low-growth, low inflation rut has turned to “helicopter money.”
The policy gets its name from an essay by Milton Friedman in 1969 that imagined newly printed money dropped from helicopters. While it evokes images of Weimar Germany and hyperinflation, it’s actually not that exotic or, for the U.S., unprecedented. It’s a logical option for any country struggling with deflation and slow growth, as Japan has and perhaps other countries some day may.
Peter Praet, the European Central Bank’s chief economist, recently noted, “All central banks can do it. The question is, if and when is it opportune.” Richard Clarida, a Columbia University economist, predicts: “We will see a variant of helicopter money (perhaps thinly disguised) in the next 10 years if not the next five.”
Haven’t central banks been doing that, through quantitative easing, known as QE? No. Helicopter money—which, in its more practical forms, is called monetary finance, or monetizing the debt—is used to purchase goods and services. With QE, the newly created money is used to buy government bonds. This pushes down bond yields, which should make consumers borrow and spend more—as interest rate cuts do in normal times. But that may not work, if people are so risk-averse they are willing to hold Treasury bills or cash with no return whatsoever rather than spend.
Helicopter money is also different from traditional fiscal stimulus. Then, the government sells bonds to the public and uses the proceeds to directly stimulate demand, for example by building highways, hiring teachers or cutting taxes. But eventually more government borrowing will push up interest rates, hurting private investment and raising solvency worries. Households, expecting their taxes to rise, may spend less (a phenomenon dubbed Ricardian equivalence).
Helicopter money merges QE and fiscal policy while, in theory, getting around limitations on both. The government issues bonds to the central bank, which pays for them with newly created money. The government uses that money to invest, hire, send people checks or cut taxes, virtually guaranteeing that total spending will go up. Because the Fed, not the public, is buying the bonds, private investment isn’t crowded out.
Unlike with QE, the Fed promises never to sell the bonds or withdraw from circulation the money it created. It returns the interest earned on the bonds to the government. That means households won’t expect their taxes to go up to repay the bonds. It also means they should expect prices eventually to rise. As spending and prices rise, nominal GDP goes up, so the debt-to-GDP ratio can remain stable.
If this sounds too good to be true, it’s because usually it is. Throughout history, governments that couldn’t or wouldn’t collect enough taxes to finance their spending resorted to the printing press, from the U.S. Confederacy in the 1860s to Zimbabwe in the 1990s. It’s why so many central banks, including the ECB, are prohibited from financing government deficits.
But just because monetizing the debt can cause hyperinflation doesn’t mean it must. In ordinary times, the Fed is continuously monetizing debt to create enough currency to lubricate the wheels of commerce. Between 1997 and 2007, before QE began, its holdings of government debt rose by $355 billion, and currency in circulation rose by a similar amount. In effect, the government borrowed and spent $355 billion and never has to repay it.
In that instance, the Fed only created as much currency as the public wanted. What if it created more, to finance government spending? Even that isn’t necessarily catastrophic. In his book “Between Debt and the Devil,” which advocates helicopter money, the British economist Adair Turner cites Pennsylvania in the early 1700s, the U.S. Union government in the 1860s and Japan in the early 1930s as examples of governments that used monetary finance without triggering hyperinflation.
An even better example is World War II. The federal government had to borrow heavily to finance the war effort and the Fed helped by buying bonds to keep their yields from rising above 2.5%. Between 1940 and 1945, the Fed’s holdings of debt rose from $2.5 billion to $22 billion, an increase roughly equal to 9% of annual GDP. Though this only financed a fraction of the war, it was still debt monetization: most of those purchases proved to be permanent.
The war effort massively boosted nominal GDP. Initially, only part of that showed up as higher prices, thanks to wage and price controls. Most of it came through a stunning rise in real output, made possible by the economy’s depressed prewar state, a flood of women into the labor force and business innovation to meet the demands of war and the civilian economy. As wage and price controls ended, prices shot up 34% between 1945 and 1948. But then, inflation reverted to low single digits.
Today, governments are trying to get inflation higher, not lower. But QE and deficit spending to date have yet to accomplish that. Would helicopter money? Mr. Clarida, who is also an adviser to bond manager Pacific Investment Management Co., says to have the desired effect central banks and governments must coordinate at the outset. Rather than commit, as the Fed has done, to eventually get rid of its bonds, it must promise to hold them forever. “If markets expect the new debt to be sold into the market in the future, that would depress consumption as households and firms expect a future tax increase.” Moreover, he notes, the Fed must not pay interest on the reserves it creates when it buys the debt, as that would negate the fiscal benefits.
The main concern with monetary finance is that inflation is an arbitrary tax on holders of cash and bonds. If politicians get used to the printing press, they could let inflation rip, destroying the wealth of many households.
Mr. Turner says, “There is no technical reason money finance should produce excessive inflation.” The government could require banks to hold more of the newly created cash as reserves at the Fed. By limiting how much banks can lend, the government would limit how fast nominal GDP would rise.
Another obstacle is the institutional separation between monetary and fiscal policy. That separation exists for a good reason: Central banks were granted independence so that they would not become the printing press for feckless politicians. The Fed was uncomfortable doing the Treasury’s bidding during World War II and dates its de facto independence to the end of the arrangement in 1951. In 2013, Treasury was advised to sell the Fed a platinum coin to get around the statutory debt ceiling. Treasury dismissed the idea as a dangerous violation of Fed independence.
Tampering with this long-standing separation should not be done lightly. For the U.S., which is at close to full employment and in no imminent danger of deflation, the tradeoff hardly seems worthwhile. But there may be times, and countries, when it is. Monetary finance isn’t riskless, Mr. Turner says, but the alternatives may be worse: stagnation and deflation, or perpetually low interest rates that fuel dangerous bubbles: “The money finance option should not be excluded as taboo.”
Statement from Apple Inc. ("Apple") re. Imagination Technologies plc ("Imagination")
From time to time, Apple talks with companies about potential acquisitions. We had some discussions with Imagination, but we do not plan to make an offer for the company at this time.
This announcement is made in accordance with Rule 2.8 of the Code. As a result of this announcement, Apple will, except with the consent of the UK Panel on Takeovers and Mergers, be bound by the restrictions contained in Rule 2.8 of the Code.
RTRS - HEIDELBERGCEMENT HEIG.DE SAYS IN AGM INVITATION TO REQUEST PERMISSION TO BUY BACK UP TO 10 PCT OF OWN SHARES
Scientists Warn of Perilous Climate Shift Within Decades, Not Centuries http://nyti.ms/1pZR0fN
The nations of the world agreed years ago to try to limit global warming to a level they hoped would prove somewhat tolerable. But a group of leading climate scientists warned on Tuesday that permitting a warming of that magnitude would actually be highly dangerous.
The likely consequences would include killer storms stronger than any in modern times, the disintegration of large parts of the polar ice sheets, and a rise of the sea sufficient to begin drowning the world’s coastal cities before the end of this century, the scientists declared.
“We’re in danger of handing young people a situation that’s out of their control,” said James E. Hansen, the retired NASA climate scientist who led the new research. The findings were released Tuesday morning by a European science journal, Atmospheric Chemistry and Physics.
A draft version of the paper had been released last year, and it provoked a roiling debate among climate scientists. The main conclusions have not changed, however, and a replay of that debate seems likely in the coming weeks.
Virtually all climate scientists agree with Dr. Hansen and his co-authors that society is not moving fast enough to reduce emissions of greenhouse gases, posing grave risks. The basic claim of the paper is that by burning fossil fuels at a prodigious pace and pouring heat-trapping gases into the atmosphere, humanity is about to provoke an abrupt climate shift.
That claim has intrigued some experts who say the paper may help explain puzzling episodes in the Earth’s past when geological evidence suggests the climate underwent sudden, drastic shifts.
Yet many of the experts remain unconvinced by some of the specific assertions that were made in the draft paper, and they have not all been persuaded by the final version.
“Some of the claims in this paper are indeed extraordinary,” said Michael E. Mann, a climate scientist at Pennsylvania State University. “They conflict with the mainstream understanding of climate change to the point where the standard of proof is quite high.”
Among Dr. Hansen’s colleagues, some of the discomfiture about the new paper stems from his dual roles as a publishing climate scientist and, in recent years, as a political activist. He has been arrested at rallies, and he has joined with a group of young people who sued the federal government over what they said was its failure to limit global warming.
Dr. Hansen argues that society is in such grave peril that he feels morally compelled to go beyond the normal role played by a scientist and to sound a clear warning. That stance has made him a hero to college students fighting climate change, but some fellow scientists say they believe he has opened himself to the charge that he is skewing his scientific research for political purposes.
The nations of the world agreed to try to limit the warming to 3.6 degrees Fahrenheit, or 2 degrees Celsius, above the preindustrial level, though they have yet to agree on any program remotely ambitious enough to achieve that goal. The Earth has already warmed by about half that amount, with the consequence that virtually all land ice on the planet has started to melt and that the oceans are rising at an accelerating pace.
The paper by Dr. Hansen and 18 co-authors dwells on the last time the Earth warmed naturally, about 120,000 years ago, when the temperature reached a level estimated to have been only slightly higher than today. Much of the polar ice disintegrated then, and scientists have established that the sea level rose 20 to 30 feet.
Climate scientists agree that humanity is about to cause an equal or greater rise in sea level, but they have tended to assume that such a large increase would take centuries. The new paper argues that it could happen far more rapidly, with the worst case being several feet of sea-level rise over the next 50 years, followed by increases so precipitous that they would force humanity to beat a hasty retreat from today’s coastlines.
“That would mean loss of all coastal cities, most of the world’s large cities and all their history,” Dr. Hansen said in a video statement that accompanied the new paper.
The paper identifies a specific mechanism that the scientists say they believe could help cause such an abrupt climate shift.
Their idea is that the initial melting of the great ice sheets will put a cap of relatively fresh water on the ocean surfaces near Antarctica and Greenland. That, they think, will slow or even shut down the system of ocean currents that redistributes heat around the planet and allows some of it to escape into space.
Warmth will then accumulate in the deeper parts of the ocean, the scientists think, speeding the melting of parts of the ice sheets that sit below sea level. In addition, a wider temperature difference between the tropics and the poles will encourage powerful storms. The paper cites evidence, much of it contested, that immense storms happened during the warm period 120,000 years ago.
The idea of a shutdown in the ocean circulation because of global warming was considered more than a decade ago, and it was rejected by most scientists as unlikely. That did not stop a distorted version of the idea from becoming the premise of the disaster movie “The Day After Tomorrow,” released in 2004.
The new paper may reopen that debate, forcing scientists to re-examine the idea with the more sophisticated computer models of the climate that are available today.
Even scientists wary of the conclusions of the new paper point out that Dr. Hansen has a long history of being ahead of the curve in climate science. As Dr. Mann put it, “I think we ignore James Hansen at our peril.”
Medivation: Canaccord Genuity lowers Xtandi estimates
Canaccord Genuity is lowering their FY2016 US Xtandi estimates to $1.40B from $1.49B, below Medivation's guidance of $1.425-$1.525B and Bloomberg and FactSet consensus estimates of $1.43-1.44B based on a higher gross to net adjustment. They maintain their HOLD rating ($45 tgt) based on flattening near-term growth for Xtandi in the US, but with potential label expansion for Xtandi and positive data in breast cancer at YE16. They look forward to the release of Xtandi AR+ breast cancer data in TNBC and ER/PR+ BC at ASCO and/or SABCS, and potential label expansion in Q4.
Gapping up
In reaction to strong earnings/guidance: AKRX +10.8%, NQ +9.9%, LEU +1.3%
M&A news: MDVN +1.5% (TheDailyMail discussed takeover speculation surrounding Medivation, with RHHBY, AZN, & SNY among rumored potential suitors)
Select mining stocks trading higher: DRD +5.3%, AU +3.6%, HMY +2.3%, ABX +1.5%, GDX +1.1%
Other news: CLDN +4.3% (Celladon announces results of special shareholders meeting, approval of merger, 1:15 reverse stock split, & company name change ), SHAK +3.6% (still checking), VSLR +2.7% (closes a $200 mln term facility to be used for residential solar projects), IMMY +2.6% (Management discloses 6.4% passive stake) AFFX +1.8% (Origin Technologies provides additional information to Affymetrix Board; Reiterates commitment to acquire Affymetrix for $16.10 per share in cash), VRX +1.8% (cont vol pre-mkt), AAC +1.4% (confirms the dismissal of second degree murder charges against it and various of its executives), ABMD +1.3% (Abiomed comes to agreement with the FDA on the indication for use for emergency patients suffering from cardiogenic shock following acute myocardial infarction or cardiac surgery for the Pre-Market Approval for the Impella devices), SLW +0.8% (enters into Early Deposit Precious Metals Purchase Agreement with Panoro Minerals), .
Analyst comments: ZG +2.3% (upgraded to Outperform from Sector Perform at RBC Capital Mkts), WYNN +1.8% (upgraded to Overweight from Equal-Weight at Morgan Stanley), SLM +1.7% (upgraded to Buy at DA Davidson), ANF +1.4% (Added to Franchise Pick List at Jefferies)