Stock markets in Europe and Australia returned to trading today with catch-up rallies, building on yesterday’s moderate gains in the US. Although broader US indices
are holding steady, we could see significant action in selected companies in sectors as there has been a ton of corporate news and actions overnight.
A huge week for earnings reports has started out very positively with Netflix beating the street by a wide margin and rallying on the news overnight. Recall that recently some of the highest flyers had fallen back on concerns that earnings may not be able to keep up with valuations. This could be put to the test again later in the week when Facebook reports.
Companies across a wide variety of sectors have beaten expectations, particularly in industrials indicating that bad weather had a localized impact and that a broad based recovery appears to be underway. Most interestingly high-end motorcycle producer Harley-Davidson beat the street, a sign of strong consumer spending, while McDonalds missed, suggesting that as consumers are shifting their dining out spending upscale as the economy improves. Canadian earnings reports were mixed although positive results from railroad Canadian Pacific looks encouraging for the economy considering the rough winter.
A flurry of takeover announcements activity in the Pharmaceutical sector indicates that companies are starting to put some of their cash to work which could spark speculation that a new wave of mergers in the sector may be getting underway.
Currency trading today indicates that capital continues to move back out from defensive positions back to more aggressive stances with resource currencies like NZD, SEK, NOK and AUD leading the charge while gold, CHF and JPY underperform. The one exception so far has been CAD which is stabilizing against USD after weakening yesterday.
Several big deals have been announced in the Pharmaceutical sector this morning:
1) Eli Lilly has agreed to acquire Novartis Animal Health for $5.4B in an all cash deal.
2) Novartis has agreed to buy GlaxoSmithKline’s Oncology (Cancer) business for $14.5B plus a possible $1.5B contingent milestone payment.
3) GlaxoSmithKline has agreed to purchase Novartis’s non-flu vaccines business for $5.25B in cash plus $1.8B in milestones plus royalties
4) Valeant has launched a $46B hostile takeover bid for offering $48.30 in cash plus 0.83 Valeant shares for each Allergan share. Bill Ackman’s Pershing Square Allergan’s largest shareholder has agree to take all stock.
It’s also a big day for earnings reports, highlights include:
Netflix $0.86 vs street $0.81, guides next Q $1.12 vs street $1.00
Travelers $2.95 vs street $2.15, raised dividend by 10%
Xerox $0.27 vs street $0.24
Harley-Davidson $1.21 vs street $1.08
United Technologies $1.32 vs street $1.27, raised FY guidance to $6.65-$6.85 from $6.55-$6.85
Lockheed Martin $2.71 vs street $2.54 raised FY guidance to $10.50-$10.80 from $10.25-$10.55
McDonalds $1.21 vs street $1.24
Canadian Pacific $1.44 vs street $1.41
Rogers Comm $0.66 vs street $0.71
Teck Resources $0.12 vs street $0.26
Economic reports released overnight and this morning include:
The People’s Bank of China shifted the mix of tightening and stimulus policies overnight, removing another CNY 100 billion of emergency liquidity from the financial system while helping select rural banks by cutting their reserve ratios.
US crop data:
Spring wheat 10% planted vs 5-yr average 19%
Corn 6% planted vs 5-yr average 14%
Cotton 9% planted vs 5-yr average 12%
Australia leading index 0.3% vs previous 0.2%
Japan leading index 108.9 vs previous 108.5
Eurozone construction output 6.7% vs previous 8.8%
Economic reports due later today include:
9:00 am EDT US FHFA house prices street 0.5%
10:00 am EDT US Richmond Fed street 2
10:00 am EDT US existing home sales street 4.55M