*No surprises from G7:
No surprises from G7 meeting of finance officials in Sendai, Japan that concluded on Saturday. As expected, officials reiterated their prior commitment to refrain from competitive currency devaluations. Also stressed the importance of exchange rate volatility. However, press remained focused on the tensions between Japan and US over the yen. While Japanese officials continued to express concern that yen strength has been a function of one-sided and speculative moves, US Treasury Secretary Lew reiterated his belief that moves in the market have been orderly. Officials emphasized a balanced approach to support growth via fiscal and monetary policy and structural reforms. Despite push from Japan, no specific agreement on coordinated fiscal action.
*Fedspeak continues to lean hawkish; downplays election, Brexit risks:
More of the same in terms of the latest batch of Fedspeak. Boston Fed President Rosengren, a current FOMC voter, told FT most of the conditions outlined in the minutes as needed to justify a rate hike are on the verge of broadly being met. Noted Fed had set a “relatively low threshold” for improvement in growth given sluggish Q1 GDP. Also said Brexit vote should not stand in the way of a tightening move unless it triggered a bout of market instability. Separately, San Francisco Fed President Williams, who does not vote this year, told Fox News US presidential election would not prevent Fed from raising rates this year. WSJ pointed out that in the past 30 years, 1996 election year is the only election during which Fed made no major policy moves.
*Most sectors lower, but materials rally on M&A:
Materials best performer on the back of agrochemical M&A headlines. MON-US received a formal offer of $122/sh from BAYN-DE, with total deal worth $62B. CF-US higher after terminating proposed acquisition of OCI-NL. Consumer staples only other sector to finish higher, though nothing really stood. Other defensive leaning sectors like utilities and telecom among worst performers. Tech held up a bit better with help from upbeat AAPL-USheadlines. Quiet in financials where banking group saw slight pullback. IBs and select asset managers outperformed. A few managed care names (CIUS/ANTM-US on M&A concerns) and hospital stocks weighed on healthcare. Biotech better. Retail a drag on discretionary. Industrials in line with pockets of strength in materials and mutis. Transports mostly weaker.
*Positive Apple headlines help tech:
Tech a relative outperformer Monday with help from some positive headlines surrounding AAPL-US. Taiwan’s Economic Daily reported that AAPL suppliers have been told to prepare for production of 72M-78M new iPhone 7 units by the end of 2016. Barron’s said that would mark highest production target in about two years, and is ahead of some bearish sellside estimates of ~65M units. RBC noted that the initial indication of flat y/y production is a positive data point given investor concerns that units could be down mid to high single digits through the iPhone 7 cycle. The iPhone supply chain has been a big beneficiary of the news, both overnight in Asia and during US trading. Semiconductor names like TSMS, QRVO-US, CRUS-US, CAVM-US and SWKS-US have been among the standouts.
*Eurozone flash composite PMI at 16-month low:
Markit's Eurozone flash composite PMI fell to 52.9 in May from 53.0 in April, below the 53.2 consensus and the weakest level in 16 months. Headline miss a function of slower pace of expansion in manufacturing at 51.5 vs prior 51.7, while services steady at 53.1/. Germany a bright spot. Manufacturing expanded to 52.4 from 51.8, ahead of the 52.0 consensus. In addition, services pushed up to 55.2 from 54.5, which was also the consensus. In France, services activity accelerated to 51.8 from 50.6, which was also the consensus. While manufacturing improved to 48.3 from 48.0, it still lagged the 49.0 consensus. Markit noted disappointing flash PMI reading fits with thoughts robust pace of growth seen in Q1 will be temporary. Added forward-looking indicators also suggest a deceleration in growth.
*BoJ officials reiterate it can ease further; note improvement in economy:
In interview following G7, BoJ Governor Kuroda told CNBC central bank still has enough ammunition to reach 2% inflation target. Repeated it can implement further easing in three dimensions of quantitative, qualitative and interest rates. Also stressed it will not hesitate to act if dramatically stronger yen puts pressure on Japan's recovery. Added BoJ policy does not target exchange rate but will act if various factors, including currency, affect inflation expectations. Separately, Deputy Governor Nakaso said BoJ needs to better communicate policy effects. Noted real economy has improved due to policy. Stressed need for private sector to do more and highlighted importance of structural reform. Also said it is desirable that yen moves in stable manner and reflects fundamentals.
*Germany’s Bayer makes formal offer for Monsanto:
Following last week’s disclosure that it had made an unsolicited approach for MON-US, Germany’s BAYN-DEannounced a formal offer. Under the terms of the deal, MON shareholders would receive $122 a share in cash in a transaction valued at $62B, including debt. Amounted to a 37% premium over MON’s closing price on 9-May, before rumors of a planned bid surfaced. Merger would create the world’s biggest agricultural supplier. BAYN.GR said it expects deal to be MSD accretive to EPS in first full year after close. Highlighted synergies of ~$1.5B after three years, along with additional future benefits from integrated offerings. Deal expected to attract meaningful antitrust scrutiny. Overlap in seeds business seen as a key area of concern.
*Cigna/Anthem merger facing both internal and external scrutiny:
ANTM-US’s proposed $48B acquisition of CI-US under scrutiny on multiple fronts. WSJ said squabbles between the two companies could delay or derail antitrust approvals. Paper noted CI concerned that ATNTM’s lawsuit against pharmacy benefits manager ESRX-UScould hurt prospects for regulatory approval and combined company’s value. Added ANTM has accused CI of missing Justice Department deadlines and submitting data in the wrong format, pushing the expected date for a yes-or-no ruling to early July. Separately, NY Post cited sources close to Justice Department’s review who said antitrust officials concerned about the deal. Noted ANTM and CI only two big American insurers servicing people who are self-employed, and regulators worried a combination could lead to higher prices.
*Greece approves fiscal measures as creditors debate IMF loan buyout:
Greece’s parliament approved €5.4B package of reforms on Sunday ahead of Eurogroup meeting on 24-May. The FT cited a senior Greek official who expressed confidence €11B in new bailout funding will be unlocked. Measures passed included provision for contingency measures that automatically kick in should budget targets not be met (a sticking point for creditors in reaching political agreement). Another FT article noted creditors discussed plan on G7 sidelines that would involve EU buying out up to €14B in IMF loans, in bid to end impasse over its insistence on debt relief. Eurozone official said in return German FM Schaeuble may require IMF to firmly pledge to fully participate in next phase of Greek bailout. Paper added plan may also involve front-loading some concessions to Greece.
*China already recapitalizing its banking system:
Some signs of traction behind China’s push to address the bad-debt problem in its banking system. FT noted that according to data from Wind Information, the state-led debt-for-equity swap surged to more than $220B by the end of April, up from ~$120B at the start of March. Paper highlighted thoughts that the momentum behind the program, which has attracted a lot of skepticism from analysts, may reduce the need for an official recapitalization. Article also discussed Beijing’s efforts to address debt concerns via a program that allows local governments to swap high-yielding debt into cheaper municipal bonds. Late last month, Xinhua cited comments from Finance Minister Lou Jiwei who said that China has expanded the program to 3.2T yuan from 2T yuan.
*Hedge funds continue to focus on momentum stocks, increasingly shun value:
Positioning continues to get an outsized amount of attention. Bloomberg reported that after momentum strategies produced record gains in 2015, they have broken down thus year. Noted that a momentum portfolio has posted a negative return of 4.5% in the first four months of 2016, the biggest loss since August 2009. However, according Evercore ISI analysis, hedge funds still added momentum stocks for a fifth consecutive quarter amid thoughts selloff has been overdone. Areas of focus have been in consumer discretionary and technology, while financials have seen an exodus. Article also discussed how hedge funds have taken an increasingly bearish view of value stocks and now positioned away from this space to greatest extent in at least six years.
No surprises from G7 meeting of finance officials in Sendai, Japan that concluded on Saturday. As expected, officials reiterated their prior commitment to refrain from competitive currency devaluations. Also stressed the importance of exchange rate volatility. However, press remained focused on the tensions between Japan and US over the yen. While Japanese officials continued to express concern that yen strength has been a function of one-sided and speculative moves, US Treasury Secretary Lew reiterated his belief that moves in the market have been orderly. Officials emphasized a balanced approach to support growth via fiscal and monetary policy and structural reforms. Despite push from Japan, no specific agreement on coordinated fiscal action.
*Fedspeak continues to lean hawkish; downplays election, Brexit risks:
More of the same in terms of the latest batch of Fedspeak. Boston Fed President Rosengren, a current FOMC voter, told FT most of the conditions outlined in the minutes as needed to justify a rate hike are on the verge of broadly being met. Noted Fed had set a “relatively low threshold” for improvement in growth given sluggish Q1 GDP. Also said Brexit vote should not stand in the way of a tightening move unless it triggered a bout of market instability. Separately, San Francisco Fed President Williams, who does not vote this year, told Fox News US presidential election would not prevent Fed from raising rates this year. WSJ pointed out that in the past 30 years, 1996 election year is the only election during which Fed made no major policy moves.
*Most sectors lower, but materials rally on M&A:
Materials best performer on the back of agrochemical M&A headlines. MON-US received a formal offer of $122/sh from BAYN-DE, with total deal worth $62B. CF-US higher after terminating proposed acquisition of OCI-NL. Consumer staples only other sector to finish higher, though nothing really stood. Other defensive leaning sectors like utilities and telecom among worst performers. Tech held up a bit better with help from upbeat AAPL-USheadlines. Quiet in financials where banking group saw slight pullback. IBs and select asset managers outperformed. A few managed care names (CIUS/ANTM-US on M&A concerns) and hospital stocks weighed on healthcare. Biotech better. Retail a drag on discretionary. Industrials in line with pockets of strength in materials and mutis. Transports mostly weaker.
*Positive Apple headlines help tech:
Tech a relative outperformer Monday with help from some positive headlines surrounding AAPL-US. Taiwan’s Economic Daily reported that AAPL suppliers have been told to prepare for production of 72M-78M new iPhone 7 units by the end of 2016. Barron’s said that would mark highest production target in about two years, and is ahead of some bearish sellside estimates of ~65M units. RBC noted that the initial indication of flat y/y production is a positive data point given investor concerns that units could be down mid to high single digits through the iPhone 7 cycle. The iPhone supply chain has been a big beneficiary of the news, both overnight in Asia and during US trading. Semiconductor names like TSMS, QRVO-US, CRUS-US, CAVM-US and SWKS-US have been among the standouts.
*Eurozone flash composite PMI at 16-month low:
Markit's Eurozone flash composite PMI fell to 52.9 in May from 53.0 in April, below the 53.2 consensus and the weakest level in 16 months. Headline miss a function of slower pace of expansion in manufacturing at 51.5 vs prior 51.7, while services steady at 53.1/. Germany a bright spot. Manufacturing expanded to 52.4 from 51.8, ahead of the 52.0 consensus. In addition, services pushed up to 55.2 from 54.5, which was also the consensus. In France, services activity accelerated to 51.8 from 50.6, which was also the consensus. While manufacturing improved to 48.3 from 48.0, it still lagged the 49.0 consensus. Markit noted disappointing flash PMI reading fits with thoughts robust pace of growth seen in Q1 will be temporary. Added forward-looking indicators also suggest a deceleration in growth.
*BoJ officials reiterate it can ease further; note improvement in economy:
In interview following G7, BoJ Governor Kuroda told CNBC central bank still has enough ammunition to reach 2% inflation target. Repeated it can implement further easing in three dimensions of quantitative, qualitative and interest rates. Also stressed it will not hesitate to act if dramatically stronger yen puts pressure on Japan's recovery. Added BoJ policy does not target exchange rate but will act if various factors, including currency, affect inflation expectations. Separately, Deputy Governor Nakaso said BoJ needs to better communicate policy effects. Noted real economy has improved due to policy. Stressed need for private sector to do more and highlighted importance of structural reform. Also said it is desirable that yen moves in stable manner and reflects fundamentals.
*Germany’s Bayer makes formal offer for Monsanto:
Following last week’s disclosure that it had made an unsolicited approach for MON-US, Germany’s BAYN-DEannounced a formal offer. Under the terms of the deal, MON shareholders would receive $122 a share in cash in a transaction valued at $62B, including debt. Amounted to a 37% premium over MON’s closing price on 9-May, before rumors of a planned bid surfaced. Merger would create the world’s biggest agricultural supplier. BAYN.GR said it expects deal to be MSD accretive to EPS in first full year after close. Highlighted synergies of ~$1.5B after three years, along with additional future benefits from integrated offerings. Deal expected to attract meaningful antitrust scrutiny. Overlap in seeds business seen as a key area of concern.
*Cigna/Anthem merger facing both internal and external scrutiny:
ANTM-US’s proposed $48B acquisition of CI-US under scrutiny on multiple fronts. WSJ said squabbles between the two companies could delay or derail antitrust approvals. Paper noted CI concerned that ATNTM’s lawsuit against pharmacy benefits manager ESRX-UScould hurt prospects for regulatory approval and combined company’s value. Added ANTM has accused CI of missing Justice Department deadlines and submitting data in the wrong format, pushing the expected date for a yes-or-no ruling to early July. Separately, NY Post cited sources close to Justice Department’s review who said antitrust officials concerned about the deal. Noted ANTM and CI only two big American insurers servicing people who are self-employed, and regulators worried a combination could lead to higher prices.
*Greece approves fiscal measures as creditors debate IMF loan buyout:
Greece’s parliament approved €5.4B package of reforms on Sunday ahead of Eurogroup meeting on 24-May. The FT cited a senior Greek official who expressed confidence €11B in new bailout funding will be unlocked. Measures passed included provision for contingency measures that automatically kick in should budget targets not be met (a sticking point for creditors in reaching political agreement). Another FT article noted creditors discussed plan on G7 sidelines that would involve EU buying out up to €14B in IMF loans, in bid to end impasse over its insistence on debt relief. Eurozone official said in return German FM Schaeuble may require IMF to firmly pledge to fully participate in next phase of Greek bailout. Paper added plan may also involve front-loading some concessions to Greece.
*China already recapitalizing its banking system:
Some signs of traction behind China’s push to address the bad-debt problem in its banking system. FT noted that according to data from Wind Information, the state-led debt-for-equity swap surged to more than $220B by the end of April, up from ~$120B at the start of March. Paper highlighted thoughts that the momentum behind the program, which has attracted a lot of skepticism from analysts, may reduce the need for an official recapitalization. Article also discussed Beijing’s efforts to address debt concerns via a program that allows local governments to swap high-yielding debt into cheaper municipal bonds. Late last month, Xinhua cited comments from Finance Minister Lou Jiwei who said that China has expanded the program to 3.2T yuan from 2T yuan.
*Hedge funds continue to focus on momentum stocks, increasingly shun value:
Positioning continues to get an outsized amount of attention. Bloomberg reported that after momentum strategies produced record gains in 2015, they have broken down thus year. Noted that a momentum portfolio has posted a negative return of 4.5% in the first four months of 2016, the biggest loss since August 2009. However, according Evercore ISI analysis, hedge funds still added momentum stocks for a fifth consecutive quarter amid thoughts selloff has been overdone. Areas of focus have been in consumer discretionary and technology, while financials have seen an exodus. Article also discussed how hedge funds have taken an increasingly bearish view of value stocks and now positioned away from this space to greatest extent in at least six years.
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