Financials take the lead

A strong performance in European markets saw its major indices rally, as much as 3.3% in some cases such as Italy. The main driver was strong performance by financial stocks which were underpinned by comments from the European Central Bank supervisory arm on new proposals for non-performing loans, a major Achilles heel for the European economy. Broker upgrades led to gains of up to 5% for KBC and ING, and UniCredit also rose significantly ahead of a board meeting.

In the US, banks kept charging ahead boosted by the prospects of a sooner-rather-than-later rate hike from the US Federal Reserve. Traders are now pricing a 39% chance of rate hike in June, up from barely 4% before the release of the latest Federal Open Market Committee last week. Bank of America, JPMorgan and Citigroup chalked up healthy gains on the back of the news, also helped by data which showed that single-family home sales surged to an eight-year high last month, with prices hitting a record high. 10-year Treasury yields climbed to a 3-week high of around 1.87%.

Away from financials, tech was also a strong performer on the day. The big story is GoPro, rising as much as 7% after it announced a partnership with Red Bull. Both companies did not disclose the full terms of the deal just yet, but Red Bull will be getting GoPro stock as part of the deal. While intraday performance has been impressive, GoPro will have to do more than just grab the headlines. Sales and revenues have spiraled downwards, and analysts are forecasting more losses this year and the next. It’s also worth remembering that share prices are still 90% below their all-time high. The Red Bull deal may give the company wiiings, but it still has to prove it can fly once again.

Of Mergers and Acquisitions

EU antitrust legislators cleared the way for the acquisition of SAB Miller by Anheuser-Busch InBev – the world’s largest brewer. The deal, worth around €89 billion will see AB InBev sell almost all of SABMiller’s beer business in Europe, which includes brands such as Peroni and Grolsch, as part of the deal. The takeover will give it a third of the global beer market. The deal still needs to be approved by authorities in the United States and China, but it has cleared a major hurdle. EU competition laws are notoriously stringent, and Commissioner Margrethe Vestager emphasized the conditions of the deal were such that competition on European beer markets would not be reduced.

In similar news with a not so similar outcome, Bayer will not be buying Monsanto – for now. The world’s largest seed company is said to be rejecting Bayer’s initial offer of $122-per-share, or a total of $62 billion. Monsanto said it believes shareholders deserve a better offer, leaving the door wide open for negotiations as a deal would be in line with their longer-term strategy. It is not immediately clear at what price Monsanto would be willing to sell, but investors were already skeptical of Bayer overpaying at $122-a-share. Indeed, the German drugmaker’s share price rallied more than 3% on news of the rejection.

Global seed, pesticide and agrochemical companies are racing to consolidate, partly in response to a drop in commodity prices that has hit farm incomes. The past months have already been characterized by major deals in this space – ChemChina is planning to buy Syngenta for $43 billion, and Dow Chemical is merging with DuPont in a deal worth $130 billion. It remains to be seen whether Bayer will raise their offer for Monsanto or if other players, such as BASF, will (re-)enter the race.

This article was issued by Andrew Martinelli, Trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd. has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.