U.S. equity markets posted gains on Monday following positive earnings reports and the announcement of a number of mergers and acquisitions. T Mobile raised its forecast for new customers to 3.7-3.9 million from 3.4-3.8 million as it stated that a proposed merger between AT&T (NYSE:T) and Time Warner would allow it to carve out more market share. The stock gained +9.5% as third quarter net income increased to US$366 million from US$138 million the prior quarter and earnings per share was US$0.27 vs estimates of US$0.22.
Visa Inc (NYSE:V). was another big name reporting on Monday, net income increased to US$1.93 billion from US$1.51 billion the prior year. Earnings per share adjusted for onetime items was US$0.78 surpassing analyst forecasts for US$0.73. The shares were 1% higher during normal trading hours prior to the announcement.
Further M&A deals grabbed headlines as aircraft component market Rockwell Collins Inc (NYSE:COL). announced a deal to acquire aircraft interior maker B/E Aerospace Inc in a deal valued at US6.4 billion. Shares in B/E Aerospace Inc. jumped +16.36% while Rockwell Collins Inc. shares declined-6.26%. Brokerage TD Ameritrade agreed to buy the unlisted brokerage firm Scottrade in a deal valued at US$2.7 billion combining the world’s two largest discount brokers as they compete in a challenging environment facing competition from robo advisers as well as investors switching to cheaper index tracking funds. The deal will comprise of US$1.7 billion in cash and $1 billion in equity, shares in TD Ameritrade finished trading -4.37% lower.
The increased M&A announcements making headlines is helping boost confidence as well as the possibility of posting positive year-on-year earnings growth following five quarters of declines. Both the S&P 500 & Nasdaq 100 gained +0.47% & +1.20% respectively, gains in the S&P500 were led by technology (+1.25%) and consumer cyclicals (+0.74) while telecommunications (-0.46%) and healthcare (-0.16%) lagged behind.
The U.S. dollar index was fairly flat, up just +0.05% as the preliminary Markit U.S. manufacturing PMI survey (MoM Oct) exceeded expectations to remain unchanged at 51.5 with a reading of 53.2. The report suggests that manufacturing shows further signs of life after being soft earlier in the year with optimism that demand will pick up following the U.S. presidential election. There are also signs the previous trend of declining inventories is beginning to reverse and that should provide a boost to economic growth in the fourth quarter. The report does also highlight that key risks include weak export growth as a result of the stronger dollar exposing the dependency on domestic demand.
U.S. government bond yields gained following the data as this adds weight to the view the Fed will raise rates in December. The yield on two-year debt increased +1.7 basis points to +0.844% and the yield on ten-year debt rose +2.6 basis points to +1.731%.
Markit also released PMI survey’s for Europe, all three measures surpassed estimates with manufacturing PMI increasing to 53.3 from 52.6 prior and estimates of 52.7. Services PMI also beat forecasts of 52.4 with an actual of 53.5 from a prior 52.2 and the overall composite measure was 53.7 up from 52.6 prior and estimates of only 52.8. The report notes a backlog of orders is accumulating at a faster pace as demand begins to outstrip capacity, signalling the likelihood of a pickup in business activity and employment towards the end of the year. Price pressures are also building with input costs increasing at the fastest level in 15 months mainly as a result of higher commodity prices.
The EUR/USD was little changed, down just -0.05% while equity markets posted gains. The first chart below highlights the Euro which has declined around -3.17% throughout October as it approaches the December 2015 low of 1.0524. The DAX gained +0.47%, the CAC40 +0.36% while the Euro Stoxx 600 was flat down just -0.01%. German bond yields rose following the PMI data, two-year yields were +0.9 basis points higher at -0.652% while ten-year debt yields rose +2 basis points to yield +0.025%.
Commodities were generally weaker with oil prices weighed down by comments from Iraq’s oil minister Jabbar Al-Luaibi that similar to Libya, Nigeria and Iran that Iraq should be exempt for OPEC oil production limits given the internal struggles it has faced with war and ISIS. Both Crude Oil & Brent crude oil were -0.71 % & -0.68% weaker. The second chart below shows natural gas prices having declined -4.71% for the second time in two days as traded cut bullish beats as warmer than forecast U.S. weather for the next fortnight is likely to weigh on demand for heating. Precious metals spot gold & Silver were mixed, spot gold was -0.17% weaker while spot silver traded +0.43% higher. A broad measure of commodity prices, the Thomson Reuters CRB index was flat, up just +0.02%.
Locally the S&P/ASX 200 was -0.40% weaker and the Australia dollar was unchanged at 0.7608. Meanwhile we can expected a relatively lacklustre start to trading with ASX SPI200 futures up just 3 points in overnight trading.
Data releases:
- German IFO – Business Climate, Current Assessment and Expectations Survey (MoM Oct) 7:0pm AEDT
- U.S. House Prices Index (MoM Aug) 12:00am AEDT
- U.S. Consumer Confidence (MoM Oct) 1:00am AEDT
- ECB President Mario Draghi Speaks In Berlin 1:30am AEDT
- BOE Mark Carney Appears at House of Lords Economic Committee 1:35am AEDT
This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd.
