Global markets started the week with a sell-off (S&P 500 Index -1.8%) as a new wave of COVID-19 cases surged to record daily case numbers across the US and Europe, spurring renewed fears of a slowdown in the economic recovery – particularly across Europe where social distancing measures are being reintroduced. The German market was under further pressure as German software maker SAP plunged 22% following a cut to its sales forecast and warnings that the pandemic will hurt business through mid-2021.
While large, we would put the overnight moves in context – markets are generally still in positive territory for the month and it is very early to panic. There is likely to be continued volatility as we head into the US election in a weeks time.
There was hope US politicians were on the verge of completing a stimulus deal, and talks continue today but both sides have accused each other of moving the goalposts. We continue to think a deal pre-election is very unlikely but there is growing anticipation of a major US stimulus package irrespective of who wins the Presidency next week.
The other area of focus this week will be US earnings reports, with a huge week of corporate earnings ahead with 189 S&P 500 companies due to report. Key names reporting include: Apple, Microsoft, Amazon, Alphabet, Facebook, Twitter, Vale SA, Exxon Mobil, Chevron, Pfizer, Merck, Gilead, UPS, Caterpillar and General Electric.
Coca-Cola Amatil (CCL:ASX)
Coca-Cola Amatil soared +16% yesterday after its European cousin, Coca-Cola European Partners, made an indicative all-cash takeover offer of A$12.75/share, valuing the company at circa A$9.3bn.
The offer is a 19% premium to where Coca-Cola Amatil shares were last traded. Coca-Cola European Partners will enter a separate agreement to buy Amatil shares held indirectly by the Coca-Cola Company which has a 31% stake on less favourable terms than those offered to other shareholders. Amatil's independent non-executive directors had considered the proposal and "unanimously determined that, based on the current price and conditions of the proposal" it was in the best interests of independent shareholders to allow Coca-Cola European Partners to undertake due diligence and further negotiate transaction documentation to determine if a binding proposal can be presented to independent shareholders – essentially tentatively supporting the offer.
We had a BUY rating on CCL as a stable yield stock, and are pleased with the share price move.
Australia & New Zealand Market Movers
The Australian market dipped yesterday (ASX 200 Index -0.2%) despite a strong start to the day.
In stock news, furniture and homewares retailer Nick Scali has upgraded its first-half profit expectations after sales soared 45% in the September quarter despite COVID-19 forcing store closures in Melbourne and Auckland. The company said on the buoyant sales trend, which included a 47% surge in online orders, continued through October. While share prices are in retreat, trading updates from the online retailers continue to surprise on the upside, with Nick Scali and Adairs the latest.
On the COVID front, further easing of Melbourne restrictions have been announced which will allow shops, pubs and restaurants to reopen from Wednesday.
The New Zealand market was closed on Monday for Labour Day. On Friday shares end a muted week with a small rise (NZX 50 Index +0.5%).
Meridian Energy led the market higher, although it has had volatile movements in the past week given its inclusion, alongside Contact Energy, in a clean energy index and the wait for confirmation of extension at the Tiwai Point aluminium smelter.
Infratil announced a conditional offer to acquire up to 60% of Qscan Group, a comprehensive diagnostic imaging practice throughout Australia for total cash equity consideration of up to A$330m, which will be funded through debt.
On the economic data front, a strong housing market and stability in the share market has helped investor confidence bounce off an all-time low but it remains in negative territory.
3 Things Markets Will be Watching this Week
- COVID-19 news is back at the top of headlines with record case numbers across the US and Europe. In Europe investors are watching for signs of the impact on economic activity as social distancing measures are re-introduced.
- It is set to be a huge week of corporate earnings ahead with 189 S&P 500 companies due to report. Key names reporting include: Apple, Microsoft, Amazon, Alphabet, Facebook, Twitter, Vale SA, Exxon Mobil, Chevron, Pfizer, Merck, Gilead, UPS, Caterpillar and General Electric.
- We are one week out from the US election, with betting markets having Biden as a 65% favourite to win.