US Shares Rise
On Thursday, US shares rose, taking Europe’s lead, as investors assessed the future path of monetary policy following weeks of turmoil for banks on both sides of the Atlantic. Wall Street’s benchmark S&P 500 (SPI:SP500) rose 0.6%, with all industries advancing except for financials. JPMorgan (NYSE:JP) and Morgan Stanley (NYSE:MS) both lost 0.3% and 0.1%, respectively, while Wells Fargo (NYSE:WFC) slid more than 1%. The Nasdaq Composite gained 0.7%.
Global Deal-Making Slows
Global deal-making has had its weakest start in a decade as a darkening economic outlook depressed activity and a transatlantic banking crisis put the brakes on risk-taking. In the first quarter of 2023, the value of mergers and acquisitions dropped 45% year-on-year to $550.5bn, the slowest start to the year since 2013. Rising interest rates ended the flurry of deals that followed the onset of the Covid-19 pandemic and the cheap borrowing costs it ushered in, according to data from Refinitiv.
Adviser Product Alignment
Cerulli Associates’ research shows that asset managers need to offer products that better align with advisers’ needs for flexibility and cost-efficiency. Advisers across all channels have become increasingly conscious of the price they pay for access to investment strategies as their clients become even more aware of fees. Shops need to respond to increasing margin pressure and scale with products that offer more flexibility, as well as active strategies that are priced appropriately to compete with index options. More advisers are opting for passive strategies to avoid revenue-sharing payments.
Safe Weak Dollar Bet
Standard Chartered Plc (LSE:STAN) says that bets on a weaker dollar are safe if investors are more concerned about a slowing US economy than a full-blown banking crisis. According to the dollar-smile theory, the recent banking issues are not bad enough to spur risk-off trades that would trigger greenback demand. The market is instead focused on interest-rate differentials, with the Federal Reserve expected to switch to a dovish bias. The short dollar trade is safe as long as banking-sector issues are simmering but not on full boil, says Steve Englander, global head of the Group-of-10 currency research.
Money Market Inflows Risk Small Banks
The flood of cash pouring into US money market funds is unlikely to stop soon, potentially exacerbating strains in the banking system. Money market funds invest largely in safe assets such as short-term government debt, and their returns have soared far above the interest rates banks pay to depositors as the Federal Reserve rapidly raised borrowing costs over the past year. Money market funds have drawn in more than $340bn since the beginning of March. Doug Spratley, head of US money market trading at T Rowe Price, says people who were making half a per cent in bank accounts were ignoring the 4 per cent they could make in money market funds.
Ford’s Battery Investment
Ford (NASDAQ:FORD) has partnered with China’s Huayou Cobalt and Brazilian miner Vale to invest in a $4.5bn battery materials plant in Indonesia. The Pomalaa facility will supply the nickel needed to produce 2mn electric vehicles a year, enabling Ford to expand its supply chain for electric vehicles. However, this decision has received criticism from some US lawmakers, who question whether drawing China into its supply chain could backfire in Washington.
China’s Memory-Chip Plant
Yangtze Memory Technologies Corp, China’s largest memory-chip maker, is set to begin production at a new plant in the city of Wuhan in central China as early as next year. The new plant will help boost Beijing’s attempts to achieve self-sufficiency for its semiconductor industry amid crippling US export controls. Although Washington’s export curbs had initially frozen the construction and outfitting of the fabrication plant, YMTC has been testing locally made tools and is now confident enough to rely more on domestic suppliers for replacements.
Virgin Orbit’s Layoffs
Virgin Orbit (NASDAQ:VORB), the troubled rocket launch company, has sacked 85% of its workforce and ceased operations indefinitely. However, Sir Richard Branson’s investment arm, Virgin Investments, has injected $10.9mn to pay most of the severance for around 675 staff, leaving just 100 employees to keep the company going. Chief executive Dan Hart is making last-ditch efforts to execute a deal to rescue the company.
Vitol’s Record Profits
Vitol, the world’s largest independent commodity trader, reported record profits of almost $15bn in 2022, far exceeding its rivals. The trading house’s bumper profits matched its combined earnings for the previous six years and were larger than some of the world’s biggest oil producers, such as Italy’s Eni. Vitol benefited from extreme volatility in energy markets triggered by Russia’s invasion of Ukraine.
Wells Fargo Sanctions Fine
Wells Fargo & Co. (NYSE:WFC) has been fined $97.8mn by the Federal Reserve and the Treasury Department for violating U.S. sanctions by allowing a foreign bank to make prohibited transactions on one of the bank’s platforms. Between 2010 and 2015, an unidentified foreign bank processed about $532mn in transactions that violated U.S. sanctions rules using Wells Fargo’s Eximbills trade-finance platform. The foreign bank’s trades involved parties in jurisdictions subject at the time of the transaction to sanctions regulations.
Rogers-Shaw Acquisition Approved
The Canadian government has approved Rogers Communications Inc.’s (NYSE:RCI) acquisition of rival Shaw Communications Inc. (NYSE:SJR) This decision ends a two-year fight over one of the biggest corporate takeovers in the country’s history. Industry Minister François-Philippe Champagne will announce measures to improve competitiveness in the telecommunications sector in Ottawa, including the approval of Quebecor Inc.’s deal to buy most of Shaw’s wireless business. This is the final step Rogers needed to complete the Shaw transaction.
Netflix Film Restructuring
Netflix Inc. (NASDAQ:NFLX) is restructuring its film group to centralize decision-making and produce fewer movies each year. The company will combine units that produce small and midsize pictures, resulting in a handful of layoffs and the departure of two of its most experienced executives. Lisa Nishimura, who led Netflix into standup comedy and original documentaries, will depart after more than 15 years at the company. She is presently responsible for documentaries and smaller-budget films.