European Equities Rise
On Wednesday, European equities rose while Asian stocks were buoyed by the announcement that Chinese ecommerce giant Alibaba would split into six business units. UBS (NYSE:UBS) saw a 2.2% rise in its shares after announcing that Sergio Ermotti would become its CEO, leading its takeover of Credit Suisse (NYSE:CS). The Stoxx 600 index (STOXX:SSXP) increased by 0.9%, and the Stoxx 600 Banks index rose by 1%. The FTSE 100 (FTSE:UKX) increased by 0.8%, supported by real estate stocks following a rise in UK mortgage approvals in February.
US Futures Increase
US index futures rose, with the Nasdaq 100 (NASDAQI:NDX)set to continue its best quarter since 2020, as a rally in Chinese tech shares boosted sentiment and concerns about contagion from the banking turmoil subsided. Tech shares performed well in European equities, while Alphabet (NASDAQ:GOOG) and Tesla (NASDAQ:TSLA)shares rose in premarket trading.
BOE Warns of Corporate Debt
The Bank of England has warned of a potential financial crisis triggered by corporate credit, following a decade-long build-up in private debt. The bank has identified high yield bonds, leveraged loans, and private credit as riskier forms of corporate borrowing that are vulnerable to interest rate rises and geopolitical risks. The BOE’s report is its first official assessment of UK financial conditions since the collapse of several banks. Rapid rate rises globally over the past 15 months, aimed at tackling soaring inflation, have also exposed weaknesses in financial markets, leading to increased instability.
Alibaba’s Business Unit Split
Alibaba’s (NYSE:BABA) decision to split into six business units has spurred a rally for Chinese technology groups, with traders viewing it as a sign that Beijing’s crackdown on the sector is coming to an end. This restructuring has resulted in gains for the Hang Seng Tech index, which tracks the largest tech companies listed in Hong Kong, and Japanese tech investor SoftBank, one of Alibaba’s earliest investors. Industry analysts suggest that this shift by internet groups to become more responsive to Beijing’s policy priorities will help bolster profits and improve the sector’s stock prices following a long share price slump.
Real Estate Stocks Facing Challenges
Real estate is Europe’s worst-hit sector, facing a double whammy of rising funding costs and a predicted economic slowdown. Highly-leveraged stocks within this sector are seen as the most vulnerable area of European stock markets. JPMorgan Chase & Co. (NYSE:JP) and Citigroup Inc. (NYSE:C) have issued warnings about real estate, citing potential further rises in yields and possible halving of the sector’s value. Stoxx 600 Real Estate Index, which tracks around 30 shares, has already sustained major losses over the past year, with a decline of more than 40% wiping out over 100 billion euros ($108 billion) in market value. Europe’s real estate equities are trading around levels last seen during the global financial crisis, adding to concerns about the sector’s future.
Credit Suisse Violates US Plea Deal
According to recent reports, Credit Suisse (NYSE:CS) has been found to have violated a plea deal made with the US government in 2014. The US Senate finance committee conducted a two-year investigation and discovered that the Swiss bank did not disclose approximately $100 million in secret offshore accounts belonging to a single family of US taxpayers. Senator Ron Wyden, who headed the committee, described the situation as a “massive, ongoing conspiracy” involving “greedy Swiss bankers” and “catnapping government regulators.” As part of the 2014 deal, Credit Suisse was required to pay a $2.6 billion fine, but settled for $1.3 billion after agreeing to comply with disclosure rules. Interestingly, the bank is now being taken over by its rival UBS (NYSE:UBS).
Google Launches Ads Transparency Center
Google (NASDAQ:GOOG) is launching a new Ads Transparency Center to enhance its advertising service transparency, following in the footsteps of Meta Platforms and Twitter. The searchable hub will include information on ads across Google’s platforms, and details on verified advertisers, such as where and when ads ran, and their format. Google’s new tool will foster greater trust with people and partners, according to Dan Taylor, VP of global ads. The Ads Transparency Center is rolling out this week and will be globally available within a month on a dedicated website and users’ My Ad Center tool.
Metaverse Fizzles in Tech Industry
The metaverse is no longer as hot in the tech industry as it was two years ago. Recently, Walt Disney Co. (NYSE:DIS) shut down its metaverse strategy division, and Microsoft Corp. (NASDAQ:MSFT) stopped operating its social virtual reality platform that it acquired in 2017. Even Mark Zuckerberg, who renamed Facebook as Meta Platforms (NASDAQ:META) to signify his interest in the metaverse, focused more on artificial intelligence during a recent earnings call. The median sale price for land in Decentraland has also dropped almost 90% in a year, according to WeMeta.
Volkswagen Raises Executive Salary
Volkswagen’s (XE:VOW3) proposal to pay its executive board up to 25% more has sparked concerns about CEO Oliver Blume’s role as head of both VW and Porsche. Blume stepped into the dual role in September after Herbert Diess’s removal as VW’s CEO. Blume’s unusual position as head of both companies has been criticised by some investors, given the group’s difficult transition to electric technology, and concerns about the timing of increasing his maximum pay.
Crowdcube Partners with Octopus
Crowdcube announced a new venture to offer VCT funds to retail savers through a partnership with Octopus Investments, despite the fact that a company that raised £6.6m on its platform from private investors fell into financial difficulties. Investors will now be charged 2% upfront and 0.4% in annual management fees. Octopus Investments lowered its minimum investment from £3,000 to £500 for Crowdcube clients.
Lucid to Cut Workforce by 18%
Lucid Group (NASDAQ:LCID) plans to lay off about 1,300 employees, or 18% of its workforce, as the electric-vehicle startup aims to cut costs ahead of releasing a second model next year. The layoffs will occur across the company’s US operations, and include executives. The move is intended to reduce operating expenses and preserve cash. The company expects to incur a cost of $24 million to $30 million related to the workforce reductions.
China Life Insurance’s Profits Decline
China Life Insurance Co. (HKSE:2628) reported a 37% decline in profit due to the stock-market downturn and the impact of Covid-19 on sales. The Beijing-based company’s net income dropped to 32.1 billion yuan ($4.7 billion) from 50.8 billion yuan in the previous year. The situation was compounded by a struggling economy, which posed additional challenges to Chairman Bai Tao’s leadership. Tao aimed to prevent an investigation into his predecessor from disrupting the company’s shift to higher-margin investments.
SES to Merger with Intelsat
SES SA (PA:SESG) is currently in advanced talks with Intelsat SA to merge and create a European satellite giant that could compete better with Elon Musk. The Luxembourg-based SES aims to reach an agreement with Intelsat in the coming weeks, with the potential to value the combined business at more than $10 billion, including debt. Although SES’s fiduciary depositary receipts have fallen 32% in Paris over the past year, this potential merger could see the company’s fortunes rise.
Ryanair in Talks with Boeing for Aircraft Order
Ryanair Holdings Plc (NASDAQ:RYAAY) is in talks with Boeing Co (NYSE:BA) for an order of up to 200 narrow-body aircraft. The negotiations may take six to twelve months to finalize, according to CEO Michael O’Leary. The airline has resumed talks with Boeing for potential delivery between 2027 and 2031, considering both the larger 737 Max 10 and the existing Max 200. O’Leary suggested that the decision would ultimately depend on pricing, as a good discount could sway the airline’s decision towards the Max 10.
Airbus Abandons Plan to Acquire EasyJet Stake
Airbus (PA:AIR) has yielded to pressure from hedge fund manager Chris Hohn and abandoned its plans to acquire a 29.9% minority stake in Evidian, the digital and big data arm of French IT services company Atos (EU:ATO). The announcement sent Atos shares down by 17% to €10.72 in Paris. This decision could have negative implications for Atos, as it was relying on the investment to help it execute its planned business operations split after a period of significant losses. Additionally, the French government is concerned about the impact of the decision because Atos owns strategic quantum computing assets and cyber defences.