Spanish, Italian yields fall on Draghi bond comments. ECB President Mario Draghi yesterday indicated that the bank would be open to buying government bonds with a maturity of 2-3 years, telling the European Parliament that doing so wouldn't contravene EU treaties. The remarks add further confirmation that the ECB is set to act, sending Spanish and Italian bond yields sharply lower today. Meanwhile, Bundesbank chief Jens Weidmann is reportedly totally isolated in the ECB in his opposition to the bond purchases.
Valeant continues shopping splurge with $2.6B acquisition. Valeant Pharmaceuticals (NYSE:VRX) has agreed to acquire Medicis Pharmaceuticals (MRX), a provider of dermatological and aesthetic pharmaceutical products, for $2.6B. The firm's offer of $44 a share represents a 39% premium to Medicis' close on Friday. The transaction is the latest in a long list of acquisitions for Valeant, which has secured around 50 deals since Michael Pearson became CEO in 2008. Valeant was +2.4% premarket.
Top Stock News
Smithfield profit mired in the trough. Smithfield Foods' (NYSE:SFD) FQ1 net profit slumped 25% to $61.7M, while EPS of $0.40 and stagnant revenue of $3.09B missed analyst expectations. Smithfield was hurt by continued weakness in its fresh pork business and higher costs. However, while the drought will harm hog production, grain hedges should keep rising costs below the industry average. Shares were -2.3% premarket.
Lock-up expires on AIG's remaining 18% in AIA. AIG (NYSE:AIG) can sell its remaining 18% stake in AIA (OTC:AAIGY) from today, as a lock-up agreement expires two years after the U.S. insurer listed its former unit in Hong Kong. AIG CEO Robert Benmosche has previously hinted that the company will sell the holding, although he hasn't provided details. Any divestment would help AIG continue paying back the U.S. government for its bailout.
P-E firms probed over tax-avoidance strategy. The New York AG has reportedly subpoenaed at least a dozen P-E companies as part of an investigation into the legality of a widespread tax strategy that has saved the firms hundreds of millions of dollars. The companies include KKR (NYSE:KKR), Apollo Global Management (NYSE:APO) and Bain. Under the practice, firms convert certain management fees into fund investments, which are subject to lower tax rates.
Investors prepare to sue RBS for £3.3B. A group of RBS (NYSE:RBS) shareholders plans to launch a £3.3B lawsuit against the bank, ex-CEO Fred "the Shred" Goodwin, and other former executives, The Times reports (pay wall). The group alleges that RBS misled investors about its frailty at the time of a £12B rights issue in 2008, since when shares have plummeted. The group is backed by 91 institutional investors, including HSBC (HBC) and Deutsche Bank (NYSE:DB), but needs to secure £12M-£15M in case of defeat.
Fresenius abandons €3.1B offer for private-clinic firm. Fresenius (NYSE:FMS) has dropped a €3.1B bid for private-clinic operator Rhoen-Klinikum. Fresenius had planned to make a second offer at an unchanged price of €22.50 a share, but the German health-care company's supervisory board wasn't overly keen on the deal, while a rival hospital operator filed an application to raise its stake in Rhoen-Klinikum to 10% in order to torpedo Fresenius.
McDonald's to launch first vegetarian outlets. It may sound like a contradiction in terms, but McDonald's (NYSE:MCD) will open its first ever vegetarian-only restaurants at two locations near Indian pilgrimage centers later this year. Growth in India in general is expected to pick up again, with the company estimating it will double its 271 stores in the nation over the next three years.
Quantum chip to be unveiled. An international research team that includes university scientists, Nokia (NYSE:NOK) and Toshiba (OTCPK:TOSBF) is introducing a breakthrough quantum chip at the British Science Festival, which starts today. The chip will provide greatly enhanced security that's "guaranteed by the laws of physics" for smartphones and computers, as well as making them much faster: working on light, 100 photons could theoretically solve trillions of equations simultaneously. The chip should be commercially available in under five years.
Top Economic & Other News
Japans delays ¥4.1T grant to regions due to gridlock over bonds. Japan has suspended ¥4.1T ($52.3B) in tax grants to municipalities due to Parliament not looking like it will pass a key debt-issuance bill by the end of the parliamentary session in four days. In response, the Bank of Japan will inject a record of ¥1.9T a day into the banking system in order to keep short-term rates down ahead of an expected increase in loan requests because of the grant delay.
Moody's turns negative on EU debt. Moody's has cut its outlook for the EU's AAA long- and medium-term bond ratings from "stable" to "negative," saying the move reflects the agency's similarly negative outlook for the AAA ratings of Germany, France, the U.K. and the Netherlands, which contribute 45% to the union's budget.
Lending to small firms rises modestly. Thomson Reuters/PayNet Small Business Lending Index increased to 103.8 in July from 100.5 in June, with borrowing climbing 15% on year. The rise in the index, which measures the overall volume of loans, is too small to indicate momentum in the wider economy.
Russell ETF failure prompts worries about decline in sector. Just two years after hiring a couple of ETF stars, Russell Investments is shutting its passive-funds business, sparking questions about whether more closures will follow as competition causes prices to drop. "The Russell announcement could be a watershed," said ETF watcher Ron Rowland. But while over 70 exchange-traded products have closed this year, net inflows into ETFs were $77B in H1.
Car sales seen rising strongly. Data for August auto sales are due out today, with those of new light vehicles in the U.S. expected to rise 17.2% on year to 1.255M units. Margins should improve as incentive spending per unit falls 6%. Japanese automakers should lead the charge again, boosted by earthquake-affected comparisons from last year, while Volkswagen (OTCQX:VLKAY) and Ford (NYSE:F) are also tipped for a strong month.
In Asia, Japan -0.1%. Hong Kong -0.7%. China -0.8%. India +0.3%.
In Europe, at midday, London -1.1%. Paris -0.6%. Frankfurt -0.6%.
Futures at 7:00: Dow flat. S&P -0.1%. Nasdaq -0.05%. Crude +2.4% to $96.85. Gold +0.3% to $1692.30.
Today's economic calendar:
9:00 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
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