Monday Morning Market Prepper
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Taking cues from the U.S. election and post-Brexit trading, a "Renzi resignation rally" is underway across the globe after denting equities earlier in the session. With virtually all the ballots counted, 59.6% of Italians voted to block the Prime Minister's constitutional reform plans in a closely-watched referendum. The euro has come off 20-month lows, trading down only 0.2% at $1.0639, while the yield on 10-year Italian government bonds rose 11 basis points to 2.02%.
Shares in Italian banks have also surprisingly rallied from opening losses despite severe pressure from an enormous surfeit of bad loans and a desperate need to recapitalize. The Bank of Italy estimates there is €360B worth of impaired loans in the banking system. Perhaps this is on expectations that the ECB will now definitely announce a six month extension of its bond buying program on Thursday.
The people "have spoken in a clear and unequivocal way... we leave with no regrets," said Italy's Matteo Renzi, before he goes to President Sergio Mattarella to tender his resignation. Among the biggest winners of the referendum is the anti-establishment 5 Star Movement, which has called for a nonbinding plebiscite on Italy's euro membership and might favor printing a parallel currency. The nation has already seen 63 governments in just 70 years.
Italian Finance Minister Pier Carlo Padoan has canceled his trip to today's Eurogroup meeting in Brussels as the vacuum in Italian politics opens up. European finance ministers are set to discuss immediate impacts from the country's referendum, which is likely to be felt most in the banking sector, as well as conclude a review of reforms in Greece and discuss ways of making its giant debt more manageable.
The populist wave spreading across Europe saw a defeat in Austria, however, as voters rejected Norbert Hofer, the leader of the far-right Freedom Party. According to a final count at the ballot box, the Green Party's Alexander Van der Bellen won 53.3% of the vote in the country's runoff presidential election compared to Hofer's 46.4%. The margin is a surprise as polls ahead of Sunday's vote had shown the two candidates neck-and-neck.
Britain's Supreme Court will hear arguments over the next four days to decide whether Theresa May has the right to trigger Article 50 of the Brexit process without a parliamentary vote. All 11 Supreme Court justices will hear the case, so that there can be no accusations the court would have delivered a different decision if the panel had been constituted differently. A verdict is expected in January.
South Korea's three opposition parties introduced a joint impeachment motion against President Park Geun-hye on Saturday, dismissing the scandal-hit leader's recent proposal to resign early if parliament can agree on a suitable transition. The motion, signed by 171 members of the 300-seat legislature, will be put to a vote on Friday, but still needs a two-thirds majority - or 200 lawmakers - to impeach her.
The Shenzhen-Hong Kong Stock Connect saw lower volumes than its two-year-old Shanghai counterpart during its historic debut today, but analysts hailed the levels as a "good start." The tie-up is being touted as the latest effort by Beijing to prove to global investors that its capital markets are gradually opening. Shenzhen is Asia's busiest exchange with monthly turnover of more than $1T.
The kiwi went on a bumpy ride overnight after New Zealand Prime Minister John Key announced he would not seek a fourth term. "All I can say is that I gave it everything I had. I have left nothing in the tank." Key, who has been in power since 2008, is backing his finance minister, Bill English, to take the helm.
U.S-China relations are in focus after President-elect Donald Trump accepted a congratulatory phone call from Taiwan's President Tsai Ing-wen, breaking nearly four decades of U.S foreign policy of "One China." Over the weekend, Trump also spoke out against China on Twitter, accusing Beijing of manipulating its currency, unfairly taxing U.S. products and militarizing the South China Sea.
Green Party candidate Jill Stein dropped a court case Saturday night that had sought to force a statewide recount of Pennsylvania's Nov. 8 presidential election after a judge ordered her campaign to post a $1M bond. She will pursue the effort instead in federal rather than state court. A recount began Thursday in Wisconsin, while another one could start this week in Michigan.
The second of two proposed health insurance mega-mergers goes to trial today in Washington, D.C. The $37B combination of Aetna (NYSE:AET) and Humana (NYSE:HUM), two of the nation's largest insurers, is being challenged by the Justice Department as being bad for consumers. Will the 17M seniors in the Medicare Advantage market be left with too little choice and face higher prices?
Novartis CEO Joe Jimenez has played down suggestions the drugmaker could bid for Swiss biotech group Actelion (OTCPK:ALIOY), which is in talks with Johnson & Johnson (NYSE:JNJ) about a transaction. Asked by SonntagsBlick whether Novartis (NYSE:NVS) could emerge as a white knight, he said: "We have always said that we will concentrate on complementary acquisitions in the range of $2B-$5B." Actelion is worth nearly $20B at Friday's closing price.
It's official: New York City and Airbnb (Private:AIRB) will work together. The hosting company agreed to terms of enforcement of a short-term apartment rental law by NYC against multi-unit buildings by dropping a lawsuit that was filed in October. As a result, the city has agreed not to use the regulation to hit Airbnb with fines of up to $7,500, and instead will only go after hosts who use the site to illegally rent out their apartments.
Looking to avoid a trial in March 2017, Royal Bank of Scotland (NYSE:RBS) has reached a settlement with three out of five shareholder group claimants in a 2008 shareholder rights issue case and hopes to settle soon with the other two. The British bank, in which the U.K. government holds a 73% stake, has agreed to pay up to £800M to be split between all five shareholder groups.
The Pentagon's chief arms buyer is confident that a proposed three-year block buy of Lockheed Martin (NYSE:LMT) F-35 fighter jets, expected to generate large savings, will go ahead. "I can't say what's in the final budget, but I'm very hopeful it will proceed as planned," Frank Kendall told Reuters. The block buy would cover more than 400 aircraft and include purchases by the U.S. military and other countries participating in the F-35 program.
German chip equipment maker Aixtron will explore with its Chinese suitor what can be salvaged of the planned takeover after President Obama ruled the deal posed a national security risk. It added the presidential order was limited to Aixtron's U.S. business and did not per se prohibit the acquisition of Aixtron (NASDAQ:AIXG) shares and ADRs of Fujian Grand Chip Investment Fund.
With tech giants pushing smart home speakers that can do one's bidding in all kinds of clever ways, Microsoft (NASDAQ:MSFT) is not just sitting by. Windows Central reports that the company is planning an Amazon (NASDAQ:AMZN) Echo-style product of its own called Home Hub. It's not an all-knowing speaker that sits on your coffee table though - it's going to be built into Windows 10.
U.K. luxury goods retailer Burberry (OTCPK:BURBY) rejected multiple takeover overtures from U.S. fashion accessories group Coach (NYSE:COH) in recent months, according to FT. A deal would have created a group with a market value above $20B. Talks are no longer active between the companies and that's not expected to change anytime soon.
In a highly anticipated opening to foreign oil companies, Mexico will hold its first auction of deepwater oil and gas blocks today. The waters are believed to hold important energy reserves, but Mexico's longtime national oil company Pemex, does not have the capital or expertise to develop them. Investors are closely watching the results as a measure of the energy overhaul's success as well as potential bidders BP, Chevron (NYSE:CVX), Petrobras (NYSE:PBR) and Statoil (NYSE:STO).
The U.S. Army Corps of Engineers has turned down a permit for a controversial pipeline project running through North Dakota, in a victory for Native Americans and climate activists who have protested against the project for months. The 1,170-mile pipeline was to be built by a group of companies led by Energy Transfer Partners (NYSE:ETP). It may prove to be a short-lived victory, however, because President-elect Trump has stated that he supports the project.
New candidates have emerged for Trump's Secretary of State position, including Rex Tillerson, chairman and chief executive of Exxon Mobil (NYSE:XOM). The company, of course, operates globally, so Tillerson is no stranger to interacting with foreign leaders at the highest levels. He joined Exxon in 1975 and is set to retire next year. XOM +1.1% premarket.
Taking its biggest step toward acknowledging it is working on self-driving cars, Apple (NASDAQ:AAPL) has written a letter to the NHTSA offering feedback on proposed guidelines for the emerging technology. While it didn't offer details about the project, Apple said it "is investing heavily in the study of machine learning and automation, and is excited about the potential of automated systems in many areas, including transportation."
BMW will test about 40 autonomous vehicles in Munich next year as it seeks to keep up with ride-hailing firms like Uber (Private:UBER), which have spent billions on pay-per-use personal transport. "There is a trained test driver behind the wheel of every car," said Klaus Buettner, BMW's (OTCPK:BAMXF) Vice President in charge of Autonomous Driving. VW (OTCPK:VLKAY) has also taken aim at Uber, entering the on-demand ride services market with its new MOIA brand.
Panasonic is in discussions to buy Austrian headlight manufacturer ZKW in a deal expected to cost up to around ¥100B ($885M). Should it go ahead, the buyout could be finalized by mid-December, according to Nikkei. The purchase would expand Panasonic's (OTCPK:PCRFY) presence in automotive electronics, an industry undergoing rapid change amid progress in self-driving and electric vehicles.
Following his intervention at Carrier, President-elect Trump is targeting Rexnord (NYSE:RXN), another manufacturing company planning to relocate south of the United States. "Rexnord of Indiana is moving to Mexico and rather viciously firing all of its 300 workers," he wrote on Twitter. "This is happening all over our country. No more!" In October, Rexnord announced plans to move 300 union jobs and 75-80 supervisory jobs to Mexico, citing cheaper wages.
In Asia, Japan -0.8%. Hong Kong -0.3%. China -1.2%. India +0.5%.
In Europe, at midday, London +0.7%. Paris +1.1%. Frankfurt +1.6%.
Futures at 6:20, Dow +0.5%. S&P +0.5%. Nasdaq +0.6%. Crude +1% to $52.17. Gold -0.8% to $1169.10.
Ten-year Treasury Yield +2 bps to 2.41%
Today's Economic Calendar
8:30 Gallup US Consumer Spending Measure
8:30 Fed's Dudley: Macroeconomic Outlook
9:11 Fed's Evans speech
9:45 PMI Services Index
10:00 Labor market condition index
10:00 ISM Non-Manufacturing Index
12:30 PM TD Ameritrade IMX