Monday Morning Reads

Monday Morning Reads



Open Interest:




Global markets churn higher on China economic data, M&A buzz

Global markets are higher after positive data over the weekend on China industrial profit took some of the investor focus off the resurgence of COVID-19 cases. Japan's Nikkei 225 gained 1.3%, Hong Kong's Hang Seng was up 1.0% and South Korea's Kospi jumped 1.3% after only 50 new COVID-19 cases were reported in the nation today. In Europe, the Stoxx 600 Index is up 1.4%, with France's CAC 40, U.K.'s FTSE 100 and Germany's DAX all comfortably in positive territory at mid-day. U.S. stock futures are also pointing up more than 1% ahead of a light earnings and conference calendar. Underpinning some of the investor optimism are renewed hope over a new stimulus deal making its way out of Washington D.C. in the next few weeks and a wave of M&A talk.

Chinese industrial profit continues to improve

Profits at Chinese industrial companies rose for a fourth straight month as China continues to show momentum with industrial production after the COVID-19 slowdown. The National Bureau of Statistics reported industrial profits were up 19% in August after a 20% pop in July. Along with higher production, lower costs and fees are helping to pad the bottom line in China for industrial producers. Despite the recent turnaround, industrial profit was still down 4.4% from last year. "Sustained and stable growth of corporate profits continues to be under pressure in the face of a complex and changing domestic and international environment," warned government economist Zhu Hong.

Nikkei 500 runs to record high as Japanese economy shows improvement

Japan's Cabinet Office reports that the early preliminary reading for the Leading Economic Index for September was 86.9 to match consensus expectations. The broad measure of economic activity rose from a mark of 83.8 in August and 78.4 in July. The positive economic news helped push the Nikkei 500 to a record today in Tokyo as it finally topped the closing high from December of 1989. The broad-based Nikkei 500 is considered a better measure of overall economic activity in Japan than the oft-quoted Nikkei 225.

Huge deficits forecast for Gulf nations

Gulf economies in the Middle East could be set up for trouble due to their overreliance on oil. Factoring in subdued crude oil prices, S&P Global Ratings estimated that Gulf Cooperation Council central government deficits will soar to $490B cumulatively between 2020 and 2023. Separately, the IMF said that Saudi Arabia needs to see oil prices at $76.10 to achieve fiscal breakeven in the current year and is at risk of seeing a huge budget deficit of as much as 11% of GDP. Crude oil prices have fallen three of the last four weeks on a lack of visibility on short-term demand and are starting off the new week a bit soft. In early action, WTI crude oil futures -0.6% to $40.00/bbl and Brent crude -0.5% to $41.71/bbl.

TikTok still ticking

Judge Carl Nichols of the U.S. District Court for the District of Columbia halted the ban of TikTok that was set to go into effect last night at midnight. The ban would have covered new downloads of the app in the U.S. Attorneys for TikTok made the case that the ban infringed on free speech and due process rights. The plan for Oracle (NYSE:ORCL) and Walmart (NYSE:WMT) to become minority investors in a new TikTok Global (BDNCE) is still up in the air.

U.S. cracks down on top Chinese chip maker

The Commerce Department is reported to have instructed U.S. chip companies in a broad letter to the industry that they must obtain licenses before exporting certain technology to Semiconductor Manufacturing International (OTCQX:SMICY), which is China's largest manufacturer of semiconductors. The letter warns that exports to Semiconductor Manufacturing or its subsidiaries risk being used for Chinese military activities. The tension between the U.S. and China has centered mainly on tech names like TikTok and Huawei, but there remains the outside chance that U.S. mainstays likes Starbucks (NASDAQ:SBUX) and Wynn Resorts (NASDAQ:WYNN) could feel some heat in China if there is an escalation

Cleveland-Cliffs to acquire ArcelorMittal USA for about $1.4B in cash and stock

Cleveland-Cliffs (NYSE:CLF) is set to become the largest flat-rolled steel producer in North America via a definitive deal to acquire ArcelorMittal USA (NYSE:MT) for about $1.4B in cash and stock. The enterprise value for the deal is about $3.3B; earlier reports had put a value on ArcelorMittal's U.S. assets between $2B and $3B. ArcelorMittal USA averaged about $10.4B/year in revenue in 2018 and 2019. Cleveland-Cliffs expects the deal will be EPS-accretive and reduce its leverage.

Caesars, William Hill confirm talks of 272p/share cash takeout

Caesars Entertainment (NASDAQ:CZR) and William Hill (OTCPK:WIMHY) have confirmed they're in advanced talks on a possible deal for Caesars to buy William Hill for 272 pence/share in cash, Bloomberg says. That's a 25% premium to William Hill's Thursday close in London - the day before the stock jumped amid reports of attention from Caesars and confirmed offers from Apollo Global Management (NYSE:APO). The reported price for a Caesars bid values William Hill's current and to-be-issued share capital around £2.9B.

Devon Energy sets its sights on WPX Energy

Devon Energy (NYSE:DVN) is in talks to acquire WPX Energy (NYSE:WPX) in an all-stock deal that could be completed as soon as this week. The proposed merger would create an entity with a combined current market value of ~$6B; Devon itself was worth more than $50B at its peak value in 2008. Both companies have substantial operations in the Delaware portion of the Permian Basin in West Texas and New Mexico. Shares of WPX are up 14.8% in premarket action.

Alibaba on watch as Investor Day starts

A three-day virtual Investor Day hosted by Alibaba (NYSE:BABA) has launched in Hangzhou, China. Speakers will include CEO Daniel Zhang, CFO Maggie Wu and other members of the company's senior management team. Ahead of the Investor Day festivities, RBC Capital reiterated a Buy rating and $300 price target on Alibaba. "Despite the geopolitical headwinds, we continue to see Alibaba as intrinsically attractive, with shares trading at ~5x CY22E P/S and 18x CY22E EV/EBITDA on ~24% 3-yr estimated Revenue & EBITDA CAGR," previews analyst Mark Mahaney on the upside. Shares of Alibaba are up 0.50% in early action.

Prospects for higher bond yields stay muted

Bond strategists' median forecast predicts the 10-year yield will climb 10 basis points from its current 0.65% level, with the highest projections just above 1%. That is assuming recovery of economic growth continues as a result of the Fed's unprecedented accommodative stance. Some may also be expecting the U.S. election to pave the way for more fiscal stimulus, with a Democratic sweep scenario seen boosting yields through higher government spending.

What else is happening...

Verizon (NYSE:VZ), T-Mobile (NASDAQ:TMUS) charting different paths through airwaves to 5G ubiquity.Uber (NYSE:UBER) updates on Postmates numbers.Audi (OTCPK:AUDVF) looks to expand JV partnership in China.

Today's Markets

In Asia, Japan +1.3%. Hong Kong +1.0%. China -0.06%. India +1.37%.
In Europe, at midday, London +1.3%. Paris +1.9%. Frankfurt +2.6%.
Futures at 6:20, Dow +0.9%. S&P +0.9%. Nasdaq +1.2%. Crude -0.82% to $39.92. Gold -0.65% to $1854.95. Bitcoin +2.3% to $10889.
Ten-year Treasury Yield +1 bps to 0.669%

Today's Economic Calendar

10:30 Dallas Fed Manufacturing Survey

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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