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Good evening,
Risk assets started the week on a positive note, with Wall Street stocks up about 0.5% after Friday’s strong close. All sectors advanced except energy, which slipped nearly 2%. Investors are monitoring the potential US government shutdown that could delay this week’s jobs report. Trump is meeting congressional leaders today for last-minute talks ahead of a Senate revote on a funding extension. Meanwhile, gold surged to another record, the dollar softened, core bond yields dropped a few basis points, and oil tumbled sharply.
Gold prices surged past $3,800, fueled by fears of a potential US government shutdown and a weaker dollar. The rally is also driven by strong buying from ETFs and central banks, combined with growing “FOMO” by institutional investors as gold has gained over 45% this year amid expectations of Fed rate cuts and ongoing geopolitical uncertainties.
Crude oil plunged 3.5% today, reversing last week’s rally on signals that OPEC+ may hike production again in November. The alliance, led by Saudi Arabia, is weighing an increase of at least the 137,000 barrels per day already scheduled for October.
Earnings: Carnival Corp (Travel services, mcap $39bn) beat revenue ($8.1bn, +3% YoY) and profit ($1.9bn, +12% YoY) estimates in its Q3 report before the open today. It also raised full-year profit guidance by 8% reflecting robust demand and improved pricing. However, shares fell 4% today and are 17% higher YTD as investors focused on management commentary about rising costs and possible headwinds for future margins.
Data: US pending home sales for August jumped 4.0% MoM and 3.8% YoY, marking the strongest reading in five months as falling mortgage rates boosted contract signings, especially in the Midwest.
Spain’s headline inflation accelerated to 2.9% YoY (Sep), from 2.7%, driven by higher fuel and electricity costs, its highest reading in seven months, while core inflation eased to 2.3%.
Central banks: St. Louis Fed Musalem said he was open to further interest rate cuts, but the Fed must be cautious and maintain rates high enough to continue to lean against inflation that remains roughly 100bp above the 2% target.
“Monetary policy is now somewhere between modestly restrictive and neutral,” Musalem said today.
NY Fed Williams said that signs of weakness in the labour market drove his support for cutting interest rates at the most recent Fed but provided no future bias.
Corporate Deals: Gaming leader Electronic Arts (mcap $51bn) will go private in a $55bn all-cash buyout led by Saudi Arabia’s Public Investment Fund, Silver Lake, and Affinity Partners, the largest leveraged buyout in history, with shareholders receiving $210 per share at a 25% premium. The deal signals massive industry consolidation, as EA aims to accelerate growth away from public markets amid rising competition and scrutiny from global investors. Shares gained ~5% today to an all-time high and accumulated a 38% YTD rally. It’s trading at a 50 times trailing price earnings ratio. Electronic Arts went public in 1990 and was valued at $60mn.
Danish biotech Genmab A/S (mcap $18bn) has agreed to acquire Nasdaq-listed Dutch cancer-treatment developer Merus N.V. (mcap $7bn) for ~$8bn in cash. Merus shares jumped 36% on Monday to a record high and accumulated a 123% gain this year.
IPOs: Swedish security firm Verisure seeks up to $16.3bn valuation in Europe’s largest listing in 3 years. Guidance price range of €12.25 to 13.50 and trading debut schedule for October 8.
Wisconsin-based Alliance Laundry Holdings, a commercial laundry systems maker, is seeking to raise $751mn on the NYSE, with shares priced between $19 and $22.
Credit Ratings: Following S&P’s upgrade to A+ two weeks ago, both Moody’s (to A3) and Fitch (to A) also raised Spain’s sovereign rating, citing the country’s strong economic fundamentals and improved fiscal position. The 10-yr Spanish Bono is yielding 3.21%, 50bp over Bunds versus 66bp at the start of the year. French (AA-) and Italian (BBB+) bonds are trading at 3.54%.
Week ahead: T: RBA policy rate (unch at 3.6% exp); Germany, France, Italy inflation; Nike earnings (PM). W: US ISM mfg PMI; €-zone inflation. Th: US factory orders; Switzerland inflation. F: US non-farm payrolls; ISM services PMI.
See you tomorrow.
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