Weekly Market Wrap Up, September 29, 2014

Key News:

  • After Alibaba’s shares leaped 38 percent on their first day of trading on Friday
  • A decrease in investor purchases prompted an unexpected decline in sales of U.S. existing homes in August, indicating the housing rebound is not yet self-sustaining.
  • Financial markets in Britain and around Europe generally welcomed Scottish voters’ rejection of independence on Friday.

Global News:

  • Islamic State Onslaught Spurs Mass Exodus of Syrian Kurds
  • China’s growth trajectory is still pointing down, even after an $81 billion liquidity injection.
  • European stocks fell the most in more than three weeks.

Market Overview:

Equity indices sit near their lows at midday with small caps leading the retreat. The Russell 2000 (-1.4%) and Nasdaq Composite (-1.2%) trail the S&P 500 (-0.7%), while the Dow Jones Industrial Average (-0.4%) has resisted some of the selling pressure.

The top-weighted sector-technology (-0.8%)-trails the broader market, while the materials space (+0.1%) has been able to stay in the green thanks a boost from Sigma-Aldrich (SIAL 136.53, +34.16), which has surged 33.4% after agreeing to be acquired by Merck KGaA (MKGAF 89.50, 0.00) for $140.00/share, representing a 37.0% premium to Friday’s closing price.

The countercyclical side has fared a bit better with consumer staples (-0.1%), telecom services (-0.5%), and utilities (-0.5%) trading ahead of the broader market, while health care (-0.7%) lags amid weakness in biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 271.14, -4.09) is lower by 1.5%.

Fixed Income:

Treasuries are near their highs with the 10-yr yield down two basis points at 2.56%. Treasury market inflation bets dropped to a 14-month low. The price of the 2.375 percent note maturing in August 2024 rose 3/32, or 94 cents per $1,000 face value, to 98 12/32. The last three-day rally ended Aug. 25.

Foreign Exchange:

Australia’s dollar fell 0.6 percent to 88.69 U.S. cents at 12:58 p.m. New York time and touched 88.53 cents, its lowest level since Feb. 4. It dropped 0.7 percent to A$1.4469 per euro. The euro was little changed at $1.2832 after rising as much as 0.3 percent. It sank earlier to $1.2816, the weakest level since July 2013. The U.S. currency declined 0.1 percent to 108.91 yen, and the euro slipped 0.1 percent to 139.77 yen.
Week in numbers:

  • Asian deals were up more than five times to $41.3 billion last week from $7.7 billion the previous week
  • 1.3% Annual sales growth in the global beer industry since 2004
  • 4.3% Growth in beer sales in the Asia Pacific Region last year
  • 73% Share of Family Dollar stores located within a three mile radius of a Dollar General

Key Issue of the week:

– Inversion?

An inversion is basically re incorporating a company oversees in order to reduce the tax burden on income earned abroad.

– So what’s the trend?

Hedge funds and investment advisers happen to own a high percentage of shares of companies planning these particular M&A inversions. When observing nine leading companies (charted) that have announced planned inversions hedge funds and investment advisers together own within the average range of 72.22% and 97.52%.

M&A Overview

Last week was the busiest 7 day mergers and acquisition period since the week ended August 15th which was skewed by one massive deal by Kinder Morgan Inc. Whom plans to acquire three subsidiaries in a series of transactions that are valued at almost $70 billion, including debt. The technology sector was also active last week as SAP SE announced a subsidiary would acquire software company Concur Technologies for $7.2 billion.

The pace of all global mergers and acquisitions has picked up steadily last week. 16 new corporate mergers valued at $1 billion dollars or more were announced. Deal making activity totaled more than $105 billion in the week ending in Sept 19, more than double the $43.7 billion announced the previous week.

The largest deal was Chinese energy company Sinopec Marketing as it plans to sell a 30% stake in its retail business to a group of investors for $17.5 billion. The second largest deal was Telefonica revised offer to buy Vivendi’s Brazilian broadband unit GVT in a deal valued at $10.3 billion.


Article submitted by Daniel Rodriguez, Daniel Baez and Sebastian Giraldo-Castaño of the Capital Markets Lab (CML). To learn more about the Capital Markets Lab (CML) please visit https://business.fiu.edu/capital-markets-lab/.

About Capital Markets Lab

The Capital Markets Lab (CML) provides students, faculty, and the South Florida community with unparalleled educational and technological resources relating to finance. By utilizing the most current financial research platforms available, students are given an opportunity to supplement academic theory with the real world analytical tools used by leading financial institutions. Visit us at http://business.fiu.edu/capital-markets-lab/.

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