Tuesday, September 15, 2020

Asia Times: M&A activity spikes to highest level in 2020 yet, driving confidence in stock valuations in the US

  • China
  • Dollar
  • Gold
  • Yen
  • Euro
  • Pound
  • Stocks
  • Oil


Market Recap: M&A activity spikes to highest level in 2020 yet, driving confidence in stock valuations in the US

US equities surge on Monday to start the week as mergers and acquisitions (M&As) take centre stage. Major indices in the US spiked up with the Nasdaq outperforming both the Dow and the S&P500 as tech companies recover from last week's rout. More interesting was the outperformance of the smaller cap indices (S&P600 and Russell 1000), signalling that while tech continues to recover, rebalancing towards more value stocks may still be on track. According to Bloomberg US$146 billion worth of M&A deals has come active in September alone, a 51% jump from the same period a year ago. This can largely be attributed to the surge in stock prices of companies and ultra-low interest rates that facilitate funding for acquisitions. The surge in M&A activity likely helped boost investor confidence as well, resulting in a strong day of stock performances especially since valuations in companies affected by the pandemic remain low.

Indexes Daily Change (%) Net Change Closing Price
Dow +1.18% +327.69 27,993.33
S&P500 +1.27% +42.57 3,383.54
Nasdaq +1.87% +203.11 11,056.65
*Source: Bloomberg

S&P500 sectors were higher across the board, led by real estate and technology. Among the top gainers in the index was chipmaker Nvidia, whose stock surged as much as 9% during the early hours of Monday’s trading session after SoftBank announced that it is selling its stake in British semiconductor and software design company, ARM Holdings, to Nvidia for US$40 billion. The deal, while confirmed by SoftBank and Nvidia, is still likely to face investigation by UK regulators. If able to pass that hurdle, ARM's chip architecture capabilities coupled with Nvidia's leadership in artificial intelligence applications may become a stronger competitor to breaking up the current duopoly that AMD and Intel enjoy in the x86 processor space.

Another highlight in the M&A space was the announcement of TikTok's sale to Oracle, beating Microsoft and Walmart in a bid for the overseas operations for ByteDance's social media platform. US Treasury Secretary Steven Mnuchin said later on Monday that the US government will undertake a two-track national security review of the Oracle-TikTok proposal this week. However, a report citing people familiar with the proposal suggested that Oracle may not be acquiring operations of TikTok directly but instead will only make an investment in a newly structure TikTok along with ByteDance shareholders General Atlantic and Sequoia Capital, while also becoming the cloud service provider for the social media platform. This new proposal is also thought to satisfy the White House's security and privacy concerns.


The dollar lost more steam on Monday, falling against the G10 basket of currencies as risk-off was the theme of the day. The mounting number of deals in the M&A space appears to be the most likely driver of risk appetite, along with reduced concerns on a vaccine after AstraZeneca announced over the weekend that it has resumed trials in the UK. Important to note is that AstraZeneca's trials in the US still appears to be on hold pending an investigation by the US Food and Drug Administration (FDA), as reported by Reuters citing unnamed sources. The dollar continues to trade within a downtrend channel it formed since early August and looks likely to do so ahead of this week's FOMC meeting.

Sterling managed to get a boost, halting a two-day decline against the dollar as British Prime Minister Boris Johnson brings his Internal Market Bill to Parliament for a vote. Traders were likely taking long positions on the currency in speculation for the House of Commons to reject Johnson's plan to rewrite the Brexit Withdrawal Agreement with the EU. However, the Commons passed Johnson's bill with a majority of 340 to 263 on Tuesday morning in Asia, sending GBP/USD 0.22% lower within the first hour of the announcement of the vote. The majority comes despite vocal opposition within Johnson's own party, likely surprising traders which subsequently resulted in the sharp reversal in sterling. Johnson's bill will now move on to the next stage in the parliamentary process on Tuesday in the UK.


Safe haven assets were mixed but had a general skew towards reduced risk aversion. Metals remain correlated with equities, with both gold and silver gaining. The Japanese yen gained against both the euro and the dollar, but this was likely due to bullish sentiment for the Japanese economy as Yoshihide Suga wins the race to succeed Shinzo Abe as Japanese Prime Minister. However, with Suga looking to mostly retain Abe's current main policies, it does seem that a correction may be due for both the yen and the Nikkei. US Treasuries were mostly muted as bond traders wait on the Fed's monetary policy meeting this week.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.84% +16.31 1,956.86
Silver +1.47% +0.39 27.12
USD/JPY -0.41% -0.43 105.73
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year +1.0bps 0.14%
10-Year +0.7bps 0.67%
30-Year +0.0bps 1.41%
*Source: Bloomberg

Oil futures traded muted with a skew towards the downside as OPEC downgraded its outlook for the global oil market just days ahead of a scheduled meeting between ministers. Demand concerns continue to materialise, most recently with OPEC cuttings its demand estimate for its oil by 1.1 million barrels per day. The downward revision solidifies trader and investor's concerns on crude oil demand for the rest of the year as multiple industries, including the air travel sector, continue to face downward pressure due to the pandemic. While the new report from OPEC suggests that the bloc's tapering of supply cutbacks may have been premature, the group is still producing below its estimated demand for its crude oil at 28.2 million a day for the next year, at 24 million barrels a day in August. The bloc's online meeting later this week will likely be closely watched as a result, as the report may be a signal that the bloc will reconsider maintaining production at current levels instead of continuing to taper crude oil production limits.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -0.55% -0.22 39.61
WTI -0.19% -0.07 37.26
*Source: Bloomberg

Stocks in Asia looks flat today, possibly due to M&A activity having little influence on stock prices in the region. Currency gains against the dollar yesterday may also have put downward pressure on stocks in the region as well. The Nikkei and KOSPI were both trading lower on Tuesday morning, while the ASX200 had a slight skew towards the upside in early hours of Tuesday's trading session. Futures tracking major indices in the US were trading only slightly lower as of 9.04am (GMT +8), signalling that volatility in the US may continue to ease. 

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.78% -181.85 23,377.45 8:54:55 AM
KOSPI -0.08% -1.86 2,426.05 9:14:50 AM
ASX200 +0.06% +3.38 5,902.90 9:14:45 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.10% -28.00 27,843.00 9:04:52 AM
US Futures -0.14% -4.75 3,367.50 9:04:57 AM
Nasdaq 100 Futures -0.22% -24.50 11,242.00 9:04:57 AM
*Source: Bloomberg

Economic releases for the day ahead include (all timings in GMT +8):

  • RBA Sep Meeting Minutes (9.30am)
  • China Aug Industrial Production (10am)
  • China Aug Retail Sales (10am)
  • UK Aug Claimant Count Change (2pm)
  • Germany Sep Economic Sentiment/Current Situation Survey (ZEW)
  • US Aug Industrial Production (9.15pm)