Stocks Receive a Boost from M&A Activity

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.25%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.55%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.14%.  

Stocks today are seeing support from M&A activity.  Amgen agreed to buy Horizon Therapeutics for $27.8 billion.  Also, Thoma Bravo agreed to buy Coupa Software for $6.2 billion.  In addition, Microsoft agreed to buy a 4% stake in London Stock Exchange Group Plc as part of a $2.8 billion cloud-computing deal.

A rally in energy stocks today supports the overall market, with the price of WTI crude oil up more than +1%.

A bearish factor for stocks is concern the reopening of China’s economy will be delayed, which could snarl supply chains and weigh on global growth, due to the rapid spread of Covid after restrictions were eased last week. 

The markets are awaiting Tuesday’s U.S. consumer price report for November.  The consensus is for the Nov CPI to ease to +7.3% y/y from +7.7% y/y in Oct.  Also, the markets are awaiting the status of the Fed’s rate-hike regime after the outcome of the Tuesday/Wednesday FOMC meeting and Fed Chair Powell’s regular post-meeting press conference.   Fed officials have recently signaled that the Fed will downshift to a +50 bp rate hike at this week’s FOMC meeting after four straight +75 bp increases.

A decline in T-note yields this morning is supportive for stocks, with the 10-year T-note yield down -5.3 bp at 3.525%. 

Today’s stock movers…

A gain of more than +1% in WTI crude prices today is boosting energy stocks and energy service providers.   APA Corp (APA) is up more than +4% to lead gainers in the S&P 500.  Also, Hess Corp (HES), Marathon Oil (MRO), and Devon Energy (DVN) are up more than +3%.  In addition, Diamondback Energy (FANG), Baker Hughes (BKR), Occidental Petroleum (OXY), Schlumberger (SLB), Haliburton (HAL), and Valero Energy (VLO) are up more than +2%.

Horizon Therapeutics (HZNP) is up more than +14% after Amgen agreed to buy the company for $116.50 a share in a deal valued at $27.8 billion. 

Coupa Software (COUP) is up more than +26% after Thoma Bravo agreed to buy the company for $6.2 billion. 

Boeing (BA) is up more than +2% to lead gainers in the Dow Jones Industrials after NASA finalized a$3.2 billion contract with Boeing to continue manufacturing core and upper stages for future Space Launch System rockets.

Becton Dickinson (BDX) is up more than +1% after Citigroup upgraded the stock to neutral from sell. 

Workday (WDAY) is up more than +1% after BMO Capital Markets said the company is its most preferred name within software stocks, with an outperform rating and a price target of $195. 

Leggett & Platt (LEG) is down more than -6% after Piper Sandler downgraded the stock to underweight from neutral.

Rivian Automotive (RIVN) is down more than -4% after it said it would walk away from plans to jointly build electric vans in Europe with Mercedes-Benz.   

Amgen (AMGN) is down more than -1% to lead losers in the Dow Jones Industrials after agreeing to buy Horizon Therapeutics for $27.8 billion.

Micron Technology (MU) and KLA Corp (KLAC) are down more than -1% after Deutsch Bank downgraded both stocks to hold from buy. 

U.S.-listed Chinese stocks are falling today on concern about the rapid spread of Covid after the country’s pandemic restrictions were unexpectedly eased last week.  Baidu (BIDU) is down more than -4% to lead losers in the Nasdaq 100.  Also, Pinduoduo (PDD), Alibaba Group Holding (BABA), and NetEase (NTES) are down more than -3%. 

Across the markets…

March 10-year T-notes (ZNH23) today are up +7 ticks, and the 10-year T-note yield is down -5.3 bp at 3.525%.  Lower European government bond yields are underpinning T-note prices today.  Also, a decline in inflation expectations is supporting T-note prices, with the 10-year breakeven inflation rate falling to a 1-week low today of 2.249%.  T-note prices are seeing supply pressures, with the Treasury auctioning $40 billion in 3-year T-notes and $32 billion of reopened 10-year T-notes this afternoon.

The dollar index (DXY00) this morning is little changed.  Lower T-note yields today are weighing on the dollar. However, losses in the dollar are limited by expectations for the FOMC to raise the interest rate by +50 bp on Wednesday and to stick to its guns on further rate hikes in the coming months.

EUR/USD (^EURUSD) today is up by +0.16%.  A decline in European nat-gas prices today has eased energy crisis concerns in the Eurozone and is supportive of the euro.  Also, expectations for the ECB to raise interest rates by +50 bp on Thursday are underpinning EUR/USD.

USD/JPY (^USDJPY) this morning is up by +0.40%.  Central bank divergence in weighing on the yen with the Fed, BOE, and ECB expected to raise interest rates by 50 bp this week, while the BOJ maintains QE and record low-interest rates.

February gold (GCG3) this morning is down -10.0 (-0.55%), and March silver (SIH23) is down -0.152 (-0.64%).  Precious metals prices this morning are moderately lower.  A stronger dollar today is bearish for metals prices.  Also, expectations for tighter monetary policies from global central banks this week weighs on metals, with the Fed, BOE, and ECB expected to raise interest rates by +50 bp this week.  In addition,  gold continues to be undercut by fund liquidation as long positions in gold ETFs dropped to a new 2-1/2 year low last Friday.

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