Good morning everyone,
On Thursday, Wall Street giant Morgan Stanley announced that it is buying online broker E*Trade in a $13bn all-stock deal, which gives the firm direct-to-consumer exposure that it has been lacking versus some of its key rivals. CEO James Gorman was not shy about his willingness to take on the biggest players in the industry, saying: “We’ll take on Schwab, we’ll take on Fidelity,” in an interview with the Wall Street Journal. E*Trade has been facing an uncertain future since the announcement late last year that key brokerage rivals Charles Schwab and TD Ameritrade were merging, which left it looking decidedly sub-scale. For Morgan Stanley, the deal offers the opportunity to tap E*Trade’s DIY investor base and corporate stock plan business for new wealth clients. E*Trade will keep its brand, and CEO Michael Pizzi will be staying on to run the unit, which when integrated will take Morgan Stanley’s wealth division to eight million clients and more than $3.1trn in assets. Morgan Stanley stock closed 4.6% lower after the announcement, which included a stock dilution, while E*Trade finished 21.8% higher.
Pearson close to 10-year low as students go digital
Educational publisher Pearson has seen its shares fall 4% after results missed expectations this morning. These results show there is still plenty of way to go in Pearson’s long and painful bid to transform itself into a digital-first publisher. The publisher had grossly underestimated how quickly students were turning to digital learning materials and is now paying the price. It has been an incredibly difficult five years for the publisher, which has seen its share price plunge by nearly two-thirds.
Victoria’s Secret goes private after spectacular fall from grace
In US stocks, Victoria’s Secret parent company L Brands sold off its controlling stake in the lingerie brand to private equity firm Sycamore Partners, handing over 55% in return for $525m. The demise of Victoria’s Secret was driven by a continued focus on physical stores while shopping moved online, contributing to a near 80% drop in L Brands’ share price over the past five years. Meanwhile, all three major US indices fell on Thursday, with the Nasdaq Composite sinking farthest, ending the day down 0.7%. Among the 100 largest Nasdaq companies, Synopsys was the biggest loser, closing 6% lower after a mixed earnings report. In the S&P 500, which fell 0.4%, Norwegian Cruise Line sank by 6.8% after cancelling its Asia voyages through to Q3 2020 due to the coronavirus epidemic.
S&P 500: -0.4% Thursday, +4.4% YTD
Dow Jones Industrial Average: -0.4% Thursday, +2.4% YTD
Nasdaq Composite: -0.7% Thursday, +8.7% YTD
Mixed day for UK markets as retail sales bounce back
In the UK, the Office for National Statistics published figures showing that retail sales bounced back in January after a dismal Christmas period. This was driven by growth in food retailers, clothing and department stores. The FTSE 250 managed to eke out a positive day, gaining 0.1%, led by Moneysupermarket.com which jumped 18.7% after announcing a profit increase for 2019. The comparison website generated £94.9m of profits in 2019, up from £86.6m the year before. Cineworld was another big winner among FTSE 250 stocks yesterday, gaining 7.3%. Earlier in the week, the firm secured approval from a Canadian court for its deal to take over Toronto-headquartered Cineplex, which operates 164 cinemas. The FTSE 100 fell by 0.3%, held back by tobacco giant Imperial Brands which tumbled 7.3%. It has been a rough February for Imperial, which named a new CEO after warning of lower demand for its vapour products in the US due to a regulatory crackdown.
FTSE 100: -0.3% Thursday, -1.4% YTD
FTSE 250: +0.1% Thursday, -0.1% YTD
Stocks to watch
Deere & Co: Farm machinery firm John Deere reports its latest quarterly update today, after 12 months in which its share price has effectively gone nowhere, following several significant sell-offs and recoveries. As well as its own operations, the company is also prey to factors such as the weather and international trade, including the state of US agricultural exports, both of which played a factor in its volatile 2019. On the company’s last earnings call, one executive said: “I’ve never seen the weather conditions more adverse and really more unpredictable.” Wall Street analysts have an average price target on the stock of $186.32, versus its $165.83 Thursday close, with a range between $140 and $243.
WP Carey: WP Carey is a $14.6bn giant real estate investment trust that offers a near 5% dividend yield and has enjoyed a double-digit rally since mid-December. However, its $84.85 close yesterday is still some way off its $93 plus peak from October last year. The company reports its Q4 earnings this morning, and analysts will be keeping a close eye on deal flow, plus the ongoing impacts of previous merger activity. Analysts favour a hold on the stock, with three buy or overweight ratings, six holds and one underweight.
Services and manufacturing data: Purchasing manager index (PMI) readings for the manufacturing and services sectors in both the UK and US will be released today by Markit Economics. Last month the US service sector recorded its highest reading in ten months, indicating improving conditions, while US manufacturing sank to its lowest level in three months. The figures released today are ‘flash’ readings, and do not include the full set of replies collected on a monthly basis.
Yesterday saw modest recoveries for the world’s three major cryptoassets: Bitcoin, Ethereum and XRP, after the sudden losses on Wednesday.
Bitcoin reached as low as $9483.73 but has since bounced back to $9629.16 this morning. Meanwhile, Ethereum experienced a low of $246 but is now trending upwards again around $258. XRP experienced more modest gains and sat at $0.27 this morning.
Brazil’s central bank to launch instant code based payments system
A new system called PIX is set to be rolled out by the central bank of Brazil. The new system, which is reportedly a response to crypto, will provide 24/7 instant settlement via QR codes. The target date is November and will allow users to send and receive payments through their mobile phone.
Meanwhile, the coronavirus may accelerate the issuance of a central bank digital currency from China. Former People’s Bank of China President Lihui Li noted the efficiency and cost effectiveness of digital currencies during an epidemic. The government has quarantined some old paper notes in areas where the outbreak originated.
All data, figures & charts are valid as of 21/02/2020. All trading carries risk. Only risk capital you can afford to lose.