US equities end mixed


Stocks struggle for direction after Trump scraps Iran nuclear deal
Chief Investment Office09 May 2018
Photo credit: AFP Photo


US

US stocks were mixed after US President Donald Trump’s decision to scrap a nuclear deal with Iran sparked concern it could increase geopolitical tensions. The dollar rose and Treasury yields pushed higher.

The S&P 500 Index was little changed – down just 0.03% to 2,671.92 – as banks advanced and utility stocks slumped. West Texas Intermediate (WTI) oil sank as much as 4.38% before paring the loss in a volatile trading session as investors digested what the Iran move could mean for energy supplies.

The Dow Jones Industrial Average barely rose; it closed 0.01% higher at 24,360.21.

Concern about an increase in geopolitical tension is weighing on global sentiment at the same time worries about pricey stocks and rising borrowing costs are bubbling up amid higher Treasury yields and a stronger dollar. Sanctions on Iran could potentially disrupt supplies from the Organization of the Petroleum Exporting Countries’s (OPEC) third-largest producer, and open an uncertain new chapter for the Middle East. – Bloomberg News.

 

EUROPE

The Stoxx Europe 600 Index rose 0.13% to 390.00, despite a significant drag from energy amid heightened uncertainty over the Iran nuclear deal.

But US President Donald Trump did not kill the Iran agreement; he just shrank its membership by one – at least, that was the line taken by Iran and the European Union immediately after Trump announced his withdrawal from the 2015 accord. Iranian President Hassan Rouhani said his country will continue to work with the other participants – though he warned that it could step up enrichment of uranium if those talks do not yield tangible results. Germany, France, the UK, and Russia all said they will stick to their commitments.

The US withdrawal from a nuclear accord with Iran slams shut what had been a brief opening for historic aircraft sales by The Boeing Company and Airbus SE to the Islamic Republic. US President Donald Trump’s announcement that the US would seek to reimpose sanctions left little hope that the plane-making duopolists will be able to consummate USD40b in aircraft deals struck by Iranian carriers during the brief trade thaw. Both companies’ export licenses to Iran will be revoked, Treasury Secretary Steven Mnuchin told reporters.

The plane orders, badly needed to upgrade the Islamic Republic’s museum-vintage airliners, would have had the potential to build Tehran into an aviation hub that could better compete with Dubai and Qatar, the region’s aviation super powers. They also represent a lost opportunity for Chicago-based Boeing and Toulouse, France-based Airbus. The European plane-maker is subject to US export restrictions to Iran because more than 10% of the parts on its jets originate with US companies such as United Technologies Corporation, Rockwell Collins Inc, and General Electric Co.

Elsewhere, Italy’s shares tumbled on the prospect for fresh elections that may boost the chances of a populist government taking power. – Bloomberg News.

 

JAPAN

Japan stocks slipped early Wednesday (9 May) morning. The Nikkei 225 Index lost 0.39% to 22,422.03. It was up 0.18% to 22,508.69 on Tuesday (8 May) with seven out of 11 sectors posting rises. Health care, information technology, financials, and telecommunication services were up 0.65%, 0.42%, 0.35%, and 0.34%, respectively. Energy, real estate, materials, and consumer discretionary stocks lost at least 0.09%.

Takeda Pharmaceutical Co Ltd is joining the drug industry’s giants with Japan’s biggest overseas takeover – a USD62b deal for much larger rival Shire Plc. Chief Executive Officer Christophe Weber capped a drawn-out pursuit of the UK-listed company with an acquisition he described as transformational that will give Takeda wider reach into the world’s biggest drug market and strengthen its global pipeline for lucrative drugs that treat rare diseases.

Takeda’s largest acquisition would catapult the company into the top 10 within the global pharmaceutical industry and add drugs like Shire’s Adderall for attention deficit hyperactivity disorder to its roster. Weber, a Frenchman who is the first foreigner to lead the 237-year-old Japanese firm, is seeking growth in new markets and rare-disease treatments, which offer higher profit margins, amid patent expirations and drug pricing pressures at home. The deal increases Takeda’s exposure to the US, the world’s biggest pharmaceutical market. Shire, based in Lexington, Massachusetts, gets more than two-thirds of its revenue from North America. Takeda generates only 30% of its sales from the region.

While the deal would boost Takeda’s earnings potential, it also comes with risks. Japanese investors have worried about the hefty debt. S&P Global Ratings placed Takeda on a watch and warned it may lower the company’s ratings by up to two notches, it said in a statement Tuesday. – Bloomberg News.

News of the deal lifted the health care sector. Among other counters, Takeda’s shares climbed 3.99%, Astellas Pharma Inc gained 2.81%, and Chugai Pharmaceutical Co Ltd added 0.87%.