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Morning Report

M&A Makes For a Strong Start In August

Indices start the month in mainly positive territory. Chinese authorities’ move on Sunday to calm investor fears related to recent regulatory actions pushed Asian stocks higher, while Europe and Australia saw a bout of M&A action.

US Treasury yields dip on weaker than expected manufacturing data

Weaker than expected manufacturing growth in July and increased short covering activity drove US 10-year Treasury yields down 6bp to 1.17%. A news report suggested that the Treasury’s bond issuance programme would be scaled back sharply in coming months to offset any tapering action done by the Federal Reserve, adding to the buying frenzy. The Dow Jones and S&P 500 gave up early gains to hover only slightly in the green, while the Nasdaq added +0.4%. Square soared +12.7% after announcing it would buy Australian buy now pay later provider Afterpay (+18.8%). Pfizer gained +2.8% after news reports stated the FDA could fully approve its COVID-19 vaccine in the coming months. Footlocker (-1.6%) announced the acquisition of two smaller clothing retailers. ON Semiconductor soared +14.0% after releasing stronger than expected third quarter earnings guidance.

UK sees M&A activity

Europe's Stoxx 600 closed up +0.6% following a slew of positive corporate results. Data showed Europe’s manufacturing sector growth moderated slightly from elevated levels in July, while German retail sales bounced ahead of consensus. Insurer AXA jumped +4.2% after announcing a doubling of underlying net income in its first half, while rival Allianz dropped -7.8% after US regulators began an investigation into two of its hedge funds, which suffered heavy losses in early 2020. Heineken added +0.6% as earnings came in higher than expected. The UK's FTSE 100 rose +0.7% as miners gained and after several deal announcements. British aerospace company Meggitt (+56.7%) received a £6.3b takeover offer from US industrial firm Parker-Hannifin (-1.1%). SSE (+1.3%) agreed to sell its 33% stake in Scotia Gas Networks for £1.7b. HSBC slipped -0.3% despite beating profit expectations.

Afterpay acquisition boosts ASX

Asian shares took a breather after Friday’s losses when on Sunday Chinese authorities attempted to calm investor fears about potential regulatory crackdowns on offshore listed Chinese firms. China’s CSI 300 (+2.6%), Shanghai Composite (+2.0%) and Hong Kong Hang Seng (+1.1%) all gained. The gains came despite data showing China's factory activity growth slipped sharply in July as demand contracted for the first time in more than a year . Japan’s Nikkei 225 rose +1.8% while South Korea’s Kospi increased +0.7%. The ASX 200 climbed +1.3% following the Afterpay takeover news. Santos (+0.6%) raised its offer for Oil Search (+4.7%) to A$4.34. The NZX 50 added +0.8% as gains in Mainfreight (+3.5%), a2Milk (+2.7%) and Fisher & Paykel Healthcare (+2.7%) offset modest losses in smaller stocks. Genesis Energy (-1.6%) signed a 20-year deal to buy electricity from a Tilt Renewables wind farm, and learned it would have to pay for the carbon credits generated by its joint venture with Beach Energy (+2.9%).

WTI crude falls, gold advances, iron ore plunges

WTI crude dropped -3.8% to US$71.12/bbl on weak Chinese and US manufacturing sector data, strong oil output from OPEC, and COVID-related demand fears. Gold crawled up +0.2% to US$1,819.40/oz. Iron ore plunged -15.8% to US$178.97/MT.

NZ Headlines

Evolve Education’s (EVO) New Zealand head Craig Presland is leaving the early childhood education (ECE) company after three and a half months in the role.

Genesis Energy (GNE) will have to bear the $53m cost of carbon liability under the terms of a gas supply agreement with Kupe gas field joint venture partner Beach Energy (BPT.AX).

Marlborough wine company Indevin will buy the company which owns wine maker Villa Maria for an undisclosed sum following a nine-month sales process.

NZX-listed Millennium & Copthorne Hotels New Zealand’s (MCK) hotel operations generated a profit of just $33k in the six months to June 30 as it deals with pandemic travel restrictions.

Tilt Renewables (TLT) has signed a 20-year power purchase agreement with Genesis Energy (GNE) over a new 75MW wind farm in Northland, marking the trans-Tasman renewables developer’s last play as a listed company.

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