Agrochemical-Pharma tie-up looms large

With a new bid on the table, and amid a recent move by many in the industry to consolidate, Germany’s Bayer are attempting a takeover of the American agrochemical titan Monsanto which could result in the biggest supplier of seeds and chemicals in the world.

Following the mergers recently involving competitors including DuPont, Dow Chemical and Swiss company Syngenta, the German chemical and drug producer is looking to make significant strides into the GM crop arena, Monsanto being noted specialists in the field.

The transaction is far from being closed however, with regulators sure to have their say first.

Monsanto revealed in a statement released to the press, “Neither the terms of the deal nor the assurances of any merger happening has been fully decided as yet.” The statement added that the board of directors will also need to green light the deal for talks to progress.

Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management commented on the news in his blog, “There is a strong possibility the deal will go though. Both companies are playing catch up with other big competitors in the field consolidating their holdings recently. The only stumbling block could be the regulators.”

After rumours recently that Monsanto had been courted by both Bayer and another German chemicals giant BASF, Bayer confirmed they have been involved with talks saying it had “sat down with members of the Monsanto board informally to discuss a proposed combination of the companies.”

Following the announcement, Bayer share prices took a 6 percent hit, which may spark a backlash from their shareholders.

Bayer is currently the second biggest supplier of crop chemicals after Syngenta, who were recently acquired by ChemChina, pending regulatory approval. Monsanto also attempted to buyout the Swiss firm last year but were rejected.

A ground breaking merger took place in December 2015 when Dow Chemical, an American chemical multinational head quartered in Michigan, and DuPont came together forming a new $140 billion entity.

Tie-up concerns

In an already embattled agricultural industry where major commodities are underperforming, farmers have been losing income and big suppliers like Bayer have also felt the squeeze on their annual profits.

As a result, multinational agrichemical firms have higher amounts of seeds and chemicals in stock meaning large scale price cuts and an increased need for efficiency.

It’s thought regulators will be looking at the proposed merger very carefully as concerns have been raised the tie-up could have a dramatic effect on competition in America. Farmers are also worried that such deals could lead to price increases, fewer choices and too much power for any new entity that holds all the cards.

“OK macro report” signals bullish stance on equity

There has been a 180 degree turn on the ‘risk off’ stance investors have held to in the last couple of months as they piled over one and a half billion dollars into the equity markets in the week ending June 1st.

The turnaround marks the first net inflows for several weeks as U.S. stocks attracted renewed interest, making up the bulk of the inflow with around $1.1 billion according to Bank of America Merrill Lynch (BAML).

The current bullish sentiment is being attributed mostly to an “okay macro report” although a recent rally in financials, and crude bouncing back, have also played a part.

The rest of the inflows were made up of emerging market equities with around $400 million.

BAML reported that U.S. stocks were a tiny amount under their record highs, with a 1.6 percent climb in the S&P 500 last month.

U.S. May ISM numbers are running right alongside these levels at about 2,160.

Financials enjoyed their most substantial inflows since 2015, with $500 million being added. Meanwhile, tech stocks saw over a hundred million inflow, a two month high.

Mutual funds showed exactly the opposite performance to ETF’s however, with the former seeing a $5 billion outflow in contrast to a $7 billion inflow for ETF’s.

Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management commented on the BAML findings in a phone interview this morning.

“With mutual funds what we see is a very delicate investment landscape due to a number of factors. There has been increased involvement from regulators, decreased liquidity, low confidence, overcrowding and some strange outcomes from the negative interest rate policies recently,” Poulson said.

In response to the Greece bailout issue and possibly the upcoming Brexit vote, European equities have been on a four month slide with a further $600 million in outflows occurring last week. Most of the hard work from the first decade of the millennium seems to have been completely undone, especially taking into account nearly $50 million worth of redemptions from Asia ex-Japan equity funds.

Poulson continued, “The potential Fed rate hike is just one of several landmines in the road for investors as shown in the BAML data. Uncertainty in Europe is at an all-time high and caution is advised. It’s an okay macro report in general but we need not get carried away.”

Yen Continues Decline as Minister Confirms Government Could Step In

As Japans currency experienced another fall today, the government reaffirmed earlier statements that they would step in to control the bleeding if the fall continues.

The yen declined for the second consecutive day against main competitors after the Finance Minister of Japan expanded on previous comments on Monday regarding the country’s financial policies. The last time Japan stepped into the markets to control the yen was five years ago following one of the nation’s worst natural disasters in history. The most recent statements by the Minister, Taro Aso, came only 24 hours after he announced that “it would be normal for us to step in should we need to bolster the currency.”

The yen fell 0.5% to 108.92 per dollar this morning and earlier reached 108.96, the worst figures since late last month. That said, the yen has still performed well, rising over 11 percent versus the dollar this year, better than any of its Group-of-10 competitors.

“The recent rhetoric from Japans officials has not gone unnoticed by the financial markets” said Sean Callow, a foreign-currency specialist at Westpac in Adelaide. “If the authorities involved keep failing to act they may start to be perceived by onlookers as “all bark and no bite”.
Federal Reserve Perspective

The DKY spot rate, which analyses the dollar against 10 peers, was relatively unaffected after a steady week long rise. Noises coming from U.S. economic authorities still hint towards interest rate hikes this year, reaffirmed by the New York Fed President.

The yen soared against the dollar last Monday reaching its highest level in one and a half years, bolstering gains after Japans Central Bank decided against injecting stimulus in its meeting late April.
“The Finance Ministers statements caused a re-evaluation of positions that had built up in reaction to trepidation of how far the yen could be raised by market activity ,” said Stuart Poulson, - Head of Corporate trading at Nikko-Desjardins Asset Management. “The benchmark for any meaningful intervention by the Japanese is fairly high. We are probably looking at past 100 per USD at least” he added.

While recent comments by Aso and the Governor of Japans central bank have had caused limited movement regarding the yen, the strength of the currency still threatens to weaken profits of the country’s exporters and could also have a negative effect on general business confidence.

Merkel, Abe at Odds on How to Improve World Economy

German Chancellor Angela Merkel and Japanese Leader Shinzo Abe differ on how best to boost the worldwide economy ahead of a G7 gathering this month.

 While Abe made a trademark pitch for major boost in spending, Merkel said Germany was already doing what is needed, referring to the additional increase in domestic demand  brought by the arrival of one million evacuees and transients a year ago.

The leaders of the European and East Asian trade powers will put forward their opposing views when Japan hosts a meeting of the G7 nations— including England, Canada, France, Italy and the US.

Head of Corporate trading at Nikko-Desjardins Asset Management, Stuart Poulson commented, “I think both Germany and Japan are taking the necessary steps towards financial recovery for world markets. With Merkel and Abe at the forefront we see very positive reforms on the horizon even if their philosophies on immediate action differ.”

Abe— who is known for his "Abenomics" endeavours to fortify financial growth through expanded open spending—has been urging G7 countries to make an increased effort to boost the world economy.

"We talked about the world financial situation and that we can't simply sit tight for typical financial cycles, we need to proactively handle the dangers to restore the global economy," he said.

"We require an acceleration of basic changes and broad monetary strategies," he told a press gathering, after a meeting at Germany's state visitor house, a palace north of Berlin.

Merkel, however, believes that Germany, Europe's top economy, is doing what is necessary.

"With the numerous displaced people we took in a year ago, we saw a boost in consumption which, from my perspective, will generate improvement in the world economy," she said.

She said Berlin encouraged a three-tier system of reforms, "We are looking to consolidate strong economic spending policies with improved development and increased investment.

Abe came to the presidency in December 2012 vowing to revive the world's third-biggest economy.

 Abe's method yielded some results initially when the yen weakened rapidly, making exports cheaper and sparking a securities exchange rally. However, global economic weakness since has seen the yen rebound, as investors rush to the Japanese currency which is viewed as a safe haven.

The Japanese Job Market Bodes Well for Economy

There is good news for Japan's economy -- the Japanese job market is experiencing a boom. This is the best the Japanese job market has performed in last 22 years.

Japan's economy is showing steady signs of recovery. More recently, the country registered an increase in household spending. This has triggered the expectation of employers who have increased hiring in the hope that the domestic economy will perform well in the third quarter.

According to figures released by the Labour Ministry of Japan, the jobs-to-applicant ratio has also increased from 1.09 in May 2015 to 1.10 in June 2015. This figure is close to the numbers witnessed during June 1992 when Japan underwent a brief spell of an asset-inflation bubble burst which eventually lead to the stagnation that the country is fighting even today.

An increasing number of potential employees are trying to make the best of this new development. This is precisely why the jobless rate grew from 3.5 percent in May 2015 to 3.7 percent in June 2015. Given the demand for labour in retail and construction sectors, it is unlikely that the jobless rate will grow further.

The effect of a sales tax hike, which was implemented in April this year, is receding gradually. A Bank of Japan employee cautioned that net exports might see some fluctuations this year. Many of the Japanese companies are in the process of shifting factories and this may affect exports in a negative way.

Nikko-Desjardins, Head of Corporate trading, Stuart Poulson says, "Japan's economy can benefit greatly from an increase in household spending. However, for household spending to continue to register a rise, it is important that Japanese people be convinced that in the near future, their incomes will rise too."

The Saudi Arabian Oil Giants Aramco Value Listing Stuns

Aramco, the Saudi Arabian oil super giant has managed to obtain a multi-dollar listing through only a part of its total corporate heft. The oil super giant is now all set to become the largest oil company in the world.

More recently, the Saudi government also declared that it is planning to sell out a 5% stake in its state oil company. The government is doing this with the intention of boosting its staggering economy. It plans to dedicate its $3 trillion sovereign fund for this purpose.
The Saudi economy will get a major boost from the Aramco deal which will produce anywhere between $2 trillion to $2.5 trillion. This is being hailed as the biggest stock market flotation in history.

Armaco is the only oil producer in Saudi Arabia, a country which is the biggest producer of oil in the world. For this very reason, Aramco exerts huge influence in the global oil markets.
According to statistics, Aramco produces 12 million barrels a day -- one in every nine barrels is produced by Aramco. Aramco's crude oil production capacity is unmatched by any other company in the world. It is believed that in a situation of hypothetical supply disruption, the Saudi Arabian oil giant is capable of solely stabilizing the global oil market.

However, global investors are already pondering over the actual worth of this Saudi Arabian oil giant. If economists and analysts go by the words of Mohammad bin Salman, the deputy crown Prince of Saudi Arabia, Aramco will easily rout Exxon Mobil, another oil giant who’s estimated worth is close to $350 billion. As a matter of fact, the net value of Aramco will leave behind the combined net value of Apple, Exxon, Berkshire Hathaway and Google.

The net value figures of Aramco are mind-blowing. If the company plans to sell 20 percent of its shares, it will raise $400 billion. This figure is capable of changing the face of Saudi stock market.
Stuart Poulson, Head of Corporate Trading at Nikko Desjardins Asset Management says, "Aramco might actually be worth all that money. It is a well-known fact that the company's oil reserves are vast. Aramco's 5 percent may be worth around $2 trillion because the cost of oil production is quite low in Saudi Arabia. Aramco spends only about $2 to produce a barrel of oil."

Saudi Arabia is the one of the few countries that have managed to drive profits from oil production even after prices fell.

Scott Morison Insinuates a Tax Cut, Says It's Part of an 'Economic Plan'

Scott Morrison, the Treasurer of Australia, recently made a statement saying that his first budget will be unlike any budgets that Australia has seen. Morrison hinted towards a tax cut and said that he plans to increase education spending.

The government announced that it will be pushing in an extra $1.2 billion in the education budget. If reports are to be believed, under the new budget, people earning more than $80,000 will have to pay lesser taxes than before.

However, Morrison also promised that the new budget had nothing to do with the impending federal election which is to happen on 2 July. The Treasurer said that the new budget is aimed at creating more jobs and that the focus will be on growth and creating a diversified economy.
He also said that he had been allocating his time to the budget for a while now because he understands that Australia does not need a typical budget, but a budget that would strengthen the future of the country.

However, Morrison restrained from making any direct comments about the expected tax cut. At the same time, he also said in a garbed statement that government does not plan to increase the tax burden on Australian citizens and the Australian economy beyond what it is right, because increasing tax will hamper growth and kill jobs, something that Australia cannot afford to do at present.

Stuart Poulson, Head of Corporate Trading at Nikko-Desjardins Asset Management said, "The government must ensure that after the tax revision, an average wage earner should not move into the second highest tax bracket category. If the treasurer is indeed able to reduce taxes, people who earn more than $80,000 will benefit doubly as the temporary deficit levy which was introduced in 2014 will end in 2017."

However, Chris Bowen, the Shadow Treasurer of Australia, has said that he will not support any tax cuts for people who are earning more than $80,000 without first going through the details of the package. Bowen further said that if the government plans to reduce taxes, it will have to justify such an action first and that the entire process will be looked on merits.

Bowen added that the even though the Treasurer says that budget deficits do not count any more, it is hard to ignore the fact that the AAA credit rating is under immense pressure. On top of that, the government has increased overall spending since the last year which is as yet unfunded. Bowen said that he will have to take under consideration all these circumstances before he can approve a tax cut.
More recently, Bill Shorten, the opposition leader of Australia, addressed a conference of journalists in Melbourne where he said that the present Australian government is trying to entice voters by offering them a modest tax cut. However, the people of Australia are smart enough to not fall for such false promises.

He further added that in the last three years, the Liberal government has only stolen money from its voters. Now that the elections are near, the government is trying to buy back voters by offering them money.