Riskier Assets Rally as Merger Activity Heats Up

Riskier Assets Rally as Merger Activity Heats Up

11 Jun 2019

The dollar is mixed and riskier assets are strong on Tuesday. US rates markets continue to reflect lower recession odds.  The yield curve is moving back to zero and is currently reflecting negative 5, basis points compared to negative 20, one week ago. US inflation data will be key in determining if the inversion continues to flatten. On Monday, President Trump threatened tariffs on China if President Xi did not meet with him at this month’s G20 meeting in Osaka.  This comes even as details of the US-Mexico deal remain unclear.  

China Eases Restrictions on Money Used From Special Loans

China eased restrictions on how local governments can spend money raised from special loans.  The Ministry of Finance said it would allow a portion of those funds to be used as capital for qualified major infrastructure projects.  Elsewhere, PBOC fixed CNY firmer than expected.  It also announced a bill sale in Hong Kong this month that would mop up some offshore liquidity and lend support to the Chinese currency.  The UK reported mixed labor market data.  Earnings came in at 3.1% year over year in April, while employment rose 32k versus expectations that it would increase by 4k.  May jobless claims rose 23.2k. 

Merger Monday lead off with Salesforce.com purchasing Tableau Softward for 15-billion in stock. The deal is aimed at expanding its digital offerings beyond customer-relationship management tools at Salesforce.com. Salesforce is speculating on continued digital transformation that would get many of its current and prospective customers further into the cloud.

United Technologies Mergers with Raytheon

United Technologies is merging with Raytheon to establish the the U.S.’s second-largest aerospace-and-defense company. Shareholders of both firms were mildly positive on the deal based. Commercial aviation and defense will each make up roughly 50% of revenue for the combined firm once other businesses are shed. UTC is contributing Collins Aerospace, which manufactures engine parts, landing in its engine-making division, Pratt & Whitney. Raytheon specializes in radars and missiles, and 68% of its sales are to the US government.

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