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Breaking financial world news from 11 December, 2019.

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US drug makers hit new highs in M&A activity

US pharmaceutical and biotechnology companies are witnessing an M&A wave lately and have reached a record USD 342 bn in deal activity so far this year, according to data provided by Dealogic. In particular, two major deals were announced earlier this week. France’s Sanofi just unveiled plans to acquire Synthorx, a clinicalstage company developing cancer treatments, for USD 2.5 bn, while Merck said it is spending USD 2.7 bn to buy ArQule, a biopharma firm developing cancer therapies. The number of US pharmaceutical and biotechnology deals has increased from 365 in 2018 to 484 so far this year. Last year, companies spent only USD 97 bn on M&A. This year’s USD 342 bn in M&A activity far surpasses any other year since 1995 when Dealogic began tracking deals. The previous buying record of USD 215 bn was set in 2016. That year, Shire spent USD 32 bn on Baxalta, and Pfizer bought Medivation for USD 14 bn. Globally, there have been 1,276 deals totaling USD 411 bn so far in 2019, up from 1,230 deals totaling USD 298 bn in 2018.

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Germany’s index of economic sentiment jumps sharply

Germany’s investor confidence index for the next six months jumped from -2.1 in November to 10.7 in December, market research institute ZEW reported. This is the highest reading since February 2018 and the index became positive after seven months of negative readings. However, the assessment of the current situation in Germany also improved from -24.7 to -19.9, although it remains negative for six straight months. “…The renewed substantial increase of the ZEW Indicator of Economic Sentiment …rests on the hope that German exports and private consumption will develop better than previously thought. This hope results from a higher than expected German foreign trade surplus in October, alongside relatively robust economic growth in the EU in the third quarter and a stable German labour market,” ZEW President Achim Wambach claimed. He added that the latest data on industrial output and industrial orders in Germany show that the German economy is still “quite fragile”.

China lending doubles in November

New yuan bank loans in China climbed 2.1x on the month to CNY 1.39 tn (USD 198 bn) in November, the People’s Bank of China reported. This leap was driven by the central bank’s decision to reduce ome interest rates, thereby driving up demand for loans, experts note. In November, issued consumer loans grew to CNY 683 bn from October’s CNY 421 bn, while corporate loans soared from CNY 126 bn to CNY 679.4 bn. Total funding (including bank loans, off-balance credit facilities, stock and bond offerings) in China amounted to CNY 1.75 tn (USD 249 bn) in November compared with CNY 619 bn a month earlier. The country’s money supply M0 (cash in circulation) increased by 4.8% y-o-y to CNY 7.4 tn, money supply M1 (an aggregate of cash in circulation and demand accounts) rose 3.5% to CNY 56.25 tn, and the broadest indicator, M2 (cash and all deposits) jumped 8.2% to CNY 196.14 tn.

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Markets

US: benchmarks finish in the red

Key US equity indices closed marginally lower on Tuesday, December 10. Investors opted for the sidelines ahead of the outcome of the FOMC meeting and as December 15, the deadline for the US to impose new tariffs on Chinese products, draws near. Even though the media wired yesterday that Washington will most likely postpone the tariff hike, White House economic advisor Larry Kudlow later claimed that a final decision on the issue has not yet been taken.

As regards the key macro data, Q3 labor productivity (revised) dropped 0.2% vs. -0.1% expected vs. the preliminary estimate of -0.3%.

In sectoral terms, most of S&P 500’s 11 industry groups closed lower, with the underperformers led by real estate and materials.

Recapping the benchmarks, the blue-chip gauge Dow Jones Industrial Average eased 0.10% to 27,881.72, the S&P 500 shed 0.11% to 3,132.52 and the technology-heavy Nasdaq Composite ticked down 0.07% to 8,616.18.

In commodities, January NYMEX WTI edged up 22 cents to USD 59.24/bbl. February COMEX gold rose USD 3.20 to USD 1,468.10/oz. Meanwhile, the 10-year government bond yield increased fractionally to 1.83%.

In other corporate news, the largest US auto component retailer AutoZone spiked 6.9% as financial results for the past quarter ending November 23 exceeded the median consensus. Specifically, net income amounted to USD 350.3 mn, or USD 14.30 per share, while analysts forecast USD 13.70 per share on average. Sales increased to USD 2.79 bn compared to the median consensus of USD 2.77 bn.

Notable decliners included aircraft giant Boeing, which slid 0.9% on news that the company delivered fewer than half as many aircraft in 11m 2019 compared to the year-earlier period.

Another notable underperformer was streaming video services provider Netflix (-3.1%) after being downgraded by Needham to Underperform.

In the blue-chip segment, the number of outperformers and underperformers was almost equal, with the gains led by UnitedHealth (+0.7%), Apple (+0.6%) and Chevron (+0.5%), while the underperformers, in addition to Boeing, included 3M (-1.3%) and ExxonMobil (-0.9%).

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S&P 500

The daily chart shows that the S&P 500 is trading near the upper line of Bollinger Bands, while the Slow Stochastic Oscillator is close to overbought territory. As a result, the index could extend losses in the short term.

Breaking financial world news from 11 December, 2019.

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Europe: equities close mixed

Key European stock indices turned in patchy performance on Tuesday, December 10, with negative sentiment prevailing as investors were focused on incoming macro data as well as developments surrounding the US-China trade dispute.

Notably, the media reported that Beijing is prepared to continue negotiations about a phase one trade deal in order to avoid the new US import tariff scheduled to take effect on December 15. However, uncertainty still prevails over the looming deadline, while the US has not signaled its intention to stand down from another tariff hike.

Moreover, traders await policy decisions from the Fed and the ECB, which will be announced today and tomorrow, respectively.

Yesterday’s macro data showed that the UK’s industrial output ticked up 0.1% m-o-m and declined 1.3% y-o-y in October vs. expectations of +0.2% m-o-m and -1.2% y-o-y. Furthermore, the country’s trade deficit reached GBP 14.49 bn compared to the GBP 11.65 bn consensus forecast. In Germany, the ZEW Economic Sentiment Index and the ZEW Current Situation Index for December came in at 10.7 and -19.9, beating expectations of a flat reading and -22.3, respectively.

Recapping the benchmarks, the UK’s FTSE 100 slipped 0.28%, the French CAC 40 firmed 0.18%, and the German DAX dipped 0.27%. The regional barometer STXE 600 closed 0.26% lower at 405.34.

British O&G player Tullow Oil rebounded 14.3% after a sell-off in the previous session. To remind, the stock cratered 71.7% on Monday after the company announced the resignation of its CEO and canceled dividend payouts.

Belgian retailer Colruyt surged 4.9% on the back of encouraging earnings for fiscal H1.

The list of underperformers included British industrial equipment leasing company Ashtead Group, which slid 6.2% as fiscal Q2 earnings missed expectations.

European bourses have seen mixed dynamics during the first half of trading on Wednesday, December 11 ahead of today’s announcement of the Fed’s policy decision as well as amid persisting uncertainty surrounding the US-China trade talks and a potential phase one deal.

By 10:03 GMT, the UK’s FTSE 100 edged down 0.05%, the German DAX firmed 0.14%, while the French CAC 40 pulled back 0.16%. The regional indicator STXE 600 was off 0.17% at 404.64.

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DAX

On the daily chart, the German DAX is trading within a symmetrical triangle near its lower line, while the Slow Stochastic Oscillator is pointing north. As a result, an upturn could be in the cards.

Breaking financial world news from 11 December, 2019.

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Asia: markets end higher ahead of Fed meeting

Asian stock indices turned in mostly positive performance on Wednesday, December 11 as investors remain hopeful that US President Donald Trump will abandon a new tariff on USD 160 bn worth of Chinese imports scheduled to take effect on December 15. Also, market participants await the outcome of the Fed’s two-day meeting, with the policy statement to be announced tonight. We expect the regulator to hold the Fed funds rate rate steady in the range of 1.5-1.75%.

On the macro data front, Japan’s BSI Large Manufacturing Conditions Index for Q4 2019 declined to -7.8 vs. -0.2% in the previous quarter. In South Korea, the unemployment rate stood at 3.6% in November, up from 3.5% a month earlier. In Australia, the Consumer Confidence Index for December came in at 95.1, down 1.9% from the previous month.

The Japanese Nikkei 225 edged down 0.08%, the Chinese Shanghai Composite added 0.24%, Hong Kong’s Hang Seng advanced 0.79%, the South Korean KOSPI firmed 0.33%, and the Australian S&P/ASX 200 closed 0.68% higher.

On the S&P/ASX 200, Webjet and Cooper Energy outperformed the broader market, spiking 9.61% and 5.22%, respectively. On the other side of the spectrum, Speedcast International and Polynovo Limited retreated 4.61% and 4.60%.

The Nikkei 225 gainers were led by SUMCO and Nippon Suisan Kaisha, which surged 4.05% and 3.60%, respectively. The list of underperformers included Hitachi and Ebara, which plunged 2.51% and 2.38%.

Japanese steelmakers were well bid, with JFE Holdings and Mitsui Mining & Smelting adding over 0.8%.

Japanese automakers Mitsubishi Motors and Nissan Motor came under pressure, retreating over 1.3%.

Japanese pharmaceutical stocks experienced a sell-off, with Takeda Pharmaceutical and Astellas Pharma shedding over 1.1%.

In Hong Kong, China Life Insurance and AAC Technologies stood out among the notable advancers, climbing 2.92% and 2.13%, respectively.

In the Australian banking sector, National Bank of Australia, Australia & New Zealand Banking Westpac and Commonwealth Bank landed in positive territory.

Travel operator Webjet soared 9.61% after denying local media reports about takeover plans.

Australian O&G names Woodside Petroleum and Oil Search gained 0.76% and 1.81%, tracking strong oil prices. Mining giant BHP Billiton picked up 0.36%.

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Hang Seng

From a technical standpoint, the Hang Seng is extending its corrective rebound as it heads towards the resistance level at 26,760.

Breaking financial world news from 11 December, 2019.

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Commodity markets

Oil has been falling on Wednesday amid signals of a solid build in US inventories. According to the API data, US crude stockpiles jumped by 1.4 mn bbl last week, while analysts on average forecast a 2.5 mn bbl drawdown. Meanwhile, gasoline and distillates showed a build of 4.9 mn bbl and 3.2 mn bbl, respectively. The EIA petroleum status report is due out at 15:30 GMT today.

Meanwhile, investors continue to watch the news flow surrounding the US-China trade negotiations as the deadline for the introduction of a new set of tariffs on Chinese products is approaching. News has been quite contradictory. Yesterday the media wired that Beijing expects Washington to postpone tariffs that are scheduled to take effect on December 15. However, White House economic advisor Larry Kudlow denied this information, noting the possibility of the tariffs taking effect is still on the agenda.

Non-ferrous metals have been trading moderately higher on the LME. Gold continues to hover within a narrow range of USD 1,460-1,470/oz.

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Breaking financial world news from 11 December, 2019.

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