By Geoffrey Smith
Investing.com -- Rising Covid-19 cases in Europe, India and South America stoke fears about a delay to the global economic recovery, despite AstraZeneca publishing upbeat results from a major trial of its vaccine in North and South America. Turkey's currency and stock market tumble after President Erdogan fires his central bank chief for raising interest rates too sharply; Gamestop reports earnings; there's a big railroad merger in the works, and Saudi Aramco is borrowing heavily to defend its $75 billion dividend. Here's what you need to know in financial markets on Monday, March 22nd.
1. U.S. trial results vindicate AstraZeneca as European vaccine dispute deepens
AstraZeneca (LON:AZN) cleared a major hurdle in getting its vaccine authorized in the U.S., as the U.K. and EU moved closer to blocking exports of vaccines to each other.
The U.K.-Swedish company said its vaccine was 79% effective in stopping symptomatic Covid-19 and 100% effective in preventing death and hospitalization, in a trial that covered over 32,000 volunteers in the U.S. The test results also showed no issues with blood clotting disorders, concerns over which had led many EU countries to suspend distribution of the vaccine earlier this month.
The news comes on a day when Europe’s largest economy, Germany, is set to join France in tightening and extending lockdown restrictions through the middle of April in response to a surge in new infections in the last two weeks.
Outside Europe, India reported its highest daily death count in over two months, while new infections hit an all-time record in Brazil and Chile. There were also signs of hiccups in the U.S.’s reopening, with fights among massive crowds of Spring Break tourists that led Miami Beach to declare a state of emergency.
2. Third time lucky for CPR
Canadian Pacific (NYSE:CP) finally succeeded in persuading a U.S. railroad operator to merge with it and create the first railroad operator to link all three major markets in North America.
CPR and Kansas City Southern (NYSE:KSU) said they had agreed to a deal valuing KCS’s debt and equity at around $25 billion. The merger will still need antitrust clearance. KCS had rejected a $20 billion bid from Blackstone (NYSE:BX) and Global Infrastructure Partners in September.
Blackstone was on the acquisition trail elsewhere at the weekend, proposing to buy trouble Australian casino operator Crown Resorts (ASX:CWNHB) for $6.2 billion in a deal that would offer shareholders in Crown an exit from a company beset by money-laundering allegations.
Semiconductor stocks will also be in focus after a fire at a factory owned by Japan's Renesas Electronics (T:6723), which threatens to aggravate the current shortage of chips worldwide.
3. Stocks set to open mostly lower; GameStop earnings eyed
The bad news on the Covid-19 front has given an extra leg to the rebound in tech stocks and a setback to cyclicals, as markets around the world reprice their reopening bets. Yields on 10 year U.S. Treasuries meanwhile fell back to 1.68% by 6:10 AM ET (1010 GMT)
Dow Jones futures were consequently underperforming in premarket trade, falling 85 points, or 0.3%, while S&P 500 futures were down 0.1%. Nasdaq 100 futures were by contrast 0.5% higher.
Other stocks likely to be in focus later include GameStop (NYSE:GME), which is due to report earnings for the three months through January – the first update since the epic short-squeeze earlier in the year. Analysts expect a profit of $88 million, or $1.35 a share, on $2.2 billion in revenue.
Also in focus will be Tesla (NASDAQ:TSLA), whose biggest fund manager cheerleader Cathie Wood put out a new target price of $3,000 by 2025 at the weekend. Existing home sales data for February are also due, while the Federal Reserve's Randy Quarles, Mary Daly and Michelle Bowman all speak later.
4. Turkey in turmoil
Turkish financial markets went into meltdown mode after President Recep Tayyip Erdogan fired his central bank chief, Naci Agbul at the weekend, only two days after he raised interest rates by more than expected.
Erdogan’s intervention revived fears of a return to the previous economic policy that tolerated a sharp currency devaluation and raging inflation. Erdogan had appointed Naci Agbal last year in what had seemed a decisive return to more orthodox economic policies.
The dollar rose by more than 10% against the lira in early trading but retraced to be up ‘only’ 9.8% by 6:10 AM ET after government officials downplayed suggestions that the country will impose capital controls to support the currency.
The benchmark BIST 100 stock index also fell 9.2% while the yield on Turkey’s 10 year government debt soared to over 16%, its highest since 2019.
5. Aramco defends dividend, at a price
Saudi Aramco (SE:2222), the world’s biggest oil company, said it would keep its dividend payment at $75 billion for 2020, despite a sharp drop in profits due to the pandemic.
The decision says less about the outlook for the global oil industry than it does for the Saudi budget, which relies on Aramco’s dividend for most of its resources. Free cash flow fell to $49 billion, meaning that the company will have to borrow to cover the shortfall.
Crude prices were choppy on Monday as doubts about the summer tourism season in the northern hemisphere intensified. U.S. crude futures were flat at $61.45 a barrel, while Brent crude futures were up 0.1% at $64.59 a barrel.