In the U.S.:
- May nonfarm payrolls of +2509K shocked the markets as analysts were expecting a loss of 8000K. Large increases occurred in leisure/hospitality, construction, education, health services and retail.
- George Floyd protest marches continued this week but stayed mostly peaceful easing market fears. New charges were filed this week for the officers involved and also older cases of police brutality have been reopened for review, which may appease some of the public anger going forward.
- In earnings, 320 companies in the S&P 500 Index have reported, 76.0% beat, 1.0% were in-line, and 23.0% missed estimates.
BCE, Inc. announced a definitive agreement to sell 25 data centers at 13 sites to global interconnection and data center company Equinix, Inc. (EQIX) in an all-cash transaction valued at C$1.04B. Equinix is acquiring 13 sites representing 25 Bell data center facilities in 8 cities across Canada.
- Xinhua reported that the PBOC announced new measures to boost small business financing. To spur on growth the bank will use CNY400B of a special re-lending quota to buy small firm loans from local banks from 1-Mar to 31-Dec.
- May official manufacturing PMI fell to 50.6 versus April’s 50.8 reading. Export orders contracted for a fifth consecutive month while factories reduced headcount for the first time since they reopened for business.
- April household spending dropped 11.1% y/y versus March’s 6.0% drop, marking the biggest drop on record going back to 2000. Most categories contributed negatively with apparel and entertainment dropping the most.
As problems continue to mount for WeWork, the company has decided to dump two office locations in Hong Kong. Both locations have 10 year leases that went into effect last year signed with Wharf REIC and Hysan Development. It is uncertain if the companies will go after WeWork for breach of contract.
- The Financial Times reported that this week’s Brexit talks made very little progress on core issues. While EU officials said some headway had been made on security cooperation, there was no progress on a level play field on environment, labor markets and competition rules.
- May Eurozone final manufacturing PMI was revised down a notch to 39.4 versus April’s 33.4 reading. IHS Markit said there were noticeable signs of easing in downturn, but rate of contraction still considerable.
- The ECB decision to increase PEPP by €600B before program exhausted, which was above €500B consensus, drove the markets higher. Bloomberg highlighted that some strategists still expect more stimulus will be needed.
London property specialist Capital & Counties Properties Plc (Capco) announced this week an agreement to purchase a 26.2% stake in its closest peer Shaftesbury Plc from a discretionary trust established by Hong Kong investor Samuel Tak Lee for £436 mn. The transaction would be staged across two transactions – an initial purchase of 20.9% for £348 mn to be completed on or around June 3, 2020 and a subsequent tranche of 5.3% of Shaftesbury’s shares for £88 mn to be completed upon Capco shareholder approval. The price of 540 pence/sh represents a discount of 13.9% to Shaftesbury’s closing price on the last trading day prior to the announcement and a 45.0% discount to its last reported EPRA NAV of 982 pence/sh at September 30, 2019. Both companies own a unique portfolio of high street retail, food & beverage, office and residential properties in London’s desirable West End. While the current environment remains challenging for each as a result of the COVID-19 pandemic, the transaction represents a unique opportunity for Capco to redeploy the proceeds from last year’s sale of the Earls Court Estate at an attractive price in a transaction that fits within their long term strategy. Although nothing in eminent, the transaction also increases the likelihood over the long term of a potential merger between the two companies given some crossover in shareholders, likely synergies and the complementary fit between the two companies.
The views expressed in this update are as of the date of this blog entry. These views and any portfolio holdings discussed in the update are subject to change at any time based on market or other conditions. The adviser disclaims any duty to update these views, which may not be relied upon as investment advice. In addition, references to specific companies’ securities should not be regarded as investment recommendations or indicative of the Adelante products, strategies, or portfolios.