Investors Hope GE Spinoff Will Defy Poor Track Record of Breakups

Economic

Stocks

Summary:

As General Electric completes its $191.9 billion breakup, bullish investors are betting it will...

As General Electric completes its $191.9 billion breakup, bullish investors are betting it will defy the lackluster share price performance that has followed many corporate spinoffs over the last few decades.

Shares of GE were up nearly 37% this year as of Monday and stood near a seven-year high.

On Tuesday, the company's energy spinoff - whose businesses include wind turbine production and powering data centers - began trading under the name of GE Vernova. GE Aerospace, which makes engines for commercial and military aircraft, kept the GE ticker symbol. Investors who held GE as of March 19 received one share of GE Vernova for every four shares of GE they owned.

Shares in Vernova were up around 3.8% on Tuesday, while GE's shares were up 1.2%.

While spinoffs are typically designed to unlock value, many have been followed by unremarkable share price performance. A Bain & Co study of more than 350 spinoffs between 2000 and 2020 showed that spinoffs generated an average total investor return - defined as equity appreciation plus dividend yields - of 5.1% a year over the three years after the split. That compares to an average annual 8.7% total return for the S&P 500 during the same time frame.

"You don't get multiple expansion for free in this type of transaction, you have to earn it," said Jeff Haxer, a partner at Bain who led the study.

Spinoffs underperformed in the three-year timeframe for a broad range of reasons, including a loss of synergies that had helped the parent company control costs or maintain margins, Haxer said. The firm looked at spinoffs that created companies with a market value of more than $1 billion, including Baxter's spinoff of its Baxalta biopharma business and Kraft's spinoff of its snack business into Mondelez International.

Whether GE's latest spinoff will meet a similar fate remains to be seen. GE in 2021 said it would split into three companies focused on aerospace, healthcare and energy, part of CEO Larry Culp's plan to unlock value and make capital allocation more transparent to investors.

Its healthcare business, GE HealthCare Technologies, was spun off in January 2023 and has so far bucked the broader trend. The company's shares are up nearly 50% since it broke off, while the parent company's shares have risen almost 170%.

Investors Hope GE Spinoff Will Defy Poor Track Record of Breakups_1

Some investors are betting the company's latest spinoff will see similar success.

Jason Adams, portfolio manager of the T Rowe Price Global Industrials Fund, said GE's aviation business puts it in the top tier of global industrial companies.

GE Aerospace has been a cash cow for the Boston-based company, with some analysts estimating its market value at more than $100 billion after the spinoff.

At the same time, the new GE Vernova could see growth due to the increasing consumption needs of data centers that will power generative artificial intelligence, Adams said.

"Aerospace was a better known entity and its growth outlook better understood, but I think Vernova has been more recently discovered by the investment community and that's what has been behind the pop in (GE's) the stock this year," said Adams, who plans to be a shareholder in both companies.

Vernova last month said it expects to clear a massive backlog in offshore wind equipment over the next two years, signaling improved market conditions for the beleaguered sector, which has faced hefty writedowns as soaring inflation, interest rate hikes and supply chain issues increased project costs.

Larry Tentarelli, chief technical strategist at Blue Chip Daily Trend Report, said the remainder of GE is now a better pure play on aviation. He expects its multiples to improve from a current 22 times trailing earnings as investors get a clearer look at its earnings growth and balance sheet, separate from GE's power business.

"The aviation business is humming along on all cylinders," said Tentarelli, who owns GE and plans on holding onto his Vernova shares.

Whether the deal becomes a net positive for investors will likely hinge on the growth of the renewable business for GE Vernova, said Chris Snyder, an analyst at UBS. He has a buy rating on both companies, with a target price of $154 for GE and $37 for GE Vernova.

Of the analysts covering GE, 13 now have a buy or strong buy and 5 have a hold, according to LSEG.

"GE is taking share and has pricing power," Snyder said, while the rising demand for energy due to AI data centers is making him "increasingly positive on the prospects for GE Vernova."

Source: The Globe and Mail

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Cohen

Economic

The Harmonized Index of Consumer Prices (HICP), a measure of inflation for the Eurozone, will be released on Wednesday, April 3. The inflation data from the old continent will be closely scrutinized by the European Central Bank (ECB) against rising speculation that the bank could start its easing cycle as soon as at its June event.

A glimpse at recent European data saw consumer prices in the euro bloc climb at an annualized 2.9% in the year to December 2023, just to recede in the subsequent two months to 2.8% and 2.6%, a move that mirrored other G10 nations.

In her last comments on March 20, ECB’s President Christine Lagarde expressed difficulty in determining whether the current price pressures stem merely from delays in adjusting wages and services prices, combined with the cyclical fluctuations in productivity, or if they indicate persistent inflationary trends.

Lagarde added that, unlike previous phases of their policy cycle, there are indications that the anticipated disinflationary trajectory will persist. Should the data unveil a significant correlation between the underlying inflation trend and the ECB projections, Lagarde thinks the bank can transition into the phase of scaling back its policy measures.

What to expect in the next European inflation report?

As a result, economists anticipate that Core HICP inflation will rise by 3.0% on a yearly basis in March (from 3.1%), while the headline gauge is seen rising by 2.6% from a year earlier, matching the gain observed in the previous month.

Reinforcing the idea of persistent disinflationary pressures, the advanced Consumer Price Index (CPI) in Germany rose by 2.2% on a yearly basis in March, down from February’s 2.5% gain.

Eurozone Inflation Release: Lower Price Pressures Could Weigh On The Euro_1

According to the ECB Consumer Expectations Survey (CES), the median predictions for inflation in the next 12 months dropped from 3.3% to 3.1%. However, expectations for inflation three years ahead stayed steady at 2.5%.

When will the Harmonised Index of Consumer Prices report be released and how could it affect EUR/USD?

Eurozone preliminary HICP is due to be published at 09:00 GMT on Wednesday.

Heading into the highly-anticipated inflation release from Europe, the Euro (EUR) is struggling below the round milestone of 1.0800 against the US Dollar (USD), as investors continue to assess the likelihood of the start of the easing cycle by the Federal Reserve (Fed) in June.

According to Pablo Piovano, Senior Analyst at FXStreet, “Looking ahead, the EUR/USD is anticipated to encounter initial resistance at the key 200-day SMA at 1.0833. A move above this zone in a convincing fashion should restore the constructive bias and potentially allow for further gains in the short-term horizon.”

Pablo adds, “On the flip side, a reach of the so-far April low of 1.0724 (April 2) could trigger a deeper decline towards the 2024 low of 1.0694 (February 14).”

Source：FXStreet

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FOREX.com

Forex

GBP/USD seasonality by month:

As a refresher, GBP/USD has averaged a positive return of 0.85% in April according to data from the past 43-years. Its median return is even higher at 1.07%, which suggests a few negative, outlier returns have weighed the average down in April over the years. Furthermore, GBP/USD has a positive win rate of 66.7% in April, which is its highest win rate of the year.

Of course, we also need to factor in that traders are trying to price in multiple BOE cuts. And if economic data from the UK continues to deteriorate over the coming weeks, GBP/USD could be in for a bearish month (especially if US data remains strong). But there may be another factor at play that could at least support GBP/USD over a particular period of the month.

GBP/USD seasonality in April, by the day:

The chart above shows average returns in April for GBP/USD by the day. And it is interesting to note that it tends to perform quite well on the days between 8th – 19th April, most days of which have a positive win rate. Furthermore, that bullish period arrives near the beginning of the financial year which lands on April 6th. Whether there is some sort of repatriation trade occurring for some FTE companies or not, I really have no idea. But it does appear to be a pattern worth keeping in mind as we head into next week, as next Monday lands on April 8th.

The most bearish day of the month lands on April 20th, although as that arrives on Saturday this year then perhaps GBP/USD traders should be on guard for a selloff on Friday 19th April. The most bullish day of the month lands on April 28th with an average return of 0.22% and win rate of 84.6% - and this year it lands on a Friday.

A sidenote on seasonality data:

Seasonality data is certainly nice to know, but it is not a roadmap for the future. It is simply taking an average of past performances, which ignores the individual drivers for its performance over any period of time. And that means traders need to keep a close eye on current and developing themes as they can easily take precedence over seasonality. So it really should just be used as an additional tool alongside other forms of analysis to try and find higher probability events.

GBP/USD technical analysis:

Cable has fallen over 2.7% since its false break of the December high. It has found support around the February close low and formed a small bullish inside day, which suggests bears are either beginning to cover, bulls are entering or a combination of the two.

Like all FX majors, GBP/USD is likely at the mercy of today’s ISM services report and Friday’s nonfarm payroll data, where weak figures are required to weaken the US dollar, yields and bolster pairs such as GBP/USD.

But the closer GBP/USD traders towards the December low, the more I suspect a bounce could be due. If fact, what I would really like to see is a false break of the December low before the weekend, where bulls could then seek evidence of a bounce next week as it enters the seasonally bullish part of April (represented by the green box).

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Swissquote

Economic

Stocks

Mood was down in Asia today as the strongest earthquake in 25 years led to halted operations in TSM and United Microelectronics.

Elsewhere, major stock and bond markets in Europe and the US were painted in the red yesterday as well; rising oil and commodity prices fueled inflation expectations while further strength in the US economic data boosted worries that the Federal Reserve (Fed) may not cut the interest rates as much as wished this year. Yesterday’s data showed faster-than-expected recovery in factory orders, though job openings fell more than expected.

The market now prices less than three rate cuts from the Fed this year, below the three rate cuts plotted by the Fed members at last month’s FOMC meeting. And even though Fed’s Mary Daly and Loretta Mester said that three rate cuts look appropriate this year – God knows why – Mester added that ‘it’s a close call’ on whether fewer rate cuts will be needed. She was certainly referring to robust economic data and up-ticking inflation!

The US 2-year yield extended to 4.73% yesterday, the 10-year yield spiked to 4.40%, the S&P 500 tipped a toe below the 5200 level but managed to close above this psychological mark. Nasdaq closed near 1% lower and volatility rose. The US dollar index however retreated despite the positive pressure on yields.

Today, investors have their eyes set on the ISM non-manufacturing index and the latest ADP data. The US economy is expected to have added nearly 150K new private jobs in March. Friday’s jobs data should split hairs between those anticipating three rate cuts and those banking on just two. A strong set of jobs figures – that would add more spice to strong US growth and picking inflation – should further soften the Fed doves’ hand, weigh on equity and bond valuations and keep the US dollar sustained against most majors, starting with the euro.

The EURUSD rebounded before hitting 1.0740 yesterday as the US dollar fell sharply despite supportive economic data. But the data released in Europe confirmed that inflation in Germany cooled for a third straight month and today’s aggregate Eurozone inflation is expected to show further easing. The headline inflation is expected to ease from 2.6% to 2.5% and core inflation from 3.1% to 3%.

Unlike the strong US growth and rising US inflation since the start of the year, the persistent slowdown in European inflation and gloomy Eurozone economies justify a European Central Bank (ECB) rate cut and should continue to weigh on the EURUSD. Across the Channel, Cable saw support near 1.2550 on a broadly softer US dollar, but the data fueled the Bank of England (BoE) rate cut hopes: inflation in British stores dropped to the lowest level in more than two years.

Overall, the US is isolated on an island with a surprisingly strong economic data and rising inflation. But the dollar inflation could easily spill over to the rest of the world if the US dollar gained strength backed by a significant retreat in dovish Fed expectations.

FTSE 100 in a good place to catch up with the rest of Western indices

The FTSE 100 benefited from rising oil & commodity prices and softer sterling to extend gains past the 8000p psychological mark. The FTSE 100 will likely see more tailwinds if oil and commodity prices pick up momentum and the British blue-chip index could be a good hedge against rising inflation worries.

Across the Atlantic, the moodiness in US stocks since the quarter started is mostly due to a retreat in Fed expectations because of strong data, but note that strong economy per se is not a reason to be sad about. This is why the S&P 500 could temper the significant retreat in Fed cut expectations since the start of the year. If the US earnings continue to satisfy, the US stock markets may avoid a significant meltdown.

Oops

Tesla released the first quarter deliveries report yesterday and the numbers were hard to swallow. Analysts were expecting around 6% drop in deliveries last quarter compared to a year earlier, but the deliveries fell 8.5%. Inventories rose and the inventory build-up will be another major headwind to the cashflow. As such, Tesla closed the session almost 5% lower and will hardly reverse losses when the 50% annual sales growth narrative continues to fade away. Tesla’s PE ratio is still around 63 giving it a large room for extending losses.

Elsewhere, Rivian built and sold more EVs than expected but shares plunged more than 5% on overall gloomy outlook for the EV sector.

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Alex

Economic

As followed by bne IntelliNews, despite the fallout from Russia's full-scale military invasion of Ukraine, the manufacturing sector ended 2022 with a historically strong expansion in output. Manufacturing PMI since January 2023 continued to trend in positive territory and posted the best performance in 13 years in the February 2024.

The seasonally adjusted S&P Global Russia Manufacturing Purchasing Managers’ Index (PMI) posted 55.7 in March, up from 54.7 in February and above the 50.0 no-change mark signalling expansion, showing “a steep improvement in operating conditions at Russian goods producers and one that accelerated for the second month running to the sharpest since August 2006,” according to the latest report.

Supporting the manufacturing sector was the rise in output and new orders, with the latter rising at the fastest pace in over 16 years.

S&P also notes that foreign client demand improved, as new export orders increased for the first time since October 2023. Manufacturers stated that stronger demand conditions, successful marketing campaigns and new client wins drove the expansion.

Consequently, firms raised their production levels in March, with the output growing at the sharpest pace since January 2017, with companies commonly attributing the upturn to more robust demand conditions.

Increased production requirements pushed goods producers to increase employment at the end and secure full-time staff to build capacity. The rate of job creation in the sector accelerated to the steepest since November 2000, according to the report.

“Despite a further deterioration in vendor performance and transportation delays, firms recorded a slower pace of input cost inflation. The rate of increase eased to the second-weakest in a year and was below the series trend,” S&P wrote. The rate of increase in selling prices was the slowest since June 2023 and historically muted.

Russian goods producers in March also registered a pick-up in business confidence regarding the outlook for output over the coming year. The degree of optimism was the highest in five years, with firms also highlighting planned investment in new product lines and machinery. Russia’s Manufacturing PMI In March Hits Record High_1

Russia’s Manufacturing PMI In March Hits Record High_1

Source：intellinews

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Owen Li

Forex

Economic

Global bond yields rose with the benchmark US 10-year rate settling at 4.36% (4.31%). Other global treasury yields settled higher. Germany’s 10-year Bund yield closed at 2.40% (2.30%).

Against the Japanese Yen, the US Dollar was subdued, settling at 151.57 (151.60 yesterday). Japanese officials continued their intervention talk which kept the Yen from weakening further.

The USD/JPY pair traded to an overnight high at 151.80, near its recent peak. Japan’s former Vice-Finance Minister Tatsuo Yamazaki said: “the government can step in as soon as the Yen falls beyond the current range.”

The Australian Dollar outperformed, climbing 0.4% to 0.6515 from 0.6490 yesterday. In choppy overnight trade, the Aussie held the 0.6480 support level, rallying to close above 0.65 cents.

Soaring commodity prices led by Gold and Silver supported the Aussie Dollar. Spot Gold soared 1.27% to USD 2,277.30 (USD 2,256.00). Silver rocketed to USD 26.09, up from USD 25.18.

New Zealand’s Kiwi (NZD/USD) climbed to 0.5967 (0.5952 yesterday). The Kiwi, often referred to as the “Flightless Bird” by FX traders, bounced off its overnight and 4-month low at 0.5943.

Upbeat Eurozone and German Manufacturing PMIs lifted the Euro (EUR/USD) to 1.0765, up from 1.0740 yesterday. The Eurozone’s February Final Manufacturing PMI rose to 46.1 from 45.7.

Sterling (GBP/USD) rallied against the broadly based weaker Greenback, settling at 1.2577 (1.2552). Britain’s February Manufacturing PMI also beat forecasts, climbing to 50.3 (49.9).

The US Dollar was mixed against the Asian and Emerging Market Currencies. The USD/CNH pair (Dollar-Offshore Chinese Yuan) dipped to 7.2555 from 7.2595 yesterday. Against the Singapore Dollar, the Greenback (USD/SGD) dipped to 1.3515 from 1.3522.

Other economic data released yesterday saw Germany’s Final Manufacturing PMI climb to 41.9 from 41.6. The US JOLTS Job Openings edged up in February to 8.75 million, modestly up from January’s 8.74 million. January’s JOLTS report was revised downward.

The Job Openings and Labor Turnover survey stayed at historically high levels, a sign that the American Job market remains strong. The US releases its February Payrolls report on Friday.

EUR/USD –the shared currency gained 0.26% against the modestly weaker Greenback, settling at 1.0765 in New York (1.0740). The Euro traded to an overnight peak at 1.0779 before slipping at the close. The overnight low traded for the Euro was 1.0725.
USD/JPY –the Greenback kept it’s bid against the Japanese Yen, finishing at 151.57 from 151.60 yesterday. The USD/JPY pair traded to an overnight high and recent high at 151.80 before easing. Intervention threats by Japanese officials kept the USD/JPY at bay.
AUD/USD – the Aussie Dollar climbed back above 0.65 cents to finish at 0.6515, up from 0.6490 yesterday. In choppy trade, the Aussie Battler climbed to an overnight high at 0.6524 before easing. The overnight low recorded was at 0.6485.
GBP/USD –the British currency rallied to 1.2577 US Dollars, up from yesterday’s open at 1.2552. A generally weaker Greenback supported Sterling, which traded to an overnight high at 1.2578. Earlier, the British Pound slumped to an overnight low of 1.2539.

On the Lookout:

Today’s economic calendar is a busy one and it kicked off with New Zealand’s GDT (Global Dairy Trade) Price Index which rose 2.8%, up from a previous -2.8%. As one of the largest global dairy exporters, the GDT Price Index is a crucial indicator for the dairy industry worldwide. Next up on the economic calendar was Australia’s AIG March Manufacturing Index, which climbed to -7 from -12.6 previously, beating estimates at -14. Japan follows next with its Jibun Bank March Final Services PMI (f/c 54.9 from 52.9 – ACY Finlogix). China releases its March Caixin Services PMI (f/c 52.7 from 52.5 – ACY Finlogix).

Italy kicks off Europe with its Italian February Unemployment Rate (f/c 7.2% from 7.2% - ACY Finlogix). Next up is the Eurozone February Unemployment Rate (f/c 6.4% from 6.4% - ACY Finlogix). The Eurozone releases its Eurozone March Flash Inflation Rate (m/m f/c 0.9% from 0.6%; y/y f/c 2.6% from 2.6% - ACY Finlogix), Eurozone March Core Inflation Rate (m/m f/c 0.9% from 0.6%; y/y f/c 3% from 3.1% - ACY Finlogix). Canada kicks off North America with its S&P Global Services PMI (f/c 47.2 from 46.6 – ACY Finlogix).

The US rounds up today’s data releases with its ADP (Private Jobs) March Employment Change (f/c 148K from 140K – ACY Finlogix). Next up is the US S&P March Global Services PMI (f/c 51.7 from 52.3 – ACY Finlogix), and finally, the US March ISM Services PMI (f/c 52.6 from 52.6 – ACY Finlogix). Several US Federal Reserve Bank Chair Jerome Powell plus several other Federal Reserve Heads, Goolsbee, Barr and Kugler are due to speak at various events. The focus will be on Powell’s speech, at Stanford’s Business, Government and Society forum.

Trading Perspective:

The Dollar Index eased off its overnight and recent peak at 104.80, settling at 104.45. Heading into today’s busy economic calendar, expect the DXY’s ceiling to be around that 104.80 peak. The highlight of the week will be Friday’s US Payrolls report. Median forecasts for the US Non-farms Payrolls increase centers at +200K from +275K previously (ACY Finlogix).

Due for release today are Chinese, global and US Services PMI’s. Robust commodity prices, led by Gold and Silver will continue to be focused on. Copper prices extended their rally, lifted by upbeat Chinese Caixin Manufacturing PMIs.

While the US JOLTS Job Openings edged up in February, bear in mind that January’s number was revised lower. Markets will turn their focus to Friday’s Payrolls report.

EUR/USD – the shared currency bounced off its lows, advancing against the Greenback to 1.0765 (1.0740). Immediate resistance lies at 1.0790 followed by 1.0820. Immediate support can be found at 1.0730 (overnight low traded was 1.0725). The next support level lies at 1.0700 and 1.0670. Look for the Euro to consolidate in a likely range today of 1.0720-1.0790. Trade the range, with the preference to sell Euro on strength.
AUD/USD – the Aussie Battler rallied in true battler fashion, to 0.6515 in late New York, up from yesterday’s 0.6490. Look for immediate resistance at 0.6540. 0.6570 and 0.6600. Immediate support can be found at 0.6470 and 0.6440. Look for more choppy trade in the Aussie today, likely between 0.6470-0.6540. Trade the range, nice and wide.The preference is to buy the Aussie Battler on dips toward 0.6450.

Source: ACY

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Thomas

Economic

Stocks

Overview of the DAX Performance on Tuesday

The DAX slid by 1.13% on Tuesday. Reversing a 0.08% gain from Thursday, the DAX ended the session at 18,283. Significantly, the DAX rose to a new all-time high of 18,567 before ending an eight-day winning streak.

German Manufacturing and Inflation in Focus

The German Manufacturing PMI fell from 42.5 to 41.9 in March, impacting buyer demand for DAX-listed stocks. Demand weakened at the end of the first quarter, aligning with recent downward revisions to German growth forecasts.

Later in the session, German inflation supported investor bets on a June ECB rate cut. The annual inflation rate fell from 2.5% to 2.2% in March. Falling energy prices contributed to the softer inflation rate.

US Economic Calendar: US Labor Market Data and US Factory Orders

The JOLTs Job Openings Report and factory orders impacted investor bets on a June Fed rate cut. Job openings increased from 8.748 million to 8.756 million in February. Job quits rose from 3.446 million to 3.484 million. Upward trends in openings and quits pointed to a positive outlook for the US labor market.

Factory orders advanced by 1.4% in February after sliding by 3.8% in January.

The Tuesday Market Movers

Auto stocks had a negative start to the second quarter. BMW and Volkswagen saw losses of 0.29% and 0.11%, respectively. Mercedes Benz Group and Porsche ended the session down 0.46% and 0.31%, respectively.

Tech stocks contributed to the losses. Infineon Technologies and SAP declined by 2.36% and 1.88%, respectively. Rising bond yields impacted the tech sector.

Retail stocks joined the broader market in negative territory. Zalando SE slid by 3.13%, with Adidas falling by 2.22%.

Eurozone Inflation in the Spotlight

On Wednesday, Eurozone inflation figures for March could influence bets on a June ECB rate cut. Economists forecast the annual core inflation rate to soften from 3.1% to 3.0%. Softer-than-expected core inflation figures could drive buyer demand for DAX-listed stocks.

However, the inflation numbers may not be enough to cement a June ECB rate cut. Service sector PMI numbers on Thursday need to show a pullback in price trends to signal an imminent ECB rate cut.

Other stats include Eurozone unemployment numbers. The unemployment figures will likely play second fiddle to the inflation figures.

US Economic Calendar: ADP Employment, Services, and the Fed

The US labor market will be in the spotlight again. On Wednesday, ADP employment figures for March warrant investor attention.

Better-than-expected numbers could further temper bets on a June Fed rate cut and impact demand for DAX-listed stocks. Economists forecast the ADP to report a 148k increase in employment. The ADP reported a 140k increase in February.

Moreover, the ISM Services PMI will also draw investor interest. A pickup in service sector activity could see investors cut bets on an H1 2024 Fed rate cut. Economists expect the ISM Services PMI to increase from 52.6 to 52.7 in March. The employment and prices sub-components need consideration.

Beyond the numbers, Fed Chair Powell is on the calendar to speak. FOMC members Austan Goolsbee, Michael Barr, Michelle Bowman, and Adriana Kugler will also deliver speeches. Views on the timing of a Fed rate cut could impact demand for DAX-listed stocks.

Short-term Forecast

Near-term trends for the DAX will depend on Eurozone inflation, Services PMIs, US labor market data, and central bank chatter. A hotter-than-expected US Jobs Report could overshadow market-friendly data from the euro area.

In the futures markets, the DAX and the Nasdaq Mini were down 20 and 27 points, respectively.