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From the Floor: Amazon's Whole Foods bid jolts retailers —#SaxoStrats

#SaxoStrats
  • Amazon's $13.7 billion deal to acquire Whole Foods shakes global retailers
  • Shares in retail rivals, including Woolworths, dented by Amazon's move
  • Asian equities gain in anticipation of inclusion of China A shares in MSCI index 
  • FX markets caught long USD against most Asian currencies: Horchani
  • EURUSD back in middle of the range – showing total indecision: Hardy
  • Brexit talks get under way
  • Low turnout casts shadow over Macron's legislative election victory
  • Petrobras gets interesting: Garnry

Saxo Strats banner
By John Acher

US e-commerce giant Amazon's $13.7 billion deal to acquire Whole Foods Market Inc to catapult itself into the grocery business has shaken global retail-sector stocks, including such staid names as Woolworths, in Asia-Pacific trading.

Britain's talks with the European Union on the terms of its divorce from the EU get under way on Monday, and French president Emmanuel Macron's Republic on the Move and allies won a commanding majority in Sunday's parliamentary election.

On Friday, Amazon said it had agreed to pay $42 a share for the organic-food store chain, including debt, or a 27% premium to Thursday's closing price.

Amazon's big splash sent waves across the retail sector.

“Today the main story [in the Asia-Pacific session] has been the continuation of the selling of retail shares globally after the offer from Amazon for Whole Foods,” says Saxo Bank’s Tareck Horchani in Singapore.

“One of them is Woolworths, which is one of the biggest supermarket chains in Australia, which had the biggest drop seen in a one-day trading session,” says Horchani.

Woolworths shares hit in Australia after Amazon's Whole Foods deal
Woolworths share price
 Source: Saxo Bank

That jolt came despite the Australia chains’ dominance in major retail sites and despite the fact that Amazon has not even opened a warehouse yet in Australia, Horchani says.

“The broader and most important story here is that Amazon is now all-in together with Aldi on the grocery market,” says Saxo Bank's equities strategy chief Peter Garnry. “I think a lot is going to happen.”

“We have seen the ramifications across Europe and Asia in the staples retailing segment, and it doesn’t make any sense,” Garnry says.

Despite the retail-sector hit, Asia-Pacific equity indices climbed across the board in anticipation that China A shares will be included in index provider MSCI’s Emerging Markets index MSCIEF this week.

Meanwhile, in the FX markets, Horchani says “the market has been caught long dollars against most of the Asian currencies.”

Elsewhere in the forex markets, EURUSD remains stuck in a range, showing total indifference, says Saxo Bank’s FX strategy chief John J Hardy. 

EURUSD slips quietly back higher
EURUSD
 Source: Saxo Bank

Brazilian oil and gas group Petrobras shares have climbed into the top spot in Saxo’s Top 40 list from its quant model as the company continues to aggressively reduce its net debt, says Garnry.

“The stock is valued below its industry average, so it looks cheap on valuation, and there has been some recent weakness, which might be an interesting opportunity,” Garnry says.

(Saxo Bank's global macro strategist Kay Van Petersen's global Macro Monday call is available here on TradingFloor.) 

Whole Foods Market
Some analysts say Amazon's move into the grocery 
business is a game-changer. Photo: Shutterstock
 

John Acher is a consulting editor at TradingFloor
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