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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 12 May 2016 at 8:56 GMT

From the Floor: Mitsubishi accelerates on Nissan deal

  • Mitsubishi shares up 16.2% on $2.2bn deal – Van-Petersen
  • BoE needs to display impartiality but might not – Hardy
  • Major dollar pairs stuck in limbo awaiting catalyst – Hardy
  • Equity markets are looking fragile – Garnry
  • Around 100% % upside to Twitter's share price – Garnry
  • Gold sees surge in investment demand – Hansen
  • Click on the link for a replay of our morning call
 
By Clare MacCarthy

First up today is news of a proposed capital tie-up that would tighten ownership links between Nissan and Mitsubishi, two of the world's largest carmakers. The pair have agreed that Nissan will take a 30% stake in Mitsubishi at an approximate cost of $2.2 billion. The deal comes in the aftermath of an emission fraud scandal at Mitsubishi which caused severe reputational damage and knocked around 40% off its share price.

Kay Van-Petersen, Saxo Bank's Singapore-based economist, reports for our Daily Global Market Call that Mitsubishi closed today's Tokyo session 16.2% higher but that the deal might propel the stock higher still in coming days. "It's certainly something to watch, because of the emissions scandal a lot of people have been short the stock," he says.

According to Bloomberg the companies plan to sign an agreement by May 25 in which Nissan can name four directors to Mitsubishi Motors’ board.

Mitsubishi could really fly with the interest from Nissan for a 30% stake:
Mitsu
 Source: Bloomberg, Saxo Bank

Meanwhile, over in the forex universe, one of today's main events promises to be the Bank of England policy-setting meeting at 1100 GMT, followed by governor Mark Carney's press conference. John J Hardy, Saxo's head of FX strategy, says that while Carney must be careful "not to be seen taking sides on Brexit", worries about the negative implications of a vote against the European Union might prompt him to be forthright about the downside risks this would entail.

Hardy also reports that the dollar-yen "is back a bit higher" following yesterday's bout of weakness. However, the direction from here is unclear despite some energetic comments by the Bank of Japan's Haruhiko Kuroda who once again claimed that he was willing and ready to deploy another large blast of quantitative easing if necessary.

"It's very much a state of limbo in major dollar pairs and it's hard to see what the catalyst will be, whether it'll be tomorrow's US retail sales data or something else," Hardy says.


Twitter's operating cash flow to operating assets:
twitter
Source: Saxo Bank

In equity markets as the US earnings season draws to a close the general trend, especially in apparel retailing, is hardly encouraging. "Equity markets are looking fragile. We're seeing high valuation levels on the backdrop of a loss of momentum in global macro," says Peter Garnry, Saxo's head of equity strategy. The recent rebound in equities he adds, happened in anticipation of higher growth.

But it's not a universally bleak corporate picture and Twitter is one stock that Garnry is bullish on. "We see around 100% upside to the share price is Twitter can maintain its current growth rate and improve profitability even more, he says. This confidence in Twitter's ability to outperform has prompted Garnry to add the stock to his portfolio (hedged with the Nasdaq 100).

Gold finding support at key $1157 level. Resistance now at $1287:
gold

Source: SaxoTraderGO

Finally, in commodity markets, Ole Hansen, head of Saxo's commodity strategy, reports that according to the World Gold Council, the yellow metal has seen a surge in investment demand which more than offset falling jewellery demand. And the reasons for this heightened investment demand? Negative interest rates, low US borrowing costs and volatile equity markets, Hansen explains.

Crude oil this morning appears to be stuck in the same lazy rut as the dollar, though the Canadian wildfires, Nigerian disruptions and US inventory draw are still all providing support. WTI is ranging between $43-47/barrel and Brent is inside the $43.50-48.50/b corridor. "A breakout is needed for direction," concludes Hansen.

Mitsu
 Nissan has pledged to restore Mitsubishi's tarnished image and ensure its viability. Pic: iStock

Clare MacCarthy is deputy editor at TradingFloor.com

Editor’s note: From the Floor takes advantage of TradingFloor.com's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.

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