Stock Market News Today 2018/09/05
Sanofi to pay $25m to settle corruption, bribery charges.
Sanofi SA
French pharmaceutical company Sanofi has agreed to pay more than $25m to resolve charges that its Kazakhstan and Middle East subsidiaries made corrupt payments to win business, the Securities and Exchange Commission said on Tuesday.
In a separate statement, Sanofi confirmed that it will pay $25.2m and agreed to a two-year period of self-reporting on the effectiveness of its enhanced internal controls and anti-bribery and corruption compliance programme. As part of the settlement, Sanofi neither admits nor denies any wrongdoing. According to the SEC’s order, “the schemes spanned multiple countries and involved bribe payments to government procurement officials and healthcare providers in order to be awarded tenders and to increase prescriptions of its products.”
It said that Sanofi used distributors in Kazakhstan as part of a kickback scheme, “to generate funds from which bribes were paid to officials to ensure that Sanofi was awarded tenders at public institutions.” Meanwhile in the Middle East, the SEC order said that Sanofi used “pay-to-prescribe” schemes in order to induce healthcare providers to increase their prescriptions of Sanofi products.
“Bribery in connection with pharmaceutical sales remains as a significant problem despite numerous prior enforcement actions involving the industry and life sciences more generally,” said Charles Cain of the SEC’s enforcement division in a statement.
“While bribery risk can impact any industry, this matter illustrates that more work needs to be done to address the particular risks posed in the pharmaceutical industry.”
Yield on 10-year Treasury back above 2.9%.
United States 10-Year Bond Yield
US government bonds sold off on Tuesday after the latest reading on a gauge of US manfucturing came in stronger-than-expected, fuelling expectations that Federal Reserve is unlikely to be diverted from plans to raise interest rates this month.
The yield on the benchmark 10-year US Treasury briefly moved back above 2.9 per Cent for the first time since mid-August. The yield, which moves in opposite direction to price, rose as much as 5.3 basis points to 2.9060 per cent around midday before pulling back to trade at 2.8967 per cent. The yield on the more policy sensitive two-year note also gained, tacking on 2.4 basis points to 2.6533 per cent.
The moves come after the Institute for Supply Management said the reading for its manufacturing index came in at 61.3 in August, its highest since May 2004. That improves on the previous reading of 58.1 and soared easily past consensus expectations for 57.6.
KLM makes pact with pilots to avoid industrial action. Dutch airline ‘delighted’ to reach agreement ahead of arrival of new chief executive.
Air France-KLM
Pilots at KLM have reached a labour agreement with the Dutch airline and will call off their preparations for industrial action. After mediation, the Association of Dutch Pilots (VNV) said the airline had listened to its concerns. “The changes . . . tackle the too-high pressure,” it said.
KLM said it was “delighted” to have reached an agreement and “hopes that a line can now be drawn under a difficult period. KLM wishes now to join with the VNV to concentrate on the challenges ahead”.
The agreement is good news for Benjamin Smith, new chief executive of the Air France-KLM parent group, who is due to start at the end of this month. Unlike the group’s French unions, which said it was “inconceivable” for a non-French national to become group chief executive, the VNV had welcomed Mr Smith. The Dutch union called its French counterparts’ rejection of Mr Smith “one-dimensional” for judging him by his nationality and wished him “all the luck he needs”.
The VNV had started to ballot its members in mid-August after a dispute over whether a 4 per cent reduction in working hours would begin in September 2018 or September 2019. William Schmid, VNV vice-president, said at the time: “Apparently making profits is more important than growth and investing in their own people who helped KLM through the crisis.”
KLM has generally had positive relations with its unions, including during AF-KLM’s crisis at the start of the decade when the carrier introduced “wage moderation” with the consent of the pilots. The group said it had to reduce its debt by €2bn between 2012 and 2014.
Emerging market currencies in steepest slide since early August, broad fall includes South Africa’s rand and Mexico’s peso.
US Dollar Index
Emerging market currencies faced on Tuesday the heaviest fall in almost a month amid broad strength in the US dollar and growing concern about the asset class. MSCI’s broad EM FX index skidded 0.71 per cent on the day, its biggest slide since August 10, according to Reuters data.
South Africa’s rand, one of the most heavily traded EM currencies, was one of the worst performers. It faced a 2.8 per cent fall against the greenback, after newly released data showed the country’s economy slumped into a recession in the second quarter for the first time since 2009.
Output fell by an annualised 0.7 per cent in the second quarter, a much worse reading than the 0.6 per cent rise that was forecast by economists. The decline came after the economy contracted at a 2.6 per cent annual pace during the first three months of 2018, a figure that was revised from a 2.2 per cent fall. South Africa’s return to recession underscores the challenge President Cyril Ramaphosa faces in turning around a long period of stagnation under Jacob Zuma, who was forced out of office earlier this year.
Mexico’s peso, another liquid EM, dropped 1 per cent amid persistent concern over the shape of a trade agreement it struck with the US, but which excludes Canada. In early trading in Buenos Aires, Argentina’s peso was off 2.3 per cent — facing a fresh drop amid anxiety its austerity plans will not be sufficient to stem the currency crisis. It has fallen 5.9 per cent in the first days of September alone. Turkey’s lira, which is also in the throes of intense currency tumult, was down 1.2 per cent.
U.S. factory activity hits 14-year high, supply constraints rising.
Dow Jones Industrial Average
U.S. manufacturing activity accelerated to more than a 14-year high in August, boosted by a surge in new orders, but increasing bottlenecks in the supply chain because of a robust economy and import tariffs could restrain further growth.
The Institute for Supply Management (ISM) survey was at odds with another survey published on Tuesday that suggested a peak in manufacturing and pointed to a slowdown in the months ahead against the backdrop of a strong dollar. Recent surveys have also signaled a cooling in regional factory activity.
“The surge in the ISM manufacturing index is difficult to square with other evidence, which indicate that growth in the factory sector has started to slow,” said Michael Pearce, a senior U.S. economist at Capital Economics in New York. “With export orders now waning as a result of the dollar’s rapid appreciation over the past few months, we still think that growth in the factory sector will slow in the coming quarters.
The ISM said its index of national factory activity jumped to 61.3 last month, the best reading since May 2004, from 58.1 in July. A reading above 50 indicates growth in manufacturing, which accounts for about 12 percent of the U.S. economy.
The ISM described demand as remaining “robust,” but cautioned that “the nation’s employment resources and supply chains continue to struggle.” According to the ISM, survey respondents were “again overwhelmingly concerned about tariff-related activity, including how reciprocal tariffs will impact company revenue and current manufacturing locations.” President Donald Trump’s “America First” trade policy has led to an escalating trade war with China and tit-for-tat import tariffs with other trading partners, including the European Union, Canada and Mexico.
Trump has defended the duties on steel and aluminum imports and a range of Chinese goods as necessary to protect American industries from what he says is unfair foreign competition. Economists have warned that the tariffs could disrupt supply chains, undercut business investment and slow the economy’s momentum. The economy grew at a 4.2 percent annualized rate in the second quarter, almost double the 2.2 percent in the January-March period.
Asia-Pacific stocks slip on rising global trade tensions.
FTSE China A50
Asia-Pacific equities slipped on Wednesday as global trade tensions remained in focus ahead of the resumption of trade talks between the US and Canada.
Japan’s Topix fell 0.8 per cent to its lowest in almost two weeks as the telecommunications services sector slipped 1.9 per cent and the utilities sector shed 1.6 per cent. The Hang Seng index in Hong Kong was down 1.1 per cent lower as all segments were in the red, led by a 2.3 per cent fall for the technology segment. The Hang Seng China Enterprises index of Hong Kong-listed major Chinese companies was down 1 per cent while in mainland China, the CSI 300 fell 0.4 per cent.
In Australia, the S&P/ASX 200 dipped 0.7 per cent with a 1.6 per cent fall for the basic materials sector dragging on the index as miners BHP Billiton and Rio Tinto fell 1.7 per cent at 2 per cent respectively. Trade talks between the US and Canada are set to resume later on Wednesday after a break in negotiations. During that hiatus, however, Donald Trump made his views on his northern neighbour clear, saying on Twitter on Sunday that “there is no political necessity to keep Canada in the new Nafta deal”.
A public comment period on a fresh round of tariffs on $200bn Chinese imports is set to end on Thursday.
Oil prices fall as U.S. storm threat eases, but Iran sanctions loom.
Crude Oil WTI
Oil prices fell on Wednesday as a tropical storm hit the U.S. Gulf coast with high winds and heavy rain, but the impact on production was not as strong as initially expected.
U.S. West Texas Intermediate (WTI) crude futures (CLc1) were at $69.31 per barrel at 0517 GMT, down 56 cents, or 0.8 percent, from their last settlement. International Brent crude futures (LCOc1) fell 37 cents, or 0.5 percent, to $77.80 a barrel.
Prices had jumped the previous day as dozens of U.S. oil and gas platforms in the Gulf of Mexico were shut in anticipation of damage from tropical storm Gordon. However, the storm had shifted eastward by Wednesday, reducing its threat to producers on the western side of the Gulf.
Stephen Innes, head of trading for Asia/Pacific at futures brokerage OANDA, said many crude futures traders were “caught long and wrong over the past 24 hours due to tropical storm buying frenzy”, adding that “prices pulled back considerably as the magnitude of the storm suggests production losses will be limited.”
There was also a typhoon hitting Japan’s east coast overnight, with some damage to oil refineries in the Osaka region, although operator JXTG (T:5020) said its operations were not significantly affected. Innes said the price outlook for crude was still bullish, in large part because of U.S. sanctions targeting Iran’s oil sector from November. “With the anticipation of up to 1.5 million barrels per day affected by the U.S. sanctions on Iran, one would expect prices to move higher in the weeks ahead.”
Other voices, however, cautioned on the risks to oil demand if turmoil in emerging markets starts hitting economic growth.
