(Bloomberg) -- U.K. bond investors eager for the government to sell more of its longest-dated debt appear to have gotten their way.A bond auction on Tuesday will include a 1 billion-pound ($1.37 billion) offering of gilts maturing in 2071 with more scheduled for sale in June. Minutes of a conference call with the Debt Management Office last month revealed investors asked for more of the bonds because there isn’t enough to go around. It also cited dealers reporting strong demand for the longest-dated gilts.The success of Britain’s vaccination roll-out and plans to gradually reopen the economy have pressured gilts, lifting 50-year yields to their highest since 2019 last month. That’s now unleashing appetite among money managers to pile back in looking for income-bearing assets to match liabilities .The same dealers have also been reluctant to sell their inventory of long-maturity debt this year back to the Bank of England as part of its quantitative easing program in another sign of anticipated demand. This suggests they don’t want to be caught short of any bonds should investors want to buy from them.Also pushing the strong demand theme, oversubscription rates for bonds maturing in 50 years have been the highest on record since the end of last year.“With the U.K. market having most aggressively priced the re-opening story in Europe, even a mild re-assessment of the re-opening and vaccination story, should see gilts recapture some lost ground,” said Megan Muhic, a strategist at RBC Europe Limited.Next WeekEuro area bond issuance from Germany, Italy and the Netherlands is expected to total 12 billion euros next week according to Commerzbank AG; Danske Bank A/S flags that Ireland could sell a new 20-year bond through banks; Italy, Finland and Portugal pay redemptions of about 29 billion euros and coupons of over 2 billion eurosIn the U.K., the Debt Management Office will sell 1 billion pounds of its longest conventional gilt which matures in 2071 and 600 million pounds of a 30-year inflation-linked bond; the Bank of England will buy back 4.4 billion pounds of debt in three operationsData for the coming week in the euro area and Germany is thin and mostly backward-looking, with the exception of the ZEW survey numbers for April on TuesdayU.K. data is also slim with February GDP due on TuesdayECB policy maker speeches are scheduled from Isabel Schnabel, Fabio Panetta and Luis de Guindos all on Wednesday before a self-imposed quiet period kicks in ahead of the following week’s monetary policy decisionBOE policy maker Silvana Tenreyro speaks on Monday followed by Jonathan Haskel on Wednesday and Jonathan Cunliffe on FridayDBRS Ltd. reviews France on FridayFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
Gold futures are trading sharply lower on Friday, pressured by rising Treasury yields and a stronger U.S. Dollar. The moves are likely being fueled by profit-taking ahead of the weekend, but some are saying that robust economic data from China boosted hopes of a swift recovery. A fast paced recovery will bring central banks closer to lifting their current easy monetary policy, which would pressure gold prices.
(Bloomberg) -- Inflation fears that just drove the Treasury market’s biggest quarterly loss in decades are a “psychosis” that will fade over the course of the year, according to Hoisington Investment Management Co., among the biggest U.S. bond bulls.“Contrary to the conventional wisdom, disinflation is more likely than accelerating inflation,” according to latest quarterly report from the firm, which manages about $5 billion in Treasuries. After moving higher in the second quarter, the annual inflation rate “will moderate lower by year end and will undershoot the Fed Reserve’s target of 2%,” and “the inflationary psychosis that has gripped the bond market will fade away.”Hoisington, whose leadership includes founder Van Hoisington and chief economist Lacy Hunt, rode its optimism to huge returns last year. Its Wasatch-Hoisington Treasury Fund gained 20%, more than any other actively managed U.S. government bond fund, according to data compiled by Bloomberg. But this year has been a completely different story amid the carnage in Treasuries, with the fund down about 15% since Dec. 31, trailing all peers, Bloomberg data show.It’s had an annual average return of about 7.5% since its 1986 inception.While U.S. GDP is likely to grow in 2021 at the fastest pace since 1984 -- and possibly since 1950 -- several factors will restrain inflation, Hoisington said. They include:Inflation is a lagging indicator, reaching lows an average of 15 quarters after recessions endProductivity tends to rebound vigorously after recessionsSupply-chain restoration will be disinflationaryPandemic has accelerated technological advancementsGrowth numbers don’t reflect reflect the costs of rampant business failuresAs inflation “is the key determinant for the level and direction of long term Treasury yields,” yields also tend to reach cyclical lows long after the start of recessions, with an average lag of 76 months since 1990, Hoisington said. “While no two cycles are ever alike, the trend in long bond yields remains downward.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
The index has formed an inside move early in the session. It’s also trading on the strong side of a 50% level at 91.870 and the weak side of a 61.8% level at 92.510.
USD/CAD declined below the 20 EMA and is testing the next support level at 1.2550.
(Bloomberg) -- The reflation trade that dominated the start of 2021 in the bond market has taken a breather, leaving investors bracing for a key set of data in the week ahead that has the potential to reaffirm expectations that price pressures will build as the economy rebounds.All eyes will be on Tuesday’s release of the U.S. consumer price index for March, which is expected to show a significant jump. The number will likely be distorted by the huge slump in year-earlier figures at the outbreak of the pandemic. But traders may be reluctant to dismiss an acceleration -- as they did to some extent with Friday’s stronger-than-projected producer price data -- if there’s a growing sense that it marks the beginning of a trend.The statistics come at a crucial time for bond bears betting on reflation. Market measures of inflation expectations, fueled by ultraloose Federal Reserve policy and immense amounts of fiscal stimulus, have stalled near multiyear highs and have yet to be backed consistently by actual data. The same goes with gauges of the yield curve, which have retreated from recent peaks. It’s not just bond positions at stake: Without follow-through from data, bets on Fed tightening as soon as late 2022 may fade, potentially sapping demand for the surprisingly resilient dollar.“We don’t have strong reflation-trade momentum at the moment because people are waiting for more data,” said Daniel Tenengauzer, head of markets strategy at Bank of New York Mellon Corp. “As the data comes in, we are probably going to see the reflation trade play out again more strongly” toward the middle of the year.Tenengauzer says every inflation reading counts from this point because “the longer inflation stays at 2.5%,” an annual CPI reading last seen before the pandemic took hold, “the more underwater you are from holding fixed income.”Ten-year Treasury yields rose Friday, while finishing below the day’s high, after the PPI report showed a 4.2% increase from March 2020. Although it was relative to a period when the pandemic caused price pressures to crash, it was the biggest annual gain since 2011. The benchmark yield has retreated since approaching 1.8% last month, the highest since January 2020.There are strong arguments on both sides of the inflation debate as the market moves from a phase where it was driven by rising expectations for price pressures, to one where investors are seeking backup from the data. There’s also a view that expectations for growth, not inflation, may end up dominating the narrative for Treasuries later this year, through higher real yields.Inflation ‘Psychosis’Fed Chair Jerome Powell, who’s scheduled to appear on “60 Minutes” Sunday and will also speak Wednesday, has said any pickup in inflation will likely be temporary. Hoisington Investment Management Co., meanwhile, said in its latest quarterly report that inflation fears are a “psychosis” that will fade.But that doesn’t mean that a jump in the consumer price index won’t spook bond investors at least briefly. The March figure is forecast to show a year-over-year increase of 2.5%, which would be the highest since January 2020 and above every point on the yield curve. It’s a development that may also undermine stocks.“The market’s been pricing in a reflation theme already since the second half of 2020, but strong, realized prints would almost add fuel to the fire,” said Shahid Ladha, head of Group-of-10 rates strategy for the Americas at BNP Paribas SA.That, in turn, would produce upside risk to yields on intermediate maturities because of the possibility that the Fed might have to tighten sooner than expected, he says.Investors are also tasked with absorbing a combined $120 billion of coupon auctions next week, including 30-year debt, as they ponder the inflation question. While expectations for an elevated CPI reading may be a concern, the past month has shown that there’s sufficient demand for Treasuries, which should help “grease future bond auctions,” Tenengauzer said.What to WatchEconomic calendar:April 12: Monthly budget statementApril 13: NFIB small business optimism; CPI; average earningsApril 14: MBA mortgage applications; import/export prices; Fed’s Beige BookApril 15: Jobless claims; retail sales; Empire manufacturing; Philadelphia Fed business outlook; industrial production; Langer consumer comfort; business inventories; NAHB housing index; TIC flowsApril 16: Building permits; housing starts; University of Michigan sentimentFed calendar:April 12: Boston Fed’s Eric RosengrenApril 13: Philadelphia Fed’s Patrick Harker; San Francisco Fed’s Mary Daly; Richmond Fed’s Thomas Barkin; Atlanta Fed’s Raphael Bostic, Cleveland Fed’s Loretta Mester and Rosengren at event on racism and the economyApril 14: Dallas Fed’s Robert Kaplan; Powell speaks to the Economic Club of Washington; Beige Book; New York Fed’s John Williams; Vice Chair Richard Clarida discusses new policy framework; BosticApril 15: Bostic; Daly; New York Fed Executive Vice President Lorie Logan; Clarida; MesterApril 16: Kaplan in two appearancesAuction schedule:April 12: 13-, 26-week bills; 3-, 10-year notesApril 13: 30-year bondsApril 15: 4-, 8-week billsFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- The Honest Co., co-founded by actress Jessica Alba, has filed to list on the Nasdaq in an initial public offering.The Los Angeles-company said in a prospectus to the U.S. Securities and Exchange Commission on Friday that it will seek a listing size of $100 million, a placeholder amount that will likely change.A share sale could value Honest at about $2 billion, Bloomberg News reported in January.Morgan Stanley, JPMorgan Chase & Co. and Jefferies Financial Group Inc. are advising the company. It is expected to trade under the symbol HNST.Launched in 2012, Honest sells diapers, moisturizer, shampoo and other products online at honest.com and at thousands of retail locations. Makers of consumer products have seen a steady rise in demand for goods that are seen as free of chemical and artificial additives in recent years -- a trend that has been accentuated by the Covid-19 pandemic.The filing comes amid heightened demand for personal care and cleaning supplies during the pandemic. Sales last year were just over $300 million, according to the filing, a 28% increase from 2019 in part because of soaring interest in household supplies. The company recorded a net loss of $14.5 million in 2020 and adjusted earnings before interest, taxes, depreciation and amortization of $11.2 million.Since its launch in 2012, Honest has forged relationships with a number of the country’s largest retailers, including Target Corp. and Amazon.com Inc. Honest said it generated 55% of its sales last year from its own website, which has experienced gains during the pandemic as shoppers turn away from physical stores.As consumers faced shortages of products like wipes at the height of the pandemic and mandatory closures, they turned to online brands that could meet the demand. Higher spending on hygiene and cleaning products are expected to persist, as well as a higher reliance on e-commerce.Honest counts L Catterton’s global co-chief executive officers Scott Dahnke and Michael Chu among its largest shareholders. The filing also lists Lightspeed Venture Partners, Fidelity and General Catalyst as investors.(Updates to include financial metrics in seventh paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- An exchange-traded fund investing in U.S. companies that BlackRock Inc. considers most likely to prosper in the transition to a low-carbon world lured the most cash on record in its first day of trading.Investors poured about $1.25 billion into the BlackRock U.S. Carbon Transition Readiness ETF (ticker LCTU) on Thursday, making it the biggest launch in the ETF industry’s three-decade history, according to data compiled by Bloomberg.First-day flows on this scale are typically powered by large institutional investors lined up by the issuer before a fund launches.The BlackRock ETF will focus investments in shares of Russell 1000 companies that are deemed to be best positioned for the energy transition, taking into account issues such as clean technology and waste and water management.To have any chance of meeting the Paris climate goals of limiting global warming to below 2 degrees Celsius, companies in all industries will need to lower their carbon footprint. This great rewiring of the global economy will affect companies’ long-term profitability and BlackRock “doesn’t see itself as a passive observer,” Chief Executive Officer Larry Fink said earlier this year in a letter to clients.BlackRock said in January it manages $50 billion “in solutions that support the transition to a low-carbon economy,” including green bonds and a renewable power infrastructure business that invests in the wind and solar power markets. The world’s largest asset manager also pledged to expand dedicated low-carbon, transition-readiness strategies to offer investors exposure to companies that are most effectively adapting to transition risks.LCTU’s eye-catching debut comes amid a broad boom for ETFs focused on investments that meet environmental, social and governance standards. They attracted a record $31 billion in 2020, almost four times the prior year. About $6.3 billion was added in January, also the most ever, as investors bet the Democrats clean sweep of the U.S. government would usher in a swath of green policies.That’s all taken ESG ETF assets to a record $74.8 billion, up from less than $10 billion two years ago. The largest ETF in the space is also from BlackRock. The iShares ESG Aware MSCI USA ETF, with $16.3 billion of assets, is trading at an all-time high after returning more than 50% in the past 12 months.The Financial Times earlier reported the introduction of the BlackRock fund.(Updates with extra context.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
The e-commerce company Alibaba Group is fined $2.75bn for violating anti-monopoly rules.
Meanwhile, precious metals are under pressure as U.S. dollar gained upside momentum.
The president is being urged to roll more direct aid money into his infrastructure bill.
Stock picking is ripe for a shift away from passive investing, which could suffer a decade of low or nonexistent returns, says Bill Smead.
(Bloomberg) -- Credit Suisse Group AG is planning a sweeping overhaul of the hedge fund business at the center of the Archegos Capital blow up, as the drama forces Wall Street banks to reconsider how they finance some of their most lucrative clients.The Swiss bank is weighing significant cuts to its prime brokerage arm in coming months, people familiar with the plan said. The lender has already moved to tighten financing terms with some funds, and hopes changes to the unit can allow it to forgo major cuts to other parts of the investment bank, which just had a banner quarter, the people said, asking not to be identified as the matter is private.The implosion of Bill Hwang’s family office --which has caused one of the costliest blows to Credit Suisse in its 165-year history -- is the latest reckoning for banks chasing the lucrative business of catering to hedge funds, which present the potential for both outsized gains and huge losses, magnified by large borrowing. Deutsche Bank AG sold its prime brokerage business to BNP Paribas SA in 2019 as part of a retreat from equities during the German bank’s overhaul.Credit Suisse declined to comment.Prime-brokerage divisions cater specifically to hedge funds, lending them cash and securities and executing their trades, and the relationships can be vital for investment banks as well as being a significant source of revenue. Credit Suisse is the biggest prime broker among European banks, in an industry that accounted for about $15 billion of revenue in 2020. Prime brokerage generally accounts for about a third of equities revenue across the industry most years.Since the drama, Credit Suisse has been calling clients to change margin requirements in swap agreements so they match the more restrictive terms of other prime-brokerage contracts, people with direct knowledge of the matter said. Specifically, the bank is shifting from static margining to dynamic margining, which may force clients to post more collateral and could reduce the profitability of some trades.Swaps are the derivatives Hwang used to make highly leveraged bets on stocks at Archegos and which lie at the heart of the losses.Credit Suisse is also concerned the woes at the prime brokerage business will impact morale at other parts of the securities business and that it may spark departures, the people said. The investment bank is keen to take care of top performers, the people said.Deutsche Bank sold its prime business to BNP as part of the German bank’s huge 2019 overhaul that intended to cut its investment banking business, especially in equities. The lender, which became a force on Wall Street after the financial crisis, had struggled to keep hedge funds clients in recent years after a string of missteps, and client balances declined in the run up to Chief Executive Officer Christian Sewing’s decision to sell the business.Now, at Credit Suisse, CEO Thomas Gottstein -- who signaled the bank planned to reduce risk in prime brokerage in a Swiss newspaper article -- is facing questions from his own star traders, dealmakers and private bankers on why the bank’s $4.7 billion hit from Archegos was so much bigger than any of its rivals.The bank announced a raft of changes within the investment bank because of the loss, including the departure of Brian Chin, who led the business. The head of equities sales and trading Paul Galietto, is stepping down immediately, though will stay through April to assist in the transition, according to a staff memo earlier this week reviewed by Bloomberg.The lender also announced three additional exits. Ryan Atkinson, head of credit risk for the investment bank; Ilana Ash, head of counterparty credit risk management for that unit and Manish Mehta, head of counterparty hedge fund risk, according to the memo.The bank has seen a run of missteps under the final months of Urs Rohner’s tenure as chairman. Antonio Horta-Osario is set to take over after the bank’s annual general meeting later this month. Known for disciplined cost-cutting during his time at Lloyds Banking Group Plc, he may also make further changes.Gottstein, who pledged a “clean slate” after scandals under his predecessor, is wedged between disgruntled staff and his own bosses who are increasingly taking charge. The board is pushing for a review of the bank’s wider strategy, not just the units that have run into trouble, the people said.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
After a volatile first quarter, Q2 has kicked off in style, and the major indexes sit at – or hover near – all-time highs. The government bond market has also been steadying as yields have pulled back after rising higher earlier in the year, soothing investor fears that inflation could get out of hand. Moreover, the economic recovery seems to be gathering steam at a faster pace than anticipated. “We had been expecting the data to improve about this time, and early signals are that the recovery is absolutely on track,” said Hugh Gimber, J.P. Morgan’s global market strategist. “This is the period where the forecast of a strong recovery in growth is starting to look more like the fact of a strong recovery in growth.” Against this backdrop, the analysts at J.P. Morgan have pinpointed 2 names which they believe are set for strong growth in the year ahead; both are expected to handsomely reward investors with at least 80% of gains over the coming months. We ran them through TipRanks database to see what other Wall Street's analysts have to say about them. Tencent Music Entertainment (TME) We’ll start in China, where Tencent Music Entertainment is the offspring of China’s giant online venture company, Tencent, and Spotify, the Swedish streaming company that makes music and playlists easy. Tencent Music has seen consistently strong sales and earnings for the past year, with the top line growing year-over-year in each quarter of 2020. The Q4 report showed $1.26 billion in the top line, the highest in the last two years, along with 12 cents per share in earnings, up 33% year-over-year. Strong streaming revenue, which showed 29% growth, helped drive the results. And, Tencent Music, through its variety of apps, is the top music streaming service in the Chinese online market – as shown by the 40.4% yoy increase in paid subscribers during Q4. In its quarterly results, the company reported 4.3 million net new users in Q4, to reach 56 million active premium accounts across its apps. That said, the stock has pulled back sharply recently, as like many other high-flying growth names, worries regarding an overheated valuation have come to the fore. But pullbacks often spell opportunity, and covering the stock for JPM, Alex Yao notes the strong subscription growth, as well as the potential in the company’s other businesses, online ads and long-form audio, for monetization. “We believe TME is entering a healthy development cycle with successive growth engines: 1) music subscription remains the core revenue driver with consistent paying ratio improvement, 2) ads revenue ramps up quickly, and 3) active investments in long-form audio initiative, which could become a new growth driver in 2022 and afterwards," Yao noted. To this end, Yao puts a $36 price target on TME, suggesting a one-year upside of 84%, to back his Overweight (i.e. Buy) rating on the stock. (To watch Yao’s track record, click here) Overall, TME has a thumbs up from Wall Street. Of the 11 reviews on record, 7 are to Buy, 3 are to Hold, and 1 says Sell, making the analyst consensus a Moderate Buy. The shares are priced at $19.50, and their $30.19 average price target implies an upside of 55% for the months ahead. (See TME stock analysis on TipRanks) Y-mAbs Therapeutics (YMAB) The next JPM pick we’re looking at is Y-mAbs, a late-stage clinical biopharma company with a focus on pediatric oncology. The company is working on the development and commercialization of new antibody-based cancer therapeutics. Y-mAbs has one medication – Danyelza – approved for use to treat neuroblastoma in children age 1 and over, and a ‘broad and advanced’ pipeline of drug candidates in various stages of the clinical process, as well as five additional products in pre-clinical research stages. Having an approved drug is a ‘holy grail’ for clinical biopharmaceutical companies, and in 4Q20 Y-mAbs saw considerable income from Danyelza. The company announced at the end of December that it had agreed to sell the Priority Review Voucher for the drug to United Therapeutics for $105 million. Y-mAbs will retain the rights to 60% of the net proceeds from the sale, under an agreement with Memorial Sloan Kettering. Also in December, the company announced a license agreement with SciClone. The partnership gives Y-mAbs and Danyelza an opening for treating pediatric patients in China. The agreement includes Mainland China, Taiwan, Hong Kong, and Macau, and is worth up to $120 million for Y-mAbs. The company has entered other agreements making Danyelza available in Eastern Europe and Russia. Danyelza is Y-mAbs flagship product, but the company also has omburtamab in advanced stages of the pipeline. This drug candidate saw a setback in October last year, when the FDA refused to file the company's Biologics License Application, proposed for the treatment of pediatric patients with CNS/leptomeningeal metastasis. Y-mAbs has been in steady communication with the FDA since then, with a new target date for the BLA at the end of 2Q21 or early in 3Q21. These two drugs – one approved and one not yet – form the basis of the JPM outlook on this stock. Analyst Tessa Romero writes, “Our thesis revolves around the de-risked nature of the pediatric oncology pipeline. Our recent KOL feedback is enthusiastic about use of lead asset Danyelza in patients with high-risk neuroblastoma (NB). For second lead asset omburtamab in NB metastatic to the central nervous system (CNS/LM from NB), while the ‘Refuse to File’ last year and subsequent regulatory delays were certainly disappointing, we still see a high probability of approval for the product in the 2Q/3Q22 timeframe…” Looking ahead, Romero sees an upbeat outlook for the company: “Coupling our anticipation of a healthy launch for Danyelza, with regulatory/clinical momentum expected in the near- to mid-term, we see shares poised to rebound and see an attractive buying opportunity at current levels.” The analyst puts a $52 price target on YMAB shares, implying an upside of 86% for the year ahead, and supporting an Overweight (i.e. Buy) rating. (To watch Romero’s track record, click here) Overall, the Wall Street reviews break down 3 to 1 in favor of Buys versus Holds on Y-mAbs, giving the stock a Strong Buy consensus rating. The shares have an average price target of $61.25, suggestive of a 121% upside potential this year. (See YMAB stock analysis on TipRanks) To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights. Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
You should be able to roll over your 401(k) plan account into a Roth IRA, but be sure you first understand the tax consequences of doing so.
Investing is a crucial part of accumulating enough money in retirement — and the best results come with proper asset allocation. Retirement tip of the week: Check the asset allocation of your retirement portfolios, and if you’ve done it recently, make it a regularly scheduled task once a year. “The time to review your asset allocation and overall retirement investment strategy should be a proactive process throughout the year,” said Jon Ulin, chief executive officer of Ulin & Co. Wealth Management.
(Bloomberg) -- The battle for control of Arm Ltd.’s China business is escalating with new lawsuits aimed at keeping the unit’s controversial chief executive in power, further complicating SoftBank Group Corp.’s efforts to sell the business to Nvidia Corp.The dispute erupted almost a year ago in June after the board voted to oust Arm China Chief Executive Officer Allen Wu for conflicts of interest, but he refused to leave. Now the Chinese unit, which remains under Wu’s control, has filed lawsuits against three senior executives the board designated to replace him, according to people familiar with the matter. The previously unreported suits could take years to resolve, suggesting Wu may remain entrenched.Wu fired the three men -- including co-CEO Phil Tang -- but they were subsequently reinstated by the board. In the new lawsuits, Arm China is suing the trio, demanding they return company property, according to the people.Arm China declined to comment on any ongoing legal cases or possible settlement talks. It did say the three executives had caused “material damages” to the company and they had been terminated for legitimate reasons.Tang didn’t return requests for comment. Arm Ltd. declined to elaborate, saying it won’t comment on pending legal matters.The complex tussle has thrown into question the future of Arm, whose semiconductor technology is the world’s most widely used for smartphones and is increasingly deployed in computers. SoftBank founder Masayoshi Son agreed to sell the British chip designer to Nvidia for $40 billion last year, but the path for completing that transaction is growing increasingly difficult.The China dispute also raises questions about Beijing’s willingness to protect foreign investment in the world’s second-largest economy. Arm Ltd. sold a majority stake in the China unit to a consortium of investors, including Beijing-backed institutions. That has complicated the British firm’s efforts to manage Arm China and Wu, who has support from local authorities in Shenzhen.Both sides appear to be at a stalemate. Wu, a Chinese-born U.S. citizen, pulled back from signing settlement agreements worth tens of millions of dollars if he would leave the company, the people said, asking not to be identified talking about legal matters. At the same time, two minority shareholders in Arm China linked to Wu have filed lawsuits to overturn his June 4 dismissal, they said.SoftBank opened negotiations with him last year and had hoped to reach some sort of resolution, they said. Instead the court battles are deepening and the Japanese company has soured over the increasingly complicated dispute, the people said. SoftBank is now resigned to letting the legal proceedings take their course and there are no current negotiations with Wu, according to one of the people.“We are going through a leadership change in China; it’s taking time to resolve,” said Arm Ltd.’s Chief Executive Officer Simon Segars in an interview with Bloomberg Television recently. “It’s hard. But we are confident that’s going to get resolved.”SoftBank and Nvidia declined to comment on the dispute in China.Arm China said in a statement that Wu’s position “is compliant with legal registration and confirmed by China law and regulations.”Read more: Arm Takes Aim at Intel Chips in Biggest Tech Overhaul in DecadeThe standoff accords a relatively unknown executive outsized influence over one of the industry’s most important pieces of technology, in the world’s biggest internet and semiconductor market. Chinese companies need unfettered access to Arm’s products to push forward with the country’s attempts to make itself more independent in chip technology, an area where it’s largely reliant on imports. Beyond resolving the stalemate, Nvidia and SoftBank also need Beijing’s signoff to seal their deal, and it’s unclear whether Wu’s presence would complicate that.Wu’s hold on Arm China is partially due to local laws which make it difficult to change control of a company unless you’re physically in control of the company stamp and registration documents. He’s refused to give them up and has used company funds to pay for legal fees incurred in his attempt to fight off his dismissal, the people said.Arm China said payment of legal fees “is made in compliance with company policies as well as China laws and regulations.”His ultimate goals appear to be a large cash payoff and immunity from subsequent legal action, according to people who’ve spoken with him. Inside Arm China, which is responsible for selling licenses to its chip designs and fundamental technology in the country, Wu has told local staff he’s not going anywhere. He recently gave employees Chinese New Year cash presents in a red envelope with his surname on it.Arm China said the money came from Wu personally to show his appreciation to colleagues, a tradition at Chinese New Year in the country.Hearings in the case against the three executives are expected to take place in late May, one of the people said. Separately, two minority shareholders in Arm China have sued the Chinese entity in Shenzhen to nullify the board’s decision to oust Wu. These two cases are now being merged and hearings are slated for late April, the people said.Son told investors as recently as February that he expects to close the Arm sale and “I don’t have any Plan B.”Arm, for its part is trying to make sure that its technology remains pervasive in China despite U.S. sanctions intended to curb the supply of American technology to major companies like Huawei Technologies Co. While Arm is a U.K.-based company part of its operations are in the U.S. making its products subject to controls.The Chinese government has not stated its position on the Arm China leadership struggle, but the unit has several government-backed shareholders including sovereign wealth fund China Investment Corp. and the Silk Road Fund.In his interview with Bloomberg Television, Arm Ltd. CEO Segars said that the ten-month standoff hasn’t hurt Arm’s business in China. Lack of travel for face-to-face meetings during the pandemic has prolonged the process of changing leadership in China, he said.“When we announced the deal in September, we said it would take about 18 months,” he said. “We remain confident in that timeline.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Investors are bracing for an unpredictable run-off finale to Ecuador’s contentious presidential race as opinion polls flag a rally of support for career banker Guillermo Lasso, sending the nation’s dollar bonds back to levels seen before the election began.Voters will return to polling stations on Sunday to decide between self-exiled former socialist President Rafael Correa’s 36-year-old protege Andres Arauz, or Lasso, a banker and conservative from the coastal hub Guayaquil. It’s a high-stakes choice for the country and its bondholders, coming just months after Ecuador’s 11th default or debt rescheduling in almost 200 years.Arauz held a double-digit lead in the initial voting round in February, but recent polls show Lasso has closed the gap. This may be leading investors to adopt more neutral postures heading into the vote, even as many voters remain undecided, said Siobhan Morden, head of Latin America Fixed Income Strategy at Amherst Pierpont. Adding to the confusion, the Indigenous political party Pachakutik has called on its supporters to spoil ballots amid fraud accusations.“The bottom line is that the latest polls warrant a neutral position on what we view as equal binary outcomes and policy risks,” Morden wrote in a note. “We had previously argued the potential for extreme heterodox policies under an Arauz candidacy and now shift our analysis to the opposite orthodox policy risk under a Lasso candidacy.”Read the QuickTake: Why Ecuador’s Runoff Vote Matters for the Bond MarketWith so much up in the air, Ecuador’s recently restructured dollar bonds are near levels seen around the first round of voting in February. The notes due in 2040 have risen from an early-March low to trade at 45.5 cents on the U.S. dollar, just off the highest since the final trading day before February’s vote. Still, they’re down about 13 cents from last year’s restructuring, and slipped less than half a cent since Tuesday. The nation’s bonds, on average, are the fourth worst-performing emerging-market debt this year in a Bloomberg Barclays index.“Asset prices have reflected optimism for a Lasso victory this month as Arauz has opposed the central bank reform bill currently making its way through the national assembly,” Citigroup Global Markets Inc. strategists including Eric Ollom and Donato Guarino said.The increased possibility of a Lasso win makes the bonds maturing in 2040 a buying option as “they would be poised for the largest upside regarding current prices,” Ramiro Blazquez and Bruno Gennari of Buenos-Aires based BancTrust wrote in a research note.The extra yield investors demand to hold Ecuador’s sovereign dollar bonds over U.S. Treasuries is 1,168 basis points, putting the nation in distressed territory alongside countries such as Argentina, Belize and Lebanon, according to JPMorgan indexes.Final RoundAt stake in Sunday’s vote is the next government’s willingness to honor the terms of last year’s $17.4 billion debt restructuring and whether it can maintain fiscal targets required under a $6.5 billion deal inked in September with the International Monetary Fund. The new administration will also need to prop up Ecuador’s sputtering economy, which contracted 7.8% last year and may grow just 3.1% in 2021, according to the country’s central bank.While Lasso’s momentum in the polls has stoked speculation that he could pull off a victory, it’s still unclear if he’d be able to garner legislative support for austerity measures. Neither of the candidates will have a congressional majority if they win.“The fragmentation of the National Assembly together with the strong legislative influence of the left would make governability extremely challenging,” according to Blazquez and Gennari.Meanwhile, for Arauz, investors are split on whether he’d replicate Correa’s policies, which included a weakening of institutions, crackdowns on opponents, limiting freedom of expression and running large deficits. The candidate has adopted a more conciliatory tone in talks with bondholders, saying he’s committed to dollarization and to not restructuring the debt. However, he also continues to insist he will distribute $1 billion to poor families from the central bank’s scant reserves.“While the election is looking more competitive, Arauz retains an edge,” Eurasia Group analysts Risa Grais-Targow and Laura Duarte wrote in a note this week. “Ultimately, he represents a clearer change in economic policy, but he will also have to contend with anti-Correista sentiment, making for a close contest.”WHAT TO WATCHBrazilian traders will keep an eye on talks to resolve the 2021 budget gridlock, which has been one of the most significant local drivers this month. President Jair Bolsonaro signaled he may be leaning toward a partial veto of the bill approved by Congress, as requested by Economy Minister Paulo Guedes, but the situation may still changeBrazil’s February retail sales due on April 13 may offer a fresh outlook on how the country’s economy is behaving amid increased coronavirus cases and the outlook for higher rates in the near termColombia retail sales are also due next week, on April 15Both Colombia and Chile have significant parts of their populations in lockdown in an attempt to fight the spread of Covid-19. Chile traders remain focused on the mid-term copper outlook as the commodity continues to favor local assets amid an improvement in the country’s current account balancePeru will hold its presidential election on April 11. The local market has been boosted by rising odds that market-friendly candidate Hernando de Soto will advance to the second round. Volatility should appear on Monday independent of the result(Adds Citi comment in sixth paragraph and updates prices in fifth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
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