On Merger Monday Stocks Lacked Direction After Oil Jumped 6%

Barry Adams
03 Apr, 2023
New York City

Merger Monday lived up to its reputation after two mega deals dominated news flow. 

Extra Space Storage agreed to acquire Life Storage for a $12.7 billion deal and World Wrestling Entertainment agreed to merge with UFC for approximately $9 billion. 

Both deals were all-stock deals and avoided bridge loans or expensive financing in the face of rising interest rates. 

Stock markets lacked direction after oil producing nations announced additional production cuts to shore up faltering oil prices. 

Collectively, production cuts will remove about 1.66 million barrels per day from the world markets in addition to 2 million barrels per day cuts announced at the previous OPEC+ meeting in October 2022.  

The latest oil production cut complicates the complex calculation of inflation and interest rates and is likely to dash hopes of rate-pause by some investors.

 

OPEC+ Member Nations Announce Voluntary Production Cuts

In other news, OPEC+ member nations announced voluntary production quotas to shore up the weakening oil prices in the last two weeks. 

Crude oil prices fell more than 20% and dropped to a new 13-month low in March after investors worried that the fast moving regional bank crisis may slow down the economy. 

Moreover, the demand surge expected after the reopening of China has still not materialized. 

OPEC+ nations voluntarily agreed to cut production and avoid the pressure on the alliance as the member nations seek to keep the price above $90 a barrel for the rest of 2023. 

Eight OPEC+ producer nations - led by Saudi Arabia, UAE and Kuwait - announced to remove 1.16 million barrels per day starting May until the end of the year. 

The product cut announced on Sunday was designed to separate the alliance from international pressure. 

Previously Russia had announced its production cut target of 500,000 barrels per day starting this month, increasing the total production cut by 1.66 million barrels a day. 

The Joint Ministerial Monitoring Committee's meeting on Monday acknowledged the voluntary production cuts, but did not announce its own policy change.   

Saudi Arabia led the voluntary production cuts with 500,000 barrels per day. 

Iraq said it plans to cut its production by 211,000, UAE by 144,000, Kuwait by 128,000, Kazakhstan by 78,000,  Algeria by 48,000, Oman by 40,000 and Gabon by 8,000. 

The Sunday's product cuts are in addition to Russia's 500,000 barrels per day cut announced in February. 

 

U.S. Indexes & Yields 

The S&P 500 index fell 0.4% to 4,124.61 and the Nasdaq Composite index decreased 0.3% to 12,189.45.  

The yield on 2-year Treasury notes edged  to 4.1%, 10-year Treasury notes inched up 3 basis points to 3.51% and the 30-year Treasury bonds was nearly unchanged at 3.7%. 

Crude oil jumped $4.68 to $80.35 a barrel and natural gas futures declined 9 cents to $2.11 a thermal unit. 

 

U.S. Movers 

Tesla Inc declined 1.7% to $204.0 after the electric vehicle maker reported quarterly production data. Investors feared that the company may be forced to offer more discounts and incentives to sustain growth. 

Tesla said in the first quarter of 2023 vehicle production increased 5% to 440,808 from 422,875 in the previous year. 

The production of model 3/Y advanced 5% to 421,375 from 412,180 and model 5/X jumped 10% to 19,437 from 10.695 a year ago. 

Tesla's production in the December quarter increased 4% to 439,701 from 405,278 a year ago. 

McDonald's Corp increased 0.7% to $279.61 and a report suggested that the company temporarily closed its headquarter offices ahead of layoff announcements. 

 

European Markets Lacked Direction On Resurgent Inflation Worries 

European markets traded lower after inflation worries resurfaced following a surprise production cut by 8 member nations linked to OPEC+. 

The surprise production cut is expected to be in force from May 1 and last till the end of the year. 

Asian markets were on the defensive as well after China's manufacturing growth stalled in  March but India's manufacturing advanced to a 3-month peak.  

 

Swiss Inflation Weakened In March 

The annual inflation rate in Switzerland weakened to 2.9% in March from 3.4% February, the Swiss Federal Statistics Office reported Monday. 

The annual inflation rate was the lowest since June 2022 after the prices of food, beverages and housing and energy rose at a slower pace. 

Core inflation, which excludes food and energy, rose 2.2% in March, slower than 2.4% in February. 

On a monthly basis, consumer prices rose 0.2% in March slower than 0.7% in February. 

Separately, Portugal's inflation eased in March after energy prices rose at a slower pace, the Statistics Portugal said Friday. 

Consumer prices inflation eased to 7.4% in March from 8.2% in February and core inflation eased to 7.0% from 7.2% respectively. 

 

Europe Indexes & Yields 

The DAX index decreased 0.31% to 15,580.92, the CAC-40 index added 0.3% to 7,345.96 and the FTSE 100 index rose 0.5% to 7,673.0. 

The yield on 10-year German Bunds rose to 2.26%, French bonds advanced to 2.75%, the UK gilts to 3.42% and Italian bonds to increased to 4.09%. 

The euro inched higher to $1.09, the British pound advanced to $1.24 and the Swiss franc to 91.29 cents. 

Brent crude oil increased 4.4% or $5.23 to $85.11 a barrel and the Dutch TTF natural gas futures increased Є3.52 to Є51.37 per MWh.  

 

Europe Stock Movers 

TotalEnergies SE increased 4.4% to €56.60, BP Plc advanced  4.03% to 531.40 and Shell PLC added 3.9% to €27.51. 

Banks were in focus after inflation worries resurfaced. 

UBS Group AG declined 1.5% to Sfr 19.0, Deutsche Bank increased 2.3% to €9.57 and HSBC Holdings Plc increased 2.2% to 561.70 pence. UniCredit SpA advanced 2.3% to €17.83.