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Good morning. There’s a big corporate deal brewing in France, China’s economy is in growth mode and stocks are headed higher again. Here’s what’s moving markets.
Veolia Environnement SA executives and their bankers didn’t spend their vacations on the beach, apparently. The French company announced Sunday it wants to buy a 29.9% stake in rival Suez SA for 2.9 billion euros, reviving an eight-year old attempt to create a world leader in waste and water services. Veolia would make an offer for the rest of Suez if it succeeds in getting the shares now owned by Engie SA. The offer price is 27% above where Suez closed on Friday, so look for a pop in the stock this morning. Suez said its board will meet shortly to consider the unsolicited proposal, while Engie said it will evaluate the offer.
Futures are pointing to a higher open in European stocks, following gains in Asia and yet another record in the U.S. to end last week. Strategists say the rally has further to go in the U.S., where the relentless five-week surge has sent the tech-dominated Nasdaq 100 Index to valuation levels comparable to the dot-com bubble. Small-cap stocks, meanwhile, continue to lag far behind.
Helping to underpin the rally: China continued to rebound in August as the world’s second-largest economy emerges from the coronavirus slump. A gauge of the services industry rose to the strongest level since early 2018 while the expansion in manufacturing activity slowed slightly. Trade tensions continue to hang over the world economy, with executives in China’s semiconductor industry worried they may be the next target of U.S. pressure.
Speaking of those tensions, China’s government isn’t going to make it easy for President Donald Trump to force the sale of the U.S. operations of short-video app TikTok. The app’s owner, ByteDance Ltd., will be required to seek Chinese government approval for the deal under new restrictions Beijing imposed on the export of artificial intelligence technologies, according to a person familiar with the matter. The new rule is aimed at delaying the sale and is not an outright ban, the person said
Summer vacations are mostly over so news flow and markets should heat up this week, though probably not today: It’s a bank holiday in the U.K. and there’s little in the way of economic data or earnings on the schedule, other than German inflation for August and second-quarter gross domestic product for Italy and Portugal.
What We’ve Been Reading
This is what’s caught our eye over the weekend.
And finally, here’s what Cormac Mullen is interested in this morning
Warren Buffett and Shinzo Abe have shone a spotlight on Japan that may spark a renewed wave of interest in the country’s stock market. The selloff in Japanese equities Friday on news Abe is to step down had already triggered commentary that it was a buying opportunity with little change to policies expected. Then Buffett’s $6 billion bet on five Japanese trading companies was revealed Monday and shares duly recovered. The famed value investor’s latest purchases manage to be a commodity, valuation, international and Japan play all in one go, and a smart, defensive wager on a global economic rebound. Smart because Japanese shares are trading at a steep discount to their recent historical premium against global peers and almost 40% of the benchmark Topix Index is made up of value sectors most exposed to an uptick in economic growth — industrials, financials and materials. Defensive because unlike the rest of the world, Japan Inc. is sitting on record cash piles and has a whale with unlimited resources in its corner happily hoovering up the nation’s shares — the Bank of Japan. And, of course, if you are buying yen assets, you get a safe haven thrown in for free. Foreign investors had seemingly soured on the world’s third largest economy — offloading a net $43 billion of Japanese shares this year, on course for the biggest annual withdrawal since 2018. Buffet and Abe will make them reconsider.
Cormac Mullen is a cross-asset reporter and editor for Bloomberg News in Tokyo.
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