European Assets On the Defensive as Greek Vote Looms
Yields on the German 1-year Bunds, the benchmark for European borrowing costs, fell 3bps to 0.83% as investors chose low-yielding but safer assets going into the weekend. Subsequently, European stocks dipped as shares were traded cautiously and the euro moved 0.1% to $1.1097. However, the movements have been marginal, as investors do not want to position heavily on either side of the market. This suggests traders are preparing for a volatile Monday following the Greek referendum on July 5th.
China Shares Back Up
China shares fell on Friday, with the Shanghai Composite ending down 5.8% and closing the week having lost 12.1%. Meanwhile, the Shenzhen market fell 5.3% (its worst week since December 1996) and the ChiNext board of small-cap stocks lost 1.7%. Chinese regulators have implemented measures to prevent massive stock selloffs, such as lifting restrictions on investments with borrowed cash and cutting interest rates. However, the efforts have failed to encourage buys. As such, the China Securities Regulatory Commission has allowed 10 companies to be listed in domestic stock markets for the first 10 days of July. Stock regulators have also announced they are investigating possible market manipulations that may have fueled the market drops. Firms such as Morgan Stanley have been accused by the Chinese media for "carelessly" remarking that the Shanghai Composite topped out in June.
Aetna Acquires Humana for $37 Billion
Health insurer Aetna has agreed to buy its smaller rival Humana for $37 billion in cash and stock, bringing together 2 of the U.S.'s biggest health insurers. It is estimated that the combined company would have an estimated operating revenue of $115 billion, serving over 33 million consumers. After the transaction - which is still subject to shareholder and regulatory approval and is expected to close in late 2016 - Aetna shareholders would own about 74% of the new firm, while Humana shareholders would own 26%. Following the merger, Aetna is expected to see $1.25 billion in annual cost savings by 2018. Such acquisitions may start a trend for the health insurance sector, as the U.S. Supreme Court's recent decision to uphold Obamacare may result in incentives for companies to grow faster in order to gain ground in a limited-profit-margins environment.
Final Settlements Become Clear for Oil Company BP
Over 5 years after BP's Deepwater Horizon oil platform exploded to unleash millions of gallons of crude, the oil giant has finally reached an agreement to settling federal and state claims from the damage. Totaling $18.7 billion over 15 years, BP will pay $5.5 billion to the federal government and 5 Gulf States under the Clean Water Act (CWA), $4.9 billion to settle economic and miscellaneous claims from the 5 states, and up to $1 billion to 400 local government entities. The latest penalties will amount to $1.1 billion annually, which may be manageable for the firm. However, there are still outstanding shareholder lawsuits, and low oil prices may impact the company's profits as well. While the agreement could deter negligence in the future, oil investments in the U.S. may suffer if multinational firms deem the legal system to be too risky to deal with.
Sources:
http://blogs.reuters.com/breakingviews/2015/07/02/healthcare-ma-pumped-after-obamacare-booster-shot/
http://www.bloomberg.com/news/articles/2015-07-03/aetna-humana-adds-to-takeover-frenzy-among-u-s-health-insurers
http://www.economist.com/news/business-and-finance/21656847-costly-mistake
http://www.marketwatch.com/story/as-china-stocks-sink-some-accuse-morgan-stanley-other-foreign-forces-2015-07-03
http://www.marketwatch.com/story/china-leads-asian-shares-lower-2015-07-02
http://www.nytimes.com/2015/07/04/business/dealbook/aetna-agrees-to-acquire-humana-for-37-billion-in-cash-and-stock.html
http://www.reuters.com/article/2015/07/03/us-markets-global-idUSKCN0PD01T20150703
