CMA ready to torpedo Nvidia’s takeover of Arm

Equities

The CMA looks like it might torpedo Nvidia’s attempted takeover of Arm. The Competition and Markets Authority found that the US company’s $40bn purchase of SoftBank-owned Arm raises “serious competition concerns”. The CMA is progressing to a detailed Phase 2 investigation and I think this means the deal is in serious trouble. The CMA itself cites grave competition concerns – notably the fact that Arm’s tech is used by various chipmakers in competition with Nvidia. The regulator said that it “is concerned this loss of competition could stifle innovation across a number of markets, including data centres, gaming, the ‘internet of things’, and self-driving cars”. Less competition could drive up prices for consumers.

But we also know there are national security concerns, too, and a public interest test is already being applied to the deal.  Secretary of state Oliver Dowden will decide whether the merger should be referred for an in-depth Phase 2 investigation on both competition and national security grounds, or if it should be passed back to the CMA to investigate on competition grounds only. Either should be enough to block you feel. It would be great to see Arm shares trade on the FTSE.

What is unclear is the extent to which this signals unease in Whitehall about UK plc being on sale. The CMA is only reviewing from a competition point of view at present. That alone may be enough to scupper Nvidia’s advances. But several deals have lately caught the attention and there is a sense of there being a raid on top British companies. Tory governments don’t like to be too interventionist – Britain is open for business and all that – but they also don’t like to appear asleep at the wheel when blue chips get hoovered up. Whether it’s Morrisons, Vectura Meggitt or Ultra Electronics, the raiders seem to be picking up assets on the cheap. Does the CMA’s escalation tell us something is afoot in Whitehall to stop them? Maybe, but the CMA has only a narrow competition mandate at this point. But we do know the Ultra Electronics deal with US private equity-owned Cobham is being investigated, too. Advent has already sold off a good chunk of the old Cobham – why should Ultra be fed to the wolves as well? Hopefully the government is starting to show a bit more backbone.

$NVDA rallied 2% the open as US equity markets opened flat.

 

RBNZ on hold, US CPI on tap, UK & EU update on growth

Week Ahead

Growth data

With the UK starting 2020 by leaving the EU and striking out on its own, markets would like to see that it ended 2019 on a strong economic footing when preliminary Q4 data is released. The data for most Eurozone members will be the second reading; the preliminary estimates showed expansion of just 0.1% as strong growth in Spain helped to offset contractions in France and Italy. Germany’s Q4 reading will be the flash estimate – analysts expect the Eurozone powerhouse to post a contraction of -0.1%.

RBNZ – Easing cycle is over

A round of strong labour market data last week has markets pricing in stronger odds that the RBNZ is done with its easing cycle. Unemployment dropped to 4% in Q4 and the underutilisation rate, which measures the labour market’s untapped capacity, fell to an 11-year low of 10% in December.

While the Chinese coronavirus outbreak is the latest economic headwind for markets and central banks to contend with, the strength of the domestic data should see the RBNZ confident enough to stand pat and see how the situation develops.

US CPI

Last month’s CPI reading showed the fastest pace of annual inflation in eight years, but a closer look at the numbers revealed some big weaknesses. Month-on-month, price growth slowed to 0.2% from 0.3% in November, core CPI slowed to 0.1% from 0.2%. Average earnings grew just 0.7% in 2019. More soft readings like this will support the market view that Fed policy will remain on hold until well into H2.

Earnings – Kraft Heinz and NVIDIA

Top reports this week will be Kraft Heinz before the market opens on February 13th and NVIDIA after the closing bell the same day. KHC has had a bad start to 2020, declining around 9% even as the S&P 500 and Nasdaq hit fresh record highs. The company is facing weakening demand and a lack of free cash with which to innovate.

Coronavirus fears caused a small stumble in NVIDIA’s continuing rally, with the stock quickly recovering. China accounts for around a quarter of the chipmaker’s revenue, so management may warn that the virus could dent demand in this key market. EPS of $1.66 is expected on revenue of $2.96 billion – both hefty increases on the same period a year ago.

Key Events

(All times GMT)
01.30 GMT 10-Feb China Consumer Price Index
06.30 GMT 11-Feb Daimler – Q4 2019
09.30 GMT 11-Feb UK Preliminary GDP (QoQ) & Manufacturing Production
Pre-Market 11-Feb Hasbro – Q4 2019
After-Market 11-Feb Lyft – Q4 2019
01.00 GMT 12-Feb RBNZ OCR Decision & Monetary Policy Statement
07.00 GMT 12-Feb Softbank – Q3 2019
15.30 GMT 12-Feb US EIA Crude Oil Inventories
After-Market 12-Feb Cisco – Q2 2020
07.00 GMT 13-Feb Barclays – Q4 2019
Pre-Market 13-Feb The Kraft Heinz Company – Q4 2019
13.30 GMT 13-Feb US Consumer Price Index
15.30 GMT 13-Feb US EIA Natural Gas Storage Data
After-Market 13-Feb NVIDIA – Q4 2020
13-Feb Airbus – Q4 2019
07.00 GMT 14-Feb Germany Preliminary GDP (QoQ)
10.00 GMT 14-Feb Eurozone Flash GDP (QoQ)
13.30 GMT 14-Feb US Retail Sales
15.00 GMT 14-Feb US Preliminary UoM Consumer Sentiment Index

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