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More China Turbulence + Merger Monday

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Monday, January 14, 2019

Pre-market futures are soundly in the red this morning, following discouraging trade data out of China: Exports, which had been expected to come in at +0.6% year over year, have fallen instead to -4.4%. The pales drastically to the previous read of +5.4%. Imports were even worse at -7.6%, more than a thousand basis points below the estimated +4.8%. These are the weakest China figures in nearly 3 years.

Clearly, what we see here is the affect of U.S. tariffs hitting the Chinese trade market. This exacerbates the internal difficulties the country had been having with slowing growth in the world’s second-largest economy. Those year-over-year comps have gotten just about impossible to hurdle at this stage. In fact, the questions analysts have about China are beginning to change these days, as well: instead of, “How much higher growth can be expected?” we’re now approaching, “Is China actually in a recession right now?”

Add onto this not-inconsequential circumstance a new headline this morning that a Canadian national convicted of smuggling methamphetamine in China is seeing his sentence mercilessly increased, from 15 years in prison previous to death today. This is one of those stories that don’t carry weight to change market activity, but do have the potential to capture market headlines in near-term news cycles.

Pacific Gas & Electric to File Bankruptcy

Partly due to its estimated $30 billion in liabilities relating to California wildfires in both 2017 and this devastating past 2018, Pacific Gas & Electric PGE has decided to declare bankruptcy. This has led shares to fall off a cliff — down 47% in today’s pre-market. Some observers are speculating this may be another ploy by the company to go begging for a bailout by the state of California, but others dismiss this as wishful thinking.

The California wildfires claimed nearly 1.9 million acres of land in the Golden State, as well as scores of fatalities among both firefighters and civilians. And while no one holds companies like PG&E solely responsible, there are many calls in arguably the most progressive state in the nation to take some of the reparations out of the hide of corporate interests in the region.

Citigroup Reports Mixed Q4

Bank giant Citigroup (C - Free Report) is the first of the big Wall Street banks to put up quarterly numbers this morning, with mixed results: earnings of $1.61 per share topped Zacks consensus by 6 cents per share, while revenues of $17.12 billion missed estimates by 2%, and down from year-ago top line figures.

Shares are only down marginally in the pre-market at this hour, and are still up around 8% year to date. The company currently rates a Zacks Rank #3 (Hold), and as we see reaction to the earnings call over the next few days — as well as comparisons to other big banks reporting tomorrow and later in the week — we’ll get a better feel for how investors are looking at Citi shares. For more on C’s earnings, click here.

Return to Merger Monday

Newmont Mining (NEM - Free Report) is reportedly acquiring Zacks Rank #3-rated Goldcorp for $10 billion in stock, or $11 per share. This would create the world’s largest gold producer, and the biggest commodity play on gold in the equity markets. This one-ups Barrick’s acquisition of Randgold in September of last year.

As per typical with these sorts of acquisitions, Goldcorp shares have bid up toward the buyout price, up 8.5% in today’s pre-market, while Newmont is seeing traders sell in the early hours this Monday, down more than 7%. Future analysis will point the way forward; look for future write-ups on this merger in the coming days.

Finally, Gannett (GCI - Free Report) — the publisher behind USA Today, among other news sources — is being sought for $12 per share by hedge fund-backed MNG. The total price tag is reportedly $1.36 billion, roughly a 23% premium from Gannett’s closing price Friday afternoon. MNG already owned a 7.5% stake in the publisher, and plans to review all options regarding the company’s assets. No formal acceptance to the offer has been forthcoming from Gannett at this hour.

Mark Vickery
Senior Editor

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