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Daily Agenda: Bank of Japan Disappoints Market

BOJ announces minor adjustments as yen rises; big U.S. utilities merger announced; Statoil acquires Petrobas field; Merck beats earnings estimates; Oracle to buy NetSuite.

Bank of Japan Governor Haruhiko Kuroda disappointed some observers today with a monetary policy statement that left little changed. Kuroda offered only to boost purchases of exchange-traded funds rather than hoped-for “helicopter money,” which he had rejected in earlier statements, or deeper negative rates, sending the yen up sharply against major currencies and yields higher on Japanese government bonds. After today’s nearly 2 percent swing, the yen is up by more than 15 percent year-to-date versus the U.S. dollar, adding political pressure to Kuroda and his team to act to aid export industries. The announcement offers little to investors. In a note to clients this morning, Jefferies Global Equity Strategist Sean Darby wrote, “While the news on the ETF purchases should boost sentiment on stocks, overall monetary policy will only be marginally changed given that the BOJ’s balance-sheet expansion has already decelerated.” He added that “the absence of any change on deposit rates will have disappointed those investors seeking a bolder move by the BOJ.” Darby noted that Japanese policymakers have less room to expand the purchase facility for government bonds after after years of unprecedented expansion of the monetary base. The real question facing the Japanese central bank is whether the limits of monetary policy have been reached.

Massive utilities merger. On Friday, Juno Beach, Florida-based NextEra Energy announced an agreement to acquire Dallas, Texas transmission and distributing company, Oncor Electric Delivery Co., in a stock and cash transaction valued at $18.4 billion. The deal comes as part of the bankruptcy restructuring of Oncor’s parent company, Energy Future Holdings Corp., which is currently struggling with more than $50 billion in debt, much of it from a buyout of then-TXU Corp. led by KKR, TPG and a Goldman Sachs Capital Partners in 2007. In July, NextEra’s planned purchase of Hawaiian Electric Industries for more than $2.5 billion fell apart after Texas regulators rejected the merger.

Statoil to buy Petrobras assets. Only days after posting a sharp decline in revenues for the second quarter, Statoil, which is majority owned by the Norwegian government, on Friday announced the acquisition of offshore oil fields from a Petrobras subsidiary for $2.5 billion. The move by one cash-rich state-owned oil giant to snap up relatively cheap assets from another state-owned company awash in losses, underscores the challenges facing many developing economies. The fields in question are part of the Carcara oil discovery, which is just below the salt layer of the ocean’s floor at less than 6,000 meters deep.

Merck tops analyst estimates. Second-quarter financial results issued on Friday by Merck & Co. beat consensus analyst estimates in large part due to increased sales of the firm’s diabetes drug Januvia. Earnings per share were $0.93 versus expectations for $0.91, with an increase of 0.6 percent year-over-year in revenues. In addition to strong returns from Januvia, the New Jersey-based pharmaceutical giant also saw increased volumes for cancer therapeutic Keytruda and hepatitis C drug Zepatier.

UBS beats estimates but outlook remains grim. Earnings for the second quarter released today by UBS Group topped analyst estimates at more than $1 billion for the period, a significant decline from the same period in 2015. In the accompanying analyst call, management stressed ongoing cost-cutting efforts and said the firm will no longer provide guidance for future returns on tangible equity. During the call, CEO Sergio Ermotti refused to discuss in depth a possible deal to assist troubled Italian lender Banca Monte dei Paschi di Siena.

Oracle to acquire cloud company. On Thursday, Redwood City, California’s Oracle Corp. announced a deal to purchase cloud computing firm NetSuite, based in San Mateo, California, in an all-cash $9.3-billion-dollar transaction that marks a nearly 20 percent premium to NetSuite’s prior closing price. The deal may raise conflict of interest charges for Oracle CEO Larry Ellison, who owns or controlled roughly 40 percent of NetSuite as of the most recent regulatory filings.

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