By Geoffrey Smith
Investing.com -- Warren Buffett blasts the new buyback tax as Berkshire Hathaway's performance sags under pressure from last year's market volatility. Pfizer is reportedly in talks to buy Seagen for around $30 billion. Benchmark Eurozone bond yields hit a 12-year high as the market pushes out its expectations for the first cut in ECB interest rates. The U.K. and EU are on the verge of settling their differences over Northern Ireland, and potentially triggering another civil war in the ruling Conservative Party, and oil prices fall as Bank of America analysts slash their forecasts for the year. Here's what you need to know in financial markets on Monday, 27th February.
1. Buffett blasts buyback tax as Berkshire stumbles in 2022
Warren Buffett laid into the Democrat-driven introduction of a tax on stock buybacks, in an uncharacteristically brief letter to Berkshire Hathaway (NYSE:BRKa) shareholders published over the weekend.
Buffett said the measures, which aim to raise $74 billion in tax over the next decade, were the brainchild of “economic illiterates” and “demagogues”, and argued that buybacks were an essential tool in the efficient deployment of capital.
Berkshire’s fourth-quarter earnings, disclosed at the same time showed an 8% drop in profit, as a number of clunkers in its portfolio underperformed, most notably auto insurance group Geico, which posted a sixth straight quarterly loss.
Berkshire’s portfolio registered a loss of nearly $23B last year due to overall market volatility. Its cash pile rose to over $128B as of the end of the year.
2. Bund yields hit 12-year high on Lagarde, Visco comments
Market participants aren’t only pricing in higher interest rates for longer in the U.S. The yield on the benchmark German 10-year bond – the risk-free reference asset for the Eurozone – rose to a 12-year high of 2.58% after European Central Bank President Christine Lagarde hammered home the message that a 50 basis point hike in the ECB’s key rates in March is all but nailed on.
Lagarde told the Economic Times of India that “There is every reason to believe that we will do another 50 basis points in March,” adding that what follows will depend on economic data.
Over the weekend, Italian central bank governor Ignazio Visco – typically one of the more dovish members of the bank’s governing council - had acknowledged that the ECB’s key rate may have to rise as high as 3.75%, validating the upward move in implied forward rates after last week’s strong U.S. inflation data.
ECB chief economist Philip Lane is due to speak at 12:00 ET (17:00 GMT).
3. Stocks set to open higher; Pfizer reported in talks to buy Seagen
U.S. stock markets are set to open a little higher later after falling to their lowest weekly close of 2023 to date on Friday. S&P Dow Jones Global Indices expects U.S. buybacks to top $1 trillion this year for the first time in history.
By 06:45 ET (11:45 GMT), Dow Jones futures were up 120 points, or 0.4%, while S&P 500 futures were up 0.5% and Nasdaq 100 futures were up 0.6%.
Stocks likely to be in focus later include Pfizer (NYSE:PFE) and Seagen (NASDAQ:SGEN), with the pharma giant reportedly in talks to buy the cancer drug specialist for around $30B.
Also of interest could be Union Pacific (NYSE:UNP), whose stock surged after it said it’s looking for a new chief executive.
4. U.K. and EU hatch N. Ireland deal
The U.K. and European Union appear on the verge of a deal that would settle their simmering dispute over the status of Northern Ireland, an issue which has plagued the Brexit process ever since the U.K.’s vote to leave the EU in 2016.
European Commission President Ursula von der Leyen is due in London to hammer out the details with Prime Minister Rishi Sunak.
Settling the issue could help the gradual rehabilitation of U.K. financial assets with international investors, who have applied a huge discount to them since 2016. However, it also risks triggering one of the ruling Conservative Party’s periodic bouts of infighting, at a time when the October fiasco of then Prime Minister Liz Truss’s tax cuts are still fresh in the memory.
5. Oil falls as BofA cuts forecasts
Crude oil futures suffered a poor start to the week, after Bank of America (NYSE:BAC) analysts cut their estimate for average U.S. crude prices this year to $88 from $100 in the face of a weakening U.S. and global economy.
They also noted that Russian oil is continuing to flow to world markets despite the heavy discounts imposed on it due to western sanctions. Russian pipeline operator stopped crude flows to Poland through the Soviet-era Druzhba (Friendship) pipeline on Monday, citing paperwork irregularities.
By 06:45 ET, U.S. crude futures were down 0.2% at $76.17 a barrel, while Brent was down 0.3% at $82.59 a barrel. Natural gas prices continued to normalize, rising 3.4% to $2.634 per mmBtu.