Market Monitoring – 16 December 2013

Edited by Vani Rao

Markets decline for second straight week in anticipation of Fed policy meeting

US stocks witnessed little or no changes on Friday, 13 December, after a three-day drop, capping their worst week in nearly four months. This is mainly because investors are waiting for the outcome from the Federal Reserve meeting next week that could start the curtailment of the Fed’s equities-boosting stimulus program.

The Federal Reserve is set to hold its monetary policy meeting on December 17-18. Surprisingly, strong retail sales, positive consumer sentiment, employment data, and other indicators have raised expectations that the US central bank will announce plans to trim its asset-purchasing plan then or shortly afterwards.

Source: Bloomberg
Source: Bloomberg

The Dow Jones Industrial Average added 15.9 points, or 0.10%, to close at 15,755.36, but was 1.65% lower over the previous week. The S&P 500 closed 0.2 points lower at 1,755.32, finishing the week with a 1.65% loss. Both indexes were down for the second week, the first series of such losses since early October.

The Nasdaq Composite Index finished 0.06% higher at 4,000.98, and was 1.52% lower over the week, its first weekly loss in five weeks.

Gains on the S&P 500 were led by the Materials (+0.43%) and Industrials (+0.37%) sectors on Friday, while the Energy (-0.38%) and Telecoms (-0.31%) led the losses.

Movers & Shakers

mm pic 2Adobe Systems Inc. (NASDAQ:ADBE) climbed 12.78% following the announcement of its fourth quarter results. The maker of Photoshop and Acrobat software reported a surge in the number of subscribers for its Creative Cloud suite. However, Adobe’s earnings per share fell to 13 cents.

Source: WSA
Source: WSA

Twitter (NYSE:TWTR) shares jumped 6.63% after it reversed earlier changes to the way the ‘block’ function works, following an outcry from users.

T-Mobile US Inc. (NYSE:TMUS) soared 8.65% in the final few minutes of trading after The Wall Street Journal reported that rival wireless company Sprint (NYSE:S) may want to bid for it sometime in the first half of 2014. Sprint gained nearly 4% after the reporting.

Anadarko Petroleum Corp. (NYSE: APC) tumbled 6.42% after a court ruled that its Kerr-McGee unit acted improperly in its 2005 spinoff of paint materials company Tronox (NYSE:TROX). The judge said that the company should pay for the environmental clean-up.

Qualcomm (NASDAQ:QCOM) dipped 0.21%. The cell phone chips company named Steve Mollenkopf as its CEO effective March 4. Mollenkopf, who is currently the Chief Operating Officer, had reportedly been considered as a candidate for the top position at Microsoft Inc. (NYSE:MSFT), which fell 1.42%.

Futures

The bond market is expected to witness its worst year in history after investors pulled out $72 billion from bond mutual funds this year through the first week of December. This is the biggest annual outflow on record.

The yield on the 10-year note rose to 2.89% this week, near the highest levels of the year, as investors braced for next week’s Fed meeting. Bond yields rise when prices fall, so investors seem to be selling in anticipation of fewer Fed purchases in the future.

Oil futures settled below $97 a barrel on Friday for a loss of 1.1% for the week as traders fretted over the possibility that the Federal Reserve will announced a pullback in its stimulus program and the potential for an increase in Libyan oil production. Crude oil for January fell 90 cents, or 0.9%, to settle at $96.60 a barrel on the New York Mercantile Exchange, the lowest since December 3.

January natural gas settled at $4.35 per million British thermal units, down almost 6 cents, or 1.3%. It ended 5.8% higher for the week.

Gold nudged higher after dropping nearly 3% in the previous two days. However, the sentiment remained fragile on rising expectations of an early end to US monetary stimulus and accelerating fund outflows. Spot gold climbed 1.09% at $1,236.90 an ounce. Gold futures for February delivery rose 1.02% to $1,237.40.

Silver for March delivery was up 1.05% at $19.65 a troy ounce, while copper for March delivery was up 0.43% and trading at $3.31 a pound.

Economic Front

US wholesale prices fell for third consecutive month

US producer prices fell for a third straight month in November, pointing to a lack of inflation pressure as the Federal Reserve weighs the future of its bond-buying stimulus. The US Department of Labor said that its seasonally adjusted Producer Price Index slipped 0.1% as gasoline prices maintained their downward trend. Prices received by the nation’s farms, factories, and refineries fell 0.2% in October. For the first time since October 2012, producer prices have fallen for three consecutive months. In the 12 months through November, producer prices gained 0.7% after rising 0.3% in October. Wholesale prices stripping out volatile food and energy costs nudged up just 0.1% in November after rising 0.2% in October. The 12-month gain slipped to 1.3% from 1.4% in October.

Top News

Simon Property to spin off smaller malls into REIT

Simon Property Group (NYSE:SPG) will spin off its strip malls and smaller shopping centres into a publicly traded REIT to enable it to focus solely on its larger retail properties. The company has been focusing on its larger malls, which provide higher returns. This has held back the expansion of its strip malls and smaller shopping centres. “Over the years, we have seen a number of very attractive investment opportunities that we have not pursued given our primary focus on our global portfolio of larger retail assets,” Chief Executive David Simon said on a conference call. Simon Property said the spinoff, through a distribution to shareholders, would boost it’s per square foot sales, net operating income, and occupancy rates. The company said it would maintain its annualized dividend at $4.80 per share.

Organizational Shake up in Coca-Cola

The surprise departure of potential Coca-Cola (NYSE:KO) Chief Executive has put its global Chief Customer Officer in contention to eventually succeed CEO Muhtar Kent. The world’s largest beverage company said on Thursday that Steve Cahillane, head of all Coca-Cola operations in the Americas, would leave the company as part of a major organizational shakeup. That has put Sandy Douglas, a previous head of North America operations and currently global Chief Customer Officer, in the running for the top job. When 61-year-old Kent retires, Coke said that it would split its North American businesses into separate units, one for bottling and another for branding and marketing, of which the latter will be headed by Douglas.

News to look forward next week

Monday 16 December 16, 2013

The Federal Reserve is expected to announce its monthly Industrial production report on Monday.

Wednesday 19 December 2013

FedEx (NYSE:FDX) earnings on Wednesday are likely to be parsed for what they tell us about the health of the economy as well as that of the $43 billion air freight company itself.

Oracle (NYSE:ORCL), which has been hit with a series of analyst downgrades lately, will post results on Wednesday.

The busy earnings week also includes results from General Mills (NYSE:GIS).

Also on Wednesday, the US Department of Commerce will release its delayed housing starts reports for September and October, when it publishes November housing starts and permits data.

Thursday 20 December 2013

Clues about the US consumer sentiment could also be provided by results from Nike (NYSE:NKE), which reports earnings on Thursday. Restaurant chain Darden (NYSE:DRI) will also make its earnings reporting the same day. Also on Thursday, results are expected from Rite Aid (NYSE:RAD), ConAgra (NYSE:CAG), KBHome (NYSE:KBH), and Winnebago (NYSE:WGO).

On Thursday, the US Department of Labor will release weekly jobless claims data. On Friday, the US Department of Commerce will publish its final estimate for third-quarter gross domestic product.

Friday 21 December 2013

BlackBerry (NASDAQ:BBRY), the once dominant smartphone maker, and whose very survival has been questioned by some industry watchers, will announce its reports on Friday.

Major Impactors

Financial markets will be waiting with bated breath until Wednesday, when the Federal Reserve will announce whether it has decided to start dialling back its $85-billion per month bond-buying pace. The Fed could also lower the jobless rate threshold, which governs when it will begin to consider raising interest rates to 6.0% from 6.5%, particularly if it decides that the time is ripe to reduce its bond-buying stimulus.

The US Senate is also expected to vote on the nomination of Janet Yellen to succeed Ben Bernanke as the Federal Reserve head in the coming week.

The US Federal budget would also come for approval this week. As per the statements from the opposition, it’s not expected to be easy for the government to approve and pass the budget.

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