Market Monitoring – 18 Mar 2014

Edited by Vani Rao

US Stock Markets Break Losing Rally Amidst Easing of Ukraine Crisis, Data Improvement

S&P posts strong gains; Yahoo soars as Alibaba begins IPO build-up

US stocks finished on Monday, March 17, 2014, with strong gains as investors shrugged off the narrow scope of the EU and the US sanctions following the vote in Crimea to separate from Ukraine and join Russia. Strong data on factory production and utilization supported the stock movement, although the gains were tempered somewhat by a below-consensus rise in homebuilder sentiment.

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The S&P 500 ended the day 17.70 points, or 0.96% higher, at 1,858.83, finishing above the technical level of 1,850. The benchmark index turned positive for the year.

The Dow Jones Industrial Average gained 181.55 points, or 1.13%, to 16,247.22, bucking its recent downtrend and rising for the first time in six sessions. The Dow Jones fell 2.4% last week, dropping below the widely watched 50-day moving average.

The Nasdaq Composite Index finished the day 34.55 points, or 0.81% higher, at 4,279.95.

The gains in the US were broad-based.  Every stock in the Dow Jones Industrial Average ended higher and so did every sector in the S&P 500.

The stock market was underpinned throughout the day by quality leadership from some of its most heavily-weighted sectors. That included the Technology (+1.32%), Industrials (+1.29%), Financials (+1.04%), and Healthcare (+0.91%) sectors.  The Utilities sector (+0.62%) trailed all other sectors, but it still made a respectable showing, particularly with interest rates rising at the back end of the Treasury yield curve.

Movers & Shakers

MM pic 2Yahoo Inc. (NASDAQ:YHOO) rose 4.02% on Monday in anticipation of Alibaba’s IPO. Yahoo owns a 24% stake in Alibaba, which is readying for its maiden stock market listing in New York.

MM pic 3First Solar Inc. (NASDAQ:FSLR) gained 4.6%. Analysts at Stifel Nicolaus said last week that they expect positive commentary about the company’s cost structure when it hosts its analyst meeting on Wednesday, March 19, 2014.

US-listed shares of Sina Corp. (NASDAQ:SINA) jumped 6.56%. Sina owns Weibo Corp., a social-media service in China that is planning its US listing.

Keurig Green Mountain (NASDAQ:GMCR) shares rose 2.04%. The company will be added to the S&P 500 index on Friday, March 21, 2014, replacing WPX Energy Inc.(NYSE:WPX).

VeriSign Inc. (NASDAQ:VRSN) shares dropped 5.8% after Cowan & Co. downgraded the company to Market Perform from Outperform on Monday and cut its price target to $49 from $63. The rating change came after the US government said on Friday that it would give up oversight of the Internet’s domain-naming system. VeriSign has a monopoly on the .com and .net domain names.

Herbalife Ltd. (NYSE:HLF) shares slumped 7.82%. The nutrition supplement company last week said it is under investigation by the Federal Trade Commission after billionaire Bill Ackman accused it of being a pyramid scheme. Herbalife said it welcomes the probe and will cooperate with the FTC.

Plug Power (NASDAQ:PLUG) shares were down 2.98% after the stock’s early morning rebound lost momentum. Plug Power witnessed volatile trading last week as positive news of a major deal with Wal-Mart Stores Inc. (NYSE:WMT)  was offset by bearish comments from analysts.



The US dollar surrendered its gains against the Euro on March 17, 2014, and the EUR/USD pair oscillated between 1.3880 and 1.3940, before closing Monday’s trading session at 1.3922. The upbeat US industrial production data lent support to the dollar, after the data revealed that the industrial production in the US rose 0.6% in February, exceeding forecasts for a 0.1% gain. For more details, please access the full report.

Oil & Gas

On Monday, March 17, 2014, the US crude fell 81 cents to end at $98.08 a barrel on the New York Mercantile Exchange (NYMEX). The light, sweet crude prices fell after Crimea voted to separate from Ukraine. Crude oil prices were down on the likelihood of crude supplies being disrupted after the Crimea voting. Natural gas prices surged as the cold weather is likely to rebound across the north-eastern regions of the US in the near future. For more details, please access the full report.

Treasuries fell after Sunday’s referendum in Crimea passed without major violence, reducing the safety demand for US government bonds before the Federal Reserve’s highly anticipated meeting on Tuesday and Wednesday. Benchmark 10-year notes fell 14/32 to yield 2.69%. The 30-year bond dropped 26/32 to yield 3.63%.

Spot gold fell more than 1%, the biggest one-day drop since late January, as a sharp rally in US equities triggered profit-taking after the bullion briefly rose to a six-month high earlier in the day. Spot gold fell 1.12% to $1,366.26 an ounce. Gold futures for April delivery were down 0.84% to $1,367.40 an ounce.

Economic Front

US Factories Output Grows After Winter Chill

Manufacturing output recorded its largest increase in six months during February. Factory activity in New York State expanded early this month, the latest signs that the economy is gaining momentum after being dampened by severe weather. Factory production increased 0.8% in February after a 0.9% January drop, the Federal Reserve said. Economists had expected a gain of 0.2%. In a separate report, the New York Fed said its “Empire State” business conditions index, which measures factory activity in the state, rose to 5.61 in March from 4.48 in February. New orders, shipments, and inventories all increased.

A third report showed sentiment among homebuilders edged up in March. Builders were, however, pessimistic about sales over the next six months. They also worried about shortages of skilled labor and rising prices of materials.

Top News

Chinese companies Readies for US Listing after Two-year Hiatus

Two of China’s biggest online players are getting ready to launch IPOs in the US. On Friday, China-based microblogging service Sina Weibo, much like Twitter Inc. (NYSE:TWTR), filed for a US$500-million IPO. Meanwhile, online retailer Alibaba kicked off the process for its own public offering on Sunday, 16 March 2014. Alibaba’s IPO is expected to be the biggest listing since Facebook Inc.’s (NASDAQ:FB) IPO in 2012.

Alibaba said in a statement on Sunday it had decided to begin the US IPO process, ending months of speculation about where it would be listed.

Alibaba is one of the world’s biggest internet companies with more than $150 billion worth of merchandise changing hands on its online platforms each year, which is more than that of Inc. (NASDAQ:AMZN) and eBay Inc. (NASDAQ:EBAY) combined. It can possibly raise up to $15 billion and be valued at around $150 billion, making it the second-biggest internet company behind Google Inc. (NASDAQ:GOOG).

The IPO of the Chinese e-commerce site, expected to be the largest internet deal since that of Google, is a big win for US markets. By choosing to list on the New York Stock Exchange (NYSE) or the NASDAQ over the Hong Kong Stock Exchange (HKSE), the US is again emerging as the premier place for high-growth companies to list their shares.

So far this year, 42 IPOs have been listed on the NYSE or the NASDAQ. That’s more than triple the 13 IPOs that have priced this year so far on the HKSE and more than four times greater than the 10 IPOs that listed on the London Stock Exchange (LSE).

The trend for IPOs to head for US exchanges has been in place for months. There have been 238 IPOs listed on the NASDAQ and the NYSE over the past 12 months, trouncing the 99 on the No. 3 market place in HKSE and 68 on the LSE.

The raging bull market in the US is a big reason why US markets are winning the battle for IPOs, especially as markets in Asia have lagged for five years. US markets are also beating the Asian markets for IPOs since companies are permitted to have a dual-class voting structure, which allows the founders to sell shares in a company, but still maintain voting control. This flexibility seems to be behind the decision of Alibaba to go public in the US market rather than on the HKSE.

China-based companies enjoyed a US bonanza two years ago, but appetites cooled when a number of deals didn’t live up to the initial hype amidst accounting frauds and other scandals that froze the warm reception by international investors to invest in Chinese companies.

From 2009 to 2011, the US IPOs of 67 Chinese companies hit $8.26 billion, according to Dealogic. Since then, fewer than a dozen have gone public in the US.

After a fallow period, the buzz is back though, with successful debuts for the likes of Autohome. Alibaba is the biggest, but surely not the only Chinese company that may list in the US next year.

Coming in the Next Week

Economic Releases

Housing starts are expected to show a pick-up in February after a sharp drop in January, offering solace that the housing recovery suffered only a temporary setback from the unusually cold US winter. A separate report is expected to show that consumer prices edged up just 0.1% in February, with core prices rising at the same margin. This in turn is likely to bolster the patience of the Federal Reserve when it comes to raising interest rates.

The Federal Open Market Committee (FOMC) begins a two-day meeting on March 18, 2014, on interest rate policy. Policymakers will be looking to craft fresh guidance on when they may eventually raise interest rates. The Fed could put more of an emphasis on its quarterly interest rates projections, which will be released along with its policy statement. Federal Chairperson Janet Yellen will hold her first news conference as Fed chair and offer concluding remarks.

On Thursday, March 20, 2014, the National Association of Realtors will show how much February existing home sales have been affected by a cold and snowy winter.

The Federal Reserve Board will declare the foreign central bank holdings. Last week’s numbers caused a stir with a sharp, $105-billion plunge in the Fed’s custodial holdings for foreign central banks. Speculation was that this was mainly caused by Russia moving its money into offshore accounts, perhaps in preparation for a retaliatory attack on Treasury in response to US sanctions over Moscow’s actions in Ukraine.

Earnings Releases

Oracle Corp. (NYSE:ORCL) is scheduled to report quarterly earnings after the closing bell on Tuesday, March 18, 2014, weeks after fellow enterprise IT companies IBM Corp. (NYSE:IBM)  and Cisco Systems Inc. (NASDAQ:CSCO) reinforced concerns that spending on hardware and software were decelerating as Asia grapples with economic uncertainty. The earning of these tech majors was also dented due to a continuing backlash from National Security Agency (NSA) spying allegations. Oracle’s hardware division, a small but perceptible drag on the company’s revenue, has shown signs of life in past quarters, but a clear turnaround is not yet on the horizon.

Adobe Systems (NASDAQ:ADBE) is likely to report first-quarter results after the market closes. The maker of Photoshop and Acrobat software is expected to report strong growth in subscriptions for its Creative Cloud suite, which includes Photoshop, Illustrator, and Flash. Its customer management software suite, Marketing Cloud, has also likely done well and is expected to have more takers this year as contracts come up for renewal and a significant amount of the installed base begins to shift to the newer suite-based packaging.

FedEx Corporation (NYSE:FDX) is slated to report 3Q 2014 earnings before the bell on Wednesday, March 19. Results from FedEx are widely seen as a proxy for economic growth and tend to heavily influence the broader market gauges, including the equity index futures. Furthermore, the guidance for the balance of the full year could impact both the underlying shares and the broader market.

Other Major Events

St. Louis Fed President James Bullard participates in a panel discussion at the Brookings Institution in Washington on Friday, March 21, 2014. The event comes two days after the FOMC meeting. Although Mr. Bullard is a non-voter on the committee this year, anything he says that sheds light on the decisions taken at that meeting could be important.

Minneapolis Fed President Narayana Kocherlakota speaks in a panel discussion at the International Research Forum on Monetary Policy at the Federal Reserve Friday, March 21, 2014. Mr. Kocherlakota is not a voting member of the FOMC this year, but the topic could contain some interesting nuggets in addressing how the Fed is to extract itself from the currency policy framework that has left interest rates near zero and its balance sheet stuffed with trillions of dollars in US government bonds.

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