Market Monitoring – 21 November 2013

Edited by Vani Rao

Stocks change track amid taper talk

Stock markets finished Wednesday on lows from a slight uptrend in reaction to the details coming from the latest Federal Reserve meeting, which mentioned that the central bank could cut back on its bond-buying program in the ‘coming months’.

Source: Bloomberg
Source: Bloomberg

The Dow Jones Industrial Average declined 0.4%, or 66.21 points, closing at 15,900.82 and the Nasdaq Composite Index fell 0.26%, or 10.28 points, to end at 3,921.27.Echoing the negative sentiment, the S&P 500 fell 6.50 points, or 0.4%, to finish at 1,781.37, stretching its losing streak.

The main indexes remain just below milestone levels; 1,800 for the S&P 500 and 16,000 for the Dow.

Stocks held modest gains in the morning session on better-than-expected October retail sales. Stocks spiked amid reports that the European Central Bank might consider implementing negative deposit rates if more easing is needed. Equity indices then returned to their earlier levels after St. Louis Fed President James Bullard said that a strong November job report would increase the chances of tapering in December. The minutes sent share prices falling, while data released earlier also painted a picture of an economy in less need of Fed support.

At the end of session, the Healthcare sector was the only group in positive territory, while other sectors ended with losses. The rate-sensitive Utilities and Telecom Services sectors ended at the bottom of the leader board.

Movers & Shakers

mm pic 2J.C.Penney Co. (NYSE:JCP) jumped 8.4%, closing at $9.44, after its upbeat guidance overshadowed its bottom line shortfall.

Deere & Co. (NYSE:DE) surged 2.06% ending at $84.52 on better-than-expected quarterly results and forecasts for 2014.

Source: WSA
Source: WSA

Lowe’s (NYSE:LOW) reported a double-digit gain in quarterly profit. However, shares dipped 6.17%or $3.11 closing at $47.33 as results missed forecasts.

3D Systems Corp. (NYSE:DDD), a leading 3D printer manufacturer tumbled5.94 points or 7.87%, closing down to $69.57 for a second consecutive day. Voxelijet (NYSE:VJET), another 3D printing company, suffered the biggest loss, plunging more than 32%.

Yahoo Inc. (NASDAQ:YHOO) continued to rise following news that the company is boosting its buyback program by another $5 billion.

Commodities

Crude oil December futures edged lower to $93.34 per barrel by 0.03 points, or 0.03%, over China’s disappointing manufacturing data and growing concerns over the Fed tapering after the meeting minutes.

Similar to Crude, Gold also responded negatively to the Federal Open Market Committee (FOMC) meeting. Gold December futures settled at $1,258.0, down $15.50 from the previous close on Wednesday 20 November. The Fed tapering continues to be a source of inspiration for gold price movement in the near future.

Silver Futures Contracts for December inched up by 0.16% to close at $20.058 a troy ounce.

Economic Front

The US Department of Commerce reported that retail sales rose by 0.4% in October, beating economist expectations. The stronger-than-anticipated retail report was the main driver for the market upbeat in the morning.

However, the market witnessed not-so-encouraging news about the Housing sector. The National Association of Realtors (NAR) reported that existing home sales declined 3.2% to a seasonally adjusted 5.12 million units in October from 5.29 million units in September; more than earlier estimated.NAR has not blamed the government shutdown for the drop in sales. The shutdown was one of the main reasons why mortgage purchase applications fell during the month as many banks were unable to verify income through IRS before closing. As a result, the delays in mortgage approval process have pushed a number of potential home purchases in October to November.

The US Department of Labor said that the Consumer Price Index (CPI) fell by 0.1%, defying expectations after it rose 0.2% in September. Overall consumer prices increased 1% year on year after a 1.2% gain in the 12 months ending September 2013. The core CPI rose at an annualized rate of 1.7% last month, in line with estimates and unchanged from September.

Elsewhere, the US Department of Commerce reported that wholesale business inventories rose 0.6% in September after increasing 0.4% in August.

The Fed has long maintained that it wants to see a healthier labor market before it would pull back or taper its stimulus programs. However, according to the minutes, the Fed suggested it could taper its stimulus programs for reasons other than substantial improvement in the job market.

Top News

− Google enters prepaid debit card fray

Google Inc. (NYSE:GOOG) announced the launch of physical prepaid cards on Wednesday. The new Wallet Card will be tied to a customer’s Google Wallet account and can be used to withdraw money and for purchases.

Google’s virtual wallet has been around since 2011 and is funded by transfers from similar Google Wallet account holders, or money transferred from other bank and credit card accounts. It can be used to pay with mobile phones at certain retailers. However, the venture has not been very successful since many retailers don’t have appropriate equipment to process the transactions. With the launch of this new prepaid card, a phone would no longer be required to pay in stores since the card can be swiped similar to debit or credit cards.

The Google Wallet Card can be used at all locations where MasterCard is accepted. What’s more, the user will not incur additional charges for the card usage. The card can be requested through the Google Wallet Android app or online.

Google is following the footsteps of other companies and celebrities jumping into the prepaid card bandwagon. Occupy Wall Street introduced its Occupy card last month; Walgreens and Justin Beiber are among many others entering the business.

Yahoo fine tunes US convertible bond sales

The bullish US stock market and low interest rates offers companies favorable conditions looking to raise capital via convertible bonds. Companies are able to raise capital at historic low costs in the debt market and at higher conversion premium. Yahoo is planning to raise $1 billion via an issue at coupon rates ranging up to 0.5% with conversion premium at 45-50% and maturing in 2018. Taking advantage of the favorable conditions, as many as 19companies have raised $4.1 billion as proceeds during November.

Yum Brands to realign its business divisions

Yum Brands (NYSE:YUM) announced that it will merge its Yum! Restaurants International (YRI) and the individual US divisions for KFC, Pizza Hut, and Taco Bell to drive better geographic and brand focus. It will, however, not merge Yum! Restaurants China and Yum! Restaurants India, given their strategic importance and growth potential in the coming years.

News to look forward to in the next 24 hours

On 21 November, there would be few important financial releases in terms of data coming from Europe and the US.

Europe

  • German Manufacturing Index
  • Speech by Mario Draghi, President of the ECB, at FührungstreffenWirtschaft “Strategies for more growth” in Germany

US

  • Producer Price Index (Monthly)
  • Jobless Claims Data (Weekly)
  • Data Manufacturing Activity (Monthly).

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