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M& A fever helps European stocks rally
Business section of a newspaper with Euros
* Elan surges after $8.6 bln takeover offer from Perrigo
* Media stocks jump after Publicis-Omnicom merger plan
By Blaise Robinson
PARIS, July 29 (Reuters) - European stocks rose on Monday as a flurry of big mergers and acquisitions deals boosted sentiment and helped the market bounce back after a two-session dip.
Shares in Irish drugmaker Elan jumped 8.3 percent after U.S. peer Perrigo agreed to buy the firm for $8.6 billion, sparking a rally in health care stocks, with Shire up 2.1 percent and AstraZeneca up 1.2 percent.
Media shares also surged, boosted by a merger plan between Publicis and Omnicom unveiled over the weekend, in a deal worth $35.1 billion.
France's Havas soared 5.7 percent and UK's WPP added 1.7 percent. Publicis shares were halted on Monday.
At 0802 GMT, the FTSEurofirst 300 index of top European shares was up 0.4 percent at 1,209.40 points, after losing about 0.8 percent in two sessions. The benchmark index has risen 9 percent since late June.
Also among the biggest gainers on Monday, France's Essilor , an ophthalmic optics company, rose 4.1 percent after buying a 51 percent stake in photochromic lens unit Transitions Optical from PPG Industries Inc for $1.73 billion.
The media and health care sectors have outperformed the market this year, with the STOXX Europe 600 media index up 17 percent and the STOXX Europe 600 health care index up 14.4 percent, while the FTSEurofirst 300 is up 6.9 percent.
" These big M& A deals are a big boost for the market, although the buzz is usually short-lived, so I remain relatively cautious at this point," said Philippe de Vandiere, analyst at Altedia Investment Consulting, in Paris.
" The market has risen quite a lot already and even though we didn't really have nasty surprises in earnings, there's no big catalyst seen ahead, and we see investors turning more defensive."
On the earnings front, French food group Danone gained 3.1 percent after saying sales growth accelerated in the second quarter, and keeping its full-year 2013 profit and sales outlook.
Siemens rose 1.5 percent. The German engineering conglomerate said its supervisory board will decide on the early departure of its chief executive on July 31.
Around Europe, UK's FTSE 100 index was up 0.6 percent, Germany's DAX index up 0.8 percent, and France's CAC 40 up 0.5 percent. The euro zone's blue-chip Euro STOXX 50 index was up 0.3 percent at 2,748.96.
" I'm quite positive, the market goes up slowly with some consolidation moves happening during the session," TradingSat analyst Alexandre Tixier said.
" Trading volumes remain brisk, which is a sign of strong buying appetite at this point. Our exposure to equities is at 80 percent right now."
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China shares end at 3-week low materials, financials weak
Welcome to Shanghai sign at night
The Shanghai Composite Index ended down 1.7 percent at 1,976.3 points. The CSI300 of the leading Shanghai and Shenzhen A-share listings dropped 2.2 percent. Both indexes fell to their lowest in three weeks.
Construction material and railway firms dropped as investors booked profits after recent rebounds, while rate sensitive sectors such as banks and property were also weak as China's weighted seven-day repo rate jumped on Monday.
(Reporting by Yimou Lee Editing by Jacqueline Wong)
Japanese stocks lead Asia lower as yen firms
Graph with stacks of Australian dollars
* Yen rises to one-month high vs broadly weaker dollar
* Tentative gains seen for European stocks at open
* Plenty of hurdles this week, not least Fed meeting
By Ian Chua
SYDNEY, July 29 (Reuters) - The yen rose to a one-month high against the dollar on Monday as investors braced for another round of disappointing economic news out of China, knocking Japanese stocks to four-week lows and dragging down regional markets.
MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.6 percent, giving back a chunk of last week's 1.9 percent gain.
Tokyo's Nikkei share average slid 3.3 percent to its lowest close this month, and has now lost more than 7 percent in three days.
Traders said there were concerns that manufacturing surveys later this week would point to more weakness in China, Asia's economic powerhouse and a major trading partner for countries throughout the region.
" A sense of caution is looming in the market, especially because investors are worried about a slowdown in the Chinese economy. And when they see a risk in Asia, they tend to buy the yen, and the Japanese market is hit by that," said Kyoya Okazawa, head of global equities at BNP Paribas.
Adding to the uncertainty were signs that a planned increase in the sales tax -- Japan's most significant fiscal reform in years and seen as a test of government resolve to fix its finances -- could be delayed or watered down.
" Foreign investors expect Japan to raise its sales tax rate to 8 percent next April and this has supported the market for some time now," said Kenichi Hirano, a strategist at Tachibana Securities.
" If this plan doesn't go through as expected, it could result in a huge sell-off in yen and Japanese stocks. Even a change or a delay in the plan would have negative effects on the markets."
Despite the fall in Asian bourses, financial spreadbetters are calling for European markets to open slightly higher, partly supported by hopes the Federal Reserve, European Central Bank and Bank of England will this week offer reassurances that their monetary policies will remain accommodative for a long time.
All three central banks hold their respective meetings later in the week.
FIRMER YEN
The yen strengthened to a one-month high around 97.64 per dollar, having been weaker than 100 per dollar as recently as last Thursday, while the euro fell back below 130.00 yen to two-week lows.
Against the dollar, the euro was little changed at $1.3280 , having stalled for a third day just under $1.33. That helped the dollar index edge off a five-week trough hit earlier in the day.
Still, expectations that the Fed will maintain its pledge to keep policy loose even if it is to begin tapering stimulus in coming months should keep the dollar pinned down, analysts said.
" The Fed is likely to reiterate that while it is considering tapering its monetary stimulus later this year, it is conditional on stronger economic growth and that interest rate hikes are still a long way off," said Shane Oliver, head of investment strategy at AMP Capital.
Oliver said the Fed might even consider adjusting its policy guidance to emphasise there will be no imminent tightening.
" The Fed's assessment of recent mixed data will clearly be watched as a guide to whether the start of tapering will be delayed beyond the September meeting, which was initially the consensus favourite as to when it would begin."
Worries about China kept commodities under pressure, although the soft dollar helped limit their losses.
Copper reached three-week lows around $6,820 a tonne, while U.S. crude eased 0.5 percent to $104.14 a barrel, staying within sight of a three-week trough of $103.90 hit on Friday.
Gold was a touch softer following a 3 percent rally last week. It stood around $1,327 an ounce, off a five-week peak of $1,347.69 hit last Tuesday.
Australia shares post minute gain, CBA hits all-time closing high
Entrance interior of the Australian Securities Exchange
SYDNEY, July 29 (Reuters) - Australian shares ended a volatile day's trade just 0.1 percent higher on Monday after strong leads from the financial sector were undermined by weakness in miners, with investors remaining cautious ahead of the U.S. Federal Reserve's policy-setting meeting this week.
Commonwealth Bank of Australia added 0.3 percent to an hit an all-time closing high of A$73.86
The S& P/ASX 200 index added 4.3 points to 5,046.3 to hover at 2-month highs, and is up 5.1 percent so far for July. The benchmark edged up 0.1 percent on Friday.
New Zealand's benchmark NZX 50 index slipped 0.1 percent or 3.5 points to finish at 4,578.5. (Reporting by Thuy Ong Editing by Eric Meijer)
Wall St wipes out losses late to end with slim gain
Times Square, New York
* Expedia sheds more than 25 percent after results
* Amazon shares touch 52-week high
* Dow up 0.02 pct, S& P 500 up 0.1 pct, Nasdaq up 0.2 pct
By Alison Griswold
NEW YORK, July 26 (Reuters) - U.S. stocks erased losses late in Friday's session to close slightly higher on investors' optimism about the likelihood that the Federal Reserve will keep its easy money policy in play a while longer.
With just three trading days left in the month, the S& P 500 is set to post its best month since October 2011. The Nasdaq's advance makes July so far the best month in a year and a half.
After declining for most of the day, the market regained ground shortly before the close, and all three major indexes finished in positive territory. At one point, the Dow was down as much as 150.45 points.
" I was surprised we ended up, but people have a sense of optimism about the market," said Matt McCormick, a money manager at Cincinnati-based Bahl & Gaynor Inc.
" The bad news from the morning was digested and discarded. Earnings haven't been as bad as people expected, and the political issues aren't in the forefront right now. That could change at any moment, but enjoy the summer rally while you can."
Five of the 10 S& P 500 industry sector indexes advanced, with the health sector leading the gains.
The Dow Jones Industrial Average rose 3.22 points, or 0.02 percent, to end at 15,558.83. The Standard & Poor's 500 Index gained 1.40 points, or 0.08 percent, to finish at 1,691.65. The Nasdaq Composite Index advanced 7.98 points, or 0.22 percent, to close at 3,613.16.
Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey, said the market began to turn around on news that President Barack Obama had not reached a decision on who will succeed Federal Reserve Chairman Ben Bernanke and on optimism that the central bank will keep monetary policy accommodative.
" At least today, the market is expecting the Fed to offer no surprises, and if anything, to be maybe a bit more dovish," she said.
Speculation over who Bernanke's successor could be has caused anxiety in the market, with investors wondering how different the next chair's policies would be. The timing of the announcement is also tricky as the Fed simultaneously considers when to begin pulling back its $85 billion a month in bond purchases.
The prospect that former Treasury Secretary Lawrence Summers might get the nod, and not current Fed Vice Chair Janet Yellen, has concerned investors. Yellen is seen as more likely to provide a smooth transition after Bernanke's term ends, while Summers is viewed as more critical of the effectiveness of the central bank's stimulus.
Investors will scrutinize the Federal Open Market Committee policy statement next Wednesday for any additional clues about the Fed's intended timeline for scaling back its quantitative easing.
For the week, the S& P 500 finished essentially flat - down just 0.03 pct - the first week in five that it did not manage a gain. But the benchmark index is up 5.3 percent so far in July - its best month since October 2011.
The Dow rose 0.1 percent for the week, extending its string of weekly gains. For July, the Dow is up 4.4 percent.
The Nasdaq is up 6.2 percent in July so far, its best monthly gain in a year and half. For the week, the Nasdaq is up about 0.7 percent.
Expedia ranked among the most active names traded on the Nasdaq. Shares of the online travel agency plunged 27.4 percent to $47.20 a day after it reported a quarterly profit far short of market estimates.
Starbucks gave the biggest boost to the S& P 500 a day after the world's largest coffee chain reported a bigger-than-expected jump in quarterly profit. Starbucks' stock rose 7.6 percent to close at $73.36.
Halfway through earnings season, 67.6 percent of S& P 500 companies have beaten analysts' expectations - in line with the 67 percent average beat in the last four quarters.
About 56 percent of the companies have beaten revenue expectations, more than the 48 percent of revenue beats in the past four earnings seasons, but below the historical average.
Amazon shares turned higher despite a forecast that disappointed on income and revenue. The stock rose 2.8 percent to $312.01, a rebound from a session low at $295.55. Earlier on Friday, Amazon's stock hit a 52-week high of $313.62.
Boeing Co shares declined after the U.S. Federal Aviation Administration said it was proposing to fine the company's commercial airplane division $2.75 million for failing to take prompt action to fix a problem with fasteners on its model 777 airplanes. Shares of Boeing fell 1 percent to $105.60 and were the biggest drag on the Dow.
In addition to the FOMC meeting on Tuesday and Wednesday, next week's packed economic calendar includes the advance estimate, or second look, at gross domestic product for the second quarter, and the July nonfarm payrolls report.
About 5.4 billion shares changed hands on U.S. exchanges, below the daily average of 6.4 billion. Volume was relatively light for the week as a whole.
Decliners outnumbered advancers on the New York Stock Exchange by a ratio of 8 to 7. On the Nasdaq, about five stocks fell for every three that rose.
Bumper M& A deal pushes Britain's FTSE higher
The London Stock Exchange logo is seen outside the exchange
Elsewhere, U.S. generic drugmaker Perrigo agreed to buy Ireland's Elan for $8.6 billion, while UK insurer Aviva is in talks over a deal to expand in Asia, a weekend newspaper report said.
The FTSE 100 was up 34.73 points, or 0.5 percent at 6,589.52, by 0708 GMT.
The index is hovering near 8-week highs, although the recent rally of more than 9 percent since June lows showed signs of running out of steam but a fresh blast of M& A could help underpin those gains.
" Markets will continue to push higher, helped particularly by the $35 billion merger of Publicis and Omnicom, Aviva's push into Indonesia, and Perrigo's bid for Elan boosting market sentiment," Mark Ward, head of trading at Sanlam Securities, said.
The world's no.1 ad agency WPP topped the list of FTSE 100 risers, up 4 percent after French peer Publicis and U.S. firm Omnicom announced a $35.1 billion merger. (Reporting by David Brett editing by Simon Jessop)
5 Reasons The Fed Taper Will Kick Off In September
Little doubt remains at this stage that the Fed will begin slowing its securities purchases this September. The central bank under Bernanke's leadership has been highly focused on data and will consider the following 5 broad indicators to reach its decision.
1. Labor markets: As Bernanke recently pointed out, with respect to labor markets the hurdle for reducing purchases is lower than for raising rates. The FOMC will be looking for improvements in demand for labor in the US and will find it in these data:
While the labor situation is still terrible by historical standards, it will be sufficient for the FOMC who will be looking for steady improvements. The strength in consumer confidence (see latest from U Michigan) will also be viewed as supportive of the stronger labor markets thesis.
2. Money supply: Once again the view will be that broad money supply's relatively steady growth of above 7% per year will suffice.
3. Economic activity: While a number of indicators have been pointing to less than stellar growth, the Fed will consider (among other measures) the broadest indicator, the so-called Coincidence Index of Economic Activity. The index hides numerous problems with the economy but will nevertheless be an important data point for the central bank. And based on this indicator, the US is experiencing sufficiently steady growth. To support the steady growth thesis, the Fed will also consider surprisingly strong auto purchases and factory orders data (see Reuters story).
4. Financial stress: The Fed's own indicators point to fairly benign financial conditions. This is not surprising given the relatively tight swap spreads and credit spreads, low VIX, strong equity markets, etc.
Supporting the US data on financial stress is the ECB's " Systemic Stress Composite Indicator" (below), which has declined to near record lows. Given the impact of the Eurozone crisis on US financial markets, the Fed will clearly consider that index as well.
5. Impact on interest rates: Certainly with the Fed exiting treasury purchases, the demand for US government paper should will be reduced, pushing yields higher. But given the recent fiscal tightening in the US (due in large part to the sequester), treasury issuance is expected to decline - at least in the near term (chart below). The Fed will view this decline in the federal government's borrowing needs as counteracting its reduction in purchases and keeping rates under control in the near term.
Obviously, an exogenous shock such as a spike in oil prices could force the Fed to hold off. Also the US legislators' failure to raise the federal debt ceiling, which Bernanke called " a calamitous outcome" , could take tapering off the table.
Aside from such events, the Fed is likely to shave off some $15-$20bn from its monthly purchases. With Bernanke likely departing early next year, the Fed is eager to wrap up this latest round of purchases soon and focus on the more traditional policy tools such as short-term rates and forward guidance (see discussion).
Little doubt remains at this stage that the Fed will begin slowing its securities purchases this September. The central bank under Bernanke's leadership has been highly focused on data and will consider the following 5 broad indicators to reach its decision.
1. Labor markets: As Bernanke recently pointed out, with respect to labor markets the hurdle for reducing purchases is lower than for raising rates. The FOMC will be looking for improvements in demand for labor in the US and will find it in these data:
 |
| Source: BMO Capital Markets |
While the labor situation is still terrible by historical standards, it will be sufficient for the FOMC who will be looking for steady improvements. The strength in consumer confidence (see latest from U Michigan) will also be viewed as supportive of the stronger labor markets thesis.
2. Money supply: Once again the view will be that broad money supply's relatively steady growth of above 7% per year will suffice.
3. Economic activity: While a number of indicators have been pointing to less than stellar growth, the Fed will consider (among other measures) the broadest indicator, the so-called Coincidence Index of Economic Activity. The index hides numerous problems with the economy but will nevertheless be an important data point for the central bank. And based on this indicator, the US is experiencing sufficiently steady growth. To support the steady growth thesis, the Fed will also consider surprisingly strong auto purchases and factory orders data (see Reuters story).
4. Financial stress: The Fed's own indicators point to fairly benign financial conditions. This is not surprising given the relatively tight swap spreads and credit spreads, low VIX, strong equity markets, etc.
Supporting the US data on financial stress is the ECB's " Systemic Stress Composite Indicator" (below), which has declined to near record lows. Given the impact of the Eurozone crisis on US financial markets, the Fed will clearly consider that index as well.
 |
| ECB's Systemic Stress Composite Indicator (in the Eurozone) |
5. Impact on interest rates: Certainly with the Fed exiting treasury purchases, the demand for US government paper should will be reduced, pushing yields higher. But given the recent fiscal tightening in the US (due in large part to the sequester), treasury issuance is expected to decline - at least in the near term (chart below). The Fed will view this decline in the federal government's borrowing needs as counteracting its reduction in purchases and keeping rates under control in the near term.
 |
| Source: Scotiabank Economics |
Obviously, an exogenous shock such as a spike in oil prices could force the Fed to hold off. Also the US legislators' failure to raise the federal debt ceiling, which Bernanke called " a calamitous outcome" , could take tapering off the table.
CIBC World Markets: - Any attempts to tie a budget deal to a repealing of Obamacare could throw a wrench into discussions, while inflexibility on either side could push negotiations to the eleventh hour. And with federal borrowing pressing up against the limit, wrangling over the debt ceiling—an apparent late summertime tradition—is set to heat up yet again.
...
The Fed doesn’t seem to be quite as blasé as markets are at this point about budgetary pitfalls. Bernanke recently stated that fi scal policy could “restrain” growth and the debt ceiling outcome could “hamper the recovery”. With Washington getting down to the political wire right around decision time for QE tapering, political wrangling could infl uence just how willing the Fed is to step off the stimulus pedal.
Aside from such events, the Fed is likely to shave off some $15-$20bn from its monthly purchases. With Bernanke likely departing early next year, the Fed is eager to wrap up this latest round of purchases soon and focus on the more traditional policy tools such as short-term rates and forward guidance (see discussion).
This Week Is So Stacked With Mega Economic Events We Might Just Feel The Axis Of The Earth Tilt
Economic Calendar
Market Commentary
Despite the sea of uncertainty on the horizon, J.P. Morgan's Tom Lee is bullish.
" With both U.S. and Europe expected to see better growth in [the second half of 2013], we believe the Street will be in a position to raise 2014E EPS," said Lee about stock market profits. " We are raising 2014E EPS to $120 (vs $117) and also raising our YE 2013E S& P 500 Target to 1775 (up 3.5% vs prior 1715)."
Among other things, Lee is encouraged by the pent-up demand he sees in the U.S.
" As for the U.S. and to a lesser extent for Europe, this is more than “easing financial conditions” but a story of pent-up demand," he said. " [I]nvestment/durables spending in the U.S. remains at 60-year lows. And at a time when the age of capital- stock is near record highs. This is a formula, in our view, for obsolescence asserting itself in the form of an eventual sharp rise in spending."
We asked Matthew Cheslock, Equity Trader at Virtu Financial, what we should think about when it comes to China, Europe, and the U.S. Watch the video here:
" Risk events are set to pick up dramatically, threatening the summer lull," says Société Générale head of rates and forex strategy Vincent Chaigneau.
First of all, it's jobs week in America. The July U.S. jobs report comes out on Friday, and the numbers will be considered carefully as the Federal Reserve decides the course of its currently ultra-easy monetary policy.
Furthermore, new U.S. housing data may begin to give us a sense of whether rising mortgage rates are affecting homebuyer behavior. Similar insights will be revealed through the July auto sales figures.
Speaking of monetary policy, three of the world's most important central banks will hold interest rate meetings this week.
All of this comes as every major economy around the world will publish its crucial manufacturing PMI reports. Is Europe still getting better? Is China still getting worse?
Meanwhile, we're still in the middle of Q2 earnings season. Pfizer, ExxonMobil, Proctor & Gamble, and Berkshire Hathaway are just a few of the companies announcing this week.
Also, the U.S. will be publishing revisions to every GDP report since 1929.
Top Stories
- Three Central Bank Meetings: The U.S. Federal Reserve, the Bank of England, and the European Central Bank will all be holding their monetary policy meeting this week. No change is expected from the ECB. On July 4, the BoE's Mark Carney hinted that he was considering adopting forward guidance we may hear more about that on Thursday.
One thing's for sure, there won't be any tapering of it's monthly $85 billion bond-buying program. " Even uber-hawk Charles Plosser has called a first move in September, and if he doesn't advocate a July move, it's hard to see anyone in the leadership doing so," said JP Morgan's Michael Feroli. - GDP Mega-Revisions : This week, the Commerce Department will release revised GDP data to include R& D as a category of investment. This will affect every report since 1929. " The net effect could be a 3% upward revision to the level of output," said Deutsche Bank's Joe LaVorgna. " However, of greater significance to us (as well as the Fed and financial markets) will be the change in growth, rather than the outright level. This is what makes Q2 GDP estimates so difficult to forecast. Based on the recent and substantial upward revisions to nonfarm payrolls, we believe the growth rate of GDP will be revised modestly higher over the past several years. This is a separate issue from the overall level being revised higher."
Economic Calendar
- Pending Home Sales (Monday): Economists estimate that the pace of pending home sales fell 1.0% in June month-over-month. " Pending home sales should have decreased by 2.0% mom in June," warned Bank of America Merrill Lynch's Michelle Meyer. " We expect some of the decline in signed contracts for existing homes to be a give-back following a 6.7% surge in May. We could also start to see the impact of rising mortgage rates, which may have deterred some homebuyers, particularly investors and second home buyers."
- Dallas Fed Manufacturing (Monday): Economists estimate this index climbed to 7.3 in July, up from 6.5 a month ago.
- S& P/Case-Shiller Home Prices (Tuesday): Economists estimate the 20-city index climbed 1.4% month-over-month in May and 12.4% year-over-year. " Figures released by data provider CoreLogic suggest that home selling prices remained on an uptrend during May in the twenty cities covered by the S& P/Case- Shiller survey," said Societe Generale's Brian Jones. " We will be paying particular attention to the breadth of price gains in next week’s report. Since last December, all of the metropolitan areas surveyed have posted sequential increases in home selling prices."
- Consumer Confidence (Tuesday): Economists estimate that this confidence index fell to 81.0 in July from 81.4 a month ago. " Boosting confidence should be good news on employment. The June employment report, released during the survey period, surprised to the upside," said Credit Suisse's Neal Soss. " Also, “News Heard on Employment” from the University of Michigan’s consumer survey improved in July."
- ADP Employment Change (Wednesday): Economists estimate the ADP survey will show a 180,000 increase in private payrolls in July. " ADP private payrolls are expected to increase by 160,000 in July, a partial give- back from the pop up to 188,000 in June," said BAML's Ethan Harris who is a bit more cautious than the consensus. " This would bring private payrolls roughly in line with the 6-month moving average of 163,000."
- GDP Q2 (Wednesday): Having said that, economists estimate that GDP grew at a meager 1.0% rate in Q2. Personal consumption is estimated to have climbed by 1.6%. " 2Q13 GDP is expected to be a very low +0.3%, leaving first half growth at only slightly better than 1% annualized, as the economy absorbed the heaviest impact of an estimated 1.7%% of GDP fiscal tightening this year," warned Morgan Stanley's Ted Wieseman who is much more bearish than the consensus.
- Chicago PMI (Wednesday): Economists are looking for a reading of 54.0 in July, up from 51.6 in June. " Regarding the July Chicago PMI, we expect the manufacturing sector to regain some momentum in the back half of the year after suffering from a combination of sequester-related weakness, slowing exports and inventory rebalancing in H1," said Deutsche Bank's Brett Ryan.
- The FOMC Rate Decision (Wednesday): " [This] week's FOMC meeting should prove to be relatively uneventful, with potentially the most interesting aspect being the degree to which they signal the imminence of the first tapering," said JP Morgan's Feroli. " We think that this first tapering comes at the September meeting, and see very low odds of a surprise reduction in asset purchases next week. Even uber-hawk Charles Plosser has called a first move in September, and if he doesn't advocate a July move, it's hard to see anyone in the leadership doing so."
- Initial Jobless Claims (Thursday): Economists estimate that claims ticked up to 344,000 from 343,000 a week ago.
- Markit PMI (Thursday): Economists are looking for a reading of 53.2 in July.
- ISM Manufacturing (Thursday): Economists estimate that this key measure climbed to 52.0 in July, up from 50.9 in June. " For July, we expect the ISM Manufacturing Index to increase slightly to 52.6," said Wells Fargo's John Silvia. " The regional indices released for July so far have indicated that manufacturing improved this month. Although this is an improvement over last month’s figure, our forecast remains consistent with this recovery’s theme of modest, subpar growth and little evidence of the acceleration experienced in previous recoveries."
- Construction Spending (Thursday): Economists estimate that spending climbed by 0.4% in June. " We look for a slowdown in the rate of increase of residential construction spending, reflecting the softening in housing starts of the past few months," said BAML's Meyer. " This should be offset by a gain in renovation spending. "
- Vehicle Sales (Thursday): Analysts estimate that vehicle sales slipped to a still robust 15.8 million in July. " [V]ehicle sales have meaningful upside potential, thereby providing another pillar of support to the manufacturing sector in H2 and into 2014," said Deutsche Bank's Ryan.
- Nonfarm Payrolls (Friday): Economists estimate that the U.S. added 185,000 payrolls in July, up from 195,000 in June. They also expect the unemployment rate to slip to 7.5% from 7.6% in June. " The public sector is likely to continue to gradually shed jobs we forecast a decline of 5,000 public sector workers," said BAML's Harris. " In contrast, the private sector should add 185,000 jobs. Job growth recently has been driven by leisure and hospitality as well as retail trade — two of the sectors with the lowest paying jobs and fewest working hours. This has sparked concern about a poor composition of job growth. "
- Personal Income and Spending (Friday): Economists estimate that income climbed by 0.4% in June, while spending grew by 0.5%. " Personal Income is expected to see a solid +0.5% gain in June given strong growth in aggregate private sector wages and salaries reported in the June employment situation," said Morgan Stanley's Wieseman. " Personal Consumption is also expected to gain a solid +0.5%, supported by a surge in motor vehicle sales to a six-year high, upside in gasoline consumption reflecting both higher prices and volume, and a slight uptick in ex auto retail sales."
- Factory Orders (Friday): Economists estimate that orders climbed by 2.3% in June.
Market Commentary
Despite the sea of uncertainty on the horizon, J.P. Morgan's Tom Lee is bullish.
" With both U.S. and Europe expected to see better growth in [the second half of 2013], we believe the Street will be in a position to raise 2014E EPS," said Lee about stock market profits. " We are raising 2014E EPS to $120 (vs $117) and also raising our YE 2013E S& P 500 Target to 1775 (up 3.5% vs prior 1715)."
Among other things, Lee is encouraged by the pent-up demand he sees in the U.S.
" As for the U.S. and to a lesser extent for Europe, this is more than “easing financial conditions” but a story of pent-up demand," he said. " [I]nvestment/durables spending in the U.S. remains at 60-year lows. And at a time when the age of capital- stock is near record highs. This is a formula, in our view, for obsolescence asserting itself in the form of an eventual sharp rise in spending."
We asked Matthew Cheslock, Equity Trader at Virtu Financial, what we should think about when it comes to China, Europe, and the U.S. Watch the video here:
Read more: http://www.businessinsider.com/monday-scouting-report-july-29-2013-2013-7#ixzz2aPg1GNcs
The Biggest Oil Discovery In 50 Years?
In a virtually uninhabitable section of South Australia, a discovery has been made which could rock the world. Some are calling it the biggest discovery of oil in 50 years. Earlier this year, a company called Linc Energy announced that tests had revealed that there was a minimum of 3.5 billion barrels of oil equivalent sitting under more than 65,000 square kilometres of land that it owns in the Arckaringa Basin. But that is the minimum number. It has been projected that there could ultimately be up to 233 billion barrels of recoverable oil in the area. If that turns out to be accurate, the oil sitting under that land is worth approximately 20 trillion dollars, and it would be roughly equivalent to the total amount of oil sitting under the sands of Saudi Arabia. In essence, it would be a massive game changer.
If the 233 billion barrel figure is accurate (and some have even suggested that the true number could actually be 400 billion barrels), that would make it nearly 10 times larger than the Bakken formation, 17 times larger than the Marcellus discovery and 80 times larger than the Eagle Ford deposit down in Texas.
It would also mean that Australia now has more " black gold" than the nations of Iran, Iraq, Canada and Venezuela.
The closest town to this oil discovery, Coober Pedy, is in the process of being totally transformed. It normally only has about 1,700 inhabitants, but news of this discovery has drawn in 20,000 additional people already and real estate prices in the town are absolutely skyrocketing.
So does all of this mean that gas prices will go down soon?
Well, unfortunately that is not likely to be the case.
First of all, the oil in this formation in Australia is going to be quite expensive to extract. It has been estimated that it is going to cost up to 300 million dollars just to get this site ready for production.
In addition, many of our politicians are absolutely determined to greatly punish the use of oil because they believe that it is the primary cause of global warming. So they continue to raise taxes on gasoline consumption.
Today, motorists in the United States pay an average of 49.5 cents of taxes per gallon of gasoline, and in the state of California motorists pay an average of 71.9 cents of taxes per gallon of gasoline.
Hopefully the price of gasoline will come down a bit over the next few years, but even if it does I would not expect it to come down too much.
But what we can be sure of is that the world is not going to run out of oil any time soon. Those that have been predicting that we are are on the verge of an " energy doomsday" can take a rest for a while.
Sometimes it is funny to look back and remember some of the ridiculous things that our politicians were saying about oil in the old days. For example, U.S. President Jimmy Carter made the following statement back in 1977….
" Unless profound changes are made to lower oil consumption, we now believe that early in the 1980s the world will be demanding more oil than it can produce" .
That prediction didn't exactly work out for him did it?
It is time that the American people were told the truth about our energy situation, and the truth is that we have plenty of energy resources. The following stats have been updated from one of my previous articles...
#1 Back in 1995, the U.S. Geological Survey told the American people that the Bakken Shale formation in western North Dakota and eastern Montana only held 151 million barrels of oil. Today, government officials are admitting that it holds 7.4 billion barrels of recoverable oil, and some analysts believe that the actual number could be closer to 24 billion barrels of oil.
#2 It is estimated that there are 19 billion barrels of recoverable oil in the tar sands of Utah.
#3 It is estimated that there are 86 billion barrels of recoverable oil in the Outer Continental Shelf.
#4 It is believed that there are 800 billion barrels of recoverable oil in the Green River formation in Wyoming.
#5 Overall, the United States is sitting on approximately 1.442 trillion barrels of recoverable oil.
#6 According to the Institute of Energy Research, the United States has an 88 year supply of natural gas.
#7 According to the Institute of Energy Research, the United States has a 169 year supply of oil.
#8 According to the Institute of Energy Research, the United States has a 465 year supply of coal.
#9 Goldman Sachs is predicting that the United States will be the number one oil producing country in the world by the year 2017.
So the bottom line is that we have plenty of energy resources. We do not need to be importing oil from OPEC or anyone else.
But just because we are not going to run out of oil, natural gas or coal any time soon does not mean that we should not be developing alternative energy resources. We should definitely be seeking ways to produce energy more cheaply, more cleanly and more efficiently.
If America does not end up leading the world in developing new forms of energy, we should be ashamed of ourselves. And right now, the Chinese appear to be way ahead of us as far as thorium energy is concerned, and Italian scientists appear to be ahead of our own scientists in developing " cold fusion" technology.
So yes, let's be glad that we are not going to be facing a crippling energy crisis in this generation, but let's also not be complacent. There are lots of new technologies out there just waiting to be developed, and the rewards are going to go to those that are able to develop them first.
REUTERS/Shannon Stapleton
Facebook Inc. CEO Mark Zuckerberg is seen on a screen televised from their headquarters in Menlo Park moments after their IPO launch in New York on May 18, 2012.
STOCKS CLIMB, FACEBOOK SURGES: Here's What You Need To Know
Markets made some small moves today. But the Nasdaq outperformed thanks to a gigantic move in Facebook shares.
First, the scoreboard:
- Dow: 15,555.6, +13.3, +0.0%
- S& P 500: 1,690.2, +4.3, +0.2%
- NASDAQ: 3,605.1, +25.5, +0.7%
And now, the top stories:
- Durable goods orders jumped 4.2% in June, beating expectations for a 1.4% gain. This was largely due to aircraft orders. However, nondefense capital goods orders excluding aircraft (a.k.a. core capex), which is a key indicator of business investment, climbed by a better-than-expected 0.7%. Furthermore, May's core capex number was revised up substantially.
- " The key focus of this report should be on the persistent strength in core capital goods orders ex defense, ex aircraft," said TD Securities' Eric Green. " This feeds directly into our estimates for investment spending and the recent trend has not just been positive, it has been exceptional. These orders rose 0.7% (expected 0.6%) despite an upward revision from 1.1% to 2.2% the prior month. Over the past four months these orders have averaged gains of 1.3%. Coupled with the surge in cap ex intentions six month forward on the Philadelphia survey, this data suggests that a shift higher in investment spending is clearly in the offing."
- Initial jobless claims rose to 343,000 from an upward-revised 336,000 the week before, slightly above consensus estimates for a rise to 340,000. " This week’s data come after the survey period for July payrolls, hence we continue to expect +200k on the headline (+210k private) and a one-tenth decline in the unemployment rate to 7.5%," said Deutsche Bank's Joe LaVorgna.
- Shares Facebook surged 29% after the company announced a monster second quarter with earnings that crushed expectations. " We now have more daily actives on mobile than on desktop," said CEO Mark Zuckerberg. " Soon we'll have more revenue on mobile than on desktop."
- Homebuilders DR Horton and PulteGroup got slammed, falling 8% and 10%, respectively. Managements from both companies pointed to the recent surge in mortgage rates as a cause for cancellations.
- Amazon announces earnings after the closing bell. Follow the release live at BusinessInsider.com.
- Don't Miss: GOLDMAN: Here's Our Outlook For 13 Key Commodities »
Nasdaq likes Facebook's surge, but earnings curb Dow, S& P
Times Square, New York
* Facebook's best daily percentage gain boosts Nasdaq
* Amazon shares fall on results in extended-hours trading
* U.S. jobless claims rise modestly in latest week
* Dow up 0.1 pct, S& P 500 up 0.3 pct, Nasdaq up 0.7 pct
By Alison Griswold
NEW YORK, July 25 (Reuters) - The Nasdaq climbed on Thursday, led by a rally in Facebook a day after its earnings, but the broader market's advance was modest after another round of mixed earnings reports.
Facebook Inc shares scored their biggest daily percentage gain ever - soaring 31.6 percent to a session high of $34.88 a day after the online social network company reported a huge jump in mobile advertising revenue. The stock closed at $34.36, up 29.6 percent, and topped the Nasdaq's list of most actively traded names.
Disappointing earnings in the cyclical sector limited the gains in both the Dow and the S& P 500.
Caterpillar Inc was the biggest drag on the Dow, falling 1.6 percent to $82.14. The stock slid for the second day, extending a selloff that began on Wednesday after the world's largest maker of mining and construction equipment cut its 2013 earnings forecast.
General Motors and Dow Chemical reported profits that exceeded expectations, but that was not enough to help the S& P 500 make a big push into positive territory. GM's stock fell 0.2 percent to $37.08, after touching a two-year high of $37.70. Dow Chemical rose 1.8 percent to $34.99.
Still, the market managed to advance slightly, with nine of the 10 S& P 500 industry sector indexes ending the day higher. Material and utility shares were the best performers, after being among the weakest in Wednesday's session.
" The trend in the market is upward unless there's some active piece of bad news. No news is good news, in that sense," said Brian Gendreau, market strategist with Cetera Financial Group in Gainesville, Florida.
" The earnings aren't really surprising anybody. The corporate sector is strong, and the earnings sector is still pretty strong."
Shortly after the bell, Starbucks released its third-quarter results and its stock jumped 6.8 percent in extended-hours trading. Starbucks ended the regular session at $68.17, up 2.3 percent.
Shares of Amazon.com Inc dropped 2.3 percent in extended-hours trading after the world's largest Internet retailer reported second-quarter earnings and gave a cautious forecast for the third quarter. During regular trading, Amazon's stock rose 1.5 percent to close at $303.40.
The Dow Jones Industrial Average rose 13.37 points, or 0.09 percent, to end at 15,555.61. The Standard & Poor's 500 Index added 4.31 points, or 0.26 percent, to 1,690.25. The Nasdaq Composite Index gained 25.59 points, or 0.71 percent, to close at 3,605.19.
The major U.S. stock indexes have advanced steadily this year. The S& P 500 has climbed 18.5 percent in 2013 after hitting a number of record closing highs along the way. For July, the benchmark index has added 5.2 percent.
With 47 percent of the S& P 500 companies having reported earnings so far, about 68 percent have topped profit forecasts, above the historical average of 63 percent. About 56 percent have reported better-than-expected revenue, a rate that is below the historical average.
TripAdvisor Inc shares vaulted 16.3 percent to $71.10 a day after the company reported a jump in quarterly profit and revenue from its travel website. The stock was the S& P 500's second-biggest percentage gainer.
Natural gas processor Oneok Inc leaped 25.5 percent to $53.77. The stock was the S& P 500's best performer on the day after the company said it would separate its gas distribution business into a standalone publicly traded company called ONE Gas Inc.
On the flip side, homebuilders' shares tumbled and weighed on the S& P 500 after Pulte Group and D.R. Horton reported earnings. Shares of Pulte Group sank 10.3 percent to $16.55, while D.R. Horton's dropped 8.6 percent to $19.38. An index of housing stocks fell 2.5 percent.
In the latest economic snapshot, initial claims for U.S. jobless benefits rose to 343,000 in the latest week from 334,000 in the previous week, the Labor Department said. Economists were looking for a read of 340,000.
New orders for durable goods rose 4.2 percent in June, far stronger than the forecast for a growth rate of 1.3 percent.
About 6.4 billion shares changed hands on U.S. exchanges, on par with the daily average.
Advancers outnumbered decliners on the New York Stock Exchange by a ratio of 17 to 13. On the Nasdaq, about two stocks rose for every one that fell.