Broadgate: Market News 20/2
20 February 2013
U.S. stocks rose on Tuesday as this year’s ongoing surge in merger activity suggested investors were still finding value in the market even as indexes closed in on all-time highs.
Office Depot Inc surged 9.4 percent to $5.02 after a person familiar with the matter said the No. 2 U.S. office supply retailer was in advanced talks to merge with smaller rival OfficeMax Inc, which jumped more than 20 percent.
News of the potential move came just days after Berkshire Hathaway and a partner agreed to acquire H.J. Heinz Co for $23 billion, and following a revised $20 billion takeover of Mexican brewer Grupo Modelo by Anheuser-Busch InBev.
Deal activity has helped equities resist a pullback as investors use dips in stocks as buying opportunities. The S&P is up about 7 percent so far in 2013 and has climbed for the past seven weeks in its longest weekly winning streak since January 2011, though most of the weekly gains have been slim.
The Dow industrials closed 0.9 percent away from their record high while S&P 500 was 2.2 percent off its peak.
“Deals are good for the market,” said Frank Lesh, a futures analyst and broker at FuturePath Trading LLC in Chicago. “The fact that they’re being done is a positive.”
More than $158 billion in deals has been announced so far in 2013, more than double the activity in the same period last year and accounting for 57 percent of global deal volumes, according to Thomson Reuters Deals Intelligence.
The Dow Jones industrial average gained 53.91 points, or 0.39 percent, to 14,035.67. The Standard & Poor’s 500 Index gained 11.15 points, or 0.73 percent, to 1,530.94. The Nasdaq Composite Index gained 21.56 points, or 0.68 percent, to 3,213.59.
Other stocks in the office supplies sector also rose. Larger rival Staples Inc shot up 13.1 percent to $14.65 as the best performer on the S&P 500.
“Equity investors have to be encouraged by M&A since, if the number crunchers are offering large premiums, that shows how much value is still in the market,” said Mike Gibbs, co-head of the equity advisory group at Raymond James in Memphis, Tennessee.
On the downside, health insurance stocks tumbled, led by a 6.4 percent drop in Humana Inc to $73.01. The company said the government’s proposed 2014 payment rates for Medicare Advantage participants were lower than expected and would hurt its profit outlook.
UnitedHealth Group lost 1.2 percent to $56.66. The Morgan Stanley healthcare payor index dropped 1.2 percent.
Wall Street’s strong start to the year was fueled by better-than-expected corporate earnings, as well as a compromise in Washington that temporarily averted automatic spending cuts and tax hikes that are predicted to damage the economy.
The compromise on across-the-board spending cuts postponed the matter until March 1, at which point the cuts take effect. Ahead of the debate over the cuts, known as sequestration, further gains for stocks may be difficult to come by.
Some investors say the debate could be the catalyst for a long anticipated sell-off after the market’s recent strong run.
Carter Worth, a technical analyst at Oppenheimer, pointed to the “especially complacent action of the past six weeks,” noting that, as of Friday, stocks have gone 33 sessions without a dip of more than 1.5 percent.
“We would be selling aggressively into the market’s current strength,” he said in a research note.
Economic data showed the NAHB/Wells Fargo Housing Market index unexpectedly edged down to 46 in February from 47 in the prior month as builders faced higher material costs.
According to the Thomson Reuters data through Monday morning, of the 391 companies in the S&P 500 that have reported results, 70.1 percent have exceeded analysts’ expectations, compared with a 62 percent average since 1994 and 65 percent over the past four quarters.
Fourth-quarter earnings for S&P 500 companies have risen 5.6 percent, according to the data, above a 1.9 percent forecast at the start of the earnings season.
Express Scripts rose 2.5 percent to $56.98 after the pharmacy benefits manager posted fourth-quarter earnings.
About two stocks rose for everyone that fell on the New York Stock Exchange and Nasdaq. About 6.48 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, in line with the daily average so far this year.
The yen edged higher versus the dollar on Wednesday due to uncertainty over how aggressively Japan will ease monetary policy following signs of a rift among Japanese officials over the strategy.
Market players said the yen’s recent decline may slow in the near term, due partly to doubts whether an idea will be adopted for the Bank of Japan to buy foreign bonds to provide monetary stimulus.
In addition, analysts said Japanese policymakers may become more cautious when talking about the yen, following a meeting of G20 policymakers in Moscow at the weekend.
“I think the pace of yen depreciation will slow,” said Sim Moh Siong, FX strategist for Bank of Singapore.
“In light of the G20 statement to avoid competitive devaluation, it will be difficult to talk down the yen specifically. I think the onus now is on policy to do the work,” he added.
While the G20 meeting had not singled out Tokyo as manipulating currencies to gain a competitive edge, the G20 also said its members would refrain from competitive devaluation.
The dollar slipped 0.1 percent to 93.55 yen, staying below a 33-month high of 94.465 yen set on February 11 on trading platform EBS.
“I think there will be some range trading for a while,” said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore, adding that the dollar hold between 92.50 and 95.50 yen over the next couple of weeks.
The greenback had firmed against the yen earlier in the week after Japan escaped direct criticism from its G20 peers on its bold reflationary plans.
But the dollar faltered versus the yen on Tuesday after Japanese Finance Minister Taro Aso said he was not considering buying foreign bonds as part of efforts to ease monetary policy. Aso’s comments had come a day after Prime Minister Shinzo Abe said this was an option.
Market players are also waiting for more clarity on the government’s choice for the next Bank of Japan governor to replace Masaaki Shirakawa.
A delay in nominating a new BOJ governor has fanned talk of friction between Japan’s prime minister and finance minister over who should run a central bank charged with taking aggressive action to beat deflation.
The prime minister earlier had been expected to make a nomination this week, but Economics Minister Akira Amari said on Tuesday the government would not nominate a governor until after Abe returns from a trip to the United States on February 21-24.
EURO RISES; KIWI SLIDES
The euro rose 0.2 percent to $1.3413, gaining a boost after data on Tuesday showed a strong improvement in German economic sentiment.
The ZEW index rose to its highest since April 2010, beating even the highest forecast in a Reuters poll.
Against the yen, the euro edged up 0.1 percent to 125.39 yen. The single currency had climbed to 127.71 yen on February 6, its strongest level versus the Japanese currency since April 2010.
The New Zealand dollar slid 0.8 percent to $0.8404 after Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler said the New Zealand dollar was significantly overvalued compared to its economic fundamentals.
Wheeler also said RBNZ was ready to intervene in FX markets when circumstances were right.
The kiwi had climbed to $0.8534 on Friday, its strongest level since September 2011.
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