Fed minutes show bond-buy debate
Paul Vigna and Jon Hilsenrath discuss the minutes from the Federal Open Market Committee, and Spencer Ante looks at the possibility of a deeper partnership between Apple and Yahoo.
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|London Market Report|
Investors brush aside FOMC minutes, look to Bernanke
techMARK 2,380.03 +1.10%
FTSE 100 6,387.37 +1.17%
FTSE 250 13,794.28 +1.44%
UK equities finished Wednesday close to their best levels of the day despite the pre-release of the minutes of the Federal Reserve Open Market Committee's (FOMC) last rate setting meeting, which at first glance seemed to show US monetary policy makers taking another step closer to quantitative easing.FTSE 100: Airlines and miners provide a lift
Traders however are wondering if last Friday’s by some accounts dismal jobs report does not beg the question of whether those minutes are now dated.
For Bill Hubbard, Chief Economist at Markets.com, the answer should be in the affirmative.
In a written reply to interview questions sent by Sharecast he said: “First, Bernanke has already spoken this week and reassured markets that he will not abruptly tighten policy. Second, last week’s softer-than-expected employment report has led investors to push out their expected timing of a start to tapering. Indeed, our US economists have long held the view that tapering will be a story for 2014.”
Acting as a backdrop, President Barack Obama submitted his proposed 2014 budget to Congress.
In parallel, investors were shrugging off a surprise trade deficit in China in March, as the data showed a strong rebound in imports. Export growth, however, was weak. Nevertheless, there is a lingering suspicion that the last few months’ worth of data was overstated.
In fact, and on the above point, economists at Nomura pointed out to clients that this is probably still the case although they are not sure of the reason why there has been a sudden surge. Amongst the difficult-to-explain data points is the fact that China‟s exports to Hong Kong, which accounted for 27% of the total, soared by 93% y-o-y in March, exceeding the already high growth of 61% in Jan-Feb, they explained.
Lastly, mention must be made that the European Commission itself today criticised the fact that Spain’s adjustment is “running out of steam.” On the other side of this debate, European Central Bank Governing council member Jorg Asmussen today reiterated the urgency of finalising a banking union, something which is anathema to some ‘core’ countries.
Budget airline easyJet surged from the ‘get-go’ after Citigroup upgraded the stock to 'buy' and raised its target from 980p to 1,210p, saying that it expects strong profit growth and continued market-share gains this year.FTSE 250: AZ Electronic rebounds…slightly
Sector peer IAG also performed well after Credit Suisse kept its 'outperform' recommendation for the shares, saying that the pending acquisition of Vueling would "represent another significant positive step towards driving profitability in Spain".
Mining stocks were on the up on hopes over Chinese domestic demand with Vedanta, EVRAZ, ENRC and Rio Tinto making decent gains. Vedanta was leading the way after reporting an increase in full-year production across oil and gas, copper, aluminium, lead and silver. Today’s In that regard, today’s Chinese import data was reassuringly solid.
Polymetal also rose after completing its acquisition of the Maminskoye gold deposit in the Sverdlovks region of Russia which it hopes will have "substantial exploration upside".
Supermarket group Morrison was lower on reports that it could be cutting up to 700 back-office jobs.
Engineering firm IMI was also among the fallers after going ex-dividend.
Shares in chemicals group AZ Electronic Materials surged by 14%, though this only slightly made up for the near-35% slump yesterday after a profit warning. UBS upgraded the stock from 'neutral' to 'buy' this morning, saying that yesterday's sell-off was overdone and that the investment case remains intact.
Engineer WS Atkins was also on the rise after saying that full-year results would come in ahead of expectations thanks to stronger second-half margins in the UK and US.
|UK Event Calendar|
FTSE 100 - Risers
easyJet (EZJ) 1,090.00p +6.65%
International Consolidated Airlines Group SA (CDI) (IAG) 250.90p +5.78%
Vedanta Resources (VED) 1,179.00p +5.65%
CRH (CRH) 1,430.00p +4.84%
Barclays (BARC) 298.25p +4.28%
Royal Bank of Scotland Group (RBS) 285.40p +4.20%
Evraz (EVR) 209.70p +4.07%
Eurasian Natural Resources Corp. (ENRC) 269.90p +3.81%
Prudential (PRU) 1,066.00p +3.60%
Standard Life (SL.) 340.90p +3.55%
FTSE 100 - Fallers
Fresnillo (FRES) 1,323.00p -2.29%
Randgold Resources Ltd. (RRS) 5,340.00p -2.20%
Tullow Oil (TLW) 1,167.00p -1.68%
BG Group (BG.) 1,122.50p -0.71%
Glencore International (GLEN) 357.50p -0.28%
Anglo American (AAL) 1,695.00p -0.26%
Xstrata (XTA) 1,074.50p -0.19%
Croda International (CRDA) 2,697.00p 0.00%
InterContinental Hotels Group (IHG) 1,923.00p +0.10%
British Sky Broadcasting Group (BSY) 864.00p +0.12%
FTSE 250 - Risers
AZ Electronic Materials SA (DI) (AZEM) 273.60p +14.00%
Paragon Group Of Companies (PAG) 329.80p +6.56%
Supergroup (SGP) 682.50p +5.57%
Halfords Group (HFD) 333.30p +5.44%
Barratt Developments (BDEV) 280.80p +5.01%
3i Group (III) 325.20p +4.63%
International Personal Finance (IPF) 448.80p +4.59%
FirstGroup (FGP) 215.80p +4.40%
Carillion (CLLN) 288.50p +4.30%
Kazakhmys (KAZ) 410.40p +4.29%
FTSE 250 - Fallers
Hochschild Mining (HOC) 280.00p -3.15%
RPS Group (RPS) 266.60p -2.77%
Berendsen (BRSN) 747.50p -2.67%
Morgan Advance Materials (MGAM) 280.00p -2.61%
Ophir Energy (OPHR) 439.10p -2.53%
Barr (A.G.) (BAG) 540.00p -2.35%
New World Resources A Shares (NWR) 210.00p -2.33%
Amlin (AML) 415.80p -2.05%
Moneysupermarket.com Group (MONY) 182.70p -2.04%
PayPoint (PAY) 896.00p -1.81%
FTSE TechMARK - Risers
RM (RM.) 79.00p +3.27%
Xaar (XAR) 420.00p +2.19%
Gresham Computing (GHT) 79.75p +1.59%
BATM Advanced Communications Ltd. (BVC) 19.00p +1.33%
Torotrak (TRK) 30.00p +1.27%
Ark Therapeutics Group (AKT) 0.45p +1.12%
Vislink (VLK) 31.00p +0.40%
Ricardo (RCDO) 422.00p +0.24%
Innovation Group (TIG) 25.00p 0.00%
Triad Group (TRD) 5.50p 0.00%
FTSE TechMARK - Fallers
Filtronic (FTC) 60.62p -3.77%
Phytopharm (PYM) 1.30p -3.70%
Vectura Group (VEC) 79.00p -3.36%
Oxford Biomedica (OXB) 1.62p -2.99%
Emblaze Ltd. (BLZ) 57.50p -1.71%
CML Microsystems (CML) 406.00p -1.69%
Optos (OPTS) 146.25p -1.18%
Kofax (KFX) 301.50p -1.15%
Consort Medical (CSRT) 783.00p -0.76%
Wolfson Microelectronics (WLF) 170.00p -0.58%
|Europe Market Report|
European Markets Climbed On Chinese Economic Data
The European markets finished Wednesday's trading session solidly in positive territory. Investor sentiment was boosted after China unexpectedly reported a trade deficit for March amid a surge in imports and a weaker expansion in exports. Investors also had an unexpected opportunity to react to the minutes from the most recent U.S. FOMC meeting, which were released 5 hours earlier than anticipated. Banks and mining stocks were among the best performers on Wednesday.
China unexpectedly reported a trade deficit for March amid a surge in imports and a weaker expansion in exports, official data showed Wednesday. Separately, Fitch Ratings downgraded the country's local currency sovereign rating on Tuesday, citing surging credit growth in the country.
The General Administration of Customs said that the trade balance turned to a deficit of $884 million in March, belying expectations for a surplus of $15.15 billion. In February, the balance was in a surplus of $15.23 billion.
Some members of the Federal Reserve's rate setting board fear the central bank could be going to too far in support of the U.S. economy, the minutes of the most recent Fed meeting revealed Wednesday morning.
At the culmination of a two-day meeting ending March 20, the Fed decided to continue purchases of mortgage-backed securities at a pace of $40 billion per month and purchases of longer-term Treasury securities at a pace of $45 billion per month.
While most Federal Open Market Committee officials think it is too soon for the Fed to consider halting its massive bond buying program, some are concerned that such aggressive action risks inflation that will be difficult to contain once the economy is on more solid footing.
Spain and Slovenia face "excessive imbalances" in their economies than other eleven European countries, the European Commission warned on Wednesday.
In a report published on Wednesday, after an in-depth review of 13 EU countries, the commission said the very high domestic and external debt continue to pose serious risks for Spanish growth and financial stability.
The Euro Stoxx 50 index of eurozone bluechip stocks increased by 2.57 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, added 1.67 percent.
The DAX of Germany climbed by 2.27 percent and the CAC 40 of France advanced by 1.99 percent. The FTSE 100 of the U.K. rose by 1.17 percent and the SMI of Switzerland gained 1.53 percent.
In Frankfurt, EON gained 3.84 percent. Morgan Stanley upgraded the stock to ''Equalweight'' from ''Underweight.'' Commerzbank and Deutsche Bank added 4.41 percent and 4.53 percent, respectively. Credit Suisse downgraded Continental to ''Neutral'' from ''Outperform.'' The stock finished up by 3.04 percent.
Daimler, which affirmed its long-term strategy and goals, rose by 3.81 percent. SolarWorld surged by 9.54 percent and SMA Solar leaped by 8.92 percent.
Gerresheimer advanced by 2.61 percent. The drug delivery devices maker reported a higher first-quarter profit, as revenue growth of 10 percent was boosted by strong organic growth in its Plastic Systems division.
Stada declined by 0.12 percent, following a broker downgrade.
In Paris, Societe Generale increased by 6.12 percent. Credit Agricole and BNP Paribas added 6.16 percent and 5.33 percent. GDF Suez climbed by 3.37 percent, after a ratings upgrade at Morgan Stanley. Credit Suisse downgraded Michelin to ''Neutral'' from ''Outperform.'' The stock finished lower by 0.41 percent.
Air France-KLM surged by 6.73 percent, reportedly on a broker upgrade. France Telecom finished higher by 1.45 percent, after Goldman Sachs placed the stock on its Conviction Sell list.
In London, mining stocks received a boost from economic data out of China. Eurasian Natural Resources climbed by 3.81 percent and Vedanta Resources added 5.65 percent. Additionally, Vedanta also reported higher oil and gas production for the fourth quarter.
EasyJet increased by 6.65 percent. Citigroup upgraded the stock to ''Buy'' from ''Neutral.'' Barclays advanced by 4.28 percent and Royal Bank of Scotland gained 4.20 percent. Lloyds Banking finished higher by 2.50 percent.
|US Market Report|
Rally On Wall Street Lifts S&P 500 To New Record High
Stocks have moved sharply higher over the course of the trading day on Wednesday, lifting the S&P 500 to a new record intraday high. The markets have benefited from a positive reaction to trade data out of China as well as the minutes of the latest Federal Reserve meeting.
The major averages are currently posting strong gains, near their best levels of the day. The Dow is up 127.34 points or 0.9 percent at 14,800.80, the Nasdaq is up 51.63 points or 1.6 percent at 3,289.49 and the S&P 500 is up 1.688 points or 1.1 percent at 1,585.49.
The rally on Wall Street is partly due to a report from Chinese Customs showing a much bigger than annual rate of growth in Chinese imports, with the data generating optimism about domestic demand in the world's most populous country.
The report showed that Chinese imports jumped 14.1 percent in March, more than double the pace of growth expected by economists.
On the other hand, the report also showed that the pace of export growth slowed to 10 percent in March, coming in below economist estimates.
"China's exports cooled last month, correcting the surprisingly strong growth seen earlier this year," Capital Economics said in a research note. "By contrast, imports beat expectations, and the increase appears to have been driven by stronger domestic demand."
The firm added, "That said, with the lingering concerns about property markets depressing commodity demand and few signs that household spending is picking up, this momentum is unlikely to be sustained."
Traders have also reacted positively to the minutes of the latest Federal Reserve meeting, which were released well ahead of schedule.
The minutes suggested that the central bank will maintain its asset purchase program at the current pace until at least the middle of the year.
Networking stocks are turning in some of the market's best performances amid the broad based rally, with the NYSE Arca Networking Index surging up by 3.5 percent. The index is climbing further off the three-month closing low that it set last Friday.
Adtran (ADTN) has helped to lead the networking sector higher, with the networking equipment maker jumping by 13.5 percent after reporting better than expected first quarter results.
Significant strength has also emerged among brokerage stocks, as reflected by the 2.3 percent gain being posted by the NYSE Arca Broker/Dealer Index. With the gain, the index has risen to its best intraday level in almost two years.
Most of the other major sectors have also shown strong moves to the upside on the day, with semiconductor, biotech, and oil service stocks posting standout gains.
On the other hand, gold stocks are bucking the uptrend amid a notably decrease by the price of the precious metal. With gold for June delivery falling $17.50 to $1,569.20 an ounce, the NYSE Arca Gold Bugs Index is down by 3.4 percent.
Healthcare provider stocks are also seeing weakness on the day, with Health Management Associates (HMA) leading the way lower after providing disappointing first quarter guidance.
In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan's Nikkei 225 Index advanced by 0.7 percent, while Hong Kong's Hang Seng Index ended the day up by 0.8 percent.
In the bond market, treasuries have come under pressure, pulling back further off last week's highs. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 4.9 basis points at 1.796 percent.
IAG, easyJet, AZ Electronic Materials
Credit Suisse has reiterated its 'outperform' rating and 295p target for British Airways and Iberia owner IAG after Vueling's board recommended its 9.25 euros-per-share offer.
"Following recent restructuring progress with Iberia staff, the acquisition of Barcelona-based Vueling would represent another significant positive step towards driving profitability in Spain," said analyst Neil Glynn.
The share price of budget airline easyJet received a boost on Wednesday by Citigroup which upgraded its rating for the stock, saying that it expects strong profit growth and continued market-share gains this year.
Citi has lifted its recommendation from 'neutral' to 'buy' and hiked its price target from 1,022p to 1,210p. The broker said that the new target is based on a price-to-earnings multiple of 14, up from 12 previously, to reflect the recent market re-rating.
The initial share-price reaction to AZ Electronic Material's profit warning on Tuesday was overdone, according to UBS which upgraded the firm from 'neutral' to 'buy', saying that the investment case remains intact.
AZ continues to have a "robust pipeline" of new products and remains the leader - despite increase competition - in many of its markets, the broker said. Furthermore, the stock's valuation is now "strongly supportive", with shares trading at 10.6 times 2014 earnings, a discount to the 14.6 sector-average multiple.