Major Deals Not Enough to Spin the Bulls’ Wheels
US stocks remain lower in late-morning trading despite some major M&A announcements, headlined by Duke Energy Corp agreeing to acquire Progress Energy Inc for about $13.7 billion, and Dow member DuPont entering into a definitive agreement to acquire Danish specialty food ingredients company Danisco for $5.8 billion. Policy-tightening concerns in China and India pressured trading in Asia, while resurfacing euro-area debt fears are weighing on European markets and are setting the negative tone on the Street. Treasuries are higher in morning action as there are no major economic reports due out today, but the week will produce reads on inflation, national economic activity, and retail sales. Meanwhile, Dow member Alcoa is expected to report earnings after the closing bell today, unofficially kicking off 4Q earnings season. In other equity news, Strayer Education Inc is sharply lower after reporting that its new enrollment for the winter term fell 20% compared to last year.
At 10:53 a.m. ET, the Dow Jones Industrial Average is down 0.5%, the S&P 500 Index is declining 0.4%, and the Nasdaq Composite is decreasing 0.5%. Crude oil is up $1.41 at $89.44 per barrel, wholesale gasoline is gaining $0.05 to $2.46 per gallon, and the Bloomberg gold spot price is up by $0.80 at $1,370.38 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is unchanged at 80.98.
M&A news is dominating the equity headlines, with Duke Energy Corp. (DUK $17) reaching an agreement to acquire Progress Energy Inc. (PGN $44) in a stock-for-stock transaction that will create the nation’s largest utility, with PGN shareholders receiving 2.6125 common shares of DUK, a value of $46.48 per share or $13.7 billion. Both companies’ Boards of Directors have unanimously approved the merger agreement and the transaction is expected to be accretive to adjusted earnings in the first year. Shares of both firms are lower.
Elsewhere, Dow member DuPont (DD $50) announced that it has entered into a definitive agreement to acquire Danish specialty food ingredients company Danisco (DNSCY $14) for $5.8 billion in cash and the assumption of $500 million in debt. DD said the deal would establish it as a “clear leader” in industrial biotechnology that address global challenges in food production and reduced fossil fuel consumption. DD is lower, while DNSCY is sharply higher.
Outside of M&A activity, Strayer Education Inc. (STRA $117) is down over 20% after the for- profit education firm announced that new enrollments for the 2011 winter term fell approximately 20% year-over-year (y/y). The company cut its 2011 forecasts as a result of the enrollment data and cited negative publicity and new government regulations for the drop in enrollment and lowered outlook.
Back-end loaded economic calendar for the week
Treasuries are higher in late-morning action amid the decline in the equity markets, with the yield on the two-year note down 2 bps to 0.58%, the yield on the 10-year note 3 bps lower at 3.30%, and the 30-year bond yield is off 1 bp at 4.48%. However, the Chicago Purchasing Managers Index was revised lower than previously estimated, from 68.6 to 66.8, due to lower-than-initially reported increases in new orders, prices paid, production, inventories and employment all being revised lower.
Although there are no major releases scheduled for today’s docket, the week’s economic calendar starts with tomorrow’s release of the Federal Reserve Beige Book, wherein Fed staffers summarize anecdotal economic data from all twelve Federal Reserve districts in preparation for the next Federal Open Market Committee (FOMC) meeting scheduled for January 25-26. The minutes from the last FOMC meeting showed increased confidence regarding the economic recovery, but continued concerns about the slow pace of job growth.
However, the bulk of the major economic data will come in the second-half of the week as Thursday will bring the Producer Price Index (PPI), expected to show prices at the wholesale level rose 0.8% month-over-month (m/m) in December, the same rate as in November, while the core rate, which excludes food and energy, is expected to increase 0.2% after advancing 0.3% the prior month. The release precedes Friday’s report on the Consumer Price Index (CPI), forecasted to show a 0.4% m/m increase in December after inching 0.1% higher in November, while ex-food and energy, it is expected to again rise 0.1%. On a y/y basis, the CPI is expected to increase 1.3% at the headline level and 0.7% at the core level. Friday also brings the December reading on industrial production, expected to rise 0.5% m/m after gaining 0.4% in November, and capacity utilization is forecasted to increase to 75.6% from 75.2% in November.
Meanwhile, the highlight of the economic docket may be the release of advance retail sales on Friday, forecasted to rise 0.8% m/m in December, after gaining the same amount in November, while sales ex-autos are estimated to grow 0.7% after advancing 1.2% in November. Same-store sales results - sales at stores open at least a year - reported by retailers were lower than expected, as some spending was seen to have taken place earlier than normal, in November, and the East Coast snowstorm affected after-Christmas sales. The retail sales report includes spending at supermarkets and gas stations.
Other releases on this week’s US economic calendar include: the NFIB Small Business Optimism Index, wholesale inventories, the Import Price Index, MBA Mortgage Applications, initial jobless claims, the trade balance, the University of Michigan Consumer Sentiment Index and business inventories.
Debt concerns remerge to pressure Europe
The equity markets in Europe remain lower in late-day action, led by weakness in financials as euro-area debt concerns continue to resurface, exacerbated by reports that pressure in the euro-zone is mounting for Portugal to seek bailout funds from the European Union. Last week, a jump in the cost of some peripheral euro-area nations to raise capital brought the region’s debt crisis back to the forefront of sentiment and today’s report is amplifying the uneasiness.
The festering debt concerns are overshadowing some major M&A announcements, with Danisco sharply higher after the announcement that it will be acquired by DuPont for nearly $6 billion, and shares of Smith & Nephew Plc. (SNN $57) jumping on reports that it rejected a near $11 billion takeover offer from Dow member Johnson & Johnson (JNJ $62). None of the entities involved have commented on the reports. Economic news across the pond is taking a backseat to the debt concerns and M&A news, as reports showing industrial production in France grew much more than economists anticipated and UK home prices fell more than three times forecasts are having little impact on trading in overseas.
The UK FTSE 100 Index is down 0.3%, France’s CAC-40 Index is falling 1.4%, Germany’s DAX Index is dropping 1.2%, and Portugal’s PSI 20 Index is decreasing 1.5%.
Asia mostly lower on policy concerns and disappointing US jobs data
Stocks in Asia finished lower in most major markets on the heels of Friday’s disappointing US labor report, while concerns toward possible policy tightening in China and India weighed on stocks in the region. However, action was lighter than usual with Japanese markets closed for a holiday. China’s Hong Kong Hang Seng Index declined 0.7% and the Shanghai Composite Index fell 1.7% on reports the government may institute property taxes to help combat the formation of asset bubbles in the real estate market. The declines also followed a report over the weekend that showed China’s trade surplus narrowed by a larger amount than anticipated in December, as the nation’s import growth grew more than expected, while export growth came in below expectations. Also, India’s BSE Sensex 30 Index dropped 2.4% to lead the downward move in Asia as speculation grew that India’s central bank may raise interest rates at its policy meeting later this month. However, Australian stocks managed to eke out a gain, with the S&P/ASX 200 Index rising 0.2%, despite continued weakness in insurance providers due to concerns about the impact of recent severe flooding in the region. A report showing Australian retail sales grew 0.3% m/m in November, after falling 0.8% in October, aided the slight advance, while the strong import growth in China also helped offset concerns about the impact of flooding in the nation. Elsewhere, South Korea’s Kospi Index decreased 0.3%.
Debt concerns remerge to pressure Europe
The equity markets in Europe remain lower in late-day action, led by weakness in financials as euro-area debt concerns continue to resurface, exacerbated by reports that pressure in the euro-zone is mounting for Portugal to seek bailout funds from the European Union. Last week, a jump in the cost of some peripheral euro-area nations to raise capital brought the region’s debt crisis back to the forefront of sentiment and today’s report is amplifying the uneasiness.
The festering debt concerns are overshadowing some major M&A announcements, with Danisco sharply higher after the announcement that it will be acquired by DuPont for nearly $6 billion, and shares of Smith & Nephew Plc. (SNN $57) jumping on reports that it rejected a near $11 billion takeover offer from Dow member Johnson & Johnson (JNJ $62). None of the entities involved have commented on the reports. Economic news across the pond is taking a backseat to the debt concerns and M&A news, as reports showing industrial production in France grew much more than economists anticipated and UK home prices fell more than three times forecasts are having little impact on trading in overseas.
The UK FTSE 100 Index is down 0.3%, France’s CAC-40 Index is falling 1.4%, Germany’s DAX Index is dropping 1.2%, and Portugal’s PSI 20 Index is decreasing 1.5%.
Asia mostly lower on policy concerns and disappointing US jobs data
Stocks in Asia finished lower in most major markets on the heels of Friday’s disappointing US labor report, while concerns toward possible policy tightening in China and India weighed on stocks in the region. However, action was lighter than usual with Japanese markets closed for a holiday. China’s Hong Kong Hang Seng Index declined 0.7% and the Shanghai Composite Index fell 1.7% on reports the government may institute property taxes to help combat the formation of asset bubbles in the real estate market. The declines also followed a report over the weekend that showed China’s trade surplus narrowed by a larger amount than anticipated in December, as the nation’s import growth grew more than expected, while export growth came in below expectations. Also, India’s BSE Sensex 30 Index dropped 2.4% to lead the downward move in Asia as speculation grew that India’s central bank may raise interest rates at its policy meeting later this month. However, Australian stocks managed to eke out a gain, with the S&P/ASX 200 Index rising 0.2%, despite continued weakness in insurance providers due to concerns about the impact of recent severe flooding in the region. A report showing Australian retail sales grew 0.3% m/m in November, after falling 0.8% in October, aided the slight advance, while the strong import growth in China also helped offset concerns about the impact of flooding in the nation. Elsewhere, South Korea’s Kospi Index decreased 0.3%.
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