Evening Market Update

 

 

Stocks Finish Black Friday in the Red

The US equity markets finished the holiday-abbreviated session to the downside, although off the lowest levels of the day, as continuing tension between North and South Korea and persistent euro-debt concerns continue to plague market sentiment. On the domestic front, focus was on retailers as the holiday shopping season appeared to get off to a hot start, as shoppers were out in full force on “Black Friday.” Treasuries finished the session higher and the US dollar also gained ground amid the global concerns. Equity news was fairly quiet, highlighted by an announcement that Del Monte Foods Co. agreed to be acquired by a group of private equity funds led by Kohlberg Kravis Roberts & Co. L.P. for about $4 billion. Europe finished lower on concerns toward Portugal and Spain.

The Dow Jones Industrial Average fell 95 points (0.9%) to 11,092, the S&P 500 Index declined 9 points (0.7%) to 1,189, and the Nasdaq Composite lost 9 points (0.3%) to 2,535. In light volume, 428 million shares were traded on the NYSE and 614 million shares were traded on the Nasdaq. Crude oil fell $0.14 to $83.72 per barrel, wholesale gasoline gained $0.06 to $2.22 per gallon, and the Bloomberg gold spot price lost $16.60 at $1,358.75 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was 0.8% higher at 80.37. For the week, including dividends, the DJIA fell 1.0%, the S&P 500 Index lost 0.8%, and the Nasdaq Composite advanced 0.7%.

The retail sector was in focus today as “Black Friday,” a day of deep discounting and extended hours of operation by retailers, which refers to the time of the year when retailers finally turn a profit or “move into the black,” kicking off the holiday shopping season. The National Retail Federation is estimating as many as 138 million shoppers will hit the stores during the Black Friday weekend, four million more than last year and the most since records began to be compiled in 2006, according to the Wall Street Journal. Some retailers have expanded their hours for the occasion and more shoppers are turning to the internet for their shopping needs. CNBC reported that Coremetrics calculated that US online sales were up 10% year-over-year (y/y) on Thanksgiving.

Del Monte Foods Co. (DLM $19) reached a definitive agreement to be acquired by a group of private equity funds led by Kohlberg Kravis Roberts & Co. L.P. (KKR $13) for $19.00 per share in cash, for a total value of $5.3 billion, including the assumption of about $1.3 billion in debt. The deal is expected to close by the end of March 2011. DLM traded higher, while KKR finished lower.

US economic calendar dormant, sentiment shows mixed emotions for the short week

Treasuries finished higher amid the continued uneasiness toward the debt crisis in Europe and growing tensions between North and South Korea, while the US economic calendar was void of any major releases today. The yield on the two-year note fell 2 bps to 0.51%, the yield on the 10-year note lost 4 bps to 2.86%, and the 30-year bond yield declined 7 bps to 4.21%.

Sentiment and the major equity markets have been mixed in the Thanksgiving holiday-shortened week, with cheer coming from the US economic calendar as weekly initial jobless claims fell sharply, the University of Michigan’s Consumer Sentiment Index improved by a much larger amount than forecasted, and personal income and spending increased. Moreover, US 3Q GDP was revised to a larger amount of expansion than economists’ had anticipated. However, fears of debt contagion in the euro-area, as Ireland agreed receive financial assistance from the European Union (EU) and International Monetary Fund’s (IMF) near $1 trillion rescue facility, and geopolitical concerns in Korea have kept enthusiasm in check for the week, with the holiday-induced, lighter-than-usual volume possibly amplifying the moves in the markets.

Sentiment weighed by European debt concerns and Korean tension 

Stocks in Europe traded lower as festering geopolitical concerns out of Korea were exacerbated by continued uneasiness toward the debt crisis across the pond. However, the major markets finished well off of the worst levels of the day. Financials led the decline in Europe as the focus was on the potential debt contagion in Portugal and Spain. The Portuguese government denied media reports that the debt-laden nation is under pressure from euro-zone countries and the European Central Bank to seek a bailout from the EU and IMF rescue fund, such as what Greece and Ireland have already done. A spokesman for the Portuguese government said the report is “completely false,” and Lisbon has passed an austere 2011 budget that it hopes can deliver tough spending cuts to ward off the euro-zone debt crisis, per Reuters. Portugal’s 2011 budget was approved today and brought another 5 billion euros in savings, including public sector wage cuts as well as an increase in the Value Added Tax (VAT), aimed at trimming that deficit to 4.6% of GDP next year from 7.3% this year. Moreover, Spain is denying bailout speculation, with Prime Minister Jose Luis Rodriguez Zapatero saying there is no chance the country will need outside help to manage its finances and the country has no plans to introduce extra fiscal measures, per Reuters.

The economic calendar in Europe provided some reports worth noting, headlined by German consumer prices unexpectedly rising month-over-month (m/m) in November, along with a separate reading showing the nation’s import prices surprisingly fell. Also, France reported a larger-than-forecasted drop in consumer spending m/m in October, while the number of jobseekers fell the most in two years in October, indicating an increase in hiring.

The UK FTSE 100 Index was 0.5% lower, France’s CAC-40 Index was down 0.8%, Germany’s DAX Index declined 0.5%, Spain’s IBEX 35 Index fell 1.8%, Portugal’s PSI 20 Index declined 0.6%, Greece’s Athex Composite Index decreased 0.3%, while Ireland’s Irish Overall Index advanced 0.5%.

The major story being followed in Asia/Pacific was the growing tension between North and South Korea, which exchanged fire earlier this week. Reports from North Korea said scheduled exercises that the South Korean and US militaries are set to conduct this month will take the peninsula to the “brink of war.” Sentiment in China was exacerbated by a report from the Shanghai Securities News that the Chinese government may cut the target for new lending next year, per Bloomberg. In other economic news, Japan’s consumer prices rose 0.2% y/y October, matching economists’ expectations, while excluding fresh food and energy, Japan’s core consumer prices fell 0.8% y/y, compared to the decline of 0.9% that was expected. Also, Hong Kong’s trade deficit narrowed by a smaller amount than expected in October, as imports outpaced exports.

Jobs, recovery outlook by Fed and purchasing managers in view

Next week brings a slew of economic news, starting slowly with Tuesday’s S&P/CaseShiller Home Price Index, which lags the sales data by a month, anticipated to show a 1.0% rise year-over-year (y/y) in September, while falling 0.4% month-over-month (m/m). Wednesday heats up with the release of the ISM Manufacturing Index, forecasted to decrease to 56.5 in November after unexpectedly increasing to 56.9 in October, and the ISM Non-Manufacturing Index, to be released on Friday, anticipated to increase to 54.7 in November after rising more than expected in October to 54.3.

Meanwhile, Wednesday also brings the 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 December 14. The minutes from the last FOMC meeting showed disagreement about the longer-term outlook for employment and inflation, the two mandates of the Fed, as well as the impact and necessity of the new $600 billion asset purchase program.

In addition to the Fed’s assessment of the economy and job implications, the employment components of the ISM surveys, the ADP Employment Change, and initial jobless claims, the final and most comprehensive reading on jobs for the week will be Friday’s nonfarm payrolls, expected to grow 142,000 in November after increasing more than expected in October, at 151,000. October’s report was likely the last to be unduly distorted by Census jobs and private sector payrolls are expected to increase 153,000 in November, after expanding by 159,000 in October. The unemployment rate is estimated to remain at 9.6%.

Other releases on the US economic calendar include the Conference Board’s consumer confidence reading, the Chicago Purchasing Manager survey of manufacturing and services sectors, MBA Mortgage Applications, construction spending, pending home sales, and factory orders.

Elsewhere, Canada releases September GDP and employment, and Brazil releases its manufacturing PMI and industrial production. In Europe, releases include euro-zone business and consumer confidence, euro-zone and UK manufacturing and services PMI reports, UK consumer confidence and housing prices, and German employment and retail sales. In Asia/Pacific, Japan is slated to announce retail trade, industrial and vehicle production, housing starts, construction orders, employment, and household spending. Australia will report retail sales, new home sales, building approvals and 3Q GDP. Additionally, China announces manufacturing and services PMIs, South Korea releases industrial production and its leading index. In central bank action, the European Central Bank meets to discuss monetary policy.