M&A and Retail Sales Data Foster Upward Morning Move
The US equity markets are modestly higher in early action amid a couple of sizeable M&A announcements and a stronger-than-forecasted read on October retail sales. However, some of the early enthusiasm is being limited by an unexpected contraction in New York manufacturing activity and a soft revenue figure from the world’s second-largest home improvement retailer, Lowe’s Companies Inc. Treasuries remain lower amid the data, and ahead of a report on business inventories after the opening bell. Equity news is being dominated by the announcements that Dow member Caterpillar Inc has agreed to acquire Bucyrus International Inc for about $7.6 billion in cash and EMC Corp struck a deal to acquire network storage systems firm Isilon Systems Inc for about $2.3 billion in cash. Overseas, Asia was mixed with Japan receiving a boost from a better-than-expected 3Q GDP report and a weaker yen, while a favorable report on euro-zone trade is helping support stocks in Europe.
As of 8:50 a.m. ET, the December S&P 500 Index Globex future is 2 points above fair value, the Nasdaq 100 Index is 10 points above fair value, while the DJIA is 15 points above fair value. Crude oil is $0.40 higher at $85.28 per barrel, and the Bloomberg gold spot price is down $5.73 at $1,363.03 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.3% at 78.37.
Dow member Caterpillar Inc. (CAT $81 1) reported that it has reached an agreement to acquire Bucyrus International Inc. (BUCY $70) for $92 per share or about $7.6 billion in cash excluding the assumption of debt. CAT said the deal is based on its key strategic imperative to expand its leadership in the mining equipment industry.
In other M&A news, EMC Corp. (EMC $22) announced that is has agreed to acquire network storage systems firm Isilon Systems Inc. (ISLN $26) for $33.85 per share in cash or about $2.3 billion, net of ISLN’s cash position.
Lowe’s Companies Inc. (LOW $22) reported 3Q EPS ex-items of $0.31, one penny above the $0.30 consensus estimate of analysts surveyed by Reuters, with revenues rising 1.9% year-over-year (y/y) to $11.6 billion, just shy of the $11.7 billion that the Street had expected. The number-two home improvement retailer lowered its full-year outlook.
Retail sales rise but NY manufacturing activity contracts, kicking off busy economic week
Advance retail sales for October rose 1.2%, compared to the forecast of economists surveyed by Bloomberg that called for an increase of 0.7%, and September’s 0.6% gain was revised higher to a 0.7% advance. October sales ex-autos gained 0.4%, matching expectations, and September’s 0.4% rise was revised to a 0.5% advance. Sales ex-autos and gas rose 0.4% in October, versus the 0.2% increase that was anticipated, and its September figure was unrevised at a 0.4% increase.
Elsewhere, the Empire Manufacturing Index, a measure of manufacturing in the New York region, fell in November to a level of -11.14, compared to the estimates of economists, which expected a decrease to 14.00, from the previous month’s level of 15.73. The index fell below the level of zero, the demarcation point between contraction and expansion. The report is the first major piece of data looking at manufacturing conditions in November, and on Thursday, the Philly Fed Manufacturing Index will be released, expected to increase from 1.0 in October to 5.0 in the current month, providing further insight into the health of the sector.
Treasuries are lower following the mixed retail and regional manufacturing data, while later this morning, business inventories will be released, forecasted to increase 0.8% in September, after growing by 0.6% in August.
Meanwhile, the economic docket for the rest of the week will reveal other key releases, beginning with Tuesday’s October reading on industrial production, expected to rise 0.3% m/m after unexpectedly declining in September by 0.2%, and capacity utilization is forecasted to increase to 74.9% from 74.7% in September. With the exception of last month’s reading, industrial production has been a source of strength this year.
Additionally, the Producer Price Index (PPI) will be released on Tuesday, expected to show prices at the wholesale level accelerated in October to a 0.8% m/m advance, on the heels of a 0.4% increase in September, while the core rate, which excludes food and energy, is expected to remain contained to a 0.1% rise after also increasing 0.1% the prior month. On a y/y basis, the PPI is expected to grow 4.6% in October versus a rise of 4.0% in the prior month on a headline basis, and increase 2.1% at the core level, up from a 1.6% gain in September. The release precedes Wednesday’s report on the Consumer Price Index (CPI), forecasted to show a 0.3% m/m increase in October, after rising by 0.1% in September, while ex-food and energy, it is expected to gain 0.1% after being flat the prior month. On a y/y basis, the CPI is expected to increase 1.3% at the headline level and 0.7% at the core level.
Wednesday also brings the release of the report on housing starts for October, expected to fall 1.6% m/m to an annual rate of 600,000 units, after rising 0.3% in September. Meanwhile, building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, are forecasted to gain 4.2% m/m to 570,000 units after declining 5.6% in September.
Other releases on this week’s US economic calendar include: the NAHB Housing Market Index, MBA Mortgage Applications, initial jobless claims, and the Conference Board’s Index of Leading Indicators.
Upbeat trade data offsetting lingering debt concerns
The equity markets in Europe are higher in afternoon action, led by materials and oil & gas issues on the heels of an upbeat report on trade in the euro-area, which is overshadowing continued focus on the sovereign debt situation in the region. The euro-zone trade balance swung to a surplus of 2.4 billion euros for September after running a deficit of 1.7 billion euros in August, and compared to the 1.0 billion euro surplus that economists had expected. Exports in the euro-zone led the way, rising 1.0% m/m, but recently the euro has jumped to a six-week high versus the US dollar, which may dampen export growth in the coming months’ reports. In other economic news, UK home prices fell 3.2% m/m in November, after increasing 3.1% in October. Meanwhile, Ireland continues to command attention, after a European Central Bank official said the debt-laden nation would be able to tap into the European Union’s (EU) near $1 trillion euro-area bailout package, but Ireland reiterated that it would not require assistance. However, media reports are suggesting that Ireland has been in discussions with EU officials about some assistance for its banks, but the nation has not confirmed the reports.
In equity news, shares of BHP Billiton (BHP $87) are higher amid the strength in the materials sector after it ended its near $40 billion pursuit of Potash Corp. of Saskatchewan Inc. (POT $140) and announced that it will resume its $4.2 billion share buyback program.
The UK FTSE 100 Index is 0.2% higher, while France’s CAC-40 Index, Germany’s DAX Index and Ireland’s Irish Overall Index are all advancing 0.4%.
Asia mixed as Japan gains ground on favorable GDP read and as yen recedes
Stocks in Asia were mixed with the Japanese equity markets gaining ground on favorable economic data and weakness in the yen, while caution amid increased speculation of policy tightening in China kept other market relatively in check. Japan’s Nikkei 225 Index gained 1.1% after the nation’s 3Q GDP expanded by 0.9% quarter-over-quarter (q/q), compared to the 0.6% growth that economists expected, and on an annualize basis, the country’s output increased by 3.9%, well above the 2.5% expansion that was anticipated. Meanwhile, a separate report showed Japan’s industrial production was favorably revised to a 1.6% contraction, compared to a preliminary reading of a 1.9% decline. Chinese stocks finished mixed, with the Shanghai Composite Index increasing 1.0%, while the Hong Kong Hang Seng Index fell 0.8%. Elsewhere, South Korea’s Kospi Index was flat, Australia’s S&P/ASX 200 Index declined 0.1%, and Taiwan’s Taiex Index dropped 0.9%.
As of 8:50 a.m. ET, the December S&P 500 Index Globex future is 2 points above fair value, the Nasdaq 100 Index is 10 points above fair value, while the DJIA is 15 points above fair value. Crude oil is $0.40 higher at $85.28 per barrel, and the Bloomberg gold spot price is down $5.73 at $1,363.03 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.3% at 78.37.
Dow member Caterpillar Inc. (CAT $81 1) reported that it has reached an agreement to acquire Bucyrus International Inc. (BUCY $70) for $92 per share or about $7.6 billion in cash excluding the assumption of debt. CAT said the deal is based on its key strategic imperative to expand its leadership in the mining equipment industry.
In other M&A news, EMC Corp. (EMC $22) announced that is has agreed to acquire network storage systems firm Isilon Systems Inc. (ISLN $26) for $33.85 per share in cash or about $2.3 billion, net of ISLN’s cash position.
Lowe’s Companies Inc. (LOW $22) reported 3Q EPS ex-items of $0.31, one penny above the $0.30 consensus estimate of analysts surveyed by Reuters, with revenues rising 1.9% year-over-year (y/y) to $11.6 billion, just shy of the $11.7 billion that the Street had expected. The number-two home improvement retailer lowered its full-year outlook.
Retail sales rise but NY manufacturing activity contracts, kicking off busy economic week
Advance retail sales for October rose 1.2%, compared to the forecast of economists surveyed by Bloomberg that called for an increase of 0.7%, and September’s 0.6% gain was revised higher to a 0.7% advance. October sales ex-autos gained 0.4%, matching expectations, and September’s 0.4% rise was revised to a 0.5% advance. Sales ex-autos and gas rose 0.4% in October, versus the 0.2% increase that was anticipated, and its September figure was unrevised at a 0.4% increase.
Elsewhere, the Empire Manufacturing Index, a measure of manufacturing in the New York region, fell in November to a level of -11.14, compared to the estimates of economists, which expected a decrease to 14.00, from the previous month’s level of 15.73. The index fell below the level of zero, the demarcation point between contraction and expansion. The report is the first major piece of data looking at manufacturing conditions in November, and on Thursday, the Philly Fed Manufacturing Index will be released, expected to increase from 1.0 in October to 5.0 in the current month, providing further insight into the health of the sector.
Treasuries are lower following the mixed retail and regional manufacturing data, while later this morning, business inventories will be released, forecasted to increase 0.8% in September, after growing by 0.6% in August.
Meanwhile, the economic docket for the rest of the week will reveal other key releases, beginning with Tuesday’s October reading on industrial production, expected to rise 0.3% m/m after unexpectedly declining in September by 0.2%, and capacity utilization is forecasted to increase to 74.9% from 74.7% in September. With the exception of last month’s reading, industrial production has been a source of strength this year.
Additionally, the Producer Price Index (PPI) will be released on Tuesday, expected to show prices at the wholesale level accelerated in October to a 0.8% m/m advance, on the heels of a 0.4% increase in September, while the core rate, which excludes food and energy, is expected to remain contained to a 0.1% rise after also increasing 0.1% the prior month. On a y/y basis, the PPI is expected to grow 4.6% in October versus a rise of 4.0% in the prior month on a headline basis, and increase 2.1% at the core level, up from a 1.6% gain in September. The release precedes Wednesday’s report on the Consumer Price Index (CPI), forecasted to show a 0.3% m/m increase in October, after rising by 0.1% in September, while ex-food and energy, it is expected to gain 0.1% after being flat the prior month. On a y/y basis, the CPI is expected to increase 1.3% at the headline level and 0.7% at the core level.
Wednesday also brings the release of the report on housing starts for October, expected to fall 1.6% m/m to an annual rate of 600,000 units, after rising 0.3% in September. Meanwhile, building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, are forecasted to gain 4.2% m/m to 570,000 units after declining 5.6% in September.
Other releases on this week’s US economic calendar include: the NAHB Housing Market Index, MBA Mortgage Applications, initial jobless claims, and the Conference Board’s Index of Leading Indicators.
Upbeat trade data offsetting lingering debt concerns
The equity markets in Europe are higher in afternoon action, led by materials and oil & gas issues on the heels of an upbeat report on trade in the euro-area, which is overshadowing continued focus on the sovereign debt situation in the region. The euro-zone trade balance swung to a surplus of 2.4 billion euros for September after running a deficit of 1.7 billion euros in August, and compared to the 1.0 billion euro surplus that economists had expected. Exports in the euro-zone led the way, rising 1.0% m/m, but recently the euro has jumped to a six-week high versus the US dollar, which may dampen export growth in the coming months’ reports. In other economic news, UK home prices fell 3.2% m/m in November, after increasing 3.1% in October. Meanwhile, Ireland continues to command attention, after a European Central Bank official said the debt-laden nation would be able to tap into the European Union’s (EU) near $1 trillion euro-area bailout package, but Ireland reiterated that it would not require assistance. However, media reports are suggesting that Ireland has been in discussions with EU officials about some assistance for its banks, but the nation has not confirmed the reports.
In equity news, shares of BHP Billiton (BHP $87) are higher amid the strength in the materials sector after it ended its near $40 billion pursuit of Potash Corp. of Saskatchewan Inc. (POT $140) and announced that it will resume its $4.2 billion share buyback program.
The UK FTSE 100 Index is 0.2% higher, while France’s CAC-40 Index, Germany’s DAX Index and Ireland’s Irish Overall Index are all advancing 0.4%.
Asia mixed as Japan gains ground on favorable GDP read and as yen recedes
Stocks in Asia were mixed with the Japanese equity markets gaining ground on favorable economic data and weakness in the yen, while caution amid increased speculation of policy tightening in China kept other market relatively in check. Japan’s Nikkei 225 Index gained 1.1% after the nation’s 3Q GDP expanded by 0.9% quarter-over-quarter (q/q), compared to the 0.6% growth that economists expected, and on an annualize basis, the country’s output increased by 3.9%, well above the 2.5% expansion that was anticipated. Meanwhile, a separate report showed Japan’s industrial production was favorably revised to a 1.6% contraction, compared to a preliminary reading of a 1.9% decline. Chinese stocks finished mixed, with the Shanghai Composite Index increasing 1.0%, while the Hong Kong Hang Seng Index fell 0.8%. Elsewhere, South Korea’s Kospi Index was flat, Australia’s S&P/ASX 200 Index declined 0.1%, and Taiwan’s Taiex Index dropped 0.9%.
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