FT : Why good corporate earnings may be bad news

Why good corporate earnings may be bad news

Market reaction shows investors have been taking a lot on trust
The US corporate earnings season is almost over, and it has been a good one. And that could be bad news.
Let us start with what is good about it. First, the earnings themselves look healthy: up 9.6 per cent for the fourth quarter of 2013 compared to the same period of 2012, according to Thomson Reuters. For the year as a whole, earnings are on course to rise by 6.1 per cent. All this is despite significant drag from the energy sector, where earnings dropped almost 5 per cent in 2013.

Second, CFOs have played their regular quarterly game with brokers’ analysts with more skill than usual. Some 69 per cent produced results that exceeded brokers’ consensus forecasts, according to Thomson Reuters. They also caught analysts by surprise with their revenues, with 64 per cent of companies exceeding expectations.
According to BofA Merrill Lynch, this is the best performance for revenues, compared to expectation, in two-and-a-half years. With fears that the world economy is growing rather slower than had been hoped, this can only be encouraging.
Third, the prognosis for the future also looks decent. US CEOs have been using earnings calls – as tracked by Goldman Sachs’ David Kostin for his quarterly “Beige Book” of S&P 500 executives’ intentions – to prepare their investors for more capital expenditure, which can only be healthy for the global economy. They also seem keen to disburse more of their cash. That will please their investors. It also suggests an end of the extreme lack of confidence, which saw many companies maintain inefficient balance sheets rather than go without a cash buffer.
Why might all of this be bad news? Despite these apparently excellent results, the stock market still endured its worst start to a year in the post-crisis era. CFOs may have successfully pushed the expectations bar low enough for them to jump over it, but it did them little good.
Europe’s earnings season is revealing a continent that is still sickly and at risk of deflation
The short-term bonus for companies that “beat” their expectations was less than usual. Five days after their announcement, Merrill Lynch’s Savita Subramanian found that they had, on average, beaten the S&P by 2.1 percentage points. The punishment for missing expectations was unusually severe, with an underperformance of 5.5 percentage points. Put these together, and the gap between the earnings season’s “winners” and “losers” was its widest since the fourth quarter of 2008 – when the financial crisis threatened calamity.
As Ned Davis Research’s Ed Clissold put it: “Beating estimates has not helped much, but it has been better than missing.” In short, earnings season confirmed that last year’s stock market rally had taken a lot on trust. Investors plainly expected better.
A broader geographical perspective also gives cause for concern, in Europe. Europe’s earnings season is revealing a continent that is still sickly and at risk of deflation. Revenues of the 122 Stoxx 600 companies to have reported so far were slightly lower – by 0.8 per cent – in the fourth quarter of 2013 than they were a year earlier, according to Thomson Reuters.
From these weak revenues, Corporate Europe extracted far lower profit margins, which for non-financial companies have now dropped back almost to their low levels of 2009. Put poor revenues together with poor margins, and Société Générale’s Andrew Lapthorne shows that Europe’s share of the earnings generated by the MSCI World index (which covers the developed world) has dropped to its lowest level since 1985.
This might be read as positioning the continent ideally for a cyclical comeback. But it does show that the large flows of money from the US to Europe over the last months have taken an awful lot of trust. Corporate Europe has not yet done anything to justify that trust. A period of economic stagnation, increasingly feared, would make this look all the worse.
A final reason concern comes from what US CEOs have been telling investors about their future. They are confident in growth, particularly from emerging markets, enough to spend and disburse more cash. But they still feel it necessary to caution that it will be harder for them to expand their margins.
Goldman’s research found a range of companies in different sectors making the same points, that cost increases and competition would put a squeeze on profit margins. Companies such as McDonald’s and Nike complained of cost increases – names from Ford Motor through Johnson & Johnson to Schlumberger alerted on competitive pricing.
Margins in the US look unhealthily high. If improving economic conditions and normalising monetary policy make life tougher for the corporate sector, that can be viewed at least as a healthy normalisation. But it would be easier to take that view if stock markets had not taken quite so much on trust last year.

FT : America risks becoming a Downton Abbey economy

America risks becoming a Downton Abbey economy

Inequality will have to be addressed, with free markets playing a pivotal role
Inequality has emerged as a major issue in the US and beyond. A generation ago it could reasonably have been asserted that the overall growth rate of the economy was the main influence on the growth in middle-class incomes and progress in reducing poverty. This is no longer a plausible claim.
The share of income going to the top 1 per cent of earners has increased sharply. A rising share of output is going to profits. Real wages are stagnant. Family incomes have not risen as fast as productivity. The cumulative effect of all these developments is that the US may well be on the way to becoming a Downton Abbey economy. It is very likely that these issues will be with us long after the cyclical conditions have normalised and budget deficits have at last been addressed.

President Barack Obama is right to be concerned. Those who condemn him for “tearing down the wealthy” and engaging in un-American populism are, to put it politely, lacking in historical perspective. Presidents from Franklin Roosevelt to Harry Truman railed against the excesses of a privileged few in finance and business. Some have gone beyond rhetoric. Confronted with rising steel prices, John Kennedy sent the FBI storming into corporate offices and is widely thought to have ordered the authorities to audit executives’ personal tax returns. Richard Nixon used the same weapon in 1973, announcing tax investigations “of the books of companies which raised their prices more than 1.5 per cent above the January ceiling”. All were reacting in their own way to a phenomenon that Bill Clinton has described best: “Although America’s rich got richer . . . the country did not . . . the stock market tripled but wages went down.”
Given the widespread frustration with stagnant incomes, and an increasing body of evidence suggesting that the worst-off have few opportunities to improve their lot, demands for action are hardly unreasonable. The challenge is knowing what to do.
If income could be redistributed without damping economic growth, there would be a compelling case for reducing incomes at the top and transferring the proceeds to those in the middle and at the bottom. Unfortunately this is not the case. It is easy to think of policies that would have reduced the earning power of Bill Gates or Mark Zuckerberg by making it more difficult to start and profit from a business. But it is much harder to see how such policies would raise the incomes of the rest of the population. Such policies would surely hurt them as consumers by depriving them of the fruits of technological progress.
It is certainly true that there has been a dramatic increase in the number of highly paid people in finance over the last generation. Recent studies reveal that most of the increase has resulted from an increase in the value of assets under management. (The percentage of assets that financiers take in fees has remained roughly constant.) Perhaps some policy could be found that would reduce these fees but the beneficiaries would be the owners of financial assets – a group that consists mainly of very wealthy people.
It is not enough to identify policies that reduce inequality. To be effective they must also raise the incomes of the middle class and the poor. Tax reform has a major role to play. The current tax code is so badly designed that it is very likely to be having the effect of reducing economic growth. It also allows the rich to shield a far greater proportion of their income from taxation than the poor. For example, last year’s increase in the stock market represented an increase in wealth of about $6tn, of which the lion’s share went to the very wealthy.
It is unlikely that the government will collect as much as 10 per cent of this figure. That is because of a host of policies that favour the rich, such as the capital gains exemption, the ability to defer tax on unrealised capital gains, and the fact that gains on assets passed on at death are not taxed at all. Similarly, the corporate tax system allows value to flow through it like a sieve. The ratio of corporate tax collections to the market value of US corporations is near a record low. The estate tax can be more or less avoided with sophisticated planning.
Closing loopholes that only the wealthy can enjoy would enable taxes to be cut elsewhere. Measures such as the earned income tax credit can raise the incomes of the poor and middle class by more than they cost the Treasury, because they give people incentives to work and save.
It is ironic that those who profess the most enthusiasm for market forces are least enthusiastic about curbing tax benefits for the wealthy. Sooner or later inequality will have to be addressed. Much better that it be done by letting free markets operate and then working to improve the result. Policies that aim instead to thwart market forces rarely work, and usually fall victim to the law of unintended consequences.

The writer is Charles W Eliot university professor at Harvard and a former US Treasury secretary

FT : Big four fund groups summoned to talks over size

Big four fund groups summoned to talks over size

BlackRock, Fidelity, Pimco and Vanguard were summoned to meet global regulators in London last week to discuss whether large asset managers should be considered as systemically important financial institutions (SIFIs).
Such classification would subject the four managers to much greater scrutiny and require costly changes to their operating models.

Similar proposals by US regulators have met stiff industry resistance. The influential former Congressman, Barney Frank, one of the main authors of US reform legislation after the financial crisis, has also expressed surprise that asset managers might be considered as SIFIs.
But the London meetings, which took place at the headquarters of the Financial Conduct Authority, suggest global regulators are determined to pursue reform.
A consultation process was started in January by the Financial Stability Board, the body that co-ordinates financial regulators, and the International Organisation of Securities Commissions (Iosco), the umbrella body for global market regulators.
Unlike US regulators, which are considering whether asset management groups should be considered as SIFIs, the FSB and Iosco are focusing on large funds, suggesting those with assets of more than $100bn should be assessed for their systemic importance.
Just 14 US funds exceed this threshold, including five Vanguard passive index funds and three money market funds.

>>> Poste Italiane advisors for privatisation appointed

Poste Italiane advisors for privatisation appointed 

The Italian Treasury has appointed Lazard and Gianni, Origoni, Grippo, Cappelli & Partners to advise on the privatisation of a 40% stake in Poste Italiane, the Italian-language daily Il Messaggero reported. The item did not cite sources for the claim.

The report noted that the Italian government hopes to raise at least EUR 4bn from the sale.

An unsourced report in Il Corriere della Sera said that Poste Italiane has chosen Rothschild as its advisor.

Previous reports have said that the privatisation will most likely take place via an IPO.


Il Messaggero, Il Corriere della Sera

(BFW) Essar Global Fund Offers 70p/Shr for Essar Energy Shrs

Essar Global Fund Offers 70p/Shr for Essar Energy Shrs
2014-02-16 17:45:57.781 GMT


By John Simpson
     Feb. 16 (Bloomberg) -- Also offers 80 cents/shr for 4.25%
convertible bonds due 2016, Essar Energy says in e-mailed
statement.
  * Essar Global already owns 78.02% stake
  * Essar forms independent board committee to consider terms
  * NOTE: Earlier, Essar Board Should Protect Minority Holders,
    Standard Life Says NSN N136646JTSEH <GO>
  * NOTE: Feb. 14, Essar Global Confirms Mulling Bid for
    Remainder of Essar Energy NSN N0ZUXP6TTDUF <GO>
Link to statement: {NSN N13PRX199ERU <go>}

Link to Company News:ESSR LN <Equity> CN <GO>


For Related News and Information:
First Word scrolling panel: FIRST<GO>
First Word newswire: NH BFW<GO>

To contact the editor responsible for this story:
John Simpson at +1-416-203-5726 or
jsimpson12@bloomberg.net

FT : Dan Loeb builds 1.9% BlackBerry stake

Dan Loeb builds 1.9% BlackBerry stake

Key Speakers At The SALT Conference...Daniel Loeb, founder and chief executive officer of Third Point LLC, speaks during the SkyBridge Alternatives (SALT) conference in Las Vegas, Nevada, U.S., on Wednesday, May 9, 2012. Yahoo! Inc. investor Third Point LLC escalated pressure for management change at the Web portal, urging directors to immediately replace Chief Executive Officer Scott Thompson over his misrepresented academic credentials.©Bloomberg
Dan Loeb
The activist hedge fund manager Dan Loeb has taken a stake in BlackBerry, the ailing smartphone maker, in a move that pitches him back into the orbit of Prem Watsa, the Canadian investment guru who sued him eight years ago.
Mr Watsa’s Fairfax Financial is BlackBerry’s largest shareholder, and led a refinancing of the company last year, after failing to find backers for an outright takeover bid.

A regulatory filing on Friday night revealed that Mr Loeb’s Third Point has taken a 1.9 per cent stake in BlackBerry, putting him among the company’s top 10 shareholders. Fairfax has 10.5 per cent.
The stake, worth $92.5m, is small relative to many of Third Point’s other positions, which include holdings in Dow Chemical, Sotheby’s and Sony, where Mr Loeb has been agitating for strategic changes.
The fund also typically discloses activist positions in correspondence with its investors or in public letters to company management, suggesting Mr Loeb may not immediately be aiming to put pressure on BlackBerry.
However, the disclosure of the stake has piquancy because of the history between Third Point and Fairfax and between the two men in particular.
When several hedge funds took short positions in Fairfax stock in the middle of the last decade, Mr Watsa alleged dirty tricks and sued Third Point, SAC Capital and Jim Chanos’s Kynikos Associates.
The legal battle unearthed strongly worded emails sent by Mr Loeb at the time of the bet against Fairfax.
Third Point denied Fairfax’s accusations of wrongdoing and won a dismissal of the case against it in a New Jersey court in 2011.
The investment in BlackBerry has been a rare black eye for Mr Watsa, who is known as “the Canadian Warren Buffett” for his humble manner and for dispensing homespun investment wisdom.
He invested $880m in the company expecting sales and profits to rebound, whereas it has instead continued to lose market share to Apple and Android phones.
Last month, the company’s new chief executive John Chen said BlackBerry would be cash flow positive by the end of this year and profitable by mid-2016. The stock is up 21 per cent since the start of January.
Third Point also confirmed on Friday that it took new stakes in the fourth quarter of last year in Dow Chemical, where it wants a break-up of the company, and T-Mobile, which it wants sold to Sprint Nextel.

FT : Abe keen to cut Japan corporate tax rate, says chief cabinet secretary

Abe keen to cut Japan corporate tax rate, says chief cabinet secretary
Reuters
TOKYO, Feb 15 (Reuters) – Prime minister Shinzo Abe is determined to cut Japan’s corporate tax rate, chief cabinet secretary Yoshihide Suga said, a step experts say could boost the global competitiveness of Japanese companies and make the country more attractive to foreign investment.
Mr Suga, who serves as the government’s top spokesman and is one of Mr Abe’s most trusted aides, also said Japan’s participation in talks on a US-led free trade pact, the Trans-Pacific Partnership, was a vital part of Mr Abe’s growth strategy, the “Third Arrow” in his “Abenomics” policy that also includes hyper-easy monetary policy and fiscal spending.

“The prime minister has made a definite statement regarding a reduction in the corporate tax rate,” Mr Suga told Reuters in an interview. “We want to achieve this.”
Finance ministry officials have expressed concern that cutting the corporate tax rate, considered high by global standards at about 35 per cent for national and local taxes combined, would worsen the public debt, which is already the worst among advanced nations.
But Mr Suga said: “Whatever the finance ministry says, the government policy will not change. We will consider what will happen to government finances if the corporate tax rate is lowered, but the prime minister has said all along that a reduction is necessary. We want to do that properly.”
Mr Abe took office in December 2012 pledging to revive the economy and end the deflation that has plagued it for a decade and a half.
Mr Suga said that nearly 14 months later Japan was on track to escape deflation.
“Without a doubt, we have been able to create the atmosphere such that we can escape from the deflation that has continued for 15 years,” he said.
“I think that we are a cabinet that will achieve the two extremely difficult [goals] of escaping deflation and rebuilding the government finances,” he added.
He said the real test would come after the government raised the 5 per cent sales tax to 8 per cent in April.
“Without a doubt, the critical time awaits us after the sales tax rise,” he said.
Another rise to 10 per cent is scheduled from October 2015.
Mr Suga said it was up to the Bank of Japan to decide whether further monetary easing would be needed if the economy struggles after the April sales tax hike.
“With regard to monetary policy, Bank of Japan governor [Haruhiko] Kuroda shares the Abe government’s way of thinking so we want to trust him and leave it to Governor Kuroda.”
The Bank of Japan launched an intense burst of monetary stimulus last April, when it pledged to accelerate inflation to 2 per cent in about two years with aggressive asset purchases.
The central bank is likely to stand pat on monetary policy next week, but is hardly complacent. With a global recovery still fragile, Japanese companies are wary of boosting wages and capital spending enough to compensate for a slump in household spending expected after the April tax rise.
Investors have mostly applauded the first two “arrows” of Mr Abe’s economic prescription, but have been disappointed by the growth strategy, including a perceived lack of progress in key areas such as labour market reform.
Asked about such views, Mr Suga noted that deregulation and other structural reforms generally needed legal changes, but said he wanted to show the direction on changes in key sectors of labour, medical care and agriculture by the end of June.
He added that Japan’s participation in the TPP talks was a vital part of the growth strategy.
“From here on, I think that the ‘arrow’ with the longest flight time will be TPP,” he said.
Japan and the United States are holding high-level talks in Washington this weekend in search of a two-way compromise ahead of a meeting of ministers from the 12 participating countries in Singapore later this month.
A key sticking point is Japan’s desire to maintain tariffs on politically sensitive agricultural products such as rice.

(Barron's) Pimco’s El-Erian: U.S. Could Become Japan

Pimco’s El-Erian: U.S. Could Become Japan

Mohamed El-Erian, the outgoing CEO and co-CIO at Pimco, said at a conference Thursday that the U.S. was in danger of "becoming Japan" if Congress cannot get over its dysfunction and take action to spur growth. El-Erian, speaking with CBS business analyst Jill Schlesinger at a LinkedIn conference in Manhattan, warned that the U.S. economy cannot be supported forever by the Federal Reserve alone.

At the outset of the discussion, El-Erian said with a laugh that he had written a "boring speech," but that Schlesinger wouldn’t let him deliver it, so he posted it on LinkedIn and answered her questions instead. Her first question of course, was what he planned to do after leaving next Pimco next month, and he didn’t offer many details. He said he was "very interested in the intersection between Main Street, Wall Street, and policy."

El-Erian covered a lot of ground, from his affection for Janet Yellen to an explanation of why Fed policy has an outsize effect on emerging market economies. On Yellen: "She really cares about unemployment, she really cares about inequality." On emerging markets: "Why do so many lottery winners end up bankrupt?" he asked. Emerging market economies were not equipped to handle the massive influx of dollars that flooded in when the Fed was easing, or the resilience to withstand the sudden outflow when investors feared an end to easy money.

But mostly the discussion kept coming back to the U.S. economy. Looking back on the financial crisis, which he said was largely created by a love affair with debt, he emphasized the severity of the downturn with a Monte Python reference – it was "not a flesh wound," he said. Realizing that massive deleveraging would be needed to improve corporate and personal balance sheets, he said, and that the reduced spending would slow economic growth for years, "we came up with this silly term, the ‘new normal’."

He identified four ways for the nation to escape debt: First, and by far best, is to grow out. Second, default, which he said would come at huge cost. Third, austerity, which he said was not working out too well in Europe. (Though he did predict growth would improve to 1% on the Continent this year.) And fourth, the current course: artificial stimulus from the central bank.

While he credited the Fed’s first round of quantitative easing with saving the economy, he said QE 2 and its subsequent iterations were very different, and that the "costs and risks are starting to get close to the benefits."

"The Fed has the willingness to help, but it doesn’t have the tools," he said. "But with a polarized Congress it’s impossible to solve the problems." How to stimulate growth, "that is how the debate over debt should begin and end." Though he avoided specifics, he did suggest Congress would need to spend more, not less, presumably in the short term.

And without any acknowledgement that the term has become politically charged, El-Erian declared that inequality was holding back the economy as well. "It is not just inequality of income, or inequality of wealth, but inequality of opportunity," he said, pointing out that the unemployment rate for college graduates is 3% while it’s above 10% for those without a degree.

While he declined to predict where the market was headed, he is confident the road will be rocky. "So if you are an investor you’d better get ready for volatility," he said. "You’re going to get more of it… Come up with a plan for the worst-case scenario. Volatility plus human nature means you are going to do the wrong thing at the wrong time."

>>> Weekly Update

Weekly Market Update: Yellen and Boehner Send US Equities Back toward All-Time Highs

- Global equity markets saw a solid run of risk-on trading this week. In the US, newly-installed Fed Chair Janet Yellen said all the right things in her first public report to Congress, pledging continuity with the policies pursued by Ben Bernenke. House Speaker Boehner surprised markets and his own party by proposing and then forcing through a clean debt ceiling increase, with no conditions. In the eurozone, a raft of slightly better-than-expected preliminary Q4 GDP reports helped support the emerging slow European recovery thesis. With snowstorms disrupting life up and down the US east coast, trading volumes were on the low side for most of the week, supporting a stronger, quicker move higher in equities. The S&P500 closed out the week within striking distance of the recent all-time high of 1,850. For the week, the DJIA rose 2.3%, the S&P500 gained 2.3% and the Nasdaq added 2.9%.

- In testimony before Congress, Yellen pledged her support for current FOMC policy and emphasized that there would be a great deal of continuity in monetary policy from Bernanke's tenure. Yellen repeated Bernanke's constant refrain that rates would remain near zero until well past the 6.5% threshold comes and goes. On QE, Yellen reflected the committee view that it would take a notable change in the outlook to alter the trajectory of tapering, though left leeway by reiterating that the taper is not on a pre-set course. Regarding the recent payrolls weakness, she said she was surprised the Dec and Jan reports came in below expectations but also said one cannot jump to conclusions based on two reports impacted by terrible winter weather.

- The "clean" debt ceiling hike may very well go down as the moment when the budget wars of the last several years ended in truce. The Speaker's move prevented another protracted and damaging battle and authorized the national credit card through March 2015.

- Spot gold prices have gained approximately 3.5% over the last week, and the metal crossed above its 200-day moving average on Friday for first time in a year. Gold has seen a steady recovery since early January, and the catalysts behind the leg up this week are somewhat opaque, with continued emerging market weakness, a softer dollar and even the cyber-attacks on bitcoin exchanges being cited. However, some analysts suggest it will take more than short-term technical moves to propel the yellow metal very far beyond the $1,300 level. Copper hit three-week highs this week, rising to $3.265. Silver gained a whopping 5% on Friday alone. Crude spent almost the entire week in the $100 handle, but the big gains in the front-month contract all arrived last Friday, post payrolls.

- January US retail sales slipped lower m/m even as the December result was revised lower, into negative territory. The disappointing data dampened the risk-on tone in markets on Thursday, however the reason for the slip is pretty obvious at this point: icy weather. The same excuse for weak results was behind the January jobs report and has been repeated by nearly every CEO in a consumer-exposed business for all of the current earnings season. The biggest negative component in the retail report was weak January auto sales, a factor which had already been disclosed in US January sales numbers out of the major auto manufacturers last week.

- Time Warner Cable agreed to Comcast's all-stock merger offer, valuing the cable giant around $45.2 billion, and spurning Charter Communications $132.50/share offer. The deal combines the two largest US cable TV companies in an entity with 30 million subscribers, and is practically guaranteed to draw lots of anti-trust attention. To assuage these concerns, Comcast has pledged to divest 3 million subscribers after the deal closes, but notably the deal did not include any breakup fee, and Time Warner shares are trading at more than a 5% discount to the deal price.

- Discomfort with the future of Cisco has only deepened after its latest quarterly revenue decline. Cisco's revenue slid 8% y/y in its second quarter, and it said it would slide another 6-8% in its third quarter. CEO Chambers pounded the table, citing a book-to-bill greater than 1.0 and the best booking backlog the company has seen in years. Cisco shares lost 4.5% after reporting on Wednesday but recovered nearly all of the losses in the back half of the week. Meanwhile, two other tech hardware names, Applied Materials and Nvidia, surged to new 52 week highs after issuing strong quarterly reports.

- Deere topped consensus expectations in its first quarter report, on very modest y/y gains in income and revenue. The firm reiterated it glum forecasts for FY14, with total sales seen down 3% y/y, on flagging global demand. One bright spot was the outlook for construction and forestry, as the rebounding economy in the US and Canada spurs more housing starts.

- Italian Prime Minister Enrico Letta has been thrown out of office by the leader of his own party, Matteo Renzi. The young, ambitious leader of the center-left Democratic Party, Renzi claimed that electoral and employment reforms were getting mired in political paralysis and felt compelled to push Letta out. The move gives Italy its third government in the last 12 months, though Renzi got assurances from the erstwhile opposition that they would continue to support the ruling coalition. Yields on 10-year Italian government bonds fell to their lowest levels since early 2006, around 3.68%, reflecting the lack of concern over the developments in financial markets.

- EUR/USD rose to its highest levels in two weeks and very nearly matched YTD highs from early January, around 1.3715. The ECB monthly report trimmed its outlook for Eurozone inflation in 2014 and 2015, however the initial 2016 forecast was for harmonized CPI at 1.7% in 2016, backing Draghi's repeated assertions that there will not be deflation in the Eurozone. Recall that in last week's post-ECB decision press conference, Draghi specifically cited the need to have these initial 2016 forecasts in hand before making any more decisions about cutting rates further. Decent preliminary Q4 GDP reports from core members France, Germany, and the Netherlands as well as peripheral nations Italy and Portugal also helped support the euro.

- The Bank of England's quarterly inflation report was seen as a bit more hawkish than expected in maintaining the 7.0% unemployment threshold (with the latest unemployment reading at 7.1%). The report also suggested the BoE's new forward guidance would monitor a broader range of economic indicators, without being too specific about which indicators were being watched. Sterling firmed as analysts decided the BoE will tighten policy sooner than it would loosen it. GBP/USD hit highest level since May 2011, above 1.6700.

>>> US Close Dow+0,79% S&P+0,48% Nasdaq+0,08%

Closing Market Summary: Stocks End Strong Week on Upbeat Note

The stock market ended an upbeat week on a positive note. The Dow Jones Industrial Average (+0.8%) paced the advance while the S&P 500 gained 0.5%. The Nasdaq (+0.1%) lagged, but was able to finish at its highest level since late 2000.

Today's advance capped an impressive week during which the benchmark S&P 500 gained 2.3%. Even though stocks rallied sharply, it is worth noting that all five sessions of the week saw below-average volume while bellwether groups like financials and transports struggled to keep pace with the broader market. The financial sector added just 0.2% on Friday, extending its weekly gain to 1.6%. For its part, the Dow Jones Transportation Average (+0.3%) added 0.9% for the week.

Similar to financials, other top-weighted sectors like health care (+0.4%) and technology (+0.2%) lagged while consumer discretionary (+0.6%), energy (+1.5%), industrials (+0.7%), and materials (+0.7%) picked up the slack.

The energy sector drew considerable strength from its largest member, ExxonMobil (XOM 94.11, +2.68), which surged 2.9%. The Dow component regained its 100- and 200-day moving averages in a move that was aided by an ISI Group upgrade to ‘Buy' from ‘Neutral.' On a related note, crude oil ended little changed at $100.29/bbl.

Elsewhere among commodities, precious metals remained on a torrid pace. Gold futures posted their seventh day of gains, climbing more than 5.0% in that timeframe. Meanwhile, silver capped an eight-day run that saw the metal jump nearly 8.0%. This translated into another strong session for gold miners as the Market Vectors Gold Miners ETF (GDX 26.35, +0.48) rose 1.9%.

Mining shares contributed to the outperformance of the materials sector, which also benefitted from gains among steelmakers after Cliffs Natural Resources (CLF 23.16, +1.26) reported better-than-expected results.

Staying on the earnings theme, apparel retailer V.F. Corp (VFC 56.85, -3.04) slumped after announcing disappointing results and issuing a profit warning. The stock tumbled 5.1%, which kept a lid on its peers. The rest of the discretionary sector held up well with help from homebuilders. The iShares Dow Jones US Home Construction ETF (ITB 25.21, +0.28) rose 1.1%.

Interestingly, builder shares outperformed even as Treasury yields inched higher. The benchmark 10-yr yield rose one basis point to 2.74% after ending last week at 2.68%.

As mentioned earlier, trading volume was well below average with only 609 million shares changing hands at the NYSE. Today's final tally represented the lowest total since January 3.

Today's economic data included three reports:

* Export prices, excluding agriculture, ticked up 0.2% in January after increasing 0.3% in the prior reading. Excluding oil, import prices rose 0.3%, which follows last month's downtick of 0.1%.  * Industrial production declined 0.3% in January after increasing 0.3% in December while the Briefing.com consensus expected an increase of 0.3%. Once again, the hard economic data did not mesh with the results in the ISM report and the related regional surveys. Those reports showed solid, albeit slightly unsteady production levels in January.

Instead of translating into slightly positive growth, however, actual manufacturing production fell 0.8% in January. That was the largest drop since May 2009. Making matters worse, manufacturing production growth was revised down for each month going back to October. After the revisions, fourth quarter manufacturing production only increased 4.2%, down from an originally reported gain of 6.2%. This comes after the ISM Production Index was recorded above 60 during that entire time, suggesting manufacturers are definitely not doing what they are saying in the surveys. The motor vehicle sector was hit especially hard in January. Assemblies fell by 1.0 million, from 11.64 million in December to 11.62 million in January.  * The preliminary reading for the University of Michigan Consumer Sentiment Index for February was unchanged at 81.2 while the consensus expected the index to fall to 80.2. The Current Conditions Index weakened slightly, falling from 96.8 in January to 94.0. This was offset by an increase in the Expectations Index from 71.2 to 73.0 in February. 

Bond and equity markets will be closed on Monday for Presidents' Day.

* Nasdaq Composite +1.6% YTD  * S&P 500 -0.5% YTD  * Russell 2000 -1.1% YTD  * Dow Jones Industrial Average -2.6%