>>> Weekly Market Update: No Mayday for Steady Markets

Weekly Market Update: No Mayday for Steady Markets

- After a rough start for stocks in April, the DJIA and S&P500 erased 3% declines to end the month higher by about 0.5% a piece, at or near record highs. The moves for the Nasdaq were even more extreme, as investors backed out of a wide spectrum of high-flying technology and biotech stocks. This week volatility in US and European markets dried up and equities saw steady if modest gains. Excellent UK GDP data, good German jobs numbers, incremental gains in Eurozone inflation and the monster US April jobs report supported the positive tone, while the weak US GDP reading was overlooked. The FOMC policy meeting was the least impactful in some time, with no notable changes except Kocherlakota withdrawing his dissent (as expected). Nearly two-thirds of S&P500 companies have now reported quarterly earnings, and with a few exceptions most of corporate America is meeting or beating profit expectations, even if revenue growth has been clearly anemic. In Ukraine, Kiev's offensive to reestablish control over its eastern provinces has more or less fallen flat and belligerent Russian rhetoric has only increased. On Monday, the US placed additional sanctions on a handful of Russian officials, none of whom were the chief actors in the Ukraine drama. For the week, the DJIA and the S&P500 each rose 0.9%, and the Nasdaq gained 1.2%.

- Most analysts are shrugging off the +0.1% advance Q1 GDP reading, citing the well-worn excuse of unusually severe winter weather. The focus has been on the consumption component of the first reading of Q1 GDP, which was +3.0%, roundly beating expectations, bolstered by a 4.4% jump in spending on services. The latter was due to the expansion of healthcare spending under Obamacare. Note that domestic investment (both residential and nonresidential), trade and government spending subtracted much more from growth than anticipated.

- The April jobs report greatly exceeded expectations with the 288K non-farm payrolls gain the strongest since January 2012. Gains were broad-based across sectors, including construction. Most importantly, nothing in the data suggests the increase in the payroll series was a statistical fluke. The same cannot be said for the unexpectedly steep decline in the unemployment rate to 6.3%. The three-tenths drop in joblessness did not reflect an increase in employment - as measured by the household survey employment actually fell by 73K - but rather the 806K workers reporting themselves as being out of the labor market, pushing the labor force participation rate down 0.4 points to 62.8%. Analysts highlight that this is a very noisy measure and will certainly be revised.

- Data out this week suggested that, like much else in the US economy, the housing industry will also bounce back from its winter weather slump. The pending home sales data saw its first positive m/m reading in nine months in March, widely beating expectations. Data out last week showed that existing home sales fell to their lowest levels in nearly two years in March, but the pending homes report suggests the downward trend may have run its course. While there is hope for further improvement in the housing market, it looks like there is little chance for housing reform in Washington, DC this year. The Senate Banking Committee scheduled an April 29th markup session for the GSE reform bill, but with committee work starting so late in the session there is little chance for much to get done before Congress shifts into full-on election mode.

- Federal prosecutors are planning criminal charges against BNP Paribas and Credit Suisse Group for separate alleged offenses, raising fears that one or both could possibly be forced out of the US market. The DoJ is seeking criminal charges against BNP for allegedly skirting economic sanctions against Iran, and charges against Credit Suisse for helping clients avoid taxes. Reportedly BNP faces charges of up to $2 billion, and while there are said to be discussions of ways to avoid revocation of the bank's New York charter in case of a guilty verdict, the Fed still might move to take away its licenses. Elsewhere in the annals of financial misbehavior, Bank of America disclosed an embarrassing error in calculating its capital ratios, forcing it to suspend capital returns to shareholders and redo its CCAR submissions to the Fed.

- Rising crude and natural gas prices were the trend in the first quarter, although not all of the global oil majors benefitted equally from the improved pricing environment. ConocoPhillips and Exxon reported much better-than-expected first quarter results, although Exxon's lower upstream production pulled profits down on a y/y basis while Conoco's higher production boosted its profits. Both beat consensus EPS estimates. Meanwhile, Chevron missed both top- and bottom-line expectations as production fell 2% y/y and weaker refining margins hurt bottom-line results. BP's profits slumped and revenue was down significantly as the company continues to shed assets. BP's profit from its Rosneft joint venture shrank by 75% in the quarter thanks to the Ukraine crisis weakening the ruble.

- April auto sales were mixed. General Motor's sales gained 6.9%, more than expected, Chrysler slightly topped expectations and Ford missed. A GM sales executive said retail demand was steady in the month as the economy continues to strengthen. Toyota and Nissan's sales were very strong, up 13.3% y/y and 18.3% y/y, respectively. Ford was the only major auto firm to report a decline in monthly sales, however truck sales remained very strong, with overall April sales +8%, twice the March gain. In addition, Ford announced that CEO Alan Mulally would step down as chief on July 1st. Over his eight-year term, Mulally transformed Ford from a money-loser to a thriving firm. He will be replaced by Mark Fields, the current chief operating officer.

- Pharmaceutical industry deal making continued after last week's big announcements. There were repeated reports that Allergan would make a second attempt to acquire Shire to fend off Valeant's $46-billion unsolicited bid, or even try to sell the company to Johnson & Johnson or Sanofi. AstraZeneca disclosed this week that back in January, Pfizer had offered £46.61/share to acquire the firm was rebuffed, and that Pfizer had renewed its approach. On Friday, Pfizer hiked its offer for AstraZeneca to approximately £50.00/share, valuing the firm at more than $106B. Forest Laboratories said it would buy Furiex Pharmaceuticals for $1.5 billion to get access to its gastrointestinal disease treatments. In other deal news, the contest to acquire Alstom's energy units is now between Siemens and General Electric, with bids said to be running around €11-12 billion.

- The eagerly awaited Eurozone April annualized CPI was slightly lower than expected, at +0.7% versus +0.8%e, while core was in-line at +1.0%. Recall that the March figure that really lit the fire under QE talk was a mere +0.5%, so the slight increase lent some credibility to ECB assertions that the Eurozone will avoid deflation. In a meeting with German legislators, President Draghi said there was still no chance of deflation in the Eurozone and that launching a QE program was only a distant possibility. EUR/USD traded in only a slightly broader range than last week, between 1.3800 and 1.3890.

- UK GDP saw its fifth consecutive quarter of growth in Q1, with the advance annualized figure at +3.1%, up from +2.7% in the final quarter of 2013. This was the highest annualized rate of growth seen in six years, and BoE Governor Carney said the data shows the UK is entering a sustainable recovery. GBP/USD hit a fresh 4-year highs above 1.6900 toward week's end.

- The Bank of Japan held pat in its policy statement out this week and cut its GDP forecast for the FY14/FY15 period to +1.1% from +1.4% prior, and maintained its inflation outlook for the period. This marked one year since the bank launched its ambitious program to double the monetary base and achieve 2% inflation within two years. The March labor cash earnings report - a closely watched gauge of consumer "cost-push" inflation from salaries - moved to a two-year high of +0.7%, giving government officials a reason to celebrate Abenomics. However, the April Markit manufacturing PMI saw its first contraction in over a year, with both output and new export orders components in contraction as well. USD/JPY spent most of the week locked in the 102 handle, only briefly surging above 103 in the immediate aftermath of the US jobs report on Friday.

>>> US Close Dow-0,28% S&P-0,14% Nasdaq-0,09%


Closing Market Summary: Stocks End Upbeat Week on Cautious Note

The stock market finished an upbeat week on a cautious note as the major averages settled near their flat lines. The S&P 500 (-0.1%) shed less than three points, while the Russell 2000 (+0.1%) outperformed slightly. Interestingly, the bulk of today's trading activity took place before 11:00 ET, while the key indices spent the afternoon within a striking distance of their unchanged levels.

One hour ahead of the opening bell, the April Nonfarm Payrolls report pointed to the addition of 288,000 jobs (consensus 210,000), but the release was a bit mystifying as a sharp drop in the labor force pressured the unemployment rate to 6.3% from 6.7%.

On one hand, the surprise jump in payrolls suggests a release of pent-up demand following weather-related delays; however, there was nothing in the job creation data that pointed toward a weather-delayed shock. Sectors that were most affected by the weather, such as construction and mining, saw solid growth but nothing different than what was reported during the worst of the weather problems in February. On the other hand, the unemployment rate plunged from 6.7% to 6.3%, which resulted entirely from an 806,000 drop in the civilian labor force. Had the labor force stayed constant, the unemployment rate would have increased to 6.8%.

The enigmatic report was met with an initial spike in index futures and the Dollar Index, while gold and Treasuries slumped; however, those moves were short-lived as futures returned to unchanged by the opening bell, while the dollar, gold, and Treasuries also reversed their post-data moves. As a result, Treasuries settled near their highs, with the benchmark 10-yr yield down three basis points at 2.59%. Also of note, the 30-yr bond posted its third consecutive gain, pressuring its yield to 3.37%, a level that was last seen in June of last year.

With regard to gold futures, the yellow metal rose 1.1% to $1297.60/ozt. This put in a floor under miners (GDX +2.2%), which in turn gave support to the materials (+0.5%) sector.

The materials space ended in the lead and was followed closely by the energy sector (+0.3%), which was able to overcome a disappointing quarterly report from Chevron (CVX 124.72, -0.22). Crude oil, meanwhile, added 0.4% to $99.80/bbl.

Outside of the two commodity-linked sectors, the discretionary space (+0.3%) was the only other advancer. Homebuilders took part in the move higher as the iShares Dow Jones US Home Construction ETF (ITB 23.95, +0.34) gained 1.4%.

On the flip side, seven sectors registered losses, with utilities (-2.0%) leading the retreat, which was a bit peculiar considering the rate-sensitive sector tends to benefit from lower Treasury yields. To be fair, the selling may have been a function of some profit taking inside of a sector that remains well ahead of the other groups so far in 2014. Today's loss narrowed the sector's year-to-date gain to 11.7%, while the second-best performer of the year—energy—ended the session with a 5.3% advance so far this year.

Trading volume was below average as less than 685 million shares changed hands at the NYSE. This was likely a result of unwillingness among some participants to step in ahead of the weekend as the next couple days could change the state of affairs in Ukraine. Earlier today, Ukraine's military stormed the town of Slavyansk in an attempt to recapture a city that has been described as a stronghold for pro-Russian separatists. In response to the developments, Russia has called an emergency meeting of the United Nations Security Council.

Reviewing today's remaining data:
  • Factory orders increased 1.1% in March after increasing a downwardly revised 1.5% (from 1.6%) in February. The Briefing.com consensus expected factory orders to increase 1.6%. Durable goods orders were revised up, increasing 2.9% from an originally reported 2.6%. Orders increased 2.3% in February. Excluding transportation, durable goods orders increased 2.4%, up from an originally reported 2.0%. 
On Monday, the ISM Services report for April will be released at 10:00 ET (consensus 54.0).
  • S&P 500 +1.8% YTD 
  • Dow Jones Industrial Average -0.4% YTD 
  • Nasdaq Composite -1.3% YTD 
  • Russell 2000 -2.9% YTD 

>>> US Earnings Preview for the week of May 5 - 9



Earnings Preview for the week of May 5 - 9

Of the companies reporting earnings for the week of May 5 - 9 some of the bigger names include:
  • Monday:
    • Pre Market - PFE, SYY, TSN, OXY, RLGY, WLP, KOP, OWW, TESO, HL
    • After Hours - AIG, THC, APC, EOG, SMG, AXLL, CFN, VNO, 
  • Tuesday:
    • Pre Market - DTV, UBS, EMR, ARW, BCE, HFC, ODP, FE, WCG, NRG, HSIC, WNR, MOS, ACM, DISCA, ZTS, AME, ARCO, HSH, TW, NUS
    • After Hours - ETE, ETP, DIS, ALL, LBTYA, CYH, SXL, OKE, MRO, WFM, OKS, AGU, ARRS, FTR, QUAD, LYV, DPM, PXD, FSLR, GRPN, ATVI, ZU, PEGA, BID, PBPB, 
  • Wednesday:
    • Pre Market - HUM, BUD, MDLZ, ENB, DUK, CHK, BAM, HNT, DVN, HTZ, CTSH, VOYA, SE, AGN, SUSS, TLM, POM, KELYA, SUSP, PRGO, SPB, AOL, 
    • After Hours - PRU, PAA, CTL, UGI, UNM, RIG, CZR, CAR, DK, EXPD, ATO, KND, APU, ANDE, MKL, CF, PL, GMCR, EVHC, RNDY, CLR, TGI, WGL, KGC, BKD, SFM, TSLA, TWTC, NLY, Z, SCTY, 
  • Thursday:
    • Pre Market - MGA, CAJ, GLP, AES, APA, DISH, CDW, PCP, DF, CORE, VC, VRX, PCLN, HII, CVC, AEE, WIN, MPEL, ICE, HCN, SPH, WWAV, SKYW, SUNE, SNI, MNK, DNDN, 
    • After Hours - CBS, ED, CSC, SYMC, NVDA, MNST, MTD, NUAN, KRO, SGMS, MDRX, MDVN, 
  • Friday:
    • Pre Market - MT, CNQ, ALU, HLT, RL, BLMN, SATS, CQB
    • After Hours - VVC

(MergerMarket) AstraZeneca defence tactics point to pricing issue

AstraZeneca defence tactics point to pricing issue

- UK Takeover Code limits scope for poison pill
- CEO Soriot may not be ready to leave

AstraZeneca’s [LON:AZN] defence tactics against Pfizer [NYSE:PFE] rely first and foremost on price, it is understood. More traditional UK defence tactics such as attracting a white knight or selling off assets were talked down.

There was a sufficient gap between Pfizer’s GBP 50-per-share proposal Friday morning and the price required for AstraZeneca’s board to consider a takeover offer, it was said. If the price had been closer to the board’s value of the company as an independent entity, then language used rejecting the proposal would not have been so strong.

Shareholders are supportive of the board’s rejection of Pfizer’s initial approaches, it was said.

Rumours earlier this week pointed to the possibility of AstraZeneca putting a poison pill in place to fend off the takeover approach. However, industry bankers thought this was unlikely given that the UK Takeover Code limits the scope for frustrating action. A poison pill would also require shareholder approval.

The only viable defence strategies to prevent a takeover by Pfizer would include AstraZeneca pushing a value creation strategy through regular shareholder engagement, a white knight, returning capital and selling assets, the first banker said.

AstraZeneca was quick to reject Pfizer’s bid bump to GBP 50 per share, calling the terms inadequate and substantially undervaluing the company. The terms are not a basis on which to engage with Pfizer, AstraZeneca’s board said. The large proportion of the consideration payable in Pfizer shares and the tax-driven inversion structure remain unchanged, the statement noted.

Pfizer’s approach today had a 2% higher cash weighting than the January approach.

Implementing poison pills is a far easier practice in the US. In April, Allergan implemented a poison pill within 24 hours of a merger proposal from Canada’s Valeant. In that approach Valeant was offering each Allergan share to be exchanged for USD 48.30 in cash and 0.83 shares of Valeant common stock. Similarly, in 2012 US-based Illumina implemented a poison pill shortly after Swiss giant Roche approached it with a takeover bid.

In the UK, there is very limited recourse in terms of tactical or structural intentional poison pills, the first banker said. Shareholders can approve a poison pill, but this would preclude them from receiving an offer, an unlikely arrangement for any shareholder, he added.

A merger of equals with either AbbVie [NYSE:ABBV] or Amgen [NASDAQ:AMGN] is a possibility in theory, an M&A advisor familiar with AbbVie said. But it is difficult to see AstraZeneca pulling off such a move, the advisor said, adding AbbVie in particular is facing its own problems as a number of patents expire.

Pipeline value

Today’s bid follows AstraZeneca giving FY17 earnings guidance above consensus expectations, broker upgrades, and a cancer immunotherapy deal with British private biotech Immunocore. AstraZeneca has a busy year ahead in terms of pipeline news flow including late-stage trials for anaemia and anticancer drugs.

A shareholder previously told this news service that AstraZeneca’s shares did not reflect the upside potential from the oncology pipeline, potentially a mega-blockbuster area. This shareholder said a price closer to GBP 60 per share than GBP 50 would reflect the pipeline value.

The second banker claimed the pharma industry thinks that AstraZeneca’s pipeline is not worth the premium shareholders are seeking. Out of its 11 candidates set for filing in 2017-18, half may not even make it to filing based on the company’s historical data.

When Pascal Soriot took over as chief executive officer in 2012, his aim was to turn around ailing R&D operations, the third and fourth industry bankers commented. There may even have been a strike price and options in Soriot’s contract that would trigger the price point for a takeover, the second banker argued.

It may be too early for Soriot to sell the company because he has not yet been able to make his mark, the second banker contended. Soriot is shaking things up to have more innovation and relocating the R&D operations to Cambridge where there is a gene pool of talent, he added.

However, it was noted that AstraZeneca’s board has a duty to shareholders, and not Soriot. The CEO could be seen as already having succeeded at the company by reinvigorating AstraZeneca’s pipeline and bringing more energy to the role than its previous chief.

According to Dealreporter’s historic database the UK has seen 36 hostile bids since 2006, of which 15 (42%) lapsed. The average upward price revision was 15% ranging from 2% to 38%. Pfizer’s latest approach was at a 7% increase to its January offer.

This bid has echoes of Kraft’s [NASDAQ:KRFT] hostile bid for Cadbury, which was launched with a bear hug offer and subsequently raised twice before the offer completed. AstraZeneca’s defence team includes Goldman Sachs’ Karen Cook and former Morgan Stanley banker Simon Robey, who both worked on Cadbury’s defence team.

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance: NTRI +12.1%, ELLI +11.2%, PMCS +10.4%, TSYS +10%, IRIX +9.9%, RBS +9.6%, SKUL +9%, KCG +8.4%, SQNM +7.9%, IHG +7.7%, CTB +6.8%, MCHX +6.7%, CTRL +5.7%, AEM +5.7%, DXCM +5%, WPRT +4.3%, ITMN +4.2%, MCRS +4.1%, OZM +4.1%, MODN +4%, ABTL +3.9%, AXL +3.8%, WYNN +3.6%, ATEN +3.5%,AFFX +3.4%, QLGC +3.3%, EL +2.8%, AKAM +2.7%, FLT +2.7%, USM +2.4%, MXWL +2.3%, SSNC +2.3%, OUTR +2.1%, OUTR +2.1%, EGO +2%, MTZ +1.9%, HTGC +1.8%, CHGG +1.5%, VRTX +1.4%, VRTX +1.4%, SEM +1.1%, CBM +1%, WU +0.9%.

Other news: RXII +23% (announces positive results with RXI-109 in the eyes of cynomolgus monkeys as part of a dose range finding study), EQU +15.1% (announces revised midstream marketing contract; impact on Equal's 2014 cash flow is expected to be a reduction of about $1.3 mln), AMRN +7.1% (new MARINE and ANCHOR Post-Hoc Analyses ), RTK +4.7% (acquires New England Wood Pellet), PRKR +4.2% (Court issues bench rulings in ParkerVision's ongoing litigation against Qualcomm (QCOM); Court denied Qualcomm's motion for JMOL), MODN +4% (announced appointment of Mark Tisdel as Chief Financial Officer and Shail Khiyara as Chief Marketing Officer), ISRG +3.7% ( enters into accelerated share repurchase program with Goldman), FLT+2.7% (signed a long term fuel card system processing contract with Chevron) IO +2% (has been awarded a multi-year contract with Petroleos Mexicanos), NKA +1.5% (announced signing of contract with TransCanada Gas Storage Partnership), JKS +1.5% (to Supply 100 MW Solar PV Modules for Two Projects in Chile), VRTX +1.4% (announced that treatment with the combination of VX-661 and KALYDECO (ivacaftor) .

Analyst comments: AVNR +3.7% (upgraded to Buy from Neutral at Mizuho), MAS +2.2% (upgraded to Strong Buy from Mkt Perform at Raymond James), NVS +1.1% (upgraded to Buy from Hold at Jefferies), ENR +0.9% (target raised to $134 from $120 at Citigroup), ORCL +0.7% (upgraded to Buy from Hold at Societe Generale
)

>>> US Gapping down


Gapping down
In reaction to disappointing earnings/guidance: BIRT -18.2%, SQI -18%, HTCH -13.8%, INVN -13.4%, SREV -12.6%, BCOR -8.6%, GERN -8.1%, AHS -7.8%, RBCN -6.8%, NGVC -6.8%, CVD -6.3%, ONNN -5.1%, PKT -4.8%, MITK -4.6%, KOG -4.6%, KEYW -4.5%, MTW -4.3%, CSOD -3.9%, CPSI -3.5%, FLR -3.4%, EHTH -3.2%, CVS -3.1%, OPEN -3%, SWIR -2.6%, UPIP-2.3%, EXPE -2.2%, EXEL -2%, LNKD -1.8%, IMPV -1.8%, XLS -1.4%, DVA -1.3%, LRE -1.1%, XPO -1.1%, NCT -1.1%, .

M&A news: AZN -0.5% (AstraZeneca Board rejects Pfizer (PFE) proposal), PFE -0.2%.

Other news: IMMU -16.2% (announces proposed public offering of common stock), DRL -8.4% (Attiva Capital Partners disclosed 5.3% stake; co also said it is developing a revised capital plan to remain in compliance with regulators), DDD -3.2% (negative mention on Mad Money), TTPH -2.6% (filed for $125 mln mixed securities shelf offering), MEG -2.1% (prices 4,213,433 shares of common stock at $15.50 per share, all by selling shareholders ), ATHN -1.4% (named Karl Stubelis acting Chief Financial Officer), ISBC -1.2% (stockholders and Investors Bank's depositors approve the plan of conversion), .

Analyst comments: PKT -4.8% (downgraded to Sector Perform from Outperform at Pacific Crest).

WSJ : The Next Global 'It' Cities? Beirut? Jakarta?

The Next Global 'It' Cities?
Prices in posh markets like New York, London and Hong Kong may push international home buyers to rising markets in Beirut or Jakarta

May 1, 2014 6:39 p.m. ET
A view of Melbourne, Australia Shutterstock
In the global luxury real-estate scene, is Lagos poised to be the next big thing?
The Nigerian city is among a list of 12 up-and-coming luxury markets around the globe, according to a new report from Savills SVS.LN +1.90% World Research, in cooperation with design firm Candy & Candy and Deutsche Asset and Wealth Management.
The other cities are Beirut, Cape Town, Chennai, Chicago, Dublin, Istanbul, Jakarta, Melbourne, Miami, Panama City and Tel Aviv. The most expensive city is Tel Aviv, where an entry-level, two-bedroom luxury apartment typically cost $1.45 million in March; the least expensive was India's Chennai, where a luxury two-bedroom cost around $160,000.
The report considered economic factors, such as job-market potential and gross domestic product, but also a number of qualitative aspects, like cultural attractions and the presence of English as a first or second language.
In 2013, there were nearly 200,000 people world-wide with wealth exceeding $30 million, according to the Wealth-X & UBS World Ultra Wealth Report. As prices continue to rise in prime markets like New York, London and Hong Kong, Yolande Barnes, director of Savills World Research, predicts that luxury buyers will increasingly look to less mature markets for better value.
The cities run the gamut, from well-established markets like Melbourne and Tel Aviv, which have yet to reach their full investment potential, the report notes, to developing markets like Chennai and Lagos, which may have larger returns but more risk for buyers. "You have to look at the political risk," said Nick Candy, CEO of Candy & Candy, noting that unpredictable currency exchange and ownership hurdles for foreigners in some markets might dissuade some buyers.
In Tel Aviv, the Manhattan Tower attracts cosmopolitan buyers, says Tomer Fridman, CEO of Israel Sotheby's International Realty. "Ten to 15 years ago, there wasn't an international product," he said. Today, the 10,000-square-foot penthouse in the tower is listed for $25 million. He credits the city's thriving tech industry and interest from Europeans, among others, for the surge in foreign buying.
Other markets on the list are similar to Panama City. The Central American hub is poised for rapid growth thanks to a mix of foreign investment and government policies that benefit international buyers, said Andrea Kam, a consultant for real-estate brokerage Bonavivi in Panama City.
The global recession hit some markets on the list particularly hard, but the report says home prices are rebounding. In Dublin, for example, inventory is tightening and demand is rising, said Graham Murray, head of residential for Savills in Dublin.