US Close

Closing Market Summary: Russell 2000 Leads Stocks Higher

The S&P 500 settled higher by 0.6%, snapping its four-day losing streak. Despite today's gain, the benchmark index remains lower by 1.1% in December.

The bulk of today's advance occurred shortly after the open as the Dow, Nasdaq, and S&P 500 notched their highs during the initial 30 minutes. Small-caps were a notable exception as the Russell 2000 (+1.2%) climbed throughout the day, trimming its month-to-date loss to 2.0%.

Nine of ten sectors registered gains with cyclical groups maintaining their lead throughout the session. The energy sector (+1.0%) displayed strength from the open after its largest component, Exxon Mobil (XOM 97.22, +1.91), was upgraded to ‘Buy' from ‘Neutral' at Goldman Sachs. Crude oil, which added 0.9% to $97.47/bbl, also played a part in the sector's strength.

Elsewhere, the industrial sector (+1.0%) assumed the lead in afternoon trade as defense contractors and transports rallied. The PHLX Defense Index settled higher by 1.2% while the Dow Jones Transportation Average climbed 0.9%. Although heavily-weighted financials (+0.6%) and health care (+0.2%) were a bit tentative in today's advance, the largest S&P 500 sector, technology(+1.0%) picked up the slack. The sector received support from chipmakers after Avago (AVGO 50.10, +4.45) agreed to acquire LSI Logic (LSI 10.96, +3.05) for $11.15 per share. The broader PHLX Semiconductor Index ended higher by 1.3%.

Even though equities registered solid gains, all ten sectors remain in the red for the month. Countercyclical consumer staples, health care, telecom services, and utilities are down between 1.0% and 2.7% in December while losses among cyclical groups are limited to no more than 1.2% (consumerdiscretionary and financials). Despite today's advance, the CBOE Volatility Index (VIX 16.06, +0.30) climbed for the fourth session in a row, ending at a two-month high.

Treasuries registered modest losses as the 10-yr yield ticked up one basis point to 2.88%. Today's participation was on the light side as only 669 million shares changed hands on the floor of the New York Stock Exchange. On the economic front, revised productivity data for the third quarter showed an increase of 3.0%, which was above the 2.7% increase that had been expected by the consensus. Unit labor costs for the third quarter were revised lower to reflect a decrease of 1.4% (from -0.6%). The consensus expected the reading to reflect a decrease of 1.3%. Separately, the Empire Manufacturing Survey for December registered a reading of 1.0, which was up from the prior month's reading of -2.2. However, the reading came in below the 5.0 expected by the consensus.

November industrial production increased 1.1% while the consensus expected an uptick of 0.4%. Meanwhile, capacity utilization hit 79.0%, which was better than the 78.4% expected by the consensus.

Lastly, the October net long-term TIC flows report reflected an inflow of $25.5 billion into U.S. denominated assets. This followed the prior month's $25.5 billion inflow. Tomorrow, November CPI, core CPI, and the third quarter current account balance will all be reported at 8:30 ET. Separately, the NAHB Housing Market Index for December will be released at 10:00 ET. o Nasdaq +33.5% YTD o Russell 2000 +31.9% YTD o S&P 500 +25.3% YTD o DJIA +21.2% YTD

(Pimco) Global Credit Perspective Dec 2013 (pdf attached)

Settling In
• An improving outlook for U.S. housing will be constructive for consumer spending, confidence and jobs.
• There are many ways to invest directly and indirectly in companies that should benefit from higher housing prices, a pickup in home repairs and remodeling, and residential investment spending.
• We continue to favor select investments in homebuilders, building materials, appliance manufacturers, lumber, home improvement, banks, title insurance, mortgage origination and servicing, and non-Agency mortgage-backed securities.

(BN) China Luxury Growth Slows to Weakest Pace Since 2000, Bain Says

China Luxury Growth Slows to Weakest Pace Since 2000, Bain Says
2013-12-16 16:01:10.0 GMT


By Bloomberg News
     Dec. 17 (Bloomberg) -- China’s luxury spending grew this
year at the slowest pace since at least 2000 as more shoppers
traveled abroad and the government’s anti-corruption efforts
curbed purchases, consultant Bain & Co. said.
     Spending in luxury goods is estimated to have increased
about 2 percent in 2013, compared with 7 percent last year, the
Boston, Massachusetts-based company said in a report released
yesterday. Growth in 2014 will be at a pace similar to this
year, it said.
     Demand for luxury items from Swiss watches and expensive
liquor have slumped since President Xi Jinping ordered officials
to cut down on lavish spending and stepped up investigations
into graft. Kering SA’s Gucci sales fell in the third quarter
and LVMH Moet Hennessy Louis Vuitton SA saw softening demand in
perfume and cosmetics during the period amid a slowing economy
and a shift to overseas purchases.
     “China’s luxury market has quickly changed from land-grab
to slow, steady strategic focus,” said Bruno Lannes, Bain’s
Shanghai-based partner and lead author of the study. “The
mindset among global brands here is changing from ‘where do we
find growth’ to ‘how do we create growth.’”
     China’s crackdown on extravagance and its anti-corruption
campaign had a “large” impact on gifting, one of the major
growth engines of the industry, and that hit sales of watches
and menswear the most this year, Bain said. Sales of luxury
timepieces declined by 11 percent in 2013, it said.
     Swiss watch exports, including those from Cie. Financiere
Richemont SA and Swatch Group AG, to China dropped 14 percent in
the first 10 months of the year, data from the Federation of
Swiss Watch Industry show.

                       Overseas Purchases

     Chinese shoppers now buy more than two-thirds of their
luxury items overseas, a move that has led to a slowdown in
store traffic and openings on the mainland, according to the
Bain report.
     Chinese consumers, who last year overtook shoppers in the
U.S. to become the world’s biggest buyers of personal luxury
items, account for 29 percent of global purchases, Bain said.
     Female shoppers in the world’s most-populous nation are
starting to increase their spending power and influence, with
womenswear and shoe categories growing between eight percent to
10 percent this year, Bain said.
     The study showed new store openings by 20 brands tracked by
Bain fell by one-third this year to about 100 new outlets, with
the focus now on renovation and operational improvement for
domestic shoppers.

For Related News and Information:
Luxury Market Headed for Slowest Year of Growth Since 2009: Bain
NSN MVDN6Q6VDKHZ <GO>
Chinese Learning Luxury Pair Wine With Duck Not Sprite: Retail
NSN MSLC7Z6KLVRY <GO>
Omega Joins Patek Philippe Seeking Growth to Offset Slower China
NSN MLYW406TTDS1 <GO>
Bloomberg Industries on luxury goods BI LUXG <GO>
Top consumer stories: TOP CONS <GO>

--Liza Lin. Editors: Stephanie Wong, Subramaniam Sharma

To contact Bloomberg News staff for this story:
Liza Lin in Shanghai at +86-21-6104-3047 or
llin15@bloomberg.net

To contact the editor responsible for this story:
Stephanie Wong at +852-2977-6036 or
swong139@bloomberg.net

>>> ECB's Draghi: ECB exit from loose monetary policy is still very distant

ECB's Draghi: ECB exit from loose monetary policy is still very distant
- Not easy to assess what the impact will be from the eventual Fed taper.
- Not easy to assess what the impact will be from the eventual Fed taper, but should not be a major impact on Europe.
- Too early to say when Portugal will exit program.
- Joint deposit guarantee discussion has been postponed but no abandoned

FT : Equity bulls trust in the Fed, not the economy

Equity bulls trust in the Fed, not the economy

The case for stocks is largely down to the issue of easy money
The capitulation of market sceptics in the past several weeks has not been pretty. But it was perhaps inevitable, and so, as we look to 2014, the consensus among market strategists has hardened.
The Federal Reserve is expected to start tapering asset purchases in the first quarter of next year, if not sooner, but investors should keep the faith, and remain committed to the near five-year-old bull market in equities.
    The protagonists have a point. In the face of a firmer cyclical economic outlook, all developed country central banks are committed to an extended period of zero-bound interest rates. In addition, markets can look forward to additional ‘QE’ in Japan, and other ways of easing monetary policy in the eurozone. But those of us being encouraged to part with our money would be well advised to remember that whatever the justification for rising stock prices, we should not let economic fundamentals get in the way of the story.
    Looking back over the past year, almost three-quarters of the rise in global equity returns came from the re-rating of price-to-earnings ratios, which are now touching a long-run average (ex-technology bubble) of around 15, which is what they did in the 2009-10 rally, before trending down again until 2012.
    The cheerleaders argue next year we will get upside earnings surprises, from an acceleration in global growth, higher capital spending by cash-rich large companies and rising operational leverage as margins increase. We could even get higher p/e ratios because the abnormalities of the 2008-13 period, including the financial crisis, recession, deleveraging and euro-break-up threat, are now history. Instead of the narrow 10-15 range for p/e ratios that describes most of the past six years, why not the more “normal” 12-25 range of the past quarter century?
    Cyclical pick-up
    For these things to happen, though, two propositions must hold. First, global growth has to accelerate, and become self-sustaining, and second, the “bad cycle” of 2008-13 must really be over, leaving no detritus behind. Neither stands up to scrutiny. The former is fickle, while the latter is fantasy.
    There is a modest cyclical pick-up and it might have legs in the US – if a dysfunctional government can avoid another bout of untimely fiscal drag. But, other than a surprisingly perky UK, which has embraced the housing equivalent of recidivism, European growth is stagnant, even if it has a ‘+’ sign in front of it next year, thanks to a lull in structural fiscal adjustment. Japan’s economy is predicted to slow to almost a standstill in 2014, amid a tax rise and continued weakness in wages, hiring and investment.
    The western economies, more importantly, cannot achieve self-sustaining growth until they address structural economic drags that have been accumulating for many years.
    Foremost among these are the cumulative effects of rising age structure, weak capital spending rates and an array of labour market weaknesses, including the stagnation of wages, the fall in employment and labour force participation rates, and the massive substitution of low wage for middle wage jobs. With much of the western world experiencing low single-digit money GDP growth or deflationary risks, the chances for aggregate upside earnings surprises do not look bright.
    EM consequences
    Fed tapering will have pervasive consequences for many emerging markets, struggling with their own structural growth slowdowns, as will the separate issue of credit cycle management in China.
    The former will build on the hors d’oeuvre earlier this summer as more fixed income and currency market turbulence lead to lower growth. Managing China’s credit cycle is becoming more urgent and fractious, for while total social financing and money GDP growth have slowed since 2009 and until now, TSF is growing at twice the rate of money GDP, versus 1.5 times in 2009. The credit to GDP ratio of 230 per cent, therefore, is actually growing more quickly. To stabilise it, let alone deleverage as the People’s Bank has suggested, short-term interest rates will rise again, feisty bond market conditions will likely tighten further, and 7 per cent growth may be a new year casualty.
    Away from the global economy, then, the bullish case for equities is largely down to the issue of money, or central bank largesse and persistent zero rates in the US and elsewhere. Investors should note JK Galbraith’s reference to the world of finance, where people have short memories in which “past experience is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present”.
    Past and relatively recent economic experience warrants caution about the market. More of the same from central banks warrants commitment. But which do you trust more? Faites vos jeux.
    George Magnus is an independent economic consultant, and former chief economist of UBS

    FT : It is time for a fun bubble in commodities

    It is time for a fun bubble in commodities

    John Dizard wishes for a commodities rally to brighten the frozen wasteland that is the economy
    Ihave been inspired by recent thoughtful comments from Lawrence Summers and Paul Krugman, the economists, on the permanent liquidity trap, zero lower-bound constraint, global depression and endless expanse of frozen wasteland that stretches before us. It is time for another fun bubble. A commodities boom, one where everybody sells bonds and buys metals, grains and the “energy complex” with or without ever setting eyes on the stuff in warehouses, silos, or storage tanks.
    This is not to dismiss the deflation that has set in on southern Europe, which may be a chronic condition for countries with declining working-age populations. Nor do I believe the US budget deal, or the regulators’ eliding of the Volcker rule, or the endless fixes for healthcare finance have solved any of our long-term structural problems. I said “commodities boom”, not “sustainable long-term global expansion” or “world peace”.
      The commodities rally, boom, or whatever you want to call it has probably already started. It is accompanied by noticeably higher inflation risk premia that are being priced into government bond yields. Those do not support the view that the developed world as a whole is now at risk of falling into a deflationary spiral.
      It is always possible to have price rises that are linked to supply or transportation disruptions, in particular commodities. The fluctuating spreads between the US West Texas Intermediate oil price and the Brent North Sea price are a good example; many of the weekly swings could be explained by pipeline constraints, Norwegian offshore platform shutdowns and other identifiable events driving the “basis” trades.
      The current broader upswing in commodities seems different. For example, US Henry Hub natural gas futures prices are up more than 120 per cent from their 2012 low, despite the much-reported “miracle” of endless low-cost shale gas supplies.
      Then there is the “backwardation” in the copper futures curve. Futures prices are in backwardation when the price of a commodity offered for immediate delivery is higher than the price for delivery at later times. A move to backwardation, or an increase in the backwardation of a futures curve, is generally taken as an increase in real demand for the commodity.
      Now of course there are times when this phenomenon is just commodities sellside talk. Temporary and local backwardations can be over-interpreted by those who have too much of the commodity on hand, or who have commissions at stake. That turned out to be the case with the brief copper futures backwardations that popped up in early 2012. Those were explainable by short-term glitches in the supply chain. Yet the current copper backwardation stretches out along the futures curve. That suggests that a lot of market participants believe, collectively, that the excess of demand over supply will be sustained.
      There are some other encouraging signs for the depressed commodities longs. Major US banks are closing down or selling off their commodities trading and warehousing operations. The regulators and Congress have been pushing for this, and now the banks’ boards of directors are fed up with the endless fines and compliance problems, misaligned compensation schemes and trading losses. Any time the banks are falling over themselves to get out of a trade, you should consider getting in.
      Also, there is a dawning realisation on the part of US macroeconomists that there may be less slack in the labour market than meets the eye. We can all agree that the high rate of people giving up on job searches is a social tragedy. Yet the increasing difficulty employers have in filling vacancies for skilled workers should also get our attention. The outlook for wages and earnings is quite strong for those who are employed, which means there will be less resistance to increases in commodities prices.
      I do not believe in contrarianism for its own sake. Even if your analysis is right, and the crowd is wrong, you can wait for far too long before your position comes into the money. It is also a good idea to be sceptical of many commodities-based alternatives to the overbought bond market. You do not, though, have to squint hard to see the rally already taking shape.

      >>> US Gapping up

      Gapping up

      M&A news: PATH +60.9% (NuPathe to be acquired by Endo Health Solutions (ENDP) for $2.85 per share in cash; in addition, shareholders will receive rights to receive additional cash payments of up to $3.15 per share if specified net sales of NuPathe's migraine treatment ZECUITY are achieved over time), BRD +30% (Primero Mining PPP) to Acquire Brigus Gold; Primero will acquire each outstanding Brigus (BRD) common share for 0.175 of a Primero common share), SLTM +20.6% (Valeant Pharmaceuticals (VRX) agrees to acquire Solta Medical for $2.92 per share in cash; transaction expected to close in the first quarter of 2014), AER +6.3%/ AIG +2.6% (AerCap confirms acquistion of AIG's International Lease Finance Corp), AVGO / LSI halted (Avago Technologies to acquire LSI Corporation for $6.6 bln in cash), S +3.9% (saw late spike on rumor that S could bid for TMUS but there is concern that such an offer could face anti-trust hurdles).

      Select financial related names showing strength: ING +1.9%, RBS +1.7%, DB +1.5%, SAN +1.5%.

      Select oil/gas related names showing strength: TOT +1.7%, STO +1%, BP +0.9% (Government of the Sultanate of Oman gives the go-ahead to BP for the Khazzan Project ),XOM +0.7% ( upgraded to Buy from Neutral at Goldman).

      Other news: HNR +26.9% (announces share purchase agreement to sell interests in Venezuela for aggregate of $400 mln in cash), AGEN +23% (Positive Phase 2 Results from Agenus Brain Cancer Vaccine Published in Neuro-Oncology; Results Show Improved Survival Against Aggressive Brain Cancer; More Than 90% of Patients Alive After Six Months), FVE +16.6% (still checking),PGRX +11.3% ( to extinguish senior debt), LITB +8.7% ( authorizes up to $20 mln share repurchase through Dec 15, 2014 ), TI +6.6% (still checking), YRCW +6.5% ( Solus Alternative Asset Management discloses 14.56% active stake in amended 13D filing out Friday after the close; up from 9.57% previously reported on 12/11 ), HK +6.4% (Halcon Resources intends to offer an additional $400 mln in aggregate principal amount of its 9.75% senior unsecured notes due 2020; lowers its drilling and completions budget guidance for 2014 by 14% to ~ $950 mln), YPF +5.8% (Barron's profiles positive view on YPF), YGE +4.5% ( wins 233 MW of solar PV projects in Algeria)GOL +3.4% (still checking),RYAAY +2.2% (still checking), MYGN +2% (HRD Test significantly predicts response to cisplatin treatment in patients with triple negative breast cancer in second research study), FINL +2% ( following favorable comments on Friday's Mad Money ), CBST +1.9% (Announces Positive Top-Line Results from Phase 3 Trial of Ceftolozane / Tazobactam in Intra-Abdominal Infections; Investigational Antibiotic Meets Primary Endpoint in Second of Two Indications), GILD+1.8% (FDA approves once-daily single tablet HIV-1 regimen Complera for patients switching from a stable regimen ), AMZN +0.8% (may introduce payment installment plans for Kindles, according to reports), IBM +0.6% ( states it will vigorously fight lawsuit filed by Louisiana Sheriff's Pension and Relief Fund), EBAY +0.5% (following positive mention in Barron's), PG +0.4% (considering organization of overseas businesses, according to reports), VZ +0.9% ( Bloomberg discusses that VZ is close to a deal to purchase Intel's TV service), SSRI +0.8% (still checking).

      Analyst comments: TASR +3.7% (TASER upgraded to Overweight from Neutral at JP Morgan), URBN +2.6% (Urban Outfitters upgraded to Buy from Neutral at Goldman), BBRY +2% ( upgraded to Mkt Perform from Underperform at Bernstein), LL +1.9% (upgraded to Buy from Neutral at Goldman), C +1% ( upgraded to Overweight from Equal Weight at Evercore),AAPL +0.3% ( target raised to $650 from $600 at Jefferies)

      >>> US Gapping down

      Gapping down

      In the news: USU -34.2% (reaches agreement with noteholder group to move forward with balance sheet restructuring; USEC to fully meet obligations to customers and suppliers as operations continue ), PIP -14.5% ( SparVax placed on hold, according to reports out), ANH -5.7% (declares an $0.08 per share Q4 dividend), CSUN -3.5% (still checking), ASX -4.1% (Advanced Semi provides an update related to its Kaohsiung facilities; ASE Kaohsiung K7 facility continues to adhere to the standards of the national effluent guidelines and currently remains in normal operation), SUPN -2.7% (discloses it did not receive 3 years of marketing exclusivity for Trokendi XR ), DECK -0.6% (Deckers Outdoor ticking lower following cautious Barron's mention), TMUS -0.5% (saw late spike on rumor that S could bid for TMUS but there is concern that such an offer could face anti-trust hurdles).

      Analyst comments: EVGN -2.3% (initiated with a Outperform at Oppenheimer, with Neutral at Piper, with Outperform at Credit Suisse), JAZZ -0.6% ( downgraded to Neutral from Buy at Goldman)

      >>> US Early premarket gappers

      Early premarket gappers

      Gapping up: HNR +26.9%, AGEN +23%, PGRX +11.3%, LITB +8.7%, TI +6.6%, YRCW +6.5%, AER +6.3%, YGE +4.5%, S +3.9%, PHG +2.6%, MYGN +2%, FINL +2%, ING +1.9%, GILD +1.8%, TOT +1.7%, STO +1%, AMZN +0.8%, BP +0.8%, AIG +0.7%, IBM +0.6%, EBAY +0.5%

      Gapping down: USU -34.2%, IGT -6.4%, ANH -5.7%, CSUN -3.5%, SUPN -2.7%, DECK -0.6%, TMUS -0.5%