Closing Market Summary: Crude Oil's Plunge Leads Stock Market Lower On WednesdayCrude oil ($50.40/bbl) stole the spotlight on Wednesday, plunging 5.3%, after the latest Energy Information Administration (EIA) inventory report showed a much higher build than the consensus estimates were anticipating (8.2 million vs 2.0 million est.). The major averages held their ground for some time amid the energy component's plummet, but succumbed to selling pressure in the final stretch. The Nasdaq (+0.1%) finished with a slim gain while the S&P 500 and the Dow closed with losses of 0.2% and 0.3%, respectively.
Unsurprisingly, the energy sector closed the day at the bottom of the leaderboard with a loss of 2.5%. The rate-sensitive utilities (-1.5%) and real estate (-1.5%) groups also finished solidly lower amid an increase in interest rates following a better than expected ADP National Employment Report, which clobbered consensus estimates; the reading showed that a whopping 298,000 private-sector jobs were added in February (consensus 180,000).
In light of the ADP release, economists will be adjusting their estimates for nonfarm payroll gains (consensus 188,000) in Friday's Employment Situation Report for February, which is regarded as the last potential barrier for a rate hike in March. Following today's economic data, the CME Fed Watch Tool now assigns an implied probability of 90.8% to a March rate hike, up from 81.9% on Tuesday. Furthermore, the market expects to see another rate hike by the September meeting. The U.S. Dollar Index (102.04, +0.23) ticked up in tandem with rate hike expectations, adding 0.2%.
In the same breath, U.S. Treasuries finished the day in negative territory with the benchmark 10-yr yield closing four basis points higher at 2.55%.
At the top of the day's sector standings were the health care (+0.3%) and consumer discretionary (+0.3%) sectors with the latter space receiving a boost from retailers. The SPDR S&P Retail ETF (XRT 42.37, +0.43) added 1.0% after the latest batch of earnings reports, which included a stellar performance from The Children's Place (PLCE 118.15, +18.25). PLCE shares spiked 18.3% after the company reported better than expected earnings and issued upbeat guidance. In addition, The Children's Place also announced a new stock buyback and a dividend increase.
For the health care group, today's positive showing was more of a bounce-back performance following Tuesday's tumble, a day in which the sector saw selling pressure in response to the House Republicans' proposed Obamacare replacement.
The technology (+0.1%), financials (unch), and materials (+0.1%) sectors finished near their flat lines while the telecom services (-0.4%), consumer staples (-0.3%), and industrials (-0.4%) groups finished with modest losses.
Today's economic data included February ADP Employment Change, fourth quarter Productivity & Unit Labor Costs, January Wholesale Inventories, and the weekly MBA Mortgage Index:
- The ADP National Employment Report showed an increase of 298,000 in February (consensus 180,000) while the January reading was revised to 261,000 from 246,000.
- The ADP reading precedes Friday's more influential Employment Situation Report for February, which is widely considered the last potential barrier to a rate hike in March.
- The unit labor costs were left unrevised during the fourth quarter, showing an increased 1.7%, which was higher than the 1.6% increase that had been anticipated by the consensus. The productivity reading was also left unrevised, showing an increase of 1.3%. The consensus expected an increase of 1.5%.
- The key takeaway from the report is that productivity is low, with the average annual rate of productivity growth from 2011 to 2016 being 0.6% versus the long-term rate of 2.1% from 1947 to 2016. Low productivity gets in the way of a rising standard of living.
- January Wholesale Inventories decreased 0.2%, while the consensus expected a downtick of 0.1%. The prior month's reading was left unrevised at +1.0%.
- The market doesn't typically pay much attention to this release since the full business inventories report is usually released a few days later.
- The weekly MBA Mortgage Applications Index increased 3.3% to follow last week's 5.8% uptick.
On Thursday, investors will receive February Challenger Job Cuts at 7:30 ET, with February Export/Import Prices and Initial Claims (consensus 240,000) following at 8:30 ET.
--> DB US -0.03% in the US
Stock bounce on the news to trade abck on lows after :
Fiat Chrysler's merger options dwindle as Volkswagen rejects overtures
Fiat Chrysler (FCHA.MI) boss Sergio Marchionne's attempts to find a partner were frustrated for a second time in as many days on Wednesday, as Volkswagen (VW) joined General Motors (GM) in dismissing any interest in talks with their smaller rival.
Marchionne said on Tuesday that European market leader VW (VOWG_p.DE) would be hardest hit by PSA Group's (PEUP.PA) purchase of Opel, which will create a stronger European No. 2, and the pressure could prompt VW to sit down with FCA.
But VW chief Matthias Mueller was quick to rebuff the overtures, saying his company had enough on its plate already as it battles to recover from a diesel emissions scandal.
"We are not ready for talks about anything ... we have other problems," he told Reuters on the fringes of the Geneva auto show on Wednesday. "I haven't seen Marchionne for months."
Marchionne has long advocated car industry mergers to share the costs of making cleaner and more technologically advanced vehicles and on Tuesday stressed deals were as vital as ever.
"You need to achieve scale or we will end up delivering an incredibly poor return and margins on this business. We need to fix this," he said, referring to the wider auto industry.
The PSA-Opel deal leaves FCA in an increasingly difficult position in Europe. The indebted group has a European market share of only about 7 percent, its operating margin of 2.5 percent lags most rivals, as does its spending on cleaner and more autonomous cars.
Mueller's rejection follows a similar snub from GM (GM.N), after Marchionne said the U.S. company remained his favorite merger candidate despite its decision to exit Europe by selling Opel and having rebuffed FCA's approaches several times already.
"We weren't interested before and we're even less interested now," GM President Dan Ammann told reporters in Geneva.
A combination of VW and FCA could in theory create a European market leader with a share of around 30 percent, give VW a strong foothold in North America through FCA's Chrysler operations and fix FCA's lack of scale in Asia. But the combination could also mean thousands of job losses that unions and politicians from Italy to Germany would strongly oppose.
Mueller also stressed scale was not a priority for VW.
"In my opinion, size does not matter," he said. "I have always said volume is not our sole goal. We want to be a successful manufacturer in every way."
DIESELGATE WOES
Marchionne is courting VW at the worst possible time.
The German company is at the start of a multi-billion-euro transformation to embrace electric cars and automated driving as it struggles to overcome its emissions scandal.
While grappling with billions of costs for fines, buy-backs and other charges in the United States, VW is also facing a mounting challenges from consumer groups seeking compensation.
The group is battling with its powerful labor unions too about cost cuts to fund its new strategy.
Since being rejected by GM, Marchionne has focused on eliminating debt and shifting production towards higher-margin vehicles, including SUVs, to become a more attractive merger partner in future. But his options appear to be dwindling.
"In western countries we believe that Volkswagen remains the main candidate for M&A, but after dieselgate, which likely stopped everything for a while, the top candidates for an FCA deal moved to the East (Koreans or Chinese), with all the risks on timing and political consequences that they would bring," said Angelo Meda, head of equities at Banor SIM.
Some analysts also question why anyone would buy FCA now when the price could be set to fall, given the North American market - where it makes most of its profits - may be peaking.