Closing Market Summary: Indices Rally to End Day as Energy LeadsThe stock market ended the Thursday affair on a higher note with the S&P 500 gaining 0.4% ahead of tomorrow's release of the February Employment Situation Report. The benchmark index managed to erase a nine-point loss, climbing to its best level by the end of the day. Today's action saw relative strength from commodity-sensitive energy (+1.3%), which managed to outweigh the underperformance of the heavyweight technology (-0.1%) and health care (-0.4%) spaces. Meanwhile, a bid higher in safe haven assets did not detract from an upswing in equities while the greenback lost some ground today.
On the leaderboard, energy (+1.3%) managed to lead the pack while industrials (+0.6%) and financials (+0.5%) followed. Meanwhile, the heavily-weighted health care (-0.4%) and technology (-0.1%) were the only two spaces to end in the red.
The energy sector (+1.3%) showed resilience today as the sector outperformed despite a volatile and ultimately flat showing from WTI crude ($34.57/bbl). On that note, independent oil and gas name ConocoPhillips (COP 38.56, +2.07) managed to add to its advance while oil was up and maintained its footing when oil swung lower. Separately, energy giants Exxon Mobil (XOM 82.40, -0.30) and Chevron (CVX 87.53, +0.39) ended on opposing sides of their flat lines.
Elsewhere, the industrial sector (+0.6%) outperformed today as farm and construction names like Deere (DE 83.67, +1.83) and Caterpillar (CAT 71.75, 2.37) traded higher in sympathy with Joy Global (JOY 16.09, +2.77). Joy boosted sentiment for the sub-group after the company maintained its full-year earnings and revenue guidance, which was viewed as better that feared. Meanwhile, Norfolk Southern (NSC 77.00, +0.00) and Union Pacific (UNP 80.01, +0.51) outperformed, helping the Dow Jones Transportation Average (+1.1%) solidify its position in positive territory for the year (year-to-date +1.2%).
Biotechnology contributed to early and prolonged weakness in the health care sector as the iShares Nasdaq Biotechnology ETF (IBB 264.24, -3.88) surrendered 1.5%. Today's loss in the ETF extended its year-to-date decline to 21.9%. This compares to a 6.8% in the broader sector for the year. Additional weakness in the sector spawned from Abbott Labs (ABT 38.82, -0.52) and Eli Lilly (LLY 73.25, -0.77), which lost 1.3% and 1.0%, respectively.
In the technology space, large-cap constituents pulled back from their recent outperformance as Alphabet (GOOGL 731.59, -7.89) and Microsoft (MSFT 52.35, -0.60) surrendered 1.1% apiece. The two names have climbed 5.1% and 7.5% since the February 11 low in the S&P 500. Separately, the broader technology sector widened its 2016 decline to 3.4%.
The countercyclical sectors were able to recover from some early relative weakness as utilities (+0.6%), consumer staples (+0.5%), and telecom services (+0.3%) ended on their best levels. The three sectors sport the largest year-to-date advances of 6.9%, 2.2%, and 11.2%, respectively.
The Treasury complex ended its day higher despite the afternoon rally in equities. On that note, the yield on the 10-yr note slipped one basis point at 1.83%.
On the currency front, the euro/dollar pair rose 0.9% to 1.0966 while the dollar/yen pair ticked up 0.1% to 113.62, but retreated from its overnight high of 114.28.
Today's trading volume was heavier than the recent average with more than 1.12 billion shares changing hands at they NYSE floor.Today's economic data included weekly initial claims, Q4 Productivity, Unit Labor Cost data, January Factory Orders, and ISM Services for February:
- Initial claims data for the week ending February 27 showed a slight bump in claims to 278,000 (consensus 270,000), up 6,000 from the prior week's unrevised level.
- There were no special factors influencing the latest reading, which kept initial claims pinned in the same 250,000 - 300,000 range they have been in since July 2014.
- The four-week moving average for initial claims decreased 1,750 to 270,250.
- Continuing claims for the week ending February 20 increased 3,000 to 2.257 million, which was basically in-line with the consensus estimate.
- The four-week moving average for continuing claims pushed slightly lower to 2.257 million.
- The Bureau of Labor Statistics reported nonfarm labor productivity decreased at a 2.2% annual rate during the fourth quarter (consensus -3.3%) versus a preliminary 3.0% decrease.
- The updated productivity number was the byproduct of output increasing 1.0% and hours worked increasing 3.2%. From the fourth quarter of 2014 to the fourth quarter of 2015, productivity increased just 0.5%.
- Unit labor costs in the nonfarm business sector increased 3.3% in the fourth quarter per the revised data versus a preliminary 4.5% increase. The revision reflected a 1.1% increase in hourly compensation and the 2.2% decrease in productivity.
- Unit labor costs have increased 2.1% over the last four quarters.
- Factory orders increased 1.6% in January. That was lower than the consensus estimate of 2.0%, but well above the unrevised 2.9% decline for December, which was the largest month-over-month decline since December 2014. Total factory orders are down 3.3% year-over-year.
- Excluding transportation, factory orders declined 0.2% on the heels of a downwardly revised 0.9% decline (from -0.8%) for December. On a year-over-year basis, factory orders excluding transportation are down 5.1%.
- New orders for manufactured durable goods increased 4.7%, which was down slightly from the 4.9% increase seen in the Durable Goods Orders report for January. New orders for nondefense capital goods excluding aircraft -- a proxy for business investment -- were up 3.4% versus an originally reported 3.9% increase seen in the Durable Goods orders report.
- New orders for manufactured nondurable goods declined 1.4% following a downwardly revised 1.1% decline (from -0.8%) for December. That was the third straight monthly decline in orders for manufactured nondurable goods.
- Shipments of manufactured durable goods increased 2.0% after an upwardly revised 1.8% decrease (from -2.1%) for December.
- The inventory-to-shipments ratio for all manufacturing industries slipped to 1.36 from a downwardly revised 1.37 (from 1.38) for December.
Tomorrow's economic data will be limited to the Employment Situation Report for February (consensus 190k) and the Trade Balance for January (consensus -$44.0 billion).
- Nasdaq Composite -6.0% YTD
- Russell 2000 -5.3% YTD
- Dow Jones -2.8% YTD
- S&P 500 -2.5% YTD
Konecranes should resist hiking Terex offer if Zoomlion bumps – top 10 shareholder
Konecranes [HEL:KCR1V] would be best placed to stand back “rather than overpay” for Terex [NYSE:TEX] if rival Zoomlion Heavy Industry Science & Technology [SHE:000157] approaches with a bid higher than USD 30 per share, according to a longstanding top-10 shareholder in the Finnish group.
There is “no intention” to engage in conflict with the Chinese government over the situation, Konecranes Chairman Stig Gustavson told this news service. Zoomlion secured Chinese government approval to make its unsolicited approach for Terex.
Gustavson declined to comment on the “hypothetical situation” of a higher Zoomlion offer. However, it is “highly questionable” that Zoomlion can mount a formal bid, he argued.
There are three likely scenarios as things stand, the shareholder said: Terex and Konecranes merge as planned; Zoomlion approaches with a significantly higher bid, including a large break fee held in escrow, at such a premium Terex shareholders would have to accept; or Zoomlion succeeds at USD 30 or higher, and invites Konecranes to participate in a break-up of Terex, in part potentially to address US political concerns.
A Terex/Zoomlion tie-up would likely face review by the Committee on Foreign Investment in the United States (CFIUS) given the target’s activities in or close to government agencies, military bases, ports and other strategic sites, this news service has previously reported.
However, the CFIUS risk inherent in a Zoomlion approach has been overplayed, the top-10 Konecranes shareholder said. Only 2%-3% of Terex’s activities would be likely to attract CFIUS’ attention, he added.
There is no concrete offer from Zoomlion and Terex cannot pull out of its all-stock agreement with Konecranes before a planned shareholder vote, a source familiar with the situation said. At this point, Konecranes should hold steady with its existing offer and refrain from proposing Terex carve-outs, the source added.
Konecranes is chiefly interested in Terex for its 2011 acquisition of Demag Cranes, the shareholder said. His preferred endgame is the Terex/Konecranes deal as proposed, as it is “so accretive”. But a carve-up where the Finnish group secures the assets it wants from a Zoomlion deal would be a reasonable scenario, he added.
Terex has been trying to exit the construction equipment business for some time and Konecranes would likely continue with disposal efforts in that regard, an independent industry executive said.
Construction equipment is hard to define, as over the years many small unrelated businesses and products were thrown into this Terex segment, the executive said. The biggest problem Terex has is that none of these activities fit together; distribution systems, sales teams and customers are all different, so no-one will want the segment as a whole, he added.
Konecranes should end up selling “most of” Terex’s non-crane operations, the shareholder said. It does not want any heavy construction assets without a top-rate service stream, he said.
The asset sales would be part of the package making a Terex/Konecranes tie-up so attractive, the shareholder argued. If private equity takes some USD 1.5bn in assets, that would form the bedrock of the planned buyback programme of the same amount, he said.
Assuming Konecranes can offload high-cost-base assets with low tax leakage, investors will be looking at a 5% dividend yield and a USD 1.5bn buyback, the shareholder said. Though Zoomlion’s bid looks decent on paper, if synergies are also forthcoming from Terex/Konecranes, it is difficult to see whether the Chinese bid adds very much for Terex shareholders for the deal risk it carries, he argued.
Terex and Zoomlion were not immediately available for comment.
MergerMarket
* Take-private deals likely
* Diverse pool of hopeful bidders for assets
* Corporate M&A needs market stability first
Facing challenging commodity prices and volatile capital markets, midstream master limited partnerships (MLPs) will turn to mergers, divestitures and ultimately acquisitions to address capital needs or simply to survive, industry sources say.
“The world doesn’t need 112 MLPs,” said Peter Bowden, managing director and head of midstream/MLPs, for Jefferies, speaking on 18 February at the Infocast 10th Annual Midstream Conference in Houston. Some will likely fail while others will be consolidated, he said. High-quality MLPs with strong sponsors will be the most likely acquirers, he said.
Generous capital markets enabled anyone “who could spell MLP” to raise capital, joked Jim Teague, CEO of Enterprise Products (NYSE:EPD), speaking on a panel at IHS CERAWeek in Houston last week. Enterprise is not looking to consolidate, Teague clarified.
Other executives take a different view. Consolidation could help resolve the current overbuilding and underutilization plaguing midstream infrastructure, said Greg Armstrong, CEO of Plains GP Holding (NYSE:PAGP) and Plains All American (NYSE:PAA), speaking on the same CERAWeek panel.
The MLP space will likely see “massive consolidation” between MLPs or take-backs to the parent, said Gregory Ebel, chairman, president and CEO of Spectra Energy (NYSE:SE) and Spectra Energy Partners (NYSE:SEP), also speaking during CERAWeek.
In August, Spectra was pegged as a potential suitor for Williams Companies (NYSE:WMB), which is in the process of being acquired by Energy Transfer Equity (NYSE:ETE).
To be sure, MLPs will look at all their financing options before parting with assets or consenting to a sale. On 27 January, Mergermarket outlined some of the capital-raising alternatives for MLPs, such as cutting distributions, securing financing from sponsors or selling preferred equity. An increasing number of MLPs are running out of options, however, and could become targets.
Potential sellers include MLPs that are struggling to survive in the current environment. Southcross Energy (NYSE:SXE) has seen its shares fall more than 96% from their 52-week high. Its market cap stands at USD 37.5m. Ownership of Southcross’s general partner is roughly divided between three private equity firms: Charlesbank Capital Partners, EIG Global Energy Partners and Tailwater Capital, according to regulatory filings.
Southcross is just one of as many as 20 MLPs that could “end up on the pink sheets,” said a first industry investor. The company received a continued listing notice on 19 February for trading below USD 1 over the preceding 30 trading-day period. The company has six months to regain compliance.
Beaten-down MLPs unable to tap the equity or debt markets could become “zombie” MLPs that are unable to execute their business strategy, said the industry investor and a first sector advisor.
Take-private plays
MLPs that can no longer serve the function they were created for could be potential take-private candidates, said Hinds Howard, SVP and associate portfolio manager at CBRE Clarion. In 2009, the Bakken-focused MLP Hiland Partners was taken private by Harold Hamm, also owner of Continental Resources (NYSE: CLR).
Ownership of the general partner will be key to any MLP take-private strategy, said Jeff Jorgensen, SVP, Center Coast Capital, noting that Hamm owned the GP of Hiland Partners himself.
A private equity executive and second sector advisor agreed that the current market creates take-private opportunities. The second sector advisor added that reverse mergers would be the flip side of the same coin.
In that case, a weakened public MLP could be a takeover target for a strong private company that would lead to a merged entity with a higher public valuation “over time.”
The first sector advisor said that most of the PE sponsors that own general partners that own MLPs have already looked at take-private scenarios. While the math “would seem to work”, factoring in the costs of taking the company private and then taking it public again at a later date means “it’s just as cheap if not cheaper to just wait it out,” the first sector advisor said.
Asset sale option
Public MLP valuations have fallen drastically — the Alerian MLP Index is down 45% from its 52-week high. But valuations for underlying midstream assets themselves remain relatively attractive, sources say. MLPs willing to part with assets will find a ready pool of buyers.
Canadian pension funds, sovereign wealth funds and even Asian investors would like to buy North American infrastructure, said the second sector advisor.
Mergermarket reported on 5 February that private equity stands by as willing buyers and partners. On 19 February, this news service also reported that utilities are targeting MLPs, and hungry for acquisitions.
MLPs themselves could be both buyers and sellers of assets. In July 2015, Enterprise Products sold its offshore Gulf of Mexico system to Genesis Energy (NYSE:GEL) for USD 1.5bn while purchasing midstream gathering assets in the Eagle Ford from upstream producers Reliance and Pioneer Natural Resources (NYSE:PXD).
Enterprise’s willingness to sell assets is one reason the company has weathered the current storm better than other MLPs, said Aaron Blomquist, managing director, Tudor Pickering Holt, speaking during the Infocast 10th Annual Midstream Summit on 18 February.
Corporate deals coming later
With public market valuations down and capital markets closed, undertaking an acquisition would present challenges to most MLPs. In addition, investor sentiment is an obstacle as investors have punished risk-takers, including Energy Transfer Equity in its bid to acquire Williams Companies.
Unit valuations for Energy Transfer Equity are down 69% and Williams Companies are down 59% since the deal was first announced.
Deals will not likely begin to happen until there is greater stability in the MLP markets, said Hugh Babowal, managing director of energy M&A, Wells Fargo Securities, speaking at the Infocast 10th Annual Midstream Summit. Standard volatility for the S&P 500 is about 1-2% per day, while the Alerian Index has seen many days with volatility as high as 10%, he said. Until volatility flattens out and stock valuations improve, “it’s difficult for boards to stick their necks out,” he said.
Plains All American’s Armstrong asserted that the next 120 days will be the “most painful” the MLP has experienced in the last 30 years, but that the industry should begin to recover after that, and was hopeful consolidation would help play a role in that recovery.
Glencore’s agribusiness disposal is not just about debt
Why is miner and commodity trader Glencore trying to sell a large stake in its agricultural business? The obvious answer is to pay down debts, which at the end of last year stood at nearly $26bn. But there are other factors at play.
Through its $4.8bn acquisition of Canadian grain handler Viterra in 2012, Glencore has emerged as a major player in agriculture, handling 44m tonnes of grain last year. But to be considered a truly global player it needs to bulk up in South America and the US — two of the world’s most important food markets.
This is where a partner comes in. Joining forces with a strategic investor, most likely a group of sovereign wealth funds, would give Glencore the firepower to make acquisitions in the Americas. Glencore is targeting a sale of between 30-49 per cent, which JPMorgan says could raise up to $3.9bn.
“To grow in that business, you’re going to need more financial muscle,” Glencore’s chief executive Ivan Glasenberg told analysts after the company reported annual results earlier this week
“It’s clear it’s time to bring in a partner, like we did when I first expanded the coal business in Colombia,” he said, referring to the deal he struck with rival mining companies to jointly acquire Cerrejón, a major field in the South American country.
So what could Glencore look to purchase?
The industry’s four biggest players — Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus Commodities — are probably beyond its reach for a number of reasons. Some are too big, others are wedded to remaining private. That leaves mid tier companies.
Previous reports have linked Glencore with a bid for The Andersons, an $800m Nasdaq-listed company based in Ohio. Scoular Co and Lansing Trade Group, both privately-held companies, have also been mentioned as possible targets.
But the strong US dollar has made exports from the US increasingly uncompetitive. Relatively high prices over the past decade have also led to increased production, leaving the US market oversupplied.
So for now, Glencore might look to South America and Brazil, the world’s biggest exporter of soyabeans. Indeed, Glencore’s most recent deal in agriculture was the purchase of a 50 per cent stake in an export terminal in Brazil from ADM.
“It’s quite clear that there is going to be a period of some industry consolidation coming up there and you don’t want to miss out on that,” said Glencore’s chief financial officer Steven Kalmin after the results.
But before Glencore can buy anything it needs to complete the sale of a significant minority stake for an acceptable price. Some analysts say that this could be a challenge because it is a buyer’s market at the moment. After a bumper year in 2014, adjusted earnings from Glencore’s agriculture division fell 48 per cent to $542m last year.
But Mr Glasenberg does not appear to be worried.
“We have strong interest in the ag business,” he told analysts on Tuesday. “We’re dealing with various companies and I feel very confident we will have that sale concluded definitely before the first half of this year.
QE Announce was made in Jan. 2015 and it was best move on expectation and after the announce...
in Feb 2014 we saw a good perf too on Greece Collateral decision.
Rate is not a market mover anymore, QE neither...Greece & italy could be this time or some more political decisions
2015
| rate | 10 days ago | 2 days after | 5 days | 10 days | |
| 20150122 | 0.05% | 9.19 | 1.80 | 1.09 | 2.80 |
| 20150305 | 0.05% | 3.66 | -0.02 | 0.87 | 1.39 |
| 20150415 | 0.05% | 2.87 | -1.36 | -2.21 | -2.32 |
| 20150603 | 0.05% | -2.84 | -0.77 | -3.54 | -3.62 |
| 20150716 | 0.05% | 6.82 | -0.17 | -1.11 | -2.74 |
| 20150903 | 0.05% | 0.70 | -2.75 | 0.00 | -0.56 |
| 20151022 | 0.05% | 3.16 | 2.17 | 2.03 | 2.57 |
| 20151203 | 0.05% | -3.16 | -0.38 | -1.98 | -2.89 |
2014
| rate | 10 days ago | 2 days after | 5 days | 10 days | |
| 20140109 | 0.25% | 0.57 | 0.45 | 2.54 | 1.97 |
| 20140206 | 0.25% | -0.57 | 0.92 | 2.79 | 3.65 |
| 20140306 | 0.25% | 0.41 | -1.57 | -2.51 | -2.17 |
| 20140403 | 0.25% | 3.56 | 0.74 | -0.75 | -2.10 |
| 20140508 | 0.25% | 1.81 | -0.63 | 0.19 | -0.54 |
| 20140605 | 0.15% | 1.99 | 0.83 | 0.67 | 0.37 |
| 20140703 | 0.15% | -0.38 | -0.59 | -2.63 | -2.64 |
| 20140807 | 0.15% | -5.11 | -0.20 | 1.44 | 2.34 |
| 20140904 | 0.05% | 5.77 | -0.06 | -1.01 | -1.21 |
| 20141002 | 0.05% | -5.10 | 0.87 | -1.71 | -6.88 |
| 20141106 | 0.05% | 2.37 | -1.20 | -1.77 | 0.68 |
| 20141204 | 0.05% | -0.09 | 2.70 | -1.26 | -4.36 |
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{EURR002W Index CN <GO>}