>>> Exclusive: Lattice Semiconductor explores sale amid Chinese interest - sourc

Exclusive: Lattice Semiconductor explores sale amid Chinese interest - sources

Lattice Semiconductor Corp (LSCC.O), a U.S. maker of programmable chips in mobile phones and tablets, is exploring a sale that has attracted interest from a prospective Chinese buyer, according to people familiar with the matter.

The sale process could be a further test of corporate China's ability to snap up U.S. chip makers, after attempted deals by Unisplendour Corp Ltd (000938.SZ) and China Resources Microelectronics Ltd were dropped this month on concerns the United States could block them on national security grounds.

Lattice Semiconductor's sale discussions are also another example of the wave of dealmaking sweeping the industry, fueled by a drive by major consumers of chips, such as Apple Inc (AAPL.O) and Samsung Electronics Co (005930.KS), to cut costs.

Lattice Semiconductor is working with investment bank Morgan Stanley (MS.N) to review interest from potential buyers, including a Chinese party, the people said on Friday. There is no certainty Lattice Semiconductor will agree to any deal, the people added.

The Chinese party's identity could not be immediately established. The sources asked not to be identified because the sale process is confidential. Lattice Semiconductor and Morgan Stanley offered no immediate comment.

Based in Portland, Oregon, Lattice Semiconductor makes programmable logic chips and related software used in everything from smartphones to cars. It has a market capitalization of about $678 million.

Earlier this week, Unisplendour scrapped its planned $3.78 billion investment in U.S. hard-disk maker Western Digital Corp (WDC.O) after the U.S. Committee on Foreign Investment (CFIUS) decided to review the transaction.

A Chinese consortium that included China Resources Microelectronics also lost a $2.5 billion bid to acquire Fairchild Semiconductor (FCS.O) earlier this month. Fairchild cited the risk of CFIUS blocking that deal for its decision.

Lattice Semiconductor has been working to integrate Silicon Image, a U.S. company it bought for $600 million in its biggest-ever deal last year, which expanded its products for video customers.

Lattice Semiconductor Chief Executive Darin Billerbeck said on an earnings conference call earlier this month that he expects the first quarter "to represent a low point" of the year for the company.

Lattice Semiconductor blamed its weak quarterly revenue on Samsung, one of its biggest customers, and its peers struggling with profitability and cheaper phone models.

WSJ : How China Inc. Plans to Pay for Biggest Overseas Deal

How China Inc. Plans to Pay for Biggest Overseas Deal

China National Chemical Corp. wants $30 billion in loans to finance its $43 billion acquisition of Syngenta

HONG KONG—Banks are lining up to write checks for China Inc.’s biggest overseas foray.

China National Chemical Corp. is asking bankers for more than $30 billion worth of loans to fund its $43 billion acquisition of Swiss pesticide and seed company Syngenta AG.

The Chinese state-owned firm, known as ChemChina, is reaching out to a clutch of global and Chinese banks for a lending package set to be completed by April, according to people familiar with the situation. It is also tapping a consortium of Chinese sovereign funds to buy stakes in the deal.

HSBC Holdings PLC and China Citic Bank International, which are advising ChemChina on the Syngenta acquisition, are leading the syndicated loans, the people said.

Chinese companies are shopping abroad at a record pace this year, cutting copious deals that include Haier Group’s $5.4 billion agreement to buy General Electric Co.’s appliance business and HNA Group’s $6 billion pact buy technology distributor Ingram Micro Inc.
Global banks and Chinese investors have been eager to fund such Chinese ambitions. State-owned companies like ChemChina carry the imprimatur of Beijing, meaning their creditworthiness is nearly on par with the Chinese government. Because ChemChina isn’t a publicly traded company, it can’t issue stock to public shareholders to raise cash for the deal.

That has created a rare opportunity for banks to write big checks for a Chinese state-owned company. For the global portion of the loan package, HSBC together with Credit Suisse Group AG, Rabobank Group and UniCredit Group have underwritten a $20 billion non-recourse bridge loan package being syndicated in Europe. It is split between $15 billion in facilities to pay for the all-cash offer and another $5 billion to backstop existing Syngenta debt, according to a person familiar with the situation.

The bridge loan package has one-year and six-month portions and is expected to close in April. Bridge loans are a form of short-term financing that is typically replaced later with bonds or longer-term debt.

China Citic Bank will separately launch a syndicated loan of up to $15 billion in Asia in March, one of the people said. The total amount of the loan packages could change, depending on the amount of funding ChemChina can secure from Chinese entities joining its consortium.

State fund China Reform Holdings Corp. Ltd. has committed to joining the consortium, while the country’s Silk Road Fund, is also considering joining the deal, according to the person.

The Silk Road Fund was set up in 2014 with $40 billion to boost links between China and countries on trade routes that have carried goods to and from China for centuries.

The fund took a 25% stake in ChemChina’s vehicle created to make the $7.7 billion acquisition of Italian tire maker Pirelli & C. SpA.

China Reform Holdings, controlled by China’s manager of centrally owned state firms, was also part of the Chinese consortium led by China Minmetals Corp. that acquired the Las Bambas Peruvian copper project from Glencore Xstrata PLC in a $5.85 billion deal two years ago.

ChemChina reached an all-cash deal in early February to buy Syngenta for $465 a share, plus a special dividend of 5 Swiss francs ($4.91) a share to be paid immediately before the deal’s closing. The acquisition still needs regulatory approval in the U.S. and Europe.

ChemChina is also planning a future initial public offering of the Syngenta business, and has kicked off discussions with investment bankers in Hong Kong on the future deal. ChemChina hasn’t decided whether to list all or part of Syngenta, they said. The company is considering Hong Kong as one of the potential listing venues, according to the people.

Barron's: Tracking the Hedge Fund Pack

Tracking the Hedge Fund Pack

Hedge funds often claim to march to a different drummer. But funds often rush to buy the same stocks.

Scoreboard
Hedge funds often promote themselves as being able to march to a different drummer, especially compared with those pedestrian mutual funds. All of which leads to better stock selection and superior returns, even if hedge funds do charge two and 20 fees, this thinking goes.


But just how widespread is that much-ballyhooed independent investing approach?
There are widely followed lists that track the top holdings of hedge funds. But while certain stocks appear on many of these lists, that doesn’t fully capture the sense of how hedge funds move in packs to exploit certain investment stories du jour. “A lot of these guys like to advertise their positions,” says Jonathon Trugman, who runs Pendulum Capital, a hedge fund firm. He was referring to the hedge fund conferences and media coverage that’s much more extensive today than in earlier eras. “It’s a bit of a different world now.”
That was certainly the case last year, when many hedge funds jumped onto the bandwagon of now-troubled drug company Valeant Pharmaceuticals International (ticker: VRX). This kind of concentration of holdings appears to be on the rise. A recent Goldman Sachs report notes that “Hedge fund returns continue to grow more dependent on the performance of a few key stocks.”
The typical hedge fund has 68% of its long equity holdings in its top 10 positions, the highest level since the financial crisis, the Goldman report says. “In some cases, hedge fund managers share ideas, but in many cases they simply have a similar perception of value,” says Simon Lack, who manages separate accounts and who is the author of The Hedge Fund Mirage, published in 2012. “Their choices are followed by others, probably including retail investors, which amplifies the moves in the stocks.”
Lack argues that this trend is “symptomatic of an industry wrestling with overcapacity.” Hedge fund assets total about $2.9 trillion, according to HFR.


Trugman says hedge funds come in all stripes, making it hard to generalize, and that plenty are independent when it comes to making trades. But some, he says, “like to jump into the same boat together. It’s not black and white, but it definitely exists.”
TRUGMAN THEORIZES THAT ONE REASON for this overlap is that bank trading desks are smaller than before the financial crisis, a result of greater regulatory scrutiny. A consequence is fewer research salespeople in the mix. “A lot of the same investment themes get regurgitated to a similar crowd,” he says.
That particular stocks are widely held by hedge funds “isn’t necessarily a bad thing because in many cases they offer a compelling value,” says Adam Blitz, CEO and chief investment officer of Evanston Capital Management, a $5.1 billion fund of hedge funds. Blitz says that his firm monitors the concentration of holdings in funds it invests in. But “with 30 managers across all of the different strategies, it usually does not get to a point where a single stock is too big a part of our portfolio,” he says.
In the meantime, Valeant, after falling from favor last year, has returned to Goldman’s list of 50 stocks that matter most to hedge funds. It’s now a value stock, having lost 70% of its value since its 52-week high. But it’s unclear whether hedge funds ultimately find better value in Valeant this time around. Whatever the outcome, chances are many of them will find out

Barron's : Verizon, AT&T Face New Threat: eSIM Cards

Verizon, AT&T Face New Threat: eSIM Cards

New technology will make switching carriers as easy as turning on WiFi.


A very small thing could be about to cause a very big problem for the phone companies. Last week, at the biggest annual trade show for the mobile phone industry, Mobile World Congress, a good deal of buzz was generated by a new technology that’s coming to that humble piece of plastic known as the SIM card.
The SIM lives inside your cellphone, usually in a little tray that you have to pop open with a paper clip, such as when you’re getting a new phone. Your mobile phone company owns the SIM because it is the key that lets your phone onto their network.


The SIM is used not just in phones but increasingly in other devices connected to a network, including Apple’s (ticker: AAPL) iPads, and some wearable devices such as a smartwatch from Samsung Electronics (005930.Korea) called the Gear S2.
In recent years, various parties have been developing something called an embedded SIM, a version built into the phone rather than being loaded via the tray. The important thing is that the eSIM, as it’s known, can be re-programmed.
With a reprogrammable eSIM, you could switch your phone between one carrier and another as easily as changing the WiFi network you are using, without opening the phone—and, importantly, without having to ask permission from your phone company.
The eSIM, along with the traditional SIM, is made by a few companies you may not know, including Gemalto, a Dutch company (GTO.Netherlands). Another is a 164-year-old privately held company based in Munich named Giesecke & Devrient, which got its start printing money and still works closely with a number of central banks around the world, including the Federal Reserve.
At the show, which took place in Barcelona, G&D, as it calls itself, announced that its eSIM was going to be in the Gear S2, so customers can program the smartwatch to work with Telefonica (TEF), Vodafone Group (VOD), or other carriers, depending on which market they are in. The Gear S2 can send and receive phone calls, so it needs a SIM to get onto a carrier’s network.


That may not sound like much, but the implications are huge. The Gear S2 is the tip of the iceberg. Phones today don’t use the eSIM. However, the GSMA, the organization that sponsors Mobile World Congress and coordinates the activities of phone companies around the world, is finalizing guidelines that will allow for the eSIM to come to “any mobile device,” including phones.
This should strike terror in the hearts of AT&T (T), Verizon Communications (VZ), Vodafone, and all the rest. Imagine a few years from now traveling from New York to Paris with your spiffy iPhone 9. You get off the plane, go into the iPhone’s settings, and in a few steps, you sign up with a plan from any one of a number of carriers for a bundle of voice minutes and data.
You might not even have a permanent phone plan. “It is one more thing that is going to chip away at what used to be 100% control of your mobile device” by the phone companies, says Neil Mawston, an industry observer with Strategy Analytics.
To be sure, use of the eSIM will be made difficult by carriers in any number of clever ways, such as claiming you can’t do what you want because you are still paying off your phone.
But sales of phones that are unlocked are “going through the roof,” meaning phones that can take SIMs from any carrier, says Mawston. And Apple offers an installment plan for phones completely independent of the phone company.


Developments such as these will only put more and more pressure on phone companies to adapt to a world where they control the phone less and less.
IF THE ESIM WAS THE BIGGEST LITTLE THING, a lot more people at Mobile World were focused on what many think is the Next Big Thing, virtual reality.
Today, VR consists of headsets that you strap onto your face and that are connected to a personal computer. Many expect that VR will become a big hit on phones, not just with PCs. And sure enough, VR was everywhere at the show. Samsung made a big splash, announcing a camera, called the Gear 360, to create VR videos. There were constant lines to sit in chairs and try demos of the Rift headset coming from Facebook (FB). Ditto for Samsung’s own Gear VR headset.
But this incipient VR bubble is going to burst before it even inflates. It will take years for smartphone screens to gain the high-res displays that will really make VR sing. In order to download VR content wirelessly, network technology will take several years to evolve to the newest standard for speed, known as 5G.
Then, too, people in VR headsets look like idiots. It is one of the most embarrassing gadgets to have anywhere near you, much less on you. It may take several years for the goggles to evolve from today’s clunky models like the Rift into something most of us would actually be willing to wear in private, not to mention in public.
And many may still shun VR because it is intensely “immersive”—meaning, distracting. Though it may eventually find its true mass consumer moment, VR is a phenomenon that will initially flop, just like Google’s Google Glass did. VR may succeed some day, but big expectations are about to be hugely disappointed.

Barron's : Brexit Havens: Unilever and ARM

Brexit Havens: Unilever and ARM

Investors face months of volatility in the run-up to Britain’s referendum on the EU. The consumer-products giant and chip developer offer refuge.


Britain’s financial markets were swept last week by uncertainty over the country’s continuing membership in the European Union, pushing the pound to a seven-year low against the dollar. With the referendum to decide on the so-called Brexit set for June 23, investors can expect British markets to remain choppy for nearly four more months.


While that’s likely to deter some investors, Kevin Kelly, chief investment officer of New York–based Recon Capital Partners, says there are still opportunities among British equities. He admits to having trimmed his own exposure to British stocks, but reckons that the likes of Unilever (ticker: ULVR.UK) and ARM Holdings (ARM.UK) still offer good prospects. “In Unilever, you have a big-name business with the sort of defensive qualities you would expect from a company of its size, which pays big dividends and also reports its earnings in euros,” he says.
ARM IS A PROMISING technology business that may have been unfairly penalized by problems confronting some of its customers, including Apple (AAPL) and Qualcomm (QCOM). “It’s a FTSE 100 stock and well placed to benefit from developments in the Internet of Things. A lot of companies are using its chip blueprint,” Kelly observes.
In the run-up to the referendum, he expects investors to react as they did ahead of Britain’s general election last year, which he describes as a “dead quarter for stocks.” British equities have held up relatively well lately, compared with those of the United Kingdom’s European neighbors. Since the referendum was announced a week ago, the FTSE 100 index has shed about 2%, outperforming the Stoxx Europe 600 index, which fell nearly 3% over the same period, under pressure from China’s slowing growth and oil-price volatility.
Under these tricky circumstances, Kelly considers Unilever to be one of the best places to seek refuge. “Last month’s results release showed that emerging markets remain a key growth space for the business, with sales rising by 7.1% on an underlying basis across the developing world. Unilever’s dominance in the emerging markets only lends credence to its long-term growth prospects,” the investment pro says.
Unilever, a consumer-products giant, reported a slightly lower full-year net profit of 4.91 billion euros ($5.42 billion), compared with €5.17 billion the year before. The year-earlier figure included one-off gains from asset sales. With those stripped out, profit rose 12% in the latest stretch.


The figures beat consensus forecasts. “It’s rare that you can find a company that can beat on the top and bottom line while growing in emerging markets, and pays a healthy dividend,” Kelly says. Moreover, weak commodity prices will help lift operating margins, while consumption of personal-care and hygiene products tend to be recession-proof.
JPMorgan analyst Celine Pannuti has Unilever at Overweight, with a 32-pounds-sterling ($44.64) price target. “Amid challenging market conditions, we expect Unilever to deliver defensive earnings growth, driven by accelerating margin delivery,” she says. Unilever shares closed at £30.97 on Friday.
ARM DESIGNS PROCESSORS used in more than 95% of smartphones. As a result, recent disappointing results from Apple and Samsung Electronics (005930.South Korea), along with concerns about global growth, have weighed on its shares. Apple counts for roughly 5% of ARM’s revenue and has significant exposure to China. ARM’s shares are down almost 9% since the start of the year.
Worries about the performance of its client companies came despite ARM reporting a 26% net profit increase in the last quarter of 2015, to £91.7 million, and a 19% revenue increase, to £269.1 million.
On the plus side, the stock is now cheaper, trading at 26.3 times estimated 2016 earnings, according to Morgan Stanley analyst Francois Meunier. That compares with 34.4 in 2015.


ARM’s correlation with smartphone performance should be diluted by the company’s plan to diversify into developing technologies, including the Internet of Things, where household appliances will be linked to the Internet, providing doors that unlock automatically when homeowners approach, refrigerators that order groceries, and heating that turns on when someone’s at home. ARM recently teamed up with International Business Machines (IBM) to boost the connectivity of devices, such as industrial appliances, weather sensors, and wearable body-function monitors.
Morgan Stanley’s Meunier has ARM at Overweight, with a price target of £11.80; ARM closed at £9.78 on Friday. Earlier this month, he raised his forecast for ARM’s 2016 earnings by 3% a share. He says that the company continues to execute well, boosting prices for new technologies and gaining market share with core customers: “We remain buyers of ARM, as it retains pricing power in a deflationary environment.” Meunier adds that a new licensing deal with Qualcomm should reinforce the company’s pricing power in smartphones and might help it gain share in servers.

>>> Weekly Update

Weekly Market Update: Oil Prices and Policy Stimulus Hopes Elevate Markets

Higher oil prices, soothing central bank/G20 commentary and better US economic data all helped European and US equities climb higher this week. On Friday, the S&P500 tested above the key 1950 level that has repeatedly provided strong resistance over the last several weeks as global markets looked to put the rough start to 2016 in the rear view mirror. Treasury demand remained noticeably firm into month end, especially in light of the improving risk appetite by investors and a string of stronger than expected US data later in the week. Sovereign bond prices did slip on Friday, but have still largely consolidated the safe haven bids seen here in early 2016, keeping the US 10-year around 1.75%. All three of the major indexes closed about 1.5% higher for the week.

Data out this week painted a somewhat confusing picture of the real condition of the US economy. The February preliminary Markit factory PMI reading told us what we already knew: US manufacturing faces very tough sledding. The survey sank to 51.0, its lowest reading since late 2012. But it was Markit's February preliminary services PMI that really freaked people out: the index sank into contraction at 49.8, and Markit Chief Economist Chris Williamson warned the survey data show a significant risk of the US economy falling into contraction in the first quarter. February consumer confidence fell to the lowest level in seven months, with notable declines in the present situation and future expectations components.

On the more positive side, the preliminary January durable goods orders came in at +4.9%, the strongest gain in nearly a year, more than reversing the -4.6% plunge seen in December. The revisions to fourth quarter GDP were a mixed bag, with the headline figure better but spending a bit lower. The second reading of Q4 US GDP defied expectations to the upside, rising to +1.0% from the +0.7% advance figure. Most of the revision higher was attributed to the volatile inventories and trade components. The January personal consumption measure remained very healthy at +2.0%, and personal income accelerated +0.5% from the flat December reading. Core PCE - the Fed's preferred ruler for measuring inflation - was surprisingly strong in January, rising to +1.7% from +1.5% in December, the fastest m/m acceleration seen since late 2012.

January inflation data out of the euro zone suggested the disinflation predicted by ECB Vice President Constancio last week was at hand. The total euro zone measure was a mere +0.3% y/y, while preliminary February readings from Spain, France and four major German states saw negative y/y readings. The readings further strengthened the case for more easing from the ECB next month, even as markets express more and more uneasiness with negative rate policies. The strengthening dollar seen over the prior two weeks continued this week, with the relatively strong US GDP and PCE data on Friday pushing EUR/USD back below 1.0950 and back into the range seen in December and January.

Expectations have been building for weeks if not months that Beijing would be forced to add additional stimulus of some kind in order to deal with the continuing Chinese slowdown. Guessing has focused on RRR cuts, more medium-term liquidity injections and possible fiscal policy moves. There were reports that PBoC staff were recommending the government increase the fiscal deficit to 4%/GDP from the 3%/GDP currently targeted in 2016, although finance ministry officials tempered these hopes. Until Thursday, the Shanghai Composite had remained more or less calm since late January. Tightening liquidity conditions, driven by a spike in short-term money market rates - the overnight repurchase rate spiked by 16 basis points to 2.12% - sparked a 6.4% decline in Shanghai. Interestingly, the sell-off did not travel to Europe and the US, with equities in both regions up sharply on Thursday.

Saudi Arabia, Russia and other major OPEC producers worked hard to consolidate support for the proposed oil production freeze agreement announced last week. Iraq remains non-committal, while Iran ramped up its negative rhetoric. Iran Oil Min Zanganeh called the plan "a joke," while various OPEC officials conceded that Iran might need individual attention in negotiations for a freeze. Parties to the agreement will meet in mid-March to negotiate a formal deal. On Friday, Brent tested as high as $37 and WTI briefly ticked above $34.50 for three-week highs, but by and large prices were well contained within the ranges seen through the month of February.

Cable made fresh seven-year lows every day this week, closing out Friday around 1.3850, forced lower by nervousness about the upcoming referendum on the UK's continued membership in the EU. Political jawboning and constant polling kept the subject of Brexit in headlines, but the biggest development was London Mayor and Conservative Party stalwart Boris Johnson backing the anti-EU camp. Citigroup suggested that Brexit risk rises to 30-40% from 20-30% prior with Johnson's endorsement. Polls were very tight: a BMD/Standard poll on the EU Referendum showed 44% of respondents opting to stay in the EU, while 41% wanted to leave, while a YouGov poll saw 37% in favor of staying versus 38% for Brexit.

Earnings season is winding down with reports from the largest US retailers. Decent results from Macys, Kohls, Best Buy and JC Penny helped boost the shares of a broad spectrum of retail names. Macy's topped its recent guidance for the quarter and offered FY guidance that was slightly ahead of expectations. Comps were down more than 4%, but again this slightly beat consensus views. Kohls raised its dividend and managed to deliver (barely) positive sales comps. Best Buy's comps were negative, although it also launched a big new buyback and raised its dividend. Lowe's and Home Depot both had positive quarters, aided by continuing strength in the housing market. Shares of Hewlett-Packard sold off hard after the firm disclosed ugly revenue declines with its first-quarter results.

After years of negotiations, fallen Japanese titan Sharp reached a deal to sell itself to Chinese firm Foxconn (formally known as Hon Hai Precision Industry) for around $6 billion. But then in a very rapid reversal, shares of Sharp gave up the 15% or so they had gained over the last month on talk the deal was finally closing when Foxconn said it would postpone the arrangement until it had clarified some "new material information" from Sharp, reportedly sizable undisclosed liabilities. Honeywell and United Technologies confirmed press reports that the two companies had discussed a potential merger deal but talks stalled given very significant regulatory hurdles and considerable customer concerns. UTX's CEO went as far as to appear on CNBC to say that a merger with Honeywell just "ain't going to happen." Honeywell confirmed that it had offered $108/shr in cash and stock, and would continue to pursue a combination. London Stock and Deutsche Boerse said they were holding talks about a potential merger of equals, which would create a combined group worth nearly $28 billion.

>>> US Close Dow -0.34% S&P-0.19% Nasdaq +0.18% Russell+0.54%

Closing Market Summary: PCE Reading Leads Indices Off Highs

The stock market ended an upbeat week with a hiccup as the implications of a hotter than expected core PCE reading (0.3%; consensus of 0.1%) augmented concerns regarding a sooner than expected Fed rate hike. Today's trade saw a continuation of oil and equities moving largely in tandem while the heavyweight financial sector (+0.9%) maintained its recent leadership role. The Nasdaq Composite (+0.2%) managed to finish ahead of the S&P 500 (-0.2$) and the Dow Jones Industrial Average (-0.3%).

The major averages slipped from their morning highs shortly after the hotter than expected Personal Income and Spending report was released. The data received a good deal of attention today as the PCE Index is the Fed's preferred inflation gauge, and this reading can be seen as supportive of further rate hikes. As a result, the economically-sensitive financial space (+0.7%) was able to remain ahead of the broader market and only trailed the materials space (+1.3%). Despite today's outperformance, the financial sector still shows the largest monthly loss (-2.1%) out of the ten economic sectors.

The commodity-sensitive materials and energy (+0.4%) groups enjoyed an early rally alongside crude oil this morning. However, that rally lost some momentum as the energy component struggled to maintain the height of its advance ($34.66/bbl). To be fair though, oil has jumped 3.2% since its pit close last Friday. As for today, WTI crude ended higher by 1.1% at $32.75/bbl.

The energy group pared most of its advance after oil slipped from its high, but independent oil and gas names were still able to top the sector. On that note, Apache (APA 39.47, +1.68) and ConocoPhillips (COP 34.12, +1.06) climbed a respective 4.5% and 3.2%. Interesting to note, both companies received downgrades from Moody's on their senior unsecured notes (to Baa3 and Baa2, respectively).

The influential technology sector (-0.3%), ended its day behind the broader market. Underperformance from sector-large caps contributed to the broader weakness as Microsoft (MSFT 51.30, -0.80) and Alphabet (GOOGL 724.86, -4.26) ended lower by 1.5% and 0.6%, respectively.

Meanwhile, health care (-0.2%) abandoned some early strength as large-caps also anchored that group. Conversely, biotechnology demonstrated relative strength with the iShares Nasdaq Biotechnology ETF (IBB 261.49, +2.17) climbing 0.8%. For the week, the ETF climbed 1.1% 

Today's trade saw relative weakness among the countercyclical sectors with health care (-0.2%), telecom services (-0.4%), consumer staples (-1.4%), and utilities (-2.7%) all finishing behind the broader market.

The greenback strengthened today, evidenced by the 0.8% gain in the U.S. Dollar Index (98.09, +0.80). The euro/dollar pair finished at 1.0937 (-0.7%) while the dollar/yen rose to 113.94 (+0.9%).

The Treasury complex began its day broadly lower and remained largely range bound throughout the session. The yield on the 10-yr note managed to close off its high (1.78%), but remained up four basis points at 1.76%.

Today's participation was once again beneath the recent average with fewer than 1.005 billion shares changing hands at the NYSE floor.

Today's economic data included the the second estimate of Q4 GDP, PCE Prices for January, and the final reading of the February Michigan Sentiment Index:

  • The second estimate indicates fourth quarter GDP increased at an annual rate of 1.0% (consensus 0.4%) versus the advance estimate of 0.7%. The GDP Deflator was revised up to 0.9% (consensus 0.8%) from 0.8%.
    • The good is that fourth quarter GDP was revised up. The bad is that we're still only talking 1.0% growth. The upward revision was basically the result of private inventory investment decreasing less than previously estimated.
    • With the advance estimate, the change in inventories subtracted 0.45 percentage points from GDP growth, yet the second estimate showed a drag of only 0.14 percentage points.
    • The drag from net exports was also less as it subtracted 0.25 percentage points from GDP growth versus 0.47 percentage points in the advance estimate.
    • Personal spending saw a slight downward revision to 2.0% growth with the second estimate versus 2.2% in the advance estimate. That downtick was led by lower spending on durable and nondurable goods.
    • Final sales of domestic product, which exclude the change in private inventories, were unchanged at 1.2%.
  • The Personal Income and Spending report for January produced a slate of good economic news. Income increased 0.5% month-over-month (consensus +0.4%), spending increased 0.5% (consensus +0.3%), and the core PCE Price Index, which excludes food and energy, increased 0.3% (consensus +0.1%).
    • This compendium of data leans in the Fed's favor for rationalizing another rate hike. The pressing question is this: Might it be enough to prompt another rate increase at the March 15-16 FOMC meeting?
    • Time will tell, yet there was some key support offered for the Fed's inflation view and the notion that the Fed is making progress toward reaching its 2.0% inflation target (remember, progress toward, not actual achievement, is the guiding principle these days for the Fed).
    • To this end, the PCE Price Index is up 1.3% year-over-year versus 0.7% in December. The core PCE Price Index is now up 1.7% year-over-year versus 1.5% in December.
    • The January income gain flowed from increases in all income variables, paced by a 0.7% increase in rental income and a 0.6% gain in wages and salaries.
    • The personal spending gain, in turn, stemmed from increases in spending on both goods (+0.4%) and services (+0.6%). Durable goods spending was up 1.2% while nondurable goods spending was flat.
    • Real personal spending jumped 0.4%, which will be a positive input for first quarter GDP computations. The personal savings rate held steady at 5.2%.
  • The final reading for the University of Michigan Consumer Sentiment Index for February checked in at 91.7 (consensus 91.0) above the preliminary reading of 90.7.
    • The final reading for January was 92.0. The Sentiment Index is 6.5% below its cyclical peak of 98.1 in January 2015, which the report suggests hardly merits a recession warning.
    • For added perspective, the Sentiment Index hit a cyclical peak of 96.9 in January 2007 and then declined 27% to 70.8 in February 2008.
    • Relative to the final January reading, the Current Economic Conditions Index improved to 106.8 in February from 106.4. The Index of Consumer Expectations dipped to 81.9 from 82.7.
    • The release noted that consumers are a little more cautious about year-ahead prospects for the economy, but that the outlook for their personal financial situation has improved to its best level in ten years.
    • Currently, consumers think the the slowdown in GDP growth will only have a slight negative impact on jobs.

Keep in mind that the G20 Summit is taking place in Shanghai throughout the weekend. 

Monday's economic data will include Chicago PMI for February (consensus 52.0) and Pending Home Sales for January (consensus +0.7%), which will be released at 9:45 ET and 10:00 ET, respectively. 

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