Closing Market Summary: Dovish Commentary Rallies IndicesThe stock market ended its day on a sharply higher note as Fed Chair Janet Yellen boosted equities by striking a decidedly dovish tone. Meanwhile, the outperformance of the heavily-weighted technology (+1.6%) and health care (+1.2%) spaces added support to the move higher. Conversely, a downturn in crude oil and the underperformance of the financial sector (+0.2%) provided for some early weakness in the broader market. The Nasdaq Composite (+1.7%) ended ahead of the S&P 500 (+0.9%) and the Dow Jones Industrial Average (+0.6%).
Equity indices opened their day modestly lower as global bourses struck a risk-off posture ahead of remarks from Fed Chair Janet Yellen. At the same time, a continued tumble in crude oil took some steam out of the equity market. To that point, oil carved out fresh session lows in the morning as investors eyed this evening's weekly API data. However, an increase in risk appetite, courtesy of dovish commentary from Fed Chair Yellen, lifted the energy component off its low. Nevertheless, WTI ended its day lower by 2.7% at $38.32/bbl.
Chair Yellen channeled the dovish undertones from her March 16 press conference as she cited growing risks to the global economy to justify a gradual path in raising rates. Particularly, the Fed Chair mentioned uncertainty over China, low oil prices, and tightening in financial conditions. Furthermore, Fed Chair Yellen pointed to possible shortcomings in monetary policy if another disturbance were to manifest itself. Ms. Yellen noted the "asymmetric" response of monetary policy if economic conditions worsened, given the fed funds rate this close to zero.
All ten sectors ended the day in the green with heavily-weighted technology (+1.6%), utilities (+1.4%), and health care (+1.2%) leading the upside. Meanwhile, the economically-sensitive financial sector (+0.2%) and commodity-sensitive energy (+0.4%) and materials (+0.4%) showed the slimmest gains.
The influential technology sector (+1.6%) outperformed throughout the day, but enjoyed a strong bid following the conclusion of Fed Chair Yellen's speech. Apple (AAPL 107.70, +2.51) and Microsoft (MSFT 54.71, +1.17) outperformed as large names saw an influx of buying interest. Meanwhile, Yahoo! (YHOO 36.32, +1.09) gained 3.1% after reports indicated that interested parties have until April 11 to submit offers for the web portal's core business and Asian assets.
Biotechnology outperformed in the health care group (+1.2%), as the iShares Nasdaq Biotechnology ETF (IBB 256.61, +4.53) gained 1.8%. To be fair though, the entire space experienced an uptick in buying interest as the beleaguered sector sought to rebound from its 5.7% year to date decline.
In the consumer discretionary space (+0.9%), homebuilders outperformed following above-consensus first quarter results from Lennar (LEN 48.18, +1.48). Meanwhile, Amazon (AMZN 593.86, +13.99) tacked on to its recent winning streak as the retail giant gained 2.4%.
Conversely, rate-sensitive money center banks and life insurance companies underperformed in the financial sector (+0.2%). The groups saw little reprieve from the dovish commentary as their earnings prospects are expected to suffer from lower rates. On that note, MetLife (MET 42.46, -0.54) tumbled 1.3% while Dow component JPMorgan Chase (JPM 59.03, -0.37) fell 0.6%.
On the commodities front, gold spiked following comments from Fed Chair Yellen, which helped diminish inflation expectations. Gold rallied 1.3% to $1,235.80/ozt.
The yield on the 10-yr note ended its day lower by nine basis points to 1.80%.
The U.S. Dollar Index (95.15, -0.79) came under fire as traders again reconsidered the policy divergence trade. The euro gained 0.9% against the dollar to end at 1.1294. Meanwhile, the dollar lost 0.7% to the yen and kicked the pair to 112.70 after trading at 113.46.
Once again, today's participation was above last week's average as more than 945 million shares changed hands on the NYSE floor.
Today's data included the Case-Shiller 20-city Index for January and Consumer Confidence for March:
- The Case-Shiller 20-city Home Price Index for January rose 5.7%, which fell in-line with the consensus. This followed the previous month's unrevised increase of 5.7%.
- The Conference Board's Consumer Confidence index increased to 96.2 in March from an upwardly revised 94.0 (from 92.2) in February. The March reading was ahead of the consensus estimate, which was pegged at 94.5.
- The March reading leaves the series roughly in the middle of a 91-104 range that has been in effect since November 2014.
- The improvement in March stemmed from an increase in the Expectations Index (from 79.9 to 84.7), which outweighed a decline in the Present Situation Index (from 115.0 to 113.5).
- The report indicated that the strengthening in the Expectations Index was due in part to an improved outlook for the labor market.
Tomorrow's economic data will be limited to the weekly MBA Mortgage Index and the ADP Employment Change for March (consensus 214k), which will be released at 7:00 ET and 8:15 ET, respectively.
- Nasdaq Composite -3.2% YTD
- Russell 2000 -2.5% YTD
- S&P 500 +0.5% YTD
- Dow Jones +1.2% YTD
LVMH not interested in Burberry
LVMH [EPA:MC], the listed French fashion and luxury group, is not interested in competitor Burberry [LON:BRBY], the London, England-based manufacturer, wholesaler and retailer of luxury goods, French weekly Challenges reported. The unsourced report claimed that Bernard Arnaut, the owner and head of LVMH, has denied having any interest in the company. Burberry has a GBP 5.87bn market cap.
Challenges
LafargeHolcim engages Citi and JPMorgan to sell Australian and New Zealand operations - The Australian
LafargeHolcim [VTX: LHN] is believed to have engaged Citi and JPMorgan to investigate the sale of its Australia and New Zealand business, The Australian’s Dataroom reported, without citing sources. The report said that neither Citi or JPMorgan would confirm the mandate.
LafargeHolcim has been considering the sale of its Australian and New Zealand operations as part of a larger global asset sell off, the paper noted.
The article stated that JPMorgan and Citi may have been preparing the Australian and New Zealand business for an ASX listing. However, the report said that listing plans have been put on hold due to volatile market conditions.
Plans to sell the company could still be in the works, the paper said. Adelaide Brighton [ASX: ABC] is considered a potential trade buyer.
The Australian
{http://www.chicagobusiness.com/article/20160310/NEWS07/160319978/3gs-next-meal-general-mills-or-mondelez
From: LCHEKROUN@makor-cm.com At: Mar 29 2016 16:43:07
To: LAURENT CHEKROUN (MAKOR SECURITIES LO)
Subject: Fwd:(Chicago Business article from the 10/03/2016 on GIS & MDLZ and Nestle Rumor
Subject: Fwd:(Chicago Business article from the 10/03/2016 on GIS & MDLZ and Nestle Rumor
3G's next meal: General Mills or Mondelez?
Photo by Bloomberg
(Bloomberg Gadfly) — As Brazilian billionaire Jorge Paulo Lemann scouts for 3G Capital's next big acquisition, one can envision Bill Ackman gesturing, "Pssst, over here."
It's no secret that Ackman's hedge fund Pershing Square Capital Management has had a rough year, between its long position in Valeant Pharmaceuticals (the stock lost almost 70 percent over the past 12 months) and bet against Herbalife (the stock rose almost 70 percent). However, Pershing Square also owns a sizable stake in Oreo cookie maker Mondelez—one of two food companies considered to be in 3G Capital's sights—and he'd probably love to see it get acquired at a nice premium.
But the other possible 3G target is General Mills. And unfortunately for Ackman, General Mills looks like the better option.
3G Capital's modus operandi is centered on slashing costs, which it's done at Burger King and most recently, Kraft Heinz. Before Lemann and his team came along, H.J. Heinz had an operating margin of around 14 percent and Kraft Foods' was about 10 percent. 3G (in a deal partially bankrolled by Warren Buffett) acquired the ketchup company in 2013, and then merged it with Kraft last year, creating a food giant now valued at $93 billion.
Analysts' projections imply the combined entity's operating margin could top 25 percent this year and approach 30 percent in 2017. That, incidentally, is about when 3G might be expected to strike again, based on its recent buying patterns.
On paper, both Mondelez and General Mills have the type of room for improvement that 3G looks for in its targets, arguably more so Mondelez. If you exclude the gains from selling its coffee business last year, Mondelez's operating margin was about half that of General Mill's.
A lower margin would argue for more scope to reduce expenses, 3G's specialty. However, Mondelez is already doing this on its own. The $66 billion company says it's focused on transforming into a "lean executional machine" through so-called zero-based budgeting, a meticulous approach in which the budget for a period starts from scratch and each cost must be justified.
Mondelez is also upgrading its manufacturing lines to make them more efficient and getting rid of underperforming products. 3G's next transaction may not come until next year, so by that point, there may not be enough left to wring out from Mondelez in order for a deal to be worth it.
General Mills, too, is looking for ways to save money, using what it calls "holistic margin management." The $36 billion company has also closed about 20 percent of its North American manufacturing plants, an initiative being expanded to its international facilities, and it's exiting some disappointing businesses. But 3G may choose General Mills over Mondelez because its food simply fits better with Kraft Heinz's portfolio.
A lot of Kraft Heinz's products are based around meals. There's Kraft salad dressings, Stove Top stuffing, A1 steak sauce and Heinz condiments and gravy, to name a few. General Mills has Betty Crocker, Pillsbury and Progresso—plate-or-bowl items, if you will. But Mondelez, which split from Kraft in 2012, mainly makes snacks, such as Ritz crackers and Chips Ahoy cookies, as well as the Cadbury chocolates business Kraft bought in 2010.
General Mills' large U.S. presence—relative to Mondelez's very global revenue base—could also make it a cleaner target along the lines of Kraft Heinz. And it would cost a heck of a lot less for the very indebted suitor.
General Mills is about half the size of Mondelez, but both generate about $2 billion or more of annual free cash flow.Should 3G pursue a deal for General Mills, that could drum up old talk of whether Nestle should bid, too.
Nestle shareholder Gabelli Funds, a unit of Mario Gabelli's Gamco Asset Management, has suggested a Nestle-General Mills mega-merger in the past. Alexia Howard, a Bernstein analyst, explained in a report last week that Nestle is unlikely to be interested in much of General Mills' U.S. business.
But she says that General Mills could potentially sell or spin off those brands as it did with Green Giant, and that perhaps Nestle might be interested in owning outright the cereal joint venture it has with General Mills. (She also leans toward General Mills being the more logical target for 3G.)
It still may be months or even a year before 3G orchestrates its next big acquisition. But what's certain is that the food industry is being completely transformed through deals, and Kraft Heinz was only the beginning.
GIS - Hearing takeover chatter circulating - Nestle rumored as potential suitor