Friday, February 5, 2016

Markets Reprice Fed Policy Forecasts Weekly Market Update: Markets Reprice Fed Policy Forecasts
Fri, 05 Feb 2016 16:09 PM EST

After two weeks of moves sideways or higher, most global equity markets resumed the downtrend seen in early January. The big exception was the suspiciously calm Shanghai Composite, which eked out a modest gain ahead of China's Lunar New Year holiday week and was much less volatile than in recent weeks. With central bank largess pacifying most of Europe and Asia, concern about the US played a central role. The dollar saw its biggest weekly decline against the index since 2009, while US treasuries rallied and the 10-year UST yield sank as low as 1.790% on Wednesday, its lowest level since last February and within half a percentage point of the record low of 1.380% seen in 2012. Analysts reoriented their forecasts on Fed policy moves, with many suggesting only one or two rate hikes may be possible this year. Lower interest rates slammed US banks, as shares of a raft of major US financials hit 52-week lows. Commodity prices broadly lifted outside of energy, on the outlook for lower rates allowing the beaten down global materials stocks to enjoy a modest rebound. Gold moved back above the 200-day moving average for the first time since November while the mining stocks saw big outperformance. Weak earnings results from many oil and tech names provided no relief and for the week the DJIA lost 1.6%, the S&P fell 1.3%, and the Nasdaq plunged 5.4%.

Markets recalibrated their outlook for Fed monetary policy this week, helping to weaken the greenback. In a note published on Tuesday, Goldman Sachs pushed its forecast for the next Fed interest rate hike out to June from March, and lowered its view for the number of increases this year to three from four. On Wednesday, New York Fed Governor Dudley acknowledged that conditions were worse now than they were in December when the FOMC delivered its first rate hike, but also stated the FOMC was not ready to draw very many conclusions about policy right now. Dudley's cautious comments about the strong dollar also helped momentum. The closely-watched dollar index fell more than 3% on the week and gave up all its gains since late October. EUR/USD climbed more than three big figures on the week - rising from 1.0850 to around 1.1200 - putting the dollar at its weakest level against the euro since last fall, when the ECB began hinting about additional QE measures and tanked the single currency.

Key US January data raised tough questions about the state of the domestic economy. The ISM manufacturing PMI remained in contraction territory for the third month in row, while the employment component dropped to its lowest level since June 2009 (45.9 vs 48.0). Services PMIs deteriorated, with the Markit reading dropping to its lowest point in the series in 27 months and the ISM data at its weakest since March 2014. The January US jobs report was a mixed bag: the nonfarm figure was +151K, well below expectations and the weakest total since the +149K gain in September, while the December nonfarm figure was revised down by 10% to 262K. On the other hand, unemployment declined to 4.9%, pushing the economy even closer to full employment. Hourly earnings were materially higher, giving the Fed some of the wage inflation it has been looking for.

Global interest rates descended after the Bank of Japan's move to negative interest rates late last week. Two-year yields fell to -0.5% in Germany and -0.2% in Japan, where the 10-year yield touched 0.025%. The sugar high felt by the yen wore off quickly, as USD/JPY dropped back to the 116-118 area it had been occupying in the weeks leading up to the BoJ decision, off the 121.50 area. BoJ Governor Kuroda spoke extensively about last week's decision, stating that just because negative rates were adopted it does not mean the bank is out of ammunition to expand asset buying. Kuroda said he is still concerned that inflation expectations will weaken in medium term, but for now saw the economy recovering moderately. He reiterated the BoJ is prepared to push further into negative rates, if necessary.

Crude prices were volatile this week, and despite the snapback on dollar weakness remained below last week's highs. Coming into the week, prices dipped on the weak China manufacturing numbers and a round of denials that an emergency OPEC meeting would be taking place. WTI sank around 11% to below $29.50 and Brent dropped 10% to $32.30 on Monday and Tuesday as hopes for coordinated production cuts were crushed. OPEC and Russia January production reports showed modest growth in output, further pressuring prices. Russia pumped the equivalent of 18.9M bpd, +1.5% y/y, a post-Soviet record. The plummeting dollar revived prices briefly, but both contracts were well off their highs as the week drew to a close, with Brent around $34/bbland WTI below $31/bbl.

After the market volatility last August and this January, China's FX reserve levels have become a point of concern for broader markets. The December data showed the biggest monthly decline on record in Chinese reserves. For 2015 overall, reserved declined $513B, the biggest annual drop ever. The January report drops over the weekend, and expectations are for another record drop by more than $100 billion, to a total of $3.2 trillion. While this number is almost unimaginably huge, some analysts suggested that markets would start to worry if the total dropped to $2.8 billion or less, as the PBoC could be forced to let the yuan slide lower with dramatic consequences. Needless to say, the softer dollar gave the Chinese breathing room in their struggle to manage the yuan this week.

The BoE's Monetary Policy Committee returned to unanimity for the first time since last July, voting 9-0 to keep interest rates on hold at record lows. McCafferty, the MPC's only real hawk, switched his vote to the majority and conceded to the data, noting that the pick-up in wage growth has been more muted than expected. And while the committee also cut its economic growth outlook over global growth concerns, it also stated that a rate hike would be more likely than not over the forecast period. At his press conference, Governor Carney said the committee did not discuss negative interest rates and reiterated that the whole MPC believes the next rate move likely higher, not lower. Cable leaped to one-month highs after the decision, testing briefly above 1.4650 before dropping to 1.4470 on Friday.

The Q4 earnings season is in full bloom but results have not been a boon for the equity markets. Results in the tech sector included some notable disappointments. GoPro sales bombed during the holiday quarter and guidance was even worse as management said they would need the next quarter to clear out excess inventory. Executives promised a simplified product line and a focus on developing better software would improve the user experience and future results. Renewing a commitment to long term thinking, they also said they would no longer give quarterly guidance. Yahoo reported another lackluster quarter, and CEO Meyer announced her latest underwhelming turnaround plan. She confirmed reports that the board would review alternatives for the core internet business, but gave every indication that she is not in favor of the idea. On Friday, shares of LinkedIn traded down 40% after earnings and very weak guidance caused analysts reconsider their valuation of the stock.

Among the most notable earnings out this week were results from the global oil majors. BP's fourth-quarter earnings plunged 91% y/y, with its key "underlying replacement cost profit" metric falling to $196 million from $2.2 billion. For 2015, BP saw an annual loss of $5.2 billion compared with a profit of $8.1 billion a year earlier, worse than the $4.9 billion loss in 2010, when BP was battered with write-downs and charges related to the Gulf oil spill. Exxon's quarterly results were better than expected, although profits fell more than 50% y/y and revenue was down sharply. ConocoPhillips bent under balance sheet pressure, slashing its dividend by 66% after its net losses steepened dramatically on a y/y basis. Royal Dutch Shell saw its profits cut in half y/y, while revenue fell slightly less than 50%, although its preliminary report two weeks ago prepared markets for the slump. Norway's Statoil saw profits shrink 44% y/y.

In deal news, Abbott agreed to pay $56/share in cash to acquire over-the-counter testing kit firm, Alere. The offer represented a huge premium of more than 50% over Alere's prior closing stock price. The total deal is valued around $5.8 billion. Just two weeks after News Corp quashed rumors it was pursuing Twitter, new reports circulated that private equity firms were working on a deal to take Twitter private. Six months after Syngenta said no to a $47 billion takeover attempt from Monsanto, the Swiss ag firm has said yes to a $43 billion offer from state-owned China National Chemical Corporation. The transaction would be the largest acquisition of a foreign company by a Chinese business and the latest in a string of deals by the company, known as ChemChina.

Saturday, January 30, 2016

Barron's Saturday summary

Barron's Saturday summary: positive on CTRP and on the banking sector 

Cover story: With the recent selloff, the banking sector looks like one of the best bargains in the market, and with strong balance sheets and low share prices, bank stocks probably have 20% upside (Positive on BAC, C, JPM, WFC, GS, MS, BBT, PNC, STI, USB). 

1) Positive on ADSK, AKAM, WDC, SNADK, LRCX: The tech sector has taken a hit during the recent market turmoil, creating a number of bargains, of which these five stocks present good opportunities; 
2) Positive on CTRP: Chinese online travel company is more dominant in the country-where travel spending is up despite trouble in some parts of the economy-than PCLN and EXPE; Ctrip's acquisition of rival QUNR should give it a major boost; 
3) Brian Davis of Davis Capital Management, who won Barron's 2015 forecasting challenge, thinks we're in transition from a bull market to a bear market.

Tech Trader: Cautious on AAPL: Company "is up against the law of large numbers," such that even a strong business like the iPhone "is challenged to add to the top line year after year"; Despite clamor from pundits, Apple should resist "engaging in dubious M&A" to appease impatient investors; Apple lags peers in cloud computing, and needs to make more meaningful progress in that area. 

Trader: "Some investors might see two up weeks in a row as a turning point, but if that were true, then why did defensive sectors-such as telecom, utilities, and consumer staples-make up three of the top four sectors last week?"; Cautious on VIA: Media company faces problems, including stagnant revenue growth and high debt, but some of its unique assets are undervalued, and it has plenty of content to counter cord-cutting; Positive on VRTU: Electronic market-maker "benefits in the short term from big market gyrations," but its long-term potential is strong as more international asset classes move towards electronic trading.

 Barron's Roundtable, Part 3: Picks from Scott Black of Delphi Management (TSQ, FL, LRCX, MYL, USB); William Priest of Epoch Investment Partners (CVS, SYF, NRE, VOD); and Meryl Witmer of Eagle Capital Partners (AXTA, Tessenderlo Chemie, NVGS). Profile: Sharat Shroff, portfolio manager, Matthews Pacific Tiger fund, looks for opportunities tied to consumer strength in healthcare, insurance, and the Internet, while steering clear of exporters and commodities (top 10 holdings: Naver, BIDU, Orion, Dongbu Insurance, Kotak Mahindra Bank, DKSH Holding, Central Pattana Public, Ping An Insurance Group, Tata Power, Amorepacific). 

Small Caps: Cautious on FELE: Manufacturer of water-pump systems has seen a drop in demand and taken a hit in international markets because of the strong dollar, but things aren't likely to get worse, and a rebound could be in the works. 

Follow-Up: AIG chief Peter Hancock says he wants to create a sustainable business model, but he needs to deliver returns to shareholders sooner rather than later; YHOO is under growing pressure to solicit bids for its Internet business, and investors who hold on have "a nice margin of safety" as they wait for a breakup or sale. 

European Trader: "January's market downturn offers an opportunity to shop for European bargains in February"; Good values include Ryanair Holdings, easyJet, Barratt Development, Persimmon, Berkeley Group Holdings, NN Group, Direct Line Insurance Group, VOD, Royal KPN, and Deutsche Telekom. 

Asian Trader: Cautious on Softbank: Company is worth less than its 32% stake in Chinese online retailer BABA, with its holdings in S causing much of the trouble.

 Emerging Markets: "As the Fed raises rates, boosting the dollar, currencies in many commodity-driven economies will remain vulnerable," though the Mexican peso and the Russian ruble could be exceptions. 

Commodities: Platinum continues to lose its luster after peaking in 2008, and doesn't appear poised for a good year because production hasn't slowed down. 

Streetwise: Retailers like CONN that do business in energy-dependent states such as Wyoming, North Dakota, and Texas face growing concerns; Conn's also depends heavily on providing financing to customers, making its situation more precarious. 

Friday, January 29, 2016

Fed Cautious, Japan Less Than Zero Weekly Market Update: Fed Cautious, Japan Less Than Zero
Fri, 29 Jan 2016 16:19 PM EST

Steadying crude prices and another bout of central bank cajoling helped global equity markets stabilize this week. The Bank of Japan surprised markets by putting interest rates into negative territory for the first time ever, joining the ECB and various other European central banks. Voting 5-4 in favor of the measure, the BOJ announced that it will charge a rate of -0.1% for excess reserves parked at the bank by financial institutions, and implied that lower oil prices made its decision necessary. At the scheduled meeting on Wednesday, the US Federal Reserve left the door open to a March rate increase despite acknowledging that "economic growth slowed" since its last meeting in December. Meanwhile, the PBoC pumped cash into the Chinese economy and continued its streak of very gradually strengthening the yuan exchange rate. Stocks continued to be to be very volatile, and by Friday the DJIA posted its eighth straight day with a triple digit move. For the week, the DJIA gained 2.3%, the S&P rose 1.7%, and the Nasdaq added 0.5%.

Global interest rates dipped on the news the BOJ was going negative. The 2-year US Treasury yield dropped to a 3-month low while German short rates forged further into negative territory. Fed fund futures found buyers after the FOMC statement on Wednesday and remained bid through Friday, with many acknowledging it will be even harder for the Fed to gradually take rates higher if major Central Banks around the world keep their foot on the stimulus pedal. The Dollar rallied 2% against the Yen and 1% against both the Euro and Pound on Friday further complicating factors.

The FOMC offered more cautious language in its statement, warning that economic growth slowed late last year, after previously describing the expansion of economic activity as moderate. Further, the statement abandoned its balanced outlook language ("the committee sees the risks to the outlook for both economic activity and the labor market as balanced") and said inflation would "remain low in the near term." On the positive side, the Fed noted further improvement in labor market conditions. Analysts said the changes reflected a more cautious outlook, but hardly ruled out more rate hikes. Friday afternoon Dallas Fed President Kaplan clarified that the message from FOMC statement was that more time is needed to assess global situation. He said the committee has good reason to be patient on rate decisions, and that the number of rate hikes this year is not locked in.

Heading into Friday's BoJ decision, expectations had been piling up for Kuroda and company to respond to softer economic data. The final straw were the lower inflation rates seen in the Japan and Tokyo January CPI prints - particularly in the forward-looking capital region - along with bigger than expected declines in household spending and industrial output. Echoing Mario Draghi's famous phrase, BoJ Chief Kuroda said the bank was prepared to do "whatever it takes" to achieve its 2% inflation target, and that the bank would go even deeper into negative territory if needed. In addition, the BoJ cut its FY16/17 CPI projection to 0.8% from 1.4% prior but maintained its FY17/18 forecast at 1.8%, noting that the assumptions were based on oil prices rising to over $40/bbl by 2018.

The PBoC used liquidity injections ahead of the lunar New Year holiday to add the most funds to the Chinese financial system in three years to help stem the seasonal cash crunch. The bank auctioned a total of 590 yuan or nearly $90 billion in reverse repos in two auctions. The PBoC has signaled its preferences for such lending and liquidity operations in place of RRR cuts, although officials also said this week that RRR cuts can still be used, if needed. Meanwhile, as of Friday the PBoC has strengthened the yuan midpoint for 15 consecutive sessions. Analysts suggested that the BoJ move would put heavy pressure on the Chinese to resume devaluation of the yuan.

Russia and OPEC began the painful process of admitting that oil prices have sank too far and that something must be done to put a floor under the market. There were reports from mid-week that OPEC was considering a meeting with major non-OPEC producers to discuss the market and possibly attempt to get all parties to agree to equal, coordinated production cuts. One report suggested the Saudis wanted everybody to cut 5% of production. OPEC officials downplayed the reports, but did say the door was open to cooperation. Iran could dampen the chances of a broad producer agreement, as Tehran appears focused on restoring its oil industry to pre-sanction production levels. The reports helped WTI test above $34 on Thursday and Friday, while Brent managed to test above $35/bbl.

Another January regional manufacturing report surprised to the upside, offering a glimmer of hope for the battered US manufacturing sector. Earlier in month, the New York Fed's January Empire survey hit its lowest level since the depths of the recession in early 2009, while the Philly Fed manufacturing index improved significantly on a m/m basis, but remained in negative territory. On Friday, the Chicago PMI saw its biggest m/m rebound in decades, rising back into expansion territory at 55.6 from a six-year low of 42.9 in December. The new orders component of the barometer jumped to the highest level in a year, while production also surged. The December durables report was much less positive, with the headline figure down 5.1% - the biggest monthly drop since mid-2014 - following a 0.5% decline in November. Orders for nondefense capital goods (ex-aircraft) - a key proxy for business investment - plummeted 4.3%. Analysts suggest that the headline loss was mostly due to big declines in the very volatile aircraft orders category, while the nondefense capital goods slip was largely concentrated in the oil and gas sector.

Among the most notable stories out of earnings season was the extreme volatility hitting elite tech stocks. Shares of Amazon rose 9% ahead of its report on Thursday afternoon, then plunged 13% after market as profits widely missed expectations (nearly every other metric telegraphed excellent and sustained growth in Amazon's various businesses). There was no run up ahead of Apple's results, as most observers expected the company to offer disappointing iPhone sales, although the reaction to modest miss (74.8M v 76Me) was compounded by the firm's typically conservative forward revenue guidance. Shares of Apple were down around 8.3% on the week by Thursday afternoon. On the positive side, Facebook gained 15% to a new all-time high on big double-digit gains in daily and monthly active users, and a 57% y/y gain in ad revenue. Microsoft was up 5% on modest outperformance in its second quarter, even as net income and revenue slipped lower y/y.

Johnson Controls agreed to combine with Tyco, in a deal that appears to be chiefly engineered as a tax inversion to move JCI to Ireland and lower its corporate tax rate. Shareholders of Johnson Controls will own about 56% of the combined company and Tyco holders will own 44%. After a tangled, months-long, three-way merger drama, Nexstar has secured a deal to acquire Media General for more than $2.1 billion. Meredith Corporation bowed out from its own attempt to combine with Media General, in exchange for a $60 million breakup fee and a first look at some of the divestitures that may be required to get Nexstar's Media General deal done. Media General agreed to be acquired for $10.55 a share in cash and 0.1249 of a share of Nexstar common stock.

Saturday, January 23, 2016

Barrons Saturday summary: Positive on IP and NWL
Cover story: Barron's Roundtable Part 2 has picks from Abby Joseph Cohen (PHG, ABBV, MYL, SIG, LOW, Bharti Airtel, Ocado Group), Felix Zulauf (Buy: CME 90 Day Eurodollar Future, U.S. dollar/short offshore Chinese yuan, U.S. dollar/short Korean won, U.S. dollar/short Taiwan dollar; Short: EEM, CME S&P 500 Index Future, IBEX 35 Index Future, EWS, German Stock Future Index, Euro STOXX 50 Future), Mario Gabelli (MSG, GFF, GPC, MIICF, CBS, DISCA), and Jeffrey Gundlach (Buy: HTR, NLY, Puerto Rico GO Bonds, BWX, INP; Short: EEM).

1) Positive on IP: Company, which counts AMZN among its customers, is seeing its business grow; the shares discount a lot of bad news, its free cash flow leads that of rivals, and it recently raised its dividend;
2) Positive on NWL: Shares are down on news of the Jarden acquisition, but look like a good deal at their current price because the company is shedding underperforming divisions, streamlining the back office, and investing in key brands;
3) An overview of the World Economic Forum, where climate change, sustainable development goals, and the collapsing Chinese stock market were key topics of discussion;
4) Interview with MacroMavens founder Stephanie Pomboy, who has been bearish on stocks since 2010 because she thinks the market is ahead of fundamentals amid weak consumer spending.

Tech Trader: "The tech world appears to be going through the bursting of another bubble, but the outcome should be positive for investors in publicly traded companies overall, unlike the implosion of the dot-coms in 2001"; The collapse of some young venture-backed companies could affect the demand for networking gear (Cautious on EMC, HPE, CSCO).

Trader: Last week's recovery was a relief rally from much oversold levels, says Adam Sarhan of Sarhan Capital; For energy sector investors, bonds may be a better bet than stocks, because if oil stays where it is or drops further, bonds bring fewer risks; "As fourth-quarter earnings reports come out, investors should look for pension accounting changes that will artificially flatter earnings by tens of millions of dollars or more in 2016 at some firms."

Small Caps: Positive on HMHC: Leading provider of textbooks and digital education tools in the U.S. is poised to benefit from the trend toward increased digital learning aids, and with shares down, the share price is attractive and likely to see a rebound.

Follow-Up: Cautious on KMI: The sharp decline in the energy-pipeline operator's shares could be over, and at the current price Barron's is no longer bearish; Negative on CMG: More bad news at restaurant chain seems likely, "and any more hiccups could drive the shares, still pricey at 36 times projected 2016 earnings, down another 20%."

European Investor: Positive on SNY: French pharma giant is set to deliver 18 new products by 2020, and could be a good investment at a time when European equities are suffering badly from various global problems.

Asian Investor: Cautious on CNOOC, Sinopec, PetroChina: If oil stays under $30, investors will likely see large asset write-downs and dividend cuts at China's Big Three energy companies, for which the worst is not over.

Emerging Markets: Positive on Embraer, Tencent: Amid ongoing trouble in emerging markets, the long-term prospects for the Brazilian plane maker and the Chinese mobile giant look strong.

Commodities: Despite a two-year drop in value, iron ore's rough patch will likely extend into 2016 as big miners churn out record volumes despite lower demand in China.

Streetwise: Dividend-paying stocks may not be as safe as they look, because the earnings necessary to pay for them may be harder to come by this year; Iman Brinvanou of TCW likes dividend payers KO, MO, and PEP because their risk/reward ratio is still favorable.

Friday, January 22, 2016

Central Bankers and Higher Crude Stem the January Sell-Off Weekly Market Update: Central Bankers and Higher Crude Stem the January Sell-Off
Fri, 22 Jan 2016 16:14 PM EST

After three weeks of punishing declines, global markets may have found a bottom. Traders keyed on what appears to have been Wednesday's important intraday technical reversal for both stocks and oil prices. On that day trading volumes surged, negative market internals spiked, the VIX reached levels not seen since last summer ahead of a 400+ point reversal in the Dow. By Thursday many suggested sentiment was also improving upon markets hearing the distant sound of the central bank cavalry riding to the rescue. Mario Draghi promised the ECB would look at more easing at the next policy meeting, while there were rumors that the Bank of Japan could launch another helping of QE at the policy meeting next week. The PBoC was less sanguine, however they promised to expand use of a new medium-term instrument to provide markets with liquidity, and separately fixed the yuan reference rate higher for the tenth consecutive session on Friday, putting the yuan at its strongest rate to the basket since January 6th. The other big positive catalyst was crude, which found a short-term bottom below $28. Both WTI and Brent dipped into the $27 handle on Wednesday upon Feb options expiration, then rallied hard through the close on Friday. Prices gained more than 20% in 48 hours, with both WTI and Brent closing out the week above $32. Global elites gathered in Davos, where nearly every interviewee was asked at least once whether they saw recession in the offing (most hedged or said not really). In the background, Q4 earnings season slogged on with managements offering up cautiously optimistic outlooks based on more of same in terms of tempered economic growth. US stock indices posted their first weekly gains in a month: after losing over 500 points through Wednesday morning, the DJIA rallied to end up 0.7% on the week, the Nasdaq rebounded to post a 2.3% gain, and the S&P added 1.4%.

China's economy slowed in the final quarter of 2015 to +6.8%, the weakest quarter of growth since the crisis in 2009, as Beijing continues to push its economic transition to a consumer economy. The full-year 2015 China GDP figure was +6.9%, the weakest growth rate since 1990. December industrial production saw its weakest y/y growth in 25 years, while December fixed-asset investment expanded at the slowest pace since 2000. The anemic slate of economic data prompted hopes for yet another round of stimulus from the authorities, in the form of RRR cuts or spending programs. The PBoC said it would begin expanding use of mid-term lending facilities (MLFs) to add liquidity, and a PBoC economist commented that the MLF facility could be a substitute for RRR cuts, which somewhat confused markets.

The ECB took no action at its policy meeting this week, but ECB President Draghi said the committee would review and possibly reconsider monetary policy at the next meeting in March, when the latest round of ECB staff forecasts will be published. He repeated several times that the ECB has not only been highly successful with its prior unconventional monetary policy actions, but that it still has plenty of tools left to help it achieve its mandate. Draghi justified his more dovish stance by warning that conditions have changed since December, specifically citing the 40% decline in oil prices since that time, an increasing possible correlation between inflation expectations and lower oil prices, and the chance that 2016 inflation levels will drop even lower due to the commodity price implosion. EUR/USD saw lower lows this week, testing below 1.0800, but was still constrained at the upper bound by the 1.0990 level.

The Bank of Japan's upcoming policy meeting is scheduled for next week and expectations were building for the bank to introduce more QE in light of market conditions. The yen has strengthened notably since the start of the year, with USD/JPY dropping from the 120.50 area in late December to as low as 116.00 this week. Preliminary January manufacturing PMI data dropped to a three-month low, as the new orders component slowed to a six-month low and inflation-gauging input prices fell for the first time in over three years. At Davos, BoJ Governor Kuroda said that deflationary pressures were a real risk, but also cautioned that he did not believe the global economy was on the brink of a deflationary wave and highlighted that underlying Japan inflation was still above 1.0% and that inflation expectations were still well anchored. Kuroda hinted that the BoJ has room for more QE, if needed, but the bulk of his comments were dismissive of any need for more stimulus.

In the eye of the storm on Wednesday, Fed fund futures had significantly repriced the probability of more FOMC rate increases this year. Futures pointed to less than 1% probability of four Fed rate hikes in 2016, with just a 30% chance of a March rate hike, compared to 53% a month ago. Recall that the dot chart released at the December Fed meeting predicted four interest rate hikes in 2016. Fed fund futures priced a 40% chance of no further rate hikes this year. By Friday, the futures contracts had eased off those levels. The benchmark 10-year yield after touching 1.93% recovered back above 2.05% by weeks end.

While the jobs picture certainly argues in favor of more Fed policy tightening, the inflation front is much less rosy. After trending downward for more than a year, two key inflation gauges - the five-year, five-year forward inflation break-even rate and the yield premiums on regular USTs over TIPS - both tumbled to their lowest levels since April 2009. In a report out on Wednesday, US CPI inflation unexpectedly slipped lower m/m in December, after November's flat reading. Analysts said the softness in the sequential data was mostly due to lower energy costs. Meanwhile the y/y readings were stable. In the 12 months through December, core CPI rose 2.1%, the largest gain since 2012, after climbing 2.0% in November.

At Davos, Saudi Aramco's chairman made extensive comments about the oil market and Saudi Arabia's role in it. He said the Saudis would be able to withstand low oil prices for a long time, given they have the lowest cost of production and the ability to increase production at will. He also said oil prices have overshot to the downside and will likely rise by the end of the year. Also at Davos, the head of Russia's Direct Investment Fund said Russia may be ready to cooperate with OPEC, given how low prices have fallen.

The IMF cut its global growth forecast for the third time this year. Citing weakness in the developing world, the IMF said the world economy would grow 3.4% in 2016, down from an October forecast of +3.6%. It downgraded the 2016 outlook for developing economies to 4.3% growth from a forecast of 4.5% in October. The IMF trimmed its forecast for US economic growth to 2.6% this year from 2.8%, noting the prospect of higher interest rates. It kept its 2016 forecast for China's economy unchanged at 6.3%.

Wall Street earnings reports continued roll in this week. Morgan Stanley greatly improved its performance in the bank's fourth quarter, roundly beating both earnings and revenue expectations. Morgan grew both earnings and revenue on a y/y basis. Bank of America's fourth-quarter results were mixed, with earnings up nearly 10% y/y, beating expectations, even as revenue slightly undershot. On the conference call, executives disclosed that 2% of the bank's overall loans were to the energy industry. Goldman Sachs had a mixed report, with provisions for its RMBS legal settlement eating approximately 75% of its quarterly profit, while revenue fell slightly on a y/y basis. Goldman's key book value per share metric rose 5% y/y.

Three big Dow components held back the index late in the week. IBM reported its 15th straight quarter of contracting revenue, with sales at all three of the firm's major business lines lower y/y. The firm's FY16 forecast was weaker than expected. GE's revenue total in its fourth quarter missed analysts' expectations, although total profit beat and both profit and revenue were up modestly on a y/y basis. The firm's oil & gas revenue fell 16% y/y, but most of the other industrial businesses saw good growth. American Express tanked as investors tore into the firm's FY16 forecast. The new guidance range beat expectations, but only because it includes an expected $1 billion gain on the sale of its Costco credit card portfolio, which implies that underlying growth will be weaker than expected.

Saturday, January 16, 2016

Barron's Saturday summary: positive on YHOO, BEAV
Cover story: Participants at the Barron's 2016 Roundtable "see more stock market turmoil, junk-bond mayhem, and global strife in the year ahead"; Oscar Schafer of Rivulet Capital likes EVTC, CPN, COMM, NICE; Brian Rogers of T. Rowe Price likes AXP, CMCSA, ETN, M, OXY, QCOM.

1) Positive on YHOO: Company faces increasing pressure to unload its core Internet business, which would likely also lead to a sale of its stakes in BABA and Yahoo! Japan, netting shareholders a potential 35% gain, or about $40 a share;
2) Positive on BEAV: If aerospace company's growth picks up steam, shares-which have dropped from a high in 2014-could see 30% upside, and even more if it becomes a takeover target;
3) Barron's looks back on its bullish stock recommendations for 2015, noting shares of the 146 companies it wrote about fell 2.4% against a 1.8% drop for the benchmarks, while bearish picks fell 18% on average;
4) As world leaders gather for the World Economic Forum in Davos this week, "a new industrial revolution is the theme for debate...but there will be plenty of talk about turmoil in emerging markets and geopolitical issues too."

Tech Trader: Cautious on AAPL, Samsung: The smartphone sector is doing worse than the PC sector, with shares of both big players down, but suppliers such as SWKS, QRVO, and ADI are feeling even more pain; Cautious on GPRO: Camera maker relies on a single product and has yet to prove that it will have staying power; Brian Schwartz of Oppenheimer & Co. thinks CRM, ELLI, INST, and WDAY are likely to survive what could be major turmoil in the cloud-computing sector.

Trader: David Kelly of JPM Asset Management thinks that the current market turmoil will last another two weeks, and says investors shouldn't succumb to emotional reactions during the swings; Wall Street strategists Stephen Auth of Federated Investors and David Kostin of GS have shifted to a significantly less bullish viewpoint of the market following two bad trading weeks; Cautious on QLIK: Software developer has a solid niche in a growing business, but sales have slowed significantly and its valuation is still extremely high.

Profile: Clare Hart, portfolio manager, JPMorgan Equity Income fund looks for sustainable growth and strategy, and will exit a holding if gains were achieved by diverting from management's outlined game plan (top 10 holdings: WFC, XOM, JNJ, AAPL, PNC, OXY, CME, PFE, TRV, MO).

Small Caps: Cautious on CFX: Shares of pump and welding-products maker have tanked, but assuming oil prices don't stay at $30 forever, the stock looks like a bargain. Penta: A survey by Fidelity Investments of its high-net-worth clients found that impact investing, which attempts to generate market-rate returns while advancing social or environmental goals, is "a surprisingly big deal."

European Trader: Positive on SHPG: Most of the concerns about pharma company's acquisition of BXLT seem to have been dispelled, and investors seem confident it can complete the transaction and boost value.

Asian Trader: If China's reform efforts were effective, the country could get back on track, but local politicians are likely to drag their feet when it comes to change. Emerging Markets: Saudi Arabia doesn't offer much potential for investors, and though the government loosened foreign-ownership restrictions for institutional investors last year, retail choices remain limited.

Commodities: "Investors in agricultural commodities will continue to feel the pain of weak prices this year" amid strong global supplies, a strong dollar, and weakness in the currencies of producing and exporting countries.

Streetwise: The market is a lot cheaper than it was a few months ago, and that means value can be found, especially at cash-rich companies.

Friday, January 15, 2016

Historically Poor Start to 2016 Extends on Global Market Turmoil Weekly Market Update: Historically Poor Start to 2016 Extends on Global Market Turmoil
Fri, 15 Jan 2016 16:19 PM EST

The New Year's market mayhem went from bad to worse this week. Beijing took its campaign to create volatility in the yuan FX rate to Hong Kong, creating elevated levels of paranoia regarding the economic strategy behind its big interventions. On Wednesday, the Shanghai Composite slipped below 3,000 for the first time since last August, putting the index in a technical bear market, down 20% from its December highs. The index closed the week below its August lows at 2,900, down about 6.5%. US and European equities were whipped around by the continuing chaos, with highly volatile trading seen all week, however Friday's session was the real moment of truth, as options expiration, the coming three-day weekend and a real sense of panic in markets combined to drive a massive selloff, with the DJIA and S&P500 down more than 3% a piece and the Nasdaq down more than 4% at their worst levels. On Friday, the S&P500 plunged through its August low of 1867 in mid-day trading before recovering to close above it. The 10-year UST yield tumbled nearly 18 basis points from its high of 2.175% on Monday below 2.00% before the open on Friday. Short rates fell too, when futures traders used Friday's disappointing US data to push Fed rate hike expectations out further into 2016. And behind it all, WTI and Brent crude marched in lockstep to 12-year lows below $30.

For the five sessions through Thursday, the PBoC set the yuan fixing higher, then set it slightly lower on Friday. So after pushing down the yuan last week, the PBoC has worked hard to build it right back up again this week, driving confusion and chaos in domestic and overseas markets along the way. Many analysts say that is exactly the point, with the bank creating volatility to make betting against the yuan more expensive and tamp down the flow of money heading out of the country. Beijing's efforts to monkey with the yuan over recent months have paid off, as seen in the December Chinese trade data. China's December trade surplus in both CNY and USD terms was much higher than expected. Outbound shipments priced in CNY rose +2.3% v -4.1%e, and in USD terms the decline was just -1.4% v -8.0%e. The decline in imports in both CNY and USD terms were much less than expected.

Another theater of conflict in the Chinese crisis opened up in Hong Kong this week. On Monday, short-term rates in Hong Kong (HIBOR) to borrow offshore yuan (CNH) jumped to a record 13.4% from 4% on Friday. On Tuesday, HIBOR spiked to an astonishing 66.8%, and then settled back around 8% in the latter half of the week. Traders said the PBoC - via large Chinese banks - intervened in the offshore market by selling USD/CNH, to reduce the pool of offshore yuan liquidity, in an effort to crush the yuan carry trade, punish the short CNY trade and narrow the spread between onshore and offshore yuan. The CNY/CNH spread had spiked rapidly through the first week of the New Year to a five-year high, topping out around 1.02 before PBoC action crushed the spread back below 1.00. Meanwhile, the Hong Kong Dollar sank to its lowest level against the greenback in five years.

Brent and WTI crude prices cratered in lockstep, with both contracts closing out the week below $30, for 12-year lows. With Iran weeks or even days from achieving final compliance with the International Atomic Energy Agency (IAEA) on mothballing its nuclear program, there was little prospect of support for prices any time soon. Morgan Stanley, Goldman Sachs and Citigroup all published research pieces this week asserting that the price of oil would remain in the $20 handle over the near term as a result of China's slowdown, the appreciation of the USD and the fact that drillers are not curbing production despite the oil glut. USD/CAD touched a 13-year high of 1.4550 on the continued softness in crude, with traders waiting anxiously for a possible rate cut at next week's Bank of Canada policy meeting.

Two Fed presidents - dove Evans and hawk Bullard - aired their fears about the impact of plunging oil prices on inflation. Evans said he was nervous that inflation expectations might not be well anchored, citing downward pressure from the endless decline in oil prices. Bullard echoed his comments, warning that inflation expectations were becoming worrisome. Bullard took an even stronger stance than Evans and said the Fed may no longer be able to keep looking past crude prices when assessing inflation trends. Bullard said that low crude prices are now correlated with falling inflation expectations, could hold down actual inflation levels. Friday the Fed's Dudley offered little solace to plunging markets. Dudley opined he does not see much change in the economic situation and believes core inflation remains relatively stable.

It's no secret that US manufacturing has been seeing sequential declines over recent months, and data out on Friday confirmed that the trend is not improving. The January Empire manufacturing survey from the New York Fed (the first of the regional Fed factory surveys for January) was a total disaster, which declined to its lowest level since the depths of the recession in early 2009. The new orders and production indexes each deteriorated by nearly 20 points. US industrial production dropped for the third straight month in December. Analysts note that a major part of the month's decline was due to utilities cutting output amid unusually warm weather and energy companies reducing activity in the face of falling oil prices. The November figure was revised much lower, to -0.9% from -0.6% prior.

The Bank of England kept its key interest rate at a record low of 0.5% and made no changes to its asset purchase program. Both decisions were widely expected, as the outlook for UK growth and inflation has been crushed by negative developments in the energy markets and the world economy. The MPC voted 8-1 to keep rates at 0.5% where they have stood since March 2009, but voted unanimously to keep it's QE program unchanged. "Recent volatility in financial markets has underlined the downside risks to global growth, primarily emanating from emerging markets," the central bank said in minutes from its meeting. GBP/USD saw its highs of the week around 1.4600, then skidded lower to under 1.4300 in the chaotic trading on Thursday and Friday, to a fresh six-year low.

Alcoa marked the unofficial beginning of the fourth quarter earnings season on Monday. Alcoa's earnings topped analysts' expectations, but revenue fell just short of what was expected, as some high-growth segments helped to slightly negate headwinds in its legacy business. The firm's outlook for aluminum demand growth in 2016 was +6% y/y, down slightly from its last 2015 forecast of +6.5% y/y.

JPMorgan widely exceeded expectations in its fourth-quarter earnings report. Profits rose more than 5% y/y, while revenue was only up incrementally. The corporate and investment bank saw huge profit growth, however, the commercial bank and asset management unit both saw lower profits. Executives warned of rough waters ahead for the US economy. "We're not forecasting a recession - I think the US economy looks pretty good at this point," said CEO Dimon. Citigroup turned in good quarterly results, with profits up sharply y/y as the bank shakes off its legal woes, and revenue up 3% y/y, both beating expectations. Wells Fargo only just met top- and bottom-line expectations.

Shire has finally bagged Baxalta, with the latter agreeing to be acquired in a $32 billion deal valued at $45.47 in cash and stock. The deal includes an $18/shr cash component, not too far from the 40% cash portion rumored last week. Baxalta, which was spun out of Baxter International, generates a large portion of its sales from Advate, a drug for hemophilia. This is Shire's third major buy in just over a year, coming after last November's $5.9 billion Dyax buy and the acquisition of NPS Pharmaceuticals for about $5.2 billion a year ago.

Saturday, January 9, 2016

Barrons Saturday summary: positive on HBI, DECK

Cover story: Despite turmoil in the market at the beginning of the year, "it's probably too early to call an end to the bull run"; the U.S. economy remains healthy and global stocks still look like the best major asset class.

1) Positive on HBI: Despite a drop in the share price, apparel maker has been able to withstand difficulties in its sector, and its Champion brand is thriving; company compares well to peers such as COLM, NKE, UA, and VFC on valuation and profit margins should rise;
2) Asia faces a number of potential problems in the coming year, including instability in Beijing, terrorist mayhem, a Japanese debt crash, and territorial disputes in the South China Sea;
3) Positive on DECK: Shares have fallen because of slower-than-usual winter sales, but company is moving goods faster than rivals and launching new products; shares could trade up to $65 in the next year from a current $45.

Tech Trader: Positive on AMZN, GOOGL, FB, MSFT, BIDU: Though a host of new companies are sprouting up to leverage the Internet of Things, the companies that have the most to gain are cloud providers, which will serve as hubs and data collectors; Cautious on AAPL: The recent "quixotic trading pattern" affecting the company's stock is likely to persist indefinitely because of concerns about the iPhone, but it's not cause for worry.

Trader: In China, the correction and continuing improvement in employment suggest consumer stocks could be an opportunity, says Michael Yoshikami of Destination Wealth Management; +/- UPS: Though the delivery giant faces several challenges, the company is a good play "for a long-term-oriented investor wanting a robust, income-generating company"; Cautious on CMG: News at the food chain keeps getting worse, but the company has other issues beyond the recent foodborne illness outbreaks, including a problematic supply chain.

Interview: John Dowd, manager of the $2B Fidelity Select Energy Portfolio, sees strength in the energy sector ahead, though timing remains an open question (top 10 holdings: XOM, SLB, EOG, VLD, CVX, XEC, NFX, PXD, BHI, FANG).

Small Caps: Barron's looks back at its small-cap picks last year, noting that REMY, TOWN, POST, ELY, and BNCL were the best performers, while LXU, FOR, ESL, FLWS, and OI were the worst.

Mutual Fund Quarterly: Profile of fund managers who have beaten the S&P 500 in multiple time periods; A look at how mutual funds should handle illiquid investments; Value-oriented stock funds took a hit from falling oil prices in the fourth quarter; "Guggenheim and iShares offer ETFs that can be used to create a bond ladder-a benefit for many investors, but higher costs and structural issues can be a drag on performance."

European Trader: Positive on Dassault Aviation: French aircraft company should do well in 2016-it has a healthy backlog of orders and production of its Rafale fighter aircraft should increase.

Asian Trader: The worst may be yet to come for the Chinese stock market as company insiders begin to sell shares; investors should also be wary of buying the rest of emerging markets.

Emerging Markets: India remains strong, with a solid backbone, and investors are likely to benefit if prime minister Narendra Modi's reforms materialize; IBN and HDB look attractive, as does SMIN.

Commodities: "Analysts are now divided on whether the demand gains for gasoline will be repeated this year."

CEO Spotlight: Martin Gilbert, co-founder and chief executive of Aberdeen Asset Management, has rebuilt the firm's platform, boosted assets under management, and used acquisitions to add new products and markets.

Streetwise: With earnings season about to start, investors are worried that corporate profits will disappoint, but Thomas Lee of Fundstrat says that may not be the case.

Friday, January 8, 2016

China Fears Spoil the New Year Weekly Market Update: China Fears Spoil the New Year
Fri, 08 Jan 2016 16:05 PM EST

Global stock markets experienced one of the worst first trading weeks of the year ever, pummeled by China's ham-fisted attempts at stock market and currency reform. The S&P500 ended the first five days of 2016 down by 6%, while the DJIA erased 6.2% over the same period. Both the DJIA and the Nasdaq are now in correction, 10 percent off their 2015 highs. Weak Chinese data and the PBoC's attempts to shore up the economy by accelerating the devaluation of the yuan shuttered Chinese equity trading twice, creating panicked reactions in various global equity markets. Gold and government bond prices held up relatively well with investors turning away from risk assets, but oil prices continued to sink.

The selloff got underway on Monday after Chinese regulators implemented new circuit breaker rules for mainland equity markets, including a halt in trading for the day if the index fell 7%. That morning, the official China December manufacturing PMI dropped slightly to 49.7, marking its fifth month in contraction, while the unofficial Caixin manufacturing PMI dropped to 48.2, for its tenth month in contraction. The data gave traders the excuse they needed to test the new rules, and the Shanghai Composite was halted after dropping by 7% in afternoon trading. Shanghai appeared to stabilize somewhat on Tuesday and Wednesday, then on Thursday it only took 29 minutes after the open of cash equity trading for the Shanghai index to tank 7% and trigger the circuit breaker. The yuan fixing was blamed for Thursday's slide.

For eight straight sessions through Thursday, the PBoC weakened its yuan reference rate, dropping it to 6.5646 on Thursday, the weakest rate against the dollar since March 2011. Thursday's fix was significantly weaker, -0.5% from the prior day, the biggest margin of decline since the August devaluation. The move prompted concerns that the central bank's continued efforts to weaken the yuan will spur massive investment outflows from the mainland. The PBoC set the rate a bit higher on Friday. There were unconfirmed reports that the PBoC heavily intervened in markets throughout the week in an attempt to control the declines in the yuan. China's defense of the yuan had managed to stabilize the currency for almost four months following the notorious August devaluation, although the effort led to the first-ever annual decline in the nation's FX reserves, seen in data out on Thursday.

Traders dumped emerging market currencies while factoring the ramifications of a weaker yuan. The Mexican Peso and South Africa Rand hit fresh lifetime lows against the dollar. The Turkish Lira hit a three-month low and the Brazilian Real gained a foothold above four to the USD while its close ties to the Chinese economy were scrutinized. With oil trading in the low $30's and copper testing 2.00/lb., other commodity-backed economies saw their currencies fare very poorly as well. USD/CAD broke out above the 1.40 mark reaching levels not seen in more than a decade. The Aussie Dollar fell roughly 3 big figures against the Greenback to trade below 0.70 for the first time since early October.

Relations between Saudi Arabia and Iran reached an all-time low after the Saudis executed 47 militants, including Nimr al-Nimr, a Shiite cleric and activist on behalf of the Shiite minority. Protests erupted in Iran and throughout the Shiite world. In Tehran, a mob burned down the Saudi embassy, leading Riyadh (and many of its Gulf allies) to cut diplomatic ties with Iran. With crude at more than a decade low, the Saudi budget deficit hit an unprecedented 15% of GDP, forcing the government to dip heavily into its reserves. In response, the Saudis said they might attempt to IPO the state oil company, Saudi Aramco. Analysts suggest that even if the Saudis sell a small stake, the listing could easily surpass that of Alibaba, whose $25 billion IPO is the largest on record. Aramco could be worth anything from $1 trillion to upwards of $10 trillion, which would make it the most valuable company in the world by a long shot.

WTI and Brent marched in lockstep from around $38 to test towards $32 on Thursday afternoon. There was a brief move higher on Monday due to the Saudi/Iran dustup, however the Gulf tension was no match for global market turmoil. Traders ignored big drawdowns in the DoE and API crude inventory reports, as well. After fears about China and emerging market growth, the strong dollar appeared to be the other major catalyst holding down oil prices. The greenback at its weakest remained above the low levels seen in November and early December, however EUR/USD lunged back below 1.0750 early in the week, marking one-month lows.

The US December jobs report was surprisingly strong, capping off a good year of employment growth. Non-farm payrolls far exceeded expectations, rising by 292K versus 200Ke. The blowout in the ADP report earlier in the week had hinted at a good showing on Friday. Unemployment remains at 5%. Wages were the only sour note in the report: average hourly earnings were flat in December compared to the prior month and rose 2.5% against the prior year. Both numbers missed expectations.

Automakers reported total industry sales of nearly 17.5 million for 2015, for the industry's best sales year ever. Fiat and Ford reported December US sales results that fell a bit short of expectations, while GM's December sales met consensus estimates. Fiat and Ford also reported that total 2015 sales were the best they'd seen in a decade. US-traded ADRs of Volkswagen sank sharply after the US government filed a lawsuit seeking penalties as high as $80 billion - more than the company is worth - and faulted the German carmaker for a lack of progress fixing cars with rigged engines.

Shares of Apple were under pressure this week after press reports warned that the company was expected to reduce the output of its iPhone 6s and 6s Plus devices by about 30% between January and March. Apple was said to be cutting back production in order to allow iPhone dealers to work their way through inventories that have piled up at retailers in markets ranging from China and Japan to Europe and the US amid lackluster sales. Several prominent firms cut price targets and ratings on Apple in the wake of the reports. Then on Thursday, Apple component suppliers Cirrus Logic and Qorvo cut their forecasts for the current quarter.

In other tech news, the Consumer Electronics Show in Las Vegas took place this week, with the usual assortment of flashy tech baubles on display. Smartwatches got the main billing, with investors frowning on the new FitBit Blaze watch. Amazon also got a great deal of attention for entering the semiconductor business and selling its own branded chips to other companies.

In merger news, the big story was Shire getting very close to success in its long-running pursuit of Baxalta. Back in August, Shire had proposed an all-stock deal at around $45/share for Baxalta, valuing it around $30 billion. Baxalta chose not to even enter negotiations back then, but this time around an offer as high as $48/share with a cash component up to 40% of the deal appears to have gotten their attention. ON Semiconductor got a new competitor in its pursuit of Fairchild Semiconductor. China Resources Microelectronics Limited offered $21.70/share, above ON Semi's $20/share bid, and Fairchild's board determined it to be a superior offer.

Wednesday, January 6, 2016

January-February 2016 Outlook: A Long Time Ago, in a Financial Crisis Far, Far Away January-February 2016 Outlook: A Long Time Ago, in a Financial Crisis Far, Far Away
Wed, 06 Jan 2016 22:46 PM EST

It feels as if the 2008 financial crisis was a long time ago, and indeed it has now been the better part of a decade since the bottom fell out. More than seven years of CENTRAL BANK largesse has helped restore the global economy to modest growth but it continues to suffer from problems with low inflation.

The "dark side" of the economy still holds sway as evidenced by how 2015 went out with a whimper. The S&P500 dropped about 0.9% to snap a three year winning streak, and the Dow turned in its first losing year since 2008. Oil was pummeled for the second straight year, yet cheap energy prices have still shown little sign of trickling down into more consumer spending. Global terrorism has the world on edge as the depravity in Syria has inspired ruthless attacks far from the front lines in the Middle East.

The theme of global monetary policy divergence that has been theorized about for the last year finally materialized in December. The Federal Reserve followed through on rate liftoff last month, yet many questions remain about whether this divergence from global policy easing was prompted by a stronger economy or by the Fed backing itself into a corner with its rhetoric. Markets took the news of higher US rates even better than expected, with only a mild and brief bout of indigestion as the punch bowl was partially drained. Almost simultaneously, that bowl was replenished by other central banks. The ECB followed the script by expanding its QE program, though some market participants were disappointed that it grew only in breadth and timeframe, but not in the size of monthly purchases. To a lesser extent, the central banks of Japan and China also contributed new stimulus measures. And, as expected, oil prices continued to slide to multi-year lows as Saudi Arabia did not blink at the semi-annual OPEC meeting.

A period of market retrenchment is almost inevitable as the policies of central banks diverge - it's only a matter of when and how extreme the reaction is. The scope of the market rebalance could be determined in the next few months as forecasters refine their predictions for the shape of the Fed tightening cycle. To a large extent, Fed policy will be the force driving the global economy, as most market and policy movements will play off of how far the Fed pulls away from the global easing regime. The policy divergence will put new stresses on the global economy that will be observed in equities, fixed income, energy, and foreign exchange markets and in how other central banks rejigger their own policy strategies.

The Fed Awakens

After some months of hemming and hawing, the Fed went ahead with rate liftoff last month. By early December, the jobs numbers had solidified expectations that the Fed would make its first move toward normalization at its last meeting of the year. The decision was unanimously supported by FOMC voters, suggesting the doves and the hawks were able to reach a collegial consensus, though there may have been some added pressure to move since failing to do so risked the central bank's credibility after members had all but promised the first move would occur in 2015.

The new slate of FOMC voting members for 2016 has a decidedly more hawkish leaning, appropriate for a year in which rates are expected to rise. Cleveland's Loretta Mester (hawk), St. Louis' James Bullard (hawk), Kansas City's Ester George (hawk), and Boston's Eric Rosengren (moderate) will replace a more dovish group of Fed Presidents from last year. This new roster is not likely to shy away from rate hikes if conditions merit. If a dissenter does emerge, it might be either a hawkish George or dovish Rosengren. Back in 2013, the last time they were voting members, George dissented against prolonging the QE3 program on concerns it could spark inflation, while Rosengren later registered his opposition to the initial tapering of that program.

So the big question now is "when will they raise rates again?" Early indications from the Jedi Masters at the Fed have been that rates will rise slowly and will find a lower peak rate than in past tightening cycles. The first and most consistent guidance from Fed Chair Yellen has been that rate hikes will not be "mechanical." This means that rates moves will depend on the incoming data, and won't step higher at each successive meeting. Fed speakers have also used "gradual" to describe the expected rate path. One Fed president (Lockhart) has elaborated that gradual suggests a hike at every other meeting. These code words combined with the FOMC 'dot chart' have set the initial expectation that rates will be increased four times in 2016, to bring the key rate above 1.25% by the end of the year.

Since the Fed wants to be transparent as possible, the committee may deem it logical to provide a signal for the next raise one meeting in advance. Thus, an otherwise uneventful January meeting could still hold some intrigue should the Fed add language that sets up the sequel to rate liftoff in March.

PREDICTIONS: With the first move out of the way, the Fed must face the challenge of managing future rate expectations in a context of a global economic malaise that is forcing other central banks to add even more stimulus. If the Fed keeps pulling rates farther off of the zero bound while other central bank policy regimes are sinking below zero, the policy divergence could begin to have unintended consequences and create a backlash in markets.

The second rate hike now becomes all important to the policy schematic, and its timing will be hotly debated. So far it's penciled in for March, but it could be knocked off track by a number of potential events including a stock market swoon or negative developments in the global markets (which blocked Fed liftoff in September).

The key question for the Fed is whether members need to see continued improvement toward its dual mandate (jobs & inflation) before approving a second rate hike, or if they are prepared to keep raising rates until bad data stops them. Some forces believe the Fed will not be able to muster more than a couple of rate hikes this year, and the markets may actively try to test the Fed's resolve with stock market correction.

Though rate liftoff in December was framed as a vote of confidence in the economy, mixed data in recent weeks suggest that the US is hardly a bastion of strength even compared to the anemic global economy. Many forecasters expect US Q4 GDP will be subpar and even the Atlanta Fed has cut its GDPnow tracking estimate to as low as 0.7%. Lingering concerns about low inflation and the strong dollar could also leave the Fed extremely cautious. The uncertain start for markets in the New Year seems like a strong reminder that even the best laid plans often go awry, foreshadowing some difficulties ahead that could delay more Fed rate action until the spring.

"It's a Trap!"

So what might disrupt the Fed's plan of attack? A broad variety of developments could put new stresses on the economy and markets, raising questions about the viability of monetary policy divergence. These could range from a simple stock market correction as Q4 earnings reports come in, to falling energy prices sparking a high yield crisis.

It's almost universally agreed that global easing has inflated equities, so the Fed taking its foot off the gas could hamper stocks. Former Dallas Fed President recently asserted that the Fed deliberately front-loaded an enormous equity rally over six years and that he would not be surprised if the market goes through a period of digestion now as stimulus is lifted, and could see a 10-20% correction.

That prediction could be tested as some potentially unsettling corporate earnings reports start to roll in during mid-January (Alcoa unofficially kicks off earnings season on January 11). The warm weather in December wreaked havoc on many retailers who couldn't sell off large inventories of winter clothing during the holiday sales season.

There could also be trouble in store for Apple. 2016 is now expected to be the first year ever in which iPhone sales will shrink as the company's suppliers are tamping down iPhone production due to high existing inventories of the 6S handsets. If leading consumer brands like Apple can't get traction in the quarter, it does not bode well for other firms that are reliant on outsized holiday retail sales.

Fed tightening cycles generally lead to a pullback in equity indices, though the good news for bulls is that it's sometimes a year or two into the cycle before stocks peak. The fact that rates are coming off of historic lows and that their upward trajectory will be shallow should also ease the blow. And at least one sector - the big commercial banks - should start to see better returns as rates rise after years of making their organizations leaner.

The energy sector was the biggest drag on stocks last year and conditions could get worse for these companies in early 2016. Smaller energy services firms without the resources of an ExxonMobil have been struggling to right-size their businesses and their dividends to cope with the downturn in oil prices. Oversupply issues could continue to plague the oil market for a long time to come, so crude prices could go lower still. Demand for energy has risen, too, but not enough to overcome the crude glut, and there are now even some concerns that storage at the Cushing crossroads could eventually fill to capacity (Cushing storage is at record highs near 64 million barrels, edging closer to its 71 million barrel capacity).

The geopolitics of the Middle East always bear close attention, and more so than ever as relations between Saudi Arabia and Iran have reached an all-time low in recent days. In response to the Saudis execution of a popular Shiite cleric on terrorism charges, the Iranian government allowed protestors to ransack the Saudi embassy in Tehran. The Saudis, who are already embroiled in proxy wars with Iran in Syria and Yemen, then decided to cut off all commercial and diplomatic relations. A direct confrontation between the two is highly unlikely, but the heightened tensions could lead oil speculators to push Brent crude a bit higher. On the other hand, this latest clash might steel Saudi's resolve to continue oil production at full tilt to hurt Iran just as it works to bring more supply back to market as nuclear sanctions are lifted.

The collapse of oil prices has also bedeviled the junk bond market. Many smaller oil firms issued significant amounts of high yield debt to fund their growing operations during the shale oil boom, but the reversal in energy prices has raised concerns about default on those debts. As oil prices stretched to multi-year lows in December, the high yield market was hit by news that Third Avenue Management, a large mutual fund specializing in high-yield bonds, was liquidating the fund and had blocked investors from withdrawing money as it wound down. Jitters over Third Avenue lasted only a couple of sessions but some powerful voices in the markets such as Carl Icahn suggested it was another sign that a long-prophesied high yield debt meltdown could be underway. For the high yield market, each step higher in Fed rates could become the straw that breaks the camel's back as yield-starved investors who packed into junk bonds start seeing better and safer opportunities in more conventional instruments.

PREDICTIONS: The crucial Q4 earnings season will tell the true tale of how the holidays played out for retailers and other seasonally impacted businesses. So far, lower gasoline prices have not translated into any noticeable rise in economic activity, but perhaps the November-December shopping period got a small boost.

The Fed has made it clear that it worries about stock market performance, and the market may decide to test the central bank's resolve early this year. The old saying "as January goes so goes the market" holds true about 70% of the time, so a poor performance in the next few weeks could bode poorly for the year.

Stock prices remain intertwined with the energy market, and no relief is in sight on the supply side. Iran and Saudi have had a long rocky relationship as the centers of their rival branches of Islam, but they don't appear to be ready to spill blood over oil. When Iran turns the spigots back on it may be forced to ramp up oil exports only gradually to avoid further price erosion.

May the Forex Be With You

It was China that got 2016 off to a rocky start. New stock market circuit breakers were tested on the very first trading day of the New Year as Shanghai and Shenzhen equity indices tumbled 7%.

The first economic data point of the year was another disappointing industrial reading: the December Caixin PMI Manufacturing number missed estimates and registered its tenth straight month of contraction. On top of that, forex watchers noted with concern that the PBoC fixed the yuan to its weakest level in five years.

Since the PBoC shocked the FX market with a sudden 4% devaluation last summer, it has steadily weakened the currency fixing. In the New Year this has begun to shake confidence in the Chinese economy. The concern is that the PBoC may overuse the currency as a tool for stimulating its weakened economy. If China allows its currency to depreciate further it could make large amounts of dollar denominated debt held by state owned companies harder to repay.

Some of the early equity weakness may also be linked to a ban on large shareholders selling stakes in Chinese firms that regulators put in place to reinforce the stock market last July. That six month ban on insider sales will soon expire (January 8th) and some traders may be front running expectations that large shareholders will be eager to sell.

It's not a pretty picture in Europe either, where the ECB was forced to supplement its stimulus program last month, magnifying the policy divergence with the tightening Fed. The ECB cut its deposit rate another ten basis points into negative territory, to -0.30% and expanded its QE program. The bond buying program was extended by six months to March 2017 and expanded to including regional government bonds, widening the variety of assets that can be bought. Markets were apparently disappointed that the ECB failed to boost the monthly purchase size of €60 billion, but ECB President Draghi defended the measures taken as "adequate." In addition, he explained they would also commence reinvesting principal as bonds mature, a move that would add €680 billion in liquidity to the system by 2019.

Despite assurances from Draghi that more monetary stimulus is possible, there is some speculation that the ECB council is near its limit. A recent poll conducted by the Financial Times found that many experts don't believe the ECB has the wherewithal to increase the asset purchase program again. The December decision to extend the QE program drew five dissenters, including representatives from Germany, Netherlands, Estonia, and Latvia. The minutes of the December meeting to be released on January 14th will amplify that this growing rebel faction is unhappy with the snowballing amount of accommodation. This could relegate further jawboning by Draghi to the status of an ineffectual Jedi mind trick.

Some smaller central banks are having difficulties coping with the stresses created by grand schemes of the major central banks. For example, Sweden's Riksbank threw down the gauntlet at an emergency meeting on January 4th. The Riksbank said that the Krona's appreciation is a threat to its efforts to return inflation to its 2% target. To that end, Swedish officials said they stand ready to intervene in the FX market without notice, and could take other measures including extending QE or making indirect loans to companies if needed.

Monetary policy regimes at many other foreign central banks required some quick adjustments after the Fed rate liftoff. Almost immediately, several Latin American central banks that are closely aligned to Fed policy, like Mexico's, raised rates to discourage depreciation of their local currencies. They may be compelled to mirror additional Fed moves.

PREDICTIONS: After smart money predictions of EUR/USD parity in 2015 were dashed, forecasts are more varied in the New Year. Some banks including Citigroup expect four Fed rate hikes to create enough policy divergence to foster euro parity by the end of this year. Other analysts are less optimistic about the US outlook and think some of the dollar strength is speculative froth. They see the ECB growing less tolerant of additional easing, and predict fewer rate hikes from a cautious Fed, which could actually lead to a modest strengthening of the euro.

The dollar index rose more than 9% during 2015 on the run up to rate liftoff, so some of the strength is already baked in, but higher US yields will act as a magnet for funds from abroad and that should result in sustained strength for the greenback. So as the Fed continues to raise rates it's likely to further strengthen the dollar against major currency pairs.

Despite the Treasury's oft repeated mantra that a strong dollar is in the interest of the US, in some cases it isn't. If the dollar gets even stronger there could be an outcry from large US firms, given that a large chunk of their earnings comes from exports and currency headwinds are already hurting business.

A stronger dollar could also have negative spillover effects in emerging markets, where corporate debt has increasingly been dollar-denominated. As that debt becomes more expensive in local currencies, it could ratchet up financial stresses. Meanwhile, the PBoC will likely content itself with slowly dropping the value of the yuan, since another large, sudden devaluation could create a panic.

Pol Wars

As the rhetoric heats up on the Presidential campaign trail, cooler heads have prevailed in Washington. Congress and the White House signed off on a two year budget and debt limit increase that gives the government authority to borrow freely through March 2017. This averts the threat of a government shutdown during the Presidential campaign, and may allow the Congress to work quietly on smaller issues during Obama's lame duck year.

The campaign for the White House will soon kick into hyper-drive now that the voting is about to begin. A year of wild stump speeches and unruly debates will culminate in actual voting starting on February 1st at the Iowa Caucus.

On the Democratic side Bernie Sanders has energized many liberals and he may pull off a victory in New Hampshire, but his rebel campaign is unlikely to overthrow the Hillary Clinton juggernaut. Meanwhile, there is a great disturbance in the Republican side of the field. Donald Trump, who has led in most GOP polls almost since he launched his bid in June, has confounded pundits who keep predicting his campaign will blow up more spectacularly than the Death Star. But despite some controversial statements and the disdain of the party establishment, Trump still has a full head of steam going into the Primaries. Thus, he will get a chance to prove whether or not his base of disillusioned Republicans will actually pull the lever for his name.

Trump fended off an autumn surge in the polls by Ben Carson, who seems to have all but vanished from the race, but now a new challenger is rising in the form of Ted Cruz. With the backing of evangelicals Cruz could win the Iowa Caucus and gain some momentum headed into the next primary states (New Hampshire Feb 9th, followed by South Carolina and Nevada a couple weeks later, and then Super Tuesday on March 1st). It is hard to believe that a political "padawan" like Trump could lead the GOP race from wire to wire, and if The Donald's fan boys don't get out to the polls then Cruz might assume the mantle of the "outsider" candidate.

It's well known that Mr. Cruz thrives on thumbing his nose at the establishment wing of the party (making him the most despised figure within a legislative body since Jar Jar Binks). Many political observers are betting that Cruz and the radical Republicans will ultimately face off with Marco Rubio who is leading the pack of more traditional candidates that are palatable to the establishment wing.

In Europe, the inconclusive election in Spain has yet to produce a new government. With opposition parties apparently unwilling to form a coalition, it appears that Madrid is on its way to establishing a minority government later this month. Portugal's presidential election on January 24th is expected to have a more certain result. The center right Social Democratic Party is expected to hold on to power as President Silva steps down.

PREDICTIONS: By the end of March, the US Presidential field should be weeded out considerably. The congested GOP side might even be ready to ordain Trump, Cruz, or Rubio as their champion (or less likely, Chris Christie or Jeb Bush could make a late surge). But it might not go smoothly. The Republican Party was embarrassed last year when a report emerged that they were considering the possibility of a brokered convention if no single candidate could grab a majority of delegates.

If the Republican Party can't coalesce around a credible candidate in the next few months, it could damage the chances of the eventual nominee in the general election. Four more years of a Democratic President dueling with a Republican Congress promises another long stretch of brutal gridlock in Washington.

Border security has become a prominent issue in the face of global terrorism that touched Paris and California late last year. The unfortunate occurrence of any further terrorist incidents could weaken the incumbent party as scared voters could flock to a candidate that promises to make them safer from the phantom menace, helping Republicans in the US and nationalist parties in Europe.


4: German Prelim CPI; UK Manufacturing PMI; US ISM Manufacturing PMI; China Caixin Manufacturing PMI; Puerto Rico $1B debt payments due
5: Euro Zone Flash CPI Estimate
6: UK Services PMI; US ISM Non-Manufacturing PMI; US ADP Employment; US Trade Balance; US Factory Orders; FOMC Minutes; China Caixin Services PMI
7: German Factory Orders; Euro Zone Unemployment
8: US Payrolls & Unemployment; China CPI & PPI

11: US JOLTS Job Openings; Alcoa earnings report (unofficial start of earnings season)
12: UK Manufacturing Production; China Trade Balance
14: ECB Minutes; BOE policy decision
15: US Retail Sales; US PPI; US Industrial Production; Prelim University of Michigan Consumer Sentiment

18: US Markets Closed for Martin Luther King Day
19: UK CPI; German ZEW Economic Sentiment; China Q4 GDP; China Industrial Production
20: UK Claimant Count & Unemployment; US Housing Starts & Building Permits; US CPI
21: Various EU Flash Services & Manufacturing PMIs; Euro Zone Final CPI; ECB Policy Decision & Press Conference; US Philly Fed Manufacturing
22: UK Retail Sales; US Existing Home Sales

24: Portugal presidential election (second round Feb 14th if needed)
25: German Ifo Business Climate
26: US Consumer Confidence
27: US New Home Sales; FOMC Policy Decision (no press conf)
28: German Prelim CPI; UK Prelim Q4 GDP; US Durable Goods Orders
29: Euro Zone Flash CPI Estimate; US Advance Q4 GDP; Chicago PMI

31: China Manufacturing & Non-Manufacturing PMIs

1: UK Manufacturing PMI; US ISM Manufacturing PMI; US Personal Spending; Iowa Caucus; China Caixin Manufacturing PMI
2: Euro Zone Unemployment
3: UK Services PMI; US ADP Employment; US ISM Non-Manufacturing PMI; China Caixin Services PMI
4: BOE Policy Decision & Inflation Report; US Factory Orders
5: German Factory Orders; US Payrolls & Unemployment; US Trade Balance

7: China Trade Balance
9: US JOLTS Job Openings; China CPI & PPI; New Hampshire Primary
10: UK Manufacturing Production
12: Euro Zone Flash Q4 GDP; US Retail Sales; Prelim University of Michigan Consumer Sentiment

16: UK CPI; German ZEW Economic Sentiment
17: UK Claimant Count & Unemployment; US Housing Starts & Building Permits; US PPI; US Industrial Production; FOMC Minutes
18: ECB Minutes; US Philly Fed Manufacturing
19: UK Retail Sales; US CPI
20: Nevada Dem Caucus; South Carolina GOP Primary

22: Various EU Flash Services & Manufacturing PMIs;
23: German Ifo Business Climate; UK Inflation Report hearings; US Consumer Confidence; US Existing Home Sales; Nevada GOP Caucus
24: US New Home Sales; Q4 Mortgage Delinquencies
25: UK Q4 GDP Second Estimate; Euro Zone Final CPI; US Durable Goods
26: German Prelim CPI; US Prelim Q4 GDP (second estimate); US Personal Spending
27: South Carolina Dem Primary

29: Euro Zone CPI Flash Estimate; Chicago PMI; China Manufacturing & Non-Manufacturing PMIs
1: UK Manufacturing PMI; Euro Zone Unemployment; US ISM Manufacturing; China Caixin Manufacturing; Super Tuesday Primaries & Caucuses in 12 states (AL, AK, AR, CO, GA, MA, MN, OK, TN, TX, VT, VA)
2: US ADP Employment Change
3: US ISM Non-manufacturing PMI; US Factory Orders; China Caixin Services PMI
4: US Payrolls & Unemployment; US Trade Balance

Saturday, January 2, 2016

Barrons Saturday summary

Barrons Saturday summary: Positive on MAT, VALE, cruise stocks, and defensive energy names; Cautious on P and 3D printing

Cover story: Barrons looks at some of the best sector picks for 2016, noting that there are still plenty of places to find decent income in stock and bond markets, even with many key interest rates at or near historically low levels. Investors can get yields of 4% to 9% on a range of investments, including junk bonds, utility stocks, telecom shares, and real estate investment trusts.

Tech Trader: Companies such as AMZN, MSFT, and CRM revealed more about their cloud-based operations in 2015, but a number of questions remain, and as details emerge old-guard tech stocks such as ORCL, HPE, and CSCO could get a boost.

Trader: In 2015, moves among major global indexes and asset classes show U.S.-based investors who shorted oil and energy stocks or bought the dollar did well; Many prognosticators see a 10% rise in the market in 2016, though Barrons says its more likely to be flat to 5%; Positive on VALE: Company has taken a hit because of the plunge in iron-ore prices, but the stock could discount most of the headwinds, so that even small improvements could boost the shares.

Interview: Chris Hyzy, chief investment officer at Bank of America Global Wealth and Investment Management, says stocks could see a 7-8% return in 2016, and doesnt think a recession is imminent.

Profile: Brian McMahon and Vincent Walden, portfolio managers, Thornburg Global Opportunities fund, embrace an approach to investing that is both extremely flexible and extremely focused (top 10 holdings: LVLT, GOOGL, VER, MDLZ, TMUS, HP, C, ESRX, AAL, COF).

1) Positive on CCL, NCLH, RCL: Demand in the cruise industry is growing, especially from the fast-growing Chinese market, which coupled with low fuel prices and new ways to boost profitability bode well for shares in 2016;
2) Cautious on P: Internet radio company continues to feel pressure from companies such as Spotify, AAPL, MSFT, and GOOGL that offer streaming services; shares remain pricey even after a recent drop, and could fall by another 20%;
3) Cautious on ACAS, TICC, FSC: Business-development companies face pressure from activist investors to boost returns; American Capital, primarily owned by institutional investors, agreed to a potential breakup at the request of Elliott Management, which if successful could spur other firms to follow suit.

Follow-Up: Positive on MAT: Investors should keep their shares, because core brands are doing well, the dividend is strong, a new toy lineup should boost sales, and shares remain reasonably priced relative to potential earnings; Cautious on DDD, SSYS: Shares of 3-D printing companies could fall further amid growing competition and questions about the market potential in this sector.

European Trader: Positive on Akzo Nobel: Shares of paint and coatings maker could climb by as much as 20% during the next 12 months following a restructuring and cost-cutting.

Asian Trader: Asian equity strategists think Indonesia will have a good year, though improvement may not be evident until the second half (positive on Pembangunan Perumahan, Jasa Marga Persero, Bank Mandiri).

Emerging Markets: Africas two biggest economies, South Africa and Nigeria, face different challenges in 2016, but both need to reform financial policies.

Commodities: Gold shares are down, creating a potential draw for investors, but the precious metal could continue to be a losing bet in 2016 amid an ongoing downturn in raw-materials prices.

Streetwise: Positive on CVX, OXY, DVN, NBL, NBR, PTEN: Companies are among those in JPMs Defensive Energy Basket, which focuses on firms that have stronger balance sheets, better asset quality, and lower costs

Thursday, December 31, 2015

Tough Year for Investors Goes Out on a Cheerless Note Weekly Market Update: Tough Year for Investors Goes Out on a Cheerless Note
Thu, 31 Dec 2015 16:15 PM EST

The week started off on a sour note as Chinese stocks tumbled on Monday after the latest industrial profits data declined for the sixth straight month. US data was mostly disappointing as well, with key regional readings in Chicago and Dallas dropping sharply. The 2-, 5-, and 7-year treasury auctions all showed poor results and dragged yields higher for the week. Crude oil prices dripped lower again and continued to exert influence on broader markets. US stocks alternated red and green in the post-holiday week as the S&P flipped back and forth from positive to negative on the year. For the week, the DJIA was down 0.7%, and the Nasdaq and S&P500 each lost 0.8%. For the year, the DJIA fell 2.2%, the Nasdaq gained 5.7%, and the S&P500 slipped 0.7%, its first losing year since 2011.

Early in the week, China reported November Industrial Profits at -1.4% y/y, its sixth straight decline. At the same time Japan announced its first decline in m/m retail sales in four months and first m/m drop in industrial production in three months. The poor economic data continued in the US as the Dallas Fed Manufacturing reading hit its lowest mark in seven months and the Chicago Purchasing Managers Index tumbled to its lowest in over five years. The Chicago PMI number was particularly disappointing because it showed big declines new orders, order backlogs and the employment index. The 42.9 reading for December was the seventh reading of the Chicago PMI this year that was below 50, indicating contraction. Weekly initial jobless claims were also disappointing, registering the highest number since July, though this may be attributable to holiday week volatility. On a brighter note, the December US Consumer Confidence reading beat expectations and showed a rise in the perception that job opportunities are "plentiful."

Interest rate futures fell hard on Tuesday following a very disappointing 5-year treasury auction. The 2-year yield reached its highest level since early 2010 to above 1.10%, the 5-year yield hit its high of the year above 1.79%, and the 30-year fell 2 points, putting the yield above 3.04%. The 2- and 7-year auctions that bookended the 5-year sale were also weak, perhaps attributable to the slow holiday week. Treasuries pared losses on Thursday after the higher than expected jobless claims. For the year, the 2/10-year yield spread narrowed to its smallest since 2008 as the treasury curve flattened: the 2-year yield jumped 38 basis points, while the 10-year yield was up only 8 basis points during 2015.

With relatively few corporate or macro developments during the week, broader markets were pushed around again by activity in the energy market. Saudi Arabia's 2016 budget plan showed that weak oil prices are hurting its fiscal situation, but despite that the energy ministry affirmed it would hold steady on its production policy. WTI and Brent crude are now trading in lockstep and each lost nearly 3% during the week, ending 2015 down by over 30% on top of last year's steep losses. That kept downward pressure on energy equities despite some bargain hunters picking through the wreckage. Cold weather finally swept across most of the US, helping natural gas achieve a sharp rebound this week, gaining more than 12%.

In the FX market, the dollar strengthened against the euro, emblematic of the year's move. For the week, EUR/USD peaked at just under 1.10 and ended around 1.086. For 2015, the euro fell 10.3% against the dollar, while the greenback gained a more modest 0.5% against the yen, though that was the fourth straight year the USD/JPY has risen.

On the M&A front, Carl Icahn won the bidding war for Pep Boys, cinching a deal at $18.50/share, valuing the auto service company at about $1 billion. Bridgestone said it would not go around again with another counteroffer. Media General shares lifted on Thursday on a report that Nexstar had raised the funds it needs to pursue a planned takeover offer. Another report said that Liberty Global and Vodafone may soon resume merger discussions, which could ultimately lead to a £140 billion deal.