- Markets saw volatile trading this week as investors worked to keep ahead of the Greek debt buyback, the US weekly payrolls and the ongoing fiscal cliff negotiations. All indications are that the Eurozone managed to successfully pull off the latest Greece debt swap, greatly calming the euro crisis for the moment. Attention has shifted squarely onto the US fiscal cliff, although there was virtually no movement toward a resolution of the issue. The Republicans made a counter offer to the administration, including $1.4T in spending cuts and $800B in new revenue (obtained by closing tax loopholes, with no tax hikes), which was rejected out of hand by President Obama. The administration reiterated that tax hikes on those making more than $250K are a non-negotiable part of the deal, and it looks more and more likely that the issue will not be resolved before the end of the year. In the meantime, approximately 50 public companies launched special dividends payable in the month of December, designed to avoid higher taxes in the 2013 period. On Friday, the November jobs report was better than expected, but still not really strong enough. In other US data points, the November ISM Manufacturing index fell below 50, to its lowest level since July 2009, and the preliminary December University of Michigan confidence reading fell sharply below the final November figure. For the week, the DJIA rose 1.0%, the S&P500 gained 0.1%, while renewed selling pressure in shares of Apple helped push the Nasdaq down 1.1%.
- The mixed results seen in the November US jobs data provoked lots of commentary on Friday morning. Non-farm payrolls were +146K, well above expectations of +85K. Despite the beat, the figure is still nowhere near the +200K figure needed for a real jobs recovery. In addition, the October number was revised downward by 49K. The BLS claimed that Sandy had no significant impact on payrolls, although many analysts say that the storm probably slowed hiring in the month. The unemployment rate dropped to 7.7%, however analysts point out this was almost entirely due to discouraged workers dropping out of the labor pool. Other analysts commented that this unexpected drop in the unemployment rate may give the Fed some pause as it considers linking policy action to employment thresholds at next week's FOMC meeting.
- The BoE and ECB rate decisions on Thursday proceeded exactly as expected, with both central banks leaving key rates unchanged. At the ECB press conference, Mario Draghi said that there had been "wide discussion" about whether to cut or keep rates steady, including talk about negative interest rates (Draghi said the ECB is "technically prepared" for negative rates). On Friday, press articles asserted that a majority of the ECB council are now said to support a rate cut and the UK Telegraph's Ambrose Evans-Pritchard wrote that several ECB members pushed for a rate cut at Thursday's meeting. Council members Draghi, Weidmann, Coeure and Asmussen are said to have successfully argued against a cut at the meeting.
- Shares of Apple lost approximately 10% of their value this week. The company's shares slid 6% on Wednesday alone, for their biggest one-day drop since 2008. There was no single catalyst for the decline and many analysts suggest that investors are liquidating holdings at year end, ahead of the fiscal cliff. There were also reports of one broker raising margin requirements for its shares, plus some misinterpreted press reports about iPhone 5 sales in China and the firm's profit margins.
- US auto sales sustained a brisk pace in November, posting their best rate in four years. There was little sign that Hurricane Sandy put much of a dent at all in the monthly numbers. Ford's sales were up 6% y/y and its F-series pick up truck sales grew a whopping 18%. Chrysler had its best November since 2007, extending its run of excellent numbers. GM's gains were a bit more tepid, up 3.4% y/y.
- Shares of Citigroup gained 8% this week after launching a big new strategic repositioning. New CEO Corbat is clearly looking to put his stamp on the firm, and the new plan cuts 11,000 jobs, reduces various overseas activities and cuts costs. There would also be a pretax charge of roughly $1 billion in Q4.
- Starbucks discussed its plans to open 3,000 net new stores through 2014, and almost doubling its international footprint through 2015. Shares of Teavana surged after Starbucks recommitted to its plan to buy the company, after several days of negative stories about its products.
- On the M&A front, the big story of the week was Freeport-McMoRan's plan to buy Plains Exploration and McMoRan Exploration for $9 billion in cash and stock, as the firm makes a big push into the energy sector. Investors do not like the deal one bit, as shares of FCX are down 18% this week. The deal would reunite the two firms that formerly were known as Freeport-McMoRan Inc. In other deal news, Canadian dairy products firm Saputo agreed to buy Dean Foods's Morningstar division for $1.45B. Baxter said it would acquire privately-held Swedish dialysis product company Gambro AB for about $4 billion to complement its kidney therapy portfolio.
- EUR/USD made another run up to the 1.3130-1.3170 resistance band it has probed twice already this fall. The pair hit six-week highs around 1.3126 on Wednesday, before dropping as low as 1.2880 on Friday. The euro sustained gains in the first half of the week as it continued to bask in the rays of the successful Greek debt buyback. Note that the maximum price on Greece's bonds was pegged at 40.1% of the principal amount, better then the whisper number of 35% mentioned last week. Peripheral yields eased further, although there was some pressure after a Spanish auction missed issuance targets. In addition, there was turbulence in Rome as Berlusconi's PDL Party abstained from a confidence vote in the Monti government, suggesting his government could be forced to resign.
- EUR/CHF moved toward 1.2150 after Credit Suisse confirmed it would start applying negative credit rates on cash clearing accounts, effective Dec 10th. The concept of negative interest rates on Swiss deposits had been speculated for some time. In June, the Danish Central Bank established negative rates for all depositors, and back in early October certain depositors received negative rates for deposits in CHF and DKK at State Street and Bank of NY Mellon. Recall that negative rates do not mean banks are charging for deposit accounts - the rates in the cases above are only for clearing accounts. EUR/CHF ended the week back below the 1.2090 level.
- The Japanese yen remained under pressure across the board, most notably hitting an eight-month low against AUD. Nikkei News reported the opposition LDP party, which is running on a platform of expanded BOJ stimulus and a tougher stance with China, is expected to win more than half of the lower house's 480 seats in the Dec 16th elections. In China, the newly seated government got to work. Initial reports from Beijing suggest the new standing committee of the politburo will turn its focus to urbanization, potentially demanding more stimulative measures such as infrastructure spending.
