Friday, December 27, 2013

Market Week Wrap-up  Weekly Market UpdateSanta Claus Rally Comes to Town

- The Santa Claus rally arrived right on time this week, as the DJIA and the S&P500 pushed out to fresh all-time highs. Low-energy trading prevailed during the quiet Christmas holiday period, with volumes running 30-40% below historical averages, as is usual at this time of year. Europe was even quieter than US trading, though the German DAX cracked 9,500 for the first time. In Japan the Nikkei Index topped 16,000 for the first time in six years on more signs that Abenomics is working. For the week, the DJIA gained 1.6%, the S&P500 added 1.3% and the Nasdaq rose 1.3%, even as, with little fanfare, the 10-year Treasury yield crossed above 3.00% for the first time in nearly two-and-a-half years.

- The November US durable goods report was strong, with the top-line figure at +3.5%, while the October data was revised higher, to -0.7% from -2.0% prior. Excluding transportation, orders rose 1.2%, the most since May, while core capital goods rose 4.5%, the strongest since January. Analysts caution that the strong figures for the month (and likely the forthcoming December data) may reflect companies scrambling to acquire capital goods before the expiration of R&D and depreciation tax credits at the end of 2013. Initial jobless claims were better than expected and saw the largest week-over-week decline since November 2012, coming off a 9-month high last week. The volatility can be explained by the usual difficulty the labor department has in accounting for seasonal hiring.

- Retailers frantically marked down goods in the days leading up to Christmas in an effort to squeeze more sales out of a holiday shopping period that was six days shorter than last year. SpendingPulse reported 2013 retail sales grew 3.5% y/y in the period from November 1st to December 24th. Comscore determined that online sales showed double-digit growth for the holiday period but still fell short of expectations, as the last week before Christmas was "considerably softer" than predicted.

- Apple shares were on the move again as the company formally announced its 4G partnership with China Mobile, after a long period of negotiations. Sales of iPhones 5S and 5C models will begin in mid-January. Tech blogs also reported that Apple's inaugural foray into the large-screen "phablet" device category may arrive sooner than expected, with reports of a possible May 2014 launch from prior expectations of a fall launch.

- Over the course of December, shares of Twitter appreciated approximately 75% in a run that has been attributed to momentum trades and year-end buying by fund managers. The run topped as shares hit $74 on Thursday and then sank 8% over the course of trading on Friday. Multiple analysts have made cautious comments about the social media company, warning that a market cap of $38 billion for an unprofitable company was questionable, at best.

- Textron announced a $1.4 billion deal to acquire bankrupt aircraft manufacturer Beechcraft Corp. With this acquisition, Textron is looking to counter a slump in business-jet sales. Jos. A. Bank rejected the $55/share counter takeover offer from Men's Wearhouse, following Men's Wearhouse previous rejection of Jos. A. Bank's $48/share offer. Seagate said it would buy network and storage equipment maker Xyratex for about $374M to strengthen its supply and manufacturing chain for disk drives.

- FX trading saw big moves in illiquid year-end markets. EUR/USD finally tested above the 1.3800 handle as participants shot out stops layered above the 1.3830 level. There was plenty of talk about option barriers toward the 1.4000 level (which happens to correspond with the 5-year downtrend line).

- The Nikkei225 Index saw eight up sessions and hit a fresh six-year high above 16,000 as the yen extended five-year lows against the dollar and the euro. In data out on Thursday, Japanese core CPI lifted above 1% for first time since 2008, although analysts caution the rise has been more cost-push rather than the more desirable demand-pull sort of inflation. The weaker yen currency has been a big factor in driving CPI higher. PM Abe's cabinet also approved the FY14/15 budget draft this week, proposing a record ¥95.88T in spending.

- USD/CNY hit 20-year lows this week as the pair edged closer 6.0700. After a year-end cash crunch unsettled global markets, the PBoC undertook its first repurchase agreement in three weeks. The absence of central bank intervention in money markets had caused rates spike, driving underperformance on Chinese stock markets in the second half of December.

- The Turkish currency (Lira) continued to hit fresh record lows against the USD and Euro after Turkey PM Erdogan replaced half of his cabinet following an unscheduled meeting with President Gul in an effort to quell protests against allegations of high level corruption. The USD/TRY tested above the 2.16.