Today we have good news out of Europe as both France and Germany saw their economic growth numbers come in above estimates. It appears that Europe is coming out of its recession and its biggest economies are leading the way. We suspect that Spain, Italy and Greece will remain laggards but the general trend is now towards the positive and that is good not only for European equities but global equities as well. Also watch for some adjustments in the Forex markets over the next few weeks (so long as the economic data remains bullish in Europe) as investors adjust positions.
Chart of the Day:
German shares are very near two year highs and looking as though they are set to break out once they can make it through the 8,500 level.
Source: Yahoo Finance
We have economic news due out today, and it is as follows:
- MBA Mortgage Index (7:00 a.m. ET): N/A
- PPI (8:30 a.m. ET): 0.3%
- Core PPI (8:30 a.m. ET): 0.2%
- Crude Inventories (10:30 a.m. ET): N/A
Asian markets finished mixed today:
- All Ordinaries -- down 0.01%
- Shanghai Composite -- down 0.29%
- Nikkei 225 -- up 1.32%
- NZSE 50 -- down 0.03%
- Seoul Composite -- up 0.57%
In Europe, markets are mostly higher this morning:
- CAC 40 -- up 0.38%
- DAX -- up 0.21%
- FTSE 100 -- down 0.01%
- OSE -- up 0.42%
The transport ETFs and indexes will be skewed to the downside after yesterday's move in the airline stocks which was caused by the Department of Justice filing to block the US Airways (LCC) and American Airlines merger. The deal would have created another behemoth in the airline industry and led to higher ticket prices, just as the most recent mergers have done. It seems that the problem was not only the higher prices for the industry as a whole and less competition, but the concentration of consolidation among US Airways and American Airlines in certain markets, namely Reagan International in Washington, D.C. Shares in US Airways finished lower by $2.46 (13.07%) to close at $16.36/share with volume spiking to 78.6 million shares, well above the average daily volume for the company, on the news. The companies announced yesterday that they were going to appeal this and fight it in court if they had to, but our guess is that they will have to divest some assets and put them in the hands of able competitors (possibly strong discounters) to get the Department of Justice to give them their stamp of approval. We doubt that this goes to court, but we also doubt that the deal gets done in its current form. Lots of posturing going on for both sides right now.
When a company has a strong CEO at the helm many hedge fund titans and other would be activists are forced to avoid confrontations, but since the passing of Steve Jobs the market has found his handpicked replacement at Apple (AAPL) to be a more accommodating figure. A lot of what has happened at the company recently would never have happened under Jobs' watch and that includes yesterday's actions by Carl Icahn. We admire Mr. Icahn for everything he has accomplished over the years, especially recently, but Jobs would never have taken the time to have a phone conversation with a hedge fund manager about his cash hoard. With that said, yesterday's events did take place and Apple shareholders, along with the rest of the market, approved which sent shares up by $22.21 (4.75%) to close at $489.57/share on very strong volume of 31.6 million shares. Apple will have to do something with its cash eventually, and now that investors are demanding that companies use better methods to allocate capital we doubt that they can go much longer without either significantly increasing the quarterly and annual dividends or boosting share buybacks.
Apple has broken through the resistance levels we have previously discussed and now it appears that we are off to the races. Being long here is the right side of the trade to be on.
Source: Yahoo Finance
One of the names we used to follow during the social networking craze, Renren (RENN), saw renewed investor interest yesterday after reports broke that Baidu (BIDU) was looking to purchase the company's Nuomi group buying website. Both parties declined to comment but shares in Renren shot higher by $0.61 (15.37%) to close at $4.58/share on the day. Volume was exceptionally high with 16.9 million shares traded, or roughly four times the daily average, on the session even though there is no price attached to the speculation. The company does report earnings today so there is a possibility that management might have to address the sale or at least the speculation surrounding a possible sale.
The activist investors are most certainly active this week as Jos. A. Bank (JOSB) came under attack from a long-time shareholder for a list of reasons including but not limited to management's availability to shareholders and analysts, cash management and recent performance. The shares have been hit hard in recent quarters as the company missed estimates and appeared to lose market share to competitors. The company has about $13/share in cash right now and has never paid a dividend, as was stated on CNBC yesterday, so this move seems like a good move for all investors. The company could buy back a considerable chunk of shares, start a dividend policy or do a combination of the two. With investors pushing the shares higher by $5.03 (12.48%) to $45.33/share on the news we think that management will have to address the issues, especially with their lack of ownership in the company.
It looks as though a bottom has been put in and if big investors are fed up here and pushing for change we think it will happen. Pay attention as this story plays out.
Source: Yahoo Finance
We saw another big move in the biotechnology sector yesterday as Osiris Therapeutics (OSIR) saw shares rise $14.78 (138.65%) to close at $25.44/share on volume of 9.1 million shares. The company reported positive interim clinical trials of its Grafix, a stem cell treatment for wounds related to diabetes (see company press release here). The data indicated that the treatment not only helped close wounds 100% but also that it closed those wounds at a faster rate. Many individuals with diabetes are affected by these foot ulcers, roughly 25%, and the market is rather large so this is significant news for the company as the move yesterday indicated. Add this to the list of biotech names developing potential major revenue producing treatments/drugs.