Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:38 AM EST
S&P 500: +4.20; 1,515.80
NASDAQ 100: +6.00; 1,888.00
Dow: +36.00; 13,516.00
NIKKEI 225: -1.22%; 17,481.21 (-215.76)
HANG SENG: -1.34%; 20,520.66 (-278.31)
S&P/ASX 200: -0.42%; 6,252.80 (-26.30)
BSE SENSEX 30: +0.85%; 14,338.45 (+120.34)
FTSE 100: -0.06%; 6,561.60 (-3.80)
CAC 40: +0.13%; 6,056.42 (+8.11)
XETRA-DAX: +0.32%; 7,721.87 (+24.49)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +0.79%; $64.69 (+$0.51)
Gold: +0.41%; $656.00 (+$2.70)
Natural Gas: +0.39%; $7.71 (+$0.03)
Silver: +0.50%; $12.985 (+$0.065)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Coca-Cola to Acquire Glaceau (Vitaminwater) for $4.1B
Cola-Cola announced it has agreed to purchase privately held Energy Brands, Inc., known as glacéau, the maker of vitaminwater and other enhanced water beverages. The $4.1 billion acquisition will be in cash and is expected to close this summer, subject to customary approvals. Coke said it will be accretive to EPS in its first full year. Shares of Coca-Cola lost 0.2% to $51.24 on Thursday, but gained 0.6% to $51.57 in after-hours activity and are moving to the upside (+1.1% to $51.80) in thin pre-market trading. Bloomberg mentions Energy Brands controls about 30% of the U.S. flavored water market. An asset manager at Greenwood Capital commented, "This is the position Coke's in, having to pay up because there are so few assets out there that can move the needle for them. Coke needs Glaceau." India's Tata Group owns a 30% stake in Energy Brands, which it will sell to Coke for $1.2b -- nearly doubling its investment in less than a year.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Coca-Cola in Talks to Acquire Stake in Glaceau • Coke Beats by a Penny, Shares Trading Higher • Seven Great Ways to Invest in Coca-Cola
Stocks/ETFs to watch: Coca-Cola Co. (KO). Competitors: Cadbury Schweppes plc (CSG), PepsiCo, Inc. (PEP), Hansen Natural (HANS), Jones Soda (OTCQB:JSDA), Cott (COT), National Beverage (FIZ). ETFs: Consumer Staples Select Sector SPDR (XLP), iShares Dow Jones US Consumer Goods (IYK), Vanguard Consumer Staples (VDC)
Conference call transcripts: Coca-Cola Q1 2007, PepsiCo Q1 2007
Japan April CPI Down, As Expected; Nikkei Follows U.S. Benchmarks Lower
Japan's April CPI reading of -0.1% was an improvement over the 0.3% decline in March and in-line with economists' average estimate. The Nikkei's 1.2% fall tracked Thursday's equity sell-off in the U.S., due to strong housing unit sales and durable goods orders, suggesting the Fed may have to raise rates (or at least won't be cutting rates). The yen advanced intra-day against the dollar, but gave back most of its gains by late afternoon trading. Many economists forecast prices to decline over the near-term, with a recovery and a BoJ rate hike not expected until Q4. Still, "the improvement of consumer prices certainly provides relief and gives the BoJ's arguments some conviction," says an economist at AIG Global Investment in Tokyo. Among Japanese ordinary issues, Mitsubishi UFJ lost 2.1% to ¥1.38m, Canon -2.0% to ¥6,980, Nomura -2.0% to ¥2,435, Toyota -1.5% to ¥7,280 and Sony -1.3% to ¥6,860.
Sources: Bloomberg [i, ii], Reuters
Commentary: Weak Yen Likely to Weaken Further Ahead of Bonus Payouts • More Japanese Polarization: Only the Truly Global Will Prosper • BoJ Holds at 0.5%, GDP Slows
Stocks/ETFs to watch: Mitsubishi UFJ FG (MTU), Mizuho FG (MFG), Nomura (NMR), Canon (CAJ), Sony (SNE), Toyota (TM). ETFs: iShares MSCI Japan Index (EWJ), CurrencyShares Japanese Yen Trust (FXY)
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
Yesterday's good economic news led to a strong opening. First, April's durable goods increased for the third successive month, along with an upward revision for the March numbers. Then at 8:30 a.m., the weekly jobs claims were reported to be slightly higher -- though still lower than expected at 311,000 -- which resulted in a 125-point rally by 10 a.m. After that, the last piece of good news hit the tape --new home sales in April rose by a staggering 16%. It was the biggest gain in 14 years and was just too much of a good thing.
Analysts quickly jumped on the succession of announcements and declared that, under such a circumstances, a rate cut was now remote; instead, Fed governors might even consider a rate hike. By mid-afternoon, word spread that the trade talks between China and the United States were not going well, and it was all downhill after that. Even good forecasts from Boeing (BA) and a rally in home builders' stocks failed to stem the tide.
On the close, the Dow Industrials lost 85 points to end at 13,441, the S&P 500 again failed to set a new closing high and fell back 15 points to 1,508, and the Nasdaq lost 39 to close at 2,538. The NYSE traded 1.7 billion shares, and the Nasdaq did 2.4 billion. Breadth was very negative on both exchanges -- 26/6 on the New York and 22/7 on the Nasdaq.
Crude Oil (July) was weak for much of the day but staged a late-afternoon rally and closed up 26 cents at $65.77. The Amex Energy SPDR (XLE) lost $1.19 and closed at $55.81. The next support for the XLE is at just above $65. Gold (June) fell $9.30 to $653.30 an ounce in direct opposition to strength in the dollar resulting from better home sales and a strong durable goods report. The next psychological support for gold is at $650, but there is little technical support before $640-$642. The Silver/Gold Index [XAU] dropped $3.40 to $134.52.
What the Markets Are Saying
Yesterday's strong economic news was treated badly, which normally points to even lower prices. But as I noted previously, the market is very overbought, sentiment is lagging, and momentum has been weak. On top of that, we had a nasty comment from former Fed Chairman Alan Greenspan about overpriced markets in China, a market that has set highs almost daily on a trading angle that just can't be sustained for long. Not to mention the three-day weekend coming up.
We shouldn't be surprised that some profit taking took place. The powerful bull market is still very much intact and after a minor correction will likely reassert itself. For now, let's enjoy Memorial Day, reflect on the sacrifices made by our men and women in uniform and be thankful for what we have as a result of their service.
Today's Trading Landscape
The focus today will be on the existing home sales to see if there is a correlation with yesterday's strong new home sales. There are no significant earnings reports due today.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Retreat on U.S. Economic Reports; Toyota, BHP Billiton Drop Asian stocks fell the most in five weeks after U.S. home sales unexpectedly surged, damping speculation the Federal Reserve will cut interest rates in the region's biggest export market.
• Wu Says China's Yuan Not to Blame for U.S. Deficit, Rules Out `Large' Gain The yuan isn't the cause of the U.S. trade deficit and a ``large'' appreciation would hurt China's economy, Vice Premier Wu Yi said, signaling the nation won't cave in to demands for faster gains.
• James Packer's Ellerston Hedge Fund Plans $492 Million Initial Share Sale James Packer, Australia's richest man, is seeking to raise A$600 million ($492 million) selling shares in Ellerston GEMS Fund, giving investors access to his closely held hedge funds.
• CapitaLand to Sell $655 Million of Convertible Bonds, Record for Singapore CapitaLand Ltd., Southeast Asia's biggest developer by sales, plans to raise S$1 billion ($655 million) in Singapore's biggest convertible bond sale, according to a term sheet sent to investors.
European Headlines (via Bloomberg.com)
• European Stocks Drop a Second Day, Led by Bouygues, CRH; OMX Shares Rally European stocks dropped for a second day, led by construction companies, on concern that accelerating growth in Europe will keep interest rates rising.
• UBS to Sell Julius Baer Stake Valued at $3.3 Billion to Fund Share Buyback UBS AG (UBS), the world's biggest money manager, plans to sell its 4.1 billion-Swiss franc ($3.3 billion) stake in Julius Baer Holding AG and use the proceeds to buy back stock.
• Jim Fifield, Former EMI Chief Executive Officer, May Bid for Music Company Former EMI Group Plc (OTC:EMIPY) executive Jim Fifield said he may offer to buy the record company, raising the prospect of a takeover battle with Guy Hands's Terra Firma Capital Partners Ltd.
• U.K. Economy Expanded at Faster Than Forecast Annual Rate in First Quarter The U.K. economy expanded at a faster annual pace than forecast in the first quarter, supported by consumer spending and investment.