By Carlos Guillen
After a rather encouraging trading session yesterday that was driven by improving consumer confidence and housing data, today equity markets appear to be suffering from data withdrawal symptoms as there are no economic data injections to lift indexes to new highs. Given the lack of economic news, investors are now, once again, speculating about the possibility of a Fed reduction to monetary easing.
Almost paradoxically, the same good news that had investors enthused about stocks yesterday is now serving to spook investors onto the sidelines today. Yesterday's data showed that the U.S. economy is showing signs of a healthy recovery, with a five-year high in consumer confidence and with stronger-than-expected housing numbers, and investors were jumping for joy. However, today the same news is being interpreted as meaning that the Fed may actually be motivated to slow its monthly purchases of bonds used to inject cash into our economic system. As such, today The Organization for Economic Co-operation and Development (OECD) warned that government-bond yields could sharply increase as central banks pull out of monetary-easing programs, and this dynamic could slow economic growth around the globe. Consequently, the OECD projected global growth of 3.1 percent this year and 4 percent in 2014, down from earlier estimates posted in November projecting global growth of 3.4 percent this year and 4.2 percent next year.
Adding fuel to the fire, the International Monetary Fund (NYSE:IMF) cut its 2013 growth outlook for China, flagging concerns about the nation's rapid expansion in lending and urging a decisive push for overhauls that it argues would put the economy on the path toward sustainable growth. As such, the IMF reduced a quarter of a percentage point off its previous projection for 8 percent growth in China, to 7.75 percent.
And adding wind to the mix, Germany's unemployment rose more than four times as much as economists estimated in May as the euro area's sovereign debt crisis and a long winter took their toll on Europe's largest economy. German data showed that the number of people out of work climbed 21,000 to 2.96 million, representing the fourth straight monthly gain.
Given the lack of home grown data today, investors are looking at anything that pops up for indications of where the wind is blowing, and this has the Dow Jones Industrial Average down over 140 points or close to one percent.
Shuanghui Gobbles up Smithfield
By David Urani
Pork - you might think of it as just the other white meat but over in China they have even more of a taste for it. One of the results of a rapidly developing economy like China's is that a booming middle class yields a growing population that can afford to eat more heartily. Thus the appetite for pork is taking off and Chinese companies seemingly can't keep up. While pork production might seem like an old and unsophisticated business, when you scale it up to mass production, particularly with a population the size of China's, it gets harder to manage. That's led to a number of controversies surrounding pork safety and sanitation including the mysterious case of 9,000 dead pigs being found in a river.
That's what I like about today's acquisition of Smithfield Foods (NYSE:SFD) by Shuanghui International. Smithfield is the world's biggest hog producer and pork processor, and it goes to show how a superior American business can help to satisfy a growing need in China, who perhaps is lacking some of the innovation and know-how to cope with the needs of a leading, developed economy.
You might be surprised to learn that this acquisition, valued at $7 billion ($4.7 billion of equity, plus debt), would be the largest ever purchase of a US company by a Chinese company. The proposed $34 per share takeover price values SFD at a 31% premium to yesterday's closing price.