Page 1
1
6+
Headlines Tesla Motors: Driving the Momentum • 4
Fixed Income: Yellen Stays the Course Despite Weather Complications • 8
Mergers & Acquisitions Men’s Wearhouse strikes a higher deal for Jos. A. Bank • 17
Economic Indicators Consumer Confidence • 24
Volume • 5 – Issue • 2 February 24 – February 28
Page 2
2
MARKET SUMMARY 2
MARKET DATA 3
HEADLINES 4
U.S. EQUITIES 6
FIXED INCOME 9
COMMODITIES 11
CURRENCIES 13
EMERGING MARKETS 15
MERGERS & ACQUISITIONS 17
CORPORATE NEWS AND EARNINGS 19
EUROPEAN EQUITIES 22
ECONOMIC INDICATORS 24
CONSIDERATIONS 26
SOURCES 27
TABLE OF CONTENTS
Sponsored by the Penn State Finance Society
1
Page 3
3
Indexes
Commodities
Sponsored by the Penn State Finance Society
2
MARKET SUMMARY
Page 4
4
MARKET DATA By: Parth Patel
([email protected] )
Open Feb 18 Close Feb 21 % Change
Equity Indices
DJIA 16,102.27 16,321.71 1.36%
NASDAQ 4,273.24 4,308.12 0.82%
S&P 500 1,836.78 1,859.45 1.23%
NIKKEI 14,803.64 14,841.07 0.25%
U.S. Treasuries
U.S. 1-Month T-Bill 0.02 0.04 100.00%
U.S. 3-Month T-Bill 0.05 0.05 0.00%
U.S. 5-Year T-Note 1.57 1.51 -3.82%
U.S. 10-Year T-Note 2.75 2.66 -3.27%
U.S. 30-Year T-Bond 3.68 3.69 -2.97%
Commodities
WTI Crude Oil 103.17 102.49 -0.66%
Gold 1,341.60 1,325.10 -1.23%
Silver 21.89 21.20 -3.15%
Copper 3.24 3.22 -0.75%
Currencies
EUR/USD 1.37 1.38 0.52%
USD/JPY 102.51 101.82 -0.67%
USD/YUAN 6.13 6.14 0.16%
Sponsored by the Penn State Finance Society
3
Page 5
5
Sponsored by the Penn State Finance Society
HEADLINES
4
Tesla Motors: Driving the Momentum By: Adam Burke ([email protected] )
Tesla Motors Inc. (TSLA) shares have risen 590% over the past year, and it seems that they show no signs of
lifting their foot off the gas. CEO Elon Musk announced Wednesday that he plans to expand the company’s
limits by building the battery “Gigafactory” for a price of five billion dollars. If his plan succeeds, Musk will have
turned Tesla into the first mass-market electrical vehicle manufacturer in the world in addition to solidifying his
dominance in the power industry. Shortly after the announcement of this expansion, Tesla’s shares rose by an
astonishing 31% in a one-week period.
The “Gigafactory” will facilitate taking raw materials and producing lithium-ion batteries for their electrically
powered vehicles. Tesla hopes to reach full factory production in 2020, making the factory the largest producer
of lithium-ion batteries in the world. Its large scale production will reduce the high manufacturing costs by about
30%, which will result in a substantial reduction of the car’s prices. Musk believes that this transformation can
reshape his luxury brand to meet the high demand for a more affordable “green” car.
Despite the project's potential, a lot of controversy has been sparked in the power industry. A bidding war has
been created in states such as New Mexico, Texas, Nevada, and Arizona who are now fighting to gain the 6,500
jobs that the factory will offer. Another issue surrounding the project is the immense amount of energy required
for the large scale output of the factory. Musk believes that this issue can be resolved with a plan to harvest
renewable energy through solar panels and wind turbines. Nevertheless, this proposed strategy may face many
difficulties before being implemented.
Regardless of the complications surrounding the operations, it seems that Tesla Motors is taking the right steps
in making a sustainable business model for their future. As Generation Y begins to age and dominate the car
buying industry, it will be interesting to see how they respond to the affordable, green movement in the coming
years. Tesla seems to think battery powered transportation will fuel the future; it is now up to this
environmentally friendly generation to decide if it is here to stay.
Tesla’s electric car and its
PowerStation which could
eventually replace current
gas fueling stations.
Source: http://blogs.wsj.com/moneybeat/2014/02/27/for-tesla-bullish-options-its-pedal-to-the-metal/?KEYWORDS=tesla
Page 6
6
HEADLINES
Sponsored by the Penn State Finance Society
5
Violent Threats of Nation-Wide Separation Plague Ukraine By: Caroline Kelley ([email protected] )
Political, and now financial, turmoil in Ukraine has spread like wildfire. Since last week’s bloodshed and
antigovernment riots in Kiev, ousted president Viktor Yanukovych has been a man on the run, escaping to
wherever he can find safety. Yanukovych’s violent dismissal from parliament was a result of opposition parties
finally gaining control of Kiev after last weekend’s mass murder of over 80 civilians. There were several rumors
amidst Yanukovych’s location, until it was noted that he had reached isolated Crimea, a peninsula in southern
Ukraine with strong Russian roots and hostility towards the pro-European protestors.
Yanukovych has since spoken publically for the first time and is promising to return to power.
“No one has overthrown me,” he said, expressing intentions of regaining the authoritative position he lost
“illegally”.
Besides utter violence and chaos, one of Ukraine’s biggest threats is its looming recession and the state of its
currency. To sustain its economy and bring power back to the Ukrainian hryvnia, acting Finance Minister Yuri
Kolobov announced that Ukraine will need to raise $35 billion by the end of 2015.
The threat of nation-wide separation in Ukraine is casting a deeper and darker shadow with the progression of
each day. Generally, those in the west near Kiev support the antigovernment protestors and interim
government, while those in the east near Crimea support Yanukovych’s rule and Russia’s influence. Interim
leaders have risen to power in major cities; including a pro-Russian local businessman in southern Sevastopol.
By contrast in Kiev, temporary positions have so far been seized by members of the Fatherland Party, a
segment of the political opposition. Their main goal is to bring power back to those of moral standing, not those
motivated by politics alone.
Ousted Ukrainian
President Viktor
Yanukovych speaks
publically for the first times
since antigovernment
protestors violently forced
him to flee parliament.
Source: Pavel Golovkin/Associated Press
Page 7
7
Sponsored by the Penn State Finance Society
For the past month, the harsh weather is to blame for the recently weak economic data that the U.S. indices
have been illustrating. This trend appeared to have ended as Monday saw a rise in U.S. stocks due to gains
made in health insurer's shares and boosted merger. The S&P 500 index hit a record intraday high, but closed
out at 1,847.61 (+0.60%), which is less than a point away from its record close of 1,848.38. One of the S&P
500's biggest percentage gainers was Humana and UnitedHealth Group (UNH). After the government's
proposed cuts to the private medical program turned out to be less than what was originally forecasted,
UnitedHealth Group saw a 10.6% stock jump to $113.69.
The NASDAQ Composite gained a lot of ground as it reached a 14-year high of 4,292.97 (+0.70%). The Dow
Jones Industrial Average added just over 105 points resulting in a close out of 16,207.14 (+0.70%). Quite a few
companies found themselves involved in much of the market action on Monday, two of those being Men's
Wearhouse (MW) and Jos. A. Bank Clothiers (JOSB). The hostile takeover continued as Men's Wearhouse
increased its cash tender offer to Jos. A. Bank shareholders by more than 10% climbing from $57.50 per share
to $63.50. As a result, Jos A. Bank shares rose 9.1% to help combat the ongoing hostile takeover.
eBay (EBAY) also found itself in the market limelight after receiving heavy criticism from renowned investor and
businessman Carl Icahn. Icahn, who has a 2% stake in eBay questioned independent director Marc Andreessen
and Chief Executive John Donahue and their ability to understand their board and the marketplace around them.
Regardless, eBay rose 3% and closed at $56.30 per share. Monday saw an increase in market performance
largely due to the increase in merger activity including companies such as Facebook (FB) (acquired Whatsapp)
and Actavist PLC (ACT) (acquired Forest Laboratories). These acquisitions have reflected a positive deal flow in
the market that can ultimately be very positive.
The markets saw a decline on Tuesday. The Dow Jones Industrial Average opened at 16,207.34 and closed at
16,179.66, resulting in a change of (-0.17%). The NASDAQ opened at 4,298.48 and closed at 4,287.59,
resulting in a change of (-0.13%). Lastly, the S&P 500 opened at 1,847.66 and closed at 1845.12, resulting in a
change of (-0.13%).
Tesla Motors Inc. (TSLA) is close to disrupting two industries that will call for a share price of $320 reported by a
Morgan Stanley analyst. This is after new share prices have been up from $153 and with fourth quarter profits,
as well as reports of rising production. Tesla is expected to announce sometime this week to construct a new
factory that would be able take raw materials and produce batteries. The analyst estimates the company will
make 220,000 vehicles.
Verizon Communications (VZ) has ruled out shares purchase for the next two to three years. The company is
planning on lowering the debt level following its $130 billion buyout of Vodafone Group PLC. The main strategy
for this buyout is to gain an upper hand over some of its other competitors.
Monday By: Patrick Unks ([email protected] )
U.S. EQUITIES
Tuesday By: Krishnan Swaminatahan ([email protected] )
6
Page 8
8
Sponsored by the Penn State Finance Society
U.S. EQUITIES
Thursday By: Quan Nguyen ([email protected] )
The U.S. stock market got off to a sluggish start earlier on Thursday, but managed to firm up later in the session.
The Dow Jones Industrial Average increased 74.30 points (+0.47%) to finish at 16,272.71. The broader S&P 500
Index finished the day 9.13 points (+0.51%) higher at 1,854.29 and turned positive for the year. Finally, the
technology-heavy NASDAQ closed at the best level since April 2000, adding 26.87 points (+0.63%), to 4,318.93.
Yellen’s comments, in which she reaffirmed the central bank’s accommodative policy is the main reason behind
the rise of the three major indices after three straight unsuccessful attempts this week. Yellen stated that there
will be no difference between “Yellen’s Fed” and “Bernanke’s Fed” and the Fed is not on autopilot, which means
that adjustments will be made if necessary. The statement reinforced many investors’ confidence and it won’t be
surprising to see the three major indices rising in the next few days.
In corporate news, J.C. Penney Co. (JCP) jumped 25.0% to $7.47, after making gains late Wednesday on
better-than-expected results. Best Buy Co., Inc. (BBY) shares rose as much as 7.0% after the retailer said it
swung to a fourth-quarter profit, beating forecasts. However, the gains fizzled out and the company’s shares
closed 1.0% lower.
7
Wednesday By: John Ware ([email protected] )
Wednesday was a sluggish, albeit barely positive, day for the markets. The S&P 500 Index, barely moving at all
today, crawled up by only 0.04 points (+0.01%) to end at 1,845.16. The Dow Jones Industrial Average, on the
other hand, rose by 18.75 points (+0.12%), totaling 16,198.41. Finally, the NASDAQ Composite climbed 4.48
points (+0.10%), finishing at 4,292.06.
“The market in the short term is a little tired,” said Michael James, a Los Angeles-based managing director of
equity trading at Wedbush Securities Inc. “Sure, we have problem breaking through it, setting new all-time highs.
But I think that’s temporary. I don’t think there is going to be any material downside from these levels because
there isn’t really anything that’s fundamentally driven, it’s more sentiment driven.” Retailers had the biggest gain
among the major industries in the S&P 500, rallying 1.4% as a sector. Lowe’s (LOW) advanced 5.4% to $50.72
when it announced a plan to buy back $5 billion in shares. The company also said fourth-quarter profit rose
6.3% as the housing rebound spurred renovation spending. Abercrombie & Fitch (ANF) increased 11.0% to
$40.04 after saying it would buy back $150 million in shares in the current quarter, and after posting fourth-
quarter profit that topped analysts’ estimates.
Unfortunately, energy companies saw major setbacks, with Chesapeake Energy (CHK) plunging 4.9% to $25.61
after missing analysts’ profit estimates by the biggest margin in almost two years. First Solar (FSLR) sank 9.1%
to $52.74. The largest U.S. solar-panel manufacturer said its profit in the fourth quarter slid as revenue slumped
from the utility-scale power plants it built in the southwest of the U.S. The company’s net income fell from $154.2
million to $65.3 million.
Page 9
9
U.S. EQUITIES
Sponsored by the Penn State Finance Society
8
Friday By: Tom Orr ([email protected] )
On Friday, the markets finished mixed. The Dow Jones Industrial Average closed at 16,321.71 after gaining
49.06 points (+0.30%) on the day. The S&P 500 finished at 1,859.45 after rising 5.16 (+0.28%). Tech stocks
were down leaving the NASDAQ as the only market to have a bad Friday. The NASDAQ closed at 4,308.12,
falling 10.81 points (-0.25%) on the day.
Eight of the ten main sectors for the S&P 500 closed positively. One of the biggest movers of the day was
Monster Beverage Corporation (MNST). Their stock rose 4.0% after they reported very high sales that beat the
estimates of analysts. Decker's Outdoor (DECK) fell 12.0% because they projected a $0.16 loss per share for
the first quarter. Apple (AAPL) helped contribute to the bad day for the NASDAQ. Apple did not listen to activist
investor Carl Icahn who wanted Apple to buy back shares. This was sure to contribute to Apple's 0.3% decrease
on Friday.
Moving forward, expect Apple to bounce back because they had a relatively small decrease today, showing that
investors still have faith in the decision making of upper management. In turn, the NASDAQ should bounce back
on Monday, and next week should be a good week for the markets.
Source: http://cdn2.screenjunkies.com/wp-content/uploads/2008/09/stock_market.jpg
Page 10
10
Sponsored by the Penn State Finance Society
FIXED INCOME
Yellen Stays the Course Despite Weather Complications By: Rob Gelb ([email protected] )
9
According to Janet Yellen, the Federal Reserve will continue its plans of reducing bond purchases, regardless of
the weak economic activity over the past few weeks. Over this time period, U.S. retail sales fell 0.4% in January
and industrial production declined 0.3%. Housing data has also been mixed. Many economists say harsh winter
weather played a role. Yellen expects this decline to be temporary, and that the economy will improve along with
the weather.
"A number of data releases have pointed to softer spending than analysts had expected," Ms. Yellen told
members of the Senate Banking Committee on Thursday. "That may reflect in part adverse weather conditions,
but at this point it is difficult to discern exactly how much.” She went on to state that only if the Fed’s forecasts
change substantially would the program be revised.
Her comments suggest that for now, monthly bond purchases will, as planned, decrease once again by another
$10 billion. This means that they would only be purchasing $55 billion a month. The program is due to end
altogether in the fall. Investor responses so far have been positive. The Dow Jones Industrial Average rose
74.24 points, or 0.5%, to 16,272.65. Prices of 10-year Treasury notes rose and their yields fell 0.032 percentage
point to 2.64%.
The Fed is due to meet again on March 18-19, and it will be the first policy meeting that Yellen will oversee since
first becoming the Fed’s leader in the beginning of February. In the meantime, the Fed will continue to look
closely at economic activity. If weak output persists, then the bond purchasing program would be extended.
While weather might have played a big part in the economy’s underperformance, there should be more caution
in assuming that the weather is completely responsible. Underemployment is still at around 13%, and the labor
force continues to shrink. Clearly factors such as these would also lessen U.S. output. In other words, only when
more people in the U.S. are working can confidence about the economy’s performance be achieved, and that’s
what the decision making should continue to be based on.
Source: http://www.mccullagh.org/db9/d30-32/treasury-department.jpg
Page 11
11
FIXED INCOME
Sponsored by the Penn State Finance Society
10
Treasury Bonds rise over U.S. Economic fears, Ukraine By: Alex Watsik ([email protected] )
U.S. Treasury bond prices rose on both Tuesday and Wednesday over decreased U.S. consumer confidence
and worry over increased conflict in Ukraine, respectively. On Tuesday, the benchmark 10-year note rose 14/32
in price and yielded 2.700% (when bond prices rise their yields fall). This rise in price is almost certainly due to
new U.S. consumer confidence index reports, which fell to 78.1 for February, down from 79.4 in January. This
decrease in consumer confidence most likely caused the increased demand for Treasury bonds because they
are among the safest investments, and people want security in their portfolios in uncertain economic times.
Another factor that contributed to the increase in bond prices Tuesday was a weakening of the Chinese Yuan,
reaching a 6-month low on Tuesday. This makes borrowing the dollar more expensive for Chinese banks and
firms, causing fear of slowed Chinese growth, which could have global repercussions. All of this uncertainty
helped increase demand for the sale of $32 billion in 2-year Treasury notes on Tuesday, seeing $3.60 in
demand for every dollar offered.
On Wednesday, U.S. Treasury benchmark 10-year note rose again, gaining 8/32 in price and yielding 2.673%.
Prices rose after Russian President Vladimir Putin ordered “combat readiness tests” in several locations in
Russia as the political upheaval in Ukraine continues. This drove foreign investors to the high-security U.S.
Treasury bonds, although Putin has assured people that these tests were unrelated to the unrest in Ukraine. The
Treasury again held a sale of bonds on Wednesday, selling $35 billion in 5-year Treasury notes with a yield of
1.530%. There was again strong demand, especially among foreign investors, generating $2.98 in bids for each
dollar offered. There will also be a sale of $29 billion in 7-year Treasury notes on Thursday, which will conclude
a week in which the Treasury sold $109 billion in bonds. Despite the Fed’s cutbacks in bond-buying, demand for
Treasury notes remains high, even with fears of a soft patch in the economy due to harsh winter and
discouraging numbers in the manufacturing and employment sectors. Economic fears contribute to demand for
U.S. Treasury bonds, as they are among the safest assets.
Crisis in Ukraine
By: Mike Carchedi ([email protected] )
Ukraine’s national bank introduced a “temporary limit on foreign-currency withdrawals from private cash
accounts” amid the fragile restructuring of its central government. The temporary decree, enacted last Friday,
limits withdrawals from foreign-exchange accounts to 15,000 hryvnia, approximately $1,500, due to the rapidly
depreciating currency. Many Ukrainians have their money saved in U.S. Dollars or Euros, and have rushed to
withdraw their savings. The hryvnia, down approximately 15% against the dollar, has recently risen 7% from its
low on Thursday. Ukraine has been put in a precarious situation, as any further depreciation will make it close to
impossible to pay back its current debt. The yield on the government’s 7.5% bonds dropped 82 basis points, on
February 21, to 10.19%, the biggest decline since a Russian bailout pledge in December. Now that bailout deals
are not guaranteed, the possibility of default has become a real possibility. The country is seeking $35 billion in
aid over the next two years for many of its unfunded programs. Approximately $4 billion is needed immediately
to help pay existing foreign debt, finance government reforms, and stabilize the hryvnia. Ukraine has requested
at least $15 billion in aid from the International Monetary Fund (IMF). The IMF has acknowledged the request
and will send an IMF-fact-finding mission team to Kiev to start talks about any future bailout. While the dialog
about economic recovery in the country has started, the government still has many political hurdles to overcome
before any true progress can be made. Ousted president Viktor Vanukovych told reporters on Friday that “he
would not give up the fight for his country’s future.” He also stated that he would not take part in the early May
elections fixed by Ukraine’s new parliament, declaring the elections and new government illegal. No matter what
government prevails and ends up legitimately ruling the country, they will be faced with numerous financial
hurdles to return the country to normalcy.
Page 12
12
Sponsored by the Penn State Finance Society
COMMODITIES
Natural Gas By: Todd Yildiran ([email protected] )
Natural Gas prices are slowly dropping after hitting its peak on February 19th. Prices have fallen a total of
over (-21.00%) since its peak at the end of the day on February 26th. This is what was expected as analyst
are looking to milder temperatures in the coming weeks, after the past couple of frigid weeks in the Northeast
and Midwest, which made prices soar to its peak. Natural Gas was trading at $4.97 a million British units at
close on Thursday for the March 14th contract period. Natural Gas should stay in the $4 range for the next
couple of weeks as spring approaches.
Livestock By: Harry Sauchelli ([email protected] )
This week’s livestock market was headlined by the highest recorded prices for CME Lean Hog futures,
currently trading at $110.26/CWT. In the fall months of 2013, lean hog futures maximum valued lean hog
futures were being traded between $85-95$/cwt on expectations that the low feed costs would maximize head
counts and slaughter yields for lean hogs. However, during the winter of 2013 and into the early months of
2014, there was an outbreak of PEDv, a virus that has infected large amounts of pig farms throughout North
Carolina, Iowa, and Minnesota (dailylivestockreport.com). The viral spread has restricted pig supplies from
increasing, while wholesale demand for pork products is surely to increase during the spring and summer
months ahead. As a result, speculators quickly re-valued their expectations of lean hog values, and lean hog
futures have been on a bull run since, up (+22.16%) since early October 2013. Live Feeder cattle futures have
also experienced price increases over the month of February, beginning the month with trades at $169.50/cwt
and finishing the month trading at record highs of $175.25 for a monthly price increase of (+3.34%). Because
of China’s emergence as a leading beef importer of mainly packaged ground beef, demand has increased for
ground beef causing raises in wholesale prices in past months. U.S. wholesale suppliers responded to these
price increases accordingly by switching their demand towards prime cut options within the U.S. This is a
likely cause for Feeder cattle futures values to further increase in the coming weeks.
11
Source: http://www.naturalgasdepot.com/picts/natural-gas-logo.jpg
Page 13
13
COMMODITIES
Agriculture By: Chase Davis([email protected] )
Warming Pacific Ocean temperatures signal hot, dry weather will hurt crops in Texas to the Tennessee Valley
from May to July, a climate forecaster said, this may signal intensifying dry weather in the U.S. South
Central. Furthermore, the United States could face hotter than average temperatures this summer which
could move corn prices north. The Kudzu bug, which has an appetite for soybeans, has started to spread
rapidly through the Mid-Atlantic region of the U.S. Average yield loss for untreated soybean crops in some
areas was close to 20%. If this bug were to last in these harsh winters the soybean crop could be in for some
trouble and we could see prices start to rise rapidly. Corn which is up over (+2.00%) this week opened for
trading at $4.51 a bushel and closed around $4.57. Soybeans opened at $13.80 a bushel and closed around
$14.12. Finally U.S. Wheat futures opened for trading at $6.02 a bushel and closed around $6.04.
Metals By: Andrew Hughes ([email protected] )
With continuing tensions in Ukraine and Eastern European countries gold rose considerably in the middle of
the week as investors ran for safer investments. Coupled with a surge in Canadian gold mining the animal
spirits towards gold are still relatively high and are keeping its valuations around this week’s close of 1321.6.
However with the S&P 500 hitting an all-time high of 1854.29 the price of gold fell considerably due to further
signs that the economy and markets are not showing signs of slowing down. Nickel had the biggest monthly
gain in a year this week as further news of Indonesia, the world’s top exporter, ore ban spread. Nickel finished
trading 14,450 per ton this week on COMEX.
Oil By: Lauren Johnson ([email protected] )
The news of slower than expected GDP has negatively affected the market as a whole, including WTI late this
week. The macroeconomic effect this report has on the global market will likely fizzle out of the news in a few
days and stop putting downward pressure on oil. In the meantime, we can expect marginal losses similar to
falling prices seen late this week. In spite of disappointing GDP reports, the decreasing supplies in Cushing,
Oklahoma have been causing prices to increase. Because of these increasing supplies and the increasing
demand often seen in winter, this month has seen a (+4.70%) gain. As for this week, however, WTI ended
with a 36 cent loss at $102.04 and similarly, Brent ended with a 34 cent loss at $108.62.
Sponsored by the Penn State Finance Society
12
Page 14
14
Sponsored by the Penn State Finance Society
CURRENCIES
Euro By: Tommy Radziminski ([email protected] )
The euro depreciated to 1.3695 USD on Thursday, losing 43 pips (-0.28%) from its 1.3738 USD mark at the
weeks start. The euro could have seen further loses against the dollar as the release of soft Swiss GDP data
and German CPI data could have created more incentive for the European Central Bank to expand its
stimulus efforts. However, unchanging rates of inflation that were released Friday took pressure off of the ECB
to take stimulus policy measures, strengthening the euro to 1.3807 (+0.71%) USD. Even though German
unemployment numbers decreased 10,000 for February, (Germany’s third straight month of decreased jobless
rates) the data that was the catalyst behind the euro’s move Friday was the unchanging inflation rate that was
released at 0.7%. Behind the positive inflation outlook, the euro rose to its highest level against the USD in
2014. Heading into March, the euro’s strength will be tested by U.S. Fed Chair, Janet Yellen’s positive
economic outlook and the tapering of Fed quantitative easing asset purchases that could strengthen the
dollar.
British Pound
By: Amelia Bishop ([email protected] )
Earlier in the week, the pound increased in value until it hit a decline, following which the currency reached its
lowest value against the dollar this week. This could have been due to anticipated slowing of the U.K.
economic recovery with retail sales declining more than the forecast along with the slippage of consumer
prices. On Thursday, the new Federal Reserve Chair, Janet Yellen, expressed that monetary authorities saw
concerning soft economic indicators which led to the pound losing value against the USD. Another
contributing factor to this softening could be a round of disappointing weekly jobless claims. Key support and
resistance for the pound are likely to be found at Monday’s low (1.6582) and at Wednesday’s high at
(1.6701). Some of the slip from the pound could also be attributed to the political tensions between Ukraine
and Russia, which has been dampening risk appetite. The weekly closing figure for the pound was at 1.6745,
up (+0.98%) from Monday’s low.
Japanese Yen By: Amelia Bishop ([email protected] )
This week, the yen traded at 101.8 yen per USD. During the month of February, the value of the yen barely
changed compared to its surge in January. Japan reported faster-than-estimated gains in industrial
production and consumer prices on Thursday afternoon. This factor may encourage yen buying in the near
future. Governor Haruhiko Kuroda, head of the Bank of Japan, is losing confidence with the Hedge funds as
he struggles to try to keep the yen from depreciating. This month, Kuroda passed up on the opportunity to
increase the amount the amount of yen in the economy through bond purchases of $10 trillion. Until Kuroda
fulfills some of his firm promises to meet the nation’s target inflation, hedge funds will hesitate to jump on the
weak yen bandwagon. The weekly closing for the yen was at 101.82, up two pips (+0.02%).
13
Page 15
15
Sponsored by the Penn State Finance Society
CURRENCIES
Chinese Yuan By: Diana Chen ([email protected] )
The Yuan has depreciated (-1.01%) from 6.0845 Yuan per USD to 6.1459 Yuan per USD. China’s President;
Mr. Xi finally decided to cut its currency daily reference. This means the relaxing of currency trading ban which
will lead the Yuan to achieve full financial integration. Many RMB investors were disappointed because of the
Yuan’s increasing volatility. China’s trading band exists for many reasons, and one of the most important
elements is the surging inflow of the “hot money.” Many foreign investors have optimistic profit opportunity in
this big area, leading to a fast appreciation of the Yuan. Having a lot of foreign investors actually does more
harm than good to China’s manufacturing-oriented export economy. The nation has to liberalize the exchange
rate to control the negative impacts from aggregate financing. Meanwhile, the government is purchasing
foreign reserves to keep the Yuan stable. The Yuan is expected to rise to rate of 6 Yuan per USD by the end
of the year.
Brazilian Real By: Tommy Radziminski ([email protected] )
After a relatively uneventful start to the week, the Brazilian real rose sharply in Thursday’s trading,
appreciating slightly to 2.3416 per USD (+0.01%) from its weekly opening of 2.3413. The dramatic rise in
value of the real came after reports were released stating that the Brazilian economy’s fourth quarter growth
was greater than expected. According to government reports released on Thursday, Brazilian GDP rose by
0.7% in the fourth quarter after suffering a 0.5% contraction in the third quarter. The appreciation of the real
this week was the largest gain seen by any currency in the emerging markets, continuing its record month of
February (+4.0%). The strong Brazilian GDP outlook could give the real even more momentum heading into
March. To support the real and held reduce inflation, the Central Bank of Brazil has reduced the pace of
interest rate hikes to pre-2011 levels and the Finance Ministry has planned significant spending cuts from the
current budget. However, Friday’s trading saw the real give back most of its gains as it ended the week at
2.3445 per USD.
Australian Dollar By: Diana Chen ([email protected] )
The Aussie depreciated (-0.95%) from 0.9007 USD per AUD to 0.8922 USD per AUD, as business investment
dropped more than forecasted in Australia. Capitals spending excluding business investments, iron ore
exports, and Australia’s benchmark yields have all dropped to a lower-than-expected point. The decline of
these indicators is a negative sign for Australia’s economy, specifically its manufacturing and mining industry.
Also, low liquidity could be a potential risk if the situation cannot be corrected. In the future the AUD may still
have a weak performance. Investors should focus on industry news and iron exports data.
14
Page 16
16
Sponsored by the Penn State Finance Society
EMERGING MARKETS
China By: Sangjun Lee ([email protected] ) and Orlando Zarone ([email protected] )
Much of China’s modern history has been marked by rigid government control over its market. For decades,
there was great difficulty in transferring money in and out of the country. Recent news from the Chinese
government, however, indicates that there will be looser restrictions on capital. Expectations of how this policy
will ultimately affect Chinese economic growth vary. Some analysts estimate that there will be an increase in
investment in China, while others speculate that uncontrolled prices will become increasingly volatile due to
increased capital flows. Remaining aware of the possible downside of these new policy initiatives, analysts
believe regulation of the Chinese capital account is necessary. In opposition to their belief, an economist
Gabriel Stein warns that taking a step-back will make it harder to take a step-forward next time.
The Chinese have additionally made recent headlines in the gambling industry. In the world’s largest casino
gambling hub, the Chinese are making positive strides. SJM, Asia’s largest casino company, reported full-
profit earnings, beating analysts’ estimates due to an increase in gambling within the Macau market. Net
income rose (+14%) in 2013 according to Hong Kong’s stock exchange. SJM was accompanied by Sands
China and Melcro Crown Entertainment in reporting increased earnings during the 2013 fiscal year.
Additionally, Chinese visitors to Macau rose (+10%) and gaming revenue increased the same, which shows a
positive outlook for the upcoming fiscal year in the casino industry. With the increase in visitors, revenue,
corporate companies, and the expansion to Macau Cotai, Asia’s Law Vegas strip, China’s casino industry is
booming.
Russia By: Michel Caraco ([email protected] )
The Ukrainian crisis is raising tensions in Russia, inciting fear over how the markets will react to Russia’s
current volatile political state. The Ukrainian hryvnia and the Russian rubble are starting to show signs of
weakness. The dollar is at 36.27 against the ruble, making the ruble reach its lowest point since 2009.
There is absolutely no doubt that the Russian markets will be greatly affected by the instability of the nation’s
government and overall political situation. Russia is already ordering military exercises, as to be combat ready
in case the Crimean crisis turns to utter chaos. Ultimately, this political instability will summon bleak news for
the Russian markets. Economists continue to monitor how these political crises will affect Russia’s already
weak economic state.
15
Page 17
17
Sponsored by the Penn State Finance Society
EMERGING MARKETS
India By: William Ferguson ([email protected] )
India's economic growth remained stuck below 5% for the seventh consecutive quarter last quarter as inflation
and waning investor confidence continued to drag on Asia's third-largest economy. It was reported by the
Indian government that gross domestic product during the last quarter of 2013 rose by 4.7% from the previous
year. However, both previous quarters of the 2013 year were stuck under 5% at 4.8% and 4.4% expansion.
Some economists are optimistic that India’s period of stagnation will draw to an end, with many warning that it
may be years before India sees growth of 10+%. However, the data shows output services (finance,
insurance, and real estate) grew 12.5% from last year, as well as farm output increasing by 3.6% from last
year. On the downside, the manufacturing sector contracted 1.9% from the previous year. Rising borrowing
costs, overburdened infrastructure, bureaucratic red-tape and uncertainty over tax policies have spooked
consumers and corporations, dragging down growth in the South Asian nation. India has seen its pace of
economic expansion halved to a decade-low of 4.5%. The Reserve Bank of India has also been tied down by
high inflation, raising interest rates three times since September despite the slow economic expansion. The
situation is unlikely to change until political uncertainty is removed following national elections due before the
end of May. Investors, executives, and consumers are all waiting to see what kind of government will take
over the world's largest democracy this spring.
Brazil By: An Tran ([email protected] )
The “better- than- estimated” growth in Brazil’s overall output for (4Q13) indicated growth at (+0.7%),
compared to the (3Q13) leads in the MSCI Emerging Market index at (+0.8%). Additionally, the Ibovespa
(IBOV) gained in (4Q13) to (+2.5%), and Brazil’s currency gained to (+1.1%) in (4Q13) against the world’s
major currencies.
Brazil has currently been faced with a steadily rising inflation rate. To slow down this skyrocketing inflation
rate, the Brazilian government might consider enacting fiscal policy that would raise taxes this year, while
cutting budget spending around $44 billion reais, or approximately ($18.7 billion). This proposed fiscal policy
initiative could assist Brazil in meeting its fiscal target for 2014. However, the current halving pace of key rate
increases and the rise in IBOV signals that a tightening cycle is looming for Brazil. This leads economists to
expect the Brazilian economy to grow at a positive pace of (+1.5%) this year.
As the world’s largest sugar and coffee grower, Brazil is currently experiencing its driest weather in six
decades. Because of these volatile weather conditions, crops have been lost due to scorching heat. This thus
leads to short supply in the long term, which ultimately creates a worldwide impact on the rise in the MSCI All-
Country World index of equities (+0.5%) and U.S. traded commodities (+18%).
16
Page 18
18
MERGERS & ACQUISITIONS
Lego and Mega Bloks Under One Roof By: Dylan Amin ([email protected] )
Mattel (MAT), the largest toy maker in the world, has announced that they have come to an agreement for
the purchase of Mega Brands Inc., a Canadian toy maker. The deal was made for 407.5 million Canadian
dollars; equal to C$17.75 per share plus a 36% premium. Mega Brands Inc. is the maker of Mega Bloks,
the biggest competitor of Lego building toys. Mattel Chief Executive and Chairman Bryan G. Stockton
says, “A key pillar of our global growth strategy is the strategic acquisition of brands that will both benefit
from our scale and help extend our reach into new and growing categories. The construction play pattern
is popular, universal and has had one of the fastest growth rates over the past three years”.
But will this acquisition have a positive impact on Mattel’s bottom line? Analysts expect this acquisition to
have little to no increase in earnings for Mattel. These two companies manufacture substitute products,
not complementary products. Mattel now must look to make drastic changes in the innovation and design
of the toys they manufacture if they hope to increase profits. Mattel stock has fallen 22% this year.
However, it rose 65 base points in early trading on Friday morning. It will be interesting to see where the
toymaker will go in the near future.
Versace Decides to Sell Stake to Blackstone By: Sukrit Jaie ([email protected] )
On Thursday morning, Versace officially announced that they will be selling 20% of their stake to
Blackstone, a private equity firm. Blackstone will invest about €210 million with a breakdown of €150
million cash and purchase of €60 million in shares from GIVI, a holding company controlled by Versace.
The deal comes at a time when Versace is in desperate need to grow its funding. The murder of Gianni
Versace in 1997, founder of Versace, shook the very foundations of the fashion house luxury brand and it
was only been able to turn a profit 14 years later, in 2011. Even then, however, Versace has been short
on cash flows and has struggled to expand as such. Since then, competitors like Prada, Salvatore
Ferragamo and Michael Kors have injected their brands heavily into globalization and have taken the top
spots.
Versace has been a favorite of several celebrities, including Lady Gaga and Madonna! Versace, which is
a family brand, has decided to keep the company within the family and said that the family members
would still retain important positions, yet giving a seat to Blackstone on their board. Gian Giacomo
Ferraris, CEO of Versace, said that an IPO in the coming 3-5 years is still on the table and that this
investment will be a large factor in the success of that potential offer. Goldman Sachs and Banca IMI were
the advisors for Versace and Lazard was the advisor for Blackstone for this deal.
Sponsored by the Penn State Finance Society
17
Page 19
19
MERGERS & ACQUISITIONS
Activist Hedge Fund Raises Bid for Riverbed By: Jordan Pennella ([email protected] )
Elliott Management, a hedge fund, has raised its bid for a networking equipment company, Riverbed
Technology. Elliott has raised its bid from $19 per share to $3.3 billion, or $21 per share, as the hedge
fund has continued to step in as an activist that has publically advocated Riverbed to sell itself to ensure
increased long-term value for existing shareholders. In a recent letter to the company’s board, Elliott
argues that it had been sought out by several potential buyers. Riverbed’s board of directors did not
respond to the letter, and called Elliott’s initial activist offer of $19 per share “inadequate”. Jesse Cohn, a
portfolio manager at Elliott has offered commentary on the situation by saying, “We believe shareholders,
the actual owners of the company, should be outraged by the board’s behavior. This behavior is
inconsistent with the fiduciary responsibilities of a public company board, whose obligation is to maximize
value for stockholders.” Elliott has publically stated that it will not raise its current bid unless allowed to
conduct due diligence.
In my opinion, I believe the move would be good for Riverbed shareholders. Typically, companies that are
bought out tend to experience a rise in share price. This is due to control premiums. A control premium is
the amount that a buyout will occur over the current share price. These premiums take place due to
revenue and cost synergies that may occur after the deal takes place. In Riverbed’s case, their stock price
has risen approximately 10% due to investor belief that a buyout may occur. Furthermore, after Elliott
announced that it would not pursue a proxy fight for control of Riverbed, the share price dropped about
5.50%. This shows investors would like to see a buyout occur, thus allowing Riverbed to take advantage
of any control premiums that may occur as a result. I believe Riverbed should broker the highest possible
deal with Elliot, in hopes of taking premiums and maximizing shareholder value.
Men’s Wearhouse strikes a higher deal for Jos. A. Bank
By: Andrew Lai ([email protected] )
The hostile battle between Men’s Wearhouse (MW) and Jos. A. Bank (JOS) has reopened this week. In
another attempt to take over (JOS), (MW) struck a larger deal boosting its offer by more than 10% by
raising its cash tender offer to (JOS) shareholders from $57.50 to $63.50 per share. This increase has
valued (JOS) at roughly $1.78 billion based on its shares outstanding. As the controversy unfolded, stock
prices of both companies rose sharply. Men’s Wearhouse jumped 7.5%, or $3.40, to $48.51, while Jos. A
Bank increased 9 percent, or $4.99, to $60.04. In a statement released by (MW) the company states that
the Eddie Bauer transaction had little to do with the long-term welfare of Jos. A. Bank, and had everything
to do with the short-term interest of the Jos. A. Bank.
The expiration date offer from (MW) to (JOS) has moved forward to March 12th to March 28th. In spite of
that, (MW) said it could “potentially” increase its offer to $65 a share if it could conduct limited due
diligence and if the Eddie Bauer deal fell through and cost less than $48 million to terminate. In light of the
relentless pursuit of (MW), it appears that (JOS) must really step up their game if they desire to stay
independent.
Sponsored by the Penn State Finance Society
18
Page 20
20
CORPORATE NEWS & EARNINGS
Lowe’s Companies Inc. (LOW) By: Alex Junod ([email protected] )
The home improvement chain Lowe’s reported fantastic earnings this week with increased performance
across the board. Lowe’s 4Q2013 saw earnings increase 6.03%, which translates to $306MM net earnings
for the quarter. Lowe’s CEO stated that the 4Q2013 had a strong sales performance in core home
improvement goods, while seasonal and holiday goods played a lesser role in its success. For fiscal year,
net earnings stood at 2.3bn (+16.7%), leading Lowe’s to a $10 increase in stock price y/y (current price is
just above $50). Last year saw an improved housing market, which Lowe’s can partially attribute to its
success. Increased housing prices, steady job growth, and fewer troubled loans this past year led more
people to spend money in home improvement. This allowed Lowe’s to buy back $3.7bn in shares for the
year, and pay out $733MM in dividend. Lowe’s currently has 1,832 across the U.S., Canada, and Mexico,
and it plans to repurchase $5bn more in stock in the near future. In 2014, these stores will be pressured to
continue their growth, as analysts expect earnings to continue to increase.
T-Mobile US Inc. (TMUS) By: Alex Junod ([email protected] )
T-Mobile reported 4Q2013 results earlier this week, demonstrating stellar growth in its customer base.
4Q2013 customer additions stood at 1.6MM, and the company only lost 32,000. With 4.4MM additions for
the year, T-Mobile now has 46.7MM customers. T-Mobile’s increased customer base has led 4Q2013
revenues to increase to 6.8bn (+39%). This staggering growth comes at price, however. 4Q2013
experienced a $20MM loss, which is up $8MM y/y. This loss can be attributed to T-Mobile having lower
prices than its competitors and paying the early termination fees for customers who switch to T-Mobile. The
stock price dropped $1 this week after earnings were released, but it performed remarkably well this past
year. After seeing a 52 week low of $13 per share, T-Mobile’s price now stands at $30.90 per share.
Best Buy (BBY) By: Brad Schubert ([email protected] )
Best Buy (BBY) released its quarterly earnings report February 27 before the market opened. Best Buy
surprised Wall Street by having a very positive quarter. Revenue was down 3%, and missed expectations
by $200 million, but all else in the report was positive. Even after the decline in revenue, Net Income per
share soared passed expectations of $1.01, coming in at $1.24. On top of that, net income last year came
in at a loss of $409 million; this year, net income was a positive $293 million. Best Buy found an
exceptional way to cut costs, which accounted for the large increase in net income following the loss of
revenue. The stock opened up over 8% at $27.92 on Thursday. I am very optimistic about BBY after this
quarterly earnings report. I believe they will have a very positive yearly report for fiscal year 2014.
Sponsored by the Penn State Finance Society
19
Page 21
21
CORPORATE NEWS & EARNINGS
Swift Energy Co (SFY) By: Brad Schubert ([email protected] )
Swift Energy (SFY) released its Q4 2013 earnings February 27 before the market opened. SFY had a very
bad report, and the results can be seen from trading following the earnings announcement. SFY was down
over 18% Thursday intra-day. Revenue fell over 7% y/y and missed Wall Street’s expectations. In response
to poor results, management announced its plan to balance expenditures with operating cash flow. Currently,
SFY has a debt-to-equity ratio of 1.05, which is very high compared to the industry average. After this report I
am very bearish on Swift Energy. They have a large amount of debt, and an investment decision would be
better determined following the next earnings report.
Macy's (M) By: Joe Incelli ([email protected] )
Macy’s, along with JCPenney, is one of the world’s largest retailers. Macy’s much like Chesapeake, had some
tough times in the quarter because of the harsh winters that affected its’ stores. Sales for the quarter fell to
$9.2bb from $9.35bb in the same quarter from 2012. Shares jumped roughly 6% prior to the close even
though the company barely missed its quarterly expectations. The company posted its fifth consecutive year
of double digit EPS growth of $2.31 for this quarter. As their 2014 fiscal year begins, Macy’s will be making
some big changes. Macy’s is proposing a plan to save about $100MM per year by cutting about 2,500
employees in the month of January. The stock price finished at $57.86 as of Thursday’s close, but will be one
to watch in the coming weeks.
Chesapeake Energy Corp. (CHK) By: Joe Incelli ([email protected] )
Chesapeake Energy is one of the largest producers of natural gas and oil in the world. After missing estimates
because of weak production, share prices of the company fell for 1Q2014. The tough winter months of
October and December hindered the oil and natural gas production in the quarter. Also, the company’s co-
founder and former CEO is trying to repair its balance sheet and cut high spending programs; this $320MM
one-time clean up charge took a toll on income as well. Fourth quarter revenue came in at 4.54bb (down 7%
compared to estimates) and the stock price currently sits at $25.90. Chesapeake plans to reduce spending by
20% this year and sell assets in order to try and bridge the $1bb gap between operating cash flow and capital
expenditures.
Sponsored by the Penn State Finance Society
20
Cracker Barrel Old Country Store Inc. (CRBL) By: Colin Haney ([email protected] )
Cracker Barrel Old Country Store Inc. released their second quarter results for fiscal year 2014. The Southern
country-themed restaurant announced total revenue of $698.5 million, down 0.6% from the prior year. GAAP
operating income for 2Q2014 arrived at $58.7 million, or $1.55 per share; expectations were set at $1.56 per
share. The company revised its full-year revenue from $2.75 billion to $2.7 billion. Cracker Barrel is currently
being harassed by activist investor Sardar Biglari to sell the company. Others argue that the company has
improved under CEO Sandra Cochran and remain hopeful that things will begin to look up. Shares posted a
slight increase of $0.87 after the announcement.
Page 22
22
Sponsored by the Penn State Finance Society
CORPORATE NEWS & EARNINGS
J.C. Penney Company Inc. (JCP) By: Colin Haney ([email protected] )
J.C. Penney Company Inc. presented their fourth quarter and full-year 2013 reports on Wednesday. The
department store giant reported net sales for 4Q2013 of $3.78 billion, compared to the $3.88 billion from 2012.
Net loss for 4Q2013 came in at $206 million, or $0.68 per share. This represents a huge improvement from
the reported loss of $552 million a year ago. Analyst expectations were set at a loss of $0.81 per share. Total
sales for the full year 2013 decreased 8.7% as internet sales grew 5.8%. J.C. Penney CEO Myron E. Ullman,
III stated that the most challenging and expensive parts of the turnaround are behind JCPenney and their
main goal is, “to deliver consistently improving financial results, and to restore JCPenney as a leader in
American retail”. Shares of JCPenney rocketed up 25% at the market close Thursday.
Office Depot, Inc. (ODP) By: Sang Yeop Lee ([email protected] )
Office Depot, a leading global provider of office related products, services, and solutions announced 4Q2013
and full year 2013 results ending December 28, 2013. For 4Q2013, Office Depot reported an operating loss of
$118 million compared to operating income of $5 million in 4Q2012 which was equivalent to a decrease of
$123 million. This amounted to a net loss attributable to common stockholders of $144 million, or $0.34 per
share, compared to a net loss of $17 million, or $0.06 per diluted share in 4Q2012. For the full year 2013,
Office Depot reported an operating loss of $205 million compared to an operating loss of $31 million in the full
year 2012, a decrease of $236 million. After merging with OfficeMax, the company does not appear to be a
stable investment since it is going through both internal and external adjustments. However, its growth is
highly expected to increase this year and it will surely be one to put on your watch-list.
Abercrombie & Fitch Co. (ANF) By: Sang Yeop Lee ([email protected] )
On Wednesday, Abercrombie & Fitch Co., an American retailer that focuses on casual wear for consumers
aged 18 to 22, reported its fourth quarter results. Current quarter net income came in at $66.1 million and net
income per diluted share was $0.85 compared to net income of $157.2 million and net income per diluted
share of $1.95 for the same quarter last year. In addition, the company reported full year net income of $54.6
million and net income per diluted share of $0.69 for the fifty-two week period ended February 1, 2014,
compared to net income of $237.0 million and net income per diluted share of $2.85 for the previous year.
After three years of skyrocketing sales and profits, Abercrombie & Fitch Co. faced a tough year and need to
make adjustments to their marketing strategy to attract teens in an ever-changing clothing landscape.
21
Page 23
23
Sponsored by the Penn State Finance Society
EUROPEAN EQUITIES
UK: A New Currency for an Independent Scotland? By: Micah Gross ([email protected] )
As the voting day for Scotland’s independence beings to slowly approach (September 18th), more and more
discussion has been brought up about the effects that this could have on its financial institutions. More
specifically, the debate on what type of currency the country would use has become a prominent focal point
for discussion. Rating agency Standard and Poor’s has stated that the country could likely launch a successful
currency of its own, but how that would affect the country’s credit rating is unclear. The general belief
regarding this is that the new country would have a better credit rating if it opted to join a new currency union
(such as the European Union) or to keep using the British pound. The pro-independence Scotland National
party wants to maintain its position in the Sterling currency union with the UK, but it is believed that the UK
government would force the new nation to surrender the pound should it gain its independence. Some have
compared Scotland’s size to that of New Zealand, and believe that if New Zealand could float a currency of its
own, then Scotland could too. A sovereign Scotland with an independent currency would provide investors
with a new frontier for future investments. Should this vote go through, we could expect to see a wild ride in
Scottish equity markets, as the future is very uncertain.
Germany: Economy Is Headed In the Right Direction By: Dhrupad Upadhyay ([email protected] )
22
Escalating tensions in Ukraine brought an end to a three week rally of the German DAX, which ended (-0.76%)
lower on Thursday. This news comes despite the release of strong economic data like consumer confidence,
unemployment rate and stronger business confidence. According to GFK, German consumer confidence rose to
8.5points, a level not seen in seven years. Another positive signal of the economy, the unemployment rate, was
also announced Tuesday and it too proved to be a sign of relief as the number of unemployed fell by 14,000,
beating the expectations set by economists. This dip in joblessness is in direct relation to stronger business
sentiment as it reached its highest level of 111.3 since 2011. Given all of this economic data, the European
Commission raised its growth forecasts for Germany projecting the economy will expand 1.8% in 2014 and 2%
in 2015. We can easily conclude that Germany’s economy is headed in the right direction and the DAX reaching
its lowest in the previous weeks was a minor hiccup that was short lived and proven by the DAX ending (1.08%)
higher on Friday.
Page 24
24
Sponsored by the Penn State Finance Society
France: Economic Performance Divide with Germany Increases By: Jimmy Rios ([email protected] )
The economic performance gap of Europe’s two biggest economies, France and Germany, is widening at a
faster rate than what most analysts have predicted so far. While Germany’s economy is set to grow at 1.8%
next year, France’s economy is only predicted to grow at .9% during the same period. However, many other
economic indicators are showing a lag in the French economy. This year alone, Germany’s unemployment will
be at 5.2% while France’s unemployment is projected to be at 11.0%. Furthermore, Germany’s budget will be
balanced by 2015 and government debt will fall below 75% while France has yet to reach a budget deal and
government debt will stay above 95% of GDP. Meanwhile, businesses in Germany are joyful and experiencing
profits while French businesses are wary and are still waiting on government reform policies. The German
government has invested large amounts in its companies and businesses unlike the French government. If the
French government fails to put in place reforms, then France is in danger of missing the upturn in the business
cycle. As of right now, France needs to pick up steam, and while Germany is doing well, their growth will be
slowed if their European neighbors still lag behind.
EUROPEAN EQUITIES
Ireland: The Worst of the 2008 Crisis Is Behind Them By: Sam McCaffrey ([email protected] )
Irish official data released on Thursday displayed hopes that Ireland is starting to recover from the debt crisis
that derailed their economy in 2008. From October to the end of December, Ireland added 61,000 jobs,
marking the largest quarterly jobs growth since 2008. Unemployment estimates for January are expected to
be around 12%, which is a huge improvement from the 15.1% unemployment rate in February 2012. Early
forecasts have suggested that Ireland’s unemployment may fall below 10% by early 2016. Residential prices
declined 0.7% in January, but prices are still 6.3% higher than in January 2013. Ireland’s housing prices
remain 46.7% below their peak reached in 2007. However, Thursday’s jobs data supports the likelihood of a
housing market recovery later in 2014. Higher employment and higher housing prices are seen as key
indicators that Ireland is recovering from its banking and property crisis it experienced in 2008. After two years
of stagnation, Ireland’s economy is expected to grow by around 2% this year. Furthermore, the economy is
expected to expand as much as 3% by the end of 2015. Although the data shows potential for improvement,
Ireland is not in the clear yet. The country’s government has massive amounts of debt, equivalent to 122% of
Ireland’s annual output. Also, many citizens suffer from housing debt due to the lower income and
unemployment experienced during the crisis. Ireland still has many risks and the future is uncertain, but the
data suggests that the worst of the devastating 2008 crisis is behind them.
23
Page 25
25
ECONOMIC INDICATORS
Jobless Claims By: Alison Murray ([email protected] )
Prior Consensus Consensus Range Actual
New Claims - Level 336K 335K 330K to 345K 348K
4 Week Moving Average - Level 338.50K 338.25K 338.25K
New Claims – Change -3K -6K 14K
Jobless claims are constituted by the amount of people who filed for unemployment for the first time during the
week.
For the week of 2/22/14, initial claims rose 14,000 to a level of 348,000. This rise suggests no improvement for
the monthly employment report as it is just above 4-week average of 338,250.
Continuing claims were up 8,000 to 2.964 million while the unemployment rate for insured workers remained
unchanged at 2.3%.
Consumer Confidence By: Austin Toren ([email protected] )
Prior
Revised Consensus Consensus Range Actual
Consumer Confidence - Level 80.7 79.4 78.0 to 82.0 78.1
The Consumer Confidence report was released on February 25th. The actual consumer confidence level came in at
78.1 missing the 80.1 consensus number. Although this looks like bad news, there is more to the story. There is a
present situation component that gets factored into the composite number. This present situation number rose 4.4
points to the highest level of the whole recovery.
The downside to the report came in the way of consumers' future expectations. This number fell by 5.1 points.
Overall, consumers have mixed feelings about the economy and are slightly pessimistic when it comes to the future
outlook.
Sponsored by the Penn State Finance Society
24
Calendar of Economic Indicators
Page 26
26
ECONOMIC INDICATORS
New Home Sales By: Alison Murray ([email protected] )
Prior Prior Revised Consensus Consensus Range Actual
New Home Sales - Level - SAAR 414K 427K 400K 380K to 426K 468K
New home sales is a measure of how many newly constructed homes with a committed sale there are in a given month. For the month of January, this measure went up 9.6% to 468,000 creating the highest rate since July 2008 and beating estimates by 2,000 homes. Looking by region, the South and the West led the country with gains of 10.4% and 11% respectively. The South is the largest region for new home sales, so this increase is substantial. A factor that has led to this surge in home sales has been the price of homes falling. The current median price was down 2.2% to $260,100.
Prior Consensus Consensus Range Actual
Real GDP – Q/Q change - SAAR 3.2% 2.5% 2.2% to 2.8% 2.4%
GDP Price Index – Q/Q change - SAAR 1.3% 1.3% 1.2% to 1.4% 1.6% 1.3
Although Friday’s real GDP report came in between the consensus range of 2.2% to 2.8% at 2.4%, analysts might
not be so quick to consider this to be a good number. Having to be revised downward from previous estimates of
2.8% and 2.5%, the report showed weakness compared to the initial estimates. The downgrade in estimates proves
this report to fall even shorter from the Q2 and Q3 results of 4.1% and 3.2% respectively.
The GDP is the comprehensive total of economic activity. Investors in the stock markets like to see increased GDP
over the previous quarter. Such an increase would signal greater investment in the economy and greater business
activity, leading to greater profits. The movement of Q4 of 2013 can be characterized as a move in the opposite
direction, and a move toward the bond market. A fall in real GDP from the previous quarter with an increase in the
GDP price index yields higher bond prices. GDP is a very strong, lagging economic indicator that impacts the
economy greatly.
Sponsored by the Penn State Finance Society
25
GDP By: Stephen Strackhouse ([email protected] )
Dallas Fed Manufacturing Survey By: Austin Toren ([email protected] )
Prior Consensus Consensus Range Actual
Bus Activity Index 3.8 2.5 -2.0 to 5.0 0.3
Production Index 7.1 10.8
The Dallas Fed manufacturing survey was released on February 24th. February marks the 10th month in a row
that Texas factory activity has increased. In the table above you can see that the production index rose to 10.8
from 7.1. This indicates that output grew at a stronger pace.
The news for broader business activity was not so positive. Perceptions of broader business activity dropped from
3.8 in January to 0.3 in February. Going forward, expectations for business conditions are optimistic.
Page 27
27
CONSIDERATIONS
The Market Analysis Group is a Pennsylvania State University organization that is a sub-committee of the Penn State Finance Society. If you would like to be added to the distribution list, you may do so by following this link (click here) and filling out the required form or visiting our website at http://www.clubs.psu.edu/up/psfs/ and clicking on “ MAG Reports). If you have any issues or concerns, please email Steven Pickel at [email protected] or [email protected] . If you have a question for one of our analysts about their respective contribution please feel free to e-mail them at the e-mail address found in their “by” line.
Name Email Sector
Steven Pickel [email protected] Managing Editor
Nikhil Shekher [email protected] Editor-in-Chief
Aaron White [email protected] Mergers & Acquisitions
Adam Planchock [email protected] Corporate News & Earnings
Aurelie Denis [email protected] Headlines / Market Data / Indicators
Elle O'Hara [email protected] Fixed Income
Fiona Chow [email protected] European Equities
Nick Kyle [email protected] U.S. Equities
Nick Navarro [email protected] Currencies
Tyler Drago [email protected] Emerging Markets
Wesley Peterson [email protected] Commodities
Kyle Shoop [email protected] Graphic Design
Sponsored by the Penn State Finance Society
26
Page 28
28
SOURCES
MARKET DATA 3
http://www.bloomberg.com/markets/ http://finance.yahoo.com/ http://quotes.wsj.com/index/JP/NIK
HEADLINES 4
http://online.wsj.com/news/articles/SB10001424052702304709904579407473494212500?mod=WSJ_business_LeadStoryRotator&mg=reno64-wsj http://www.bloomberg.com/news/2014-02-26/tesla-plans-1-6-billion-note-offering-to-fund-gigafactory.html http://online.barrons.com/article/SB50001424053111904148504579404902418613622.html?mod=googlenews_barrons http://blogs.wsj.com/moneybeat/2014/02/27/for-tesla-bullish-options-its-pedal-to-the-metal/?KEYWORDS=tesla http://www.bloomberg.com/markets/economic-calendar/ http://online.wsj.com/news/articles/SB10001424052702304610404579402401580476592 http://online.wsj.com/news/articles/SB10001424052702304610404579404520136706960 http://online.wsj.com/news/articles/SB10001424052702304026804579410942949193858?mod=%3C%25mst.param%28LINKMODPREFIX%29&mg =reno64-wsj http://www.cnn.com/2014/02/28/world/europe/ukraine-politics/ http://online.wsj.com/news/articles/SB10001424052702303801304579408322329678800?mod=wsj_streaming_deadly-clashes-in-ukraine
U.S. EQUITIES 6
http://www.washingtonpost.com/business/economy/stocks-surge-on-health-insurer-gains/2014/02/24/82fb34e6-9d8e- 11e3-a050-dc3322a94fa7_story.html http://www.marketwatch.com/story/us-stocks-rally-as-sp-500-hits-intraday-record-2014-02-24 http://money.cnn.com/2014/02/24/investing/stocks-markets/index.html?iid=mkt_SF_news. http://blogs.wsj.com/moneybeat/2014/02/25/tesla-shares-surge-on-morgan-stanley-report/ http://www.zacks.com/stock/news/124307/verizon-stalls-stock-buyback http://www.bloomberg.com/news/2014-02-26/u-s-stock-index-futures-gain-before-report-on-home-sales.html http://www.marketwatch.com/story/us-stocks-drift-lower-yellen-speaks-before-senate-2014-02-27 http://www.bloomberg.com/news/2014-02-28/u-s-stock-index-futures-little-changed-as-arena-slumps.html
FIXED INCOME 9
http://online.wsj.com/news/articles/SB10001424052702303801304579409012600892296?KEYWORDS=janet+yellen http://online.wsj.com/news/articles/SB10001424052702304610404579404870164655100?KEYWORDS=treasury&mg=reno64-wsj&cb=logged0.4353470259811729 http://online.wsj.com/news/articles/SB10001424052702303801304579406891804813018?KEYWORDS=treasury&mg=reno64-wsj http://online.wsj.com/news/articles/SB10001424052702304610404579404870164655100?KEYWORDS=treasury&mg=reno64-wsj&cb=logged0.4353470259811729 http://online.wsj.com/news/articles/SB10001424052702303801304579406891804813018?KEYWORDS=treasury&mg=reno64-wsj
COMMODITIES 11
http://www.cmegroup.com/trading/agricultural/livestock/feeder-cattle.html http://www.cmegroup.com/trading/agricultural/livestock/lean-hogs.html http://www.dailylivestockreport.com/documents/dlr%2002-26-14.pdf http://www.dailylivestockreport.com/documents/dlr%2002-27-14.pdf http://online.wsj.com/news/articles/SB10001424052702304709904579408793900965708?mg=reno64-wsj http://www.bloomberg.com/news/2014-02-28/nickel-reaches-one-week-high-on-speculation-supply-to-tighten.html http://www.commodityonline.com/commodities/metals/nickel.php http://www.agweb.com/news.aspx http://farmfutures.com/news.aspx
CURRENCIES 13
http://finance.yahoo.com/news/forex-euro-risk-german-cpi-061900843.html http://www.cnbc.com/id/101455069?__source=yahoo%257cfinance%257cheadline%257cheadline%257cstory&par=yahoo&doc=101455069%257cEuro+zone+inflation+tops+ http://www.investing.com/news/forex-news/forex---usd-jpy-flat-after-positive-economic-data-from-japan-269400 http://www.bloomberg.com/news/2014-02-27/hedge-funds-faith-in-boj-easing-fades-as-yen-shorts-cut.html http://www.investing.com/news/forex-news/gbp-usd-gains-on-yellen-comments,-lackluster-u.s.-jobless-claims-269266" http://www.investing.com/news/forex-news/forex---pound-slips-lower-against-dollar-269142 http://www.bloomberg.com/news/2014-02-26/yuan-turns-worst-emerging-carry-trade-as-pboc-stokes-volatility.html http://www.bloomberg.com/news/2014-02-25/china-shows-bulls-with-500-billion-of-yuan-bets-who-s-in-charge.html http://www.bloomberg.com/video/bnp-s-saywell-on-fed-policy-yuan-australia-dollar-fRy61m16SNOJmZ~EUyndig.html
Sponsored by the Penn State Finance Society
27
Page 29
29
Sponsored by the Penn State Finance Society
28
SOURCES
EMERGING MARKETS 15
http://www.bloomberg.com/news/2014-02-23/coffee-to-soybean-wagers-climb-on-brazilian-drought.html http://online.wsj.com/news/articles/SB10001424052702303801304579408752697873112?KEYWORDS=brazil+economy&mg=reno64-wsj http://www.bloomberg.com/news/2014-02-27/emerging-stocks-rise-as-tencent-leads-technology-gauge-to-record.html http://www.bloomberg.com/news/2014-02-27/brazil-signals-key-rate-increases-nearing-end-as-growth-slows.html http://www.bloomberg.com/news/2014-02-22/brazil-s-rousseff-would-win-race-in-first-round-datafolha-shows.html http://blogs.wsj.com/chinarealtime/2014/02/25/chinas-capital-account-an-open-and-shut-case/ http://www.bloomberg.com/news/2014-02-26/sjm-profit-jumps-as-chinese-gamblers-bet-more-in-macau.html http://online.wsj.com/news/articles/SB10001424052702304709904579410762381429906?mg=reno64-wsj
MERGERS & ACQUISITIONS 17
http://www.reuters.com/article/2014/02/27/versace-blackstone-idUSL6N0LW2EO20140227
http://dealbook.nytimes.com/2014/02/27/versace-agrees-to-sell-stake-to-blackstone/?_php=true&_type=blogs&_r=0
http://www.reuters.com/article/2014/02/24/us-josabank-menswearhouse-idUSBREA1N0VJ20140224
http://dealbook.nytimes.com/2014/02/24/mens-wearhouse-raises-bid-for-jos-a-bank/
http://online.wsj.com/news/articles/SB10001424052702303801304579410671597945030?KEYWORDS=mattel&mg=reno64-wsj
http://dealbook.nytimes.com/2014/02/25/elliott-raises-bid-for-riverbed-to-3-3-billion/?_php=true&_type=blogs&_r=0
CORPORATE NEWS AND EARNINGS 19
http://www.thestreet.com/story/12458021/1/why-chesapeake-engery-chk-is-down-today.html http://www.cnbc.com/id/101448494 http://www.nytimes.com/2014/01/09/business/macys-plans-layoffs-and-closings-though-its-holiday-sales-were-up.html?_r=0 http://www.investing.com/news/stock-market-news/macy's-stock:-%E2%80%98the-real-question%E2%80%99-to-ask-268731 http://www.thonline.com/biztimes/articles/article_d417b1d6-9eee-11e3-9301-001a4bcf6878.html http://www.marketwatch.com/story/numbersusa-ads-ask-who-elected-senator-graham-to-lead-the-calls-in-congress-for-amnesty-for-illegal-aliens-2013-02-26?reflink=MW_news_stmp http://finance.yahoo.com/news/t-mobile-us-reports-preliminary-210100225.html http://www.thonline.com/biztimes/articles/article_5782c706-9e2a-11e3-a07d-0017a43b2370.html http://www.startribune.com/business/247499991.html http://www.thestreet.com/story/12459851/1/why-swift-energy-sfy-is-plummeting-today.html http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-irHome http://www.bizjournals.com/dallas/blog/morning_call/2014/02/positive-q4-earnings-send-j-c-penney-stock-soaring.html http://online.wsj.com/news/articles/SB10001424052702303880604579404712428487896 http://investor.crackerbarrel.com/results.cfm
EUROPEAN EQUITIES 22
http://online.wsj.com/news/articles/SB10001424052702303801304579408770660485570?mg=reno64-wsj http://www.tradingeconomics.com/germany/consumer-confidence http://www.bloomberg.com/news/2014-02-27/german-unemployment-falls-for-third-month-as-economy-strengthens.html http://www.foxbusiness.com/economy-policy/2014/02/24/german-business-confidence-jumps-to-highest-since-11/ https://mninews.marketnews.com/index.php/france-watch-economic-performance-gap-germany-gets-wider?q=content/france-watch-economic-performance-gap-germany-gets-wider http://www.bbc.com/news/world-europe-26152051
http://online.wsj.com/news/articles/SB10001424052702303801304579408681657762584?mg=reno64-wsj
ECONOMIC INDICATORS 24
http://www.bloomberg.com/markets/economic-calendar/