What’s the Story

by CC September 14, 2012 9:19 am • Commentary


The FTSE All-World equity index is up 1.3 per cent and on course for its best close in 13 months, as the FTSE Eurofirst 300 also rises 1.3 per cent to hit its highest mark since July 2011, and after the Asia-Pacific region surged 2.5 per cent.

S&P 500 futures suggest Wall Street will add 0.3 per cent on to its best level since 2007, after the benchmark rose 1.6 per cent on Thursday.

Commodities are rallying hard, bolstered by hopes that the Fed’s pledge to boost growth in the world’s biggest economy will foster demand for resources globally. Copper is up 3.3 per cent to $3.85 a pound, its most expensive in four months, having jumped 14 per cent since the start of June.

That period marks the genesis of the current “risk asset” rally as markets stabilised and later in the summer investors began placing bets that the Fed and European Central Bank were prepared to take decisive action to tackle, respectively, waning US growth and escalating eurozone sovereign debt tensions.

The ECB last week duly delivered what many have called “a game changer” with its commitment to suppressing the short-term borrowing costs of Italy and Spain.

And Thursday was the Fed’s turn.


Retail sales increased 0.9 percent, the largest increase since February, the Commerce Department said on Friday, after a downwardly revised 0.6 percent rise in July that was previously reported as a 0.8 percent advance.

While the gain last month was above economists’ expectations for a 0.7 percent rise, details of the report pointed to an only modest increase in consumer spending this quarter after sluggish demand restricted the economy to a 1.7 percent annual growth pace in the April-June period.

That suggests third-quarter economic growth would still be insufficient to cut into high unemployment, which on Thursday prompted the Federal Reserve to launch a third round of bond purchases and push its pledge to hold interest rates near zero through at least mid-2015 from late 2014.

The rise in sales last month was led by gasoline stations, reflecting a 28 cents per gallon increase in the pump price. Gasoline sales surged 5.5 percent, the largest increase since November 2009, after rising 0.4 percent in July.

Automobile sales increased 1.3 percent, the most since February, after gaining 0.1 percent in July.

Excluding gasoline and autos, retail sales edged up 0.1 percent after rising 0.8 percent the prior month.

Away from gasoline and autos, sales were mixed, with receipts at building materials and garden equipment suppliers rising 1.0 percent after increasing 1.2 percent in July. There were gains in furniture sales and sales at restaurants and bars

But there were declines in sales at clothing stores and at electronics and appliances shops. Receipts at sporting goods, hobby, book and music stores were flat.

So-called core retail sales, which exclude autos, gasoline and building materials, dipped 0.1 percent after increasing 0.8 percent in July.

Core sales correspond most closely with the consumer spending component of the government’s gross domestic product report.

Calculated Risk


European finance ministers squared off over a possible aid program for Spain, with creditors unwilling to commit until the government takes additional steps to boost competitiveness and rid the economy of debt.

Spain, already drawing on 100 billion euros ($130 billion) to repair its banking system, wants the lightest possible conditions on a European credit line or loan program that would also enable the European Central Bank to buy bonds to bring down its borrowing costs.

“If there will be support, there will be conditions,” Dutch Finance Minister Jan Kees de Jager told reporters before a meeting of euro-area finance chiefs in Nicosia, Cyprus today. “Spain is on the right way but they have to continue to convince the markets that they have a sound policy.”

Spain’s aid-or-no-aid dilemma comes with the euro at a four-month high and Spanish bond yields at five-month lows. As at prior stages in the almost three-year debt turmoil, political leaders run the risk of being lulled into a false sense of security that dilutes efforts to fix the economy.

Europe is stabilized,” Austrian Finance Minister Maria Fekter said. “We’ll be equipped to deal with all phenomena that come along.”


Apple [AAPL  682.98        ] – Consumers are able to pre-order the newly announced iPhone 5 for the first time this morning, with early checks on the websites of Apple and Verizon Wireless indicating that so far, pre-orders are being processed smoothly. (Read More: Apple Could Sell a Lot More iPhones Than Expected.)

Verizon Communications [VZ  45.58        ], AT&T [T  38.15        ] – Stifel Nicolaus is downgrading both stocks to “hold” from “buy” on a valuation basis, as well as lowering estimates related to benefits from the iPhone 5 launch.

United Healthcare [UNH  53.89        ] – The health insurer’s stock will replace Kraft Foods [KFT  40.13        ] in the Dow Jones Industrial Average after the close of trading on Sept. 21. The move comes as Kraft prepares to split into two separate companies on Oct. 1.

Amazon.com [AMZN  260.24        ] – The online retailer will begin collecting sales taxes in California as of tomorrow, following a long battle over whether Internet retailers should have to charge those taxes, and a 2011 agreement that settled the matter in California.

Bank of America [BAC  9.40        ] – Bank of America has settled a Justice Department probe which had accused it of discriminating against disabled borrowers. It will pay amounts up to $5,000 each to certain borrowers involved in the case, pending court approval.

Avon Products [AVP  16.28        ] – The U.S. Securities and Exchange Commission has closed an investigation involving Avon without pursuing any action. The commission had been looking at whether former Vice Chairman Chuck Cramb shared material information regarding a separate bribery probe.

Western Digital [WDC  42.5783        ] – The company has announced a new $0.25 per share quarterly dividend and a $1.5 billion stock buyback program. At the same time, the hard disk drive maker has cut its fiscal first-quarter revenue forecast to $3.9 billion to $4 billion, compared to consensus estimates of $4.3 billion. Western Digital said it cut its forecast because of weaker demand for its drives.

Abercrombie & Fitch [ANF  38.54        ] – CNBC’s Kayla Tausche reports that activist investor Relational Investors may seek a seat on the clothing retailer’s board. Tausche says Relational Investors hasn’t talked about taking Abercrombie private, but would be unlikely to oppose any takeover bid.

Staples [SPLS  11.96        ] – The office retailer’s stock has been rising since Fortune Magazine reported Thursday that several private-equity firms may be interested in taking Staples private.

CME Group [CME  59.35        ] – JPMorgan Chase has downgraded the exchange operator’s stock to “underweight” from “neutral.”

Home Depot [HD  58.30        ] – The home improvement retailer is closing its remaining seven big box stores in China, resulting in a third-quarter charge against earnings of about $0.10 per share.