The Week in Review for the week ending February 15, 2013
Price swings were relatively subdued during the week as positive economic data and enthusiasm over merger and acquisition activity seemed to balance out investors’ hesitation to bid stocks higher after two months of solid gains. More than $140 billion in merger and acquisition deals have been announced this month.
Global economic news was less positive. The eurozone reported a 2.3% annualized drop in fourth-quarter gross domestic product, and fourth-quarter Japanese economic activity slipped slightly.
US economic data, however, continued to show resilience: Retail sales rose, the US budget posted a rare January surplus, US housing inventory continued to shrink and jobless benefit claims fell sharply.
Global stock markets kept climbing; many global benchmarks have gained more than 10% over the past three months.
The Chicago Board Options Exchange Volatility Index remains near the five-and-a-half-year low it reached in January.
Amid this environment the DJIA was down -0.1%, the S&P 500 was up 0.1%, the Russell 2000 was up 1.0%, the Global Dow Ex-US was up 0.2% and crude oil rose 0.2%.
The eurozone economy contracted in the fourth quarter at its fastest pace in almost four years, as even the relatively strong economies of Germany and France felt the impact of the global slowdown. Eurozone GDP fell 0.6% in the fourth quarter (an annualized -2.3% pace). GDP for Germany and France declined an annualized 2.3% and 1.1%, respectively, for the quarter. For all of 2012, the eurozone’s GDP shrank 0.5%. Eurozone imports and exports both fell in December.
The US housing market appears to be gathering more strength, with the number of homes listed for sale dropping in January after already dipping to an 11-year low in December. The number of homes listed last month was 16.5% lower than a year earlier, according to a report from Realtor.com. With fewer homes available for buyers, it appears likely that prices will rise further. Newly initiated housing foreclosures in January were 28% below the year-earlier level, a six-and-a-half-year-year low, reported RealtyTrac.
Initial jobless claims decreased by 27,000 to 341,000 in the week ended 9 February, and the number of people continuing to receive unemployment insurance fell substantially, by 130,000 to 3.11 million in the week ended 2 February, the lowest level since July 2008. However, 255,000 more people used up their traditional benefits and are now receiving emergency and extended payments, bringing that total to 2.08 million in the week ended 26 January.
A number of other US economic reports pointed in a positive direction this week. These include a $2.88 billion US budget surplus, a rarity for January, a modest rise in retail sales, and a report that New York-area manufacturing expanded more than expected in February. Industrial
production fell unexpectedly in January on weakness in manufacturing and mining. However, that followed a two-month period with the strongest back-to-back manufacturing growth since 1984. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose more than expected in February.
Japan’s economy declined 0.1% in the fourth quarter, contracting for the third straight quarter. However, with both the Japanese government and the Bank of Japan taking more aggressive stimulus action in the past month, Japan is expected to shift into growth this quarter.
Berkshire Hathaway teamed up with Brazilian private equity firm 3G Capital to buy H. J. Heinz. The deal will be financed with cash, debt financing and a rollover of existing debt, subject to shareholder and regulatory approvals.
The latest US airline merger, which brings together US Airways and AMR Corporation, parent of American Airlines, to create the country’s largest airline, was unanimously approved by the boards of both firms. The $11 billion deal creates a 28%/72% ownership split between US Airways shareholders and AMR shareholders, creditors, unions and employees. American Airlines has been steadily losing ground to its higher-flying competitors United Airlines and Delta Air Lines in recent years.
Comcast will pay $16.7 billion to purchase the remaining 49% of NBC Universal from General Electric a year ahead of schedule. The cable giant bought a 51% stake in 2011. NBC Universal’s current enterprise value of $39.1 billion places it fourth in size among US entertainment companies, after Walt Disney Company, News Corporation and Time Warner. NBC Universal includes the NBC network, cable channels MSNBC and Bravo and the Universal film and theme park business.
Deere posted better-than-expected 22% growth in first-quarter net profit. Deere also raised its forecast for net income in 2013 by a small margin. The company is expecting a surge in demand from South America, reflecting Brazil’s booming commodities market, and slightly higher Asian demand, as China’s economy strengthens.
Nestlé posted an annual net profit for 2012 of 10.6 billion Swiss francs ($11.55 billion), an 11.6% increase from 2011, on a 10.2% rise in overall sales.