Reuters blog archive

from Counterparties:

MORNING BID – Minute by minutes

The bond market remains pretty much tethered to the 2.50 percent to 2.60 percent range that's prevailed for the 10-year note for quite some time now, with the primary catalyst being today's release of the Federal Reserve's minutes from its most recent meeting. The relevant data that investors are probably paying most attention to - the jobs report last week, the JOLTS jobs survey, shows some more things that is meant to keep the Fed engaged rather than moving toward an imminent increase in rates. The quit rate - the rate at which people leave jobs for others - is still historically a bit on the low side, not at a level that would make the Fed more comfortable that the kind of labor-market dynamism needed for the Fed to shift to raising interest rates. Fact is, the central bank just isn't there yet.

And with that in mind, that means those investors clamoring for higher rates are probably going to continue to see their expectations unmet for a longer period of time, and with sovereign buyers from Europe and Japan wandering outside those halls, there's an ongoing bid in the market that continues to thwart short-sellers who are just waiting for that right moment to bet against the bond market. That's been a lonely trade of late - or rather, a popular trade, just a big loser as trades go.

Players in the markets may also be looking to see whether the Fed discusses the other exit strategies it has -- reverse repos and the like -- making that another thing to watch for in the late release. Dealers have been divided on whether the Fed will raise rates merely to 25 basis points or direct to 50 -- our most recent polls are split on this, but a move to 50 would probably assuage a few of those who think the Fed is getting behind the curve.

Earnings play a factor in this equation as well however. The decline in earnings estimates has actually been subdued in the second quarter, compared with the first quarter, according to Goldman Sachs, which suggests a pickup in activity after the weak first quarter. Earnings don't really get going for another few days, but the signs of growth will be what investors worried about valuations are looking for. The current valuation situation, as Chuck Mikolajzcak wrote in a story yesterday, points to some measures that are worrisome - the Case Shiller PE figure, for instance - while a couple of others like operating P/E, suggest only slightly expensive levels. With more strategists starting to worry of a correction, earnings would go a long way toward supporting equities.

from Counterparties:

MORNING BID – Microsoft, up from the ashes

Microsoft heads into tonight’s earnings report coming in on a high, having recently breached the $40 threshold for the first time in forever (it’s all Frozen references this week, folks). The company pushed past $40 a share in early April for the first time in nearly 14 years, and spent most of that time ensconced in a tight range between about $22 and $35 a share, depending on what the overall market was doing. It tanked in 2008 with everything else, and then spent the 2010-2012 period putting together a cumulative 13 percent price loss in the midst of a raging bull market, if evidence of its sad-sack status couldn’t be more apparent.

This year, though, the company’s been the beneficiary (along with the other “horsemen,” Cisco, Intel and Oracle) of a shift away from overvalued momentum-driven stocks towards cyclical technology stories. These are the types of companies that produce steady revenues even if they’re not doing anything but collecting on consistent upgrades of stuff that everybody needs and doesn’t really like. And really, the company had a stranglehold over PC operating systems that it defended aggressively, let’s not kid ourselves.

from Counterparties:

MORNING BID: Running on Empty

The most interesting developing trend in the U.S. equity market has been the recent stumble in the biotech and momentum-oriented names, be it Gilead Sciences, Biogen, Netflix or a few others. The biotechs were a group often cited as having entered a "parabolic" stage, which in market parlance refers basically to "going up and up and up in a straight line." The move wasn't anything on the order of the homebuilders during the housing bubble of 2006 to 2007, or the tech giants during the latter stages of the tech run - a 300 percent gain versus 700 to 800 percent gains back in the other cases. That doesn't mean we won't see an ongoing breakdown, though some of the selling abated late in the Monday session.

But the Nasdaq Biotech Index has now dropped sharply through its 50-day moving average. More worryingly, the Nasdaq Composite sits just five points above its 50-day moving average of about 4221, and the Nasdaq 100 barely managed to close above that level as well on Monday. "Three consecutive down days have been a rare occurrences in this tape," said Michael O'Rourke, chief market strategist at JonesTrading. "That makes the intraday lows registered today in both single stocks and the indices important support levels to watch. Violations of those levels should be problematic."

from Breakingviews:

Food deal shows how investors eat up synergies

By Robert Cyran
The author is a Reuters Breakignviews columnist. The opinions expressed are his own.

Sysco’s acquisition of US Foods shows how investors are eating up synergies. The $3.5 billion purchase, revealed on Monday, received a rapturous reception, with the buyer’s market valuation surging by as much as a quarter – or $5 billion – before giving up some gains. Hefty cost cuts help the merger math.

from Breakingviews:

Disney magic hasn’t exactly worked on Pixar

By Jeffrey Goldfarb and Grace Dai
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.



Walt Disney boss Bob Iger has another Pixar hit on his hands. “Monsters University” should provide an eighth consecutive animated lift to Disney’s bottom line when it reports quarterly results on Tuesday. The upcoming “Planes,” derived from Pixar’s “Cars,” is bound to be a success, too. But a Breakingviews analysis suggests the studio’s value to the Magic Kingdom falls short of the $7.4 billion purchase price. High-priced deals for Marvel and Lucasfilm may also disappoint investors in the long term.

from Breakingviews:

Elon Musk has to sell 540,000 Teslas a year

By Antony Currie
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Chief Executive Elon Musk has to sell 540,000 Tesla vehicles a year. At least that’s what may be needed for the electric automaker to be worth $43 billion, according to a Breakingviews calculator. Reaching that stock market valuation by 2022 is one target in Tesla’s rocket-scientist founder’s long-term incentive plan. Hitting that and 10 operational targets could, on simplified assumptions, bag him up to $1.8 billion.

from Breakingviews:

Deal prospects make Vodafone look cheap

By Quentin Webb and Robert Cyran
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

Deal prospects make Vodafone look cheap. An optimistic reading of the underlying valuations suggests M&A could deliver shareholders in the London-listed mobile giant perhaps 35 percent more value than they have now. That’s an extra 31.5 billion pounds ($47.6 billion). But unlocking this would entail huge deals and huge headaches to match.

from Global Investing:

Abenomics rally: bubble or trend?

"Abenomics" is the buzzword in Japan these days -- it refers to Prime Minister Shinzo Abe's aggressive reflationary fiscal and monetary policies that triggered the yen's 10 percent decline against the dollar and 17 percent rally in Tokyo stocks this year.

So it's no wonder that the Japanese mutual fund market, the second largest in Asia-Pacific, enjoyed the largest monthly inflows in almost six years last month, raking in as much as $11 billion.

from Breakingviews:

SolarCity IPO valuation approaches earth

By Richard Beales
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

SolarCity’s underwriters have come down closer to earth. The U.S. solar panel installer slashed its expected initial public offering price by more than 40 percent at the last moment to $8 a share. The old price of $14 at the middle of the range, equating to some six times expected 2012 revenue, always looked starry-eyed. The new price merely requires optimism.

from Breakingviews:

If Apple becomes Microsoft, investors should cheer

By Robert Cyran and Richard Beales
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

If Apple becomes Microsoft, investors should cheer. At least, that is, for their wallets. Middle age for technology stocks can hurt as shareholders looking for rapid growth lose interest and value-oriented owners await stability. But Apple has already made the transition - before its growth has slowed much. Even if its next decade echoes Microsoft’s last, the company is worth over $1 trillion.