Market Snapshot* DJIA
Wednesday, May 13, 2015
18060.49
-7.73
Nasdaq
4981.69
+5.5
S&P 500
2098.48
-0.63
10-Year
2.281%
-5/32
30-Year
3.0732%
-32/32
Euro
$1.13425
+0.0127
$60.5
-0.25
Nymex Crude Source: SIX Telekurs, ICAP plc
Stocks U.S stocks ended mixed, with a loss for the Dow Jones Industrial Average and a gain for the Nasdaq Composite, after the latest economic data showed April retail sales coming in flat from March and import prices unexpectedly falling. A rash of multi-billion dollar midweek takeovers helped spur some trading volume as did DuPont's proxy battle win over Nelson Peltz.
Treasurys Prices of longer-dated Treasury bonds fell on Wednesday, sending the yield on the benchmark 10-year note to close at the highest level in more than five months. A selloff of German government debt rippled into the U.S. bond market, underscoring the continued jitters. The yield on the 10-year German bond closed at the highest level since early December.
Forex The dollar weakened against the yen and the euro Wednesday after U.S. retail sales data showed consumers wouldn't pull the economy out of its recent soft patch. The dollar fell 1.2% versus the common currency in late-afternoon trade, as one euro bought $1.1344, on pace for the highest close in a week.
Tomorrow’s Headlines
DuPont Poised to Win Over Peltz’s Trian in Proxy DuPont Co. defeated the campaign by Nelson Peltz and his Trian Fund Management L.P. to land seats on the chemical giant’s board, dealing a landmark setback to one of the most influential activist investment firms. DuPont’s shareholders on Wednesday re-elected all of its sitting directors, rejecting the criticisms of Mr. Peltz that the 212-year-old maker of Kevlar fibers and Pioneer corn seeds suffered from a bloated corporate structure and sagging profits. The vote, after two years of private and public jousting, is a victory not only for DuPont and its chief executive, Ellen Kullman, but for others in corporate America concerned that activist investors’ influence has grown too strong and that companies have capitulated to their demands too readily.
Excessive Speed Probed In Philly Train Wreck An Amtrak train involved in a fatal crash here appears to have been traveling at more than 100 miles an hour as it entered a sharp curve where it derailed Tuesday night, killing at least seven people, according to two people with knowledge of the investigation. The speed limit in that section of track drops to 50 miles an hour, according to the Federal Railroad Administration. Investigators are focusing on the possibility that excessive speed was a factor in the derailment, one of these people said. The locomotive and all seven continued on page 2
Tomorrow’s Calendar 8:30 a.m.
05/09 Unemployment Insurance Weekly Claims Report - Initial Claims Weekly Jobless Claims (expected 273K), Net Change (previous +3K), Cont Jobless Claims (prior week) (previous 2228000), Net Chg (prior week) (previous -28K)
8:30 a.m.
Apr PPI Final Demand (expected +0.1%), PPI, Ex-Food & Energy (expected +0.1%), PPI Personal Consumption (previous +0.3%)
8:30 a.m.
U.S. Weekly Export Sales Corn, In Metric Tons (previous 897.3K), Soybeans, In Metric Tons (previous 689.2K), Wheat, In Metric Tons (previous 298.6K)
Commodities Oil prices were nearly flat in choppy trade Wednesday after weekly U.S. data showed an unexpected drop in supplies as well as a refinery slowdown. U.S. crude stockpiles fell by 2.2 million barrels in the week ended May 8, the U.S. Energy Information Administration said, marking the second weekly decline after stockpiles rose to the highest level in more than 80 years.
*preliminary values subject to adjustments
9:45 a.m.
Bloomberg Consumer Comfort Index
10:00 a.m.
Mario Draghi delivers the IMF Michel Camdessus Central Banking lecture
10:30 a.m.
05/08 EIA Weekly Natural Gas Storage Report Total Working Gas in Storage(previous 1786B), (Net Change) (previous +76B)
4:30 p.m.
Money Stock Measures
4:30 p.m.
Federal Discount Window Borrowings
4:30 p.m.
Foreign Central Bank Holdings
N/A
Obama and Arab leaders meet at Camp David
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Wednesday, May 13, 2015 4 p.m. ET
Tomorrow’s Headlines
Fed Urged to Bolster Bank Supervision
continued
The Federal Reserve’s Office of the Inspector General said Wednesday the central bank should beef up its regulatory efforts in the wake of clear mistakes made in the handling of J.P. Morgan Chase & Co.’s “whale” incident after the largest U.S. bank by assets suddenly posted $6 billion in losses related to 2012 trades gone bad.
passenger cars of the train went off the tracks at a tight curve at Frankford Junction, north of Philadelphia city center. Multiple cars overturned, severely injuring some passengers and pinning others. At least seven people were killed, and more than 200 were injured, including eight who were in critical condition. Amtrak officials notified some employees on a Wednesday conference call that excessive speed was believed to have contributed to the crash, said one of these people, who was briefed on the contents of the call. A spokeswoman for the National Transportation Safety Board, which is probing the accident, said speed was among the many factors it would be investigating in the crash.
Retail Sales Flat in April U.S. retail sales barely budged in April as consumers remained cautious spenders, a trend that could weigh on the broader economy this year. Sales at retailers and restaurants held steady from the prior month at a seasonally adjusted $436.8 billion, the Commerce Department said Wednesday. The figures were short of expectations. Economists surveyed by The Wall Street Journal had forecast a 0.2% rise in April. Retail sales are now down or flat in four of the five past months, with March the lone bright spot. Retail sales climbed a revised 1.1% that month, up from a previously estimated 0.9% gain. “In essence, the report offered no evidence to suggest that spending momentum has rebounded from the first-quarter soft patch, and if anything it adds to the growing concerns that the headwinds to growth...are continuing to persist,” Millan Mulraine, deputy head of U.S. strategy at TD Securities, said in a note to clients.
Import Prices Fall 0.3% in April Prices of imported goods fell last month, suggesting weak global demand and a stronger dollar continue to hold back U.S. inflation. Import prices declined a seasonally adjusted 0.3% in April from March, the Labor Department said Wednesday. Prices have fallen for 10 consecutive months and are down 10.7% over the past year.
“We found that there was a missed opportunity for the Federal Reserve Bank of New York and the Office of the Comptroller of the Currency to discuss risks related to [J.P. Morgan’s] Chief Investment Office and consider how to deploy the agencies’ collective resources most effectively,” the OIG said in a semiannual report to Congress covering Oct. 1, 2014 to March 31, 2015. “We also found that Federal Reserve and OCC staff lacked a common understanding” of the rules surrounding the case, the OIG said. “We made recommendations that encourage the Board’s Division of Banking Supervision and Regulation to enhance its supervisory processes and approach to consolidated supervision for large, complex banking organizations.”
Danaher To Buy Pall For $13.6 Billion; Split Up Businesses Danaher Corp. said Wednesday it has agreed to buy Pall Corp. for about $13.6 billion and unveiled plans to split itself into two publicly traded companies. Pall, based in Port Washington, N.Y., sells purification and filtration products to a wide range of customers including biopharmaceutical companies, airplane manufacturers, brewers and municipal water suppliers. Including debt and net of acquired cash, the deal is valued at $13.8 billion. The Wall Street Journal reported earlier this week that Pall was in the late stages of an auction, and Danaher was a potential buyer. The offer of $127.20 a share is a 28% premium to Pall’s closing price on Monday, before news of the sale was reported. The deal is Danaher’s largest takeover to date, surpassing the $5.9 billion it paid in 2011 for Beckman Coulter Inc., according to S&P Capital IQ.
Williams Cos to Buy Williams Partners Affiliate
Economists surveyed by The Wall Street Journal had expected a 0.3% monthly increase in import prices.
The giant natural-gas pipeline company Williams Cos. is buying up the portion of subsidiary Williams Partners that it doesn’t already own in a $13.8 billion all-stock deal.
Weak import prices have weighed on U.S. inflation, largely reflecting soft global demand and falling prices for gasoline and other petroleum products. The last time import prices increased was in June 2014.
The deal will provide tax benefits to Williams, but some of the partnership’s investors could be hit with an unexpected tax bill when they exchange their partnership interests for company shares.
But the latest weakness is also a sign of a stronger U.S. dollar, which makes foreign goods and services relatively cheaper for U.S. consumers.
Following in the wake of Kinder Morgan Inc.’s $44 billion consolidation with its pipeline partnerships last year, the
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Wednesday, May 13, 2015 4 p.m. ET
Tomorrow’s Headlines
Macy’s to Push Some Stores Upscale
continued
Macy’s Inc. plans to push its best stores upscale, as it works to squeeze more growth from a slowing department store business.
Williams deal confirms that some of the energy industry’s biggest infrastructure companies are turning away from the tax-advantaged partnership structure, which has been hugely popular with individual investors. Master limited partnerships aren’t subject to income taxes at the corporate level and pay hefty cash distributions to limited partners, which are usually untaxed unless investors sell the units. This type of merger triggers a forced sale and thus a tax bill. The amount investors will owe can vary widely, depending on when they bought their shares and other factors. Williams hasn’t estimated what investors will owe but that amount will likely be somewhat offset by the premium they will receive, which is about 14.5% over the price the partnership units have traded at recently.
Owens-Illinois Bets on Mexico for Growth
The retailer discussed its plans Wednesday after reporting a second straight quarter of weak sales. The company blamed rough winter weather, trouble with West Coast ports and lower spending by tourists as sales fell 0.7% to $6.23 billion for the three months that ended May 2. Macy’s results don’t bode well for other retailers scheduled to report earnings this week. Some analysts had been predicting that pent-up demand from shoppers would lift retail sales, but government data showed they were flat in April as consumers remained cautious. Retail sales have been flat or down in four of the past five months, a trend that could weigh on the broader economy. Macy’s sales at existing stores fell 0.1%, weaker than the 2% growth the company has forecast for the year. Profit fell to $193 million from $224 million a year ago.
CVS to Settle Florida Painkiller Case
Owens-Illinois Inc. is counting heavily on Mexico for a dash of growth in the sluggish global market for glass bottles. The Perrysburg, Ohio-based company announced Wednesday an agreement to pay $2.15 billion for Vitro S.A.B. de C.V.’s food and beverage glass container business, the largest in Mexico. The agreement includes Vitro’s five glass-container plants in Mexico and one in Bolivia.
CVS Health Corp. disclosed Wednesday that it will pay $22 million to settle a years-old fight with the federal government over alleged misuse of addictive prescription painkillers in Florida. The settlement resolves all civil matters between CVS and the U.S. Drug Enforcement Administration and state of Florida, the company said in a regulatory filing. CVS said the payment was accrued for in previous fiscal periods.
Owens-Illinois shares surged about 10% on the New York Stock Exchange. Chip Dillon, an analyst at Vertical Research Partners, said the planned acquisition could be “a game changer” in terms of investors’ perception of potential growth at Owens-Illinois. The company is the world’s largest maker of bottles for beer, wine and liquor, but sales have declined in recent years amid weakness in Europe and Australia and a partial retreat from China, where Owens-Illinois found local price competition too stiff.
In 2012, the federal government alleged that CVS and Cardinal Health Inc. were aware of high-volume orders of prescription painkiller oxycodone shipped to two pharmacies in Florida.
U.S. companies have been stepping up their purchases in Mexico, a bright spot recently in contrast to slumping Brazil. U.S. acquisitions in Mexico last year totaled about $7 billion, up from $5.3 billion in 2013, and so far this year they amount to $4.4 billion, according to Dealogic.
Morgan Stanley will pay $2 million to settle charges that a unit failed to fully report its short interest positions over a period of more than six years, the Financial Industry Regulatory Authority said Wednesday.
AT&T Reaches Deal to Offer Hulu AT&T Inc. and Hulu signed a deal under which the telecom company will be able to offer Hulu’s subscription streaming service to its customers through an AT&T website or mobile application starting later this year. The deal builds on AT&T’s current contract with Hulu for its free content. AT&T expects the expanded relationship with Hulu will complement its other over-the-top efforts, such as its Otter Media venture with the Chernin Group. “We know that our customers want to be able to access video on multiple devices,” said Andrew Goodman, associate vice president, AT&T content acquisition.
Morgan Stanley Fined $2M for Short Selling Violations
Finra said that Morgan Stanley violated short interest reporting and short sale rules by failing to completely and accurately report its short interest positions in certain securities involving billions of shares. In a statement Morgan Stanley said it self-reported many of the issues raised by Finra and has revised its short-interest reporting policies and internal controls. Finra also said that Morgan Stanley’s supervisory system was deficient as it failed to detect and prevent the violations. Firms are required to regularly report their total short positions in all customer and proprietary firm accounts in all equity securities to Finra. The information is then published by Finra or the listing exchange.
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Wednesday, May 13, 2015 4 p.m. ET Copyright Dow Jones & Co., Inc.
Talking Points
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Computer Traders Drove Euro Bond Selloff
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While the European Central Bank has gobbled up eurozone bonds, another group of investors has dumped them at a much faster clip, hastening the recent selloff in the region’s bond market. Certain computer-driven hedge funds built up large bets that bond prices would rise after the ECB announced its quantitative-easing program in January, data from Royal Bank of Scotland Group show. The funds, known as commodity trading advisers, then quickly sold their bond holdings in late April as the market turned. “CTA selling engulfed ECB buying by a factor of three—enough to be a strong spur for the bond selloff,” said RBS strategist Clement Mary-Dauphin. CTAs invest in futures contracts across stocks, bonds, currencies and commodities and tend to follow the momentum of the market. They typically set risk limits to guard against potential losses and will shed their positions once these limits are breached, said Nikolaos Panigirtzoglou, an analyst at J.P. Morgan Chase & Co., creating a self-reinforcing cycle of rising volatility and position cutting. Mr. Mary-Dauphin said CTA funds are “a bit overlooked by other investors’ even though “they are major players and can move the market.” Between March and mid-April, the ECB bond-buying program pushed the yield on German government bonds, or bunds, to a record low of 0.05%. Soon after, bond yields began to rise, culminating in a volatile spike on May 7. German 10year bond yields were 0.63% Wednesday. Bond yields fall as prices rise. By analyzing CTA fund returns compared with bond-market performance, RBS estimated CTAs have sold EUR100 billion worth of 10-year futures since the second half of April. This flow equates to almost three times the EUR60 billion of bonds the ECB buys every month under its quantitative-easing program. Aref Karim, chief executive of QCM, a CTA fund with $63 million of assets under management, said his firm aggressively cut positions toward the end of April “for all portfolio assets,” starting with government bond-related investments in midApril. Mr. Karim said his fund has lost money because of the sharp selloff in markets, though his returns for this year as of end-April were almost 8%. Heiko Zuehlke, head of investor relations at Amplitude Capital, a CTA fund with about $2 billion in assets under management, said his fund avoided the worst of the potential losses because it typically holds positions for only a few days, allowing it to dump losing positions quickly. The pressure is also mounting on CTAs to drop their bond bets. Average CTA returns for the year are down 0.5%, according to Lyxor Asset Management. They had been up almost 9% earlier this year prior to the bond selloff. Analysts are still debating the trigger for the dramatic bond market reversal. Some point to growing optimism over economic growth in Europe and signs of a rebound in inflation—scenarios that would ordinarily lead to higher bond yields. Either way, RBS’s Mr. Mary-Dauphin notes heavy selling from CTAs undoubtedly “magnified the move.”
Facebook Tries To Flatten Bay-Area Playing Field Facebook Inc. is pushing its vendors to improve pay and benefits for their workers, including wages of at least $15 an hour, in the latest example of Silicon Valley trying to address yawning economic divisions in the region. In addition to the minimum wage, the social network is requiring contractors to give workers who do a substantial amount of work with Facebook at least 15 paid days off annually for holidays, sick leave and vacation. Facebook will also require that new parents receive a $4,000 bonus if they don’t get paid parental leave. A Facebook spokeswoman said she couldn’t estimate how many workers would be affected by the change, but said it would cover food-service, security and janitorial workers, among others, at its U.S. facilities. continued on page 5 Copyright © Dow Jones & Company, Inc. All Rights Reserved. www.dowjones.com
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Wednesday, May 13, 2015 4 p.m. ET
Talking Points
Both Google Inc. and Apple Inc. in recent months have said they will make security staffers full-time company employees with benefits.
continued Facebook said it expects to bear the cost of the new standards as vendors increase their rates. The rules took effect for Facebook’s largest vendors on May 1; it plans to expand the program to other contractors over the next year. California’s minimum wage is $9 an hour, above the national $7.25. “We think it’s the right thing to do with our community and the right thing to do with our business,” Chief Operating Officer Sheryl Sandberg said in a recent interview. “So we think it’s an expense worth bearing.” Ms. Sandberg spoke shortly before her husband, SurveyMonkey.com LLC Chief Executive David Goldberg, unexpectedly died on May 1 while vacationing in Mexico. Ms. Sandberg returned to work on a limited schedule this week. Facebook’s move is among several by Silicon Valley companies seeking to address concern over economic disparities in the region, which have occasionally flared into protests against tech workers. Joint Venture Silicon Valley, a regional think tank, says the median annual income for high-skilled workers in the region is about $119,000, while the median income for low-skilled workers is about $27,000.
Drivers of buses that shuttle Facebook employees to and from work in March approved a Teamsters union-negotiated contract that will raise their pay by 50% to $27.50 an hour, giving the union momentum to negotiate with drivers for six other Silicon Valley companies. “Facebook has led the way in this area,” said Rome Aloise, international vice president for the Teamsters union. “I think they’re being responsible employers” and other tech companies are taking note. Several Facebook vendors declined to comment, including maintenance firm ABM Industries Inc., technology-services provider Milestone Technologies Inc., and Pro Unlimited Inc., which manages Facebook’s relationship with vendors. In the interview, Ms. Sandberg said women would particularly benefit from the new rules because they make up two-thirds of minimum-wage workers in the U.S. She highlighted the $4,000 bonus for new parents as a key to making sure both men and women can afford to take time off for a new child. Even so, the new benefits for Facebook’s contract workers are a far cry from what Facebook and other tech giants offer their own employees. Facebook offers employees $4,000 in “baby cash”—in addition to paid parental leave and help with day care and adoption fees.
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