Home' Trinidad and Tobago Guardian : May 4th 2014 Contents MAY 4 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
STOCKS | SBG11
With US stocks
highs and Treas-
ury bond yields
month lows, the
between equity and debt investors has rarely
been as stark. Over the coming months, the
economy is likely to show one of the groups
has bet wrong.
The S&P 500 sits less than one per cent
below an all-time high. After a wintry first
quarter, stock investors are betting that eco-
nomic growth is picking up, as evidenced by
stronger spending figures and business
demand. That's boosted the cyclical stocks
which react to rising demand, particularly
"The data are suggesting this may be the
year when we turn the corner," said Quincy
Krosby, market strategist at Prudential Financial
in Newark, New Jersey.
"If data continues to gain traction you're
going to see investors turn to more cyclical
parts of the market. And I think that's already
Bond investors are reacting to a different
story. Yields on the 10-year note hit a five-
month low on Friday and the 30-year note's
yield fell to its lowest since June after the April
jobs report, which showed strong growth in
payrolls but no growth in earnings and a decline
in the labour force.
That data points to the conclusion that
overall economic demand will remain tepid
and that inflation won't materialise as the
Federal Reserve continues to pull back on
monetary stimulus, analysts said.
"Fixed income investors are slowly waking
up to the reality that as the Fed steps back
from quantitative easing, there are no signs
of inflation," wrote Andrew Wilkinson, chief
market analyst at Interactive Brokers in Green-
wich, Connecticut, in a note.
Bonds are also gaining as concern about the
Ukraine-Russia crisis heightens the safe-haven
appeal of US debt, while some corporate pen-
sion funds are increasingly shifting to bonds
as they seek to match their holdings to the
liabilities they are going to face.
Still, the rise in equity markets doesn't mean
that investors are as confident about growth
stocks as they were in 2013. The strongest
sector in 2014 is utilities, which have gained
14 per cent and are generally associated with
safety. Consumer discretionary shares such
as Amazon.com are down 4.2 per cent, the
worst-performing sector so far this year.
This may be changing. Data show that the
latest internal rotation in stocks has seen the
energy sector take the lead, with a 4.2 per
cent gain over the last month.
Capacity utilisation, a measure of how much
industrial power is being put to work, rose
last month to its highest in nearly six years
and is expected to have ticked higher in the
April report, while Fed data showed last week
that commercial and industrial loans grew at
a steady pace in April.
This makes it entirely possible that the bond
market---generally the more sober-minded of
the two markets---may have it wrong.
"We believe that the current pricing in the
Treasury market has insufficiently accounted
for the potential for an explosion in GDP
growth," said Millan Mulraine, deputy head
of US research and strategy at TD Securities
USA in New York in a research note.
European stocks dipped late on Friday as investors, wary
that the confrontation over Ukraine could escalate over the
weekend, booked recent gains spurred by an M&A wave.
The FTSEurofirst 300 index of top European shares ended
0.3 per cent lower at 1,351.08 points. It slightly rallied following
better-than-expected US jobs data, before investors started
to take profits off the table in late trade.
Pro-Russian rebels shot down two Ukrainian helicopters
on Friday and Moscow accused Kiev of wrecking hopes of
peace by launching a "criminal" assault to retake the sep-
aratist-held town of Slaviansk.
Mergers and acquisitions continued to boost a number of
sectors, with Deutsche Telekom up 1.1 per cent on talk that
Sprint Corp has approached banks to work out funding for
its bid for T-Mobile US Inc, which is majority-owned by the
German telecom operator.
French telecoms group Iliad rose 4.9 per cent and con-
glomerate Bouygues added 4.2 per cent, boosted by speculation
of a tie-up. JP Morgan Cazenove analysts raised their rating
on Bouygues to "overweight" from "neutral", factoring in a
50 per cent probability of a combination with Iliad.
"The flurry of recent deals shows a swing in sentiment
from company managers. The fact that they are starting to
buy means they have better visibility on the economy," said
David Thebault, head of quantitative sales trading at Global
"For all the companies sitting on big cash piles, it's much
faster to do acquisitions to boost their market share and
improve revenue than to spend money in capital expenditure.
This could be the beginning of a long wave of M&A, as val-
uations remain attractive."
Also on the M&A front, AstraZeneca shares dipped 0.1 per
cent. The company rejected Pfizer's new indicative offer of
£50 per share, and some traders said Pfizer might have to
raise its offer again up to the £55 level.
"Mid-50s is a level that Astra would be far more comfortable
with," said Dafydd Davies, senior trader at London-based
firm Prime Wealth Group.
AstraZeneca's share price has surged by around 26 per cent
since news of Pfizer's interest emerged in late April.
European shares started to rally this week as corporate
deal-making outweighed mixed quarterly results from com-
So far this year, M&A activity involving a European target
has grown to more than US$312 billion. That is more than
double the value over the same period last year and the highest
since 2008, according to Thomson Reuters data.
The week's rally in European stocks was also supported by
brisk investment flows, with fresh money coming in from
US investors in the seven-day period ended April 30, data
from Thomson Reuters Lipper shows. Since the start of the
year, European stocks have seen 16 weeks of net inflows from
the United States and only one week of net outflows.
The FTSE 100 index of leading British shares rose 0.2 per
cent to close at 6,822.42 while the CAC-40 in France fell 0.7
per cent to 4,458.17. Germany's DAX fell 0.5 per cent to
The jobs data gave a temporary boost to the dollar, which
fell back down to trade flat against the Japanese yen, at 102.34
yen. The euro, meanwhile, was down 0.1 per cent at US$1.3861.
Earlier, in Asia, Japan's Nikkei fell 0.2 per cent to finish at
14,457.51, as market players remained cautious ahead of a
Monday and Tuesday are national holidays in Japan. Else-
where, Hong Kong's Hang Seng added 0.6 per cent to
Wall Street: Bond, stock investors making
hay; can both be right?
European stocks dip as investors book recent gains
Trader Peter Tuchman,
centre, works on the
floor of the New York
Stock Exchange on
Friday, May 2.
Trader David O'Day
works on the floor of the
New York Stock
Exchange on Friday, May
2. US stock futures are
up slightly after the
unemployment rate hit
its lowest level in more
than five years. The
the unemployment rate
sank to 6.3 per cent.
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