Stocks ended the week lower in the U.S. and around much of the world after the central banks in the U.S. and Japan chose to hold off on tightening, or loosening, their monetary policies. Meanwhile, the ongoing drama of the U.K.'s European Union referendum took a sad turn when a British politician was murdered. The parties on both sides of the debate halted their campaigning for a day following the tragedy, but there have been no indications that the planned "Brexit" vote, scheduled for this coming Thursday, will be pushed back.
MACRO NEWS: In central bank news, the Federal Reserve left the funds rate unchanged, as universally expected. New projections released by the Fed show officials expect the funds rate to rise to 0.875% by the end of 2016. The median forecast implies two rate increases this year, which is the same as implied when projections were last released in March. However, six officials now see only one increase this year and only two see three or more. Previously, only one official saw one rate increase this year and seven saw three or more. The Bank of Japan kept policy on hold, as was widely expected. However, markets expressed disappointment with the decision, sending Japan's Nikkei index down over 3% on Thursday...
In the U.S., retail sales increased 0.5% in May, versus expectations for a 0.3% increase. The core reading, removing autos and gas, was up 0.3%, matching the consensus forecast. Import prices climbed 1.4% in May, with export prices up 1.1%, both of which were stronger than expected. An index of producer prices rose 0.4% in the month of May, versus expectations for an increase of 0.3%. The core PPI reading, which removes food and energy, rose 0.3%, versus expectations for an increase of 0.1%. The Empire manufacturing report had a reading of 6.01 for June, versus the expected reading of -4.90. Industrial production fell 0.4% in May, knocking capacity utilization down to 74.9%. Both were worse than the 0.2% decline and 75.2% rate that were expected. An index of consumer prices rose 0.2% during May, versus expectations for an increase of 0.3%. The core reading, which removes food and energy, rose 0.2%, matching expectations. Initial jobless claims came in at 277,000 last week, versus the expected 270,000 first-time claims. The current account balance showed a deficit of $124.7B in Q1, versus expectations for a budget shortfall of $125B. The Philadelphia Fed business survey had a reading of +4.7, versus expectations of +1.0. The National Association of Home Builders' sentiment index rose 2 points to 60 in June, a point better than forecast. Housing starts were reported to have dipped 0.3% to 1.164M in May, which was a bit better than forecast. Building permits rose 0.7% to a 1.138M rate last month...
In Europe, German 10-year bund yields turned negative for the first time on record on Tuesday amid uncertainty about central bank policy and next week's U.K. vote on European Union membership. On Thursday, U.K. Labour Party member Jo Cox, who helped launch the campaign group "Britain In Europe," died after being shot and stabbed by an attacker. Campaigning ahead of next week's referendum on Britain's membership in the European Union was suspended for the day by both sides after the attack. Earlier in the week, the Sun, Britain's highest selling newspaper, backed a vote to leave the EU on its front page this morning...
In China, economic data reported Sunday night for May was mixed, as industrial production growth of 6% met the consensus expectation and retail sales growth of 10% was nearly in-line with the consensus forecast, but fixed investment came in weaker than expected. The National Bureau of Statistics reported that China's fixed asset investment, seen as a proxy for construction and infrastructure spending, grew at 9.6% in the first five months of the year, down from the 10.5% reported last month and the first reading below 10% in 16 years. Additionally, Chinese domestic shares were not included in MSCI Inc.'s benchmark indexes for a third time, with the company saying more needs to be done to improve accessibility to the A share market before those equities can be added to global indexes.
COMPANY NEWS: Microsoft (MSFT) grabbed headlines away from big tech peer Apple (AAPL) to start the week by announcing on Monday its deal to buy LinkedIn (LNKD) for $196 per share in an all-cash transaction valued at $26.2B, inclusive of LinkedIn's net cash. LinkedIn shares jumped following the announcement, while Microsoft dropped 2.6% on Monday in the wake of the deal. Meanwhile, fellow social network operator Twitter (TWTR) advanced this week as the deal rekindled speculation about whether it will also be an acquisition target. Meanwhile, WWDC 2016, Apple's annual developers conference, took place Monday as well. Some highlights from the event include Siri migrating to Mac and being opened to outside developers, iOS 10 and mac OS Sierra arriving this fall, and facial recognition coming to the iPhone. The tech giant also announced that Apple Pay will now work on websites. On Friday, Apple slipped after reports from Forbes and The Wall Street Journal that said China's Beijing Intellectual Property Office had ordered the company to halt sales of its iPhone 6 and iPhone 6 Plus. Apple confirmed a lower court ruling in the country related to its alleged patent infringement, but said it has appealed the decision and all products are still for sale in the country...
In other M&A news, Symantec (SYMC) gained about 5% on Monday after announcing that it will acquire privately-held Blue Coat for approximately $4.65B in cash and hand the reins of the company over to Greg Clark, CEO of Blue Coat, upon closing of the transaction. QLogic (QLGC) jumped after Cavium (CAVM) agreed to buy the company for approximately $15.50 per share in cash and stock. The transaction values QLogic at approximately $1.36B in equity value, the companies said when the deal was announced, but that value declined as investors, and analysts, reacted negatively to the deal from Cavium's end. Cavium shares dropped 17.5% in the wake of the deal announcement as a number of Wall Street analysts downgraded the stock following the news. Revlon (REV) announced an agreement to acquire Elizabeth Arden (RDEN) for $14 per share in cash, representing an enterprise value for the smaller beauty products maker of approximately $870M. Albemarle (ALB) shares advanced after the company agreed to sell a surface-treatment division to BASF (BASFY) for about $3.2B in cash. Siemens (SIEGY) agreed to merge its wind power business, including wind services, with Gamesa. 59% of the newly formed wind power company will be owned by Siemens, with Gamesa's existing shareholders holding the remaining 41%...
Sumner Redstone's National Amusements, which holds about 80% of the Class A voting common stock of Viacom (VIA) and a similar percentage of the Class A voting common stock of CBS (CBS), removed and replaced five of Viacom's directors, including CEO Philippe Dauman, from the media company's board. Afterward, Viacom's lead independent director of the board, Frederic Salerno, filed suit in Delaware's courts to stop the board changes. BTIG analyst Richard Greenfield, who upgraded Viacom to Buy the same day as the news, said he believes National Amusements "knows its best strategic move" is to recombine Viacom and CBS, "barring a great bid for the whole of Viacom." Then, on Friday, Viacom announced updated guidance for the quarter, saying that it now expects per-share earnings well below consensus expectations, due largely to underperformance of the "Teenage Mutant Ninja Turtles" sequel...
A U.S. court of appeals upheld the Federal Communications Commission's "net neutrality" rules, which prohibit broadband companies from blocking or slowing the delivery of internet content to consumers or allowing some companies to pay for access to internet "fast lanes." The ruling is viewed as a win for Google (GOOG) and Netflix (NFLX), which support net neutrality rules, and a setback for wireless carriers, including AT&T (T) and Verizon (VZ), who have protested against them. In response to the decision, AT&T stated that it "always expected this issue to be decided by the Supreme Court" and "look forward to participating in that appeal"...
Shares of Synchrony Financial (SYF) dropped after the company updated its guidance in light of "recent developments related to credit quality and reserves," warning that it is now expecting a 20-30 basis point increase in net charge-off rates over the next year. Research firm Evercore argued that Synchrony's warning should add to concerns about credit quality for subprime borrowers and credit cards, as 28% of the company's portfolio is subprime. Capital One (COF) and Discover (DFS) also dropped following the news...
Alibaba (BABA) gained 3% following the company's first investor day. During the event, Alibaba gave 2017 revenue growth guidance of 48%, which compares to the current consensus view of 39% growth... Shares of diagnostic test maker EXACT Sciences (EXAS) jumped nearly 60% this week after the U.S. Preventive Services Task Force, or USPSTF, issued its final 2016 colo-rectal cancer screening recommendations and clarified the inclusion of the company's Cologuard test on equal standing among the other included screening tests...
Lumber Liquidators (LL) shares surged on Friday after a U.S. government agency ended its investigation into the company without issuing a product recall and the company agreed to not sell laminate flooring made in China... In earnings news, Smith & Wesson (SWHC) gained after the company reported stronger than expected results. Research firms Cowen and Craig-Hallum upgraded the shares in the wake of the results. Oracle (ORCL) shares also rose after the company reported roughly in-line fourth quarter results. The tech company's results were well-received by analysts, with Jefferies and Deutsche Bank among the research firms saying that they were better than feared.
INDEXES: The Dow lost about 1.1% to close at 17,675.16; the S&P 500 fell about 1.2% to close at 2,071.22; the Nasdaq declined about 1.9% to close at 4,800.34.
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