For Now Fed Punts, Investors Hope Uncertainty Ends Soon

Nichole Harper
17 Sep, 2015
New York City

U.S. market indexes shot up while after the Fed policy makers overwhelmingly voted to not hike rates. However, Fed held out for a rate hike before the year-end. Volatile crude oil traded near $47 a barrel in New York. European markets lacked conviction.

[R]3:15 PM New York City, New York – U.S. market indexes shot up while after the Fed policy makers overwhelmingly voted to not hike rates. However, Fed held out for a rate hike before the year-end. Volatile crude oil traded near $47 a barrel in New York. European markets lacked conviction.[/R]

U.S. stocks soared after Fed policymakers decided to leave rates unchanged but said a rate hike is possible before the year-end.

Fed in a 9-1 vote announced to hold rates and decided to keep rates steady largely on the global headwinds that could provide additional downward pressure to the economy and keep inflationary forces at bay.

U.S. indexes have been volatile for the last two months and intense debate has unfolded on Wall Street with passionate arguments favoring and against rate hike.

Fed is scheduled to meet two more times this year, October 27-28 and December 15-16. And analysts are expecting the rate is hike is not likely to happen at the next meeting because no press briefing is scheduled.

Near zero rates since the depth of the financial crisis in December 2008, has helped the economy to rebound and has provided a vital support for the stock prices to move higher.

However, if rates are kept too low for too long could lead to another bubble in asset prices especially in the housing market.

On the economic front, seasonally adjusted U.S. weekly jobless claims fell 11,000 to 264,000 from the revised claims of 275,000 in the previous week, Department of Labor said.

Housing starts in August fell 3% to 1,126,000 annual rate from the revised July estimate but surged 16.6% from a year ago month, the Department of Commerce said.

Housing permits in August jumped 3.5% from the revised July rate and soared 12.5% from a year ago month rate to 1,040,000.

Separately, the department reported preliminary current account deficit narrowed to $109.7 billion in the second-quarter from the revised $118.3 billion in the first-quarter.

Deficit on goods and services in the quarter fell to $130 billion and exports rose to $384.8 billion and export declined to $573.1 billion.

On Wall Street, Tollbooth Strategy Index rose 19.45 to 10,515.92.

S&P 500 index rose 3.13 or 0.2% to 1,998.36 and the Nasdaq Composite Index increased 16.51 or 0.3% to 4,905.81.

Crude oil in New York fell 56 cents to $46.57 a barrel and gold slid $1.70 to $1,117.30 an ounce.

U.S. Movers

Oracle Corporation ((ORCL)) dropped 3.1% or $1.19 to $37.03 after the enterprise software services provider reported net revenues in the first-quarter ending in August slipped 2% from a year ago to $8.45 billion.

Net income in the quarter declined 19.7% to $1.75 billion or 40 cents per diluted share compared to $2.18 million or 48 cents from the same quarter last year.

The company said total hardware revenues in the quarter fell 3% to $1.1 billion and software license updates and product support revenues slid 1% to $4.7 billion but services revenues rose 1% to $862 million from a year ago period.

Oracle said total on-premise software and cloud revenues in the quarter decreased 2% to $6.5 billion, new software licenses revenues tumbled 16% to $1.15 billion and cloud software-as-a-service and platform-as-a-service surged 34% to $451 million.

Perrigo Company Plc decreased 65 cents to $181.74 after the drug maker said its board of directors rejected the unsolicited tender offer of $27 billion from Mylan NV and said “the offer substantially undervalues the company.”

Chief executive officer Joseph Papa said the offer is “neither compelling, nor accretive” and “Perrigo has never refused to engage” with Mylan, but “offers have simply not been a basis for discussions.”

European Markets

U.K. retail sales in August increased 0.2% from July to £27.4 billion and online sales jumped 7.4% from a year ago month, the Office for National Statistics said.

Seasonally adjusted construction activities in July rose 1% from a year ago month in the euro area and 0.7% in the wider region of EU28.

In June, activities in EU area fell 1.2% and 0.5% in the EU28, the Statistical Office of the European Communities reported.

Compared to year ago month, activities in EU area grew 1.8% and 2.3% in the wider region of EU28.

In London trading, FTSE 100 index slipped 29.03 or 0.5% to 6,201.05 and in Frankfurt the DAX index gained 10.66 to 10,239.78.

In Paris, CAC 40 index rose 14.50 or 0.3% to 4,660.34.

Altice S.A., the France-based telecom group was halted at €118.05 after the company agreed to acquire the U.S.-based Cablevision Systems Corporation for about $17.7 billion.

Altice will pay $34.90 per share in an all-cash transaction, a 22% premium to yesterday’s closing price of $28.54.

In May, Altice acquired 70% of the share capital in U.S.-based cable operator Suddenlink for $9.1 billion.

With the purchase of Cablevision, Altice’s U.S. customer base is expected to jump to 3.1 million, fifth largest following Comcast, AT&T Cable, Charter Communications and Cox Communications.

The transaction is expected to close in the first half of 2016 and is expected to face an intense scrutiny from the U.S. cable regulatory agency.

Cablevision stock surged 15.5% to $32.97.

Altice in France has poor reputation in customer service and is known to aggressively cut operating costs many a times at the expense of service quality.

However, the company is also know to invest heavily in advanced technology that at times falls short of its promise.

Rotork Plc declined 10.5% to 193.40 pence after the U.K.-based flow control equipment maker forecasted revenue for the year in the range of £530 million to £555 million and operating profit between £120 million and £130 million.

Asian Markets

Nikkei average extended gains for the third day in a row and foreign investors remained net seller last week. Trade deficit narrowed in August from a year ago month on the plunging oil price and steady growth in exports to the U.S.

Nikkei average increased for the third day in a row and closed at a one-week high ahead of the U.S. rate decision later today.

However, foreign investors took the opportunity to lower exposure to Japanese stocks.

Foreign investors sold net 1.4 trillion yen worth of stocks last week, according to the data available from the ministry of finance.

The merchandise trade deficit in August widened to 569.66 billion yen or $4.7 billion compared to 268.4 billion yen deficit in July, the Ministry of Finance said.

Trade deficit narrowed in the month from a year ago by 4.2%.

For the year, exports dropped 3.1% to 5.9 trillion yen or $48.7 billion from the 7.6% increase in July and import slumped 3.1% to 6.5 trillion yen or $53.4 billion compared to 3.2% jump in the previous month.

The Nikkei 225 Stock Average jumped 260.67 or 1.4% to 18,432.27 and the broader Topix index increased 19.31 to 1,491.91.

The yen strengthened to 120.85 against a dollar.

Asics Corporation gained 1.4% to 3,240 yen after the sports products maker lifted net sales forecast for the year ending in December to 1.4% increase to 429 billion yen from the earlier estimate of 423 billion yen.

The company estimated net income for the year to decline to 13 billion yen compared to previous forecast of 21 billion yen.