Thursday, February 5, 2015

Markets rise on higher oil prices and Pfizer acquisition

Dow shot up 154, advancers over decliners 5-2 & NAZ added 30.  The MLP index went up 1+ to the 451s & the REIT index rose 1+ to the 349s (near its record highs in the mid 350s).  Junk bond funds gained & Treasuries lost ground, taking the yield on the 10 year Treasury over 1.8%.  Oil surged to 51 & gold slid back.

AMJ (Alerian MLP Index tracking fund)

CLH15.NYM...Crude Oil Mar 15...49.70 Up ...1.25 (2.6%)

GCG15.CMX...Gold Feb 15.....1,259.50 Down ...4.30  (0.3%)

3 Stocks You Should Own Right Now - Click Here!

The European Commission raised its euro-area growth forecasts & cut its inflation outlook as cheaper energy proves both a blessing & a curse for the bloc’s economy.  GDP in the area will rise 1.3% in 2015 & 1.9% next year, up from Nov projections of 1.1% & 1.7%, the EU executive arm said.  It predicts consumer prices will drop 0.1% this year, marking the first annual decline since the introduction of the € in 1999, before increasing 1.3% in 2016.  The ECB aims to keep inflation just below 2%.  ECB pres Mario Draghi has warned that the slump in the cost of oil could lead to a deflationary spiral of falling prices & households postponing spending, a risk that prompted the central bank to commit to asset purchases of at least €1.1T ($1.3T).  At the same time, cheaper energy bolsters economic activity as it leaves consumers & companies with more money to spend.  “Europe’s economic outlook is a little brighter today,” and “the fall in oil prices and the cheaper euro are providing a welcome shot in the arm for the EU economy,” said Pierre Moscovici, EU commissioner for economic & financial affairs.  “In Greece, uncertainty about the direction of policies is affecting confidence and may dent the speed of the recovery,” the commission said.  It cut the country’s growth forecasts to 2.5% this year & 3.6% next, from 2.9% & 3.7%, respectively.  The ECB heaped pressure on Greece by restricting access to its direct liquidity lines, citing concerns about the country’s commitment to existing reform pledges.

EU Raises Growth Forecasts, Cuts Inflation Outlook

The ECB made it clear yesterday that the suspension of Greek sovereign debt as eligible collateral was due to it having become impossible to assume a successful conclusion of the current Greek troika program review.  In order to get that certainty back, & allow Greek debt back on to the ECB collateral list, there either has to be a successful conclusion of the current review, the chances of which are approximately zero, or an agreement on a new program for Greece.  A program is essentially a set of rules attached to a bailout.
After meeting with German finance minister Wolfgang Schaeuble thoday, Greek finance minister Yanis Varoufakis suggested that Greece should receive a bridging program until the end of May to allow the new Greek gov time to finalize details of their program proposals.  A short term bridging program would not be enough to make the ECB change its mind on collateral eligibility, but it would give time for politicians to come to an agreement on a longer term solution for Greece.  That bridging program would have to be agreed by all members of the euro area at the next Eurogroup meeting on Feb 16.  Ahead of that Eurogroup meeting Varoufakis has very few allies he can rely on.  Absent that agreement, Greek banks can continue to rely on ELA funding for the moment.  However, if there is a complete breakdown in negotiations, it is likely that the ECB will then take the view that the Greek banks will have become insolvent at that point, due to their holdings of Greek debt.

Greece: Here's What Happens Next

Pfizer, a Dow stock, is proving that when it sees something it wants, it’s willing to pay up.  The company is buying injectable-medicine maker Hospira (HSP) for $17B ($90 a share) a price that the stock has never come close to on its own.  In turn, PFE gains a steadily growing business to tack onto its established drugs unit that it has discussed spinning off.  It’s Pfizer’s most expensive purchase of size this decade with a multiple of 23X HSP earnings before interest, taxes, depreciation & amortization.  By comparison, PFE is only 11X Ebitda.  HSP is the biggest provider of injectable drugs & buying the company will add to PFE’s offerings of biosimilars, which are imitations of biologic drugs.  They’re akin to generic treatments but have a different name because living organisms can’t be precisely copied.  PFE says the global market for biosimilars may reach $20B by 2020, while generic sterile injectables may reach $70B.  HSP jumped 22.70 to 87.50 & PFE rose 1.02.  If you would like to learn more about PFE, click on this lnk:

Pfizer Flexes Muscle With Priciest Purchase of Decade

Pfizer (PFE)

This is another good day for stocks.  Dow is up more  than 600 this week & back to break even YTD.  Major acquisitions are generally a positive sign for the stock market.  However, there are no shortage of problems out there.  Earnings are mixed.  Greece with a new gov is shaping up as another financial mess.  Fighting in Ukraine continues & the MidEast goes from bad to worse.  For the time being, risk averse is out of fashion as Treasuries were sold this week.

Dow Jones Industrials

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