January was a challenging month for the stock market, but a few days into February the picture is looking markedly different.
By Peter Martin
Friday, February 6, 2015
Crude oil has managed a rebound, advancing 4.75% today to keep its head above the $50 mark, concerns over the eurozone have ebbed for the time being, and earnings have been looking a little cheerier. This promising backdrop has helped the US stock market make substantial progress in today’s session and by early afternoon on Wall Street, the Dow Jones was up 167 points or 0.95% at 17,840 and the S&P 500 Index’s gain on the day was not too far behind at 0.79%.
The biotechnology sector was the source of much M&A activity in 2014, and there was another big story in this area today, with news that Dow Jones component Pfizer ($PFE) is making its largest acquisition of the decade by purchasing Hospira Inc, a provider of injectable drugs, for $90 a share in a transaction valued at around $17 billion. Hospira closed at $64.80 yesterday. Shares in Pfizer rose 2.6% following the news.
Macroeconomic news today showed that the US trade gap widened unexpectedly to its highest level in more than two years in December, as the strength of the US dollar weighed on exports. The Commerce Department said that the gap between imports and exports was $46.6 billion in December, compared to $39.8 billion in November. Expectations had been for the trade gap to narrow to $37.9 billion.
While the US economy has been on a solid upward curve, the economies of its trading partners have not fared quite so well, meaning weaker foreign demand at a time when US demand for imports has grown — and the strength of the dollar has served to amplify this dynamic. The magnitude of the trade shortfall revealed in today’s report is likely to adversely affect GDP in the next revision for the fourth quarter. The first estimate of fourth-quarter GDP was annualized growth of 2.6%.
The news has contributed to the dollar weakening considerably today: EUR/USD rose 1.17% to 1.1477, GBP/USD gained 1.00% to 1.5334, while USD/CAD dropped 1.08%. The slide in the dollar today has been one of the factors contributing to the gains in crude oil: with the commodity priced in US dollars, it becomes relatively cheaper for overseas investors as the dollar drops.
Ahead of tomorrow’s closely-followed monthly employment figures, there was some favorable labor market news released this morning. Though initial jobless claims rose 11,000 last week to 278,000 the increase was below the consensus estimate of 290,000. The prior week was revised up to 267,000 from 265,000, meaning that most of that big drop seen last week remains intact and the four-week moving average has moved lower to 292,750 from 299,250. Non-farm payrolls are expected to have increased by 230,000 last month and the unemployment rate is expected to remain steady at 5.6%. The Employment Situation report for January is released at 08.30 ET tomorrow.
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