Market view – 04/5/2011

Yesterday was a very slow day so I did not post anything.

Here is a summary of what I think was the most relevant market information over the last 24hrs.

  • China raised its interest rates by 0.25% last night to control inflation. The 1 year deposit rate went from 3% to 3.25% and lending rate from 6.06 to 6.31%. There are some early indications that it might be having some success in cooling inflation as prices paid indicator at the wholesale level dropped from last month.
  • Ben Bernanke spoke last night and suggested that he thinks the current jump in some inflation measures are being driven by commodities and are temporary. This is a good indication that QE2 will keep going till its completion. I think his viewpoint is reasonable. Other than oil  and commodities linked to oil like corn(due to ethanol), a lot of commodities have actually topped out  over the last few months. With Asian countries being aggressive in trying to fight inflation it is not unreasonable to think that commodity inflation might be peaking at least over the intermediate term.
  • The Non Manufacturing index for March was a disappointment  it came in at 57.3 compared to 59.7 for Feb.  The fact that it dropped from Feb is not necessarily a big thing. The ISM index measures changes from month to month. A reading above 50 means the industry is growing. So at 57.3 this is still healthy growth from Feb but the pace of increase has slowed. The most disappointing index within the number was the employment index which slipped from 55.6 to 53.7. So the rate of  hiring slowed. There were some positives,  new orders is still a very healthy 64 and exports showed a good jump from 56.5 to 59.  The ISM also reports quotes from managers about the state of their business and the main themes I gathered were – 1)Fuel costs are a big problem, 2) Japan is a concern and 3) business is slowly improving or stable. Overall this is a great report to get a feel of the economy. You can see the whole release here
  • Texas Instruments(TXN) paid a hefty premium of almost 80% to buyout National Semiconductor(NSM). Most people are scratching their heads why they had to pay so much. I guess the NSM management stuck to their guns and TXN still thought it was a deal worth making. TXN claims it can find $100 million in cost savings and its 10X larger sales force can do a better job of selling NSM products. Some contrarians might believe this kind of premium might be a sign of exuberance and sign of a top in the market. The flip side is that there maybe a lot of value in semi stocks if TXN paid such a hefty premium. Also it should make short sellers in semi stocks worried that there stock might be the next acquisition target.
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