BLBG: U.S. Stock Futures Fall on ECB Amid Budget Negotiations
U.S. stock futures fell, after yesterday’s gain in equities, as European Central Bank President Mario Draghi said weak activity is expected to continue and investors watched for developments on budget talks.
Freeport-McMoRan Copper & Gold Inc. (FCX) dropped 2.5 percent after being cut at BMO Capital Markets. Apple Inc. (AAPL) slid 1.3 percent after falling the most in almost four years yesterday. Garmin Ltd. (GRMN), a maker of mobile navigation systems, rallied 4.1 percent as the company will replace R.R. Donnelley & Sons Co. in the S&P 500. Sirius XM Radio Inc. (SIRI), the largest U.S. satellite- radio company, climbed 2.2 percent after announcing a $2 billion share buyback and a 5-cent a share special dividend.
Standard & Poor’s 500 Index futures expiring in December retreated 0.2 percent to 1,406 at 9:05 a.m. New York time. Dow Jones Industrial Average futures declined 8 points, or 0.1 percent, to 13,016. The number of shares changing hands in Stoxx Europe 600 Index’s companies was 78 percent above the 30-day average at this time of day.
“Draghi’s comments reconfirm a limp economic activity in 2013,” said Chad Morganlander, a Florham Park, New Jersey-based fund manager at Stifel Nicolaus & Co., which oversees about $136 billion of assets. “In addition, there’s great uncertainty about the budget negotiations. Unless you get a grand bargain, investors will continue to ebb and flow with news out of Washington.”
A few dozen Republicans joined a bipartisan push to break an impasse between President Barack Obama and House Speaker John Boehner over taxes for the highest-earning Americans, signing a letter calling for openness to “all options.” Fewer Americans than projected filed applications for unemployment benefits last week as disruptions caused by superstorm Sandy waned.
ECB’s Decision
U.S. equity futures fell as the ECB cut its growth forecasts, citing “downside risks.” Draghi said “weak economic activity is expected to continue into next year,” while a gradual recovery should start later in 2013. The ECB kept interest rates on hold after its pledge to buy government bonds lowered borrowing costs and boosted confidence that the euro area can emerge from recession next year.
Freeport-McMoRan dropped 2.5 percent to $31.37 after being downgraded to market perform from outperform at BMO Capital Markets by equity analyst Tony Robson. The 12-month target price is $30 per share. Freeport yesterday agreed to buy Plains Exploration & Production Co. (PXP) and McMoRan Exploration Co. (MMR) for about $9 billion.
Apple slid 1.3 percent to $531.75. It plans to spend more than $100 million next year on building Mac computers in the U.S., shifting a small portion of manufacturing away from China, the country that has handled assembly of its products for years.
Market Share
The shares slumped 6.4 percent yesterday on concern that Apple will lose ground in smartphones to Nokia Oyj in China while giving up market share to Google Inc. in tablets. China Mobile Ltd. agreed to carry the Lumia 920T, a device based on Microsoft Corp.’s Windows Phone 8 software. In another announcement that may have fueled the stock’s slide, research firm IDC said yesterday that Apple’s share of the tablet market will slip to 53.8 percent this year from 56.3 percent in 2011, while Google’s will increase.
Garmin rallied 4.1 percent to $41.35.
Sirius XM Radio climbed 2.2 percent to $2.83. It joins a growing number of companies paying special dividends or accelerating payments ahead of a potential U.S. tax increase next year. The total amount of the Sirius cash dividend is expected to be about $325 million, according to the company’s statement.
Fastenal, Starbucks
Fastenal Co., a retailer of nuts, bolts and other fasteners added 1.9 percent to $42.30 after being raised to outperform from market perform at William Blair & Co. by equity analyst Ryan Merkel.
Starbucks Corp. gained 1.4 percent to 51.48 after being raised to outperform from neutral at Robert W. Baird & Co. by equity analyst David Tarantino. The 12-month share-price estimate is $62.
Traders are pushing the cost of protecting against J.C. Penney Co. swings to an all-time high relative to its competitors amid investor pessimism about Chief Executive Officer Ron Johnson’s turnaround plan.
Implied volatility, the key gauge of options prices, for three-month contracts closest to J.C. Penney shares has risen to 65.8, according to data compiled by Bloomberg. That is 3.3 times the level for the SPDR S&P Retail ETF, near the record reached last month. J.C. Penney, the fourth-largest U.S. department- store company, has lost 50 percent this year.
Losing Customers
Johnson, who joined as chief executive officer about a year ago from Apple Inc., is losing customers in a bid to implement an everyday low-pricing plan and turn the chain into a collection of branded shops. Revenue at J.C. Penney has declined by more than 20 percent for three straight quarters, sending the shares to their lowest price in almost four years. The company said earlier this week that its operating efficiency may be hurt after it fired employees while others left voluntarily.
“People are very focused on when the company will see some sort of bottom on the sales decline,” Jessica Bemer, a Sewickley, Pennsylvania-based senior analyst at Snow Capital Management LP, which oversees about $2.5 billion, said in a telephone interview yesterday. “The concern is that in order to be successful in that venture, the company will need to stabilize cash flow. It’s going to take some time to get there. How long are people going to wait?”
To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Corinne Gretler in Zurich at cgretler1@bloomberg.net
To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net; Andrew Rummer at arummer@bloomberg.net
