Benchmarks ended almost unchanged as tensions between Russia and Ukraine tension escalated and two high-profile merger deals failed. These concerns offset positive performance of the consumer staples sector which was banking on Molson Coors Brewing’s robust results. Disappointing news from Italy and Germany also weighed on investor sentiment.
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The Dow Jones Industrial Average (DJI) rose around 0.1% to close at 16,443.34. The Standard & Poor 500 (S&P 500) ended almost flat to close at 1,920.24. The tech-laden Nasdaq Composite Index closed at 4,355.05; declining 0.05%. The fear-gauge CBOE Volatility Index (VIX) declined 3% to settle at 16.37. A total of 6.4 billion shares were traded yesterday, lower than last five day’s average of 6.8 billion. Advancers outpaced declining stocks on the NYSE. For 58% stocks that advanced, 39% declined.
Escalating tension between Russia and Ukraine dented sentiment. On Wednesday, NATO reported that around 20,000 Russian armed troops have gathered along the eastern border of Ukraine. Russia has been accused by Western powers for increasing its troops along the eastern region of Ukraine and arming separatist forces. These developments triggered the possibility of a Russian invasion of Ukraine.
Russian President Vladimir Putin also responded aggressively to U.S. and European sanctions. According to a state news agency, Russia will restrict all food imports from the U.S. and ban the import of all fruit and vegetables from Europe. This ban will hurt European fruit and vegetables markets heavily as Russia is the biggest importer of European fruits and vegetables. U.S. poultry market will suffer due to these restrictions as Russia is the second largest importer of U.S. poultry products.
Concerns from Europe also restricted benchmarks from moving higher. Italy posted second quarter GDP data which indicated the country had once again receded into a recession. Huge debt and deficit were the primarily reasons for the reverses suffered during the quarter. Germany’s economy also witnessed some loss of momentum in the second quarter as the country’s manufacturing numbers declined. Industrial production output in the United Kingdom increased by a paltry 0.3% (month on month), lagging the consensus estimate of 0.6% growth. These negative numbers indicate that growth in the major Euro zone economies are slowing down.
Separately, Sprint Corporation (S – Analyst Report) has abandoned its long-pending quest to take over rival T-Mobile U.S. Inc. (TMUS – Snapshot Report) following regulatory resistance. This will affect Sprint owner SoftBank Corp.’s attempt to create a dominant player within the U.S. telecom domain. Reportedly, Japanese telecom giant SoftBank was planning to buy stake in excess of 50% in T-Mobile from Deutsche Telekom for around $16 billion (1.7 trillion yen), thus valuing T-Mobile at around $32 billion. However, the Federal Communication Commission (FCC) and the U.S. Department of Justice (DOJ) was scrutinizing the deal over anti-competitive issues and played the main role to terminate the deal. Sprint’s shares dropped 19% yesterday.
Shares of Time Warner Inc. (TWX – Analyst Report) declined almost 13% after Twenty-First Century Fox, Inc. (FOXA – Analyst Report) abandoned an $80 billion offer to acquire the company. Rupert Murdoch, Fox CEO, said Time Warner refused to merge with Fox and thus they dropped the offer. Reportedly, Time Warner was looking for at least $105 a share to merge with Fox, which is much higher than Fox’s offer. However, Time Warner reported better-than-expected second quarter earnings per share of 98 cents. Shares of Twenty-First Century Fox rose 3.3%.
Meanwhile, Walgreen Co. (WAG – Analyst Report) reported that it will acquire the remaining 55% stake of Swiss company Alliance Boots GmbH. Walgreen’s headquarters will remain within the U.S. and not shift to Switzerland. Incidentally, this would prevent them from getting the ‘tax inversion’ advantage. Shares of Walgreen slid 14.3% following this announcement.
Molson Coors Brewing Company’s (TAP – Analyst Report) shares climbed 5.8% after announcing second quarter adjusted earnings per share of $1.57, beating the Zacks Consensus Estimate of $1.44. The results surged 6.8% year on year driven by growth in underlying pre-tax income and expanded margins owing to lower interest expense. The company was the biggest gainer among the S&P 500 components.
Molson Coors’ better-than-expected earnings results helped the Consumer Staples Select Sector SPDR (XLP) gain almost 1% on Wednesday. It was the biggest gainer among the S&P 500 sectors. Key consumer staples stocks from the sector such as The Coca-Cola Company (KO – Analyst Report), Dr Pepper Snapple Group, Inc. (DPS – Analyst Report), The J. M. Smucker Company (SJM – Analyst Report) and Pepsico, Inc. (PEP – Analyst Report) increased 1.9%, 2%, 1.9% and 1.5%, respectively.
The Utilities Select Sector SPDR (XLU) was the biggest loser among the S&P 500 sectors, declining 1.3%. Key utilities stocks from the sector such as Ameren Corporation (AEE – Analyst Report), The AES Corporation (AES – Analyst Report), Southern Company (SO) and Entergy Corporation (ETR) decreased 1.2%, 1%, 1% and 1.8%, respectively.
Economic data was limited to the trade deficit report. According to the U.S. Census Bureau, trade deficit declined in June to $41.5 billion from $44.7 billion in May. The decline was due to petroleum import dropping to the lowest level since Nov 2010. In June, the import of petroleum declined to $27.4 billion from $28.3 billion in May.