Monday, May 14, 2007

Morning Market Comment

The U.S. economic calendar is clear of any major economic releases today, but tomorrow's schedule which includes CPI and Empire Manufacturing, may make some gun shy about taking positions today. The Consumer Price Index is forecast by the fun bunch known as economists to run up by an overall .5 in April, while core CPI (exluding food and energy) is expected to rise by .2%. Unchanged core-wholesale inflation on Friday, in part, helped Wall Street to rebound from Thursday's selling spree.

Stock futures have been drifting on either side of unchanged this morning. They continued to party hard in the Chinese stock market where official warnings about risk were brushed off by the end of the trading day: China B-shares close sharply higher on follow-through interest ...

There are some big Merger-Monday names. Daimler Hands Chrysler to Cerberus, Ends Nine-Year Investment and as noted yesterday the Mylan (MYL) deal for Merck KGaA generics where MYL is in for a 10% haircut; Teva (TEVA) nudging only modestly higher to just under $40.

TEVA May40 calls were loaded up on Friday - we know why now. We'll just have to see if the stock can climb enough. Those calls are also a reminder that time is tight with expiration coming up on Friday.

One late breaker deal: Cardinal Health (CAH) to Acquire Viasys (VAS). VAS is up about $11 this morning.

Larry McMillan's Optionstrategist is a site that I've linked to for quite a while. Larry was a risk arb back in the 80's and a heck of a nice guy and always a good interview when we had him on Bloomberg. His comments are featured in the Striking Price column of Barrons. Larry takes the position that the options market has lost its ability to predict mergers, noting that just seven of 41 recent mergers may have been noticeable in the options market before official announcements. Larry quoted as saying, "one major difference between the current takeover market and that of the 1980s is the honesty -- or at least the discretion -- of the major players."
McMillan also says focusing on known events, like companies announcing their exploration of "strategic alternatives" works out better than chasing takeover rumors. The Barrons column concludes: "Focusing on known events and not speculation lacks the élan of aggressive takeover trading, but the strategic-alternatives trade is rooted in one axiom that will never lose its meaning: Good traders think of ways not to lose money, while bad traders think of ways to make money."

The dollar and yen moving lower once again: Euro Gains Versus Dollar, Yen on Outlook for Interest-Rate Rise. I think the correlation between the yen and the U.S. stock market remains an important one - meaning look out below for U.S. stocks on a 'strong' Japanese currency, though a strong yen is not something we've been seeing often lately.

No comments: