May 16, 2016

Stocks surged at the open (Dow 118 pts; SPX .74%). Industrial and energy sectors are leading the way, up over 1%. Semiconductors and retailers are also up nicely. Only utilities are lower in early trading. WTI crude shot up over $47/barrel after a Goldman Sachs report asserted that global oil supply & demand have balanced. In addition, production cuts in Nigeria are pushing prices higher. Bond prices are lower as yields move lower. The 5- and 10-year Treasury yields are back up to 1.25% and 1.74%, respectively.

Other commodities like copper (+1%) and iron ore (+.7%) are up today after China’s central bank reaffirmed its commitment to loose monetary policy. Softer economic data has backed the Chinese government into a corner. Bloomberg says its China GDP tracker shows economic growth slowed in April to 6.9% from 7.1% in the prior month. Industrial production fell 6% y/y and retail sales came in below expectations. The main problem for China’s policy-makers is that they must find ways to spur growth without encouraging more credit growth (which is already clearly extended). Here’s Bloomberg’s take: “The fact that only policy-driven sectors (infrastructure and real estate) are doing well is a reminder that stimulus has yet to revive the animal spirits of China’s entrepreneurs.”  

Apple (AAPL) is up 3% after Warren Buffett’s Berkshire Hathaway revealed (through a government filing) an initial stake in the company. Back in the first quarter, Berkshire bought 9.8 million shares, worth about $1.07bil. This was the only new stock holding in Berkshire’s portfolio during the quarter.

Pfizer (PFE) announced a deal to acquire Anacor Pharmaceuticals for about $5.2bil. The acquisition price represents a 55% premium over Anacor’s closing price on Friday. Pfizer will get Anacor’s late-stage developmental treatment for eczema. This is Pfizer’s first deal since the failed $160bil acquisition of Allergan. 

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