Business Blog Posts

Technical indicators are pointing to a strained market, though recently stocks have been maintaining the momentum of late 2011.

The potential is certainly there for shares to derail next week with some important economic reports due. A repeat of last month's disappointing U.S. jobs number could spark a sell-off.

"We think in the near term markets are getting ahead of themselves," said Zahid Siddique, portfolio manager for Gabelli Equity Trust in Rye, New York. "The data has to be good for the markets to continue to go up, and if there is any weakness in the data, we think we could have a sell-off."

Analysts in a Reuters poll expect the economy added 126,00 jobs in December, up from 39,000 the prior month, but still not enough to significantly dent unemployment.

A series of global purchasing managers indexes are also due next week, including the Institute for Supply Management's two monthly surveys. They are expected to show growth quickened in December in the U.S. services and manufacturing sectors .

An array of technical factors show the market may be at the top end of its recent trading range, but strongly trending markets often produce false signals.

"There is no denying the fact that the market is overbought," said Paul Hickey, an analyst at Bespoke Investment Group in Harrison, New York. "The entire month of December the S&P 500 has closed in overbought levels everyday."

Hickey considers the S&P 500 overbought when it moves one standard deviation above its 50-day moving average. But looking at prior months where that has occurred he found performance the next month was above average instead of reverting to the mean.

"Momentum tends to carry the market further," he said.

BEST S&P DECEMBER SINCE 1991

Signs of an improving economy, tax breaks and loose monetary policy helped spur a near 20-percent rally in the S&P 500 since the end of August. The index rose 6.5 percent in the last month of the year, its best December since 1991.

The gains stalled in the last week of the year with indexes finishing essentially flat.

Siddique, who helps manage a $1.3 billion equity fund, says his firm raised cash as equities rose by paring positions in strong performing consumer discretionary and industrial sectors.

He says that worries over Europe's sovereign debt crisis, global growth and political tensions may resurface. He is looking at defensive sectors such as utilities, consumer staples and healthcare, which have lagged.

Funds focused on the United States, Japan and other developed market stocks collected $28.44 billion from investors for the fourth quarter, marking a significant shift from full-year data that showed outflows of $62.36 billion, the report said.

Overall, EPFR Global-tracked equity funds took in $30 billion in 2010 for their best year since 2006, led by a record $92 billion earmarked for emerging market stock portfolios, it said.

"Emerging markets will stay strong but you will see a lot more interest in domestic stocks" in 2011, said Keith Springer, president of Springer Financial Advisors in Sacramento, California. The United States will likely lead developed nations in terms of return, he predicted.

"Individual investors are starting to be a little nervous about missing the upside in stocks" after dedicating much of their portfolios to bonds over the past few years, he said.

The year is also ending with record flows into global and emerging market bond funds as well as commodity and real estate funds, the report said.

Global bonds saw inflows of $372.46 billion this year -- including $29.81 billion in the fourth quarter -- compared with $302.65 billion in 2009, EPFR said. But they posted outflows in the past six of seven weeks for their poorest showing since the financial crisis deepened in late 2008, it said.

"The fund groups that set records were, however, not necessarily the ones that will carry momentum into the new year," EPFR Global said in a statement.

U.S. bond funds saw $7.3 billion fall away in the last quarter amid concerns over the fiscal health of towns, cities and public works, EPFR said. U.S. bond funds drew $178.40 billion this year, down from $214.09 billion the year before.

Specific sectors showing greater investor interest include equity funds focused on Japan and Europe the Middle East and Africa, EPFR said. Financial, technology and balanced funds also saw flows accelerate in the fourth quarter, it added.

For the second straight year, commodities funds led inflows among sectors, with $29.33 billion, EPFR said. In 2009, the sector took in $19.95 billion.

Commodities ended the year with another week of inflows as copper prices climbed to new highs, EPFR said.

(Editing by Gary Crosse and Leslie Adler)

Crude was also on track to average $79.60 a barrel for the year, second only to 2008's record average of $99.75.

Strong demand for raw materials, especially in China, is expected to push oil even higher next year, analysts said, although cautioning the global recovery was still fragile.

After rallying to a 26-month high of $91.88 on Monday, U.S. crude edged lower on the day, with the February contract down 30 cents at $89.54 a barrel by 1158 GMT. ICE Brent crude fell 40 cents to $92.69.

U.S. crude stocks fell for the fourth straight week last week, but the drawdown was less than expected and put downward pressure on prices. <EIA/S>

But the fall in gasoline stocks was much bigger than expected on year-end holiday travel demand, possibly signaling rising consumption as the world's largest economy recovers from recession.

"The latest U.S. weekly data release show a continuation of the recent strength in oil demand," said analysts at Barclays Capital in a research note.

"December is set to be the strongest month of the year in demand terms, with particularly strong indications of gasoline demand," they added.

Including all products, the total US implied demand has risen to the highest level of the year and above the levels of 2008, said Olivier Jakob from Petromatrix.

It was, however, soaring demand in Asia that analysts said contributed most to healthy gains in oil and commodities in 2010. Prices in metals and soft commodities also beat records or climbed near multi-year highs.

Chinese President Hu Jintao said on Friday the global recovery would remain difficult but China would work to ensure that its economic growth is stable and fast next year.

The Reuters-Jefferies CRB index .CRB of 19 commodities is up 16 percent on the year, a more attractive return than on stocks. .SPX

However, some analysts have cautioned against excess optimism about a continuation of the rally in 2011.

"Some positive economic news from the U.S. (such as the recent decline in initial jobless claims) at year ending should not outshine how fragile the global economic recovery is," said analysts at JBC Energy.

OPEC SUPPLIES

The statement, from the powerful Ministry of Information and Industry Technology, did not mention any carriers by name.

It called for a crackdown "on illegal VoIP (voice over Internet protocol) telephone services" and said it was collecting evidence for legal cases against them.

Skype, partly owned by web retailer eBay Inc, has been growing in popularity among Chinese individuals and businesses to make cheap or free international phone calls.

The circular, dated December 10, did not say what amounted to illegal services and did not name any VoIP providers it considered to be breaking the law.

Spokespeople for the ministry and the ministry's office gathering information for the campaign did not answer telephone calls on Friday. Skype could not immediately be reached for comment.

The move appeared to be aimed at protecting three government-controlled Chinese phone carriers -- China Telecom, China Unicom and China Mobile -- which provide the bulk of China's telephone services.

The Hong Kong-based South China Morning Post on Thursday quoted an unidentified ministry official as saying VoIP services could only be provided by the big three Chinese operators.

Spokespeople for China Telecom and China Unicom did not answer phone calls on Friday. A spokeswoman for China Mobile, reached in Beijing, referred calls to the firm's Hong Kong office. Attempts to reach the Hong Kong office were not successful.

VoIP calls allow users to make international calls for much less than commercial providers, or even for free if both parties are using VoIP. Many businesses that use VoIP services to cut down on their international telephone costs could lose access to the cheaper alternative.

Skype, which has about 124 million users worldwide, hopes to raise about $1 billion in an initial public offering expected next year.

(Reporting by Terril Yue Jones and Sui-lee Wee; Editing by Benjamin Kang Lim and Alex Richardson)

BHP, under pressure to land a big deal after scrapping a $39 billion bid for Canada's Potash Corp in November, declined to comment on the rumors which drove Anadarko's shares as much as 8 percent higher in U.S. trade.

Fund managers and analysts said Anadarko was a good strategic fit for BHP which is sitting on a pile of cash and needs to expand. Speculation that BHP Chief Executive Marius Kloppers was eyeing Anadarko first surfaced in September when the U.S. firm's shares were hit by its exposure to BP's Gulf of Mexico oil spill.

An unsourced report in Britain's Daily Mail newspaper said BHP may offer $90 per share, propelling the miner's growth strategy back in the headlines during holiday trade.

"The portfolio of exploration and assets in Anadarko would be appealing to BHP and the stock has probably suffered in terms of fallout from the BP situation in the Gulf of Mexico so it might be an opportune time for BHP to make a step change in terms of that portfolio," said Tim Schroeders, portfolio manager at Pengana Capital.

One source familiar with BHP's thinking but not directly working with the company downplayed the Daily Mail report as unreliable. A spokesman for Anadarko said it was company policy not to comment on speculation.

Some analysts said the $90 per share figure would not be enough to land a deal.

"While we believe speculation of a bid at this level is supportive it is not likely credible in our view: the price is simply too low," Bank of America Merrill Lynch analysts said, pointing to Anadarko's base case value of $110 per share which did not factor in recent oil price rises and exploration successes.

On Thursday, Anadarko's shares surged to $76.5, their strongest level since mid-2008, exceeding highs reached before the oil spill. Anadarko owns 25 percent of the ruptured Macondo well that BP operated.

On Friday, BHP shares ended down 1.3 percent in a weak broader market.

Anadarko, which has a huge portfolio of deepwater oil and gas discoveries and Australia's Woodside Petroleum have been touted as potential targets for BHP since its Potash bid was killed in November.

Investors said BHP has grown so big in mining, takeover attempts would run into regulatory opposition, and the oil and gas sector, where it is relatively small, was the easiest path for the company to go.

Woodside has also been cited as a potential target after Royal Dutch Shell sold its stake in November.

"It is far from a done deal obviously but there is probably a higher probability of BHP buying Anadarko than Woodside," said Schroeders of Pengana Capital.

An investment banker who has previously worked with BHP said the miner traditionally surprised the market by bidding for a target which had not been the subject of long-running speculation.