MarketView for March 1

 

Summary 

 

The idea that oil prices could impede an already at nascent economic recovery prompted investors on Tuesday to sell stocks and hedge against further declines. The CBOE Volatility Index VIX .VIX, Wall Street's so-called fear gauge, was up 14.5 percent to 21.01 on growing uncertainty about oil. The index measures the cost of using options as insurance against a decline in the S&P 500 index.

 

Brent crude rose above $116 a barrel as supply disruptions persist and political violence spreads in the Middle East and North Africa. Higher oil translates into increased energy and gasoline costs for consumers.

 

Domestic sweet crude extended gains along with gasoline futures, in extended-hours trading after data showed domestic crude inventories fell unexpectedly. Nonetheless, Federal Reserve Chairman Ben Bernanke said the recent surge in oil was unlikely to derail the economy, but his comments did little to reassure Wall Street that turmoil in the Middle East would not hit Saudi Arabia, the world's largest oil exporter.

 

Stocks have taken their cue from oil since the start of turmoil in the Middle East and North Africa in January. The S&P had its weakest performance since November last week but still tallied three months of gains.

 

About 8.67 billion shares traded on the major exchanges, higher than last year's daily average of 8.47 billion. Volume has recently been solid on days when the market falls, but often comes under 7 billion on up days.

 

Cyclical sectors experienced the biggest losses, while defensive sectors, such as utilities, healthcare and consumer staples, limited losses. Wal-Mart and Coca-Cola helped the to limit he day’s losses. Wal-Mart rose 0.2 percent to close at $52.06, while Coca-Cola was up 1.5 percent at $64.91.

 

Gasoline and heating oil futures each gained about 3.5 percent to $3. According to AAA, the national average price of regular unleaded gasoline is currently at $3.35 per gallon.

 

Financial stocks came under pressure after JPMorgan Chase said it could face "material" fines and "significant" legal costs from a wide-ranging probe into the industry's foreclosure practices.

 

Interesting Day for Commodities

 

Brent crude oil futures finished Tuesday at their highest level in 2-1/2 years, while domestic crude rose over 2 percent, and gold hit an all-time high on fears that the political turmoil in Libya would spread to other oil producing countries. Copper gave up three days of gains to end lower on those same fears and as rising oil prices ignited inflation concerns.

 

The chaos in Libya and political turmoil in the Arab world prompted safe-haven buying that drove gold up over 1 percent to a record high of $1,432.10 an ounce. Soaring oil prices boosted bullion's inflation hedge appeal. Its previous record of $1,430.95 was set on December 7. However, prices of the economically-sensitive base metal moved back into positive territory after-hours, as investors keyed off of optimistic prospects for the U.S. economy in remarks from Federal Reserve chief Ben Bernanke.

 

Weat futures slipped after a two-day rise, as rain in China's wheat belt and forecasts for much-needed moisture in the U.S. Plains soothed fears over new winter crop's outlook. Corn and soybeans shook off early weakness and rallied into the close, with front-month corn setting a near-32-month high on a flurry of commodity fund buying.

 

In the cocoa market, swift and sharp price fluctuations were suspected to have come from computer-generated dealings. Complaints of market distortion by traditional players prompted the ICE exchange to cancel some trades. Benchmark May cocoa futures fell $450 in 60 seconds before rebounding a whopping $349 a minute later, its most volatile day on record, a striking move given cocoa hit a 32-year high on Tuesday, due to unrest in top producer Ivory Coast.

 

Yahoo Wants to Exit Japan

 

Yahoo is in advanced talks to leave its Japanese joint venture, seeking to resolve its dysfunctional Asian partnerships and free up as much as $8 billion to fund its battle against Google and Facebook. A deal to transfer Yahoo's 35 percent stake in Yahoo Japan to Softbank Corp, which already controls 42 percent of the unit,.

 

If a deal is reached, Yahoo is likely to turn its attention to China, where it owns about 40 percent of prominent Internet company, Alibaba Group, the parent company of Alibaba.com, these people said. It was not immediately clear what Yahoo wants to do with that stake.

 

Shares of Yahoo Japan rose 4.3 percent in Tokyo on expectations Softbank, Japan's No.3 mobile phone operator, would pay a premium for the stake. Softbank's stock slipped 2.4 percent on worries over how it would finance the deal after Reuters first reported the talks.

 

Relations between Yahoo, Softbank and Alibaba have soured in recent years with Alibaba founder Jack Ma agitating to buy back Yahoo's stake in his company and Softbank founder and major shareholder Masayoshi Son openly attacking Yahoo's track record as an innovator and its approach to international markets. Softbank in a statement released through the Tokyo Stock Exchange said it was not in talks with Yahoo and had no intention to buy its stake in the Japanese business.

 

A deal for Yahoo's stake in the mature Japanese market could bring a cash infusion that could be viewed favorably by investors. Leaving the fast-growing and massive China market, where western internet companies have largely failed to crack the tough regulatory regime and home-grown rivals such as Baidu.

The deal comes with Yahoo Chief Executive Carol Bartz under pressure to turn around the once mighty Internet Company, which has lost traffic to the likes of Google and Facebook. A much hoped-for turnaround in its Internet advertising following a splashy search tie-up with Microsoft has yet to materialize.

 

A straightforward sale of Yahoo's stake in Yahoo Japan, worth around $8 billion at market prices, is unlikely for tax reasons and the parties are exploring other structures, these people said. A deal has not yet been reached and could yet fall apart.

 

Son has achieved stronger growth than his two bigger mobile phone rivals in Japan through an exclusive network agreement for Apple Inc's iPhone. The outspoken technology entrepreneur fell out with the straight talking Bartz after Yahoo Japan replaced its search advertising partner with Google last year.

 

Tax-free options include an asset swap, where Softbank would acquire a stake in Yahoo in return for Yahoo's Yahoo Japan stake. Another option is for Yahoo to set up a tracking stock giving its shareholders the ability to sell off the stock.

 

Over the past few weeks Yahoo executives have publicly discussed the likelihood of an exit from Japan, a market it entered in 1996 with Softbank's help. The two sides are seeking "tax efficient options and working with our partners so it works out well," Yahoo Chief Financial Officer Tim Morse said at a recent investors conference.

 

iPad 2 is Coming

 

More than a year after igniting the tablet computing craze, Apple Inc prepares to unveil the second version of its blockbuster iPad -- possibly minus lead showman Steve Jobs. Plenty has changed over the course of the year. The iPad became a bona fide smash, essentially creating the tablet category and triggering a wave of me-too products that are just starting to hit the market.

 

Now, as rivals Motorola and Research in Motion race to catch up, Apple itself is going through a transformation. There is as much speculation about whether iconic Chief Executive Jobs will take the stage at Wednesday's event in San Francisco as there is about the new device.

 

Jobs traditionally launches major products with a pizzazz and style that reflect his eye for detail and design. But he took indefinite medical leave last month and Apple has not given details of the cancer survivor's medical condition.

 

His absence is bound to spark a fresh round of speculation on his condition. And his presence will be scrutinized equally closely for any signals on his health. Many in Silicon Valley and on Wall Street doubt he will return to the company he co-founded in 1976. In his absence, it is a good bet that Tim Cook, the company's operations chief and Jobs' heir apparent, or marketing head Phil Schiller, will lead Wednesday's show.

 

If Cook does appear, investors will scrutinize his performance. While Wall Street has grown comfortable with Cook's leadership, Wednesday would provide the first major test of his showmanship skills -- a key asset for marketing maestro Apple.

 

Regardless, the company is in little danger of losing its massive lead in the tablet market in the near term. With a big first-mover advantage, the company is rolling out the second-generation iPad just as most its rivals are bringing their first offerings to consumers.

 

The new model will sport the same 10-inch screen but should be lighter, thinner and faster, according to a plethora of analyst and blog reports. Apple is expected to add a camera to enable video chat using the FaceTime application.

 

Shares of some Taiwanese component makers rose in Asian trade on Wednesday ahead of the launch. Camera module maker Genius Electronic Optical Co Ltd and lens manufacturer Largan Precision Co Ltd were starting new supply deals with Apple, two sources said in December, but neither could confirm for which product the modules were intended.

 

Genius jumped as much as 5.1 percent, while lens manufacturer Largan edged up 0.2 percent in a broader market down 0.6 percent. Hon Hai Precision , whose parent Foxconn manufactures Apple products, eased 1.8 percent. Component makers generally do not know what the finished product will look like because they are only responsible for manufacturing one part before passing it on for assembly. Some industry watchers believe the new model may also sport a chip that enables it to run on networks that use both GSM and CDMA technologies.

 

Consumer appetite for tablets seems sizable, and businesses are also piloting the devices for a variety of uses, including retail and healthcare. But Apple no longer has the tablet market to itself. Motorola has just launched the well-reviewed Xoom. Research in Motion, which specializes in corporate customers with its BlackBerry, will begin selling the Play Book. And Hewlett-Packard Co will bring the Touch Pad this summer. Companies such as Samsung and Dell are already selling tablets, but neither seems to have slowed the iPad's momentum.

 

Apple set a high bar with the first iPad, so the company will have a harder time creating a "wow-factor" with the second iteration. It sold nearly 15 million iPads in 2010 after an April launch, three or even four times as many as some analysts had predicted. The tablet added more than $9 billion in revenue for the company last year. Nonetheless, Apple will likely sell more than 30 million iPads this year, as the overall tablet market explodes to more than 50 million units.

 

Jobs' absence comes at a crucial time. Apple is engaged in a battle in the smartphone market with Google whose Android operating system was installed on more devices than Apple's for the first time in 2010. Meanwhile, Apple’s shares are up roughly 8.5 percent this year, but slid nearly 7 percent over three trading days from Feb. 17 to 22.