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Tickers in this Article: MSFT, NOK, VZ
Tuesday, September 3, 2013

Major corporate deals provide the backdrop for today’s trading action, with a host of top-tier economic data on deck for release this week, particularly the government jobs report on Friday. The market will be looking at the economic reports from the Fed perspective, trying to decipher the odds of Taper announcement later this month in light of this week’s data.

None of the two major deals came as complete surprises; the Verizon (
VZ) deal had been in the works for some time and Microsoft (MSFT) had been groping for a mobile devices role for a while. It is reasonable to be skeptical of Microsoft’s latest effort, as the Nokia (NOK) purchase may simply be not enough to take it to the promised land. After all Nokia has been the company’s exclusive partner on Windows devices for more than two years and it hasn’t exactly been a great success. But while one can doubt the deal’s value to Microsoft shareholders, it’s a wonderful gift to Nokia shareholders as it relieves the from the tough job of repositioning itself in the hyper competitive smart-phone marketplace.

On the data front, the August manufacturing ISM reading coming out a little later is expected to show a modest pullback from the prior month’s level. The partial reversal of the prior month’s strong gains notwithstanding, the ISM reading will be consistent with a moderately expanding factory sector. We will get the service-sector ISM reading later this week, but the key economic report is the August non-farm payroll report coming out on Friday. This will be the last major economic reading prior to the next FOMC meeting, when they are expected to announce changes to the current QE program.

Added uncertainties stemming from the coming debt-ceiling debate and the prospect of another war in the Middle East have prompted some in the market to hope that the Fed will delay its Taper announcement. But my sense is that Bernanke doesn’t want to saddle his successor with making this decision and would prefer to announce the change on his watch. The economy is doing good enough as last week’s Q2 GDP revision showed and this week’s jobs report will likely reconfirm. The bond market is correctly seeing the Taper as the start of the monetary policy normalization process, though the stock market appears to have yet to make its peace with the change.

Sheraz Mian
Director of Research


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