The Wall Street Journal - 31.10.2019

THE WALL STREET JOURNAL. ***** Thursday, October 31, 2019 |B11

with Jefferies Financial Group

Inc., said this week that it is

unclear if there is enough

spare production capacity to

replace the estimated 20 mil-

lion metric tons of meat, equal

to about 6% of total annual

global supply, that has been

lost as a result.

“There is limited spare ca-

pacity to help fill the hole in

China,” Mr. Powell wrote in a

note to clients. “Asian con-

sumers want pork and, in its

absence, may simply pay the

higher price and consume less,

but at the same time there will

be some shift to other pro-

tein.”

China imported 342,000

metric tons of chicken in 2018,

and is expected to more than

double its annual intake to

750,000 tons in 2020, accord-

ingtotheUSDA.

The opportunity to fill

China’s pork gap with chicken

has U.S. poultry executives

salivating. “Whether the

United States is a direct sup-

plier to China or whether they

source from other countries to

the extent that they can...that

creates backfill opportunities

for us,” Tyson Chief Executive

Noel White told investors at

an industry conference last

month.

MARKETS

China is expected to more than double poultry imports in 2020.

TINGSHU WANG/REUTERS

Tyson Foods Inc. rose 4.6%

and 8.3%, respectively. Those

companies accounted for

nearly half of the ready-to-

cook chicken produced in the

U.S. last year, according to

Sanderson.

Prices for chicken in the

U.S. have yet to jump like the

shares of producers have, but

they are expected to rise with

shipments to China.

Domestic prices for whole

broilers—younger chickens

weighing 2.5 to 4.5 pounds—

fell last week to 78.31 cents a

pound, down 8.2% from a year

earlier, according to data from

the U.S. Agriculture Depart-

ment. Ample domestic sup-

plies have dragged down

prices, but demand for dark-

meat chicken on the export

market is expected to move

faster thanks to “increased ex-

port interest,” the USDA said

Tuesday.

The Chinese National Bu-

reau of Statistics said earlier

this month that prices for Chi-

nese pork had risen 69% from

a year earlier due to the Afri-

can swine fever epidemic. The

USDA projects that China’s

swine herd will fall to 275 mil-

lion pigs, from 428 million

pigs in 2018.

Simon Powell, an analyst

U.S. government bond
yields fell Wednesday after the
Federal Reserve cut interest
rates and hinted at a pause to
future cuts.
The yield on the benchmark
10-year Trea-
sury fell to
1.801% from
1.835% Tues-
day, its largest decline in al-
most four weeks.
The yield on the two-year
note, which is typically more
sensitive to expectations for
monetary policy, was un-
changed at 1.640%.
Yields, which fall as bond
prices rise, slid early in the
session after the Commerce
Department said growth
slowed in the third quarter to
1.9% from 2% in the period
from April through June. The
pace of expansion was faster
than economists in a Wall
Street Journal survey had
forecast.
Yields then spiked briefly
after the Fed signaled a pause
in future rate cuts but subse-
quently declined after Chair-
man Jerome Powell noted the
challenges posed by persis-
tently low inflation and said it
would take a lot to make the
central bank start raising rates
again.
The Fed’s move was antici-
pated by investors and ana-
lysts, who expect central-bank
officials to signal that they are
pausing to assess the need for
additional cuts, leaving the
door open to further moves if
economic data warrant them.
Fed officials have described
their rate cuts this year as an
insurance policy—in this case,
against the risk of a downturn
brought on by sagging busi-
ness investment, slowing
global growth and trade un-
certainty.
Federal-funds futures,
which investors use to bet on
the direction of central bank
policy, showed after the Fed’s
announcement that investors
saw a roughly 1 in 6 chance
that officials will cut interest
rates once more this year.
“The Fed and the markets
are on the same page,” said
Tom Garretson, a fixed-income
strategist at RBC Wealth Man-
agement.
Recent data have shown
that the economy is continu-
ing to expand, though the pace
has decelerated.
The nonfarm private sector
in the U.S. added 125,000 jobs
in October, according to the
ADP National Employment Re-
port.
While that pace is lower
than it had been earlier this
year, it remains above the
level of roughly 80,000 that
economists say the economy
needs to produce to hold down
the unemployment rate. Econ-
omists polled by The Wall
Street Journal were expecting
100,000 new jobs.

BYDANIELKRUGER

Treasury

Yield’s Fall

Is Steepest

In 4 Weeks

CREDIT
MARKETS

The recent lurch higher in

the stock market has pushed

volatility lower and spurred a

chase for bullish options bets

on the S&P 500.

Measures of volatility from

stocks to bonds have fallen

lately as the S&P 500 touched a

fresh high this week. The Cboe

Volatility Index, or VIX, re-

cently hit the lowest level since

July and has fallen about 24%

this month. The dwindling

market volatility and rising

share prices have stoked de-

mand for options that would

pay out if the S&P 500 contin-

ued to rise.

An options measure called

skew, which gauges how expen-

sive it is to protect against

stock declines, has fallen dra-

matically, according to Credit

Suisse Group AG. This has been

driven by an increase in de-

mand for bullish call options,

the firm said. “Investors have

been forced to chase the up-

side,” wrote Mandy Xu, equity

derivatives strategist at the

firm, in a note Monday.

BYGUNJANBANERJI

Volatility

Eases, Lifting

Bullish Bets

On Shares

Options traders are bracing

for a relatively calm earnings

season for online travel stocks,

despite big swings in shares of

individual companies this re-

porting season.

Projected swings for compa-

nies like Expedia Group Inc.,

TripAdvisor Inc. and Booking

Holdings Inc. are hovering be-

low the average moves re-

corded in the previous eight

earnings releases, Goldman

Sachs Group Inc. analysts wrote

in a Wednesday note.

For example, traders are

betting on a roughly 4.9%

swing up or down for Booking

stock, compared with the his-

torical 7.1% move in either di-

rection. All three companies

are due to report in early No-

vember.

“We believe options prices

on stocks in the online travel

sector are low ahead of earn-

ings,” the Goldman Sachs ana-

lysts wrote.

Options investors tend to

project bigger moves in single

stocks than they end up record-

ing, but the opposite is the case

with these online travel stocks.

The lower-than-normal projec-

tions are striking because this

earnings season has been

marked by some big swings.

The average S&P 500 stock

has moved up or down about

3.9% following its earnings re-

port this quarter, a bigger

move than in each of the past

two quarters, the Goldman ana-

lysts wrote.

Correlations among stocks

have also fallen lately as swings

in shares of individual compa-

nies have outpaced the broader

markets, according to Credit

Suisse Group AG. The firm’s an-

alysts said this week that they

expect correlations to continue

to drop.

“Relief rallies have domi-

nated earnings this quarter,”

wrote the Goldman analysts.

Though earnings are poised to

decline for this quarter, they

haven’t been as bad as many

thought they would be after

months of fears about a reces-

sion on the horizon.

That has made a strategy in

which investors buy bullish op-

tions that would pay out if

stocks continue to lurch higher

more profitable than it had

been in prior quarters, the ana-

lysts wrote.

The large stock swings come

as broader market volatility

has ebbed lower in recent days.

One measure of stock vola-

tility via the Cboe Volatility In-

dex, or VIX, has fallen about

24% in October. It dropped 6.6%

on Wednesday to the lowest

level since July.

BYGUNJANBANERJI

Options Project Calm for Online Travel Stocks

Share prices of chicken pro-
ducers have taken flight fol-
lowing China’s lifting of a
four-year-old ban on import-
ing poultry from the U.S.
The gains
came after
Chinese offi-
cials said over the weekend
that they and U.S. counter-
parts reached a deal in which
the U.S. would allow imports
of Chinese cooked chicken and
seafood products in exchange
for China scrapping the ban on
U.S. poultry shipments. The
pact, reached amid the
broader trade dispute between
the countries, caused poultry
stocks to pop.
The ban was instituted in
2015 in response to outbreaks
of avian influenza in the U.S.
Lately, however, China has
struggled with an outbreak of
African swine fever that has
cost the country roughly 40%
of its hog herd and initiated a
scramble for alternative pro-
teins.
Sanderson Farms Inc.
shares got the biggest boost,
jumping nearly 16%, the
stock’s biggest one-day move
in more than a decade. Shares
of Pilgrim’s Pride Corp. and

BYKIRKMALTAIS
ANDRYANDEZEMBER

Chicken Producers’ Shares Heat Up After China Pact

COMMODITIES

Thurs. Fri. Mon. Tues. Wed.

ChinaremovedabanonU.S.poultryimports

overtheweekend,boostingproducers'shares.

Share-priceperformance

Source: FactSet

15

–5

0

5

10

%

Sanderson

Farms

Pilgrim's

Pride

Tyson

Foods

The S&P 500 notched its

second record close of the

week after the Federal Reserve

cut interest rates again and

signaled its intention to keep

rates low.

The broad index got a boost

after Fed Chairman Jerome

Powell declared the central

bank’s current policy stance is

appropriate following its deci-

sion to cut rates a third time

this year.

The central

bank played

down expecta-

tions of more

rate cuts. Even though eco-

nomic conditions have bright-

ened somewhat, Mr. Powell

said the Fed isn’t considering

raising rates soon without in-

flation moving significantly

higher, assuring investors of a

continuation of the current ac-

commodative environment for

stocks and other risky assets.

Investors responded favor-

ably. Even ahead of the an-

nouncement, most investors

weren’t betting on another in-

terest-rate cut in December.

Those expectations stayed rel-

atively stable following the de-

cision, according to CME

Group’s Fed-fund futures data.

“The Federal Reserve just

put a big stake in the ground

on the future rate path,” said

Jamie Cox, managing partner

for Harris Financial Group, a

Richmond, Va., money man-

ager. “Markets believe that, ir-

respective of easing trade is-

sues, there is a gigantic pause

on future rate increases.”

The S&P 500 rose 0.3%, or

9.88 points, to 3046.77, top-

ping its previous record set on

Tuesday.

The Dow Jones Industrial

Average added 115.27 points,

or 0.4%, to 27186.69, while the

Nasdaq Composite gained

27.12 points, or 0.3%, to

8303.98. The Dow and Nasdaq

remain off 0.6% and 0.3%, re-

spectively, from their July re-

cords.

The Fed has been a major

contributor to the stock mar-

ket’s gains this year. The S&P

500 is up 22%, with much of

that support coming from the

Fed after it abandoned efforts

to tighten monetary policy and

kicked off a new phase of in-

terest-rate cuts.

A weakening global econ-

omy, faltering manufacturing

activity and signs growth in

the U.S. has been slowing—all

exacerbated by the trade war

between the U.S. and China—

factored into the Fed’s reason-

ing for a round of rate cuts.

Now, those pressures ap-

pear to be somewhat easing,

but not enough to justify

tightening fiscal policy just

yet.

Trade tensions have im-

proved between the U.S. and

China, the U.K. has inched

closer toward achieving a split

from the European Union and

the U.S. economy remains

solid despite some pockets of

weakness, said Mr. Powell.

“There’s plenty of risk left,

but I have to say the risks

seem to have subsided,” Mr.

Powell said.

Stocks remain susceptible

to further bouts of volatility,

analysts warned.

Economic data due this

week include the October jobs

report and a survey of manu-

facturing activity set to be re-

leased Friday.

There is also the possibility

that the U.S. and China fail to

solidify their trade truce,

while the U.K.’s divorce from

the EU remains far from cer-

tain.

“Trade policy will continue

to be the main factor for in-

vestor sentiment and earnings

will continue to move stocks,”

said Chris Zaccarelli, chief in-

vestment officer at Indepen-

dent Advisor Alliance. “But

Fed policy will now be moved

to the back burner.”

Beyond the stock market’s

broader move, corporate earn-

ings drove most of the bigger

swings in individual stocks.

Shares of General Electric

jumped $1.04, or 11%, to $10.11

after the company raised its

cash-flow outlook for the year.

Garmin ’s stock added

$8.44, or 9.6%, to $96.35 after

the maker of fitness watches

and navigation devices topped

Wall Street forecasts and pro-

vided upbeat guidance.

Shares of Yum Brands fell

$6.38, or 5.8%, to $103.34 after

the restaurant chain marked

down the value of its invest-

ment in online-food delivery

app Grubhub.

Shares of Molson Coors

Brewing also fell, shedding

$1.69, or 3.1%, to $53 after the

maker of Coors Light and

Miller Lite disclosed plans to

cut hundreds of jobs.

Some of the biggest pub-

licly traded companies re-

ported results after the closing

bell, including Facebook and

Apple.

Shares of Facebook jumped

5% in after-hours trading after

the social-networking com-

pany exceeded analysts’ expec-

tations.

Apple’s stock jumped 2.1%

after topping forecasts.

The pan-continental Stoxx

Europe 600 index closed up

less than 0.1%.

In Asia, the Shanghai Com-

posite Index declined 0.5%,

while Japan’s Nikkei Stock Av-

erage 225 dropped 0.6%. At

midday Thursday in Tokyo, the

Nikkei was up 0.2% and the

Shanghai benchmark was un-

changed.

—Will Horner

contributed to this article.

BYMICHAELWURSTHORN

S&P Sets Record After Fed Moves

Share-priceandindexperformanceWednesday

Source: FactSet

General

Electric

S&P500

Molson

Coors

Brewing

Yum

Brands

15

–10

–5

0

5

10

%

10 a.m. 11 noon 1 p.m. 234

WEDNESDAY'S

MARKETS

Garmin watches on display. The stock added 9.6% after the maker of fitness watches and navigation devices topped analysts’ forecasts.

LARRY W SMITH/EPA-EFE/SHUTTERSTOCK