The Zacks Analyst Blog Highlights: PowerShares DB US Dollar Bullish Fund, WisdomTree Bloomberg U.S. Dollar Bullish Fund, Halliburton, Transocean and BP
CHICAGO, Sept. 4, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the PowerShares DB US Dollar Bullish Fund (AMEX:UUP-Free Report), WisdomTree Bloomberg U.S. Dollar Bullish Fund (AMEX:USDU-Free Report), Halliburton Company (NYSE:HAL-Free Report), Transocean Ltd. (NYSE:RIG-Free Report) and BP plc (NYSE:BP-Free Report).
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Here are highlights from Wednesday's Analyst Blog:
Inside U.S. Dollar ETFs: Will the Run Continue?
The U.S. stock market is currently hovering near all-time highs and continues to climb on the back of improving domestic fundamentals. Generally, when the stock market surges, the U.S. dollar struggle but the trend has apparently reversed again like last year. Both the U.S. market and the dollar have moved in the same direction in recent weeks.
The dollar has been surging against the basket of major currencies on a flurry of upbeat U.S. economic data, escalating tensions in Ukraine, diverging central bank policies around the world and the possibility of a U.S. interest rate hike sooner than expected. In particular, a rise in interest rates will pull in more capital flows into the U.S. and lead to further appreciation of the dollar, though the Fed maintained its dovish tone in its latest meeting minutes (read: 3 ETFs in Focus on Escalating Russia/Ukraine Tensions).
The activity is picking up faster in the U.S. economy, building up momentum for the rest of the year. The economy expanded at a solid pace of 4.2% in the second quarter, suggesting a strong rebound from the steep contraction recorded in the first quarter. The job market is showing clear signs of strengthening with jobless claims near the lowest levels since 2007.
After being stalled in the first quarter, the housing market is also back on the recovery path driven by firming home prices, rising demand, lower mortgage rates and increase in housing inventory. Oil prices appear to have stabilized (read: Ride Out the Construction Boom with Housing ETFs).
The manufacturing activity expanded to highest level since April 2010 last month, as depicted by Markit's US Manufacturing Purchasing Managers' Index (PMI), which rose to 57.9 in August from 55.8 in July on higher production, new orders and rising payroll numbers. Further, the recent consumer sentiment survey has been extremely positive with the monthly Consumer Confidence Index, measured by the Conference Board, climbing to the highest level in seven years to 92.4 in August from the revised 90.3 in July.
Beyond the domestic front, the sliding euro and yen are propelling the dollar higher. Euro has suffered from heavy sell-off in recent sessions amid growing hopes for fresh stimulus by the European Central Bank to shore up growth and inflation. Further, sluggish data from China and Japan are diverting investors' attention to the U.S., injecting optimism into the U.S. currency (read: Euro Zone Gets QE Hints, 3 ETFs to Buy on Stimulus Hopes).
How to Play?
The strengthening economic fundamentals confirm the bullish trend in the greenback at least for the short term. Investors seeking to make a play on the U.S. dollar could consider any of the following ETFs:
PowerShares DB US Dollar Bullish Fund (AMEX:UUP-Free Report)
This fund could be the prime beneficiary of the rising dollar as it offers exposure against a basket of world currencies. These include the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. This is done by tracking the Deutsche Bank Long US Dollar Index Futures Index Excess Return plus the interest income from the fund's holdings of U.S. Treasury securities.
In terms of holdings, UUP allocates nearly 58% in euro while 25% collectively in Japanese yen and British pound. The fund has so far managed an asset base of $843.6 million while sees an average daily volume of 670,000 shares. It charges 80 bps in total fees and expenses. This dollar ETF added 2.3% in the year-to-date time frame and has a Zacks ETF Rank of 2 or 'Buy' rating with medium risk outlook.
WisdomTree Bloomberg U.S. Dollar Bullish Fund (AMEX:USDU-Free Report)
This ETF is the newest play in the dollar space and has amassed $55.1 million since its debut eight and half months ago. Volume is light as it exchanges nearly 10,000 shares a day on average. The fund charges 50% in expense ratio. The product offers exposure to the U.S. dollar against a basket of 10 developed and emerging market currencies by tracking the Bloomberg Dollar Total Return Index (see: all the Currency ETFs here).
The fund allocates higher to the Euro zone currency at 31.3%, closely followed by Japanese Yen (18.9%) and Canadian dollars (11.6%). Other currencies like Mexican Peso, British Pound, Australian dollar, Swiss franc, South Korean Won, Chinese Yuan and Brazilian Real receive single-digit allocation in the fund's basket. USDU is down 0.08% so far this year.
Bottom Line
These U.S. dollar ETFs could be worthwhile and continue their rally given stronger domestic economy, uncertainty in other developed and emerging markets, and increasing consumer confidence.
Halliburton Agrees on $1.1B Macondo Settlement
Halliburton Company (NYSE:HAL-Free Report) declared that it has agreed to pay approximately $1.1 billion as settlement fees for its involvement in the 2010 Macondo oil spill incident.
The Macondo Incident
On Apr 20, 2010, offshore driller Transocean Ltd.'s (NYSE:RIG-Free Report) ultra-deepwater Horizon drilling platform, contracted to BP plc (NYSE:BP-Free Report), sank following an explosion while operating in the Gulf of Mexico (GoM) off the coast of Louisiana. BP was the owner of the Macondo well while Halliburton had provided cementing services for the same.
The incident killed 11 workers and spewed millions of gallons of crude in what is touted as the country's worst oil spill ever. All the three parties have continued the blame game since then. While BP accused Halliburton of using unstable cement slurry, the employer had been criticized of poor well design and overlooking risks related to the well.
The Settlement Agreement
Halliburton stated that the $1.1 billion settlement amount will be paid to a trust in three installments over the next two-year period. The company also mentioned that the settlement amount includes the legal fees and is subject to approval by the United States District Court for the Eastern District of Louisiana.
The agreement clears Halliburton from any claim made against it by BP's 2012 settlement, including compensatory damages. The agreement also involves settlement of property and commercial fishing industry-related damage claims by certain plaintiffs.
However, final settlement is yet to be reached, which depends upon the court's approval on BP's 2012 settlement and assessment of the impact of Halliburton's negligence. Furthermore, a trial for the penalty payment to the U.S. government is expected to take place next year in January.
Will the Agreement Benefit Halliburton?
The settlement fee represents only a small part of the total payment by the parties involved. Halliburton mentioned that it had kept $1.3 billion in provision for costs associated with the incident. Since the settlement fee is within that limit, it should not have any significant impact on the company's financials. The fee will also expectedly clear most of Halliburton's liability in the incident.
The agreement also removes the legal overhang and financial uncertainties that had grappled Halliburton since the incident. Additionally, acceptance of this settlement agreement will protect the company from any negligence damage that the court may charge it with at a later date.
BP and Other Parties Involved
While Halliburton appears to have made a smart move in agreeing for a settlement before being dragged deeper into payments, it remains to be seen how BP, the majority stakeholder of Macondo well tackles the issue. Notably, BP has paid over $28 billion in claims but is still not clear of its liability. The company is said to have kept in provision $3.5 billion for penalties under the Clean Water Act. However, it the court finds gross negligence on BP's part, fines could even reach $18 billion.
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