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Merck’s (MRK) stellar earnings and a rally in health care stocks outweighed weak auto sales and more gloom from the tech sector. Politicians also, for once, gave the market a leg up with a positive reaction to a GOP counter proposal in the Senate. In a nutshell it’s a $445 billion package that would slash the current 35% corporate tax rate to 25% and offer home buyers a tax credit worth $15,000 or 10 percent of the purchase price, whichever is less. The Dow Jones ended up retaking the 8,000 level yesterday, gaining 142 points to 8078.

Note however, that media stocks Disney (DIS)and Electronics Arts (ERTS) reports disappointed after the bell. Also the old bugbear, financials, are still in a funk. Bears like me will tell you their common stock is worthless under TARP II which would be highly dilutive. Mind you, financials are now so small a part of the indices that a rally may be possible without their sponsorship!

Today’s Market Moving Stories

  • The US Federal Reserve announced yesterday it was to extend most of the emergency lending programs by 6 months to October 30, 2009, from April 30, 2009. Programs include CP funding facility, money market investor funding facility, ABS CP Loan facility, PDCF and TSLF. Swap lines with other Central Banks (mostly Asian) have also been extended. The Fed is citing continued pressure and strain on the financial markets and evidently shows dependence on government liquidity support still needed by financials. Nice counter piece from Naked Capitalism on why TARP II will fail.
  • China announced that it was to invest yuan 580bn in power equipment suppliers. There were tentative signs of manufacturing stabilisation in January with a small rise in the PMI (that’s if one could believe the numbers?)
  • UK nationwide consumer confidence slumped a further 7pts in January to set yet another all time low and the NIESR predicts that the embattled economy will shrink until Q4 this year with GDP down 2.7%.
  • So after lots of foreplay with the social partners and trade unions the Irish Government went solo with the announcement of a unilateral austerity package that actually cuts the take home pay of all public servants, who will now have to co-finance their own pensions. Here’s a full list of the measures while a lively debate on the merits of the long overdue measures can be joined.
  • Good to see the guys at Bank of America (BAC), ala AIG(reed) (AIG), haven’t forgotten how to enjoy themselves. These days of course it’s at Joe the Plumber’s expense.

Market Action In Asia Overnight
Asia caught a bout of Wall Street’s enthusiasm and pushed stocks higher on some buying of the dip with shares in TDK (TDK) (+6.5%) and Honda (HMC) (+4.6%) the standout performers. Investors remained cautious though ahead of Friday’s key US jobs numbers and more clarity on Q4 earnings reports.

There was some glum news from the auto sector with Mitsubishi (OTCPK:MMTOF) forecasting a full-year loss and Mazda (OTCPK:MZDAF) swinging into the red for Q4 2008. A similar tale of woe comes from Panasonic (PC) who announced that they will report a loss for the year ending March 2009 (they also cut their forecast) and chip maker Elipida is to apply for state aid. In essence I wouldn’t be chasing this rally too far!

Equities

  • The world’s largest miner BHP Billiton (BHP) reported overnight. Its net income was down 57% for H2 2008.
  • Swiss pharma giant Roche (OTCQX:RHHBY) reported disappointing results this morning due to the strength of the Swiss franc. Did they ever hear of hedging??
  • Troubled French telecoms equipment company Alcatel-Lucent (ALU) fell short of analysts expectations. Also re-insurer Munich Re and tool maker Sandvik AB both came in with big scary misses on profits.
  • Reed Elsevier (RUK) and Lonmin’s (OTCPK:LNMIY) are the two stocks in demand early doors today on analyst upgrades at Morgan Stanley and UBS respectively.
  • Local Dublin broker Bloxham’s have a note out touting the virtues of insurer FBD, saying it offers compelling value given the price war in the sector seems to have abated i.e. Quinn Direct and Aviva (OTC:AIVAF) seem set to hike prices, though Aviva have just reported that Irish sales are down 38%!
  • Davy’s estimate that the increased highway and bridge funding under the revised Obamalus recovery package could boost CRH’s (CRH) earnings by 10-15% per annum over the next three years.
  • Élan (ELN) will report its full-year results on February 10th. The key will be the cash on hand figure as there has been concern that they will not have sufficient funds for their pipeline drugs. Management's own projections are for $450m.

Data And Earnings Today
Ahead of the key Non Farm Payrolls this Friday the ADP number (-535k expected) is released today at 13.15 GMT. Later in the day ISM services index (39.0 expected) at 15.00 GMT and weekly crude inventories.

Earnings of note come from Time Warner (TWX) (expected EPS $0.32), Clorox (CLX) ($0.57), Kraft (KFT) ($0.44), Cisco (CSCO) ($0.30), Prudential (PUK) (-$1.19), Sunoco (SUN) ($2.15), Ralph Lauren (RL) ($0.86) and Visa (V) ($0.66).

And Finally… Nothing Like A Good Rant

Disclosures: None

Source: Preview from Europe: Indices Drag Themselves Higher