There were no real reasons for the US coming off its early highs Thursday (and taking Europe with it) other than technical ones. The 200-day MAV was reached and then the market collapsed. Maybe a little profit taking ahead of Month end today, with S&P +7% on the month? Late headlines about the Attorney General probing the Life Insurance Industry for fraud wasn’t terribly helpful but appears to be confined to military related issues rather than a broad based probe. Tech stocks were weak. Symantec Corp. (SYMC) and Nvidia Corp. (NVDA) lost at least 9.9% after reporting forecasts, while Akamai Technologies (AKAM) slid 13%t after saying its profit margin shrank. But Goldman Sachs Group Inc. (GS) rose 3.7% after saying the industry’s regulatory overhaul won’t cause “significant” reduction in revenue, according to Bank of America Corp. It was noticeable that for the first time in this reporting season US earnings were a bit of a mixed bag. Staples (SPLS) was particularly disappointing, with Colgate (CL) disappointing due to Venezuelan FX devaluation while Mead Johnson (MJN) missed. Kelloggs also disappointed, citing weakness in Cereals – yes it’s a “cereal” underperformer! Exxon (XOM) beat on better Chemicals and again, better refining. On economic data, US Initial Jobless data pretty much inline (457k vs 460 expected).
By the way, for the next few weeks I’ll be doing the Market Watch at this earlier slot.
Today’s Market Moving Stories
Overnight Japan’s June industrial production (IP) was shockingly weak at -1.5% m/m vs consensus at +0.2%, which also accompanied by the downward revision in July production forecast to -0.2% m/m from the previous +1.0%. Given this, Japan economists will no doubt be revising down GDP and IP forecasts for H2 of this year. Besides the IP, Japanese figures were mixed; June household spending was stronger than consensus at +0.5% vs cons of -0.9% while unemployment rate unexpectedly rose to 6.3% in June from 6.2% in the previous month. June nation-wide core CPI was broadly in line with consensus. The Nikkei index declined by 1.5%, partly due to a weak IP, and the Shanghai index also dipped over 1% while other Asian equities also traded modestly lower.
Bloomberg reports that New York Attorney General Andrew Cuomo subpoenaed Genworth Financial Inc. (GNW), Unum Group (UNM) and an insurer acquired by France’s Axa SA as the state widens a life-insurance fraud probe. New York Life Insurance Co., Northwestern Mutual Life Insurance Co. and Guardian Life Insurance Co. of America also were ordered to turn over information, said a person, who declined to be identified yesterday. Cuomo is probing profits insurers earn on death benefits that the carriers retain on behalf of the families of deceased policyholders, including military personnel.
Spain will probably lose its Aaa credit rating after the country was put under review for a possible downgrade in June, and the U.S. needs a “clear plan” to tackle its deficit, Moody’s Investors Service said. “Spain is very highly rated and I can’t say where that rating will end up, but it’s likely to go down a bit,” Steven A. Hess, senior credit officer at Moody’s, said in an interview in Sydney yesterday. In the U.S., slower growth may hinder government efforts to address the budget shortfall, he said. The Spanish government is trying to cut the third-largest budget deficit in the euro region while returning to growth after an almost two-year recession. “We’re watching the government’s measures that they are implementing and we’ll probably try to put that rating at the level we think it should belong for some time to come,” Hess said. “We don’t see it moving down as many notches as Greece did.” Moody’s last month downgraded Greece four steps to non-investment grade. Standard & Poor’s cut Spain’s rating in April and Fitch followed with a downgrade in May. This story merely demonstrates how far removed from reality rating agencies are: Spain has traded like a tripe A credit in terms of spread for over 2 years now.
U.K. consumer confidence fell more than economists forecast this month as the prospect of government spending cuts undermined Britons’ optimism on the economic recovery, GfK NOP said. An index of sentiment declined to minus 22 from minus 19 in June, the lowest in 11 months. London. Economists had forecast a decline to minus 20, based on the median of 18 estimates in a Bloomberg News survey. Chancellor of the Exchequer George Osborne is cutting welfare spending and increasing sales tax to reduce the record budget deficit, threatening growth. Bank of England Governor Mervyn King said July 28 there may be a “considerable” way to go before economic conditions stabilize enough to allow interest rates to rise to a “normal” level. “The continuing slide in the index makes a double-dip recession look more of a possibility,” Nick Moon, managing director at GfK, said in the statement. “It’s possible that respondents are already factoring in” the “likely recessionary impact of the government’s announcement about spending cuts.”
Foreclosure filings climbed in three-quarters of U.S. metropolitan areas in the first half as high unemployment left many homeowners unable to pay their mortgages, according to RealtyTrac Inc. The number of properties receiving a filing more than doubled from a year earlier in Baltimore, Oklahoma City and Albuquerque, New Mexico, the mortgage-data company said today in a report. Notices of default, auction or bank seizure rose more than 50% in areas including Salt Lake City; Savannah, Georgia; and Atlantic City, New Jersey. “Foreclosures are spreading out from areas that had been hardest hit,” Rick Sharga, senior vice president for marketing at Irvine, California-based RealtyTrac, said in a telephone interview. “We’re dealing with underlying economic weakness as opposed to unsustainable home prices and bad loans.”
Company / Equity News
- BSkyB (BSY) announced on Friday the acquisition of Virgin Media’s TV channels for GBP 160M as well as securing a more substantial presence on the cable operators’ TV platform including HD channels and on demand content. This, together with the imminent sale of Five, is one of the two remaining significant stages in the consolidation of the UK broadcast sector.
- MetLife (MET) climbed 3.2 % in after hours trading Thursday as the biggest U.S. life insurer swung to a second-quarter profit. Revenue improved and the company booked an investment gain on derivatives.
- Macquarie Group (OTCPK:MQBKY), Australia’s biggest investment bank, said its three largest units are set to report lower earnings as markets falter and deals dwindle. The outlook reverses Macquarie’s April forecast that all its businesses were likely to perform better in the year to March 31, 2011. Unless conditions improve, the advisory, securities, fixed income and commodities divisions, accounting for more than two-thirds of group income, won’t match last year’s results, Chief Executive Nicholas Moore said today.
- Samsung Electronics (OTC:SSNLF), Asia’s biggest maker of semiconductors, flat screens and mobile phones, said second-quarter profit jumped 83 percent to a record, fueled by a recovery in demand for computer-memory chips. Net income climbed to 4.28 trillion won ($3.6 billion) from 2.33 trillion won a year earlier, the Suwon, South Korea-based company said today. Profit exceeded the 4.15 trillion won average of 11 analyst estimates compiled by Bloomberg. Sales rose 17 percent. Samsung joined Intel Corp. (INTC), Apple Inc. (AAPL) and Hynix Semiconductor Inc. in posting higher earnings for the latest quarter after prices increased.
- Microsoft (MSFT) CEO Steve Ballmer said tablet computers are high on his priority list as Apple takes the lead in a market his company has tried to foster for more than a decade. “Today, one of the top issues on my mind is 'hey, there’s a category we have had Windows on for a long time and Apple’s done an interesting job of putting together a synthesis and putting a product out,’” Ballmer said at Microsoft’s annual analyst meeting.
- Electricite de France SA, Europe’s biggest power generator, reported a 47% drop in first-half profit after making a provision on nuclear development in the U.S. because of financing delays. Net income was 1.7 billion euros in the first half compared with 3.1 billion euros the previous year, EDF said in a statement today. That missed the 2.52 billion euro median estimate of nine analysts surveyed by Bloomberg. Earnings before interest, tax, depreciation and amortization rose 4% to 10.4 billion euros, EDF said. The estimate was for 10 billion euros. The company reiterated a forecast for growth in EBITDA of 3% to 5%.
- Korea National Oil Corp. has almost secured the loans needed to make a formal 1.7 billion-pound offer for Dana Petroleum Plc (OTC:DNPXF), the Financial Times said, citing people familiar with the situation.
- Anglo American Plc (OTCPK:AAUKY), the owner of stakes in the world’s biggest platinum and diamond producers, said it’s resuming dividend payments after first-half earnings more than doubled on higher metals prices. Underlying earnings climbed to $1.84 a share from $0.91 a year earlier, the London-based company said in a statement today. The result compares with the $1.79 median of seven analyst forecasts compiled by Bloomberg. Chief Executive Officer Cynthia Carroll last year suspended dividends for the first time in more than 60 years and cut more than 23,000 jobs after metal prices plunged in 2008.
- Vale SA (VALE), the world’s largest iron-ore producer, said second-quarter profit rose more than fourfold because of surging prices for the steelmaking raw material. Net income gained to $3.71 billion, or 70 cents a share, from $790 million, or 15 cents, in the year-earlier period, Rio de Janeiro-based Vale said today in a regulatory filing.
- Lafarge (OTCPK:LFRGY), the world’s biggest cement maker, said second-quarter profit fell 15 percent and pledged to extend costs cuts and asset sales to reduce its debt as it trimmed its forecast for demand in 2010. Net income fell to 329 million euros from 387 million euros a year earlier, the Paris-based company said in a statement today. That compares with an average estimate of a 324 million-euro profit in a Bloomberg survey of six analysts. “Based on second quarter activity, we have lowered our full-year volume estimates for western and eastern Europe and increased our volume estimates for North America,” Lafarge said in the statement.
- Construction company Heidelberg Cement Friday reported a 64% drop in second-quarter net profit, falling short of expectations, but posted higher sales and operating income for the first time in six quarters on strong demand in Asia-Pacific, Africa and North America, where it expects growth to continue.
- French outdoor advertising group JC Decaux (OTC:JCDXF) Friday reported a surge in net profit in the first half, reflecting higher revenue and operating profit. In the first half, JC Decaux’s net profit was EUR65 million compared with EUR4.4 million a year earlier while revenue over the period increased 20% to EUR1.11 billion from EUR925.4 million a year earlier. Revenue grew mainly in JC Decaux’s key markets: France, U.K., China and the U.S., it said.
- Car maker Renault (OTC:RNSDF) said Friday it swung to a bigger-than-expected net profit in the first half, as sales surged amid a global automotive market that continued unexpectedly vibrant through the end of June and despite the phasing out of government incentives to spur demand. It posted net profit of EUR780 million after a net loss of EUR2.73 billion in the same period a year ago. Renault said its first-half performance and results were “ahead of plan”. The company also reiterated its guidance for 2010. “In an uncertain environment in the second half of 2010, the Group will continue to focus on its key target of generating positive free cash flow for the full year,” said Chief Executive Carlos Ghosn in a statement.