US stocks rose today, with the Dow recovering from an early 102-point slide (due to yet more appalling economic data) and the S&P 500 holding above the key Fib support at the 1039 level , as investors speculated that recent declines in equities overshot the potential damage from a slowdown in the economy. Home Depot (HD), Pfizer (PFE), and Kraft (KFT) all climbed at least 1% for the top advances in the Dow. Homebuilder Toll Brothers (TOL) rose 5.8% after unexpectedly reporting its first quarterly profit since 2007 and D.R. Horton Inc. (DHI) jumped 4.6% after Ticonderoga Securities advised buying the shares. Medtronic (MDT) gained 2.1% after an analyst upgrade.
Today in Europe stocks have rebounded from seven week lows led by mining and basic resources stocks as commodity prices recovered and Glencore, the world’s biggest commodity trader (and the major stakeholder in Xstrata (OTC:XSRAF)), reported H1 profits that were up 42%.
Amec Plc (GM:AMCBF), a UK-based energy engineering company is up 2.1% today after the company reported its net income had risen to £88.5 mn from £65.3 mn a year earlier as sales climbed. The order book grew to £3.5 bn at the end of June from £3.2 bn at the end of 2009.
BP (BP) which is down 36% this year gained 2% Thursday after Credit Suisse reiterated an “outperform” recommendation on the shares and advised investors to “take another look” at the stock because of its low valuation.
InterContinental Hotels (IHG) has advanced 2.2% and France’s Accor, Europe’s largest hotelier, posted a narrower first-half loss and forecast full-year operating profit growth of as much as 65% as sales rose at its higher-priced lodgings. Staying Gallic, Credit Agricole & L’oreal are both up strongly by 4% and 8%, respectively, on better than expected results (see below).
But Segro, the Slough, England-based developer, declined 3% after reporting an increase in vacancies in its industrial properties.
Datawise, stateside we finally got a number that was BETTER than expected as the number of people filing first-time claims for unemployment benefits fell 31,000 to 473,000 in the latest week, the first decline in a month, according to data from the Labour Department today. Economists surveyed by Bloomberg had expected initial claims to drop to 490,000 in the week ended Aug 21.
Dell (DELL) has said data storage technology firm 3PAR Inc (PAR) has accepted an increased takeover bid of $24.30 a share, or around $1.6 bn in total, net of 3PAR’s cash. Dell increased its previous offer of $18 a share after Hewlett-Packard (HPQ) made a counter-bid valued at $24 a share.
Today’s Market Moving Stories
- Perhaps less focus on the quotron machine and more time spent in the supermarket aisles and timber yards would give us more accurate and consistent economic forecasting. Both GS and JPM economists have drastically lowered their US GDP forecast. We now predict GDP growth this quarter of 1.5% q/q (previously 2.5%) and 2% next quarter (previously 3%). Wednesday seemed a double whammy from both sides of the pond as home sales data suffered from the end of the tax credit and on this side, Ireland was downgraded again and left on watch negative. The fact that Ireland was seen as the “Austerity” poster child and yet we are revisiting the horror means the read through for Greece, Portugal and Spain could be the contents of a Stephen King novel.
- And Dr. Doom, aka Prof. Nouriel Roubini, the New York University economist who predicted the global financial crisis, said US growth will be “well below” 1% in the third quarter and put the odds of a renewed recession at 40%. Roubini, chairman of Roubini Global Economics LLC, said his forecast assumes the government will lower its estimate for growth in the second quarter to an annual rate of 1.2% “at best.” “All the growth tailwinds of the first half of the year become headwinds in the second half,” he said in an e-mail message, including the government’s $814bn stimulus plan, hiring for the census, and incentives such the cash-for-clunkers program and tax credits for first-time home buyers. In the best scenario, he said he expects an “anemic, sub- par, below-trend U for many years given the need and process of deleveraging” by households, governments and the financial system.
- The Federal Reserve Board sought to delay the court-ordered release of documents identifying banks that might have failed without the US government bailout while it considers an appeal to the US Supreme Court. The Fed asked the US Court of Appeals in New York yesterday to delay implementation of a ruling that compels the central bank to release the documents. “The stay is necessary to permit the board to consult with the Department of Justice regarding an appeal to the Supreme Court,” Fed spokesman David Skidmore said. The appeals court on Aug. 20 denied the Fed’s request to reconsider its decision requiring it to release records of the $2 trillion US loan program. If the stay is granted, the central bank and the Clearing House Association LLC, an organization of 20 commercial banks that joined the Fed in defence of the lawsuit, will have 90 days to petition the Supreme Court to consider an appeal. The Clearing House has said already it will ask the high court to rule on the case.
- In Japan the Asahi newspaper claims that the government will urge the BoJ to ease monetary policy further as part of a package of steps to stem the JPY’s rise, with pressure likely to be ratcheted up before its policy meeting next month. Sources suggest that the BOJ is considering easing monetary policy further at its next rate review on Sept. 6-7th or earlier, with the most likely option an expansion of its cheap fixed-rate loan programme for banks put in place in December.
Worth a read
Is the US Economy in a hole?
Fed Chairman Bernanke kicks off to the Jackson Hole conference at 10 am EST on Friday. Historically, Fed chairmen have taken a low profile at Jackson Hole. The symposium is, after all, designed as a chance for academics and policy makers to network, look at big mountains and think big thoughts. However, given the increasingly fractured debate around monetary policy, we believe the Chairman will use his speech to bring some common sense to the policy discussion. We do not expect him to present a specific road map, but rather to explain the logic behind policy, countering the idea that the Fed is either paralyzed by indecision or out of ammunition. We think the bond market could be disappointed by his failure to signal a near-term restart to QE2, but the stock market should be encouraged by a sense that the Fed has a plan.
There is some risk that Bernanke reverts to the usual, but more likely he will address at least some of the following five themes:
1. The economy is weakening but a recession is unlikely.
2. However, even weak growth is not acceptable: the Fed will act if the economy continues to falter.
3. The Fed has a number of tools at its disposal and will not hesitate to use them.
4. The economy would benefit from effective fiscal policy: policy should remain simulative in the near-term, but there should be a clear long-run plan for fiscal consolidation.
5. A further expansion of the Fed’s balance sheet is not inflationary because the Fed has plenty of tools to sop up the excess liquidity once the economy and bank lending pick up.
- Diageo’s (DEO) full year results were slightly ahead of consensus with organic growth of 2% in both revenue and operating profit before exceptional items. The Group’s outlook for FY11 was to improve on FY10’s organic operating profit growth. Regional performance was varied with North America slightly down, Europe flat and International markets (everywhere else except Asia Pacific) generating high single digit growth. Debt reduced £465mn to £7.0bn absorbing negative exchange rate movements of £0.4bn.
- Credit Agricole (OTCPK:CRARY), France’s third-largest bank by market capitalization, Thursday reported a better-than-expected hike in second-quarter net profit, bolstered by retail banking in France and a more limited hit from weaker markets on its investment banking unit. Net profit in the three months to June 30 increased 88% to €379 mn from €201mn a year earlier, beating an average €264mn forecast from eight analysts polled by Dow Jones Newswires. The Tier 1 ratio—a key measure of a lender’s capital strength–rose to 9.7% at end-June from 9.5% at the end of December 2009. The results include an expected a €418mn charge related to loss-making unit Emporiki Bank of Greece SA, which has been harshly hit by the country’s economic crisis. Credit Agricole bought Emporiki in 2006 as part of an international expansion plan with a focus on southern Europe, but in June warned of worse-than-expected losses at the Greek bank. Revenue grew 20% to €5.47bn from €4.56bn a year earlier, benefiting from savings and strong mortgage demand in France.
- Hewlett-Packard (HPQ) held the top spot in the server-computer market for the second straight quarter, gaining share as International Business Machines (IBM) and Oracle (ORCL) lost ground, research firm Gartner said. HP’s share increased to 32% last quarter, with sales of $3.54bn, compared with 28.9% a year earlier for the Palo Alto, California-based company, Gartner said today in a statement. Global server sales climbed 14% to $11.1 bn.
- BHP Billiton Ltd. (BHP) Chief Executive Officer Marius Kloppers, carrying only $3.3 bn in debt, is looking to make acquisitions beyond his hostile $40bn bid for Potash (POT). “We do feel that we’ve got flexibility in our balance sheet,” Kloppers said on a full-year profit conference call. “Beyond the acquisition of Potash, our aspirations to continue to grow the deployment of capital in the broader natural resources space would be undiminished.” Potash Corp. CEO Bill Doyle rejected last week’s $130-a- share bid from BHP, which could afford to pay as much as $180 a share for the Saskatoon, Saskatchewan-based company, according to Morgan Stanley. Kloppers, who said he’s keen to grow the petroleum unit, reported yesterday the company had $17.9bn in full-year cashflow and cut net debt by 41%.
- French cosmetics giant L’Oreal SA (OTCPK:LRLCY) Wednesday reported a 22% rise in first half net profit, helped by sales of higher margin luxury products and cost savings, and expressed confidence for the second half of the year. Owner of the mass-market shampoo brand Garnier and high-end Lancome cosmetics, L’Oreal’s profit for the first half ending June 30 was €1.31 bn, compared with €1.08 bn a year ago, close to analysts’ expectations of €1.34 bn according to a Dow Jones Newswires poll. “We are tackling the second half with confidence, and intend over the full year to keep on strengthening our worldwide positions and profitability of our businesses,” L’Oreal Chief Executive Jean-Paul Agon said in a statement. Operating profit was €1.67bn, compared with €1.37bn for the same period last year. The company last month reported a 10 percent rise in first half sales to €9.67bn, as it began to recover from weak levels last year. L’Oreal executives have focused on cutting costs internally and maintaining investments in advertising to steer the company through the slump in consumption across its key Western European and American markets. L’Oreal intends to continue its investments in advertising and promotions, which rose to 30.5% of sales in the first half compared with 30% over the same period last year, the company said Wednesday.
- Sanofi-Aventis SA (SNY) is unwilling to pay more than $70 a share for Genzyme Corp. and may consider alternative takeover targets should the transaction fail, according to three people with knowledge of the matter. Sanofi’s board supports an offer of up to $70 a share and is unlikely to go beyond that range, the people said. The Paris- based company, which has offered $69 a share, or about $17.6bn, for Genzyme is concerned about manufacturing setbacks at the US company, said five people, who asked not to be identified as the talks are private. Sanofi is still in friendly talks with Genzyme.