Dear readers, we apologize for the lateness of Wall Street Breakfast today, which was due to technical problems.
- Italy, Spain bond yields pull back on ECB rumors. Peripheral government bond yields dropped from earlier highs and the euro (-0.4%) paired heavy losses on rumors that the ECB bought Italian and Spanish government bonds as the debt crisis threatened to spiral out of control. The success of an Italian €6.5B bond auction also helped ease the pressure. Meanwhile, Italian politicians are uniting around the need to pass a €40B austerity plan and to do so sharpish, which they hope will calm fears about the country's massive debt.
- Another day, another meeting. While Rome begins to burn, Republicans and Democrats continue to squabble over a deal to increase the $14.3T debt ceiling. They'll meet again today but the story will probably be the same come tomorrow. Gerald Seib reckons Obama is pushing for the grand deal of $4T, which the GOP is resisting, as it will make good election politics for him, although less so for his fellow Democrats. And if you've got to cut Medicare and hurt the elderly, better not to drag it out.
- News Corp. contagion spreading. U.K. MPs have been listening to police testimony about the hacking scandal at News Corp. (NWSA), which has widened to include other problematic practices and spread to The Sun and The Times newspapers. Former PM Gordon Brown has accused journalists at the latter of using the "criminal underworld" to access his personal bank account and legal files when he was finance minister. News Corp. is now reportedly considering selling all its U.K. papers to save its deal to buy BSkyB (OTCQX:BSYBY), with some even saying Rupert Murdoch is no longer calling the shots.
- Alcoa net income more than doubles. Alcoa (AA) kicked off Q2 earnings seasons by reporting that net profit more than doubled to $322M and revenues jumped 27% to $6.59B, with higher aluminum prices helping offset increased raw materials prices. Alcoa's earnings and its penetration across a range of sectors point to an improving manufacturing sector, although commodity strategist John Licata doesn't understand why it's seen as a global barometer, given that 50% of revenues come from the U.S. and that it consistently lags the market in financial performance. (Earnings call transcript)
- Cisco to slash 10,000 workers. Cisco (CSCO) is set to axe as many as 10,000 jobs, or 14% of its workforce, as part of its turn-around strategy, sources say. Cisco is also due to announce today a revamp of its most popular product, a switching system called the Catalyst 6500, as it looks to strike back against the likes of HP (HPQ) and recover falling market share in the segment. This has hit Cisco's net profit and helped send shares tumbling 24% this year.
- HP looks to push WebOS. Another stuttering tech bellwether, HP (HPQ), is reorganizing its PC, tablet and smartphone division as it looks to turn around as well. The plan is to broaden the use of HP's WebOS operating system, which the company hopes will differentiate its products from those of Apple (AAPL) and those running Android (GOOG). However, HP's prospects aren't promising, especially following the weak reviews for its TouchPad tablet and a report that Sprint (S) won't carry HP's Pre 3 phone or any future devices based on WebOS.
- Starbucks reorganizes too. Starbucks (SBUX) is restructuring itself into three divisions - Americas, EMEA, and China & Asia Pacific - as it looks to increase international revenue to 50% of total sales from 20%. The company plans to turn China into its largest market and to enter India next year. It also has high hopes for its Seattle's Best Coffee and Tazo tea units.
- International Paper goes hostile for Temple-Inland. International Paper (IP) has taken its $3.3B offer for Temple-Inland (TIN) directly to shareholders, although it's not much more than a ploy to up the ante. This is because Temple-Inland, a maker of corrugated paper and building products, has already adopted a poison pill as it holds out for more cash. And International Paper has said the pill needs to be removed for the deal to go through.
- Scrutiny increases on AT&T's bid for T-Mobile. Nine states have sent subpoenas to AT&T (T) and Sprint (S) in connection with AT&T's proposed $39B purchase of T-Mobile USA (OTCQX:DTEGY). The states include Washington, New York and Minnesota, which could have been speaking for many when it said: "It’s hard to see how four companies going down to three - basically less competition - would benefit consumers."
- BOJ keeps rates unchanged. As expected, the Bank of Japan has kept its interest rate at 0%-0.1% but held off on loosening policy further (.pdf). The bank also raised its economic assessment due to a pick-up in output and an improvement in business and household sentiment. However, the BOJ cut its growth forecast for this fiscal year to 0.4% from an April estimate of 0.6%.
- MBIA ends Merrill lawsuit. MBIA (MBI) is ending a court case against Merrill Lynch (BAC) over protection sold against mortgage-debt defaults and will probably now settle instead, which would boost MBIA's credit quality. MBIA had sued to unwind or recover payouts for $5.7B of credit-default swaps, saying Merrill attempted to market the CDS contracts as part of a plan to get rid of billions of dollars in deteriorating subprime mortgages in 2006 and 2007.
- Iraq signs $12B gas deal with Shell and Mitsubishi. Iraq has signed a final draft agreement with Shell (RDS.A) and Mitsubishi (OTCPK:MSBHY) for a $12B deal to capture flared gas at southern oilfields. The project will be at the forefront of Iraq's efforts to modernize its energy infrastructure, and boost oil exports and electricity.
- Government explores how to reverse housing slump. With President Obama admitting that mortgage-aid programs have not been enough to lift the depressed housing market, the government is looking at letting Fannie Mae and Freddie Mac rent foreclosed homes and relax their rules for loans to investors. Officials could also give banks more incentives to reduce loan balances for borrowers who are behind on payments or suffering negative equity.
Earnings: Tuesday Before Open
- Fastenal Company (FAST): Q2 EPS of $0.32 beats by $0.01. Revenue of $701.7M (+22.8% Y/Y). (PR)
- Infosys Technologies (INFY): Q2 EPS of $30.14 misses by $0.01. Revenue of $1.67B (+23% Y/Y). Shares -6.5% premarket. (PR .PDF)
Earnings: Monday After Close
- Alcoa (AA): Q2 EPS of $0.32 misses by $0.01. Revenue of $6.58B (+27% Y/Y) beats by $0.2B. Shares +0.9% AH. (PR, earnings call transcript)
- Novellus Systems (NVLS): Q2 EPS of $0.79 beats by $0.02. Revenue of $350.2M (+9% Y/Y) in-line. Shares -5.9% AH. (PR, earnings call transcript)
- In Asia, Japan -1.4% to 9926. Hong Kong -3.1% to 21663. China -1.7% to 2755. India -1.6% to 18412.
- In Europe, at early afternoon, London -0.7%. Paris -0.9%. Frankfurt -1.0%.
- Futures at 9:00: Dow -0.1%. S&P -0.3%. Nasdaq -0.1%. Crude -0.7% to $94.48. Gold flat at $1549.70.
Tuesday's Economic Calendar
- 7:30 NFIB Small Business Optimism Index
- 7:45 ICSC Retail Store Sales
- 8:30 Trade Balance
- 8:55 Redbook Chain Store Sales
- 10:00 IBD/TIPP Economic Optimism
- 1:00 PM Results of $32B, 3-Year Note Auction
- 2:00 PM FOMC Meeting, Day 1
The Market Currents team contributed to this post.
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