Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:55 AM EST
S&P 500: -1.60; 1,400.10
NASDAQ 100: -2.00; 1,766.50
Dow: -29.00; 12,220.00
NIKKEI 225: +1.10%; 16,860.39 (+183.50)
HANG SENG: +0.70%; 18,969.44 (+132.51)
S&P/ASX 200: +1.93%; 5,853.00 (+111.10)
BSE SENSEX 30: +0.11%; 12,543.85 (+14.23)
FTSE 100: +1.62%; 6,097.80 (+97.10)
CAC 40: +1.02%; 5,350.12 (+53.90)
XETRA-DAX: +1.73%; 6,558.99 (+111.29)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +0.52%; $58.46 (+$0.30)
Gold: +0.58%; $646.20 (+$3.70)
Natural Gas: +0.88%; $7.14 (+$0.06)
Silver: +1.09%; $12.97 (+$0.14)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Soft PPI, Empire State Index Readings Send Futures Lower
Three key economic reports this were released this morning and for the most part, they showed persistent inflationary pressures and a slowing U.S. economy, seding futures into negative territory. The Producer Price Index, a gauge of wholesale prices, climbed an unexpected 1.3% in February according to the Labor Department. In terms of individual sector PPI performance, energy prices rose 3.5%, food prices rose 1.9%, and capital equipment prices rose 0.3%. Economists had on average forecast median PPI gains of just 0.5% (Bloomberg) to 0.6% (MarketWatch). Core PPI, which excludes food and energy, were up 0.4%, twice the expected gain. The unexpectedly large gain follows a 0.6% decline in January. According to PNC Financial Chief Economist Stuart Hoffman, "Core inflation is still a little higher than the Fed would like." Meanwhile, the Empire State Manufacturing index fell to 1.9 in March from 24.4 in February - a much sharper decline than expected. In some positive economic news, initial claims fell by 12,000 last week to 318,000, sending the four-week average lower by 10,250 to 329,250.
Sources: Bloomberg, MarketWatch (i), (ii), (iii)
Commentary: U.S. Current Account Gap Down to $195.8 Billion in Q4 • Delving Into Durables: Yesterday's Overreaction Doesn't Make up for Months of Underreacting • Fourth Quarter GDP, Core Inflation Revised Downward
Stocks/ETFs to watch: S&P 500 Index (NYSEARCA:SPY), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Lehman Aggregate Bond (NYSEARCA:AGG)
Bear Stearns' Profits Rise 8% Despite Housing Slowdown
Bear Stearns Companies said this morning its Q1 2007 profit was up 8% on strong bond-trading revenues. Net income climbed from $514 million to $554m, on a rise in revenues from $2.19 to $2.48 billion. EPS climbed from $3.54 to $3.82, slightly higher than analyst estimates of $3.78. The rise in earnings comes despite its #1 place among underwriters of mortgage securities in a floundering housing market attests to its conservative approach to lending, Fortis Investments' analyst Guy-Max Delphin said. Its exposure to subprime lending is limited, and should have a maximum 5% adverse effect on earnings, according to a Fox-Pitt Kelton research note. Return on equity was 18.3%, down from 20.1% y/y. Fixed income revenue, including bond underwriting and trading, was up 27% to $1.1b. Revenue from underwriting went from $844m to $2.1b. Bear Stearns shares are down 11% in 2007, vs. a 5.8% drop in the 12-member Amex Securities Broker/Dealer Index. In pre-market trading, shares are up 0.1% to $145.35.
Sources: Press Release, MarketWatch, Bloomberg
Commentary: The Bear Stearns-NEW Connection: Time To Short Select Investment Firms • Asset-Backed Insecurities: Containing the Subprime Mortgage Collapse • Major I-Banks Near 'Junk' Status -- Bloomberg
Stocks/ETFs to watch: Bear Stearns Companies Inc. (NYSE:BSC). Competitors: Morgan Stanley (NYSE:MS), Goldman Sachs Group Inc. (NYSE:GS), Lehman Brothers Holdings Inc. (LEH), Merrill Lynch & Co. Inc. (MER). ETFs: streetTRACKS KBW Capital markets (NYSEARCA:KCE)
GE, Blackstone to Acquire PHH Corp for $1.8B in Cash
GE Capital Solutions and The Blackstone Group, a private equity firm, have reached a deal to acquire PHH Corp for $1.8 billion at $31.50/share, or a 13% premium over yesterday's $27.81 close. PHH was spun off from Cendant in 2005, although it still maintains an alliance with Realogy (formerly Cendant's real estate business), according to Hoover's.com. GE will sell PHH's residential mortgage business to Blackstone after the closing of the transaction, which is expected to close in Q3-07. GE will keep PHH Arval, a fleet management services business in North America. At the time of publishing, PHH was trading up 11% at $30.85.
IntercontinentalExchange Makes Unsolicited Takeover Bid for CBOT; Shares Jump
IntercontinentalExchange announced in a press release Thursday morning that it is making an unsolicited, stock-for-stock takeover bid for the Chicago Board of Trade. The bid values CBOT at a price of $187.34 per share, giving shares a premium of 12.8% (yesterday's closing price was $166). If approved, the merger would create the world's most comprehensive derivatives exchange; CBOT already merged with the Chicago Mercantile Exchange last year. In its press release, Intercontinental proposed the following terms: it would issue 1.42 ICE shares for each CBOT Class A common share. In addition, the new company would remain based in Chicago and CBOT shareholders would own approximately 51.5% of the combined company. Shares of CBOT climbed $21.97, or 13.23%, to $188.06 in pre-market action. In earlier IntercontinentalExchange-related news, the company disclosed it was buying an 8% stake in India's National Commodities and Derivatives Exchange from ICICI Bank Ltd., a private Indian Bank whose ADRs trade on the NYSE. Financial terms weren't disclosed but ICE's 2006 annual report says it bought an 8% stake in a foreign company for $36.3 million in December.
Sources: Press Release, Reuters, Wall Street Journal
Commentary: CME/CBOT Merger Creates World's Biggest Derivatives Exchange • CBOE-ISE Face-off in Court Over the Future of Options Exchange Trading in a Case With Huge Repercussions • A Look At Stock Exchange Stocks
Stocks/ETFs to watch: CBOT Holdings (BOT), Chicago Mercantile Exchange Holdings (NASDAQ:CME), International Securities Exchange (ISE), ICICI Bank Limited (NYSE:IBN). Competitors: Nasdaq Stock Market Inc. (NASDAQ:NDAQ), NYSE Group (NYSE:NYX), NYMEX Holdings (NMX), HDFC Bank Limited (NYSE:HDB).
IndyMac Says Its Subprime Exposure Is Minimal
In light of the recent "panic" on Wall Street surrounding weakness in subprime lending, IndyMac Bancorp said this morning in a statement that it carries "minimal exposure" to subprime loans, and that its credit performance statistics are reflective of prime/Alt-A lending. Of its $90 billion in mortgage loan production in 2006, only 3% was subprime. CEO/Chairman Michael W. Perry: "Clearly, the mortgage market and, in particular, the secondary market for mortgages are in a state of irrational panic right now, making it virtually impossible to predict short-term loan production and sales volumes or earnings with any reasonable precision until things settle down." IndyMac was hard hit by the global liquidity crisis of 1998, it said, due to its then-status as a mortgage REIT. "After that experience, IndyMac decided to shed its mortgage REIT structure, so that we would never again subject ourselves to this kind of liquidity risk." In pre-market trading, shares are up 7% to $30.90.
Sources: Press Release, MarketWatch
Commentary: Stifel: Subprime Mortgage Sector in 'Downward Spiral' • Short Plays for More Housing Market Weakness • Weak Housing Forecasts Foretell Further Downside
Stocks/ETFs to watch: IndyMac Bancorp Inc. (NDE)
Nikko Cordial's ordinary shares lost 0.3% to ¥1,685, coming within one yen intra-day of the ¥1,700 bid Citigroup announced Tuesday. Individual shareholders seem to have been locking in profits following a news conference where Citi-Japan's CEO said, "Our price is full and it's fair and it's firm. It will not be raised." Three of Nikko's four largest shareholders have previously said Nikko is worth more than ¥2,000/share, but they have not commented on Citi's latest bid, which is 26% higher than its original bid of ¥1,350/share. Nikko has approved Citi's bid, which expires on April 26. Separately, The Wall Street Journal reports Citi has plans to increase its staff in China by 25% to 4,000, as it "plans to open new branches and subsidiaries, as many as possible, this year, though it will rely on the China Bank Regulatory Commission's approval," according to Citi-China's CEO. Citi also wants to purchase a larger stake in Pudong Development Bank, eventually up to the 19.9% limit. It currently owns a 3.78% stake.
Sources: Press release, Reuters, The Wall Street Journal
Commentary: Citi Boosts Bid for Nikko Cordial by 26% • Nikko Cordial Keeps TSE Listing: Bad News for Citigroup? • Citi's Bid for Nikko Could Be Stalled as Tokyo Exchange Keeps Nikko's Listing
Stocks/ETFs to watch: Citigroup (NYSE:C), Nikko Cordial (OTC:NIKOY), Mizuho Financial Group (NYSE:MFG).
Competitors: Mitsubishi UFJ Financial Group (NYSE:MTU), ABN Amro Holding N.V. (ABN), Nomura Holdings (NYSE:NMR). ETFs: iShares S&P Global Financial Index Fund (NYSEARCA:IXG), iShares Dow Jones US Financial Services (NYSEARCA:IYG), Financial Select Sector SPDR (NYSEARCA:XLF)
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Asian Headlines (via Bloomberg.com)
• Asian Stocks Rebound as U.S. Home-Loan Concern Eases; Toyota, BHP Advance Asian stocks rebounded from the biggest drop in more than a week on speculation rising U.S. mortgage delinquencies won't damp spending in the world's largest economy.
• Mundra Seeks $407 Million in India's First Port Share Sale, People Say Mundra Port & Special Economic Zone Ltd. plans to raise as much as 18 billion rupees ($407 million) in the first initial stock sale by an Indian port, people with direct knowledge of the offering said.
• Fukui Denies Bank of Japan Leaked Information Before February Rate Rise Bank of Japan Governor Toshihiko Fukui denied the central bank leaked information to the media before announcing an interest-rate increase last month.
• Vodafone Reaches Agreement With Essar Group Over India Hutchison Venture Vodafone Group Plc (NASDAQ:VOD), the world's biggest mobile-phone company, reached an agreement with Essar Group over their wireless venture in India, clearing a potential obstacle to its expansion in the nation of 1.1 billion people.
• Powerchip Group Offices Searched as Part of Probe Into Affiliate Veutron Offices of Powerchip Semiconductor Corp., Taiwan's largest memory chipmaker, were searched this afternoon in an investigation into affiliate Veutron Corp., a Powerchip spokesman said.
European Headlines (via Bloomberg.com)
• Stocks in Europe Rise as Loan Concern Eases; Bayer, Cadbury Schweppes Gain European stocks headed for the biggest rally in eight months after concerns eased that rising U.S. mortgage delinquencies will lead to a slump in demand from the region's largest trading partner.
• Cadbury to Split Confectionery, Beverage Divisions Into Two Separate Units Cadbury Schweppes Plc (NYSE:CSG), the world's second-biggest candymaker, will sell or spin off its North American beverage unit, bowing to pressure from investors led by billionaire activist Nelson Peltz.
• European Inflation Remains Under 2 Percent Ceiling; Labor Costs Increase Inflation in the euro area remained below the European Central Bank's 2 percent ceiling for a sixth month in February as fuel prices declined.
• Atos Origin Shares Surge on Report Permira, Centaurus Bid for the Company Shares of Atos Origin SA, the official supplier of computer services for the Beijing Olympics, had the biggest gain in at least 15 years after a Dow Jones report of a 4 billion-euro ($5.3 billion) bid for the company.