Pre-Market Snapshot: Futures Tilt Higher

Wall St. Breakfast's Pre-Market Snapshot:

U.S. Futures As of 8:55 AM EST

S&P 500: +1.00; 1,509.40
NASDAQ 100: +2.50; 1,886.00
Dow: +10.00; 13,448.00

International Indexes

Asia
NIKKEI 225: +0.09%; 17,529.00 (+16.02)
HANG SENG: +0.33%; 20,937.26 (+69.11)
S&P/ASX 200: +0.05%; 6,294.60 (+3.40)
BSE SENSEX 30: +1.42%; 14,127.31 (+197.98)

Europe
FTSE 100: -0.05%; 6,565.00 (-3.60)
CAC 40: -0.16%; 6,039.89 (-9.87)
XETRA-DAX: -0.18%; 7,492.09 (-13.26)

Commodity Futures (Reuters/Jefferies CRB)

Oil: -0.41%; $62.91 (-$0.26)
Gold: -0.53%; $670.90 (-$3.60)
Natural Gas: -0.55%; $7.82 (-$0.04)

U.S. Breaking News — see today's Wall Street Breakfast for earlier news

Housing Permits Tumble, Starts Jump

The Department of Commerce said Wednesday morning construction permits fell to a ten-year low of 1.429 million. The 8.9% drop was the most severe in 17 years, and was well below the seasonally adjusted rate of 1.51 million forecasted by economists. Conversely, housing starts were unexpectedly up 2.5% to a seasonally adjusted annual rate of 1.528 million, ahead the 1.48 million pace forecasted. Over the past year, permits have dropped 28%, while starts are down 16%. Economists say buyers are delaying buying homes in anticipation further price drops, while stricter lending rules mean less people are able to finance purchases. Housing weakness is still the biggest threat to Federal Reserve forecasts of "moderate economic growth." On Tuesday, the National Association of Home Builders reported that homebuilder sentiment dropped unexpectedly in May on increasing order cancellations.
Sources: Press release (.pdf), MarketWatch, Bloomberg, Reuters
Commentary: Median House Prices and Homebuilder Confidence Decline • Banks Face Growing Pressure on Home Prices • Sub-Prime Woes Not Spilling Over To Over Other Credit Areas
Stocks/ETFs to watch: Toll Brothers Inc. (TOL), KB Home (KBH), Lennar Corp. (LEN), Beazer Homes USA Inc. (BZH), Centex Corp. (CTX), Pulte Homes Inc. (PHM). ETFs: streetTRACKS SPDR Homebuilders ETF (XHB), iShares Dow Jones US Home Construction (ITB), PowerShares Dynamic Building & Construction (PKB)

GE's Immelt: No Plans to Sell NBC, U.S. Markets Are Solid

General Electric CEO Jeffrey Immelt said Tuesday in a Reuters interview that despite ongoing rumors, GE was not looking to sell its NBC Universal unit. He added the company is not looking to enter further into the media industry, but said of NBC, "We've got a good digital presence, we've got a good content presence, we've got excellent global presence and I don't see a big transformative deal. It's $16 billion of revenue -- we've got plenty of girth." GE owns 80% of NBC; Vivendi owns the other 20%. Regarding GE's healthcare unit, Immelt said: "It's in a market that's growing at three times the global GDP, so, boy, it certainly could be a bigger portion of the company." Peter Klein of Fifth Third Asset Management agreed: "That's the kind of stuff that has the growth, because we're all getting older." Of the U.S. economy, Immelt said it "hit a few bumps vis-a-vis the housing market," but that overall it's on solid footing. GE shares are down 1.5% YTD, up 6.9% over the past year, but are up only 2.2% over the past two years.
Sources: Reuters
Commentary: Stock Portfolio to Weather a Volatility Shock • General Electric: A Winner in the Mid-Cycle Slowdown • General Electric: Flaw In The Bullish Case?
Stocks/ETFs to watch: General Electric Co. (GE)

Deere Beats Estimates on Strong Corn Market

Deere & Co.'s FQ2 earnings dropped a less-than-expected 16% to $2.72/share ($624 million) from $3.13 last year; last year's results included the now discontinued healthcare unit, net of which the company would have earned $2.17. Revenue rose 5% to $6.88 billion. Both numbers beat analyst estimates of $2.41 on $6.46 billion. The world's largest maker of farm equipment said it plans a 2% price hike this year, and has added new tractors to keep up with growing demand from the corn/ethanol industry: "Improving conditions in the global farm sector, coupled with a positive customer response to the company's innovative product lineup, are continuing to drive strong results," said Robert Lane, CEO. In February, the company raised its 2007 income guidance from $1.33 to $1.4 billion, and said sales would increase slightly. Deere shares are up 38% over the last year, 27% YTD, and are up 1.7% to $122.66 in pre-market trading.
Sources: Press release, MarketWatch, Bloomberg
Commentary: Agricultural Commodities: Profiting From Supply and Price Increases • Barron's: Corn Prices Will Fuel Deere & Co. Growth • Why Durable Competitive Advantage Matters
Stocks/ETFs to watch: Deere & Company (DE). Competitors: Caterpillar Inc. (CAT), CNH Global N.V. (CNH), Kubota Corp. (KUB), Terex Corp. (TEX), Joy Global Inc. (JOYG). ETFs: Vanguard Industrials ETF (VIS), PowerShares Industrial ETF (PRFN), PowerShares DB Agriculture Fund (DBA)

ING's Q1 Net Down 6%, In-line, Plans $6.7B Share Buyback

NG Group reported a 5.6% decline in Q1 net profit to €1.894 billion, or €0.88/share, in-line with analysts' average estimate (Reuters poll). Its ordinary shares were mostly flat in morning trading Wednesday following its earnings announcement, likely buoyed by plans to repurchase €5b of common stock equal to about 6% of shares outstanding. Coverage of its earnings by Reuters mentions analysts believe the buyback signals ING is not looking to make any large acquisitions. Analysts also say ING's shares are undervalued, trading at 9x forward earnings, compared to European sector peers trading at a multiple of 10 to 11. ING said it plans to launch ING Direct in Japan later this year. ING's NYSE-listed shares gained 1% to $45.10 in normal trading Tuesday.
Sources: Press release, Bloomberg, Reuters
Commentary: Barron's Euro Dogs of the Dow 2007 • Jim Cramer's Take on ING • ING Posts Surprise Jump in Profit
Stocks/ETFs to watch: ING Group N.V. (ING). Competitors: AEGON N.V. (AEG), Allianz SE (AZ), AXA (AXA), ABN AMRO Holding N.V. (ABN). ETFs: iShares MSCI EMU Index (EZU), iShares MSCI Netherlands Index (EWN), DJ Euro Stoxx 50 (FEZ)
Related: ING Investor Relations earnings materials

Sony's Q4 Loss Widens, but Issues Strong FY 2007 Guidance

Sony reported a larger Q4 (ended March) loss, as expected, but the focus was on its fiscal year 2007 guidance, in which a surge in profitability over 2006 is forecast, beating analysts' average estimate. Sony's Q4 net loss widened 1.5% to ¥67.56 billion yen ($573m), or ¥67.44/share, but revenues rose 13% to ¥2.09 trillion ($17.71b). The operating loss at its Game division totaled ¥107.83b, accounting for most of the Group's ¥113.37b operating loss. Record sales of Bravia LCD TVs and improving financials at its Game division (which is not expected to be profitable until the FY ending March '09) were cited behind Sony's full year (ending March '08) guidance for sales to rise 5.8% to ¥8.78t and operating profit to jump sixfold to ¥440b. Excluding a real estate sale valued at ¥59b, Sony was still ahead of analysts' consensus estimate of ¥377.8b (Reuters poll). Ordinary shares of Sony gained 1.25% to ¥6,460 ($53.65 ADR equiv. at ¥120.4/$1) ahead of its earnings announcement. Sony's ADRs lost 2.6% to $52.70 in normal trading Tuesday. ADR shares are up nearly 4% in pre-market action.
Sources: Earnings release [pdf], Bloomberg, MarketWatch
Commentary: Long In the Tooth, Sony Needs a Protein Jolt • Japanese Consumer Electronics Stocks Rally after Golden Week • Game Console Marketing: Faddism vs. Evangelism • Sony Earnings Conference Call Transcript (later today)
Stocks/ETFs to watch: Sony (SNE) (JP: 6758). Competitors: Matsushita Electric Industrial (MC), Nintendo (NTDOY.PK), Canon (CAJ), Sharp (SHCAY.PK), Apple (AAPL), Philips Electronics (PHG). ETFs: BLDRS Asia 50 ADR Index (ADRA), iShares S&P/TOPIX 150 Index (ITF), iShares MSCI Japan Index (EWJ)
Related: Sony Investor Relations earnings materials

Ingersoll-Rand Contemplates Parting With Bobcat, Construction Units

Ingersoll-Rand Company is considering selling its Bobcat construction unit as well as other construction related units, saying the businesses "no longer fit" its long-term strategic outlook. A spinoff is also a possibility, the company said, and a decision is expected in the second half. The businesses in question accounted for combined revenue of $2.6 billion last fiscal year, out of total revenue at Ingersoll-Rand of $11.4 billion. The construction units have been suffering as a result of the housing slowdown; Wednesday, Bobcat competitor Deere & Co. reported earnings fell 16% in the first quarter on the continuing housing slump. Ingersoll-Rand shares gained $2.68, or 5.75%, to $49.29 on heavy volume of nearly 12 million shares.
Sources: Wall Street Journal, Bloomberg, TheStreet.com, Reuters
Commentary: Ingersoll-Rand's Numbers on Weak Housing Market, Hit Estimates • JANA Partners Discloses Stake in Alcoa, Ingersoll-Rand • Warren Buffett: Buys, Sells, Portfolio
Stocks/ETFs to watch: Ingersoll-Rand Company (IR). Competitors: Caterpillar Inc. (CAT), Deere & Company (DE)

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Today's Market (via Sam Collins, ChangeWave.com)

Review of Yesterday's Action
Despite disappointing earnings by Home Depot (HD) and Wal-Mart (WMT), the market opened strong yesterday on a pre-opening report that the Core CPI number was up by just 0.2%, pushing the annual rate down to 2.3%. This was a great relief since the CPI is the prime number that the Fed uses to evaluate inflation and guide monetary policy. And this report brings the core CPI to an increase of 1.9% over 3 months -- and that's within the Fed's guidelines.

There was other good news, too, in the merger and acquisition arena: Reuters (RTRSY) agreed to a $17.2 billion offer from Thomson (TOC), American International Group (AIG) offered to pay $22 a share for the remainder of the stock of 21st Century Insurance Group (TW) and Heidelberg Cement (Germany) agreed to buy Hanson (HAN) for $15.8 billion.

By noon the Dow Industrials were up over 130 points crunching through 13,400 and picking up volume. But then at 1 p.m. reality hit in the form of the NAHB housing market index that dropped back to the low that was posted in September, and matching a 16-year low. And with that news the market sold off for the rest of the afternoon, dropping steadily until the close when the Dow Industrials barely held onto a gain and the broad market ended in the red.

At the close the Dow Jones Industrial Average had gained 37 points closing at 13,384, the S&P 500 lost 2 at 1,501, and Nasdaq gave up 21 to close at 2,525. Volume on the Big Board was 1.6 billion shares and 2.2 billion traded on Nasdaq, with breadth at a negative average of 2 to 1 on both exchanges.

Adding to the stock market's problems was a gain in the price of Crude Oil (June). It advanced by 71 cents closing at $63.17 a barrel on more trouble in Nigeria. The Amex Energy SPDR (XLE) gained 10 cents at $65.48 -- another new closing high. Gasoline at the pump (regular grade) is now at an all-time high of $3.087 a gallon according to AAA. And Gold (June) rallied too, up $4.40 an ounce and closing at $674.50. The Gold/Silver Index [XAU] gained just 14 cents at $137.50 and appears to be struggling.

What the Markets Are Saying
Yesterday may be viewed as a turning point (short term), in that the broad markets (S&P 500 and the NYSE Composite) gave up substantial gains with new intraday highs, only to close lower -- while Nasdaq was weak most of the day. And the Dow, after making a new intraday high, gave up virtually all of its gain. Contrary to the famous Lombardi quote the Dow actually would have lost had it not run out of time.

So, yesterday's reaction to the good news about the lower CPI number was bad, and that's also bad for the market. With quarterly earnings now behind us, and more economic reports to come (some of which will not be as good as the CPI), there is little to hold the market together -- as noted yesterday, our internal and sentiment indicators are now dragging. It is probably time to take some trading profits and anticipate that stocks will at least pull back to the first areas of primary support previously given.

Today's Trading Landscape
April Housing Starts will be reported today along with Building Permits -- both at 8:30 a.m. At 9:15 a.m. look for Industrial Production and Capacity Utilization. Some earnings are still to be reported including: BEA Systems (BEAS), Hewlett-Packard (HPQ), Mentor (MNT), Pet Smart (PETM) and others. After the close yesterday Applied Materials (AMAT) equaled estimates and said that chip-equipment sales rose, and Oracle (ORCL) said that it will buy Agile Software (AGIL). Sony (SNE) (read above) reported a loss of 57 cents a share for its Q4, but analysts had been expecting a 64-cent loss and Deere & Co. (DE) (read above) reported Q2 earnings of $2.72 against expectations of $2.41.

Asian Headlines (via Bloomberg.com)

• Transpacific Agrees to Buy Cleanaway Waste Unit From KKR for $1 Billion Transpacific Industries Group Ltd., Australia's biggest trash collector, agreed to buy Cleanaway Holdings Ltd. for A$1.25 billion ($1 billion) from Kohlberg Kravis Roberts & Co.

• Indian Billionaire Mallya Buys Scotland's Whyte & Mackay for $1.18 Billion Billionaire Vijay Mallya's distillery group agreed to buy Scottish liquor maker Whyte & Mackay for 595 million pounds ($1.18 billion), extending a record year for international takeovers by Indian companies.

• China Selects WCDMA, CDMA2000 as Standards for High-Speed Mobile Phones China selected two international technologies as its high-speed mobile-phone standards, placing equipment makers such as Ericsson AB (ERIC) closer to receiving contracts worth as much as $20 billion.

• Premier Wen Says China to Make Yuan More Flexible as Paulson Summit Nears China's Premier Wen Jiabao pledged to loosen controls on the exchange rate and take steps to curb a record trade surplus, a week before a summit in the U.S. to discuss ways to reduce imbalances.

European Headlines (via Bloomberg.com)

• European Stocks Drop, Led by Nestle, Credit Agricole; Airline Shares Fall European stocks declined, led by Nestle SA (NSRGY.PK) and other companies dependent on the U.S. for sales, on concern the world's biggest economy is slowing.

• Bank of England Signals Rates May Rise; Unemployment Falls to Two-Year Low The Bank of England signaled it may keep raising interest rates to restrain inflation after accelerating economic growth drove unemployment to the lowest since October 2005.

• Credit Agricole Profit Misses Estimates on Slump at French Consumer Unit Credit Agricole SA, France's second- biggest bank, reported first-quarter profit that missed analysts' estimates as earnings at the French consumer lending unit fell. The shares posted their biggest drop in seven months.

• Permira to Acquire Valentino Stake, Values Fashion Company at $3.5 Billion Permira Advisers LLP, Europe's biggest leveraged buyout fund, bought 29.9 percent of Valentino Fashion Group SpA in a transaction valuing the maker of dresses worn by Sophia Loren at 2.6 billion euros ($3.5 billion).

• ABN Amro Appeals Against Court Ruling That Blocks $21 Billion LaSalle Sale ABN Amro Holding NV (ABN), the subject of the biggest-ever bank takeover, appealed a Dutch court ruling that blocked the $21 billion sale of its LaSalle Bank unit to Bank of America Corp. (BAC).