Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:52 AM EST
S&P 500: -7.50; 1,526.20
NASDAQ 100: -10.50; 1,925.50
Dow: -65.00; 13,550.00
NIKKEI 225: -0.07%; 18,040.93 (-12.88)
HANG SENG: -0.11%; 20,818.61 (-23.54)
S&P/ASX 200: -0.53%; 6,337.10 (-33.70)
BSE SENSEX 30: -1.92%; 14,255.93 (-279.08)
FTSE 100: -0.98%; 6,568.00 (-64.80)
CAC 40: -0.69%; 6,036.32 (-42.22)
XETRA-DAX: -1.60%; 7,792.93 (-126.90)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.18%; $65.49 (-$0.12)
Gold: -0.31%; $673.00 (-$2.10)
Natural Gas: +0.07%; $8.07 (+$0.01)
Silver: -0.92%; $13.685 (-$0.127)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
ECB Hikes to 4% as Expected, Market Awaits Trichet's Comments
The European Central Bank [ECB] raised its benchmark interest rate a quarter-point to 4.0%, as widely anticipated -- the highest it has been in nearly six years. More importantly, market participants await comments by ECB president Jean-Claude Trichet. Following the announcement the DAX was down 1.4%, the FTSE 100 -0.9% and the CAC 40 -0.6%, similar to their pre-announcement levels, as indices traded lower across Europe. Trichet is expected to signal further hikes are necessary, but there's wide debate as to how much higher. Many economists forecast another hike to 4.25% in 2007. MarketWatch reports Goldman Sachs analysts raised their ECB rate forecast a quarter-point to 4.5% for '07. They do not expect the Federal Reserve to lower rates this year, after previously expecting 0.75% of cuts. A growing number of analysts and fund managers say rising interest rates and thus bond yields are becoming more attractive to investors and competing against equities.
Sources: MarketWatch [I, II, III]
Commentary: Rising Bond Yields (or, The Magazine Cover Indicator Lives!) • Implications of the Ongoing Dollar Decline • UN Report: The Dollar's Imminent Collapse is Being Caused by U.S. Debt
Stocks/ETFs to watch: iShares MSCI EMU Index Fund (BATS:EZU), Vanguard European ETF (NYSEARCA:VGK), DJ STOXX 50 ETF (NYSEARCA:FEU), DJ Euro STOXX 50 ETF (NYSEARCA:FEZ) , iShares S&P Europe 350 Index Fund (NYSEARCA:IEV). Currency funds: CurrencyShares Euro Trust (NYSEARCA:FXE), PowerShares DB G10 Currency Harvest (NYSEARCA:DBV). Bond funds: iShares Lehman TIPS Bond (NYSEARCA:TIP) • iShares Lehman 1-3 Year Treasury Bond (NYSEARCA:SHY) • iShares Lehman 7-10 Yr Treasury Bond (NYSEARCA:IEF) • iShares Lehman 20+ Year Treas Bond (NYSEARCA:TLT)
Computer Sciences Considering Acquisition of iSoft
Computer Sciences Corp. [CSC], a U.S. IT services firm, said it is reviewing its options and won't rule out an acquisition of iSoft PLC, its partner in a project to service a ₤12 billion ($23.94b) U.K. National Health Service [NHS] contract. iSoft said it would not seek legal action against CSC earlier Wednesday, stemming from the latter's recent blocking of a third-party takeover attempt. Australia's IBA Health Ltd. offered ₤140m in an all-share takeover. CSC said if it were to make an offer, it would be in cash. iSoft was down 2.1% in afternoon trading in London. Its shares have fallen nearly 90% due to NHS project related irregularities and weak financial guidance. Shares of CSC were untraded in the pre-market, having closed up 1.1% to $56.96 in normal trading Tuesday.
Sources: MarketWatch, Reuters
Commentary: Covansys, Computer Sciences: IT Outsourcing Merger Update • Raytheon, Computer Sciences Corp. Ink Deal With Army For Up To $11.2B
Stocks/ETFs to watch: Computer Sciences Corp. (NYSE:CSC), iSoft Group PLC [London: IOT]. Competitors: Accenture Ltd. (NYSE:ACN), Electronic Data Systems Corp. (NASDAQ:EDS). ETFs: PowerShares Dynamic Technology (NYSEARCA:PTF)
Dell Will Shift Focus to Services -- CEO
Dell CEO Michael Dell is planning to use multiple acquisitions to move the PC/server company towards computer services. Dell told the Financial Times in an interview the company's computer services unit, which helps companies install new equipment and run IT help desks, was growing faster than its hardware business, and that it represented a huge opportunity: "That growth will come not just from organic growth but also partnerships and acquisitions... I think you will see some more acquisitions to add capability to our services team." Gartner analyst Martin Reynolds: "Michael Dell knows the company has got to change... [Using] services to sell hardware is something that makes a lot of sense." Presently, only 10% of Dell's $60 billion in annual revenues are from services. Analysts differed on how Dell might go about growing its services business: Reynolds says Dell will likely look to make small acquisitions of specialized service companies, rather than buying a big computer services company like Accenture, while Endpoint Tech. analyst Roger Kay feels Dell might look at a big buy: "In the past, Dell has wanted to remain lean and mean... Now they're looking at it differently and saying: 'We need to get this capability under our roof.'" Shares are up 8.7% YTD, but only 5% over the past year.
Sources: Financial Times
Commentary: Dell is Back On Track • Dell Impresses In Report, But Now Appears Fully Valued • Dell, Lenovo and Acer Scramble For Relevance
Stocks/ETFs to watch: Dell Inc. (NASDAQ:DELL), Accenture Ltd. (ACN). Competitors: Hewlett-Packard Co. (NYSE:HPQ), International Business Machines Corp. (NYSE:IBM), Electronic Data Systems Corp. (EDS)
Conference call transcript: Dell Q2 2007
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
The idea that the stock market can actually get too much good news was bolstered yesterday by investors' reactions to Fed Chairman Ben Bernanke's comments and a strong report of continued growth in the non-manufacturing sector.
The chairman's comments were generally upbeat, as he saw "moderate" growth for the rest of year and said that inflation appeared to be under control, although it is still his "chief concern."
As he said, "On average, over coming quarters, we expect the economy to advance at a moderate pace, close to or slightly below the economy's trend rate of expansion." The trend rate of growth is generally accepted to be about 3%.
As for the downturn in housing, he said that the impact on the economy from it might last "for somewhat longer than previously expected." Following his speech, the Institute for Supply Management said that its index rose to 59.7% (from 56% in April), and that's the highest it's been in a year.
And with that, the bond market took a hit and the dollar tumbled as traders concluded that the chances of an interest-rate cut this year were slim to none. The 10-year Treasury bond closed at a yield of 4.91%, with the price down 11/32 at 96 10/32. Meanwhile, rates in Europe are moving higher putting additional pressure on our markets and the dollar.
Meanwhile, the sole news in the merger-and-acquisition area on Tuesday was confirmation from Avaya (NYSE:AV) that it is to be taken private for $8.2 billion, or $17.50 a share in cash.
With little other news to dwell on, U.S. markets closed lower with the Dow Jones Industrial Average off by more than 80 points closing at 13,595. The S&P 500 was off eight points at 1,531 and the Nasdaq closed at 2,611, down seven points. Volume on the NYSE was 1.5 billion shares and 2.2 billion shares traded on the Nasdaq. Breadth was negative on both major exchanges: 3-to-1 on the New York and 19-to-10 on the Nasdaq.
Crude oil (July contract) lost 60 cents and closed at $65.61 a barrel, and the Amex Energy SPDR (NYSEARCA:XLE) lost 22 cents and closed at $69.70. Gold fell, too, with the August contract losing $1.20 and closing at $675.10 per troy ounce. The Philly Gold and Silver Index [XAU] fell $1.50 and closed at $140.44. And with a failure to close higher than the May 7 high of $144.38, it seemed to confirm that another pullback is under way.
What the Markets Are Saying
Once a market breaks into new highs, it is much more difficult to determine just how far it will go -- especially in the near term. For that reason, it might be helpful to keep an eye on some of the internal indicators like the Moving Average Convergence Divergence, stochastics, the Relative Strength Index and momentum for hints about the strength of the advance.
What we are looking for are "non-confirmations" -- that the indicator has not made a new high while the index being measured has. With that, we would conclude that the market will probably rest a bit now, since each of the indicators mentioned has failed to make a new high in more than a month. And, in fact, they are tracing out a series of lower highs while still in the "overbought" range.
Additionally, bond prices may be finally beginning to take their toll with the 10-year note close to the 5% market. All of this is pretty fuzzy stuff, and even though it is always wise to book profits in extended stocks, our long-term money should still be invested. If a minor pullback occurs, then look for support at Dow 13,300, S&P 1,500 and Nasdaq 2,530.
Today's Trading Landscape
Today, look for earnings from ADC Telecommunications (ADCT), DSW Inc. (NYSE:DSW), Dynamex (DDMX) and Gottschalks (GOT). On the economic front, Q1 unit labor costs and productivity numbers will be reported at 8:30 a.m.
Once again, investors will be focusing on the 10-year T-note, especially if prices drop and the yield closes above 5%. Another point of concern will be the European markets, as rates there are increasing and markets are showing weakness (read above).
Asian Headlines (via Bloomberg.com)
• Asian Stocks Rise to a Record, Led by Japan's Mitsubishi; Canon, Toll Fall Asian stocks rose, led by Mitsubishi Corp. (OTCPK:MSBHY) and BHP Billiton Ltd. (NYSE:BHP), companies that may report higher earnings as commodity prices climb.
• Australia's Economy Expands at Fastest Pace in Three Years; Currency Gains Australia's economy grew at the fastest pace in more than three years, pushing the nation's currency to the highest since 1989 on expectations the central bank will raise interest rates to ward off inflation.
• Kingfisher Plans $3.6 Billion Airbus Order, Including A380s, People Say Kingfisher Airlines Ltd. (OTCQX:KGFHY), the only Indian customer for the Airbus SAS A380, plans to order five more of the superjumbos this month, becoming the latest carrier to increase orders for the delayed aircraft, two people with direct knowledge of the matter said.
• Nikko Citigroup Says Brandon Ginsberg Resigns as Co-Head of Equities Unit Citigroup Inc. (NYSE:C) said Brandon Ginsberg resigned as co-head of equities at its Japanese investment bank, as the world's largest financial services firm integrates its purchase of Nikko Cordial Corp. (OTC:NIKOY).
• Deputy Central Bank Chief Wu Says China Needs Private-Equity Fund Growth China should expand local companies' fundraising options by letting commercial banks invest in the country's private-equity funds, the deputy central bank governor said.
European Headlines (via Bloomberg.com)
• Stocks in Europe Drop After ECB Raises Rates; E.ON, Iberdrola Shares Fall European stocks headed for the biggest decline in more than two months after the European Central Bank raised interest rates.
• AstraZeneca Chief Financial Officer Symonds Leaves to Join Goldman Sachs AstraZeneca Plc (NYSE:AZN) Chief Financial Officer Jon Symonds, who helped oversee the 1999 merger that created the company, unexpectedly resigned to join Goldman Sachs Group Inc. (NYSE:GS) after the drugmaker completed its largest acquisition.
• Deutsche Bank Faces Sanctions in France for Allegedly Destroying Tapes French regulators are examining whether Deutsche Bank AG (NYSE:DB) enabled hedge funds to trade on inside information, destroying tapes and failing to keep written records of phone conversations when lining up buyers for a 2002 Vivendi Universal SA (OTCPK:VIVEF) securities sale.
• Airbus Wins Aer Lingus Order for 12 Long-Haul Jets Valued at $2.4 Billion Airbus SAS won a $2.4 billion Aer Lingus Group Plc order for 12 planes, with the second commitment in a week to the redesigned long-range A350 that competes with Boeing Co.'s 787.