Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 9:05 AM EST
S&P 500: +2.40; 1,532.60
NASDAQ 100: +3.75; 1,941.00
Dow: +21.00; 13,626.00
NIKKEI 225: +0.62%; 17,842.29 (+109.52)
HANG SENG: +1.40%; 20,867.26 (+288.51)
S&P/ASX 200: +1.30%; 6,261.20 (+80.50)
BSE SENSEX 30: +1.43%; 14,203.72 (+200.69)
FTSE 100: +0.80%; 6,612.00 (+52.40)
CAC 40: +1.05%; 5,996.83 (+62.56)
XETRA-DAX: +1.55%; 7,799.90 (+119.14)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +0.54%; $66.62 (+$0.36)
Gold: -0.44%; $649.80 (-$2.90)
Natural Gas: +0.28%; $7.63 (+$0.02)
Silver: -0.23%; $13.03 (-$0.03)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Producer Prices Rise Faster Than Expected
Wholesale prices, measured by the PPI (Producer Price Index), jumped 0.9% in May on high energy costs, ahead of economist forecasts of a milder 0.6%, according to figures released Thursday by the Labor Department. That brings headline inflation over the past year up to 4.1%. Energy prices were up 4.1%, and wholesale gasoline was up a whopping 10.2%, while food prices dropped 0.2%, their first decline in over half a year. Core PPI, which excludes food and energy, was up 0.2%, vs. economist estimates of 0.1%. Over the past year, core PPI stands at a more moderate 1.6%. Core intermediate inflation continued to decline; it now stands at 2.9%, the lowest in over three years. Overall, the report is inflationary enough to keep the Fed vigilant on inflation, according to MarketWatch, although its key focus is not on PPI but rather on consumer inflation [CPI], which comes out on Friday. Forecasts are for a 0.7% rise in CPI and 0.2% for core CPI -- which would be the second-biggest CPI acceleration in 16 years. "The report underscores Federal Reserve concerns that inflation won't moderate as forecast," economists said [Bloomberg].
Sources: Labor Department release, MarketWatch, Bloomberg
Commentary: Expecting Weak Period Post Options Expiration • Fed's Beige Book: Economy Growing at Moderate Pace • Fed Beige Book's Benign Economic Picture Contradicts Real Estate Reality
Stocks/ETFs to watch: S&P 500 Index (SPY), Diamonds Trust Series 1 ETF (DIA), iShares Lehman Aggregate Bond (AGG)
Goldman Sachs Beats; Shares Fall
Goldman Sachs Group said Q2 earnings were $4.93/share ($2.33 billion), up from $4.78 a year earlier and ahead of consensus estimates of $4.76. Revenue was $10.2 billion, compared to last year's $10.1B -- which is also what analysts forecast. The mild rise seemed to disappoint investors, who witnessed competitor Lehman Brothers' 27% jump on Tuesday; shares are down 2.95% ($6.89) to $226.75 in the pre-market. Asset Management profits generated a record $1.04 billion in fees, and assets under management was up 28% to a record $758 billion. Net asset inflows were $18 billion for the quarter. Commenting on the economy, CEO Lloyd C. Blankfein said: "The outlook for the global economy remains strong. Favorable market conditions and investor confidence continue to drive activity levels and play to our strengths as a leading advisor, financier and investor."
Sources: Press release, Reuters
Commentary: Brokerage Group Earnings Preview: Overseas Revenue Key • More Equity Research Declines…Who's Going To Pay? • Barron's 500 -- The Top 20 • Goldman Sachs' Seventh Straight Beat, Profits Up 29%
Stocks/ETFs to watch: Goldman Sachs Group Inc. (GS), Lehman Brothers Holdings Inc. (LEH). Competitors: Bear Stearns Companies Inc. (BSC), Morgan Stanley (MS), Merrill Lynch & Co. Inc. (MER). ETFs: PowerShares Dynamic Banking (PJB), streetTRACKS KBW Bank (KBE)
Freddie Mac Misses on Trading, Credit Guarantee Losses
Government sponsored mortgage lender Freddie Mac said Thursday it lost $0.46/share in Q1 2007, having made $2 billion in the year-ago quarter. Analysts were looking for EPS of $1.01. It was the company's third straight quarterly loss. The company blamed the surprise loss on mark-to-market trading losses in its derivatives portfolio, losses on its single-family credit guarantees, and credit-spread widening. It is the first quarter in which the company has reported since a 2003 accounting scandal. In February Freddie Mac said it will cease buying subprime mortgages and those with a "high likelihood" of default. Freddie Mac and its larger competitor Fannie Mae have about $170 billion in subprime mortgage-backed securities. It its press release, CEO Richard Syron said: "While the full impact of the housing downturn has not been felt, our credit position has remained strong relative to our historical levels and the market as a whole." CFO Buddy Piszel commented on the EPS loss: "While significant mark-to-market losses on our portfolio of derivatives, which are used to hedge our interest-rate risk, and on our credit guarantee activities have resulted in a GAAP loss, we remain encouraged with the underlying fundamentals of Freddie Mac's business." Shares are down 2.3% YTD, but are up 15.3% over the past year.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Another Perfect Storm Brewing: Government Underwritten Contingent Liabilities • Fannie, Freddie and WaMu Spearhead Subprime Borrower Help • Housing Double Dips Offer Short Opportunities
Stocks/ETFs to watch: Freddie Mac (FRE). Competitors: Fannie Mae (FNM)
CME Counters ICE's Enhanced Bid For CBOT With Special Dividend Offer -- WSJ
The Wall Street Journal is reporting that the Chicago Mercantile Exchange [CME] will add to the value of its $10.3 billion all-stock bid for the Chicago Board of Trade [CBOT] by offering a special dividend to CBOT shareholders. The move is seen as a response to IntercontinentalExchange's [ICE] enhanced bid from Tuesday, which offered to supplement its all-stock offer with some cash. The timing of the offer coincides with CBOT's board meeting Thursday morning to discuss the latest developments in the bidding war for their company. It is believed CBOT's board prefers CME's offer even though it is for less, because the integration of the two Chicago-based companies will be smoother.
Sources: Wall Street Journal, CNN Money, MarketWatch
Commentary: ICE Offers CBOT 'Enhanced' Merger Proposal • CME One-Ups ICE In CBOT Bidding By Gaining Regulatory Approval • CBOT Taking ICE Offer Seriously: Money Talks
Stocks/ETFs to watch: CBOT Holdings, Inc. (BOT), Chicago Mercantile Exchange Holdings Inc. (CME), IntercontinentalExchange, Inc. (ICE). Competitors: NYSE Euronext (NYX), NYMEX Holdings Inc. (NMX), International Securities Exchange Inc. (ISE)
L-3 Communications Secures $2 Billion Bid To Build Military Transport Planes
The Pentagon announced Wednesday night that L-3 Communications has been awarded a $2.04 billion contract to construct the latest U.S. transport plane, called the C-27J, designed to transport troops and supplies using a shortened airstrip. L-3 beat out larger rival Raytheon Co. in securing the deal, partially because its design carries a larger payload. Shares of L-3 rose 1.29% to $97.90 in after hours trading on the news.The initial order is for 78 airplanes, with a delivery deadline of June 2012. JSA Research analyst Peter Arment believes the deal is "very favorable to L-3; it's a very large contract over a relatively short timeframe." Boeing Co. participated in L-3's winning bid.
Sources: Press Release, Financial Times, MarketWatch, Bloomberg, Reuters, AP
Commentary: L-3 Communications Posts Earnings Beat, Buys Satellite Company • Cramer's Take on LLL
Stocks/ETFs to watch: L-3 Communications Holdings (LLL). Competitors: Honeywell International Inc. (HON), Lockheed Martin Corp. (LMT), Northrop Grumman Corp. (NOC), Raytheon Company (RTN). ETFs: iShares Dow Jones US Aerospace & Defense (ITA), PowerShares Aerospace & Defense (PPA)
Sprint Nextel Seeks Help With WiMax -- WSJ
Sprint Nextel is now looking for ways to help finance its WiMax project, and is considering options such as strategic partnerships and/or cash investments from cable providers, the Wall Street Journal reports. Shareholders have expressed concern over Sprint's ambitions $3 billion WiMax project that will provide high-speed, wireless internet access to about 100 million users. The present steps may be an attempt at appeasing their concerns, the Journal says. CEO Gary Forsee mentioned earlier this week he might consider spinning of the WiMax unit, but didn't provide details. People familiar with the matter say one idea is to spin off the unit as part of a deal with Clearwire Corp., who they say has been negotiating with Sprint for months. Clearwire's own high-speed wireless internet currently boasts a mere 258,000 customers. A deal would remove it as a competitor, and give Sprint crucial access to Clearwire's southeastern radio spectrum. Forsee also mentioned bringing in cash from the outside, which sources say could be cable companies such as Time Warner Cable, which is currently partnered with Sprint in a venture called Pivot, that allows cable companies to market wireless internet. The cable companies may request discount WiMax access in return for their investment.
Sources: Wall Street Journal
Commentary: Sprint Nextel: The Next Data Wireless Kings? • Sprint/Nextel: The Next Data Wireless Kings? • Sprint Nextel Expands Mobile Cable/Telephone Partnership
Stocks/ETFs to watch: Sprint Nextel Corp. (S), Clearwire Corp. (CLWR), Time Warner Cable Inc. (TWC). ETFs: iShares Dow Jones U.S. Telecommunications Index (IYZ), PowerShares Dynamic Telecommunications & Wireless (PTE), PowerShares FTSE RAFI Telecommunications & Technology Portfolio (PRFQ), Vanguard Telecommunications ETF (VOX)
Conference call transcript: Sprint Nextel Q1 2007
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Asian Headlines (via Bloomberg.com)
• Asian Stocks Rebound From Two-Week Low on Fed Report; Toyota, Samsung Gain Asian stocks rebounded from a two- week low after U.S. retail sales rose more than expected and the Federal Reserve said the world's biggest economy is growing without stoking inflation.
• China's Industrial Production Surges, Supporting Case for Rate Increase China's government reported industrial production growth unexpectedly accelerated in May, hours after Premier Wen Jiabao said further steps are needed to cool the world's fastest-growing major economy.
• Wynn Increases Macau Casino Loan by 24 Percent to $1.5 Billion, People Say Wynn Resorts Ltd. (WYNN) increased the size of a loan for its casino in Macau, the world's biggest gambling market, by 24 percent to $1.55 billion, said three people with direct knowledge of the matter.
• Citigroup Raises $2.2 Billion in Japan's Biggest Bond Sale by Foreign Firm Citigroup Inc. (C) raised 270 billion yen ($2.2 billion) in Japan's biggest bond sale by a foreign firm, tapping demand for higher returns than investors can receive from the nation's companies.
• Goldman Sachs Group Offers to Invest in India's ICICI Financial Services Goldman Sachs Group Inc. (GS), the world's most profitable investment bank, offered to invest in ICICI Financial Services (IBN) to profit from increasing demand for India's asset-management and insurance businesses.
European Headlines (via Bloomberg.com)
• Stocks in Europe Advance for Second Day; Michelin, Siemens, Rio Tinto Rise European stocks advanced for a second day, led by exporters and mining companies, after concern diminished that interest rates will keep rising and metal prices rebounded in London.
• JPMorgan `Scapegoat' Savvides Testifies in Greek Bond Probe, Plans Lawsuit Former JPMorgan Chase & Co. (JPM) banker Mike Savvides told prosecutors in Athens that the U.S. bank misled Greek lawmakers about the sale of government bonds that pension funds bought at inflated prices.
• Euro Region Has Best Economic Prospects in Years, ECB Member Ordonez Says The euro region economy is facing the most favorable economic outlook for years, European Central Bank governing council member Miguel Angel Fernandez Ordonez told the board of Spain's central bank today.
• Conergy to Miss Wind-Power Goal on Component Shortage, Finance Chief Says Conergy AG, Germany's largest solar- power company, may miss a goal for expansion into windmill manufacturing because a scarcity of components is strangling production, its chief financial officer said.