Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:45 AM EST
S&P 500: +0.20; 1,520.70
NASDAQ 100: +3.75; 1,951.75
Dow: +9.00; 13,515.00
NIKKEI 225: -0.56%; 18,087.48 (-101.15)
HANG SENG: -0.81%; 21,822.35 (-177.56)
S&P/ASX 200: -0.83%; 6,329.80 (-52.80)
BSE SENSEX 30: +0.14%; 14,487.72 (+20.36)
FTSE 100: -0.21%; 6,553.30 (-14.10)
CAC 40: -1.02%; 5,961.61 (-61.64)
XETRA-DAX: -1.07%; 7,864.70 (-84.93)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -1.55%; $68.07 (-$1.07)
Gold: -0.50%; $653.70 (-$3.30)
Natural Gas: -2.61%; $6.94 (-$0.19)
Silver: -0.35%; $12.975 (-$0.045)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Walgreen Posts Solid Q3 Gain, Pushes Ahead With New Store Openings
Number-one U.S. drugstore chain Walgreen said its FQ3 earnings rose 18% to $0.56/share ($561.2 million) from $0.46 last year, beating analyst estimates of $0.54. Sales were up 11% to $13.7 billion, $90 million short of the $13.79 billion analysts expected. Prescription sales accounted for 65.9% of total sales. The company said it is on track to hit its goal of 500 new stores (400 net) in 2007; it has opened 352 new stores in the first nine months of its fiscal 2007. CEO Jeffrey A. Rein: "The growth opportunity we have ahead of us is exciting. With the first of 78 million baby boomers turning 65 in 2011, the demand for pharmacy services will get bigger and bigger. We intend to be the best-positioned pharmacy chain in the country to serve that need, and we're on track to exceed our goal of 7,000 stores in 2010." Research firm IMS Health said Walgreen and rival CVS Caremark stand to reap the benefits of patents expiring on drugs with annual sales of $12 billion in 2007. Walgreen shares are down 2% YTD, vs. a 18.2% gain for #2 drugstore chain CVS Caremark. Its shares are up 1.3% in pre-market trading.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Walgreen: Dependable Against Recession • Walgreen Co. and Genentech: Two Ways to Play the Drug Sector • Walgreen's Response to Wal-Mart's Drug Assault
Stocks/ETFs to watch: Walgreen Comp. (WAG). Competitors: CVS Caremark Corp. (NYSE:CVS), Rite Aid Corp. (NYSE:RAD), Longs Drug Stores Corp. (LDG), Express Scripts Inc. (NASDAQ:ESRX), Drugstore.com Inc. (NASDAQ:DSCM)
Petrohawk To Sell Gulf Unit, Form Master Limited Partnership; Shares Up
Petrohawk Energy Corporation announced Monday morning it was planning to sell its Gulf Coast unit to focus on mid-continent natural gas resource development, predominantly in North Louisiana and East Texas and in the Fayetteville and Woodford Shales. Petrohawk also announced the purchase of 32,000 acres of natural gas property in Arkansas for an undisclosed sum. Both the Arkansas purchase and the sale of its gulf unit are expected to close during the third quarter. Separately, the company announced plans to form a Master Limited Partnership [MLP] with some of its Permian and Arkoma basin properties, leading to an initial public offering price in a range of $150 million - $225 million. Among the benefits of forming an MLP, management believes the move will "create additional stockholder value by increasing the valuation metrics of the reserves contributed to the MLP and [will] strengthen the Company's financial position and allow it to fund the development and acquisition of resource style properties within its core geographic regions." The announcements sent Petrohawk shares higher in pre-market action, gaining 4.48%, or $0.74 to $17.25, as of 8:34 a.m EST.
Sources: Press Release I, II, AP, Reuters, MarketWatch
Commentary: Where is the North American Natural Gas Market Headed? • Natural Gas Picks and Pans • Energy Stocks That Will Grow Even if U.S. Markets Decline
Stocks/ETFs to watch: Petrohawk Energy Corporation (NYSE:HK). Competitors: Anadarko Petroleum Corp. (NYSE:APC), Chesapeake Energy Corp. (NYSE:CHK), Comstock Resources Inc. (NYSE:CRK)
ETFs: SPDR S&P Oil & Gas Explore & Prod. (NYSEARCA:XOP)
London Stock Exchange to Acquire Borsa Italiana for €1.63B
Shares of the London Stock Exchange lost as much as 7.8% in early trading Monday, on news it plans to acquire privately held Borsa Italiana for €1.63 billion in an all-share transaction. The LSE is offering 4.9 of its shares for each Borsa share, which will dilute current shareholders' stakes, including the Nasdaq's from 30% to around 20%. The dilution factor, as well as the combined entity (valued at about €5.8b) being more difficult of a takeover target, put downward pressure on its shares, according to analysts. An analyst a Man Securities called it a "smart move," saying "it's a reasonable price given revenue synergies and cost savings (expected around €29m annually by 2010)." The analyst added, "This increases the probability of LSE remaining independent, which is one of the reasons they are doing it." Separately, Borsa Italiana said it has "no doubt" of its right to exercise an option to buy out the NYSE's 51% stake of European bond trading platform MTS.
Sources: Bloomberg, Reuters I, II
Commentary: NYSE Euronext Takes on LSE in Borsa Italiana Bidding War -- WSJ • NYSE Euronext Weakness Continues • Nasdaq to Purchase Nordic Bourse Operator OMX for $3.67 Billion
Stocks/ETFs to watch: London Stock Exchange Group PLC (UK:LSE), Nasdaq Stock Market Inc. (NASDAQ:NDAQ). Competitors: NYSE Euronext (NYSE:NYX)
Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.
Today's Market (via Sam Collins, ChangeWave.com)
Recap of Last Week's Action
On Friday, it was all about higher interest rates abroad, the failure of several Bear Stearns (NYSE:BSC) hedge funds that were impacted by the subprime problem, and the fear of an increase in future core inflation due to higher oil prices. As a result, the stock market suffered its worst loss since mid-March and closed near to its low of the day.
Even a solid performance from the closely watched IPO from Blackstone Group (NYSE:BX), which closed $4.06 higher than its initial offering, and an announcement from eBay (NASDAQ:EBAY), which closed up 2% after news that it was re-entering the China market, failed to slow the selling.
But with interest rates rising around the world -- particularly with recent increases from the European Central Bank, the Swiss Central Bank and the Reserve Bank of New Zealand -- coupled with fresh fears that China may restrict credit even further, such increases could bleed money from the equity markets. As might be expected, the financial sector took a hit, with REITs and investment banks experiencing the biggest losses.
As a result, the Dow Jones Industrial Average fell by 186 points Friday to close at 12,260. The S&P 500 lost 20 points at 1,503, and the Nasdaq fell 28 points to close at 2,589. Volume picked up on the decline, with the NYSE trading 2.6 billion shares and the Nasdaq doing 2.7 billion. Breadth was negative by an average of more than 3-to-1 on both exchanges.
The Bear Stearns news hit on Wednesday and resulted in a Dow loss of 149 points. All told, for the week the Dow lost 2%, as did the S&P 500, while the Nasdaq fell by 1.4%. The 10-year Treasury bond closed at a yield of 5.13% and below its highest yield of the week, which was made on Thursday at 5.19%.
Crude oil (August contract) rose 49 cents to close at $69.14 a barrel, but the Amex Energy SPDR (NYSEARCA:XLE) fell 65 cents to close at $69.75. Despite a good supply of crude, refineries are still not able to meet demand. So, July reformulated gasoline rose 4 cents to close at $2.04 a gallon, up 2.67 cents from the week before.
What the Markets Are Saying
With the focus now on interest rates, the focus is less on what stocks will do than where bond yields will go. And most of the experts think that, in the short term, the 10-year Treasury could easily climb to 5.25%-5.30% yield area before leveling off.
If that is the extent of the increase, then the stock market may hold at the near-term support areas we outlined last week, namely Dow 13,300, S&P 1,490-1,500 and Nasdaq 2,530-2,550.
But the index to watch when considering the future of rates is the Dow Utilities Index. Friday's close at 485.37, down 8.68 points, breaks the closing low of 488.16 made on June 12 -- setting up the index for a test of the February-to-March trading range and puts the 200-day moving average now at 473.12.
And so, we may see a yield north of 5.30%. For now, the caution light is flashing brightly and it's time to raise some cash until the market sorts out all of this.
Today's Trading Landscape
The highlight of this week will be Thursday's Fed meeting and the announcement about its posture on interest rates. But today, look for existing home sales, with the experts expecting a decline from 5.99 million to 5.90 million. And again, the focus of trading will be on the bond markets. This morning, Europe's markets are lower as a result of the same concern. Walgreen (WAG) will provide today's only significant earnings report (read above).
Asian Headlines (via Bloomberg.com)
• Asian Stocks Decline on Concern Over U.S. Home Sales; China Shares Plunge Asian shares fell, led by Sony Corp. (NYSE:SNE) and BHP Billiton Ltd. (NYSE:BHP), on concern figures this week will show a drop in U.S. home sales, signaling declining demand in the region's largest export market.
• Fosun Plans $1.4 Billion IPO, Draws Li Ka-shing as Investor, People Say Fosun International Ltd. is raising as much as HK$10.85 billion ($1.39 billion) in an initial public offering whose investors include Hong Kong billionaire Li Ka- shing, said people with direct knowledge of the matter.
• Sinopec Shares Decline in Hong Kong After Chairman Chen Tonghai Resigns Shares of China Petroleum & Chemical Corp. (NYSE:SNP), Asia's largest refiner, fell the most in more than two months after Chairman Chen Tonghai's resignation prompted reports about corruption at the company known as Sinopec.
• Valad Property to Buy Scarborough for $1.7 Billion to Expand in Europe Valad Property Group, an Australian developer, agreed to buy Scarborough Group Holdings Plc for A$2 billion ($1.7 billion) from its founder Kevin McCabe, increasing the company's European real estate holdings more than sevenfold.
European Headlines (via Bloomberg.com)
• European Stocks Fall for Third Day; Deutsche Bank, France Telecom Decline European stocks declined for a third day, led by financial shares and utilities, after the Bank for International Settlements said central banks will need to keep raising interest rates to quell inflation.
• Cheyne Capital's Queen's Walk Fund Loses $91 Million on Subprime Mortgages Queen's Walk Investment Ltd., a fund investing in the riskiest portions of bonds backed by mortgages, reported a net loss caused by the slump in the U.S. subprime market and increased repayments by U.K. borrowers.
• France Starts Selling as Much as 7 Percent of France Telecom to Curb Debt The French government began selling as much as 7 percent of France Telecom SA (FTE), valued at about 3.7 billion euros ($5 billion), as President Nicolas Sarkozy seeks to reduce debt before enacting tax cuts.
• Saga, Automobile Association Agree to Form New Company Worth $12.4 Billion Saga Ltd., a British provider of insurance and vacations to the over-50s, agreed to merge with the Automobile Association Ltd. in a transaction that values the two closely held companies at 6.2 billion pounds ($12.4 billion).