Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:45 AM EST
S&P 500: +1.40; 1,537.60
NASDAQ 100: +4.00; 1,989.00
Dow: -5.00; 13,660.00
NIKKEI 225: +0.29%; 18,221.48 (+52.76)
HANG SENG: +0.16%; 22,252.99 (+34.44)
S&P/ASX 200: +1.01%; 6,362.30 (+63.70)
BSE SENSEX 30: -0.12%; 14,861.89 (-18.35)
FTSE 100: +0.24%; 6,689.20 (+16.10)
CAC 40: -0.15%; 6,089.04 (-9.04)
XETRA-DAX: +0.02%; 8,076.96 (+1.70)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +0.48%; $71.75 (+$0.34)
Gold: +0.41%; $658.10 (+$2.70)
Natural Gas: -0.92%; $6.69 (-$0.06)
Silver: +0.39%; $12.735 (+$0.05)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
BoE Hikes Key Rate To 5.75%, ECB Holds At 4%; Both Weary of Inflation
The Bank of England [BoE] decided to heed Governor Mervyn King's call for a rate hike, voting to increase its key rate by 25 basis points to 5.75%, a six-year high. The move was forecast by 53 of 60 economists surveyed by Bloomberg; the FTSE 100 held its ground, and was lower by just 0.1% after the decision. In its statement explaining the decision, the BoE emphasized continued inflationary risks, saying "most indicators of pricing pressure remain elevated. The balance of risks to the outlook for inflation in the medium term continued to lie to the upside." British inflation continues to remain above the BoE's comfort zone top end of 2%, though at 2.5%, it has fallen considerably from its high of 3.1% in March. Meanwhile, the European Central Bank held its key interest rate steady at 4%, also as expected. European markets were essentially flat on the ECB's decision to hold. The rate affects the 13 countries which use the Euro. Inflationary concerns remain for the ECB and BoE going forward and Bloomberg analysts surveyed predict another ECB rate hike in September. Though Euro inflation has remained just below the ECB's comfort zone top of 2%, money-supply growth, which the ECB uses to gauge future inflation, unexpectedly accelerated to 10.7% in May, nearly its highest growth in 24 years, while energy prices continue to rise.
Sources: MarketWatch I, II, Bloomberg I, II
Commentary: ECB Hikes to 4% as Expected, Market Awaits Trichet's Comments • The Fed Drama Builds: Bank of England Makes Things More Interesting • Global Interest Yields Still At Top of Ranges
Stocks/ETFs to watch: iShares MSCI EMU Index Fund (NYSEARCA:EZU), iShares MSCI United Kingdom Index (NYSEARCA:EWU), 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 British Pound Sterling Trust (NYSEARCA:FXB), CurrencyShares Euro Trust (NYSEARCA:FXE), PowerShares DB G10 Currency Harvest (NYSEARCA:DBV)
Jones Apparel Gets Unsolicited $900M Counter-Bid for Barneys
Jones Apparel Group said Thursday it received a $900 million unsolicited cash proposal from Japan's Fast Retailing Co. (9983.TO) for its luxury department store chain Barneys New York. On June 22, Jones agreed to sell the stores to the Dubai government's private equity arm Istithmar for $825 million; it has been shopping the chain since last year. There is a $20.6 million termination fee if Jones cancels the original deal. Jones said the agreement with Istithmar has not been terminated at this point, and remains in full force. The Barneys sale was a windfall for much-criticized CEO Peter Boneparth, who bought the chain in 2004 for $400 million, and has been under pressure from shareholders to boost the company's share price in the face of weak sales (shares are down 15% YTD). Some analysts, however, have criticized the deal, noting the unit has produced stellar same-store sales increases amid strong demand for upscale merchandise, and affords Jones diversification from its weaker discount business. In a June 25 note, Wall Street Strategies analyst Brian Sozzi called the sale "a short-term fix" and said "long-term fundamentals continue to be questionable." Shares are up 5.5% to $29.95 in pre-market trading.
Sources: Press release, Dow Jones, MarketWatch
Commentary: Jones Apparel Group: No Catalysts In Sight to Boost Ailing Stock • Jones Apparel: Room to Grow -- Barron's • Jones Apparel May Sell Barneys Today -- New York Times
Stocks/ETFs to watch: Jones Apparel Group Inc. (NYSE:JNY). Competitors: AnnTaylor Stores Corp. (NYSE:ANN), Brown Shoe Company Inc. (BWS), Liz Claiborne Inc. (LIZ). ETFs: Retail HOLDRS ETF (NYSEARCA:RTH)
Chrysler Aligns With China's Chery Automobile
In a deal that could be a trend-setter for the U.S.' Big Three automakers, Chrysler Group inked a deal Wednesday with Chery Automobile of China. Outsourcing the assembly of some of its vehicles to China could bring more affordable and profitable cars to the U.S. and Europe by the end of 2009. The initial Chrysler-Chery vehicle will be branded a Dodge and will be based on Chery’s A1 compact (pictured), which fetches between $7,100 and $7,900 in China. Export prices have not yet been announced. The alliance would be the first time ever Chinese-made automobiles were imported to the U.S. Chery CEO and Chairman, Yin Tongyao, believes the deal will also assist in boosting foreign sales of its own models, which currently do not pass U.S. and European safety inspection standards. German-owned Daimler recently sold its North American Chrysler Unit to Cerberus Capital Management after several billion-dollar loss quarters. Chinese auto workers earn an average of $0.83 an hour, versus an average of more than $70 for U.S. auto workers.
Sources: Wall Street Journal, AP, MarketWatch, Globe and Mail
Commentary: Chrysler, Chery Make It Official, First Cars To U.S. By 2009 • Big Three Automakers Lose Ground to Japanese in June • Upcoming UAW Negotiations 'Do or Die' For Detroit's Big Three
Stocks/ETFs to watch: DaimlerChrysler (DCX). Competitors: General Motors (NYSE:GM), Ford (NYSE:F), Toyota (NYSE:TM), Honda (NYSE:HMC), Nissan (OTCPK:NSANY), Tata Motors (NYSE:TTM)
Conference call transcripts: DaimlerChrysler Q1 2007 Earnings Call Transcript
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Tuesday's Action
Low volume and volatility defined Tuesday's shortened stock market session, as most had predicted. It was helped along by a gaggle of new deals and predictions from Wall Street analysts that the Q2 earnings season, which is about to start, will provide some pleasant surprises.
Everyone seemed to ignore the unpleasant pending home sales report that showed sales of existing homes falling by 3.5%. But factory orders fell by 0.5% in May, and that wasn't as bad as anticipated.
Kraft (KFT) offered to buy Group Danone's global biscuit business for $7.2 billion in cash, and Teck Cominco (NYSE:TCK) made a $3.9 billion bid for Wendy's International (NASDAQ:WEN). With investment banks active again, their stocks led the general advance.
At the close of the abbreviated session, the Dow Industrials gained 42 points at 13,577, the S&P 500 gained five at 1,525 and the Nasdaq hit another new high for the year, closing up 13 points at 2,645. Trading volume on the NYSE was 764 million shares, and just over a billion shares changed hands on the Nasdaq. Advancers exceeded decliners on both exchanges: The NYSE was 19-to-11 and the Nasdaq 4-to-3.
Crude oil (August contract) rose again, this time by 32 cents at $71.41, and that's very close to a 10-month high. The Amex Energy SPDR (NYSEARCA:XLE) gained 59 cents to close at $70.75. August gold futures were hit for $3.80 at $655.40 per troy ounce, and the Philly Gold and Silver Index [XAU] lost 28 cents at $138.88. The 10-year Treasury note was off 12/32, putting the yield at 5.045%.
What the Markets Are Saying
The trading so far this week has been predictably volatile with low volume. It is encouraging to see the averages reverse off of their June lows, and by closing above both the 20- and 50-day moving averages, it puts the bears on the defensive. And that's a tough position to be in, especially with NYSE Short Interest at an all-time high. With so many shorts, a new high by the major averages would no doubt cause a rush of short-covering and possibly an explosive run of 500 or more Dow points.
Today's Trading Landscape
Two economic reports are due today: The Automatic Data Processing [ADP] employment numbers for June and non-farm payrolls -- both at 8:30 a.m. There are no significant earnings due. Bear Stearns (NYSE:BSC) reduced the rating on General Motors (GM) from "Outperform" to "Perform," and that could have some effect on the Dow Industrials' performance.
China's main index, the China Composite Index, fell 5.3% -- the biggest drop in a month -- but Europe's markets are steady this morning despite a hike in the Bank of England's key interest rate to 5.75% (read above).
Asian Headlines (via Bloomberg.com)
• Asian Equities Advance to a Record, Led by Samsung; China's Shares Tumble Asian stocks climbed for a sixth day, buoyed by rising prices of computer chips and metals. China's CSI 300 Index tumbled on concern new share sales will drain as much as $40 billion from the market.
• China's Stocks Slide Most in a Month on Share Sales, Call for Crackdown China's stocks fell the most in a month on concern $20 billion of planned share sales will overwhelm demand for equities as regulators seek to damp speculation in Asia's best-performing stock market.
• Western Mining Raises $816 Million in Shanghai at Top of IPO Price Range Western Mining Co., China's second- largest maker of lead concentrate, raised 6.2 billion yuan ($816.4 million) in an initial public offering in Shanghai after attracting orders for more than 200 times the shares available.
• Thai Baht Rises to Decade-High on Inflows to Stocks: World's Biggest Mover Thailand's baht rose beyond 34 to the dollar for the first time in a decade as overseas investors increased purchases of stocks and exports buoyed economic growth.
• TPG, Affinity Partners Seek Asia's First Covenant-Lite Loan, People Say TPG Inc. and Affinity Equity Partners Ltd. plan Asia's first loan that provides banks with minimal protection to fund their S$2.2 billion ($1.4 billion) buyout of Singapore's United Test & Assembly Center Ltd., said two people with direct knowledge of the transaction.
European Headlines (via Bloomberg.com)
• European Retail Stocks Gain, Paced by Carrefour on Upgrade; Vodafone Drops European retail stocks rose, led by Carrefour SA after Merrill Lynch & Co. recommended buying the shares. Benchmarks in the region were little changed.
• KKR Accepts Lenders' Borrowing Limits in Record $22 Billion Boots Buyout Kohlberg Kravis Roberts & Co. will accept borrowing limits imposed by lenders funding its 11.1 billion-pound ($22 billion) purchase of Alliance Boots Plc, as investors shun risky assets, bankers arranging the deal said.
• Dubai International Capital Buys 3.12 Percent Stake in Airbus Parent EADS Dubai International Capital LLC bought 3.12 percent of European Aeronautic, Defence & Space Co. in a bet that Airbus, the world's biggest maker of commercial planes, is recovering from delays and management upheaval.