Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 9:06 AM EST
S&P 500: -0.40; 1,534.20
NASDAQ 100: +1.50; 1,999.50
Dow: +0.00; 13,650.00
NIKKEI 225: -0.44%; 18,140.94 (-80.54)
HANG SENG: +1.25%; 22,531.74 (+278.75)
S&P/ASX 200: -0.18%; 6,351.10 (-11.20)
BSE SENSEX 30: +0.69%; 14,964.12 (+102.23)
FTSE 100: +0.31%; 6,656.00 (+20.80)
CAC 40: +0.54%; 6,092.50 (+32.97)
XETRA-DAX: +0.20%; 8,003.03 (+15.90)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +0.75%; $72.35 (+$0.54)
Gold: -0.05%; $650.30 (-$0.30)
Natural Gas: -0.09%; $6.61 (-$0.01)
Silver: -0.28%; $12.545 (-$0.035)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
June Payrolls In Line; April, May Get Big Upward Revisions
The U.S. economy added 132,000 jobs in June, very close to economist forecasts of 130,000. But revisions totaling 75,000 jobs in April and May figures put total employment gains well above expectations. Revised growth for April and May is 122,000 jobs and 190,000 jobs; previous reports had them at just 80,000 and 157,000. The gains put the three-month average at 148,000, slower than the 189,000/month average job growth seen in 2006. Unemployment remained 4.5%, while average hourly earnings climbed 0.3% -- following a 0.4% upwards revision to May's 0.3% increase. Of the survey's 278 industries, 63% were net hirers, including a 59,000 gain in education and health care. Retail cut 24,000 jobs, however, and employment services lost 26,000; the latter is often viewed as a leading employment indicator. Economists said the healthy jobs data suggest the Fed's hold on interest rate moves will extend until at least year-end. "We're seeing good job growth, consistent with an economy expanding at a decent pace. The low level of unemployment is a key concern for the Fed when they look at inflation pressures," said Barclays' chief U.S. economist Dean Maki. Stock index futures are slightly lower following the report, as are Treasuries.
Sources: Press release, MarketWatchWall Street Journal, Bloomberg
Commentary: Yellen: Fed Policy Should Encourage Growth, Contain Inflation • The American Economy Is More Than Holding Its Own • 16 Reasons To Be Bullish On This Market
Stocks/ETFs to watch: S&P 500 Index (SPY), Diamonds Trust Series 1 ETF (DIA), iShares Lehman Aggregate Bond (AGG)
Bank of America to Be Tried for Market Rigging in Parmalat Collapse
U.S. banking giant Bank of America faces prosecution in Italy for alleged market rigging in the high-profile collapse of Italian food and dairy corporation Parmalat SpA, according to a report on Dow Jones Newswires. An unnamed source says the bank has been charged by Milan-based judge Cesare Tacconi for lacking appropriate procedures that would have prevented crimes that led to the 2003 Parmalat collapse -- Europe's largest corporate failure. On Dec. 19, 2003, Bank of America revealed that a claimed BoA account with €3.95 billion was a forgery, driving the last nail in the failing company's coffin. In March 2006, BoA filed a counterclaim against Parmalat for over $1 billion, charging its management "committed fraud, misrepresentation, conspiracy and other illegal acts" resulting in financial and other losses to the U.S. bank. In June 2007, the same court ordered four banks -- Citigroup, UBS, Deutsche Bank and Morgan Stanley -- to face trial. If convicted, the banks could have their funds seized and be barred from operating in Italy. A conviction would also raise the possibility of a class-action suit from over 40,000 Parmalat bondholders who seek damages for financial losses. Parmalat shares resumed trading in October 2005.
Sources: BoA press release, Dow Jones
Commentary: How It All Went So Sour - The inside story of Parmalat [Time] • Four Attractive Money Center Banks • Bank of America: A Value, Growth and Income Stock
Stocks/ETFs to watch: Bank of America Corp. (BAC), Citigroup Inc. (C), Deutsche Bank AG (DB), Morgan Stanley (MS), UBS AG (UBS)
Shanghai Rallies, Recoups Most of Thursday's Drop
Stocks rose throughout most of Asia (ex-Japan) on Friday, paced by a 4.6% advance in Shanghai, the biggest single-day rise in six months. Trading volume recovered after a sizable decline in turnover amidst the latest pullback. Buyers returned, reportedly on speculation the government will take measures to support the market after benchmark indices fell for a third week, according to Bloomberg. In Thursday trading however, the Shanghai Composite dropped 5.25% on continued concerns of possible Beijing/PBoC intervention to slow capital flows into equities. There have also been growing concerns of robust IPO activity creating a liquidity crunch. The Shanghai Composite has peaked twice in recent months and is still down double-digits from its June 19th high. A local investment manager in Shanghai explained, "Many of us rushed in for bargain-hunting as many stocks, including big-cap ones, have fallen to levels we find attractive to buy." Bespoke Investment Group noted Thursday that the components of the Shanghai Composite were trading at a lower trailing p/e multiple at 37.9, than those of the Nasdaq at 40.1.
Sources: Bloomberg, MarketWatch
Commentary: Shanghai Composite Completes Double Top: Valuation Now Cheaper Than Nasdaq • Shanghai Composite: Dip Buyers Quick To Step In On Any Declines • China Readies Overseas Investment Fund
Stocks/ETFs to watch: Morgan Stanley China A (CAF), iShares Trust FTSE-Xinhua China 25 Index Fund (FXI), PowerShares Golden Dragon Halter USX China Portfolio (PGJ)
Korean DRAM Makers Jump On Price Recovery, Analyst Upgrades
South Korean makers of Dynamic Random Access Memory [DRAM] chips jumped in trading in Seoul Friday, on indications DRAM prices are finally starting to recover. The world's number one DRAM maker, Samsung, led the pack, gaining 6.1%, while world number two, Hynix Semi, jumped 4.7%. Also lifting the shares were two research reports from Morgan Stanley and UBS, upgrading Samsung and Hynix to 'overweight' and 'buy' respectively. Citigroup Investment Research analyst Jay Choil quotes DRAMeXchange research that shows DRAM contract prices rose 15% for July, as opposed to the just 10% rise he was predicting. This was largely as the DRAM Supply/Demand ratio fell from 115% in 1H07 to 103% in 2H07. Choil writes: "Our positive view on Samsung's 2H07 is intact with a forecast of as high as 40% QoQ OP rise in 3Q07 given tighter LCD supply, YoY handset momentum and DRAM's recovery from late June."
Sources: Citi Analyst Note, Reuters
Commentary: BOA On Semi Equipment Stocks: DRAM Price Pop Mere Inventory Build • DRAM Prices Keep Falling • DRAM and NAND Flash Spot Prices Continue To Face Downward Pressure
Stocks/ETFs to watch: iShares MSCI South Korea Index Fund (EWY) [Samsung comprises roughly 15% of EWY's holdings], Korea Fund (KF) [Samsung comprises roughly 12% of KF]. Competitors: Micron Technology (MU), Qimonda (QI), Applied Materials (AMAT), Lam Research LRCX)
Related: Wikipedia: DRAM
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Today's Market (via Sam Collins, ChangeWave.com)
Falling bond prices contributed to the slide, with the 10-year Treasury off 23/32 to 95 3/32 with a yield of 5.141%. Our bond markets were reflecting the Bank of England's hike of its key rate to 5.75%, even though our Fed Funds rate is at just 5.25%.
Rates here are also influenced by fears of future inflation. And yesterday, several reports indicated the labor market is still strong, and this can increase inflation, too. The Automatic Data Processing (ADP) employment report showed the fastest growth rate in seven months, and the Labor Department said that initial jobless claims only rose by 2,000 in the latest week, and that was below most forecasts.
The mergers-and-acquisitions rumor mill was churning in full force yesterday. This time, the Wall Street Journal reported that both Marriott International (MAR) and Starwood Hotels & Resorts Worldwide (HOT) are in play.
At the close, the Dow Industrials were down 11 points at 13,566, the S&P 500 gained less than a point at 1,525 and the Nasdaq gained 12 points, closing at another new high for 2007 at 2,657. Volume was light, with just 1.3 billion shares trading on the NYSE and 1.6 billion on Nasdaq. Decliners topped advancers on the Big Board at 17-to-14 but advancers led on the Nasdaq by 15-to-14.
Crude oil (August contract) closed 40 cents higher at $71.81, and the Amex Energy SPDR (XLE) fell by 17 cents to $70.58. August gold futures fell by 60 cents, closing at $676.30 per troy ounce, and the Philly Gold and Silver Index [XAU] gained $1.44 to close at $140.32.
What the Markets Are Saying
With the Dow and the NYSE Composite (which was off seven points) both down yesterday while the S&P 500 and Nasdaq advanced, some technicians will say that we now have a divergence, and that's bad for the market. Well, that's nitpicking to be sure, since volume is so light in this holiday week as to make any close call meaningless.
Sentiment, however, is still a problem because, for the third successive week, the American Association of Individual Investors' numbers are showing more bulls than bears. Since this is a contra-index, this isn't good, and the latest reading is bulls 44% vs. bears 33%.
Other sentiment numbers are cautioning against a further market advance, and so for now, it's time to revert back to the attitude that we will hold some cash at the ready in case we get a triple-top breakout or a triple-bottom breakdown. Either way, we'll be taking new positions sometime soon since, right now, the bull is just having a summer afternoon snooze.
Today's Trading Landscape
There are lots of job-related numbers due today, and all before the market opens: non-farm payrolls, jobless rate, average hourly earnings and average workweek (read above). Earnings are due from Aracruz Celulose SA (ARA), Laidlaw International (LI) and Material Sciences Corp. (MSC).
Microsoft (MSFT) will take a $1 billion-plus charge to correct Xbox 360 problems, and today that could put a lid on the recent rally in tech stocks.
Asian Headlines (via Bloomberg.com)
• Asian Shares Fall as Bond Yields Rise; Tokyo Electric, Westfield Decline Asian stocks fell for the first time in seven days as higher bond yields sparked speculation that investors will shift money from equities.
• China Names New Head for Agricultural Bank, Signaling Progress on Bailout China appointed central bank Deputy Governor Xiang Junbo as president of Agricultural Bank of China to clean up the lender's $99 billion of bad debt and take the company public.
• Nokia, Motorola Find Fake China-Made Cell Phone Batteries That May Explode Nokia Oyj (NOK) and Motorola Inc. (MOT), the world's biggest mobile-phone makers, said Chinese authorities in the southern province of Guangdong found four counterfeit battery models that may explode in their handsets.
• Fosun Raises $1.5 Billion in Share Sale That Drew Alwaleed, People Say Fosun International Ltd., the Chinese company with businesses ranging from pharmaceuticals to steel, raised HK$11.54 billion ($1.5 billion) in an initial public offering after individual investors ordered more than 200 times the stock on offer, people with knowledge of the matter said.
European Headlines (via Bloomberg.com)
• European Stocks Advance, Led by Shell, BHP; UBS Gains After Wuffli Ousted European stocks rose after Deutsche Bank AG increased price estimates for oil companies and Credit Suisse Group said BHP Billiton Ltd. may expand in Latin America to meet growing demand from China.
• Audi U.S. Profit Might Fall This Year on Dollar Decline, Dealership Costs Audi AG, Volkswagen AG's (OTCQX:VLKAY) luxury brand, expects U.S. earnings to fall this year because of the decline of the dollar against the euro and the cost of building its dealer network in the world's largest automobile market.
• Aga May Sell Half of Company to Focus on $20,000 Stoves; Shares Increase Aga Foodservice Group Plc, the U.K. manufacturer of kitchen equipment, may sell half its business to focus on household stoves costing as much as 10,000 pounds ($20,000). The stock had its sharpest gain in more than a year.