Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 9:06 AM EST
S&P 500: +0.40; 1,520.40
NASDAQ 100: -3.25; 1,988.75
Dow: -10.00; 13,575.00
NIKKEI 225: -1.11%; 18,049.51 (-203.16)
HANG SENG: -1.22%; 22,607.02 (-278.82)
SHANGHAI SE COMPOSITE: +0.33%; 3,865.72 (+12.70)
BSE SENSEX 30: -0.66%; 14,910.62 (-99.26)
FTSE 100: -0.48%; 6,599.10 (-31.80)
CAC 40: -0.85%; 5,967.93 (-51.29)
XETRA-DAX: -1.57%; 7,839.88 (-124.88)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.25%; $72.63 (-$0.18)
Gold: +0.12%; $665.20 (+$0.80)
Natural Gas: +1.91%; $6.83 (+$0.13)
Silver: +0.46%; $13.035 (+$0.06)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Unilever Trading Higher on Reports of Possible TOB from Colgate
Ordinary shares of Unilever trading in London and Amsterdam are up about 3% in afternoon trading, on news of reports saying Colgate-Palmolive could make a takeover bid. Unilever's shares have traded to the upside following Danone's $16.7 billion offer for Numico, a Dutch baby food maker. New York registered shares and ADRs of Unilever NV and Unilever plc (both listed on the NYSE) are tracking the gains in Europe in pre-market trading. They rose 1.7% to $31.91 and 1.9% to $33.11, respectively on Tuesday. Colgate is untraded so far in pre-market activity. MarketWatch notes Unilever declined to comment on the reports.
Commentary: Selling Unilever Calls: Euro Has Reached Its High • Unilever: The High Dividend Consumer Staples Leader • Unilever PLC's Intrinsic Value, Share Price Converge
Stocks/ETFs to watch: Unilever NV (NYSE:UN), Unilever plc (NYSE:UL), Colgate-Palmolive Co. (NYSE:CL). ETFs: iShares MSCI Netherlands Index (NYSEARCA:EWN)
Infosys Beats, Guides Down
India's number-two computer-services provider, Infosys, said Wednesday Q1 earnings beat analyst expectations, but that a strong rupee and a weak U.S. dollar would take a toll on its yearly earnings. Net income of $267 million ($0.47/share) was 53.4% higher than a year ago; analysts were expecting $0.39. Quarterly revenue jumped 42.3% to $939 million, $25 million more than analyst predictions of $914 million. The company gave slightly weaker fiscal-2007 earnings and revenue guidance than it had previously, despite charging higher fees. It now predicts Q2 revenue of $974-984 million and EPS of $0.46, or $4-4.05 billion and $1.92-1.94 on the year. The rupee, which made its strongest advance against the dollar in three decades last quarter, is eroding the value of its earnings in the U.S., its biggest market. "The sharp appreciation of the rupee against all major currencies impacted our operating margins during the quarter. However, our robust and flexible operating and financial model enabled us to maintain our net margins while absorbing the impact of appreciating currency, higher wages and visa costs," said CFO V. Balakrishnan. One analyst downplayed the reduction: "We must remember that Infosys is known to be conservative and the reduction in the rupee-denominated estimates possibly reflects that conservative approach." Shares slid 3.5% in Bombay Wednesday morning; those of competitor Satyam dropped 3.9%.
Sources: Press release (.pdf), Bloomberg, MarketWatch, Reuters,
Commentary: Strong Indian Rupee Continues to Weigh on Software Exporters • Onshore and Offshore Revenues In IT Consulting Companies • Can Infosys Technologies' Stock Grow Beyond 2009?
Stocks/ETFs to watch: Infosys Technologies Ltd. (NASDAQ:INFY). Competitors: Satyam Computer Services (SAY). ETFs: iPath MSCI India ETN (NYSEARCA:INP)
Conference call transcript: Infosys F4Q07
Alcan in Negotiations with Rio Tinto -- Globe and Mail
Montreal-based Alcan has begun merger negotiations with Rio Tinto plc in the hopes of fending off a hostile bid from U.S. rival Alcoa, according to a report in the Globe and Mail. Unnamed sources say Rio hired investment bank CIBC World Markets over the weekend to advise it on an Alcan merger. In a regulatory filing, Alcan said it "has undertaken negotiations concerning potential strategic transactions and alternatives to the Alcoa offer." Alcoa tabled its hostile takeover bid in early May after extended merger negotiations failed to produce a deal. An Alcoa/Alcan merger would create the number-one aluminum producer in the world. This week, Alcoa CEO Alain Belda said his company's offer is the best for Alcan, and that the combined entity could achieve over $1 billion in synergies. BHP Billiton is also said to have had discussions with Alcan, but sources say it is currently examining a potential Alcoa takeover. Both Rio and Alcan have strong Australian operations; Credit Suisse analyst Jeremy Gray estimates an Alcan acquisition could boost Rio Tinto's profits 7% by next year, with assumed cost savings of $200-250 million. Alcan spokeswoman Anik Michaud said Alcan is in talks with more than one party, and that "the discussions have moved to negotiations and, as the filing says, they have signed confidentiality and standstill agreements." Alcan shares are up 1.3% to $87.29 in pre-market trading; Rio Tinto ADRs have gained 0.8% to $317.93.
Sources: Globe and Mail
Commentary: Rio Tinto Hires Advisors in Possible White Knight Bid for Alcan -- Telegraph • Analysts Skeptical of BHP Bid for Alcoa, Alcan; Shares of All Three Rise • Alcoa Could Still Get Alcan With An Increased Offer
Stocks/ETFs to watch: Alcan Inc. (NYSE:AL), Rio Tinto plc (RTP), Alcoa Inc. (NYSE:AA)
Microsoft Balks At Xbox Price Cut; Inks Distribution Deal With Disney
Wednesday, Reuters and Bloomberg stories on the same topic, whether Microsoft would cut the price of its Xbox 360 game console, had considerably different takes, though using the same primary source. Head of Microsoft Games Studios, Shane Kim, told Reuters Microsoft has "no desire, no need, to react to anything the competition has done," referring to Sony's recent decision to trim $100 off its PS3 game console price. "We feel really great about the Xbox 360 momentum right now. Customers are voting with their wallets, it's not just about console units. We feel great about how we're doing." Bloomberg, meanwhile, quoted Kim as saying, "We need to compete effectively for that customer and part of that is getting to the mass market price point for the console. We definitely are working on that area." Kim wouldn't say when consumers could expect Xbox price cuts, according to Bloomberg. Microsoft shipped 11.6 million Xbox 360s worldwide in its just-ended fiscal year, short of its 12 billion unit target. In fiscal 2006, Microsoft's games unit lost $1.26 billion on sales of $4.26 billion; the company recently announced it was taking a $1.15 billion charge to repair broken Xbox 360s. Separately, Microsoft announced plans to distribute 35 Disney movies in high definition, including mega hits like "Aladdin" and "Armageddon," through downloads on its Xbox Live service. Disney joins more than two dozen other content providers already available on the download service. The agreement also allows Xbox Live users to rent films on demand as they become available from Walt Disney Pictures, Touchstone Pictures, Miramax Films and Hollywood Pictures.
Sources: Press Release, Reuters, Bloomberg, AP
Commentary: Why Microsoft Must Come Clean About Xbox 360 Flaws • Sony Cuts PS3 Price by $100, Announces 80GB Version • Microsoft to Take $1B Charge for Xbox 360 Repairs
Stocks/ETFs to watch: Microsoft (NASDAQ:MSFT), Disney (NYSE:DIS). Competitors: Sony (NYSE:SNE), Nintendo (OTCPK:NTDOY). ETFs: iShares Goldman Sachs Software Index Fund (NYSEARCA:IGV), Software HOLDRS Trust ETF (NYSE:SWH), PowerShares Dynamic Software (NYSEARCA:PSJ)
Conference call transcripts: Microsoft F3Q07 (Qtr End 3/31/07) Earnings Call TranscriptMicrosoft F3Q07 (Qtr End 3/31/07)
Related: XBox Home • XBox Live/Movies
Citigroup to List on Tokyo Exchange ASAP
Citigroup CEO Chuck Prince says the company will list its shares on the Tokyo Stock Exchange "as soon as possible," as part of an effort to further diversify profit sources and support its expansion in Japan. In addition, Citi has appointed Masajuro Shiokawa, Japan's former finance minister, as chair to a local advisory council, and named Howard Baker, former U.S. ambassador in Japan, vice chairman of the council. Earlier this month, Citi announced its Japanese subsidiary reincorporated locally. In June, Citigroup gained two-thirds majority control of Nikko-Cordial, Japan's third-largest brokerage. Citigroup is the largest foreign bank in Japan, with 30 branches and five more planned by August, as it aims to double its number of retail locations (to around 200 including Nikko's) over the next several years. Benefits of a Tokyo listing include greater brand awareness, more accurate pricing of shares and easier local M&A. Shares of Citigroup lost 1.2% to $51.00 on Tuesday.
Sources: Associated Press, Bloomberg, MarketWatch
Commentary: Citigroup Clinches Key Stake in Nikko Cordial • Why I'm Buying Citigroup • Four Attractive Money Center Banks
Stocks/ETFs to watch: Citigroup Inc. (NYSE:C), Nikko Cordial Corp. (OTC:NIKOY). Competitors: Mitsubishi UFJ Financial Group (NYSE:MTU), Mizuho Financial Group (NYSE:MFG). ETFs: DIAMONDS Trust, Series 1 (NYSEARCA:DIA), iShares Dow Jones US Financial Services (NYSEARCA:IYG), Financial Select Sector SPDR (NYSEARCA:XLF), KBW Bank ETF (NYSEARCA:KBE)
Conference call transcripts: Citigroup Q1 2007
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
The Dow Industrials were hit with a triple-digit round of selling yesterday, and it started at the opening bell.
The problems began after Monday's close when Alcan's (AL) Q2 earnings just met analysts' earnings estimates but fell short on revenues. Then both Home Depot (NYSE:HD) and Sears Holdings (NASDAQ:SHLD) lowered future earnings forecasts, and Standard & Poor's said it might cut the ratings on $12 billion of subprime mortgage bonds.
Home Depot later said that it would tender 250 million shares, and the stock closed fractionally higher on that news. But even that didn't help the broader market, and neither did a speech from Fed Chairman Ben Bernanke that was short on policy issues and the future direction of the economy.
The worst beating of the day was suffered by the financial industry, with the struggling retail sector a close second.
At the close, the Dow Industrials had lost 148 points at 13,502, the S&P 500 dropped 22 at 1,510 (off 1.42%), and the Nasdaq fell 31 points and closed at 2,639. Volume picked up on the selling with 1.6 billion shares trading on the Big Board and 2.2 billion on the Nasdaq, and breadth was decidedly negative on both exchanges at more than 22-to-7 down.
The U.S. dollar had one of its worst days this year -- falling against the world's major currencies and topping $1.37 against the Euro and more than $2.02 against the British pound sterling. And with that, most commodities rallied. The August crude oil contract gained 62 cents, closing at $72.81, and August gold futures rose $1.90, closing at $664.40 per troy ounce. However, the Amex Energy SPDR (NYSEARCA:XLE) lost 50 cents at $71.65 and the Philly Gold and Silver Index [XAU] lost 54 cents to close at $146.02.
What the Markets Are Saying
Just as the bulls were about to break open into new high ground, yesterday all factors seemed to conspire against them. And even though some of the internal indicators did a flip-flop by giving short-term sell signals, it is likely that the selling will abate once a couple of well-known corporate names exceed analysts' forecasts.
As for the charts, the leading indexes dropped just short of their 20-day moving average lines, which represent extreme near-term support. The next support comes in at the 50-day moving average and, after that, the more-significant numbers at the May and June lows.
And we may get down to those areas before we see some reversals back up since the real earnings frenzy doesn't begin until next week.
Today's Trading Landscape
Today's only economic report is the weekly mortgage applications data, but earnings are expected from YUM! Brands (NYSE:YUM), AMR Corp. (NYSE:AAR), Acergy (ACGY), Chaparral Steel (CHAP), Genentech (Private:DNA), iGate (NASDAQ:IGTE), Mercantile Bank (NASDAQ:MBWM), Ruby Tuesday (NYSE:RT) and Wolverine World Wide (NYSE:WWW). The subprime-mortgage situation is in focus again today, and this time Congress is scrutinizing the issue.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Fall on U.S. Housing, Growth Concerns; Toyota, BHP Decline Asian stocks fell for the first time in three days as concern a U.S. housing slump will slow growth led investors to seek the safety of government bonds.
• Japan's Bonds Rise Most in 10 Months as Rating Cuts Boost Government Debt Japan's 10-year bonds rose the most since August after downgrades of debt backed by U.S. subprime mortgages sparked demand for the safety of government securities.
• China's Foreign Reserves Top $1.3 Trillion, Adding Pressure for Yuan Gains China's foreign-exchange reserves, the world's largest, climbed to a record $1.33 trillion at the end of June, increasing pressure on the government to allow faster yuan gains.
European Headlines (via Bloomberg.com)
• European Stocks Fall, Led by Banks, Exporters; UBS, Shell, Siemens Decline European stocks fell for a second day, led by banks and exporters, on concern that mounting U.S. mortgage losses will hamper the world's biggest economy and slow global expansion.
• BSkyB Added 259,000 Broadband Subscribers in Fourth Quarter, Beats Target British Sky Broadcasting Group Plc (BSY), the U.K.'s largest pay-TV company, added 259,000 new broadband customers in the fiscal fourth quarter, topping its target for the year as it took customers from rival Virgin Media Inc.
• ECB Policy Makers Say Inflation May Accelerate, Suggesting Higher Rates European Central Bank policy makers including executive board member Juergen Stark said inflation may accelerate in the euro region, suggesting they support raising interest rates further.
• Daimler Says There's No Delay in Chrysler Sale to Cerberus; Shares Decline DaimlerChrysler AG (DCX), the world's fifth-largest carmaker, said there's no delay in the sale of the unprofitable Chrysler division amid trader concern that financing of the transaction hit a roadblock.
• Corporate Bond Risk Soars Most in Three Years on Subprime Debt Downgrades Corporate bond risk soared in Europe by the most in at least three years as debt rating downgrades on U.S. subprime securities triggered a worldwide selloff, according to traders of credit-default swaps.