Pimco Chief Bill Gross: 5-10% Correction May Be Ahead
Bill Gross, manager of world-leading bond fund Pacific Investment Management Co. (Pimco), wrote Tuesday on Pimco's website that the days of cheap financing for LBOs are over. "The tide appears to be going out for levered equity financiers," he wrote, "and in for the passive owl money managers of the debt market." Investor doubts about the ratings of subprime-backed securities have essentially shut down the junk-bond offerings that substantially finance LBOs, Gross wrote. At least 35 debt transactions have been canceled or restructured in the past five weeks. In an interview following the commentary's release, Gross said the "recent upward [100 to 150 basis point] movement in yields justifies a 5%-10% correction in stock markets," but noted that market prices don't always move in sync with changing valuations. Gross advised investors to consider the pending sale of Chrysler to Cerberus Capital Management, which "involves a huge $4-6 billion loan package that's apparently having trouble being priced," as "the pricing bellwether for this high-yield market...it pays for bond investors to let them price this deal and sit back and wait."
Sources: Bill Gross's Investment Outlook [Pimco Bonds], Bloomberg, MarketWatch, Dow Jones, Reuters
Commentary: Borrowing Costs Rising in Chrysler, Other Buyout Deals • Private Equity: Discipline Is Giving Way to Momentum and Euphoria • The Private Equity Party Might Be Over
Stocks/ETFs to watch: iShares Lehman 1-3 YR Treasury Bond (NYSEARCA:SHY), iShares Lehman 7-10 YR Treasury Bond (NYSEARCA:IEF), iShares Lehman 20+ YR Treasury Bond (NYSEARCA:TLT)
Countrywide Financial Posts 33% Net Income Drop; Slashes Guidance
Shares of Countrywide Financial fell 13% Tuesday, their sharpest intraday decline since the 1987 crash, before closing down 10.45% at $30.50 after the company reported a 33% drop in Q2 profit and slashed forecasts for the second time in three months. The S&P 500 followed the shares down 2% to 1,511.04.48, its biggest one-day drop in nearly five months. Countrywide's Q2 net fell to $485.1 million ($0.81/share) from $722.2 million ($1.15) a year ago. Analysts were expecting EPS of $0.95. Revenue was down 15% to $2.55 billion, again shy of analyst expectations of $2.86 billion. Past-due mortgage payments cut into profit by $388 million. In a worrying trend, 5.4% of home equity loans to prime customers were past-due, up from 2.2% in the year-ago quarter -- indicating that delinquencies are no longer contained among subprime borrowers. The company cut its full-year 2007 EPS forecast to $2.70-3.30 from $3.50-4.30. "We are experiencing home price depreciation almost like never before, with the exception of the Great Depression," said CEO Angelo Mozilo. "This is a huge battleship, and we're headed in the wrong direction." Mozilo does not expect the housing market to rebound until 2009.
Sources: Press release, CFC Q2 2007 Earnings Call Transcript, Bloomberg, Reuters I, II, Dow Jones, New York Times
Commentary: Countrywide Financial CEO Is Running For the Hills • Countrywide Financial: Past the Media Hype • Countrywide Financial's Delinquencies Rise
Stocks/ETFs to watch: Countrywide Financial Corp. (CFC). Competitors: Bank of America Corp. (NYSE:BAC), Washington Mutual Inc. (NYSE:WM), Wells Fargo & Co. (NYSE:WFC)
Centex Swings to a Loss, Misses Estimates
Number-four U.S. homebuilder Centex said it suffered a net FQ1 2008 loss of $131 million ($0.10/share after items), reversing earnings of $172M ($1.37) a year ago -- and worse than the $0.04 loss analysts were expecting. Revenue fell 41% to $1.94 billion, $31 million short of analyst estimates. Centex took a loss of $193 million ($0.98/share) for impairments and other land charges. Cancellations were down 1.5% to 31.2%. Centex also reduced its unsold-home inventory by 17% to 4,815. Orders for new homes fell 22% to 6,474. Centex sold its subprime mortgage business in July 2006 and its commercial construction unit in March 2007, enabling it to concentrate on its core homebuilding and prime mortgage businesses. "We're on a much steeper downturn than I expected," T. Rowe Price's Josh Spencer said in a Bloomberg pre-earnings interview, adding, "It would be a disservice to sell the stock here. I definitely think it's a good value here." CEO Tim Eller commented, "In the quarter, we reduced overhead expenses and unsold inventory, and we saw an improving cancellation rate in a difficult market. We remain focused on the fundamentals: selling homes, minimizing inventory, generating cash and attacking costs." Centex shares fell 3.5% Tuesday compared to a 1.6% drop in the DJIA, and are flat in AH trading. Shares have lost 31% over the past year.
Sources: Press release, Bloomberg
Commentary: Are Homebuilding Investors Getting a Second Chance? • Are Homebuilding Investors Getting a Second Chance?
Stocks/ETFs to watch: Centex Corp. (CTX). Competitors: D.R. Horton Inc. (NYSE:DHI), Lennar Corp. (NYSE:LEN), Pulte Homes Inc. (NYSE:PHM). ETFs: iShares Dow Jones U.S. Home Construction (NYSEARCA:ITB), streetTRACKS SPDR Homebuilders ETF (NYSEARCA:XHB)
Earnings call transcript: Centex's FQ1 2008 earnings call transcript is scheduled for Wed. at 10 a.m. ET. Check for transcript.
Amazon: Another Killer Quarter
Amazon Inc. shares climbed over 21% in AH trading after it said Tuesday Q2 net income skyrocketed 255% to $78 million ($0.19/share), up from $22 million ($0.05) a year ago -- beating average analyst estimates of $0.16. Net sales were up 35% to $289 billion, $85 million higher than estimates. Amazon boosted sales of electronics and jewelry, which now comprise about a third of its total sales, in its effort to reduce its dependence on books and DVDs. It has also cut back on costs: CFO Thomas Szkutak said in March that Amazon would cut back on technology spending after its profit margin fell to the lowest level since 1999. Wall Street has been impressed with the results: Amazon shares are up 75% since Q1 earnings showed improved profit margins and spending reductions. As of Monday's close, its shares commanded a hefty 52x 2008e earnings, vs. 21x for eBay and 14x for brick-and-mortar retailer Wal-Mart. Amazon gave Q3 guidance of $75-100M operating income (88-175% growth) and net sales of $3-3.175B (30-38% growth). For the full year, Amazon raised its forecast to $13.80-14.30B, up from $13.4-14B. The Street had been looking for $3B on the quarter and $13.84B on the year. "Our strong revenue growth this quarter was fueled by low prices and the added convenience of Amazon Prime," said Jeff Bezos, CEO and founder. Amazon will hold its earnings conference call at 5 p.m. ET (check later for full transcript).
Sources: Press release, Bloomberg, Reuters, AP
Commentary: Amazon Reports Earnings Tuesday: Will It See Christmas In July? • Amazon Reports Earnings Tuesday: Will It See Christmas In July? • The Long and Short on Amazon, Netflix, Google, Microsoft And Apple
Stocks/ETFs to watch: Amazon.com Inc. (NASDAQ:AMZN). Competitors: Barnes & Noble Inc. (NYSE:BKS), eBay Inc. (NASDAQ:EBAY). ETFs: First Trust DJ Internet Index ETF (NYSEARCA:FDN), Internet HOLDRS (NYSE:HHH), streetTRACKS Morgan Stanley Technology Index Fund (NYSEARCA:MTK)
AOL Moves Deeper Into Online Advertising with Tacoda Acquisition
AOL's agreement Tuesday to buy behavioral targeting company Tacoda is the latest move by the Internet company to catch up with competitors who already are making their marks in the on-line advertising space. Time-Warner's AOL is spending a reported $275M on the company, which tracks users' Web visits so it can target advertising to relevant sites. AOL president Ron Grant said the move "will build on our advertising momentum." Rival Google already has agreed to buy DoubleClick, Yahoo is taking over Right Media, Microsoft has nabbed aQuantive and WPP Group is buying 24/7. Between Tacoda and its earlier purchases of Advertising.com, Third Screen Media, AdTech, and Lightningcast, AOL is hoping it will be better equipped to compete with these giants in a U.S. on-line advertising market that is expected to grow to $20B this year, according to research firm eMarketer, which also forecasts that behavioral targeted ad spending will nearly double next year to $1B and then nearly triple to $3.8B by 2011. The Advertising.com division places display and search ads on the Web and accounts for some 25% of AOL's revenues.
Sources: CNET News, Business Week, Wall Street Journal
Commentary: Will Nielsen's Net Ranking Changes Impact Online Ad Spending? • Time Warner: Is a Break Up Coming?
Stocks/ETFs to watch: Time Warner Inc. (NYSE:TWX), Yahoo! Inc. (NASDAQ:YHOO), Microsoft Corp. (NASDAQ:MSFT), Google Inc. (NASDAQ:GOOG), Wausau-Mosinee Paper Corp. (NYSE:WPP)
Nintendo Hits New High on Record Earnings, Upped Guidance and Dividend
Ordinary shares of Nintendo gained 3.5% to ¥56,800 ($59.04 ADR equiv. at ¥120.25/$1) following its Q1 earnings release. Net income increased fivefold to ¥80.3M ($668M), as sales more than doubled to ¥340.4b ($2.83B). Nintendo now expects a full fiscal year (ending in March) profit of ¥245B ($2.04B), 41% higher than its forecast in April. Based on its expected EPS of ¥1,915.56, Nintendo is trading at 29.65x forward earnings. Nintendo raised its FY sales guidance 45% over its earlier projection to ¥1.4T ($11.64B). Its raised full-year operating income forecast of ¥370B ($3.08B -- 37% higher than its prior estimate) easily beat analysts' average estimate of ¥304.6B. Nintendo also hiked its full-year dividend forecast by 37% to ¥960/share, giving it a forward yield of 1.7%. Nintendo increased its full-year Wii console and software sales targets by 18% to 16.5M units and 31% to 72M titles, respectively.
Sources: Press release I, II, III [.pdf], Bloomberg, Mercury News, Reuters
Commentary: Nintendo: Ten Reasons It's at the Top of Its Game • Microsoft's Identity Crisis vs. Nintendo's Market Conquest • Nintendo Becomes Ninth Largest Japanese Company • Is Nintendo The Apple Of Video Games?
Stocks/ETFs to watch: Nintendo (OTCPK:NTDOY). Competitors: Sony (NYSE:SNE), Microsoft (MSFT). Gaming software publishers: Electronic Arts (ERTS), Activision (NASDAQ:ATVI), Konami (NYSE:KNM), Take Two (NASDAQ:TTWO), THQ (THQI)
Apple Stumbles on iPhone Sales Miss
Apple shares dropped 6.1% to $134.89 after AT&T said it activated only 146,000 iPhone customers during the phone's first two days of sales. The number is substantially below the 200,000 to 500,000-plus in first-weekend sales some analysts were projecting. Separately, a CIBC research note Tuesday said that based on a store check, iPhone demand has dropped significantly over the past ten days (see full summary). On their website Tuesday, TheStreet.com reported Apple is being paid between $150 and $200 and $9/month by exclusive service provider AT&T for each signup over the duration of the typical two-year customer contract, according to people close to the companies (see full summary).
Sources: AT&T press release, TheStreet.comMarketWatch
Commentary: Apple : AT&T’s Says 146000 Q2 iPhone Activations [Barron's] • Apple's plunge: Sore spot or buying opportunity? • Apple’s Q3 Report Wednesday: All Eyes On The iPhone • Apple To Announce Earnings: Will iPhones Overshadow Macs & iPods?
Stocks/ETFs to watch: Apple Computer Inc. (NASDAQ:AAPL), AT&T Inc. (NYSE:T)
Microsoft Buys Ad Inventory for Five EA Sports Games
Microsoft Corp. said it has inked a deal to sell and design advertisements on five EA Sports games, including top sellers "Madden Football," "Tiger Woods Golf" and NHL Hockey. Microsoft beat out competitor advertisers, specifically Google, to reserving ad inventory on some of the most popular sports games of all time. The ads will be dynamic, meaning they can be easily updated to pitch new products. According to CEO of Massive, Cory Van Arsdale, a video game adverting sales company Microsoft bought for $200 million last year, "we're making a network play. If I just had Madden, while great, it would be of limited value to advertisers." The ads will only appear on XBox 360 titles and PC-based games; console makers Sony and Nintendo have not yet approved ads on games compatible with their systems. Financial details of the arrangement weren't disclosed.
Sources: Reuters, Online Media Daily, ClickZ.com
Commentary: Peter Moore's Move To EA: Has He Learned From His Mistakes At Microsoft? • EA Sports Disappoints With 'Watered-Down' Games • Cramer's Take on ERTS
Stocks/ETFs to watch: Electronic Arts Inc. (ERTS), Microsoft (MSFT). Competitors: Google (GOOG), Activision Inc. (ATVI), TakeTwo Interactive Software Inc. (TTWO), THQ Inc. (THQI), Konami Corp. (KNM). ETFs: iShares Goldman Sachs Software Index Fund (NYSEARCA:IGV)
Earnings call transcripts: Electronic Arts F4Q07, Microsoft F4Q07
STMicroelectronics Comes Up Short
STMicroelectronics reported a second-quarter loss of $758M ($0.84/share) as revenue fell 3.2% and the chipmaker took $906M in charges. Revenue dropped to $2.41B from $2.49B. The write-down related to assets transferred to a flash-memory joint-venture with Intel. Excluding the charges, profit of $139M ($0.15/share) met analyst estimates, although revenue was shy of the $2.46 billion consensus. Last year the Geneva-based company posted earnings of $168M ($0.18/share). The company had forecast a 4-10% sequential rise in revenue and that gross margin would remain in a range 34-36% range. Gross margin was 34.7% compared with 35.4% last year. Looking ahead, STM expects sequential sales growth in a 2-7% range in Q3, and that gross margin will expand to about 35.5%. Separately, STM agreed to collaborate with IBM on the development of chip technology, including work on higher density and higher performance processors. Shares have lost 5.7% over the past three days, and are down another 3.5% in early pre-market trading. The company's earnings conference call is scheduled for 9 a.m. (see transcript later today).
Sources: Press release, Reuters, Bloomberg, Dow Jones
Commentary: Intel and STMicroelectronics: The Art of the Deal • ST Micro: Can iPhone Orientation Sensor Point the Way To Improved Financials?
Stocks/ETFs to watch: ST Microelectronics N.V. (NYSE:STM). Competitors: Texas Instruments Inc. (NASDAQ:TXN), Infineon Technologies AG (IFX), Marvell Technology Group (NASDAQ:MRVL). ETFs: HOLDRS Semiconductors (NYSEARCA:SMH), iShares Goldman Sachs Semiconductor Index Fund (IGW), PowerShares Dynamic Semiconductor (NYSEARCA:PSI)
Earnings call transcript: STMicroelectronics Q1 2007
XM Satellite Radio's CEO Calls It Quits
Number-one satellite radio provider XM Satellite Radio Holdings [XMSR] announced Tuesday its Founder and CEO Hugh Panero will leave in August, regardless of whether XMSR's proposed merger with rival Sirius gets regulatory approval. Panero will be replaced on an interim basis by XMSR's current President and COO, Nate Davis. In February, XMSR had announced Panero would stay in his position until the two companies merged, at which point Sirius CEO Mel Karmazin would become new CEO and XM Chairman Gary Parsons would become chairman of the combined company. Many analysts who were initially skeptical the merger wouldn't be approved have recently said the odds of a merger have increased. XMSR fell $0.65 (5.2%) to $11.90 in trading Tuesday. Sirius fell $0.10 (2.96%) to $3.12. XMSR reports earnings on July 26; Sirius reports July 31.
Sources: Press Release, Wall Street Journal, Bloomberg, Reuters, Variety
Commentary: XM's CEO Takes A Powder [24/7 Wall St.] • Sirius-XM Radio Would Provide A La Carte Pricing • BOA, Cowen Analysts See Sirius/XM Merger Odds Improving
Stocks/ETFs to watch: XM Satellite Radio Holdings Inc. (XMSR). Competitors: Sirius Satellite Radio Inc. (NASDAQ:SIRI), Clear Channel Communications Inc. (NYSE:CCU), Cumulus Media Inc. (NASDAQ:CMLS)
Earnings call transcripts: XM Satellite Radio Q1 2007, Sirius Satellite Radio Q1 2007
TRANSPORT AND AEROSPACE
UAL Tops Forecasts with Best Quarter in 7 Years
Shares of UAL Corp. rose to their highest since January after the company easily topped analysts' second-quarter forecasts, posting its most profitable quarter in seven years as earnings doubled from year-ago levels. The parent of United Airlines said it earned $274 million ($1.83/share) on revenue of $5.21 billion, up from $119M ($0.93) on revenue of $5.11B last year. Analysts had expected earnings of $1.39/share and revenue of $5.12B, on average. The Chicago-based carrier, which emerged from bankruptcy in February 2006, has prospered in part by cutting domestic capacity and increasing the focus on its more profitable international network. International passenger revenue climbed 16% in the quarter, while North American revenue fell 2%. The company reduced operating expenses by 3.6% to $4.68B, spending less on fuel and salaries. Although fuel costs dropped 3.5% in the second quarter, the company said they are likely to rise in Q3. Calyon Securities analyst Ray Neidl said it looked like the airline's cost-cutting efforts were taking effect, calling the strength of the numbers "a surprise." The stock rose more than 4% to close at $4.23.
Sources: Press release, Dow Jones, Bloomberg, AP,
Commentary: 21 Airline Stocks to Keep You Flying High This Summer
Stocks/ETFs to watch: UAL Corp. (UAUA). Competitors: Delta Air Lines Inc. (NYSE:DAL), Southwest Airlines Co. (NYSE:LUV), AMR Corp. (AMR), Continental Airlines Corp. (CAL)
Chrysler Struggling to Raise $20 Billion in Loans -- WSJ
Chrysler is having difficulty raising the $20 billion in the debt markets it requires to fund its operations following its pending buyout by hedge fund Cerberus Capital Management, according to the Wall Street Journal. Chrysler's bankers have struggled to convince investors to purchase $12 billion in loans for the company's auto business and $8 billion in loans for its financial unit. The underwriters are now discussing taking on half or more of $10 billion worth of the auto loan. The banks would take the first hit if Chrysler fails to repay; investors holding the rest of the loan would have first rights to the company's assets in the event of default. A $2 billion chunk of the auto loan will be offered at a higher interest rate, as will the loan sale for Chrysler Financial. Chrysler will have to raise another $42 billion in loans to pay Daimler for Chrysler debt it is holding, but that sale is expected to be easier because it will be backed by "healthy Chrysler auto loans." The tough debt market could affect rival Ford's attempts to sell off its Jaguar and Land Rover brands. This week, a $3.1 billion loan sale intended to finance the buyout of GM's Allison Transmission unit was postponed.
Sources: Wall Street Journal
Commentary: Pimco Chief Bill Gross: 5-10% Correction May Be Ahead • Borrowing Costs Rising in Chrysler, Other Buyout Deals • Daimler Ex-Chrysler Is a Bargain - Barron's
Stocks/ETFs to watch: DaimlerChrysler AG [USA] (DCX). Competitors: Ford Motor Co. (NYSE:F), General Motors Corp. (NYSE:GM), Toyota Motor Corp. (NYSE:TM). ETFs: WisdomTree International Cons Cyclical (DPC), iShares S&P Global Cons Discretionary (NYSEARCA:RXI), iShares MSCI Germany Index (NYSEARCA:EWG)
Earnings call transcripts: Q1 2007
UPS Posts Q2 Profit Rise on Strong International Shipments
U.S. shipping carrier UPS reported a 3.8% increase in Q2 earnings, just ahead of analyst forecasts, on the back of a slight sales rise. The company made $1.10 billion ($1.04/share) versus $1.06 billion ($0.97) in the year-ago quarter; the Street was expecting $1.03. Revenue was up 3.9% to $12.19 billion, behind analyst estimates of $12.23 billion. The company is forecasting Q3 EPS of $0.99-1.04 versus $0.96 in Q3 2006. Analysts are forecasting Q3 earnings of $1.02. UPS also affirmed its full-year target of a 6-10% increase in adjusted EPS. Domestic sales were up 1.6% to $7.6 billion and international sales a more impressive 12% to $2.5 billion. Asian exports grew 25%, led by China, and European exports were up 11%. UPS is facing the July 31, 2008 expiration of its contract with the Teamsters union, of which it is the country's largest employer. A contract agreement is needed to fend off rivals FedEx and Deutsche Post AG, which could profit from shippers' concerns about strikes at UPS. "We remain optimistic that we can have a contract by the end of the year," said CFO Scott Davis.
Sources: Press release, Bloomberg, AP, Wall Street Journal, TheStreet.com
Commentary: UPS Introduces Rear View Cameras: A Win-Win Situation For Everyone • United Parcel Service: Improving Economy Not Priced In • 32 Big Dividend Payers: Buy Now, Profit Later
Stocks/ETFs to watch: United Parcel Service, Inc. (NYSE:UPS). Competitors: FedEx Corp. (NYSE:FDX). ETFs: iShares Dow Jones Transportation Average (NYSEARCA:IYT), Industrial Select Sector SPDR (NYSEARCA:XLI), PowerShares FTSE RAFI Industrials (PRFN)
ENERGY AND MATERIALS
GE to Announce $1.8 Billion in Mideast Orders -- WSJ
The Wall Street Journal reported Wednesday that GE will shortly announce $1.8 billion in energy-related orders in the Middle East. The news follows the conglomerate's recent announcement of $2 billion in power-plant projects in the region. The Middle East, which is generating a 15-20% annual increase in revenue, is one of the company's fastest growing regions, along with China and India. Sales from the Middle East and Africa are forecast to hit $8 billion in 2007. GE forecasts that approximately 60% of its growth will come from emerging markets, including the Middle East, China, India and Brazil, over the next 10 years. The Middle East offers strong demand for GE's power plants, healthcare equipment offerings and aircraft engines. The company is also involved in water desalination in the region. Two months ago, GE agreed to sell its plastics business to Saudi Basic Industries Corp., for $11.6 billion. In other news, on Wednesday GE will launch a credit card in the U.S. designed to encourage users to curtail pollution. The cards will offer "rewards dedicated to reducing cardholders' carbon emissions and fighting climate change."
Sources: Wall Street Journal, Financial Times
Commentary: GE Gets It: Slimming Down, Buying Back Shares • The DJIA's Best Performing Stocks • GE CEO Jeff Immelt: GE And India “Destined To Grow Together”
Stocks/ETFs to watch: General Electric Co. (NYSE:GE). Competitors: Citigroup Inc. (NYSE:C), Koninklijke Philips Electronics NV (NYSE:PHG), Siemens AG (SI). ETFs: PowerShares FTSE RAFI Industrials (PRFN), Vanguard Industrials ETF (NYSEARCA:VIS), Ultra Industrials ProShares (NYSEARCA:UXI)
Earnings call transcripts: Q2 2007
Medical Tester Dade Behring May Be Close to Sale -- WSJ
Dade Behring is the latest target of takeover speculation in the medical-diagnostics field. The Wall Street Journal reported Wednesday that the Deerfield, Ill.-based company is evaluating the possibility, and may be close to a deal. People close to the situation say the company was sounding out prospective purchasers, including Siemens AG, which has been building up its diagnostics business since 2005. Siemens could finance the deal through the sale of its VDO auto-parts unit, which reportedly has received bids of more than €12B. from Continental AG and TRW Automotive Holdings (see full story). Spokesmen from Dade and Siemens didn't comment on the report. A deal, nevertheless, may not emerge, as the situation remained fluid, sources said. Earlier this month an $8.1B deal for General Electric to buy two diagnostic units of Abbott Labs fell apart because they couldn't agree on terms. Dade shares, which have jumped more than six-fold over the past five years, including 40% in 2007, fell 3.1% Tuesday before rising 0.7% AH to $56.27. Dade is scheduled to report second-quarter results today.
Sources: Wall Street Journal
Commentary: 20 Stocks Owned By Top Activist Funds • How to Invest Like Blue Ridge Capital's John Griffin
Stocks/ETFs to watch: Dade Behring Holdings Inc (DADE), Siemens AG (SI), General Electric Co. (GE), Abbott Laboratories (NYSE:ABT)
Japan: Trade Surplus Surges in June, BoJ Rate Hike Expectations Rise
Japan recorded a 53.4% y/y increase in its June trade surplus to ¥1.23 trillion ($10.2b), fueled by stronger-than-expected exports helped by a weak yen. Economists has expected a surplus of ¥948b - ¥953b. Exports rose 16.2% to ¥7.28t ($60.5b), exceeding economists' average estimate of a 14% rise. Imports meanwhile, increased 10.7%, coming up short of economists' forecast of +13%. Export shipments rose double-digits to Europe and Asia. Exports to the U.S. expanded 6.7% to ¥1.45t, while shipments to China jumped 22.6% to ¥1.13t, a new record. The yen was trading at a multi-year low against the U.S. dollar and an all-time low against the euro in June, but has appreciated more than 3% since bottoming on June 22. The strong trade surplus was overshadowed by continued concerns over the U.S. subprime mortgage market, resulting in broad selling of equities with the Nikkei losing 0.8% to 17,858. A majority of analysts and economists expect the Bank of Japan, which has held rates at 0.5% since February, to hike when it concludes its next meeting August 23.
Sources: Bloomberg, Reuters
Commentary: Nissan Posts Smaller Q1 Profit, Forex Gains Offset by Higher Materials Costs • BoJ Holds Again at 0.5%; Hike Still Expected in August • Japan: PM Adviser Suggests Diversifying Foreign Reserves
Stocks/ETFs to watch: Toyota (TM), Honda (NYSE:HMC), Nissan (OTCPK:NSANY), Sony (SNE), Matsushita (NYSE:MC), Nintendo (OTCPK:NTDOY). ETFs: iShares MSCI Japan Index (NYSEARCA:EWJ)
Related: Ministry of Finance Trade Statistics
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