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Wall Street Breakfast's Pre-Market Snapshot

MACRO AND HOUSING

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 DealsPrivate Equity: Discipline Is Giving Way to Momentum and EuphoriaThe 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. CFC 25 07 2007 EarningsChartThe 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 HillsCountrywide Financial: Past the Media HypeCountrywide 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 CTX 25 07 2007 EarningsChartestimates. 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.

INTERNET

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. AMZN 25 07 2007 EarningsChartNet 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 TWX 25 07 2007 Charttracks 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)

TECHNOLOGY

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-Chart-7-25-2007Nintendo 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 GameMicrosoft's Identity Crisis vs. Nintendo's Market ConquestNintendo Becomes Ninth Largest Japanese CompanyIs 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. AAPLSeparately, 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 iPhoneApple 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.
ERTS 25 07 2007 Chart MSFT 25 07 2007 ChartSources: 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' GamesCramer'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. STM 25 07 2007 EarningsChartThe 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 DealST 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

MEDIA

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.xmsr 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 PricingBOA, 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. UAUA 25 07 2007 EarningsChartThe 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. DCX 25 07 2007 ChartChrysler'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 AheadBorrowing Costs Rising in Chrysler, Other Buyout DealsDaimler 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 UPS Earnings 25 7 07was 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 EveryoneUnited Parcel Service: Improving Economy Not Priced In32 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. GE 25 07 2007 ChartThe 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 SharesThe DJIA's Best Performing StocksGE 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

HEALTHCARE/BIOTECH

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 DADE 25 07 2007 Chartsounding 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 FundsHow 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)

INTERNATIONAL

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 CostsBoJ Holds Again at 0.5%; Hike Still Expected in AugustJapan: 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

MUST-READS ON SEEKING ALPHA TODAY

U.S. Market: Are We Heading Towards Another Long-Term Capital Management Crisis?
Housing: Homebuilding Outlook: Sector Picks and Pans
Long Idea: The DJIA's Best Performing Stocks
Short Idea: It's Hard for Investors to Ignore Painful Lessons
Internet: MySpace to Generate $1B of Revenue in 2007
Telecom: Mobile Devices, Mobile Networks: Can't Have One Without the Other
Networking: Starent Networks: Ready to Shine
Chips: Sweet Deal For Qualcomm: Are They Smarter Than We Think?
Software: Using Options To 'Strangle' Apple, Research in Motion
Media: XM/Sirius Merger; Bear Stearns Positive, Stanford Group Less So
Biotech: Panacos Pharmaceuticals: Leading the Fight Against HIV
Retail: Zumiez: Positioned to Capitalize on Its Customers' Whims
Energy: Transocean, Global Santa Fe: The Growth is Just Beginning
Financial: Next To Fall: Publicly-Traded Government-Sponsored Mortgage Lenders
Asia: Appreciating Yen Could Cause Trouble For Equity Markets
ETFs: New Futures ETFs Aim to Sidestep Contango
Hedge Funds: 50 Checkpoints of Warren Buffett's Carreer
IPO Analysis: Orbitz IPO: Getting Squeezed In A Highly Competitive Sector
Sound Money Tips: Follow-up On Customer Leads
Jim Cramer: Latest stock picks
Earnings Transcripts: Western Union Q2 2007Unisys Q2 2007CDW Q2 2007New Oriental Education F4Q07Omnicom Group Q2 2007SUPERVALU F1Q08Corn Products Q2 2007Eli Lilly Q2 2007Check Point Software Technologies Q2 2007EMC Q2 2007McGraw-Hill Companies Q2 2007Equifax Q2 2007Chicago Mercantile Exchange Holdings Q2 2007Quest Diagnostics Q2 2007Tellabs Q2 2007Biogen Idec Q2 2007Legg Mason F1Q08Lexmark International Q2 2007DuPont Q2 2007AT&T Q2 2007BP Q2 2007Occidental Petroleum Q2 2007E.W. Scripps Q2 2007BJ Services F3Q07McDonald's Q2 2007Millicom International Cellular Q2 2007Kimberly-Clark Q2 2007PepsiCo Q2 2007Total System Services Q2 2007Websense Q2 2007Amazon.com Q2 2007Vertex Pharmaceuticals Q2 2007Plantronics F1Q08Fiat Q2 2007Smith International Q2 2007ENSCO International Q2 2007XTO Energy Q2 2007Lam Research F4Q07Countrywide Financial Q2 2007

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