Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 9:05 AM ET
S&P 500: -14.50; 1400.00
NASDAQ 100: -17.25; 1,861.25
Dow: -106.00; 12,815.00
NIKKEI 225: -1.99%; 16,148.49 (-327.12)
HANG SENG: -3.29%; 20,672.39 (-703.33)
SHANGHAI SE COMPOSITE: -2.14%; 4,765.45 (-104.44)
BSE SENSEX 30: -4.28%; 14,358.21 (-642.70)
FTSE 100: -3.20%; 5,913.50 (-195.80)
CAC 40: -2.66%; 5,297.90 (-144.82)
XETRA-DAX: -2.15%; 7,285.52 (-160.38)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -2.13%; $71.77 (-$1.56)
Gold: -0.90%; $673.60 (-$6.10)
Natural Gas: -1.52%; $6.76 (-$0.10)
Silver: -1.35%; $12.385 (-$0.17)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Housing Starts Fall to Ten-Year Lows
U.S. housing starts fell 6.1% in July to a seasonally adjusted 1.381 million annually -- the lowest rate in over ten years. The decline was worse than the 1.40 million economists predicted. Permits fell 2.8% to a seasonally adjusted 1.373 million, their lowest rate since October 1996, and worse than the 1.4 million forecast by economists. On a yearly basis, housing starts are off 21% and permits an even-steeper 23%. Single-family home starts fell 7.3%, while homes in structures with 5 or more units fell a milder 2.5%. "Even the most ambitious homebuilders will think twice about initiating new projects at this point," FTN Financial analyst Lindsey Piegza told Bloomberg.
Sources: Press release, MarketWatch, Bloomberg
Commentary: Homebuilders' Confidence Slumps to 16-Year Low • The Existing Home Sales Report Beats Expectations • Housing Bubble and Real Estate Market Tracker
Stocks/ETFs to watch: XHB, ITB
Heavy Selling Spreads Across Asia; Yen Carry Trade Unwinds
Every Asian index fell Thursday, led by a 6.9% drop in Seoul, which had been one of the best performing countries in the region year-to-date. Highflying Shanghai finally took a hit, down 2.1%. Unwinding of the yen carry trade is gaining momentum, as the yen rose 2.4% against the US$ and 2.9% against the euro, to multi-month highs. "We are at a tipping point. Investors that had been short the yen for more than a year and a half have fully squared those positions. The question now is whether they are starting to build long positions," said the head of macro strategy at State Street Global Markets. A deepening global liquidity crunch has market participants worried about the outlook for economic growth. The head of sales at Daiwa Securities SMBC in Hong Kong described selling of equities as "irrational," noting "it has nothing to do with fundamentals." Among other regional indices, Taiwan dropped 4.6%, Singapore fell 3.7%, the Hang Seng lost 3.3%, the Nikkei was 2% lower, Jakarta shed 5.9%, India's BSE 30 fell 4.3% and the Kuala Lumpur Composite lost 3.5%.
Sources: Bloomberg I, II, MarketWatch
Commentary: Chinese Markets Beginning To Crack • Dollar, Yen Likely To Run Into Technical Resistance • Paulson Remains Confident Economy Will Not Enter Recession
Stocks/ETFs to watch: EWA, FXI, EWH, INP, EWJ, EWM, EWS, EWY, EWT, CAF, IF, TF, VPL, FXY
JCPenney Posts Small Earnings Gain
J.C. Penney said Thursday FQ2 earnings rose 1.7% as its back-to-school line got off to a good start, while slightly boosting its 2007 outlook. Earnings per share rose to $0.78 ($182 million) from $0.75 ($179M) a year ago. Revenue rose 3.6% to $4.39 billion from $4.24 billion. Analysts on average expected $0.77/share on revenue of $4.42 billion. Same-store sales were up 1.9% on the quarter. The department store and catalog/internet retailer boosted its full-year EPS outlook to $5.50/share from a previous $5.49, and forecast low-single digit same-store sales growth in Q3. "As we look to the second half of the year, we are focused on continuing to differentiate JCPenney from the competition by inspiring our customers with our merchandise and improving our store base through additional new store openings and existing store renovations," CEO Mike Ullman said. Gross margin was up 80 basis points to 38.1% of sales, a reflection of the company's improved planning and allocation processes, cycle time reduction and more effective merchandise flow, the company said. Internet sales jumped 17.4%, following a 24.5% increase in 2006, during which the company saw $1 billion of its $20 billion in sales generated by its website. In an Aug. 10 note, Argus told investors JCP shares are "worth considering" because management relentlessly tries to improve the business by opening off-mall stores, cosmetics departments within stores, and launching Ambrielle lingerie to compete with Victoria's Secret. "These factors are helped by the company's focus on controlling costs," it said. Shares are down 19% YTD, and 0.9% in pre-market trading.
Sources: Press release, MarketWatch
Commentary: J. Crew vs. J.C. Penney: Which Retailer Has Got the Goods? • Number One Retail Category: Online Clothing Sales
Stocks/ETFs to watch: JCP. Competitors: M, SHLD, SKS, KSS, JWN. ETFs: PMR, SDK
Fifth Third Bank Buys First Charter for $1.09B
Fifth Third Bancorp, one of the largest banks in the U.S. Midwest, has agreed to acquire First Charter Corp. for $1.09 billion in stock and cash, or $31.00/share, which represents a 53% premium over Wednesday's close. First Charter has 57 bank branches in North Carolina and two in Georgia. Fifth Third will pay for 30% of the transaction using cash and the remaining 70% using its shares. The deal is expected to close in fiscal Q1 2008, and will cut full-year 2008 EPS by 2%, be "relatively neutral" to 2009 earnings and be "modestly" accretive to 2009 earnings ex-amortization. First Charter has approximately $4.9B in assets and $3.2B in deposits. Fifth Third CEO Kevin Kabat said the bank expects to make more acquisitions as it expands in the "fast-growing Southeastern metropolitan markets at a reasonable price." Shares of Fifth Third lost 0.1% to $37.38 on Wednesday. First Charter gained 2.3% to $20.25.
Sources: Press release, MarketWatch, Wall Street Journal
Commentary: Stocks With the Least Analyst Love • First Charter Cleans Its Accounting House
Stocks/ETFs to watch: FITB, FCTR. Competitors: NCC, USB. ETFs: PJB, IAT, RKH
Conference call transcripts: Fifth Third Bancorp Q2 2007
Estee Lauder Misses EPS Estimates On Nearly Double Net
Beauty care products maker Estee Lauder reported its net income nearly doubled in its recently ended quarter (4Q07), as sales climbed 10%. The prior year period included significant cost-cutting and tax-related charges. By the numbers, net income was $88.6 million, good for EPS of $0.45, versus net of $44.5 million a year earlier (EPS of $0.21). Sales were up 7% to $1.76 billion, "excluding the impact of foreign currency translation," or 10% on a net basis. Consensus estimates were for EPS of $0.50 on revenue of $1.72 billion. For the company's FY2007, which ended with the most recent quarter, net sales were up 9%, to $7.04 billion. Diluted net EPS from continuing operations rose 45% to $2.16 for the full year, though the prior year included "special charges" of $0.43. CEO William P. Lauder called 2007's performance "particularly impressive in light of the substantial headwinds from retailer consolidations around the world." The company expects diluted EPS in a range of $2.28-$2.40 for FY2008; consensus estimates are for adjusted EPS of $2.49 in 2008. Shares closed lower by 2.2% Wednesday during widespread selling.
Sources: Press Release, MarketWatch, Reuters
Commentary: Five Good-Looking Cosmetic Stocks • The Calls Don't Lie: Overseas Sales Continue To Outpace U.S. Ones • Cramer's Take on EL
Stocks/ETFs to watch: EL. Competitors: AVP, REV, RDEN.
Conference call transcripts: Estée Lauder F3Q07 (Qtr End 3/31/07) Earnings Call Transcript
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
Any positive news yesterday seemed too little, too early.
Two American icon companies, Deere (DE) and H.J. Heinz Co. (HNZ), reported strong earnings information before the opening bell. Deere, which makes farm and construction machinery and is best known for its tractors, beat fiscal Q3 estimates by 38 cents a share and H.J. Heinz said that it will report 62 to 63 cents for Q2. As a result, DE closed higher by 3% and HNZ gained 3.3%. Further, the economy continued to provide good results with low-inflation, steady growth as illustrated by yesterday's solid growth rate in the New York State Manufacturing Index, with just a 0.1% rise in the Consumer Price Index.
But yesterday earnings, growth, and inflation were not on the minds of investors as the focus remained on the subprime markets and fear grew that the crisis would worsen. Despite the injection of more money into the systems by the Fed and other central banks, the clamor for a rate cut by the Fed has been responded to with silence. So for five successive days, the markets have declined with the Dow Industrials closing below 13,000 for the first time since April 24 and the S&P 500 falling into negative numbers for the year.
At the close, the Dow Industrials were down 167 points at 12,861. The S&P 500 was off 20 closing at 1,407, and the Nasdaq was off 40 and closed at 2,459. Volume on the NYSE just missed hitting 2 billion shares while the Nasdaq traded 2 billion. Breadth was negative on both exchanges with the Big Board at 3/1 and Nasdaq at 2/1.
Crude oil (September contract) gained 95 cents closing at $73.33 a barrel, but the Amex Energy SPDR (XLE) lost $1.48 to close at $65.62, which challenges the reversals of last week and seems to indicate that the XLE has yet to form a support zone following its decline from above $74. Gold futures were unchanged yesterday with the December contract closing at $679.70. But the Philadelphia Gold/Silver Index [XAU] had its worst day in weeks dropping by $5.90 to $132.44 and setting up a test of the low at just above $130.
What the Markets Are Saying
For several consecutive hours yesterday, it looked like the bulls could get a decent rally going and even reverse up through some of the resistance zones to create a stronger technical picture at day's end. Instead of a happy ending, more uncertainty resulted, including the intraday breakdown of the Dow Industrials through its 200-day moving average at 12,833, the crushing of the S&P support line at 1,460 with a close just above the 325-day exponential moving average at 1,409, and the Nasdaq's breakdown of support at 2,530 along with a close below its 200-day moving average at 2,500.
The next level of support for the S&P 500 is the May 5 closing figure at 1,374, but the market is now in free fall -- the sentiment indicators are all extremely oversold and at levels not seen since March. The NYSE Composite has exceeded a decline of 10%, qualifying this as a major correction while the other indexes are just shy of a 10% decline.
With everyone so negative and volume declining at every new lower close, the chances of a reversal are very high. This morning, the foreign markets are sharply lower and exhibit the characteristics of a capitulation sell-off. But we have no reason to doubt that we are still in a bull market and no evidence to believe that the bulls won't eventually drive prices to new highs later in the year.
Now is the time for real investors to overcome their fears and enter the market by buying quality companies at this year's best prices.
Today's Trading Landscape
Earnings are due today from Accuray (ARAY), Autodesk (ADSK), BEA Systems (BEAS), Elizabeth Arden (RDEN), Fannie Mae (FNM), Flower Foods (FLO), FTD Group (FTD), Hewlett-Packard (HPQ), J.C. Penney (JCP) (read above), Kohl's (KSS), Nordstrom (JWN), Estee Lauder (EL) (read above) and WCI Communities (WCI), as well as others.
Today also brings the following economic reports: July housing starts (the consensus expects 1.4 million), building permits (the consensus expects 1.4 million), August Philadelphia Fed survey (the consensus expects 8.5 versus 9.2 in July) and weekly jobless claims.
Foreign markets are sharply lower this morning with Tokyo closing down 2% (read above). This will no doubt result in a lower opening for U.S. markets but increase the chances of a final capitulation sell-off.
Asian Headlines (via Bloomberg.com)
• Emerging-Market Stocks, Currencies Extend Rout on U.S. Debt-Market Concern Emerging-market shares and currencies dropped, with South Korea's Kospi index tumbling the most in five years, as concern a credit crisis and U.S. housing recession will derail global economic growth dents demand for riskier assets.
• Rams Is Unable to Refinance $5 Billion of Debt Because of Credit Crunch Australia's Rams Home Loans Group Ltd. failed to refinance A$6.17 billion ($5 billion) of short- term U.S. loans, forcing the lender to seek emergency funding.
European Headlines (via Bloomberg.com)
• Global Stocks Tumble on Credit Concern, Led by Deutsche Bank; Bonds Climb Stocks in Europe and Asia tumbled and U.S. index futures dropped as concern deepened a global credit crunch will sap earnings and erode economic growth. Bonds gained worldwide and the yen rallied against the dollar.
• U.K. Retail Sales Unexpectedly Increased by Most in Five Months in July U.K. retail sales unexpectedly rose by the most in five months in July as price cuts by stores lured shoppers.
• KKR, PAI Plan to Raise $23.8 Billion for European Buyouts in Biggest Funds Kohlberg Kravis Roberts & Co. and PAI Partners are raising their largest funds for takeovers in Europe just as a global credit crunch slows the pace of leveraged buyouts.
• Ciba Plunges Most in 18 Months as Paint-Additive Prices Fall, Costs Rise Ciba Specialty Chemicals AG, the world's largest maker of colors for plastics, fell the most in 18 months on the Zurich exchange as paint-additive prices dropped and costs for oil-based raw materials rose.
• Moody's, S&P Face European Union Probe Into Response to Subprime Crisis French President Nicolas Sarkozy and Europe's financial services regulator called for a probe into the response by Moody's Investors Service, Standard & Poor's and other credit-rating firms to the subprime debt rout.