Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 9:00 AM ET
S&P 500: -15.00; 1,464.50
NASDAQ 100: -21.25; 1,982.50
Dow: -115.00; 13,263.00
NIKKEI 225: -0.83%; 16,122.16 (-134.84)
HANG SENG: -0.28%; 23,982.61 (-67.79)
SHANGHAI SE COMPOSITE: -2.16%; 5,277.18 (-116.48)
BSE SENSEX 30: -0.17%; 15,590.42 (-25.89)
FTSE 100: -0.45%; 6,285.20 (-28.10)
CAC 40: -1.48%; 5,494.28 (-82.34)
XETRA-DAX: -1.17%; 7,532.51 (-89.21)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +0.30%; $76.53 (+$0.23)
Gold: +0.58%; $708.70 (+$4.10)
Natural Gas: -2.55%; $5.51 (-$0.14)
Silver: +1.89%; $12.77 (+$0.237)
U.S. Breaking Newssee today's Wall Street Breakfast for earlier news
Payrolls Drop for First Time in Four Years
Nonfarm payrolls dropped by 4,000 in August, well short of the 115K gain forecast by economists, the Department of Labor reported Friday. Unemployment remained unchanged at 4.6%. The surprise drop is likely to increase pressure on the Federal Reserve to drop the Fed Funds target rate at its Sep. 18 FOMC policy meeting. The contraction marks the first drop in U.S. payrolls since August 2003. The numbers included steep job losses in construction and manufacturing, the latter a potential sign that housing-market weakness may be filtering through to the general economy. "Downturns in housing construction have almost always been followed by a downturn in the economy, by a recession," Harvard economist Martin Feldstein told Bloomberg in an interview. The Labor department also revised its July figure to a 68,000 gain, down from a previously reported 92,000. Construction payrolls fell 22,000, following a 14,000 drop in July. Factory payrolls were down 46,000, their biggest loss since July 2003; they lost 1,000 a month ago. Index futures traded down following the announcement.
Sources: Press release, MarketWatch, Wall Street Journal, Bloomberg
Commentary: Sunny Side Up On The U.S. Market and ETFs • Will Weak Employment Figures Lead to More Rate Cuts? • A Closer Look At Unemployment
Stocks/ETFs to watch: SPY, DIA, AGG
Harley Shares Down in Pre-Market on Earnings Warning
Shares of Harley-Davidson were last down 8.8% to $49.35 in thin pre-market trading, on news the company cut its third-quarter shipment target to 86,000 - 88,000 units from 91,000 - 95,000 units previously. Subsequently, Harley lowered its full-year 2007 and 2008 EPS guidance and withdrew its 2009 guidance. In a press release, Harley noted U.S. dealers' retail sales "fell sharply" in August, following a "negative trend" during the first six months of 2007 (and an effective inventory reduction promotion in July). CEO Jim Ziemer acknowledged it is a "difficult time for the U.S. consumer," and despite "excellent" initial reports of 2008 model motorcycles, the company no longer expects sales to increase in the second-half. Harley now forecasts full-year 2007 EPS to decline 4% - 6% to $3.69 - $3.77, and for 2008 EPS to grow 4% - 7% (approx. $3.84 - $4.03), compared to initial estimates of 11% - 17% growth over the next two years. Analysts had expected EPS of $4.12 in 2007 and $4.51 in 2008, on average. Harley lost 0.15% to $54.09 on Thursday.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Harley Davidson: Too Cost-Heavy For Comfort • Are There Rough Roads Ahead for Harley Davidson? • Harley-Davidson: Decent Earnings, But I Was Expecting More
Stocks/ETFs to watch: HOG. Competitors: PII
Earnings call transcript: Harley-Davidson Q2 2007
PepsiCo Introduces New Gatorade, Enhanced Water Products
PepsiCo announced Friday it is launching new non-carbonated beverages and strengthening its distribution system, as part of its 15-year "total beverage company" strategy. The new beverages include a low-calorie version of Gatorade called G2 and a caffeinated version of Propel enhanced water. G2 is designed to meet the hydration needs of athletes off the field, on a 24/7 basis, according to a PepsiCo press release. The new Propel Invigorating Water is both vitamin enhanced and lightly caffeinated, "providing a boost for active people throughout the day." Both G2 and Propel Invigorating Water will be available nationwide in early 2008. PepsiCo is also restaging two enhanced waters, Aquafina Alive and SoBe Life Water. PepsiCo said beginning later this year, bottlers' distribution of Gatorade products will be expanded to small format customers, including convenience stores, gas stations and independent retail outlets. Shares of PepsiCo gained 0.9% to $68.56 on Thursday.
Sources: Press release, Bloomberg, Reuters
Commentary: Molson Coors vs. PepsiCo: Goldman Prefers Beer • Seven Stocks to Watch in this Volatile Environment • Is Pepsico Stock Overvalued?
Stocks/ETFs to watch: PEP. Competitors: KO, CSG. ETFs: XLP, VDC
Earnings call transcript: PepsiCo Q2 2007, Coca-Cola Q2 2007
Ericsson Inks $1.3 Billion Networking Deal With India's Bharat Sanchar
The world's number one wireless network builder, Ericsson AB, continues to gain market share in India, its second largest market by sales, inking a $1.3 billion deal to upgrade Bharat Sanchar Nigam Ltd.'s network. Bharat Sanchar is India's largest telecom provider. India is Ericsson's second largest market by sales, after China, and Ericsson estimates its market share on the subcontinent at about 40%. Ericsson will supply Bharat Sanchar with second generation GSM networking equipment and services, speeding up its network significantly. Mats Granryd, President of Ericsson India, said in the press release: "This deal is set to be a catalyst for future telecom growth in the dynamic Indian market." Ericsson shares were up 0.80% in pre-market trading in New York as of 7:10 AM ET on the news.
Sources: Press Release, Bloomberg, MarketWatch, AP
Commentary: Ericsson Signs $1B Deal With China Mobile; Sony Ericsson Signs $600m Deal • Sony Ericsson's Q2 Profit Soars, But Misses; Gains Global Market Share • Cramer on ERIC
Stocks/ETFs to watch: ERIC. Competitors: ALU, MOT, NOK, CSCO
Earnings call transcript: LM Ericsson Q2 2007
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Today's Market (via Sam Collins, ChangeWave.com)
Despite mixed messages from the economy that could affect the Fed’s possible rate action, the markets were generally strong yesterday.
Positive news came from the retail sector as Wal-Mart (NYSE:WMT) reported 3% stronger sales than expected for August. Further, Ann Taylor Stores (NYSE:ANN) said that its sales were up by 2.9%, Gap, Inc., (NYSE:GPS) reported better sales though still a 1% decline, and J.C. Penney (NYSE:JCP) said that its August sales were down by 4%. However, Saks (NYSE:SKS) reported an 18.2% sales rise and Nordstrom (NYSE:JWN) said that its sales were up by 6.3%.
But good news is not always good if it doesn't result in a rate cut, so before the opening bell yesterday, when the Labor Department said that productivity in the U.S. non-farm business sector climbed at an annual rate of 2.6% in Q2 (stronger than expected) and the number of U.S. workers applying for jobless benefits had its biggest drop since April, the futures indicated there was selling ahead.
The markets did struggle just a bit for the first couple of hours, but comments from the Atlanta Fed President that there were no signs of spillover from the housing and mortgage markets’ problems to other economic sectors and the excellent retail sales kept prices positive for the remainder of the day.
At the close, the Dow Industrials [DJI] were up 58 points closing at 13,363. The S&P 500 [SPX] added six points at 1,479, and the Nasdaq [NASD] gained eight to close at 2,614. Volume on the NYSE totaled 1.2 billion shares and 1.8 billion traded on the Nasdaq. Breadth was a positive 5-to-3 on the New York and positive 4-to-3 on the Nasdaq.
The October crude oil contract rose by 57 cents to $76.30 a barrel and the Amex Energy SPDR (NYSEARCA:XLE) gained 83 cents to close at $71.55. The December gold contract rallied to a four-month high at $704.60, up $13.90 per troy ounce, and the Philadelphia Gold/Silver Index [XAU] gained $8.16 to close at $151.80 as it set its sights on the July high just under $160.
What the Markets Are Saying
Wednesday's pullback wasn't completely erased by Thursday's 58-point Dow bounce, but it did set a positive tone by confirming the narrow line of support at just above Dow 13,200.
Sentiment is still very positive with the recent AAII (American Association of Individual Investors) showing renewed fear on the part of the small investor while insiders continue to buy according to Investors Intelligence. The chances are strong that, despite some volatile sessions ahead, the August lows will hold and before long we should see a renewed attack on the July highs.
Today's Trading Landscape
There are no important earnings to report today, and most of today's big economic news comes before the opening with the important jobs reports taking center stage.
Non-farm payroll figures are expected to be 115,000, the jobless rate at 4.6%, the average hourly earnings at 0.3%, and at 10 a.m. wholesale inventories at 0.5%. The 8:30 a.m. release of the jobs numbers means the biggest economic report of the week, and they will impact the markets today.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Decline, Led by Mizuho, on U.S. Housing Concern; BHP Gains Asian stocks fell, set for their first weekly loss in three, on concern fallout from the subprime rout will hurt earnings of the region's banks and exporters.
• Yen Advances on Speculation Losses in Stocks Spurring Exit of Carry Trades The yen headed for second week of gains and almost erased this year's losses as declines in stock markets prompted investors to shun the risk of trades funded with loans in Japan.
• Blackstone to Buy 18 Percent BlueStar Stake for $500 Million, People Say Blackstone Group LP (NYSE:BX), manager of the world's biggest buyout fund, will purchase about 18 percent of specialty chemical maker China National BlueStar Group Corp. for $500 million, said two people with direct knowledge of the plan.
• China Communications Construction First-Half Profit Doubles on Port Growth China Communications Construction Co., the world's biggest port builder, said first-half profit more than doubled as the country increases the capacity of its deep- water berths to handle surging sea trade.
• General Electric Postpones Auction for Japan Lending Unit Lake, People Say General Electric Co. (NYSE:GE), the world's second-largest company by market value, delayed an auction of its Japanese consumer lending unit Lake, six people briefed on the decision said.
European Headlines (via Bloomberg.com)
• ECB Signals Interest-Rate Increases Possible Once Market Turbulence Abates European Central Bank policy makers signaled their intention to raise interest rates further to contain inflation once financial-market turbulence has abated.
• Advent International Agrees to Buy Domestic & General for $1.1 Billion Advent International Corp. agreed to buy Domestic & General Group Plc for about 524 million pounds ($1.1 billion) in the first leveraged buyout of a U.K. publicly traded company since last month's increase in the cost of debt used to fund the transactions.
• Swedish Central Bank Raises Benchmark Rate a Quarter Point to 3.75 Percent Sweden's Riksbank raised its benchmark interest rate to a four-year high to contain inflation, adding that the financial market turmoil will prevent it from picking up the pace of rate increases.
• HSBC Trinkaus Would Consider Buying IKB After Bailout, Chief Schmitz Says HSBC Trinkaus & Burkhardt AG, the German bank controlled by HSBC Holdings Plc (HBC), would consider buying IKB Deutsche Industriebank AG after a government-sponsored bailout following losses in the U.S. subprime mortgage market.