Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:31 AM ET
S&P 500: +1.50; 1,558.10
NASDAQ 100: +1.25; 2,136.50
Dow: +13; 14,170
NIKKEI 225: +1.19%; 17,046.78 (+200.82)
HANG SENG: +3.90%; 28,199.75 (+1,057.28)
SHANGHAI SE COMPOSITE: 5,552.30 [9/28]
BSE SENSEX 30: 17,328.62 [10/1]
FTSE 100: +0.31%; 6,526.40 (+20.20)
CAC 40: +0.58%; 5,806.48 (+33.22)
XETRA-DAX: +0.45%; 7,957.80 (+35.38)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -1.13%; $79.33 (-$0.91)
Gold: -1.80%; $740.50 (-$13.60)
Natural Gas: +1.56%; $7.16 (+$0.11)
Silver: -3.14%; $13.42 (-$0.435)
U.S. Breaking Newssee today's Wall Street Breakfast for earlier news
TD Bank to Acquire Commerce Bancorp for $8.5B
TD Bank Financial Group has agreed to acquire Commerce Bancorp in a 75% stock and 25% cash deal valued at US$8.5 billion. Commerce shareholders stand to receive 0.4142 shares of TD Bank common stock and $10.50 in cash, for each share of Commerce. This values Commerce at $42.37/share based on TD's Monday closing price, representing up to a 7% premium over Commerce's Monday close. The deal is expected to close in April or May of 2008, subject to shareholder and regulatory approvals. TD Bank said it plans to take a one-time US$490M pre-tax restructuring charge. TD sees the transaction as $0.28 dilutive in fiscal 2008 and $0.22 dilutive in fiscal 2009 on a GAAP basis, or -$0.10 and flat on an adjusted basis, respectively. In a press release, TD Bank said the combined entity will have 2,000 branches in N. America and about one-quarter of a trillion dollars in deposits, "making it the first bank with critical mass in both the Canadian and US markets." Commerce Bancorp shares were last down 0.9% to $39.40 in pre-market trading, after climbing 2.5% to $39.74 on Monday. NYSE-listed shares of TD Bank were last off 5.4% to $72.75 in the pre-market, after gaining 0.3% to $76.94.
Sources: Press release, Bloomberg, MarketWatch, Reuters
Commentary: TD Bank Is RBC Capital's "Top Pick" • Canadian Banks Still Increasing Dividends • TD: No U.S. Subprime Exposure Means Great News for Canadian Banking
Stocks/ETFs to watch: TD, CBH
Earnings call transcript: Toronto Dominion Bank F3Q07
Related: TD Acquires Commerce Bancorp Presentation [pdf]
Citi to Acquire Rest of Nikko; List on Tokyo Exchange
Citigroup and Nikko Cordial announced they have reached an agreement for Citi to acquire the remaining 32% stake of Nikko it doesn't already own, via a share exchange valued at ¥530 billion ($4.6B). The share exchange is expected to occur in January 2008, with each Nikko share valued at ¥1,700, but possibly higher or lower due to fluctuations in Citi's share price and the dollar-yen forex rate. Ordinary shares of Nikko Cordial rose 1.2% to ¥1,462, ahead of the announcement. Nikko will become a part of Citigroup Japan Holdings Ltd. In a press release, Citi said it plans to list on the Tokyo Stock Exchange, and aims to have the listing effective before the Nikko share swap. Citi said it expects the acquisition of the rest of Nikko to be neutral to EPS in 2008 and accretive thereafter. Citi has been acquiring shares of Nikko since March and notes 100% ownership will create synergies, broaden product offerings and leverage experience, among other perceived benefits. Citigroup gained 2.3% to $47.72 on Monday, despite warning it expects a 60% decline in Q3 profit. (See full story).
Sources: Press release, MarketWatch
Commentary: Citigroup Clinches Key Stake in Nikko Cordial • Why I'm Holding Onto Nikko Cordial • Citigroup to List on Tokyo Exchange ASAP
Stocks/ETFs to watch: C, OTC:NIKOY
Asian Markets Soar Off Strong U.S. Rally
The rally that began in the U.S. Monday continued in Asia Tuesday, with some indices reaching record levels. Hong Kong's Hang Seng Index (+3.9%) outpaced the rest of the indices and finished at a record close. Korea's Kospi Composite (+2.6%), helped by enthusiasm over a summit between North and South Korea, finished with a record high as well. Australia (+1.33%) and Singapore's Straits Times (+1.0%) both ended with strong sessions. Recently, stocks in Asia have had astounding surges as more investors want exposure to the high-growth markets. However, Lee Jae-Hoon at Mirae Asset Securities in Korea said, "The market rose a bit too fast in such a short time." To sustain the current pace, he said big players in Asia will have to "announce better-than-expected third-quarter earnings," and if this fails to happen, he believed "the market will face strong downward pressure."
Commentary: iShares Asia Region ETFs Keep Climbing • No International ETFs Currently Oversold
ETFs: EPP, EEM, EWY
Related: Single Country Asia ETFs
Sony, Qimonda in Chip Joint Venture
In an effort to cut costs, Sony Corp. announced Tuesday it will form an equally owned joint venture with semiconductor company Qimonda AG, a unit of Germany's Infineon, to manufacture DRAM (dynamic random access memory) chips for use in its mobile phones, digital cameras and other consumer electronics. Financial terms weren't disclosed. Sony is in the process of reorganizing its semiconductor business, which lost 10B yen last year. Earlier this year, Sony had said it would scale back its investments in chips. Operations at the new company, to be named Qreatic Design and located in Tokyo, were expected to start by year end. The venture will combine Sony's design capabilities with the manufacturing capabilities of Qimonda. In addition to cost savings, analysts said it was good for Sony to be expanding its number of chip suppliers. Sony shares rallied 4.3% to a two-month high in Tokyo on the news while shares of Elpida Memory, a Sony supplier, stumbled 3.7%. "Either Samsung or us will be affected, but not significantly," Takehiro Fukuda, chief administrative officer at Elpida, told Bloomberg. Prices in the highly competitive DRAM market have dropped sharply in recent months as manufacturers increased their output.
Sources: Bloomberg, MarketWatch, Reuters
Commentary: DRAM Memory Vendors Headed For Trouble • Sony's Problems Can't Be Solved Without New Blood
Stocks/ETFs to watch: SNE, QI. Competitors: PHG, MU. ETFs: SMH, IGW, PSI
Earnings call transcript: Sony F1Q07
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Today's Market (via Sam Collins, ChangeWave.com)
Despite negative earnings warnings from Citigroup (NYSE:C), UBS (NYSE:UBS), and Walgreens (WAG), and a dip in the Institute for Supply Management (ISM) index, the U.S. stock markets rallied sharply yesterday -- sending the Dow Jones Industrial Average (Private:DJI) to a new record close and a new intraday high.
Even though the ISM (which measures manufacturing activity) dipped to 52 when 52.5 was expected, it shows that the sector is still growing and that the housing slowdown and subprime crisis have failed to stop the expansion of manufacturing.
Another big factor also contributed to yesterday's gains: It was the first day of the fourth quarter, which alone would have brought in some investment capital. There was still a large number of short positions on the books that sellers were pressed to cover as the averages broke into new highs carrying nine of the 10 S&P 500 sectors higher.
At the close the, Dow Industrials were up 192 points at 14,088. The S&P 500 gained 20 to close at 1,547, and the Nasdaq closed at its highest level since February 2001. The NYSE traded 1.4 billion shares, the Nasdaq traded 1.9 billion, and breadth was positive by 3-to-1 on the Big Board and by more than 2-to-1 on the Nasdaq.
Crude oil (November contract) fell by $1.42 to $80.24 a barrel, adding to the positive day on the stock market, and the Amex Energy SPDR (NYSEARCA:XLE) rose by $1.32 to $76.12. Gold (December contract) climbed to its highest price in 28 years, rising by $4.10 to $754.10 per troy ounce. The Philadelphia Gold/Silver Index [XAU] rose by $4.30, setting a new closing high at $173.06, which negated any current thinking that the index might have double topped.
What the Markets Are Saying
When investors put cash to work against relatively negative news, we conclude that the overall market sentiment is very positive.
Even though a number of shorts were forced to cover positions that were driven higher by the injection of Q4 money from institutional pots, several key indices such as the Dow Industrials, and the Nasdaq Composite, broke into new high ground. That is a strong indication that the bulls are still in charge.
Of the major indexes, only the two key broad-based indices -- the S&P 500 and the NYSE Composite -- have yet to overcome resistance. With just 36 points needed for the NYSE to punch out and six points to go for the S&P 500, it is likely that we will see new highs this week from them, too.
But is this a genuine breakout or just another false breakout like we experienced in early July -- which also occurred at the end of a quarter?
Just prior to the July breakout, volume averaged about 1.3 billion shares and only increased to 1.6 billion shares on the day that the Dow hit 14,000, which led to a collapse.
Is it a coincidence that the volume now is almost the same as early July? Probably not --we will have to have more volume from big players to keep this ball rolling.
For now, go with the trend (up), but be prepared to cut some positions loose if the volume fails to increase and/or we experience a reversal.
Today's Trading Landscape
We will shortly begin to get into the heart of Q3 earnings, and they are expected to rise 4.3%. This would put the trailing 12-month gain at 7.6% which would be the slowest in 5 years.
August pending home sales (the consensus expects -21% versus last month, which was down 12.2%) and September auto sales are due today. The auto sales numbers are expected to be low so it is unlikely that the results will impact trading today.
The focus of today's markets will be on the S&P 500 and the NYSE index. If these two broad-based averages can break out with strong supporting volume, then the market's recent rise will likely continue.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Rise to Record as Credit Concerns Ease; Mitsubishi UFJ Gains Asian stocks rose, led by Mitsubishi UFJ Financial Group Inc. and Samsung Electronics Co., after former U.S. Federal Reserve Chairman Alan Greenspan and Citigroup Inc. suggested credit-market losses will abate.
• Hong Kong's Retail Sales Grow 15 Percent on Increase in Wages, Stock Gain Hong Kong's retail sales jumped by the most in more than three years as tourists flooded in and rising incomes and stock prices boosted consumer spending.
• Australian Central Bank to Buy `Low-Doc' Loans to Boost Mortgage Market Australia's central bank will buy debt backed by so-called low-documentation home loans to support the nation's market for asset-backed bonds, roiled by losses related to U.S. subprime loans.
European Headlines (via Bloomberg.com)
• Tesco Profit Rises 19 Percent, Led by Cosmetics, TVs, Eastern Europe Sales Tesco Plc (OTCPK:TSCDY), the U.K.'s largest retailer, said first-half profit rose 19 percent, exceeding analysts' estimates, on increased revenue from cosmetics, televisions and stores in eastern Europe and Malaysia.
• European Producer-Price Inflation Rate Declines to Lowest in Three Years European producer-price inflation eased in August to the lowest rate in more than three years, reflecting a drop in energy costs.