Thursday Preview: Central Bank Decisions, Earnings, and Same Store Sales Anticipated

In equity news overnight Portland General Electric (POR) announced a 4.3% dividend increase to $0.245/share overnight. The dividend is payable on July 15, to holders record on record as of June 25. US retail giant Costco (COST) reported April same store sales of +8.0% overnight, and an ex-fuel reading of +5.0%; consensus expectations were +5.0%. Deutsche Telecom (DT) reported first-quarter net income of €924M, well above consensus estimates of €636M, and revenue of €15.0B, just below estimates of €15.1B. DT reported T-Mobile US Q1 net new customers adds of 981K, breaking the 30M customer milestone.

In Germany, DT reported broadband adds of 416K and a fixed line loss of 582K. Illinois Tool Works (ITW) announced overnight a deal to acquire the UK’s Enodis [ENO.UK] for 280p/share, representing a total value of $2.1B. The acquisition price represents a 14.9% premium to Wednesday’s closing price. Unicredit [UCG.IT] reported first-quarter net income of €1.0B, roughly in line with the €1.08B consensus estimate, and noted a €1.0B loss in investment banking. Unilever (UL) Reported first-quarter revenue of €9.57B, in line with consensus estimates of €9.54Be, and net income of €1.34B, above the market consensus of €950M. The company guided FY08 revenue growth ahead of the previously issued growth range of +3%-5% The CEO of RWE [RWE.GE] said overnight that he does not believe that any of the company’s competitors are seriously interested in the acquiring RWE, and added that he has heard nothing about an offer from EDF [EDF.FR].

Toyota Motor (TM) reported net income of ¥316.8B, below consensus estimates of ¥375Be, and revenue of ¥6.57T, up from the ¥6.33T a year ago. Toyota guided 2008 revenue of ¥25.0T, in line with consensus estimates of ¥24.8T. In sector rotation Goldman Sachs cut the European Oil Service sector to a Neutral rating from Buy rating.

In the newspapers overnight, the Financial Times wrote that Best Buy (BBY) and Carphone Warehouse [CPW.UK] are set to enter into a joint venture to sell consumer electronics in Europe. The Wall Street Journal was cautiously optimistic on shares of MacQuarie Infrastructure Group (MIC) largely on valuation. The article pointed out that, according to analysts, the valuation gap that exists between the company's stock price and the real value of its investment portfolio. According to the Wall Street Journal NBC (GE) plans to launch a 24-hour local news network in NY. The network will be launched in November and will share newsgathering resources with WNBC. Corriere della Sera reported overnight that that there are 8 suitors for Tiscali's [TIS.IT] assets According to the Telegraph Robert Tchenguiz has increased his stake in Mitchells & Butlers [MAB.UK] to 26% The Wall Street Journal was cautious on American International Group (AIG) in its Heard on the Street column ahead of earnings. The article notes that last year AIG wrote down the value of its derivatives by more than $11B, but some pessimists believe that those derivatives will largely bounce back in value over time. Furthermore the article notes that the impact of AIG's derivatives could put pressure on its balance sheet, ratings and share price and that in turn could magnify the impact of other threats.

In energy news, the Wall Street Journal wrote overnight that oil companies are set to settle the MTBE water-contamination litigation. About 12 oil companies will pay a total of $423M in cash plus clean-up costs that arise over the next 30 years. Barclays raised its 2008 WTI crude oil average price forecast to $116.90/barrel from $100.80/barrel. Barclays also forecasted an average oil price of $126/barrel for the 2H of 2008. Total (TOT) restarted its 125K bpd Amenam offshore oilfield in Nigeria overnight following routine maintenance.

In new supply overnight Spain’s Tesoro Público sold €1.368B in 4.1% 3-year BONOs with an average yield of 3.979%, and a bid-to-cover of 1.90x, which compares to the 2.18x seen at the previous auction. The Tesoro Público also sold €1.58B in 4.20% 5-year BONOs with an average yield of 4.067% and a bid-to-cover of 1.92x, which compares to the 1.84x seen at the previous auction. In related news overnight, the Financial Times wrote overnight that the UK Labour Party is in emergency talks to renegotiate more than £10M of loans from wealthy businessmen. The reported negotiations are to prevent the party from running out of money. Most of the large donors to the party in the run-up to the 2005 election are due to be repaid in coming months The Wall Street Journal wrote overnight that, according to JP Morgan, financial companies have sold off about 50% of the approximately $300M of hung bridge loans on their books. The Wall Street Journal wrote about the different ways in which banks value their home-loan losses overnight, noting that the mortgage losses at Wachovia (WB) and Washington Mutual (WM) might not look as steep as those at rival companies because Wachovia and WaMu have cited housing data from the Office of Federal Housing Enterprise Oversight when detailing their exposure to the US housing market, while some other banks use the S&P/Case-Shiller Home price index.

Hamish McRae wrote in The Independent that if the Bank of England does not cut rates by 25bps at today’s meeting, we’re likely to see a 25bps cut at the June policy-setting meeting. McRae discusses some of the weak data that has recently been seen in the UK along with declining house prices, and their implications for economic growth. McRae speculates that, perhaps the economy will grow at the lower end of previously issued forecasts in 2008. The final question, McRae asks, is how much freedom the Bank will have to cut rates. It has to meet its narrow objective of keeping inflation close to %, but it also has to maintain overall financial stability. McRae speculates that, provided it can make a reasonable case that it is not downplaying its present duty on inflation, it has quite a bit of leeway to cut rates if the economy needs it. Elsewhere, famed investor Jim Rogers said overnight that he has sold long-term treasuries with the exception of the 10-year.

In currency trading overnight the USD experienced a ''decoupling'' effect from the trend of higher oil prices in seen in recent sessions. The EUR/USD tested below the 1.53 area ahead of the European morning. . Risk aversion reappeared on the various carry-related pairs as softer equity market prompted uncovering of USD/JPY, EUR/JPY, GBP/JPY and EUR/CHF positions. The EUR/JPY tested 159 before consolidating while USD/JPY broke below the 104-handle. Dealers are awaiting the BOE and ECB interest rate decisions later today. Consensus expectations are for both central banks to maintain a steady hand as slowing economic and rising inflation risks are weighed. Dealers keen to see whether the ECB will ''amend or drop'' key words and phases during the post decision press conference on Thursday.

In currency news overnight the Financial Times wrote overnight that the US and Europe now have a united desire to see the dollar strengthen against the euro, citing senior officials. The article said that policymakers welcome the recent rebound in the dollar. Quoting an unnamed official the article said that policymakers are concerned that the currency markets have been paying too much attention to short-term economic weakness and market stress in the US, and not enough to the medium-term prospects for the US and Europe. Furthermore, the FT wrote that senior Euro-zone officials believe that the dollar-euro rate had reached levels unhelpful to both the US and Europe. The article concludes that the US is still a long way from agreeing to intervene in currency markets or identifying desired exchange rates. But both sides believe fundamentals and central bank policies are turning in the direction of relative dollar strength. Elsewhere, famed investor Jim Rogers said overnight that the US Dollar is already losing its reserve status, and added that the Yuan is the next best reserve currency in the long-term.

In central bank speak overnight Riksbank’s Oeberg said overnight that there is a greater chance of a rate hike than a rate cut in 2008, reiterating that inflation may last longer than previously thought. Oeberg said that wages are likely to rise faster than in recent years. The EU's Juncker said in an interview published in Boersen-Zeitung overnight that the Euro is a stability anchor, reiterating that FX rates should reflect fundamentals.

On the data front, NIESER released its GDP estimate for the three months ending in April in the UK overnight. The Estimate remained unchanged from the previous reading at 0.4%. NIESR said "the results for both three-month periods are boosted by buoyant figures for February making it possible that slower growth could emerge in the three months ending in May." German Exports for the month of March were slightly lower than expected, weighed down by exports, which declined by 0.5% due to strength in the Euro.

Looking ahead, before we make it to the US morning, focus will rest upon interest rate decisions from the Bank of England, and the European central bank, both of which are expected to leave interest rates unchanged. Thereafter, on the European front, focus will rest upon the ECB’s post rate announcement press conference hosted by the ECB’s Trichet. Investors will be looking for any change in the ECB’s hawkish tone.

On the data front in the US initial jobless claims and continuing claims are on deck ahead of the equity market open, and will be followed by March wholesale inventories following the open. In new supply the treasury is scheduled to sell $6.0B in 30-year bond, and in central bank speak former Fed chairman Alan Greenspan is scheduled to speak at the Alternative Public Strategies conference in New York. On the earnings front, the following notables are expected ahead of the equity market open this morning: Abitibibowater (ABH), Celgene (CELG), Cablevision Systems (CVC), Edison International (EIX), Jarden Hotels (JAH), Nasdaq OMX Group (NDAQ), Progress Energy (PGS), R.H. Donnelly (RHD), and Warner Music Group (WMG).