- Fed Minutes show weak outlook, split on inflation. Minutes released yesterday from the August 5 FOMC meeting show the Fed expects weak economic growth and moderating inflation through to the end of the year, and committee members marked down their forecast for growth in the second half of this year and 2009. The central bank's interest-rate target remained unchanged at 2%, and though committee members expect to raise interest rates at some point, the timing of such a move is unclear since most committee members believe the interest rate is not too low given the current economic situation. Fed officials appeared divided on exactly how great a threat inflation poses and to what extent financial stress is weighing down the economy.
- FDIC: IndyMac failure more expensive than expected. The FDIC reported that IndyMac's July failure will be costlier than originally expected. The FDIC has revised its estimate upwards to $8.9B, from a previously estimated $4-8B, and hopes to start marketing IndyMac's assets in the third quarter. IndyMac is one of nine U.S. banks to fail this year and the third-largest U.S. bank failure ever.
- FDIC may replenish funds with Treasury loan. Increased bank failures have pushed the FDIC's reserve ratio to 1.01% ($45.2B), low by historical standards, forcing the FDIC to develop a restoration plan to replenish the fund. Risks remain high, with 117 banks on the FDIC's "problem" list compared to 90 in Q1. Chairman Sheila Bair said Treasury borrowing could be needed to cover short-term cash-flow pressures created from reimbursing depositors immediately after a bank failure. The loan would be repaid once the failed bank's assets had been sold. Washington regulators are concerned that the FDIC is turning to the Treasury after only nine bank failures, a move that underscores the weakness of the U.S. banking system in the wake of the credit crisis.
- Fannie, Freddie post biggest profits in a decade. Fannie Mae (FNM) and Freddie Mac (FRE) post the biggest profits on new investments since at least 1998. The current-coupon mortgage bonds Fannie and Freddie buy yield about 40 basis points more than what they pay to borrow by selling benchmark bonds. The gap is allowing the two companies to offset some of their credit losses and is reducing the pressure on the government to bailout the mortgage-lenders. Moshe Orenbuch, an analyst at Credit Suisse, says their interest margin is likely to continue to widen.
- Lehman asks P-E firms to remain in bid. Lehman (LEH) is still deciding whether to sell its asset management unit, but has asked private-equity firms Kohlberg Kravis Roberts, Hellman & Friedman and Bain Capital to remain in the bidding. All three firms have been told by Lehman that their bids are high enough to go forward. Blackstone and Carlyle have been eliminated from the informal auction. Analysts say the indecision at Lehman reflects its uncertainty over the size of its writedowns.
- NY AG probes Fidelity-Goldman ties. The New York attorney general's office is examining the relationship between Fidelity Investments and Goldman Sachs (NYSE:GS) as part of an investigation into Fidelity's sale of auction-rate securities [ARS] to individual investors. Investigators are trying to determine whether Fidelity had an incentive to sell ARS in return for certain financial services provided by Goldman. The probe was initiated after it was discovered that most of the ARS sold by Fidelity were underwritten by Goldman.
- Pimco seeks $5B to buy debt on the cheap. Pimco is looking to raise $5B for a fund to buy distressed senior and super-senior mortgage-backed debt. "There's a handful of firms out there, Pimco being one of them, that are well-positioned to deal with this credit crisis and the fire sales going on in mortgage-backed securities," mutual-fund consultant Geoff Bobroff says. Others include BlackRock (NYSE:BLK) and TCW.
- Lilly, Amylin, FDA discuss Byetta warning after new deaths. Eli Lilly (NYSE:LLY) and Amylin (AMLN) are in talks with the FDA and may have to add tougher warnings to the prescription instructions after four more patients died from pancreatitis while taking the diabetes drug Byetta, bringing the total to six deaths. No definite relationship has been established between Byetta and the deaths but sales of the drug could fall 5% this week on the news and even further if the FDA requires stronger warning labels. The new deaths could jeopardize the long-acting version of the drug that Lilly and Amylin plan to submit within nine months for U.S. approval. Byetta is Amylin's leading product, with global sales of $194.7M in Q2.
- TiVo hopes to expand reach through magazine partnership. TiVo (NASDAQ:TIVO) plans to announce today an agreement with Entertainment Weekly, a Time Warner (NYSE:TWX) magazine, that will allow TiVo users to automatically record shows recommended by the magazine's staff. The partnership is part of TiVo's efforts to distinguish itself from other DVRs that are seeing their market share grow even without TiVo's advanced features. Scott Donaton, publisher of Entertainment Weekly, said that 60% of the magazine's 1.8M readers use DVRs. TiVo, which pioneered DVRs a decade ago, has only 1.7M subscribers in the existing U.S. market of 26M devices.
- U.S. consumer confidence hits near-record low. ABC's weekly Consumer Comfort Index shows American consumer confidence fell to a near-record low as gasoline prices remained high, and inflation and unemployment continued to weigh down the economy. The index was down to -50 in the week to Aug. 24, one point lower than the previous week, and dangerously close to the all-time low of -51, reached in May.
- Richmond Fed Mfg Index holds steady. Richmond Fed's Manufacturing Index held steady at -16. Among the index's components, shipments were +10 to -13, new orders were -5 to -22, and jobs were -7 to -12.
- S&P/Case-Shiller see housing decline moderating. S&P/Case-Shiller says broad-based declines in U.S. home prices continue. Q2 prices fell a record 15.4% vs. a year ago. It does see the decline moderating, and a possible bottom in some regions.
- Ofheo expects positive growth by Q4. Ofheo notes the rate of home price declines slowed in Q2. Prices fell 1.4% from Q1 - less steep than the prior quarter's -1.7% - and fell 4.8% from last year. Director James Lockhart expects positive growth by Q4.
- Redbook sales fall in August. Redbook reports U.S. retail sales fell 1.8% in the first three weeks of August vs. July but rose 1.5% vs. a year ago.
- ICSC sales up slightly in August. ICSC reports retail sales were up 0.2% wk/wk and 2.3% from the same week last year. Falling gas prices continue to help prop up discretionary spending.
- July home sales up on revised June numbers. New home sales rose 2.4% in July on the previous month, but only after the Census Bureau revised the previous month's numbers sharply down. July sales came in at a seasonally adjusted annual rate of 515,000 units. June's figure was revised to 503K from 530K.
- China Mobile continues to dominate. China Mobile (NYSE:CHL) posted record profits of ¥30.8B ($4.5B) - 51% higher than a year ago and better than the ¥28.3B analysts expected. Sales rose 16% to ¥103.4B. In February the government asked CHL and China's number-two mobile carrier China Unicom (NYSE:CHU) to cut prices of long-distance domestic calls by about 50%; fixed-line long-distance calls dropped by 20% as a result. "China Mobile is benefiting from the rapid growth in the mobile market and a lack of competition, Credit Suisse's Jeffrey Tan says, noting this may change after the government-enforced industry restructuring. CHL says it's shopping for "quality telecommunications assets as investment opportunities." Shares gain 3.9% in Hong Kong.
Earnings: Tuesday After Close
- J Crew Group (JCG): Q2 EPS of $0.28 misses by $0.04. Revenue of $336M (+10.3%) vs. $338M. [PR]
- Dycom Industries (NYSE:DY): FQ4 EPS of $0.23 beats by $0.02. Revenue of $322M (+1.5%) vs. $319M. [PR]
- Borders Group (BGP): Q2 EPS of -$0.18 beats by $0.11. Revenue of $749M (-6.9%) vs. $783M. [PR]
Earnings: Wednesday Before Open
- China Mobile (CHL) posts record profits of ¥30.8B ($4.5B) - 51% higher than a year ago and better than the ¥28.3B analysts expected. Sales rose 16% to ¥103.4B. CHL says it's shopping for "quality telecommunications assets as investment opportunities." +3.9% in Hong Kong.
- PetroChina (NYSE:PTR): H1 profit falls 35% to ¥53.6B ($7.8B) on receding margins and advancing taxes - in line with estimates. PTR and ExxonMobil (NYSE:XOM) duel for title of the world's biggest company, with XOM being the current champ.
- Cnooc (NYSE:CEO): Oil and gas sales gain 63.9% to ¥54.46B. Net profit of ¥27.54B was up 89.3%. Cnooc is number-three to PetroChina (PTR) and Sinopec (NYSE:SNP).
- Asia markets closed mostly down. Nikkei -0.2% to 12,753. Hang Seng +1.9% to 21,465. Shanghai -0.3% to 2,342. BSE -1.3% to 14,297.
- In Europe at midday, London -0.2%. Paris -1.0%. Frankfurt -0.8%.
- U.S. futures at 7:00 AM: Dow -0.25%. S&P -0.35%. Nasdaq -0.34%. Crude +1.06% to $117.50. Gold +1.36% to $839.30.
Wednesday's Economic Calendar
7:00 MBA Mortgage Applications
8:30 Durable Goods Orders
10:35 EIA Petroleum Status Report
- Notable earnings before Wednesday's open: CHRS, DLTR, SOLF, TLB
- Notable earnings after Wednesday's close: CWTR, GA, MW, TIVO
Seeking Alpha editor Eli Hoffmann contributed to this post.
Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.