Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:52 AM EST
S&P 500: -4.90; 1,520.30
NASDAQ 100: -8.50; 1,922.00
Dow: -46.00; 13,510.00
NIKKEI 225: -0.41%; 17,760.91 -73.57
HANG SENG: +0.10%; 20,636.39 (+20.90)
S&P/ASX 200: +0.13%; 6,240.10 (+8.40)
BSE SENSEX 30: +0.34%; 14,130.95 (+47.54)
FTSE 100: -0.21%; 6,553.80 (-13.70)
CAC 40: -0.53%; 5,908.55 (-31.54)
XETRA-DAX: -0.48%; 7,668.82 (-37.28)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.30%; $65.77 (-$0.20)
Gold: -0.47%; $655.90 (-$3.10)
Natural Gas: +0.24%; $7.63 (+$0.02)
Silver: -0.68%; $13.185 (-$0.09)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Lehman Smashes Estimates, Shares Up 2% in Pre-Market
Lehman Bros. reported a 27% increase in net income to $1.27 billion, or $2.21/share, easily topping analysts' average estimate of $1.88/share. Revenues rose 25% to $5.51b, also beating the Street ($4.97b). Lehman is the first major investment bank to announce Q2 earnings. Bloomberg reports its EPS exceeded the highest estimate among 16 analysts surveyed. Shares of Lehman last traded up 2% to $77.25 in pre-market trading on volume of nearly 230,000. It gained 2% to $75.68 in normal trading Monday. Lehman has traded between $58.37 - $86.18 over the past year. CEO Richard S. Fuld, Jr. commented on its global platform being "stronger" and "more balanced" than ever, as overseas revenues now account for nearly half of total revenues. Lehman's ROE increased to 25.8%, compared to 23.7% last year. Brad Hintz, analyst at Sanford C. Bernstein & Co. and former Lehman CFO, noted the company "still has room to increase leverage and boost earnings further."
Sources: Press release [pdf], Bloomberg, MarketWatch
Commentary: Brokerage Group Earnings Preview: Overseas Revenue Key • Investment Bank Stocks Diverging - Bear Stearns and Lehman Lag • Lehman CEO Says Economy Won't be Derailed by Subprime Crisis • Lehman Bros. Earnings Conference Call Transcript (later today)
Stocks/ETFs to watch: Lehman Brothers Holdings Inc. (LEH). Competitors: Goldman Sachs Group Inc. (NYSE:GS), Merrill Lynch & Co. Inc. (MER), Morgan Stanley (NYSE:MS), Bear Stearns Companies Inc. (NYSE:BSC). ETFs: streetTRACKS KBW Capital markets (NYSEARCA:KCE), iShares Dow Jones US Broker-Dealers (NYSEARCA:IAI)
More Monetary Tightening Expected in U.K. and China
Inflation slowed to 2.5% in May in the U.K., the lowest rate in seven months. However, economists seem to agree another rate hike is "locked-in," while a follow-on hike is debatable. In China, consumer prices jumped 3.4%, the fastest clip in more than two years, signaling the PBoC has to do more to slow the economy. Although the Consumer Price Index [CPI] dipped in the U.K., it remains above the Bank of England's 2% target. In addition, core CPI gained 0.1% to 1.9%. "The increase in core inflation is ongoing and that means inflation may go back up. We're still in a hiking environment, and not only in the U.K," said an economist at BNP Paribas (London) in an interview with Bloomberg. Economists had expected an inflation reading of 2.6% and core CPI of 1.8%. September interest-rate futures are currently trading near 6.1%, compared to the current benchmark rate of 5.5%. China's inflation was boosted by a 26.5% jump in meat prices. Also, household deposits fell by approximately $36.4b in May, declining for the second consecutive month, after not having fallen since Feb. 2003. Analysts say inflation, as well as strength in equities -- fueled by what is regarded as speculative shifting of savings to the stock market -- will necessitate more monetary tightening.
Sources: Bloomberg I, II
Commentary: China's Pig Sty Politics: Thoughts On Pork Inflation • China's May Surplus Surges 73%, Yuan Falls, Shanghai Retests 4,000 • U.S. 10-Year Treasury Passes 5%, Futures Dip
Stocks/ETFs to watch: CurrencyShares British Pound Sterling Tr (NYSEARCA:FXB), PowerShares DB G10 Currency Harvest (NYSEARCA:DBV), CurrencyShares Japanese Yen Trust (NYSEARCA:FXY), iShares Lehman TIPS Bond (NYSEARCA:TIP), iShares Lehman 1-3 Year Treasury Bond (NYSEARCA:SHY), iShares Lehman 7-10 Yr Treasury Bond (NYSEARCA:IEF), iShares Lehman 20+ Year Treas Bond (NYSEARCA:TLT). iMSCI United Kingdom Index Fund (NYSEARCA:EWU), iShares Trust FTSE-Xinhua China 25 Index Fund (NYSEARCA:FXI), PowerShares Golden Dragon Halter USX China Portfolio (NASDAQ:PGJ), Morgan Stanley China A (NYSE:CAF)
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Asian Headlines (via Bloomberg.com)
• Asian Mining, Energy Stocks Advance on Rebound in Metals, Oil; Japan Falls Asian mining and energy stocks advanced, led by BHP Billiton Ltd. (NYSE:BHP), after prices of metals and crude oil rebounded. Tokyo Electric Power Co. led Japan's shares lower as rising bond yields reduce the appeal of company dividends.
• India's Industrial Production Grows More Than Expected, May Spur Inflation India's industrial production growth beat expectations in April, suggesting the central bank may need to raise borrowing costs further to contain inflation stoked by consumer demand.
• Chinese Yuan Has Biggest Gain in a Month Before Treasury's Currency Report The yuan had the biggest gain in a month before the U.S. Treasury Department is scheduled to name currency manipulators in a semiannual foreign-exchange report.
• Transmile Says Three Directors Quit Amid Audit Probe Into Overstated Sales Malaysia's Transmile Group Bhd., which announced a special audit of accounts last month, said three directors, also members of its audit committee, resigned.
European Headlines (via Bloomberg.com)
• Stocks in Europe Decline; HBOS, STMicroelectronics, Royal Bank Shares Fall European stocks declined after HBOS Plc said its share of the U.K. mortgage-lending market may decline and Texas Instruments Inc. said sales will miss its highest estimates, sending technology shares lower.
• Teliasonera Ousts Chief Executive Igel, Seeks Successor to Improve `Drive' TeliaSonera AB ousted Chief Executive Officer Anders Igel after the Nordic region's largest telephone company posted its smallest profit increase in more than a year and failed to resolve ownership disputes in Turkey and Russia.
• Europe Industrial Output Unexpectedly Drops as Euro's Rise Crimps Exports Europe's industrial production unexpectedly dropped in April as the euro's gains hampered export sales of cars, trains and airplanes.