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European & North American Markets Review - September 14th 2010

|Includes: ADBE, CSCO, GOOG, JPMorgan Chase & Co. (JPM), XOM

American consumer are not dead yet. At least, that was what Tuesday’s retail data indicated, boosting the market sentiment but yet unable to push Dow higher. The Dow Jones Industrial Average ended at 10,526.49, down 17.64 points or 0.17% while S&P 500 index also fell 0.80 points or 0.07% to 1,121.10. Tech stocks gained however, as Nasdaq Composite advanced 0.18% or 4.06 points to end at 2,289.77. In Europe, DAX index ended 0.22% higher at 6,275.41 as poor ZEW index was offset by better-than-expected retail data from the US. FTSE 100 index barely changed as it added 1.88 points or 0.03% to end at 5,567.41.

Michael Meister, the deputy chairman and finance spokesman for Angela Merkel’s party warned Portugal that the country must do more to improve the economy, particularly by investing more in education and technologies. Earlier Portugal finance minister said that the country would not need to request special rescue program because Portugal have already financed nearly 90% of its needs for the entire 2010. The criticisms over Portugal came after last week’s yield spread between 10-year bonds of Portugal and Germany soared to 372 basis points. Currently the spread was at 335 basis points.

German ZEW Index fell in September to -4.3 from 14 in August, way below the forecast of 10. The fall was the fifth consecutive decline and was the lowest level since February 2009. The current conditions index rose to 59.9 from 44.3 in August. Eurozone’s current economic condition index also rose, from -13.0 in August to -6.3 in September. For economic expectations, Eurozone’s index worsened from 15.8 to 4.4.

Industrial production in Eurozone was unchanged in July, below the economists expectations of a rise of 0.1%. In June, production fell 0.2%. Year-on-year, the output slowed to 7.1% in July from 8.3% in June. This was also below the consensus of 8.0%.

UK Consumer Price Index rose 3.1% in August from the same period last year. The figure was above the consensus of 3% and at par with July’s year-on-year reading. Core inflation gathered pace from 2.6% rise in July to 2.8% in August. This was also beyond the expected gains of 2.5%. Meanwhile, retail price index was at 4.7% in August, slightly below the July’s reading of 4.8%, but also beat the expectations of 4.6% increase. Excluding mortgage interest payments, the RPI also slowed to 4.7% from 4.8% during the same period. Month-on-month, the CPI reversed course from falling 0.2% in July to a rise of 0.5% in August. RPI’s month-on-month reading also showed a turnaround from a fall of 0.2% to a rise of 0.4% in August. The stubbornly high inflation will at least keep the interest rates unchanged throughout 2010, and possibly throughout most of 2011 when the new retail tax plan is to be applied.

Elsewhere, the Nationwide Building Society reported that UK’s consumer confidence advanced to 61 in August from 56 in July, beating the consensus of 60. The expectations index also rose to 84 from 77. Another data reported on Tuesday was RICS House Price Balance for August which dropped 32%, faster than the July’s drop of 8%. The data was worse than the consensus of a 12% drop.

Across the Atlantic, the US retail sales edged up 0.4% in August, beating the expectations of a 0.3% gains. July’s reading was also show a 0.3% increase. Excluding autos, sales were 0.6% higher in August, while the core sales which excludes autos and gasoline, rose 0.5% after a 0.1% fall in July. Business inventories was also rising in July. The 1% rise in inventories beat the consensus rise of 0.7% and was also faster than the June’s rise of 0.5%. A better-than-expected retail figures would at least improve the investors’ sentiment over the state of the US economy, especially in consumption.

JP Morgan Chase & Co.’s CEO Jamie Dimon said on Tuesday that the Basel III rules announced last weekend were to push banks to seek more financing from non-bank financial institutions as well as increasing bank loan prices for customers. Shares of US banks fell on Tuesday, reducing the positive impact from the sales data released earlier. Bank of America fell 1.94% to $13.68, Citigroup settled at $3.94 or 1.25% lower, Goldman Sachs also shed 1.19% to $152.53, and JP Morgan itself fell 0.97% to $40.72.

Cisco Systems CEO John Chambers announced that the company would issue its first dividend this fiscal year, despite the stock’s poor performance this year. The dividend yield would be around 1% to 2%, according to Chambers. At the end of July, Cisco held nearly $40 billion in cash and short-term investments. Chambers also added that he planned to repatriate at least $30 billion of Cisco’s cash abroad back to US and use it to increase the workforce by 10% in 2011. Cisco ended the day up 0.89% to $21.45.

Google bought Quiksee, a start-up company from Israel which developed platform to allow people to make videos based on location. The technology is seen to be able to complement Google Maps and also to compete with Facebook as it could allow people to geotag photos, adding more attractions on Google Maps. Google settled 0.38% lower at $480.43.

Adobe Systems
 was put on HOLD from BUY at Standpoint Research. The shares however, rose 0.73% to $32.47.

Exxon Mobil was downgraded again from OUTPERFORM to SECTOR PERFORM by RBC Capital. The price target was also lowered to $70 from $76. The stock inched up 0.02% to $61.01.


wednesday preview 8

Wednesday will feature US Industrial Production data for August. The figure is seen slowing from 1% rise in July to a rise of 0.2%. The accompanying capacity utilization rate is seen inching higher to 75% from 74.8% in July. Other data will include Empire Manufacturing for September, seen up from 7.10 in August to 8.00; and US August import price index seen to slow towards 3.8% from 4.9% in July.

European data will consist of UK employment data, with claimant count rate seen unchanged at 4.5% in August, while ILO unemployment rate is also seen stagnant at 7.8% in the three months ending July. Jobless claims change in August is seen improving from -3.8K in July to -3.0K. Average weekly earnings including bonus throughout the three months ending July is seen accelerating to 1.7% from 1.3%.

Eurozone data will cover CPI for August, forecast at 1.6% (y/y) and 0.2% (m/m). The year-on-year core index is seen slowing from 1% to 0.9% in August.

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