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European and North American Markets Review - September 15th 2010

|Includes: BP p.l.c. (BP), GE, GSK, IBM
Dow Jones Industrial Average clawed back from the depths of 10,481 when poor Empire Manufacturing and industrial production data were released to end up 46.24 points at the end of the day or 0.44% at 10,572.73. Nasdaq Composite gained 0.5% to 2,301.32, and S&P 500 index ended at 1,125.07 or up 0.35%. In Europe, shares fall were attributed to the poor US data. DAX index fell 13.54 points or 0.22% to 6,261.87 while FTSE 100 declined 0.21% to 5,555.56.

European Commission is working on more supervisory measures to oversee financial markets. The first would be to have OTC derivatives transaction in Europe to use central clearinghouses to settle sales, and the second is to have naked short-sellers to submit proof that they can access the sold instrument to settle the trade which aimed for profit from falling prices. Any short position beyond 0.2% of issued capital must be notified to the authorities while beyond 0.5% the market must be notified.

US data did not provide fresh reliefs on Wednesday as production figures pointed at slowdown. US Empire Manufacturing fell to 4.14 in September, after it stood at 7.10 in August. The reading came way below expectations for a rise to 8.00. Similarly, industrial production also slowed from 0.6% in July to 0.2% in August. The figure came in as expected however. Capacity utilization inched higher from 74.6% in July to 74.7% in August. It was below the expected 75.0%. Import prices accelerated in month-on-month terms, from 0.1% in July to 0.6% in August, twice faster than the consensus of 0.3% rise. Compared to the same period last year, import prices slowed from 5.1% to 4.1%, above the expected rise of 3.8%.

From Europe, Core CPI was reportedly rising 1%  in August (y/y), the same pace as July’s and a bit higher than the consensus rise of 0.9%. Month-on-month, CPI turned positive as it rose 0.2%, reversing July’s drop of 0.3%. Headline CPI however, rose 1.6% after a 1.7% gains in July. In the labor market, employment in the Euro-Zone was unchanged in 2Q from 1Q, but it was 0.6% lower than the same quarter last year.

In UK, claimant count rate remained unchanged at 4.5% in August, while 3-month unemployment rate for July stuck at 7.8%. Jobless claims increased 2.3K in August after posting a 1K decline in July. Average weekly earnings (including bonus) for the three months ending July was up 1.5%, faster than the prior 1.1% rise, but lower than the expected 1.7% rise.

Bayer projected that the market for its Xarelto blood thinner would be as huge as $15 billion. According to the CEO Werner Wenning on Wednesday, the drug which was developed by Johnson & Johnson & Bayer AG could reach sales of 2 billion euros annually. Its rivals would be Pradaxa from Boehringer Ingelheim GmbH and apixaban from Bristol-Myers and Pfizer. Bayer is still in process to obtain approval for Xarelto and will present it in November at at the American Heart Association meeting, while apixaban is still waiting for more results next year. Pradaxa however, will hear preliminary findings from the Food and Drug Administration on Thursday. Bayer was up 0.37% to end at €51.67.

BP was reportedly failed to comply with regulations related to training of offshore operators on how to respond to an oil spill at four of its five North Sea oil rigs in 2009. CEO Tony Hayward however, said that fundamentally, there was no weakness in the company’s North Sea installations. In addition, Hayward also denied that the US government intervened in the company’s decision to suspend its dividend after the spill incident. Also, according to the outgoing CEO, BP will reconsider its relationship with contractors. BP fell to 404.1 pence, or 2.67%.

Yahoo! was a big mover on Wednesday as the company was rumored planning to sell its share in Alibaba amounting to $11 billion. Despite Yahoo’s denial, the shares jumped 4.69% and ended at $14.27.

IBM announced that it has reached a deal to acquire OpenPages, a company that makes software to ease identifications and management of risk and compliance activities via a single management system. No further details were available. IBM shares was up 0.45% to $129.43.

Boeing was said to have received illegal aid from the US, according to the World Trade Organization findings. The matter is expected to end at some point since nobody will benefit from it, according to the British Airways CEO Willie Walsh. BA flies both Boeing and Airbus planes. Airbus SAS also deemed to have broken the WTO rules. Boeing inched 0.05% lower at $62.73.

Walmart announced its collaboration with Deutsche Telekom’s T-Mobile to offer Walmart Family Mobile service to its store and online customers. The package will cover 100 megabytes of data, able to be shared among family members. Leftovers can be carried over to the subsequent month. If used up, data could be purchased. For unlimited talking and texting the fee would be at $45 per month.

GlaxoSmithKline was downgraded at Jefferies as Avandia’s place in the market is at risk. Currently, Glaxo is at HOLD down from BUY earlier.

General Electric was put at BUY at Citigroup, with price target set at $19.

3M was placed at HOLD at Citigroup based on valuation call. Target set at $90.

Oracle was put at OUTPERFORM at Wells Fargo.

Thursday Preview

As usual, Thursday will cover US jobless claims for the week ending September 11th. The claims are expected to increase to 458K from 451K, while US PPI figures are also scheduled for release on Thursday. Excluding food & energy, the month-on-month reading is expected to show a slowdown to +0.1% in August from +0.3% in July. Year-on-year, core PPI is seen slowing from 1.5% to 1.3%. Headline PPI on the contrary, is seen accelerating 0.3% from July to August, compared to 0.2% rise from June to July. Its year-on-year measure is seen slowing down from 4.2% gains in July to 3.0% increase in August. Another key data will be the Philadelphia Fed Index which is seen at 0.3 in September, improving from -7.7 in August. With inflation data having minor impacts lately, focus will be on the job data and the Philly index data.

August UK retail sales will be released, with m/m reading is expected to slow from 1.1% to 0.3%, and y/y reading is seen accelerating from 1.3% to 1.9%. Excluding autos and fuel, m/m data is expected to slow from 0.9% to 0.2%, while y/y the figure is seen to be gathering pace from 2.4% to 2.8%.


Disclosure: No positions