market review : europe & us
European shares saw red while US shares ended marginally higher led by tech stocks after surviving another disappointing data on consumer sentiment. German DAX index fell 39.89 points or 0.64% at 6,209.76 and FTSE 100 finished 31.69 points lower or down 0.57% at 5,508.45. Tech stocks led US shares on Friday as Nasdaq Composite gained 0.54% or 12.36 points to 2,315.61, while Dow Jones Industrial Average posted a marginal gains of 13.02 points or 0.12% to end at 10,607.85. S&P 500 index inched 0.08% higher to 1,125.59.
Irish Finance Ministry denied rumors that the country was in need for International Monetary Funds’s assistance to help its ailing banking sector. The rumor sent the Irish credit default swap to hit 425 basis points, a record high. Ten-year bond yield also rose to around 6.5%, as well as yield premium over German Bunds to 410 basis points, also a record high. EURUSD was shot down from mid-1.31s to the lower 1.30s after the news before it stabilized at 1.3040s at the end of the day. Despite the denial, the news – which was based on Barclays’ research note – brought back the concerns over the fiscal health over European countries.
Consumer Sentiment took a blow in September as the index from The Thomson Reuters/University of Michigan reported it falling to 66.6 from 68.9 in August. Current economic conditions was nearly unchanged in September as it stood at 78.4 against the August reading of 78.3 Consumer expectations index declined to 59.1 in September from 62.9 in August. All three indexes were below the consensus : the sentiment index was initially expected at 70.00, while current economic conditions index and consumer expectations index were forecast at 79.0 and 64.2, respectively.
Another data due on Friday was Consumer Price Index (NYSEARCA:CPI) which showed a month-on-month gains of 0.3% in August. Its core measure, which omitted the prices of food and energy was unchanged. Market consensus initially expected the headline CPI to rise 0.2% while the core index to also gain 0.1%. Year-on-year, headline index was up 1.1% and the core index was up 0.9% in August. Timid readings would mean that the Federal Reserve - which is going to meet again next week – is most likely to keep interest rates on hold at 0.25%.
European data on Friday featured German Producer Price Index which was flat in August on month-on-month terms, slower than July’s 0.5% gains. Compared to a year earlier, PPI also slowed to 3.2% in August from 3.7% gains in July. Construction output in Euro-Zone fell 3.1% in July after rising 1.8% in June on month-on-month basis, but suffered from a worse fall of 7.5% in year-on-year terms after gaining 1.9% in June.
Post-earnings report, several houses revised their expectations on Oracle Corporation. Piper Jaffray raised Oracle’s target to $31 from $30 and maintaining its OVERWEIGHT rating; Citigroup also raised the price target to $30 from $28; FBR Capital kept Oracle at OUTPERFORM while raising its target to $32 from $30; RBC Capital also hold its rating at OUTPERFORM with target raised to $32 from $28; and JMP Securities set price target at $33 and raised its rating to OUTPERFORM from MARKET PERFORM. Oracle leaped 8.36% to settle at $27.48 on Friday.
Johnson & Johnson is to acquire Crucell for $2.3 billion. The bid for the vaccine maker worth 24.75 euros per share, which means a premium over 50%. Opening up the door to the vaccine market will put J&J in competition with the drug giant GlaxoSmithKline Plc. J&J rose 0.46% to $61.57 on Friday.
Citigroup Inc. sold its student loan business to Discover Financial Services and SLM Corp. (a.k.a. Sallie Mae). Discover will pay $600 million for the stake, including $4.2 billion worth of loans, and Sallie Mae will acquire $28 billion of assets, including 1.3 million new customer. Citigroup will bear a loss worth $500 million, which will be included in the Q3 report. Citigroup ended at $3.95 or down 0.5%.
Microsoft’s price target was lowered to $30 fom $35 by Oppenheimer, but retained its rating at OUTPERFORM. The house pointed at ‘increasing headwind’ in both Windows PC & Office businesses as the factor behind the revision. Meanwhile, FBR Capital also kept Microsoft at OUTPERFORM as well as its price target at $32. However, slowing PC demand led to revisions of earnings estimates: 3Q to $0.54 from $0.56, and for June 2011 fiscal year from $2.38 to $2.31.
Volkswagen AG’s Czech unit Skoda Auto AS announced its plan to introduce a new model soon. The news pushed the price of its preferred shares up 2.6% to €91.21.
Barclays Plc shed 3.2% on Friday, settling at 304.65 pence after UBS downgraded its earnings estimates by 8% for 2010, 13% for 2011, and 20% for 2012.
McDonald’s was rated at HOLD by Jefferies, with target set at $75.
next week preview
Key US data for next week will be dominated by housing data: NAHB Housing Market Index for September, expected to rise from 13 to 14; Building Permits which are seen to inch higher to 560k in August from 559k in July; August Housing Starts, with the consensus of 550k against prior 546k, slowing down from 1.7% gains in July to 0.7% in August; and House Price Index which is expected to fall 0.1% in July after a drop of 0.3% in June. More housing data due are Existing Home Sales, expected to show a bounce as it is seen to rise 7.1% in August to 4.1 million after a plunge of 27.2% in July and finally, New Home Sales, which is expected to show gains of 6.9% in August after slumping 12.4% in July.
Other than housing data, Federal Reserve’s FOMC meeting will be the focus even that the rates are likely to stay on hold. US leading indicators for August will be released in Thursday, it is expected to show a 0.1% gains, the same pace as July’s; while Durable Goods Orders are expected to show a rise of 1.4% after it gained 0.4% in July. Excluding transportation items, orders are seen rising 1% in August after it dropped 3.7% in July.
Data from Europe will be German Manufacturing PMI for September, seen at 57.6 against 58.2 in August; the PMI for Services, seen unchanged at 57.2; while Euro-Zone PMI for Manufacturing is seen at 54.5, down from 55.1 in August; For Services, the PMI is seen slightly lower at 55.5 in September against 55.9 in August; and finally the Composite PMI Index is expected at 55.7 in September compared to August’s 56.2. Another gauge of output for Euro-Zone, industrial new orders are seen slowing to 16.2% (y/y) in July from 22.8% gains in June; month-on-month, the orders are seen to have fallen 1.4% in July after it posted gains of 2.5% in June.
Consumer confidence data will also due in Europe. The first would be from Euro-Zone and it is expected to improve to -10 from -11 in September, while the second will be the German IFO index. IFO’s business climate index is seen down to 106.4 from 106.7 in September; while the current assessment index is seen improving to 108.7 from 108.2; however, the expectations index is seen falling to 104.0 from 105.2.
A day after the Fed delivers its decision on rates, the Bank of England will release its latest MPC minutes on Wednesday. The minutes will show how the Bank assessed the economy during its latest meeting and how the balance of votes was. The last time, eight members voted for no changes in rates, while Andrew Sentance voted for a rise in rate of 25 basis points.
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