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European & North American Market Review - September 20th 2010

|Includes: BP, Helmerich & Payne Inc. (HP), IBM
market review : europe & u.s.7
The National Bureau of Economic Research declared that US recession had ended in June 2009, but the current recovery has been very slow and fragile and that there is a 25% chance that the US economy will fall back into recession. The news did not stop the US shares from starting the week on a strong footing however, as Dow Jones Industrial Average rallied 1.37% to 10,753.62. Nasdaq Composite which has been strong recently, ended at 2,355.83 or up 1.74%. S&P 500 index gained 1.52% to end at 1,142.71. In Europe, FTSE 100 index jumped 94.09 points or 1.71% to finish at 5,602.54, while DAX index closed at 6,294.58 or up 84.82 points.

Concerns over the financial health of Ireland and Portugal have sent the yield premium against German bunds higher to above 400 basis points for Ireland and 393 basis points for Portugal. The market has been worried over both countries after a research report from Barclays last week said that Ireland might be in need of IMF’s help to fix its financial health. Ireland and IMF denied the news, but the sentiment has been damaged since.

Bundesbank said that increased loan-loss provisions at German lenders would reduce earnings although currently the economy is rather in a better shape. In its monthly report, the bank said that the new Basel banking rules will improve the banking systems without hurting economic growth and that lenders would be able to maintain their lending while at the same time raise additional capital to fulfill the new banking requirements.

Moody’s Investors Service maintained UK’s credit rating at Aaa, adding that the coalition’s efforts on the economy have been so far in line with the rating. UK’s ratings at Standard & Poor’s & Fitch Ratings are also at AAA. At S&P however, it has NEGATIVE outlook while at Fitch it has STABLE outlook. At the same day, Fitch Ratings also affirmed Germany’s long-term foreign and local currency issuer default ratings at AAA.

Deutsche Bank AG provided more details on its plan to raise more money to finance its purchase of Deutsche Postbank AG and to increase its reserves. The bank will sell 308.6 million new shares at the price of 33 euros per share worth a total of 10.2 billion euros. While a part of the cash is going to be used to raise DB’s stake at Postbank to around 60%, the rest of the funds will be used to fulfill the new regulatory requirements recently set. At MF Global, the Bank was downgraded to SELL from HOLD. Deutsche Bank has been hammered by the news lately, but it rebounded on Monday and settled 1.49% higher at €46.88.

BP Plc.’s Macondo well has been sealed permanently. The well which suffered a blast earlier this year and created a massive oil spill was declared “dead” after the company successfully done some pressure test on the cement seal on the well. The news sent BP’s shares to end at 411.35 pence or 2.06% higher.

Commerzbank was raised to NEUTRAL from SELL by UBS AG and also raised its price target to €6. Meanwhile, BMW’s price target was raised to €61 by Barclays. The upgrades lifted Commerzbank and BMW’s shares by 1.5% and 3.62%, respectively. Commerzbank ended at €6.42, while BMW settled the day at €49.12.

Bayer AG was upgraded to BUY from HOLD by Collins Stewart. Bayer rose 2.47% to close at €52.32.

Apple Inc. was expected to launch a version of its iPad with smaller screen in order to compete with the recently released Samsung’s Galaxy Tab. Galaxy Tab will be offered by AT&T, Verizon Wireless, Sprint Nextel and T-Mobile, and will use Android operating system from Google. Analysis by Rodman & Renshaw suggested that the new version could be due in 1Q11. Elsewhere, its rating at Kaufman Brothers has been kept at BUY with target raised from $350 to $374. 4Q estimates were raised. Revenue to be at $19.3 billion, up from $18.0 billion, EPS at $4.12 from $3.74. For fiscal year ending October with revenue for the period at $64.1 billion, raised from $62.9 billion or with EPS at $14.64 against prior estimate of $14.25. Fiscal year 2011 is seen to show revenue of $80 billion compared to prior estimate of $76.3 billion, EPS is seen at $18.00 rather than $16.75. Apple’s shares jumped 2.85% as it flew to new heights, approaching technical resistance at $284.30. Apple settled at $283.23.

IBM planned to purchase Netezza Corp at the price of $27 per share or a total worth of $1.7 billion. Netezza integrates hardware with applications to store and analyze data. IBM will probably face rivals such as HP, Dell and Cisco in its effort to acquire the data-warehousing company. IBM advanced 1.23% to $131.79.

Oracle and HP were reportedly to have reached settlement over the dispute involving HP’s former CEO Mark Hurd. Earlier, HP sued Mark Hurd when he joined Oracle after he left HP. Oracle’s Larry Ellison said that HP’s board action to push Hurd out was “the worst personnel decision since the idiots on the Apple board fired Steve Jobs.” As the dispute ended, both companies now have “reaffirmed” their strategic partnership. On a downside note, Oracle was downgraded to NEUTRAL from BUY by Davenport. HP was at $39.39 (+0.64%) while Oracle was at $27.49 (+0.04%) when the market closed on Monday.

AT&T has been upgraded to OUTPERFORM from NEUTRAL by Credit Suisse, with price target set at $35. AT&T advanced 1.31% to settle at $28.54. 

Disclosure: No Positions