Stock Markets Satisfied With Early Corporate Earnings Reports

By: PaddyPowerTrader

U.S. stocks rose again Monday, adding to gains from the biggest weekly rally in a year for the S&P 500 Index, as analyst upgrades of technology companies boosted optimism before the start of the earnings season. SanDisk Corp. surged 6.8% as UBS advised buying the shares, while Qualcomm saw its shares jump 3.5% on a broker upgrade at Goldman Sachs who added the stock to its “conviction buy” list. Hewitt Associates soared 32% after Aon agreed to buy the consulting company. A total of 23 companies in the S&P 500, including Google, Intel. and Citigroup will report earnings this week alone.

Alcoa kicked off earnings season after the US market closed last night. The group reported both earnings and sales that beat market expectations and also increased its production outlook to 12% growth from 10% growth. Alcoa noted that the global economic recovery is real in the majority of its markets while it did signal that there was still weakness in Europe. While Alcoa probably gets some undeserved attention given that it is the first to report among the Dow 30 companies, it operates in an extremely cyclical market and the fact that the company increased guidance should be taken as a major positive. Rail operator CSX also beat Street expectations and gave an upbeat outlook. Intel’s numbers are due after the bell this evening. Analysts expect net income of 43 cents a share on revenues of $10.25bn.

Stocks on the move in Europe today include ARM, the U.K. designer of semiconductors also used in Apple’s iPhone, is better by 3% today after Goldman Sachs named the company in its “primary winners” list from the introduction of the iPad, saying they expect “most tablets to be designed with low-power, ARM-based chips.”

Shares of British American Tobacco are up 2% Tuesday after a broker upgrade from Goldman Sachs who upgraded Europe’s second-largest cigarette maker to “buy” from “neutral.” Unilever, the world’s second-biggest maker of consumer products, has put on 2.3% as the “vampire squid” brokerage upgraded the stock to “conviction buy” from “neutral.”

But Northern Foods is off 2.1% after the U.K. maker of Goodfella’s pizza reported a 1.6% decline in like for like sales in the first quarter after the company exited from the Birds Eye business in June 2009.

Automakers Peugeot is ahead by nearly 4% and Volkswagen preferred shares have gained 3.6% after JPMorgan raised their price estimate on the French carmaker by 3% to €34 and on the German automaker by 4% to €78 saying increased demand and “attractive valuations” favour the industry, according to a report dated today.

Banking stocks are better today on a report that representatives from European banks are scheduled to meet regulators in Basel, Switzerland this weekend in a big push to significantly water down the stringent standards proposed last year by Basel Committee and to allow an extended timeframe to implement them. Efforts are reportedly being made by Germany and France who are looking for a compromise on how capital is defined and for transition periods of up to 10 years in order to avoid the negative knock on effects of tougher capital requirements on already tight credit availability in the real economy.

Today’s Market Moving Stories

•Eurozone: Moody’s has downgraded Portugal’s government bond ratings to A1 from Aa2. The two notch downgrade reflects a belief that the government’s financial strength will continue to weaken over the medium term, whilst growth prospects are likely to remain relatively weak unless recent structural reforms bear fruit. The rating outlook is now stable, with the upside and downside risks evenly balanced. But trumping this bad news was the successful placement of the 26 week Greek t-bill’s, with a yield of 4.65%, which is substantially tighter than both short dated CDS markets and 9 month fixed rate government paper has turned sentiment.
•Eurogroup chairman Jean-Claude Juncker “We have the feeling that the way that the Greek government is implementing the adjustment program clearly shows the willingness of the Greek government to have the Greek consolidation program on track. The adjustment program is impressive and has outpaced our expectations. I’m confident that the results achieved by Greece will allow for the timely disbursement of the second tranche of the loans in September.”
ECB president Jean-Claude Trichet said “The ratings agencies in general tend to amplify rises and falls in financial markets. You can see it still today very visibly. That goes against financial stability … It is probably appropriate not to continue to have a worldwide oligopoly of three agencies. But the underlying issue is to attenuate or cancel out this amplification to which the rating agencies contribute.” The timing of the comments is somewhat ironic.

•Andrew Colquhoun, Fitch’s sovereign analyst for Japan said “If we don’t see a credible plan come through by the end of the year, it will send a negative signal for its rating, adding pressure to the credit rating … The election will make it more difficult for the government to draw up and implement such a plan, but I am not too pessimistic as I do not read the election results as a rejection of fiscal consolidation”.
•The FT writes that BP is forecast to pay about $10Bn less tax over the next four years as it meets the costs of its oil spill in the Gulf of Mexico. The paper notes that this represents a drop of more than a quarter in BP’s tax payments, which is a particular concern for the British government as it attempts to cut the country’s budget deficit.
•The British Retail Consortium said the value of sales in June was 1.2% higher than a year earlier on a like for like basis up from 0.8% in May and the best showing since March. Total sales, which include new floorspace, rose 3.4%, up from 3.0%. BRC director general Stephen Robertson said “Sunny weather and early clearance sales boosted clothing and outdoor goods. While the World Cup buoyed demand for televisions”.

UK House Prices To Suffer For Decade.

UK property prices will not recover for another decade and should be viewed as “risky assets”, according to PricewaterhouseCooper’s eye catching Economic Outlook report. The PwC research, published on Tuesday, not only puts British growth lower than the official Office of Budget Responsibility’s (OBR) forecast but also paints a grim picture for home ownership in the UK for the next 10 years. After 30 years of almost uninterrupted house price rises, Britons have piled in £3,500bn into bricks and mortar. Only pension contributions equal the 39pc of total net private wealth that is invested in the property market. But according to PwC: “Housing is a risky asset that is not guaranteed to generate positive real returns in the future even though this has been the pattern in the past. “In fact, PwC says, there is a strong possibility that house prices continue to fall for the next five years and could drop further even beyond 2020. According to the report, this would significantly drag back the speed of economic recovery which PwC claims faces a risk of a double-dip recession.

Company / Equity News

•BP has finally successfully installed a new well cap on the leaking Macondo well that will be tested today for up to 48 hours. During the testing phase the cap will be closed and it is hoped that this will shut off the flow of oil into the Gulf. There is a possibility that if successful the cap could remain closed longer, shutting of the leak for longer than 48 hours, but even if the flow of oil resumes the new cap and containment system will allow a significantly greater proportion, and possibly all of the leaking oil to be collected. This is still a temporary solution, and work continues on the relief wells which should permanently seal the well, but it is nevertheless positive for both the credit and equity. I suspect much of this was priced into yesterday’s price action.
•Microsoft CEO Steve Ballmer said partners are working on Windows based tablet computers, reaffirming the software maker’s commitment to the form factor popularized by Apple Inc.’s iPad. “Over the course of the next several months, you will see a range of Windows 7-based slates that I think you’ll find quite impressive,” Ballmer said yesterday at a Microsoft partner conference in Washington, D.C. With the stock trading at just over 11x fiscal 2011 earnings, the shares seem to offer compelling long-term value.
•Staying with tech consumer Reports said it isn’t recommending Apple Inc.’s iPhone 4 following tests confirming the handset has a hardware flaw that causes signal quality to degrade. “The problem seems to be a design flaw, and it is significant,” Mike Gikas, senior electronics editor for Consumer Reports, said today in an interview. The publication has recommended the three previous iPhone models.
•Chevron said Monday it expects its second-quarter earnings to be higher than the previous quarter, driven by significantly better results from its refining and marketing business and the stronger dollar. The outlook from the second-largest U.S. oil company by market value after Exxon Mobil Corp. is a rare sign of relief for the downstream segment, which manufactures, transports and sells gasoline, diesel fuel and other refined products.
•French cosmetics giant L’Oreal SA said sales jumped 13% in the second quarter, a sharp rebound from the slump in sales and market share that hampered the company last year. L’Oreal, the owner of Garnier shampoo, Lancome face cream and Giorgio Armani perfume, said sales totalled €4.95bn in the second quarter, up from €4.40bn a year earlier.
•European Aeronautic, Defence and Space’s (EADS) bid for a U.S. refuelling tanker order may be below previous offers in 2008 and 2009 as the company aims to undercut Boeing Co. on pricing, Financial Times Deutschland reported, without saying where it got the information. The refuelling tanker based on the Airbus A330-200 may cost at least 10 percent less than the last offer of $184 million per aircraft, the newspaper said.
•BMW plans to export 10,000 additional 3-Series vehicles from its Munich plant to China this year to meet growing demand, Financial Times Deutschland reported, citing BMW personnel chief Harald Krueger.
•According to the BMF (Builders Merchants Federation), UK merchanting volumes in May were up 6.1% on the same month last year. Taking the March to May quarter overall as a better gauge of underlying trends, volumes were 6.7% higher than the same quarter in 2009. One has to go back to mid 2007 to find when UK merchanting volumes were expanding at such at pace. That UK volumes are now growing once again is not in question; whether this will last is. Recent UK mortgage approvals and housing transactions lead indicators suggest that the sector may start flattening out again by the end of the year. In the meantime, however, there probably is upside to current (calendar) year assumptions. Travis Perkins‘ recent trading update supported this view. Grafton is also well positioned to benefit from this trend, and the BMF figures create a favourable backdrop for the group’s H1 results.
•Local Polish press is rumouring that more bidders are dropping out of the BZWBK beauty contest, although I’m not so sure that they ever entered. This time its Unicredit, HSBC and Intesa that are said to be out while PKO and BNP Paribas are still in. Indeed a Bloomberg report of lunchtime today confirms the two as having been shortlisted. Political pressure on PKO to buy AIB’s stake seems to be rising with more comments from the Polish state Treasury.

By The Mole
PaddyPowerTrader.com

The Mole is a man in the know. I don’t trade for a living, but instead work for a well-known Irish institution, heading a desk that regularly trades over €100 million a day. I aim to provide top quality, up-to-date and relevant market news and data, so that traders can make more informed decisions”.© 2010 Copyright PaddyPowerTrader - All Rights Reserved

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