Late-Night Headlines
Bloomberg:
- Credit Suisse Group AG advised investors to trim their holdings in government bonds and buy equities, reversing a recommendation from June. Credit Suisse raised its estimate for the Standard & Poor’s 500 Index by 14 percent to 1,050 by the end of the year, citing improving economic indicators and earnings. Investors should increase holdings of global equities to “overweight” and reduce government bonds to “benchmark,” according to London-based global strategist Andrew Garthwaite. The VIX and investment-grade corporate bond spreads have returned to more “normal levels” and this will allow money market funds to buy into the stock market, Garthwaite told clients in a note today.
- Caterpillar Inc., Merck & Co. and DuPont Co. were among companies reporting earnings that beat analysts’ estimates by cutting jobs while projecting rising demand. The surprises may signal the recession is near its end. About 77 percent of the 94 Standard & Poor’s 500 companies reporting results beat earnings projections for the second quarter, pushing the index toward the highest proportion of positive surprises for any quarter in Bloomberg data stretching back to 1993.
- U.S. regulators say they may curb wheat-price speculation by ending exemptions on limits to holdings of futures contracts, after prices surged to a record last year. The Commodity Futures Trading Commission is “looking very closely” at phasing out waivers that allow index traders to exceed position limits, Chairman Gary Gensler told the Senate Subcommittee on Investigations today in a hearing in Washington. The CFTC wants to curb gaps between cash prices and futures that made it difficult for farmers to manage risk, he said. The CFTC, along with the Securities and Exchange Commission and the Federal Reserve, is also considering new regulations for the $592 trillion derivatives market. Gensler said position limits for commodities will make new rules more necessary so that traders won’t evade restrictions by migrating toward unregulated, over-the-counter transactions. The CFTC today scheduled hearings on July 28, July 29 and Aug. 5 to discuss energy position limits and exemptions. the sheer size of some funds makes their impact inevitable, said Steve Nicholson, a commodity procurement specialist for International Food Products Corp. in St. Louis. “The commodity markets were never built to take on the trading volume or money influx that the hedge and index funds have put into these markets,” he said at the hearing.
- Oil for September delivery in New York fell for the first time in six days after an industry report showed an increase in crude supplies in the U.S., the world’s largest energy user. Stockpiles rose 3.1 million barrels to 349.9 million last week, the first increase since April, the industry-funded American Petroleum Institute reported yesterday. “It is going to be difficult for oil to forge higher if we continue to get indications of weak fundamentals,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. If the API report is “any indication of how the DOE numbers are going to come in tonight, it’s a pretty bearish picture,” he said.
- Standard & Poor’s backtracked on ratings cuts issued last week and raised the ranking on commercial mortgage-backed debt from three bonds sold in 2007. The securities, restored to top-ranked status, had been downgraded as recently as last week, making them ineligible for the Federal Reserve’s Term Asset-Backed Securities Loan Facility to jumpstart lending.
- European Union Ambassador John Bruton said a provision in a U.S. climate-change bill that passed the House of Representatives last month would discriminate against foreign automakers, violating a pledge the Obama administration made at financial summits this year. The bill would provide financial assistance to develop and produce electric vehicles in the U.S., and the Senate should change that provision, Bruton said in a statement today. “Limiting financial assistance to American producers rather than allocating the resources to the best and most competitive manufacturers is both protectionist and wasteful,” Bruton said.
- Global investors give Federal Reserve Chairman Ben S. Bernanke top marks for combating the worst financial crisis since the Great Depression and overwhelmingly favor his reappointment amid optimism that the world economy is on the mend. Sixty-one percent of investors surveyed in the first Quarterly Bloomberg Global Poll say the world economy is stable or improving and almost 75 percent take a favorable view of the 55-year-old chairman. By almost a three-to-one margin, they say Bernanke has earned another four-year term when his current one expires in January.
- The U.K.’s house-price slump will persist until 2012 and hurt consumer spending, the National Institute of Economic and Social Research said. Home values will resume their decline because recent gains were driven by a lack of available homes and the number of mortgages remains 65 percent lower than before the financial crisis, the London-based institute said today. It also predicts gross domestic product will keep falling until the final quarter of this year.
- China’s investors opened the most accounts to trade stocks in 18 months, lured by the world’s second-best performing benchmark index and a rebound in the nation’s economic growth. Investors opened 484,799 new stock accounts last week, the most since the five days ended Jan. 25, 2008, data from the nation’s clearing house showed today. “The prospect of making quick bucks in the stock market is luring retail investors,” Liu Xiangning, a Shenzhen-based strategist at United Securities Co., said by telephone
Wall Street Journal:
- Iraqi Prime Minister Nouri al-Maliki, reluctantly thrust three years ago into a job few expected him to hold onto, arrives in Washington this week as a transformed leader -- with widening popularity among Iraqis, grudging respect of some political foes and a more even footing with his U.S. hosts. The quiet former Arabic-literature scholar has demonstrated surprising resilience, establishing himself as Iraq's first national leader since Saddam Hussein. His three years of consistent leadership, a prospect that initially seemed remote, augurs more stability for Iraq as U.S. involvement diminishes.
- Democratic centrists said they won a tentative commitment from the White House to back a proposal to curb the growth of Medicare costs, as party leaders girded for a vote next week on health-care legislation. House Speaker Nancy Pelosi (D., Calif.) said her chamber remains on track to take up the legislation. She told rank-and-file Democrats at a midday meeting Tuesday that "this is the biggest thing we will do in our lives," according to people who took part. Ms. Pelosi is facing resistance from centrist lawmakers who say health-care legislation already passed by two House committees and under consideration by a third doesn't go far enough to contain costs.
- How to Make Health-Care Reform Bipartisan by Bobby Jindal
- Shopping center giant Developers Diversified Realty Corp. is working on raising $600 million through two bond sales that promise to be a litmus test for one of the government's key economic rescue programs. Those deals are on track to be the first major offerings of commercial-mortgage-backed securities that will take advantage of the Term Asset-Backed Securities Loan Facility, or TALF, program.
- Procter & Gamble Co.(PG) is getting closer to a possible sale of its prescription-drug business, and several parties, including specialty drug maker Warner Chilcott Ltd., and private-equity firm Cerberus Capital Management LP, are engaged in later-stage discussions, according to people familiar with the matter. The unit could fetch about $3 billion, these people say.
- Authorities in Africa and Europe opened separate investigations into allegations of wrongdoing involving a company connected to Chinese President Hu Jintao's son, a potentially embarrassing development for the leadership in Beijing. Officials in Namibia are investigating corruption allegations in a deal involving state-owned Chinese company Nuctech Co. President Hu's son, Hu Haifeng, is a former president of Nuctech. He is now the Communist Party secretary of its parent company, Tsinghua Holdings Co., according to the parent company's Web site.
- Smart homes are an idea as old as the Jetsons. But some big companies are betting that the reality will soon catch up to the vision. Cisco Systems Inc., Comcast Corp., General Electric Co. and ADT Security Services are joining investors in a $23 million funding round for iControl Networks Inc., a start-up whose software allows customers to control a home's lights, thermostat and security system via the Web. Other start-ups are also vying to supply software to monitor and manage such technology, which could be a $5 billion a year market by 2011, according to research firm Parks Associates.
- The tally of credit derivatives worldwide rose to $26.6 trillion in the week ended July 17, up from $26.44 trillion a week earlier, according to data published Tuesday by the Depository Trust and Clearing Corp. When the DTCC began publishing its records at the end of October, the value of outstanding contracts was $33.56 trillion.
CNBC.com: Apple(AAPL) Conference Call Live Blog
- Calpers , the largest U.S. pension fund, said on Tuesday it suffered a record 23.4 percent drop in the value of its assets in the last year.
- Starbucks(SBUX) posted quarterly earnings Tuesday that handily topped analysts' estimates as the world's biggest coffee chain began reaping rewards from slashing costs and closing stores, sending its shares higher in extended trading.
- As Congress spent much of the last three months looking at ways to tighten regulations on financial institutions, some of the biggest recipients of the government's $700 billion bailout increased their spending on influencing legislators. "While these companies continue to count their taxpayer cash, they're using their lobbying against critical financial reform," said Ed Mierzwinski, consumer program director at Public Interest Research Group. "Anywhere but Washington, you would think this was the Saturday morning cartoons."
NY Times:
- The leader of President Obama’s automotive task force warned members of Congress on Tuesday that reversing or stopping the closing of thousands of General Motors and Chrysler dealerships could threaten the automakers’ turnarounds and keep them from repaying billions in government loans. The official, Ron Bloom, also said the government no longer needed to guarantee the warranties on G.M. and Chrysler vehicles, now that the companies had emerged from bankruptcy protection.
Business Week: As tech titan IBM(IBM) raises its earnings expectations, analysts approve of its efforts to jettison lower-margin units in pursuit of more profitable software and services.
CNNMoney.com:
- Real estate appraisers are the latest villains in the continuing saga of the bursting of the real estate bubble. Industry groups including the National Association of Realtors and the National Association of Home Builders are howling that new appraisal guidelines that went into effect on May 1 are producing below-market appraisals that are killing sales and adding yet another tough hurdle to refinancing.
Rasmussen:
- Support for Republican congressional candidates has reached its highest level in over two years as the GOP lengthens its lead over Democrats in the latest edition of the Generic Ballot. A new Rasmussen Reports national telephone survey shows that 42% would vote for their district’s Republican congressional candidate while 38% would opt for the Democratic candidate
LA Times:
- Ghostbusters, the game, has outpaced its blockbuster-movie-cum-game rivals. The title sold 440,000 copies in June, the month it released, according to a post in The Times' Company Town. Transformers: Revenge of the Fallen sold 296,000 copies, and THQ's Up, based on the Pixar Animation Studios film, sold 270,000.
The Washington
- Immigration analysts urged Congress on Tuesday to carefully weigh a leading Democratic senator's plan to require all U.S. workers to verify their identity using fingerprints or digital photos, saying such an effort faces technological and political obstacles. The warnings came as Sen. Charles E. Schumer (D-N.Y.), chairman of the Senate Judiciary Committee's subcommittee on immigration, used a panel hearing to reveal new details of his proposal, which he said must be part of any broader immigration overhaul.
USA Today.com:
- The big squeeze on small-business financing continues, despite the overall loosening of U.S. Small Business Administration-backed loans in recent months, two new studies show. Nearly four in 10 small-business owners polled in the past few weeks said they are not able to get the financing they need to run their firms, according to a study Wednesday from the National Small Business Association. That's up from a third in December 2008.
Reuters:
- Apple Inc's(AAPL) quarterly profit blew past Wall Street forecasts thanks to strong sales of Macs and iPhones and higher-than-expected gross margins, boosting its shares 4 percent on Tuesday. The company continued to defy the global recession with a solid 13 percent jump in fiscal third-quarter net profit. It sold more than seven times as many iPhones -- 5.2 million units of its latest signature device -- as the year-ago period. "The numbers are great. Their gross profits continue to surprise people and there is a return to product momentum ... a return to growth in the Mac business," said Andy Hargreaves, an analyst at Pacific Crest Securities. "And then the iPhone is doing tremendously well and that is a potent combination." Sales of Macs and iPhones both beat analysts' expectations, helped by product refreshes and lower prices, while iPod shipments were toward the low end of forecasts. Apple said it sold 2.6 million Macs, up 4 percent from a year ago, and 5.2 million iPhones in the June quarter, during which the company launched its third-generation iPhone 3GS and cut the price on the second-generation model to $99. The iPhone is often thought of as more of a consumer device, but Apple said nearly 20 percent of Fortune 100 companies have bought at least 10,000 units and it is unable to make enough iPhone 3GSes to meet demand -- a shortfall the company said it is working to address. Although the smartphone segment continues to grow more crowded with competitors, Chief Operating Officer Tim Cook said on a conference call the company is "years ahead of other people" in its competitive position. Apple posted a gross margin of 36.3 percent, above the 34 percent some analysts predicted. That compared with 36.4 percent in the last quarter and 34.8 percent a year ago. The company saw margins at 34 percent in the September quarter. Cash and marketable securities totaled more than $31 billion, one of the biggest cash hoards in all of technology. The results demonstrated the consumer appeal of Apple's products despite a troubled economy that has dented sales at competitors selling less expensive products. Apple reported relative strength in consumer demand, and weakness in education, one of its key markets. Cook said the company hoped to have an iPhone in China within a year. Chief Executive Steve Jobs did not make an appearance on the company's conference call, despite rumors that he might.
- Gambling on volatile small-cap biotechnology companies can be gut wrenching even in the best of times, but wild stock jumps based on positive clinical data may tempt investors to give them a second look with the hope of catching that really big payoff. Human Genome Sciences Inc (HGSI) this week provided the latest golden carrot that investors may follow back into the sector. Positive data on its experimental lupus drug that caught Wall Street by surprise led its shares to nearly quadruple to $12.51 on Monday. The stock was up another 14 percent on Tuesday as others jumped on the bandwagon.
- Hard drive maker Seagate Technology (STX) raised its forecasts for margins and overall industry sales in the current quarter, citing a larger-than-expected increase in corporate demand for computers, and its shares rose 4 percent.
- Industry in Central and Eastern Europe has been hammered by a fall in orders because of the global economic downturn, reversing years of strong growth and causing big cuts in jobs. The following are examples of major layoffs in the region's countries, with developments in unemployment.
Financial Times:
- It may be the worst crisis in Petrobras ’s(PBR) history, says the company’s president, and it comes as Brazil’s state-owned oil group is ratcheting up development of the country’s potentially vast deep-water oilfields. Last week, members were selected for a Brazilian parliamentary investigation committee (CPI) into allegations of fraud, corruption, over-invoicing and tax avoidance by the company. The inquiry, which begins hearings next month, risks complicating the Brazilian government’s efforts to set eagerly awaited new regulations to cover some of the world’s few big, unexploited oil reserves, which some analysts say place Brazil on the cusp of a new oil boom. The allegations against Petrobras and the ANP – the government regulatory body for petroleum and gas – include fraud in bidding to repair oil exploration rigs, serious contract irregularities in construction, over-invoicing in building the Abreu e Lima refinery in Pernambuco, diversion of royalties, a disputed tax bill of R$4.3bn ($2.3bn) and budget irregularities. “Petrobras is a political apparatus of President Lula,” says Álvaro Dias, the opposition senator who has brought the inquiry. “We want to investigate, reveal the facts, and punish those responsible.”
- Credit rating agencies would face a raft of new disclosure rules and restrictions but would not be forced to overhaul their business models under proposed US legislation sent to Congress on Tuesday. The plan by the US Treasury is aimed at reducing conflicts of interest at rating agencies, boosting the regulatory authority of the US Securities and Exchange Commission over the agencies and reducing the financial system’s reliance on credit ratings. But critics said the plan, an element of the Obama administration’s broader financial regulatory blueprint, fell far short of what was needed. The proponents of an overhaul of ratings agencies charge that they overlooked the risks of investing in complex, “structured” securities linked to risky mortgages, many of which carried triple A stamps of approval.
Commercial Times:
- Intel Corp.(INTC) will lower the prices of its processors by between 11% and 19 this week to increase its market share and boost shipments. Intel also hopes to stimulate demand for computers in the second half of the year with the price cut.
South China Morning Post:
- Shenzhen salaries have dropped for the first time in a decade as the global financial crisis and tougher labor laws hit earnings in one of the mainland's richest cities.
- Profits at the mainland's biggest state-owned enterprises slumped more than 26 per cent in the first half of the year.
Late Buy/Sell Recommendations
Citigroup:
- Upgraded (KFT) to Buy, target $32.
- Reiterated Buy on (VFC), target $73.
Night Trading
to +1.0% on average.
Asia Ex-Japan Inv Grade CDS Index unch.
Morning Preview
US AM Market Call NASDAQ 100 Pre-Market Indicator/Heat Map Pre-market Commentary Pre-market Stock Quote/Chart Global Commentary WSJ Intl Markets Performance Commodity Futures Top 25 Stories Top 20 Business Stories Today in IBD In Play Bond Ticker Economic Preview/Calendar Earnings Calendar
Conference Calendar
Who’s Speaking? Upgrades/Downgrades Rasmussen Business/Economy Polling
Earnings of Note
Company/EPS Estimate
- (APD)/.98
- (NTRS)/.79
- (USB)/.14
- (CSL)/.45
- (PJC)/.36
- (WHR)/.67
- (BK)/.52
- (PFCB)/.40
- (MO)/.47
- (PEP)/1.00
- (STJ)/.63
- (BA)/1.21
- (KEY)/-.40
- (WFC)/.34
- (ITW)/.35
- (QCOM)/.51
- (FFIV)/.37
- (CMG)/.89
- (STLD)-.11
- (VMW)/-.19
- (NE)/1.49
- (TEX
- (SNDK)/-.17
- (MOS)/.07
- (EBAY)/.35
- (ISRG)/1.29
- (GENZ)/.85
- (LLY)/1.02
- (SWK)/.58
- (PCU)/.17
- (PFE)/.47
- (MS)/-.54
- (DAL)/-.29
- (DPZ)/.20
- (ADS)/1.00
Economic Releases
10:00 am EST
- The House Price Index for May is estimated to fall .2% versus a .1% decline in April.
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory drawdown of -2,100,000 barrels versus a -2,813,000 barrel decline the prior week. Gasoline Supplies are expected to rise by +650,000 barrels versus a +1,438,000 barrel build the prior week. Distillate inventories are expected to rise by +1,500,000 barrels versus a +553,000 increase the prior week. Finally, Refinery Utilization is expected to fall by -.50% versus a +1.07% gain the prior week.
Upcoming Splits
Other Potential Market Movers
Fed Chairman Bernanke’s monetary policy testimony before the House, MBA mortgage applications report, (MCK) shareholders meeting
BOTTOM LINE: Asian indices are higher, boosted by mining and technology shares in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
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