Wednesday, July 15, 2009

Wall Street Breakfast: Must-Know News

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Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Calpers goes after rating agencies. California's Calpers, the nation's largest public pension fund, filed a lawsuit against the three leading rating agencies, claiming $1B in losses were caused by 'wildly inaccurate' credit ratings. The lawsuit is focused on the $1.3B of structured investment vehicles Calpers bought in 2006, only to see them collapse in 2007 and 2008. The SIVs had been given the highest credit rating by Moody's, Fitch and S&P, making a 'negligent misrepresentation' to the pension fund.
  • CIT bleeds cash as rescue nears. CIT's (CIT) liquidity crisis continues to worsen as customers draw down hundreds of millions of dollars from their credit lines. The extra pressure has increased the urgency of a federal aid package, and regulators were working out details of a rescue late Tuesday night. Though still in flux, the plan would see CIT transfer some assets from its holding company to its bank. The Federal Reserve would then let CIT pledge some of those assets at its discount window while CIT took steps to refinance its debt. Officials remain reluctant to use TARP funds on a company that may not be critical to the financial system.
  • Fighting the Fed's growing role. A coalition of investors, analysts and former regulators plan to oppose Obama's efforts to give the Federal Reserve control over large financial firms. The coalition feels the Fed's credibility has been 'tarnished' by the current crisis and supervisory powers should be given to a new agency that would be accountable to Congress.
  • AIG unit loses lead bidders. Franklin Templeton Investments and its buyout adviser Charles E. "Chuck" Johnson, the lead bidders for AIG's (AIG) asset management unit, dropped out of talks to buy AIG Investments, citing irreconcilable strategic differences within the bidding group. The bidding group intends to pursue a deal without Franklin Templeton's involvement, but the latest twist raises questions about how AIG has managed the negotiations thus far and why they have dragged on for so long.
  • China's foreign exchange reserves soar. China's foreign exchange reserves broke the $2T mark for the first time, rising a record $178B in Q2 as overseas investors poured into Chinese stocks and property. In comparison, the reserves rose by $7.7B in Q1.
  • BoJ lowers forecasts. Bank of Japan kept its target rate at 0.1%, as expected, and extended its emergency credit programs until the end of the year. The bank cut its economic forecast as borrowing conditions remain tight, and expects the economy to shrink a record 3.4% this fiscal year vs. earlier predictions of -3.1%.
  • Intel sets hopeful tone for tech. Intel (INTC) beat expectations with earnings of $0.18 per share (see details below) as demand for PCs, especially in Asia, exceeded forecasts. The company raised its Q3 revenue outlook but expects corporate spending to remain weak. Earnings inclusive of charges from a $1.45B European antitrust fine in Q2 came in at -$0.07 per share, Intel's first quarterly loss since 1986.
  • Euro-zone CPI posts first-ever drop. Euro-zone consumer prices rose 0.2% in June compared to May, but were 0.1% lower on the year, the first drop on record. The ECB has said it expects the recent decline in commodity prices to lead to a drop in consumer prices for several months, before a return to positive territory by year-end. Energy costs were down 18.8% from a year ago. U.S. consumer prices are due today at 8:30. (see Eurostat release (.pdf))
  • MBA apps rise. Mortgage applications rose 17.7% last week, MBA reported. The average interest rate on 30-year fixed-rate mortgages fell to 5.05% from 5.34%.
  • Retail sales rise. Retail sales increased 0.6% in June to $342.1B, slightly better than +0.5% consensus, but down 9% vs. a year ago. May's sales were unrevised at +0.5%.
  • Chain store sales fall. Chain store sales fell 1.7% in the first week of July, Redbook said, worse than the -0.9% expected. According to ICSC, weekly sales were down 0.9% and July is likely to be another tough month.
  • PPI climbs. June's Producer Price Index rose 1.8% vs. consensus of +0.9% and +0.2% in May. Core PPI was up 0.5% vs. consensus of +0.1% and -0.1% in May. Wholesale prices were down 4.6% from a year ago, while core producer prices were +3.3%.
  • Inventories shrink. Business Inventories were down 1% in May vs. -0.8% consensus, and were down 8% Y/Y. April was revised to -1.3% from -1.1%. Retail inventories fell 1.6% in May, led by the biggest drop in auto inventories in almost four years.
  • Consumer confidence wanes. ABC's Consumer Confidence Poll came in at -51, below -50 for its fourth week straight. Those who think the economy is getting better: down to 25%, from 31% in June and a five-year high of 33% in May.

Earnings: Wednesday Before Open

  • ASML (ASML): Q2 EPS of -€0.24 in-line. Revenue of €277M (-67.2%) vs. €216M. Issues upside Q3 revenue guidance of €450M vs. €359M consensus. (PR)

Earnings: Tuesday After Close

  • Altera (ALTR): FQ2 EPS of $0.16 in-line. Revenue of $280M (-22%) vs. $278M. Sees Q3 sequential sales down 1%-5%. (PR)
  • Intel (INTC): FQ2 EPS of $0.18 beats by $0.10. Revenue of $8B (-15%) vs. $7.3B. Sees Q3 revenue $8.1B-8.9B vs. $7.8B. (PR)
  • Yum! Brands (YUM): FQ2 EPS of $0.50 beats by $0.07. Revenue of $2.5B (-7%) in-line. Sees EPS growing 10% for FY10. (PR)

Today's Markets

Stocks were broadly up in Asia. European markets and U.S. futures are following suit.

  • In Asia, Nikkei +0.1% to 9,269. Hang Seng +2.1% to 18,259. Shanghai +1.4% to 3,189. BSE +2.9% to 14,253.
  • In Europe at midday, London +1.6%. Paris +2%. Frankfurt +2%.
  • Futures: Dow +1%. S&P +1.3%. Nasdaq +1.8%. Crude +1.5% to $60.42. Gold +1.3% to $934.60.

Wednesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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