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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

It Is All About Corporate Earnings Today

Stock-Markets / Financial Markets 2010 Apr 16, 2010 - 09:02 AM GMT

By: PaddyPowerTrader


Best Financial Markets Analysis ArticleUS stocks rose again Thursday, sending the S&P 500 toward its longest weekly winning streak since 2007, as optimism that earnings and the economy are growing overshadowed an unexpected increase in jobless claims. Intel, Caterpillar and General Electric helped lead the Dow higher after Federal Reserve reports showed factory production increased 0.9% in February and regional data indicated the gains extended into this month. UPS rallied 5.3% after lifting its earnings forecast and Mariner Energy surged 42% after Apache agreed to buy the company.

Today Bank of America smashed consensus EPS of 10c coming in with a jaw dropping 28c on revenues of $32bn giving net income of $3.2bn driven by lower provisions for credit losses (down $3.6bn) reflecting an improvement in credit quality and strong capital markets activity including record. Bellwether conglomerate GE have also come in with an EPS beat of 21c versus the expected 17c today but there were disappointments from Google and AMD after the bell last night (see below).

Greece Pops The Question
Greece edged closer to a bailout, asking the EU and IMF to begin “discussions” on aid, as the country’s cost of borrowing from private markets continued to rise and the euro tumbled. The IMF and the EU said they would send missions on Monday to Athens. Those meetings could set the stage for a momentous bailout, the first ever for a nation using the euro and a humbling demonstration of the currency union’s inability to enforce fiscal rectitude within its borders. In a sign of the wan appetite, Greek officials on Thursday said a scheduled trip to the US next week to drum up buyers for its bonds would be less fruitful than expected. One official said Athens now hopes to raise $1 billion to $4 billion from US investors and could cancel the sale if demand continued to sink. Greece previously hoped to sell as much as $10 billion of bonds.

Greek bonds are coming under assault again today, with 10-year spreads about 15 bps wider to Bunds at +427.5 bps. There isn’t much fundamentally new this morning, but there is a run of bad press which is certainly worth being aware of. Greece’s misuse of public funds and corruption may be widely known, but a forthcoming Brookings Institute study highlights some of the worst atrocities, including a “4-4-2 system” wherein specific tax offices take 40% of owed taxes, the tax payer keeps 40%, and the remaining 20% is all that the government receives. This type of report of abuse of public funds may be from past examples, but they are important going forward to the extent they sway opinion in surplus countries (read Germany) away from actually funding Europe’s rescue package. In hard money terms Greece loses the equivalent of at least 8% of its GDP, or more than €20 billion, to corruption each year.

The next leg of negative press comes courtesy of Morgan Stanley, as the ever helpful Telegraph reports the bank has warned Germany may decide to call it quits on the euro given the profligacy of weaker members. Which may at the surface seem like a German and euro currency phenomenon, but obviously carries the prospect that Germany will indeed not pay for gaping budget holes in peripheral markets.

US Returning To Average Growth
The US economy is likely to grow about 3.5% this year, which is positive but “not great,” as that level of growth doesn’t tend to boost employment very much, San Francisco Federal Reserve President Janet Yellen said. Unlike other post-World War 2 recessions, this time round the U.S. economy is likely to recover at a more moderate pace, Yellen said. In past recessions the Federal Reserve has had more leeway to lower interest rates to support a recovery. But with the Fed’s federal funds rate currently at essentially zero, the central bank can’t lower rates any further, Yellen said. She added that 2.5% growth is needed just to keep the employment rate constant, and that to do more than just “tread water,” the economy needs growth of around 4.5%, as Yellen forecasts for 2011, or higher, for the recovery to get into full swing. While she expressed confidence that the US economy is back on track, Yellen said she is “very worried” about long-term budget deficits. Yellen said she believes the US government is likely to reduce the current deficit, which is about 10% of gross domestic product, down to 2% or 3% over the next few years.

Bank Of Ireland Announces What It Will Sell Off
Bank of Ireland have announced the terms on which approval will be given to its restructuring plan with the EU. This morning’s announcement clears the way for Bank of Ireland to seek funding in the market. Expect Bank of Ireland to move fast to launch its funding program, with a target net capital benefit of €2.7bn. Bank of Ireland will sell the following assets to comply with the EU terms:

1.BIAM – its fund management business (€25bn in AUM)
2.New Ireland – part its life & pension distribution business (€12bn in life assets)
3.ICS – part of Irish mortgage business (€7bn in mortgages, €4bn in deposits)
4.UK mortgage business – winded down
The group does not expect the asset sales to have a material detrimental bearing on its business case. The positives from today’s announcement are that Bank of Ireland will retain its UK business banking business and it retains the UK post office deal.

Today’s announcement marks the final pre funding announcement from Bank of Ireland, clearing the way for the bank to go to shareholders with its capital funding plan within days.

Company News

•European stocks on the move Friday include Autonomy who plummeted 5% after the UK’s second-largest software company gave a trading update that disappointed some analysts.
•Continental is up 3%, a sixth straight day of gains after the shares were rated “buy” in new coverage at UBS, which said “the recovery in automotive production combined with good exposure to attractive segments could lead to 10% growth in automotive this year”.
•Airline stocks such as British Airways, Air France and Ryanair are predictably soft again today courtesy of all that Icelandic volcanic ash.
•RBS rallied 8.2% today as Bank of America Merrill Lynch raised its price estimate to 64 pence from 45 pence. The biggest UK government-owned bank may be profitable this year, helped by cost cutting and falling bad debts, the brokerage said.
•Google’s quarterly results came in higher than projections Thursday evening, but investors pushed shares lower. Google shares fell 4.7%. Net revenue was $5.06 billion. The company’s costs grew significantly in the quarter. That’s probably why the shares are selling off.
•Chip maker Advanced Micro Devices turned in better-than expected results, but its shares reversed course to fall 4.8% to $9.67. The company swung to a first-quarter profit of $257 million, or 35 cents a share. A year ago, it lost 66 cents a share. The results arrived two days after AMD’s larger rival Intel posted a sharp rise in first quarter earnings on strong sales.
•Schlumberger, the world’s largest oil industry services provider, is hiring labour for its Iraqi business, betting that the security situation will improve to allow them to provide support for oil companies, Chief Executive Officer Andrew Gould said. The company has installed mobile barracks near the port city of Basra, and Gould said he expected 300 workers to be lodged there by July and a total of 600 by year end; he said the oilfield services market in Iraq could be worth between $3 to $4 billion a year.
•French retail giant Carrefour posted a 5.5% rise in first-quarter sales, helped by an improvement in France and an extra boost from foreign currency rates, and said plans to buy up to 6% of its own shares in the next 12 months wouldn’t limit the company’s ability to make potential acquisitions. “Carrefour has a huge margin of manoeuvre for an acquisition or share buy-back” that won’t be affected by the current plans, CFO Pierre Bouchut told a conference call.
•Boston Scientific said it won clearance to resume selling defibrillators pulled from the market in March.
•Imperial has been fined £112.3m by the UK Office of Fair Trading for “restricting competition” between March and August 2003. Imperial and Gallaher plus 10 retailers have been fined a total of £225m, with Imperial given the largest fine partly due to others either cooperating actively or admitting liability. Imperial will review the decision and will consider appealing.

And Finally… Parasites Who Destroyed The US Bailout Rap

Disclosures = None

By The Mole

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

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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