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Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

An Corporate Earnings Feast to Digest

Stock-Markets / Stock Markets 2010 Jul 29, 2010 - 09:44 AM GMT

By: PaddyPowerTrader


Best Financial Markets Analysis ArticleRisk assets spent the US trading day on the defensive Wednesday , despite constructive earnings releases, with US equities falling 0.6% and European indices declining up to 0.9%. The Fed’s Beige Book, which noted that “economic activity had continued to increase on balance,” but that manufacturing “slowed or levelled off,” set the tone for the afternoon session, with much of the drop in US equities and bond yields occurring around the time of its 2PM EDT release. The main US economic data release for the day, June durable goods orders, printed below expectations on the headline but with very solid readings on core capital goods orders and shipments.

Durable goods orders declined 1.0% in June, versus expectations of a 1% increase, but the decline was mainly the result of a fall in the volatile civilian aircraft component. There were also rumours of a weaker Chinese PMI coming out this Sunday (50 vs 51.4) which further soured risk appetite. General Electric dropped 0.8% leading the declines in industrial companies on government data showing orders for durable goods meant to last at least three years declined 1% and Boeing fell 1.9% after sales missed analysts’ projections, while WellPoint shed 3.7% after second-quarter sales missed analysts’ estimates.

Nonetheless, today a raft of strong earnings reports from European corporates has lifted investor sentiment this morning. Siemens, BASF, Sanofi-Aventis and Man have all posted better then expected results. Siemens, often considered a barometer for the world’s manufacturing industry, with 402,000 employees in 190 countries, and products that span hospital equipment, transportation, factory automation gear and power turbines, posted a 12% rise in third quarter profit and increased sales for the first time in seven quarters. Its third-quarter order intake was up 22%, bringing its order backlog to a record level of euro 89bn, driven by new orders for Siemens’ renewable division. While Man Group, the international truck maker and engineering firm, reported a strong jump in second quarter net profit driven by a sharp recovery in demand for new vehicles.

In truth there far too many earnings to go through individually today, (28% of the SX5E, 31% of the DAX and 15% of the FTSE reporting today), but Cap Gemini, France Tel, Reed and AstraZeneca were the standout beats while Nestle, Lufthansa and Statoil were weaker than expected. Midmorning Volkswagen released solid results which has seen the stock rally 3.2%, we have been better buyers since the release. Partygaming and Bwin have both moved sharply higher after announcing they have agreed to merge; Partygaming has added 25% while Bwin rallied 12% before being suspended

Stateside Exxon Mobil has shown the Street the way posting Q2 net profit that rose 91% to $7.56bn or an EPS of $1.60. Analysts had expected a $1.46 EPS outcome. While Goodyear Tire and Rubber also beat the Street estimates on both ESP & revenues. To the downside though are shares in Colgate Palmolive which are down 5% pre market after they lowered full year guidance, blaming the currency devaluation in Venezuela.

Today’s Market Moving Stories

•US Initial claims reported before the NY open for jobless-related benefits declined 11k to 457 in the recent week. Since January 2010, initial claims stagnated near the current level: the average since Jan is 462k. At these levels, claims are still too high to indicate progress on the jobs front. While claims and employment data cannot be directly compared, an old rule of thumb is that claims have to fall below 400k for nonfarm payrolls to grow consistently.
•Next week’s July employment report is likely to bring a negative M/M print of
payrolls. This is however due to the government laying off temp workers for the 2010 Census. Private payrolls (which is the figure to watch) might increase 100k.
•There’s further evidence this morning that the UK housing market is turning down again. For a start, the Nationwide house price index posted a 0.5% monthly fall in July, echoing the falls already seen over the past three months in the Halifax index. In addition, the Bank of England’s main measure of mortgage approvals dropped from 49,500 to 47,600 in June, taking approvals to their lowest level in 4 months. With new instructions rising, but new buyer demand fading, further house price falls look pretty inevitable. The fairly modest 0.2% rise in the MPC’s preferred measure of the money supply in June wasn’t too encouraging either, with the 3 month annualised growth rate slowing from 8.9% to 6%. Of course, the figures are volatile. Nonetheless, this will no doubt support the MPC’s suspicions that the recent pick-up has been largely due to a shift in seasonal variations.

Beige Book Sees Red Tide

Last nights US Fed Beige Book (the compilation of anecdotal reports on economic activity from the Fed’s 12 Districts) presented a more downbeat sombre tone than the last version released in June. The summary did note that economic activity continued to increase modestly in most Districts, but the qualitative descriptions of various sectors gave the impression that the overall pace of activity had noticeably slowed in recent weeks.

With this information in hand, the FOMC, which next meets on August 10, is likely to have a serious discussion about whether they should prepare to undertake further steps to ease monetary conditions. To be sure, the information in this Beige Book, though a bit worrisome, is not so grim as to force a move from the policymakers at the upcoming meeting. However, if economic conditions deteriorate in the weeks running up to the September 21 FOMC meeting, the probabilities of some sort of policy action will definitely go up.

Several districts noted that manufacturing activity had slowed or levelled off. This reinforces the impression recently given by various indexes of regional manufacturing activity that have been reported over the past few weeks. Retail sales are still in an uptrend in most Districts, but sales gains seemed to be limited to necessities. Big ticket items, especially motor vehicles sales, were described as weak. The best that could be said about residential real estate activity was that it was “sluggish,” as opposed to commercial construction which was simply “weak.” Loan demand was generally soft or declining, while credit standards remained tight in most Districts. Simply put, the overall report did not contain many references to positive developments.

Labour markets conditions were described as improving “gradually,” with new temporary hires seeming to dominate over permanent jobs. Given the current high unemployment rate, it was not surprising to read that wage pressures remained “contained” across most Districts. Note that the positive spin on the weakness in wage gains is a measure of the Fed’s deeply ingrained attitude about inflation threats. As for inflation itself, there was not much to be found since the prices of final goods and services were “relatively stable” in most Districts.

Overall, the Beige Book presents a picture of an economy that is still fragile and growing at a very modest pace, with some slowing in the growth of final demand. This is the worrisome aspect. The economy is operating well below capacity with a high level of unemployment. If the growth of final demand slows further, the growth of production will slow as well and unemployment could start to move higher. If it does, the already low level of inflation could drift closer to deflation. Obviously, the economy is not there yet, but the FOMC will have to start thinking about what to do if it does happen. As much as they would rather prepare to fight their old enemy, inflation, at the next policy meeting the FOMC will have to seriously discuss what they might do if economic growth starts to slip and unemployment starts to rise again.

US To Change Some Internet Gambling Legislation

A US House of Representatives committee yesterday approved legislation that would legalize some Internet gambling, allowing U.S. residents to place online wagers with companies the Treasury Department has licensed. The measure, sponsored by Representative Barney Frank, chairman of the House Financial Services Committee, would roll back a law designed to block such betting. That four-year-old law, which took effect in June, bars banks from processing payments to offshore gambling websites.

Equity / Company News

•Visa, the world’s biggest payments network, posted a fiscal third-quarter profit that exceeded most Wall Street estimates for a 10th straight quarter as more consumers paid with plastic. Net income for the three months ended June 30 was $716 million, or 97 cents a share, compared with $729 million, or 96 cents, in the same period a year earlier, the San Francisco- based company said today in a statement. The average estimate of 31 analysts surveyed by Bloomberg was 93 cents. The year-earlier results included a one-time gain of $237 million from the sale of an investment.
•Panasonic , Japan’s largest home-appliance maker, will offer to buy full control of Sanyo Electric and Panasonic Electric Works., three people familiar with the matter said. Panasonic may sell $5.7 billion of new shares to finance the acquisitions, Reuters said. Sanyo jumped as much as 26 percent in Tokyo trading after the Nikkei newspaper reported Osaka-based Panasonic may offer about 900 billion yen ($10 billion). That would be a premium of 26 percent over the latest closing price. Sanyo added 29 yen to 147 yen on the Tokyo Stock Exchange as of the 1:14 p.m., while Panasonic, the world’s largest maker of plasma TVs, declined 9.1 percent to 1,061 yen. Panasonic Electric Works shares were untraded as bids to buy the stock outnumbered offers to sell.
•Intel Corp. and Samsung Electronics Co., the world’s two-largest chip companies, may compete to acquire Infineon’s mobile-phone business, according to a research report by Citigroup.
•Nvidia Corp., the second-largest maker of graphics chips, lowered its second-quarter sales forecast because of slumping demand in Europe and China. Revenue for the three months ending August 1, will be $800 million to $820 million. That compares with a prediction of $950 million to $970 million given May 13. Analysts had projected sales of $944.7 million, according to the average from a Bloomberg survey. The company also suffered from rising component costs and weaker demand for the plug-in graphics cards used to make video games seem more realistic. Consumers also opted for lower-priced cards, Nvidia said. Nvidia fell 6.4 percent to $9.48 in extended trading after the announcement.
•Merck KGaA’s second-quarter profit advanced 69 percent on surging demand for the liquid crystals it makes for flat-panel electronics. The company raised its forecast for 2010.
• CEO Jeff Bezos cut prices and added features to the Kindle to defend it against a threat from Apple Inc. in the fast- growing market for electronic readers. Amazon introduced two new versions of the device today, including a $139 model that works with Wi-Fi. A second version, with 3G mobile technology as well as Wi-Fi to download books, costs $189. Bloomberg News reported details in May about Amazon’s plans for the Kindle, its bestselling product.
•Symantec, the world’s largest maker of computer security software, forecast second-quarter sales and profit that missed analysts’ estimates as customers delayed closing deals and weakness in the euro eroded revenue.
•Royal Dutch Shell numbers Thursday beat analysts’ expectations to post a 34% rise in adjusted profit for the second quarter as oil and gas production rose 5% and cost cutting accelerated. “We have exceeded the targets we set last year for costs and staff reduction. We are putting new emphasis on continuous improvement, which will drive competitive financial and operating performance,” said Chief Executive Peter Voser. “Shell’s cost programs have delivered over $3.5 billion of annualized underlying savings.” The Anglo-Dutch energy company said the clean current cost of supplies, a keenly-watched figure that strips out gains or losses from inventories and other non-operating items, was $4.21 billion in the three months ended June 30, compared with $3.15 billion in the second quarter of 2009. This was above expectations of $4.02 billion in a Dow Jones Newswires poll of 12 analysts. Total oil and gas production was 3.11 million barrels of oil equivalent per day, an increase of 5% on the year due to mainly to new fields starting up. Analysts were expecting production to rise 2.5%. Net profit for the quarter totalled $4.39 billion, up 15% from $3.82 billion a year ago. Group revenues were $90.57 billion, compared with $63.88 billion in the second quarter of 2009.
•CNBC regular T. Boone Pickens, the billionaire energy hedge-fund manager, and Home Depot , the largest U.S. home-improvement retailer, are winners in energy legislation that fails to help solar-panel and wind-turbine makers. The measure proposed yesterday by Senate Democrats would give Pickens victory in his lobbying campaign for more use of natural gas, providing $3.8 billion in rebates for cars and trucks powered by the fuel. Home Depot would benefit from provisions to channel $5 billion in rebates to homeowners who upgrade to more efficient appliances or add insulation that reduces energy use.
•BASF the world’s biggest chemical company, reported second-quarter profit that beat analysts’ estimates after a recovery in demand and higher prices for products spanning plastics and catalysts. Net income rose to 1.18 billion euros compared with 343 million euros a year earlier, the Ludwigshafen-based company said in a statement today. Analysts in a Bloomberg survey predicted 1.07 billion euros. BASF said the strength of the rebound in demand helped it
surpass expectations. The maker of pesticides and polymers reiterated sales growth this year will outperform the pace set by the wider chemical industry and that earnings will increase “considerably.” Sales advanced to 16.2 billion euros from 12.5 billion euros. BASF expects to earn a premium on its cost of capital, a prerequisite set by Chief Executive Officer Juergen Hambrecht to ensure maintaining or boosting shareholder dividends.
•German pharmaceutical and chemical company Merck Thursday reported a bigger-than-expected 69% rise in second-quarter net profit–boosted by a 50% jump in the Liquid Crystals division—and lifted its outlook for the year to reflect the acquisition of U.S. life science services company Millipore. Including the acquisition of Millipore concluded in July, the company now expects a rise in total revenue of 21% and operating profit growth of 90%. Previously, it expected operating profit growth of between 30% and 40% and revenues growth of between 3% and 7%. Net profit for the quarter to end June 30 rose to EUR183.4 million from EUR109 million a year earlier, beating analyst expectations of EUR167 million. Revenue for the quarter climbed 16% to EUR2.21 billion versus analyst forecasts of EUR2.08 billion. Operating profit rose to EUR326.2 million from EUR185 million last year. Analysts expected EUR276 million

•Bayer AG Thursday reported an unexpected 1% decline in second-quarter net profit due to special charges, but confirmed its full-year outlook on the back of a continued strong performance of its plastics and foam unit MaterialScience. The DAX-listed company raised its 2010 MaterialScience outlook while lowering the outlook for its HealthCare and CropScience divisions. The Leverkusen, Germany-based company, however, confirmed its overall outlook and said it still expects 2010 adjusted sales growth of more than 5%, earnings before interest, taxes, depreciation and amortization before special items above EUR7 billion and a 15% improvement in core earnings per share, a measure of profitability that excludes non-cash expenses and other items. “MaterialScience has left the crisis behind and saw business expand more strongly than expected. Volumes have returned to the pre-crisis level,” Chief Executive Werner Wenning said in a statement. On Oct. 1, Marijn Dekkers will succeed Wenning at the helm of the company. Net profit fell to EUR525 million from EUR532 million on charges of EUR255 million. This clearly missed a EUR769 million net profit forecast from a Dow Jones Newswires poll among 15 analysts.
•Belgian chemicals and plastics maker Solvay SA Thursday missed forecasts with a 43% fall in second-quarter net profit, reflecting the sale of its pharmaceutical activities earlier this year, but slightly improved the full-year outlook for its core plastics business. “At current market conditions, the chemicals sector should realize a recurring operating result in line with that of last year, notwithstanding the price decreases,” the Brussels-based company said in a statement, adding that “in plastics, the volume growth should support sharp REBIT [or recurring earnings before interest and taxes] expansion.” Net profit in the second quarter was EUR44 million, lower than a median analyst estimate of EUR62 million. It was EUR77 million in the second quarter of last year, when it still included the company’s pharmaceutical activities. Sales fell 11% to EUR1.85 billion.
•B Sky B H1 results were in line with consensus but nonetheless strong. Adjusted revenue and EBITDA increased 11%, whilst net debt fell to GBP 660M from GBP 1.1Bn reflecting the Group’s strong free cashflow generation and reducing net debt to EBITDA to 0.9x. The outlook was rather vague, but in any case the impending News Corp bid is the main driver of spreads in the name.
•Cap Gemini issued a positive signal with its H1 results raising its full year margin target from 6% – 6.5% to above to 6.5%. On the back of revenue growth of between 3% and 5% in H2 the outlook is for a fairly good turnaround from the weak H1 (-6% revenue trend). H1 results were slightly ahead of expectations whilst the net cash position of Euro 809M remained healthy.
•France Telecom’ s H1 results were in line with forecasts and the Group confirmed a stable dividend profile for 2010-2012 (Euro 3.7Bn p.a.).
•Car rental from Avis Budget’s $1.33 billion offer for Dollar Thrifty Automotive, which topped Hertz’s agreement to buy the rental- car company, may signal a bidding war is under way. The $46.50-a-share offer includes $39.25 in cash and 0.6543 of an Avis share for each Dollar Thrifty share, Parsippany, New Jersey-based Avis said yesterday in a statement. The proposal is 4.5 percent less than Dollar Thrifty’s closing price yesterday.

Having trouble selling that 2nd house, well don’t call these guys

And finally

WATCH: The Cruelest Prank Ever

Followed by another take on the BP Oil Spill…

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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