Thursday, February 12, 2009
Morning Update
In the Red Despite Retail Sales in the Green
Stocks are under pressure in morning action despite an unexpected increase in retail sales as traders continue to be bogged down by uncertainty as to whether the economic stimulus plans passed on Capitol Hill will be enough to help stem the slide in the global economy. In equity news, Coca-Cola and Aetna topped the Street's profit projections, while Viacom missed expectations. Treasuries are mixed amid the upbeat sales data and the lower-than-expected decline in jobless claims. Overseas, markets are mostly lower.
As of 8:48 a.m. ET, the March S&P 500 Index Globex futures contract is 7 points below fair value, the Nasdaq 100 Index is 6 points below fair value, and the DJIA is 68 points below fair value. Crude oil is down $0.48 to $35.46 per barrel, and gold is off $3.30 at $940.50.
Dow member Coca-Cola (KO $41) reported 4Q adjusted EPS grew 10% to $0.64, three cents above the Reuters estimate, as revenues decreased 3% to $7.1 billion. Unit case volume grew 4%, as acquisitions accounted for one point of the volume growth, as the company achieved broad-based growth in key emerging markets. But North America unit case volume declined 3% and volume in Japan was flat, while Europe achieved growth of 2%. The company said its 4Q performance was "very solid," and said its management is assertively addressing the challenges posed by the current global economic crisis.
Viacom (VIAB $16) reported 4Q EPS ex-items fell 10% to $0.76, below the Street's estimate of $0.78, as revenues were flat at $4.2 billion. The company said there is no doubt that global economic conditions are difficult right now and the 4Q results reflect the realities of the challenging economy and broad marketplace conditions weighed on its advertising, home entertainment and consumer products businesses.
Aetna (AET $32) announced 4Q EPS rose 9% to $0.96, two pennies ahead of the consensus estimate, as revenues excluding items rose 12% to about $8 billion. The company said its operating results reflect significant growth in revenue, solid underwriting results, and continued operating expense efficiencies, partially offset by lower net investment income. The company issued full-year 2009 EPS guidance in line with the Street's expectations.
Retail sales unexpectedly rose, jobless claims decline less than expected
Advance retail sales unexpectedly rose 1.0% in January, versus an expected drop of 0.8%, but December was revised lower. Ex-autos, sales increased 0.9%, topping a projected decline of 0.4%. December was revised from -3.1% to -3.2%. If gasoline, autos, and building materials are removed, sales at retailers rose 1.2%, indicating that consumers relatively stepped up spending in the first month of the year despite the headwinds of the recession.
Weekly initial jobless claims fell 8,000 from an upwardly revised figure last week to 623,000, above the forecast of 610,000. The four-week moving average rose 24,000 to 607,500, and continuing claims increased 11,000 to 4,810,000. Despite the slight decline in jobless claims, the large number of high-profile layoffs announced recently continues to show up in the numbers, exacerbating pressure on already weak consumer confidence and the economy. Treasuries are mixed after the sales and jobs data.
Later today on the economic calendar, business inventories are expected to be released and are forecast to decline by 0.9%.
Stimulus set to hit the Street
Senate and House negotiators reached agreement on President Barack Obama's economic stimulus bill worth $789.5 billion yesterday. The plan is comprised of about $507 billion in government spending and $282 billion in tax relief, and a vote in the House expected as early as today, with a vote in the Senate expected as early as Friday. Senate Majority Leader Harry Reid said that the middle ground reached creates more jobs than the original Senate bill and costs less than the original House bill, and provides a tax cut for 95% of American workers. President Obama said the bill could save or create 3.5 million jobs. The employment picture has weakened severely in the past year as corporations slash jobs amid the prospects of a deep and extended recession. The markets are prompting consumers to increase their "emergency savings" to protect themselves in case of future job loss, pushing the savings rate to the highest level in the past five years. The increase in saving comes at the expense of spending, which accounts for the lion's share of the economy, exacerbating the economic slowdown.
The package, along with US Treasury Secretary Timothy Geithner's bank rescue plan is being met with a tepid response around the globe as disappointment has set in that more comprehensive and detailed actions to combat the slide in the US-leading to the recovery in the global economy-should be deployed. Read the details and analysis of Treasury Secretary Geithner's plan in the Schwab Center for Financial Research's breaking commentary "Geithner Outlines the Financial Stability Plan," which can also be found at www.schwab.com/marketinsight.
Earnings and stimulus worries weigh on Europe
Stocks in Europe are under pressure in afternoon action as traders react to some disappointing news on the corporate front, while uncertainty on whether the stimulus plans announced in the US are going to have the desired impact of stemming the global recession is also souring sentiment. Electricite de France (EDF $9) is about 7% lower after Europe's largest power producer said it will sell assets to cut debt after 2008 net income declined 39% to 3.4 billion euros ($4.4 billion), below the 3.7 billion euro Bloomberg estimate. The company said it is not spared from the crisis, and profits after excluding items are unlikely to rise in 2009. Also, liquor maker Diageo (DEO $53) is down about 5% after the company slashed its previous full-year operating profit guidance from as much as 9% growth, to a range of about 4-6%.
Asia falls as Japan reacts to US banking plan
Stocks in Asia were broadly lower, led by Japan as traders returned from a Japanese holiday and had the first chance to react to the disappointing US bank rescue plan. The Nikkei 225 Index fell 3.0% and the broader Topix Index declined 2.3% as financials led the decline, while export stocks weighed on the markets as global economic worries prompted strength in the yen. However, Australian stocks were one of the lonely winners as the S&P/ASX 200 Index rose 1.2% following a better-than-expected reading on employment in the land down under. The Australian government reported that the number of people employed gained 1,200 from December, versus the Bloomberg consensus that called for jobs to decline by 18,000. Elsewhere, the Bank of Korea cut its key interest rate to a record low 2.0% in an attempt to stem the slide in the economy. In equity news, the Aluminum Corp. of China (ACH $14), or Chinalco, confirmed that it will invest $19.5 billion in Rio Tinto (RTP $113).
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