Try Campaigner Now!

Tuesday, March 10, 2009

Morning Update


Early Advance Intact as Bernanke Speaks Before Bell

Stocks are holding onto to early gains as traders paid attention to Federal Reserve Chairman Ben Bernanke's speech on financial reform in Washington, where he urged continued forceful action to restore financial market functioning. Citigroup offered upbeat comments about profitability in the first couple months of 2009, which is helping soothe concerns toward financial markets and contributing to the advance in morning action. Treasuries are lower, while overseas, markets are mostly higher. In other equity news, Texas Instruments updated its 1Q guidance, Rohm and Hass and Dow Chemical announced they have agreed on a merger settlement, and Roche Holding said its $93 per share offer for Genentech is fair.

As of 8:50 a.m. ET, the March S&P 500 Index Globex futures contract is 13 points above fair value, the Nasdaq 100 Index is 20 points above fair value, and the DJIA is 91 points above fair value. Crude oil is up $0.64 to $47.71 per barrel, and gold is down $6.50 at $911.50.

Dow member Citigroup (C $1) is up in early action after the company's CEO Vikram Pandit said the financial firm was profitable in the first two months of 2009 and he is confident about the firm's capital strength after tough internal stress tests. The comments came in an open letter sent to staff members. Pandit added that he was disappointed with Citi's stock prices and "broad-based misperceptions about its company and its financial position."

Texas Instruments (TXN $15) adjusted its 1Q guidance, reporting that it expects revenue in the quarter to be in the range of $1.79-2.05 billion, compared to its previous range of $1.62-2.12 billion. TXN also said it adjusted its EPS forecast for the quarter from a range of an $0.11 loss to a $0.03 profit to a new range of an $0.08 loss to breakeven. The company said pricing remains stable even in commodity areas, where it would have expected more deterioration and the company sees a significant inventory reduction in the current quarter. On a conference call, a company executive said chip demand is currently deteriorating and TXN doesn't believe it is at a bottom yet. The Reuters estimate calls for 1Q revenue of $1.89 billion and EPS to be flat.

Rohm & Haas (ROH $74) and Dow Chemical (DOW $6 1) announced they have reached a merger settlement, after delaying a trial yesterday so the two sides could resume talks. According to Reuters, ROH shareholders will receive just below $79 per share, plus a fee agreed upon in the original deal, while ROH's two largest shareholders will take up to $3 billion owed to them in the form of preferred equity securities of DOW.

Roche Holding (RHHBY $29) said its $93 per share offer to acquire the remaining 44% of Genentech (DNA $93) that it doesn't already own is fair, responding to a report that the two sides were in talks fore a deal for a higher price.

Bernanke urges forceful actions to fix financial crisis

Treasuries are lower in early action as Federal Reserve Chairman Ben Bernanke gave his speech in front of the Council on Foreign Relations on "Financial Reform to Address Systemic Risk." Bernanke said the world is suffering the worst financial crisis since the 1930's and that in the near term, governments around the world must continue to take forceful and, when appropriate, coordinated actions to restore financial market functioning and the flow of credit. The Fed Chief added that we must have a strategy that regulates the financial system as a whole, in a holistic way, not just its individual components. In particular, strong and effective regulation and supervision of banking institutions, although necessary for reducing systemic risk, are not sufficient by themselves to achieve this aim.

Schwab's Chief Investment Strategist Liz Ann Sonders, and Director of Sector Analysis, Brad Sorensen, CFA, discuss in their bi-weekly Schwab Market Perspective: Depression/Recession-Does it Matter? last week's beginning of the Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF). Despite delaying the implementation for several months, the Fed has started to enact the TALF. This program is intended to restart the securitization process in the credit markets. It's targeted at consumer-related areas of the market in the near term, though it could extend to the commercial real estate markets in the future, if needed.

By committing up to $1 trillion to this program, the Fed is hoping to bring down interest rates and increase the availability of funds for auto, student and consumer loans-which should aid spending and the process of renormalizing credit markets. While this is another step in the right direction, we're watching to see how effective it is in practice. There's some concern that the plan may be too restrictive to have a mass impact. Read more on their market perspective at www.schwab.com/marketinsight.

Today, the economic calendar will yield wholesale inventories, at 10 am ET, and a 1.0% decline in January is expected.

Financials are fueling advance in Europe

Stocks in Europe are trading higher in afternoon action, led by a jump in financial issues, supported by Citigroup's upbeat comments about profitability this year, which is soothing sentiment toward the badly battered sector. The upbeat mood toward financials is offsetting some disappointing economic data in the region. The UK reported that manufacturing production fell more than expected, posting a 2.9% drop, versus the consensus of a 1.4% decline. Additionally, Germany reported that exports in January fell 4.4%, larger than the economists' average forecast of a 4.0% decline, showing the fallout from the global recession on Europe's largest economy. On the equity front, E.on (EONGY $25) is down about 7% after Germany's largest utility firm said 2009 adjusted net income will fall 10% on higher interest expenses on debt, lower upstream gas margins, regulatory costs and the effect of foreign exchange.

Asia advances without Japan

Stocks in Asia were mostly higher with the Hang Seng Index leading the advance, rising 3.1% on a jump in the shares of HSBC (HBC $24)-which has been under severe pressure recently on concerns following its share offering announcement last week-in trading on the Hong Kong exchange. The Korean Kospi Index increased almost 2.0% to help support the performance in the Asia/Pacific region, but Japan's broad-based Topix index fell almost 1.0% despite a gain in financials as health care issues fell solidly following Merck & Co. (MRK $21) and Schering-Plough's (SGP $20) $41 billion merger announcement in the US.

Elsewhere, consumer prices in China fell more than expected, the first decline since 2002 according to Bloomberg, amid drops in food, clothing, and fuel costs. Consumer prices fell 1.6%, versus the consensus that called for 1.0% decline. The reading does little to ease deflationary fears that have emerged amid the global recession, which may be contributing to some of the reluctance of consumers to spend more as they wait for prices to decline further. Also, the Malaysian government announced another round of stimulus efforts, deploying an additional 60 billion ($16.3 billion) in spending and tax incentives after it predicted the possibility of a recession in the region.

No comments: