Friday, July 17, 2009

July 17, 2009: Morning Call

July 17, 2009: Morning Call

Fair Value: SP500 – 937.56; NDX: 1517.96; DOW: 8666.63

Technical Levels:

SPX: 765, 788, 832, 875-880 support/ 935-943 resistance


Pre-market EPS: BBT (.22/2.01B); C (-.34/20.7B); GE (.24/42.05B); MAT (.01/965.4M); BAC (.18/34.0B)
05:00: Euro-zone Trade Balance (May):
05:00: Euro-zone Construction Output
08:00: C earnings call
08:30: US Housing Starts (June): 530,000; Building Permits: 520,000
09:30: BAC earnings call

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are both trading 5 points below fair value at 7:30am ET. GE, IBM, BAC, and GOOG all reported revenues that were slightly below either consensus estimates or the whisper number. Asian markets closed higher (Japan 0.55%, Hong Kong up 2.42%, Australia up 0.13%, Shanghai up 0.53%, India up 3.47). Technology stocks received mixed messages from IBM (IBM) and Google (GOOG)’s post-close performances. Shippers followed the Baltic Dry Index up once again. Indonesia was the only market in the region not to join in the rise, as terrorism concerns resurfaced when bombs went off in Jakarta. Brokerage upgrades on Chinese shares fueled Hong Kong's rise. European markets are up 0.50% to 1% but are pulling back off the highs of the session following the release of GE and BAC earnings.

Research Calls/Market Moving News:

BAC (13.17): Bank of America reports Q2 EPS $0.33: The figure excludes the deduction of $805M in preferred dividends. Reuters is $0.29; First Call $0.28. Note the disparity in the consensus estimate seems to be related to the number of one-time items. Company reports revenues of $32.77B vs Reuters $33.26B. BAC says the figure compares to $0.72 y/y. NPA’s rose to 30.9B vs. 25.6B in the prior quarter, a pretty sharp sequential increase in non-performing assets. The provision for credit losses came in at 13.4B, flat with the first quarter. The company increased the allowance for loan losses by 4.7 billion to 33.7 billion from 29.0 billion.

GE (12.40): General Electric reports Q2 EPS $0.26: The figure includes $0.02 in gains, $0.03 in charges and $0.04 in marks and impairments. Reuters is $0.24. Company reports revenues of $39.08B vs Reuters $42.09B. Revenue and profits by segment: Technology Infrastructure: Revenue (11%) to $10.56B and profit (11%) to $1.83B. Energy Infrastructure: Revenue (1%) to $9.58B and profit 13% to $1.79B. Capital Finance: Revenue (29%) to $12.80B and profit (80%) to $590M. NBC Universal: Revenue (8%) to $3.57B and profit (41%) to $539M. Consumer & Industrial: Revenue (20%) to $2.51B and profit (20%) to $111M.

GOOG (442.60): Google reports Q2 EPS $5.36 vs Reuters $5.08: First Call is $5.09. Company reports revenues of $5.52B, including TAC, vs Reuters $5.49B, which includes TAC. Excluding TAC, GOOG reports revenues of $4.07B vs. First Call $4.06B. Segment revenues (gross): Google Sites $3.65B vs SA $3.71B. Networks $1.68B vs SA $1.60B. Licensing/other $186.8M vs SA $196M. Google says business appeared to stabilized during the quarter - conf. call: In response to analyst question on the stabilization, Schmidt says that they had no idea where the bottom was a quarter ago. However since that time, most of the preferred metrics have stabilized or slowly begun to improve. RPMs have not fully recovered, but most other metrics have begun to come back. Providing some color on ad trends, he says that large advertisers have been coming back to the table and are becoming a little more aggressive with their purchases. Nearly all verticals outside of financials are said to have begun to look better versus last quarter. Taking all of these things, Schmidt says they are comfortable using the term "stabilized" but would not want to go beyond that. He says they are no longer looking at a downward spiral as they were six months ago.

IBM (110.64): IBM reports Q2 EPS $2.32 vs Reuters $2.01: Company reports revenues of $23.25B vs Reuters $23.48B. Guides full year EPS to at least $9.70, up from at least $9.20 vs Reuters $9.12

CIT (.41): CIT Group, clients move rapidly to secure their futures – WSJ: People familiar with the matter say CIT executives are working on lining up $2-3B in private-sector financing. One says bondholders are discussing a $5B debt-for-equity swap, which would be dependent on regulators' approving the company to transfer some assets to its banking unit. Clients, worried CIT's payments to them could be frozen by a bankruptcy court, are taking varying steps to protect themselves. Sources say some vendors are asking large retailers to pay them directly rather than via CIT.

NOK (13.46): Nokia downgraded to neutral from buy at UBS – Bloomberg. Natixis also downgraded the shares in Europe.

GS (156.84); JPM (36.13): NYT deems Goldman Sachs (GS), JPMorgan Chase (JPM) "giants" coming from Wall Street ruins: The article does not actually cover any new ground. It notes that the banks have done very well, while Citi (C) and Bank of America (BAC) are struggling, and even the giants stand to be losers if the economy does not recover. One banking executive says that all banks benefited from government aid, even if JPM, GS, and Morgan Stanley (MS) were anxious to pay TARP funds back as soon as possible.

Miners, countries in tug-of-war over plans – WSJ: The economic downturn has set miners, who no longer feel pressed to come up with resources to feed to China, against resource-rich countries, who want production to be maintained to generate revenues. Rio Tinto (RIO.LN) faces troubles in Guinea as well as its diplomatic battle in China. Russia threatened to revoke Arcelor Mittal (MT.NA)'s coal licenses. Zimbabwe, South Africa, and Zambia are talking about renegotiating agreements to claim greater ownership of mining ventures. In a vicious circle, doing so makes miners less likely to want to invest in countries they see as risky, which makes the countries want greater ownership, and so on, and so on.

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