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22/04/2010 Hanuman Morning Report US Market Change % Change Value Dow 7.86 0.07% 11,124.92 S&P 1.23 -0.10% 1,205.94 Nas Daq 4.30 0.17% 2,504.61 Commodities WTI Crude Oil $0.17 -0.20% $83.68 Gold Futures $2.00 -0.17% $1,146.80 Currency AUDUSD 0.0003 0.03% 0.9271 EURUSD 0.0000 0.00% 1.3389 USDJPY 0.0555 -0.06% 93.1350 U.S. Overnight Market Commentary Most U.S. stocks rose, sending the Dow Jones Industrial Average up for a third day, as better-than- estimated earnings at Apple Inc., Morgan Stanley and Boeing Co. overshadowed concern Greece will default on its debt. Apple surged 6% as earnings almost doubled and Chief Executive Officer Steve Jobs promised “more extraordinary products” this year. Morgan Stanley rallied 4%, while Boeing Co. jumped 3.9%. Drug companies dragged the Standard & Poor’s 500 Index lower as Gilead Sciences Inc. and Abbott Laboratories slumped at least 2.4% after saying new health-care laws will hurt sales. About six stocks gained for every five that fell on U.S. exchanges. The Dow climbed 7.86 points, or 0.1%, to 11,124.92 as of 4 p.m. in New York. The S&P 500 slipped 0.1% to 1,205.94. The Nasdaq Composite Index rose 0.2% to 2,504.61. “Earnings look pretty strong,” said John Carey, a Boston- based money manager at Pioneer Investment Management, which oversees more than US$230 billion. “Investors in general are responding to that. Obviously, there’s still some sovereign concern. But fundamentals are good.” About 83% of S&P 500 companies that have reported first-quarter results beat the average analyst earnings estimate, according to data compiled by Bloomberg, which would mark a record proportion in data going back to 1993. Economic News • President Barack Obama will say tomorrow that new financial-industry regulations are needed so the country’s economic system isn’t at the mercy of “risky decisions” on Wall Street, his spokesman said. “Financial reform is something that is born out of an economic collapse that started on Wall Street and spread to Main Street America,” White House press secretary Robert Gibbs said today in previewing the president’s address at New York’s Cooper Union. Obama’s speech will “remind the American people what’s at stake,” Gibbs said. The president wants rules for financial markets “so that we don’t find ourselves at the mercy of a series of risky decisions as we have in the past.” The president is giving the address as he and Democratic leaders push to get legislation through Congress by next month. The 22/04/2010 House passed its version last December. The Senate is poised to take up legislation sponsored by Connecticut Democrat Christopher Dodd, the chairman of the Banking Committee. Obama is tentatively scheduled to speak just before noon. Brian Gardner, senior vice president for Washington research at Keefe Bruyette & Woods Inc., said the speech is primarily a vehicle for Obama to campaign for passage of the legislation and isn’t likely to offer new policy directions. “I don’t think Wall Street is expecting any kind of olive branch on the substance of the legislation, but I think folks on the street would like to see cooler rhetoric,” Gardner said. “I’m not sure that they’re going to get it.” Commodities • Crude oil dropped in New York after a U.S. Energy Department report showed supplies surged at the delivery point for the U.S. benchmark grade as imports climbed to the highest level since September. Inventories of crude at Cushing, Oklahoma, where New York- traded West Texas Intermediate oil is stored, surged 5.8% to 34.1 million barrels, the highest since the week ended Jan. 8. Supplies of crude oil rose 1.89 million barrels to 355.9 million, the Energy Department report showed. A 750,000-barrel drop was forecast, according to a Bloomberg survey. “There was a massive build at Cushing, which should be very bearish,” said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania. “Between mid- February and mid-April supplies at Cushing have gone from a year-on- year deficit of 13% to a 15% surplus.” Crude oil for June delivery fell 17 cents, or 0.2%, to settle at US$83.68 a barrel on the New York Mercantile Exchange. Prices are up 5.4% this year and 80% higher than a year earlier. The price of oil on the Nymex for June delivery is $1.95 lower than for July, the widest divergence between front-month contracts since Dec. 15. This structure, in which the future month’s price is higher than for the one before it, is known as contango and allows buyers to profit from storing oil. “The contango continues to grow along with Cushing supplies,” Schork said. “On Feb. 19 the front month traded at a 25 cent discount compared with the second month, which had widened to US$1.43” on April 16. Industry News • McDonald’s Corp., the world’s largest restaurant company, said first-quarter profit climbed 11% as comparable-store sales rose in the U.S. and Europe. Net income advanced to US$1.09 billion, or US$1 a share, from US$979.5 million, or 87 cents, a year earlier, the Oak Brook, Illinois-based company said today in a statement. Analysts estimated 96 cents, on average, according to data compiled by Bloomberg. Revenue increased 10% to US$5.61 billion. The breakfast dollar menu, introduced in January, drew more U.S. customers, the company said. Global comparable-store sales growth accelerated to 5.2% in March. That’s a sign that McDonald’s is winning customers from competitors such as Burger King Holdings Inc. and Wendy’s/Arby’s Group Inc., said Tom Forte, a restaurant analyst for Telsey Advisory Group. “I have a high degree of confidence that McDonald’s continues to take market share,” New York-based Forte said in a telephone interview. Comparable-store sales also suggest that fast-food sales are recovering across the industry, he said. Earnings per share include a 3- cent charge related to restaurant closings in Japan. McDonald’s gained 11 cents to US$70.45 at 10:12 a.m. in New York Stock Exchange composite trading. Through yesterday, the shares had risen 13% this year. France, Russia and the U.K. drove sales in Europe amid restaurant renovations and themed 22/04/2010 food events, McDonald’s said. In the quarter, sales at stores open at least 13 months rose 4.2% globally, 1.5% in the U.S. and 5.2% in Europe. Comparable-store sales rose 4.2% in the U.S. in March, according to a company filing. • ConocoPhillips, the third-largest U.S. oil company, said it won’t take part in the proposed Yanbu joint- venture refinery project with Saudi Aramco as its focus turns to exploring for petroleum. “We ultimately decided this project was not consistent with our current strategy to reduce our downstream footprint,” Senior Vice President Willie Chiang said today in a statement about the plan for Yanbu on Saudi Arabia’s Red Sea coast. Aramco, based in Dhahran, said in an e-mailed statement it’s “evaluating options to progress the Yanbu project.” The planned refinery would produce 265,000 barrels of diesel and 90,000 barrels of gasoline a day from Arabian heavy crude. ConocoPhillips agreed in 2006 to help build the plant as a way to expand its global refining portfolio. Now the Houston-based company is selling assets and focusing on exploration. “The refining market has obviously changed with the recession, and refining margins are not what they were three or four years ago, and ConocoPhillips has changed,” said Brian Youngberg, an analyst at Edward Jones in St. Louis who has a “buy” rating on ConocoPhillips shares and doesn’t own any. “They’re trying to shrink the company and then grow from a smaller base.” • Morgan Stanley climbed the most in three months on the New York Stock Exchange after posting earnings that beat analysts’ estimates on higher fixed-income trading revenue. The shares rose 4% after the New York-based bank said first-quarter net income was US$1.78 billion, or 99 cents a share. Earnings from continuing operations were US$1.03 a share, including a 21-cent tax benefit, compared with the 57-cent average estimate of 24 analysts surveyed by Bloomberg. Morgan Stanley’s fixed- income results, the best since the third quarter of 2008, follow record revenue from debt trading reported earlier this month by Bank of America Corp., JPMorgan Chase & Co. and Goldman Sachs Group Inc. Chief Executive Officer James Gorman, who succeeded John Mack in January, said in a letter to shareholders last week he wasn’t satisfied with the company’s performance in 2009 and the firm had hired 350 employees as part of a “revitalization” of sales and trading. “This was really surprising,” Thomas Brown, CEO of hedge fund Second Curve Capital LLC in New York, said in a Bloomberg Television interview. “Given the previous four quarters, where they really looked like the weak sister, this quarter they really stepped out. These were great numbers.” Morgan Stanley climbed US$1.23 to US$31.68 at 4:01 p.m. in composite trading on the New York Stock Exchange, after reaching US$32.29 earlier today. The shares have gained 7% this year, compared with a 5.9% drop for Goldman Sachs and a 16% increase in the Standard & Poor’s 500 Financials Index. • EBay Inc., owner of an e-commerce marketplace and the PayPal payment service, forecast profit that missed estimates after changes to its main site failed to spur enough growth. The shares fell 6.8% in late trading. Second-quarter profit will be 37 cents to 39 cents a share, excluding some items, the San Jose, California-based company said today in a statement. Analysts in a Bloomberg survey had estimated 40 cents on average. Chief Executive Officer John Donahoe is entering the third year of a turnaround effort to revive growth in the company’s main Marketplaces site. He has expanded 22/04/2010 inventory, beefed up fraud protection for buyers, and steered the company away from auction sales. Those changes haven’t stemmed consumer defections to Amazon.com Inc., according to Citigroup Inc. “Buyers will continue to migrate away from EBay -- taking sellers along with them -- until the overall convenience and trust and safety of the EBay marketplace has materially improved,” said Mark Mahaney, an analyst at Citigroup in San Francisco. He has a hold rating on the shares. EBay fell US$1.79 to US$24.50 in extended trading. The stock closed at US$26.29 in Nasdaq Stock Market trading. The shares had gained 12% this year. • Chrysler Group LLC, the U.S. automaker run by Fiat SpA, said it posted a US$143 million operating profit in the first three months of the year after cutting costs and introducing a big pickup. Revenue rose to US$9.69 billion (€7.21 billion) in the first quarter, up 2.7% from the final three months of 2009, the Auburn Hills, Michigan-based automaker said in a statement. Chrysler reported a net loss of US$197 million, compared with a net loss of US$2.69 billion in prior quarter. After emerging from bankruptcy June 10 through the end of 2009, Chrysler said it lost US$3.8 billion on revenue of US$17.7 billion. Fiat obtained a 20% stake in Chrysler after the company reorganized in Chapter 11 with US$15 billion in government support. Fiat and Chrysler Chief Executive Officer Sergio Marchionne today reiterated the U.S. automaker will break even or earn as much as US$200 million on an operating basis this year. “Reports of our demise have been greatly exaggerated,” Ronald Thompson, a Chrysler director, told reporters today in Turin, Italy. “The last four to five years have been very traumatic for Chrysler. To have a leader come in who obviously understands the global automotive industry and has a track record of turnarounds in difficult environments is very important.” • Netflix Inc. said first-quarter profit rose 44% as the movie subscription service signed up new customers and boosted online offerings. Net income advanced to US$32.3 million, or 59 cents a share, from US$22.4 million, or 37 cents, a year earlier, the Los Gatos, California-based company said today in a statement. Sales rose 25% to US$493.7 million, meeting the average estimate of 24 analysts surveyed by Bloomberg. Netflix added 1.7 million subscribers during the quarter and expects to have as many as 17.3 million by the end of the year. Chief Executive Officer Reed Hastings is expanding digital offerings to allow users to stream movies and television shows through Web-enabled devices such as game consoles, Blu-ray players and Apple Inc.’s iPad. Netflix said 55% of its clients use the Web service, up from 48% last quarter. “The combination of DVD by mail and watching instantly over Internet, and getting it on all the game consoles and other electronic devices for US$9 a month -- that’s a really good value,” said Todd Greenwald, an analyst with Signal Hill Capital Group in Baltimore. He recommends holding the stock. First-quarter profit topped analysts’ predictions of 54 cents a share, the average of 28 estimates in a survey. The company projects second-quarter earnings will rise to 62 cents to 73 cents a share on sales of as much as US$525 million. Analysts surveyed by Bloomberg estimated profit of 72 cents on sales of US$516.4 million. Earnings for the full year will be US$2.41 to US$2.63 a share on sales of as much as US$2.16 million. Analysts expected profit of US$2.65. 22/04/2010 Europe’s Overnight Market Commentary European stocks declined for the third time in four days, led by Greek, Spanish and Portuguese shares, as the cost of insuring against Greece defaulting on its debt surged to a record. Alpha Bank SA, Greece’s third-largest lender, Banco Santander SA, the biggest Spanish bank, and Portugal’s Banco Espirito Santo SA all dropped more than 2% as credit- default swaps on the nations’ debt gained. Vedanta Resources Plc fell 2.7% as copper retreated in London. Oriflame Cosmetics SA slumped the most in almost four years after reporting earnings that missed analysts’ estimates. The Stoxx Europe 600 Index slid 0.6% to 268.23. Greece began talks today on activating a €45 billion (US$61 billion) emergency aid package as the International Monetary Fund called the country’s fiscal crisis a “wake-up call” on sovereign-debt risks. The government needs to raise about €10 billion before the end of May, and its soaring financing costs are lending urgency to the talks. “There are still deficit concerns to digest and issues with financial companies,” said Andrea Williams, who helps manage about US$1.9 billion at Royal London Asset Management. “Investors have to be selective.” National benchmark indexes fell in 15 of the 18 western European markets. Greece’s ASE Index slid 1.3%, Portugal’s PSI-20 sank 2.3% and Spain’s IBEX 35 dropped 2.1%. Industry news • UBS AG and Credit Suisse Group AG, Switzerland’s biggest banks, must hold reserves of “first- class” liquid assets to cover expenditures for at least 30 days during a crisis scenario under new regulations. The two banks must have “considerably” higher liquidity than other Swiss lenders because of their importance to the economy, the central bank and the financial market regulator said in a statement today. The banks may use cash, deposits with central banks, “high quality” sovereign debt and a selection of corporate securities marked at a discount to meet the threshold, said Tobias Lux, a spokesman for the Swiss Financial Market Supervisory Authority, known as Finma. Leaders from the Group of 20 Nations asked for action by regulators after the global difficulties caused when banks including Lehman Brothers Holdings Inc. and Kaupthing Bank Hf collapsed during the credit crunch. Switzerland’s central bank and Finma have already raised capital requirements above international benchmarks for Zurich-based UBS and Credit Suisse, whose balance sheets are more than four times the size of the economy. Credit Suisse entered the credit crisis with a “strong liquidity position, which it has maintained and strengthened through open-market funding ever since, incurring significant additional costs as a result,” the bank said in an e-mailed statement today. “This has positioned Credit Suisse well to meet the new rules.” • Volkswagen AG, Europe’s largest automaker, said first-quarter profit almost doubled as sales in China and at the Audi luxury brand jumped to records. Net income increased to €473 million (US$633 million) from €243 million a year earlier, Wolfsburg, Germany-based VW said in a statement today. That compares with the €459 million average estimate of four analysts compiled by Bloomberg. Sales climbed 19% to €28.6 billion. Volkswagen, which aims to overtake Toyota Motor Corp. in deliveries and profitability by 2018, forecast earnings and sales growth this year, a sign that European carmakers are recovering from the financial crisis. Daimler AG earlier this week raised forecasts for its car and truck units. PSA Peugeot Citroen today reported a 28% jump in first-quarter revenue, beating estimates. “Volkswagen recognizes that with Toyota’s recall troubles, it has a wonderful opportunity to be seen as 22/04/2010 the world’s top automaker,” Stephen Pope, chief global equity strategist at Cantor Fitzgerald in London, said by phone. “Volkswagen’s really making a play for emerging markets,” as incentives cut into margins in Europe. Sources: AFR, Bloomberg, CBS, CNN, Dow Jones News Wires, Financial Times, Reuters, Pulse and Wall Street Journal.
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