Stocks Rally on PPI and Housing Data

Arthi Gupta, Mayank Mehta and Sanjay Barot
18 May, 2010
New York City

US stocks gain as strong housing starts data and tame inflation data boosted sentiment. Housing starts rise by 5.8% and PPI decreases 0.1% in April. Fidelity National to pursue leveraged recapitalization after buyout bid fades.

[R]10:00 AM New York – U.S. stocks gain on strong housing starts data and tame inflation figures. Stocks in Europe rise after Greece receives first tranche of EU bail-out loan. Housing starts rise by 5.8% and PPI decreases 0.1% in April. Wal-Mart and Home Depot profit increases.[/R]

U.S. stocks gain as strong housing starts data and tame inflation figures have boosted sentiment. Stocks in Europe rise after Greece receives first tranche of EU bail-out loan. Housing starts rise by 5.8% and PPI decreases 0.1% in April. Strong quarterly results from retailers Wal-Mart and Home Depot help to solidify the upbeat mood.

Greece has received the first tranche of a €110 billion loan to help it overcome its debt crisis, the European Union has said. The European Commission said €20 billion from the EU and the International Monetary Fund had been drawn on.

The bail-out package for Greece which has an €8.1 billion bond repayment due on Wednesday was agreed earlier in May.

The €20 billion loan is made up of 14.5 billion from euro-area member states and €5.5 billion from the IMF.

In return for the loan, the government in Athens is trying to make major austerity cuts, a move which has outraged the public and led to violent clashes in the capital.

On Monday, euro-zone finance ministers insisted the euro was still credible despite its slide against the dollar. The European single currency fell to its lowest level against the dollar since 2006, amid concerns that debt problems will undermine Europe''s recovery.

The U.S. dollar is presently gaining against the yen and the pound, but it is showing weakness against the euro.

The Commerce Department said that new residential construction increased by more than expected in the month of April, although the report also unexpectedly showed a notable decrease in building permits.

Housing permits in April decreased 11.5% from March or 15.9% a year ago month to 606,000. Housing starts in April increased 5.8% from March. Housing completion rose 19.2% from March or plunged 8.7% from a year ago month to 769,000.

The Producer Price Index decreased 0.1% in April on a seasonally adjusted basis after falling at 0.7% rate in March and declining 0.6% in February. On unadjusted basis prices of finished goods increased 5.5%. Core prices increased 0.2% in the month after rising at 0.1% in March.

Banking information processor Fidelity National Information Services, Inc. confirmed that talks regarding a leveraged buyout of the company have ended.

The Jacksonville, Florida firm said it will instead pursue a leveraged recapitalization with a substantial share repurchase.

According to reports late Monday, private equity firms Blackstone Group LP, Thomas H. Lee Partners LP and TPG Capital decided to drop their joint bid to acquire Fidelity National after talks fell apart due to a disagreement on price.

Fidelity National reportedly demanded a substantial increase over the $32 per share offered by the private equity majors.

The proposed deal, said to be valued at about $15 billion including debt, would have ranked as the biggest leveraged buyout since the economic downturn froze credit markets back in September 2008.

Private-equity firm Warburg Pincus, which is the largest shareholder of Fidelity National with about 11% stake, is also said to have opposed the deal.

This was the second attempt by Thomas H. Lee Partners and TPG to buy Fidelity National, after the two firms tried unsuccessfully to buy it five years ago. Following the unsuccessful bid, they invested $500 million for a 25% stake before the company listed on the NYSE. Later, the two firms sold part of their stakes a year later, but with THL still owning a significant 4% of Fidelity National.

Google entered an agreement to purchase Global IP Solutions for $68 million. The acquisition of the Norwegian firm is expected to bolster Google''s audio and video potential.

Home improvement retailer Home Depot, Inc. reported a 41.1% increase in first-quarter profit, driven by higher customer transactions and improved performance in seasonal categories.

Wal-Mart reported first-quarter net income of $0.88 per share, beating estimates for $0.85 per share for the quarter

Commodities, Currencies and Yields

Dollar edged lower against euro to $1.2418 and increased against the Japanese yen to 92.78.

Crude oil increased $1.80 to $71.88 a barrel for a front month contract, natural gas edged higher $0.06 cent to $4.46 per mBtu and gasoline increased 2.830 cents to 207.14 cents.

Gold decreased $14.30 in New York trading to close at $1,213.80 per ounce, silver closed higher $0.046 to $18.90 per ounce and copper for the front month delivery increased 9.750 cents to $3.02 per pound.

Yields on 10-year U.S. bonds increased to 3.46% and on 30-year U.S. bonds traded at 4.33%.

Stock Movers

Agilent Technologies, Inc., the maker of scientific-testing equipment decreased 2.0%.

The Boeing Company, the aerospace company rose 0.01%.

Kraft Foods Inc., the packaged food products manufacturer and marketer rose 1.7%.

MGM Mirage, a holding company engaged in gaming, hospitality and entertainment gained 4.2%.

QAD Inc., the maker of logistics software for manufacturers declined 8.2%.

Earnings Review

Abercrombie & Fitch Co ((ANF)), the specialty retailer reported first quarter sales rose 14.3% to $687.8 million from $601.7 million a year ago. Net loss in the quarter was $11.8 million or 13 cents per diluted share compared to net loss of $59.2 million or 26 cents per share a year ago. Comparable same-store sales increased 1%.

Agilent Technologies, Inc. ((A)), the measurement company said second quarter revenues rose 16.5% to $1.27 billion from $1.09 billion a year ago. Net income in the quarter was $108 million or 31 cents per diluted share compared to net loss of $101 million or 29 cents per share a year ago.

The Home Depot, Inc. ((HD)), the home improvement retailer reported first quarter sales rose 4.3% to $16.86 billion from $16.18 billion a year ago. Net income in the quarter rose 41% to $725 million or 43 cents per diluted share compared to net income of $514 million or 30 cents per share a year ago. Comparable same-store sales increased 4.8%.

Wal-Mart Stores, Inc. ((WMT)), the retailer reported first quarter sales rose 6% to $99.1 billion from $93.5 billion a year ago. Net income in the quarter rose 10% to $3.3 billion or 88 cents per diluted share compared to net income of $3.0 billion or 77 cents per share a year ago. Comparable same-store sales decreased 1.4%.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed higher 6.88 or 0.07% to 10,242.64, and Hang Seng index in Hong Kong increased 229.74 or 1.17% to 19,944.94, and CSI 300 index in China higher 56.63 or 2.09% to 2,771.35. ASX 200 index in Australia increased 3.50 or 0.08% to 4,470.70 and the FTSE Bursa KL Composite index in Malaysia was lower 4.10 or 0.31% to 1,330.17.

The Kospi Index in South Korea decreased 8.27 or 0.50% to close at 1,643.24. SET index in Thailand closed higher 6.85 or 0.91% to 760.11. JSE Index in Indonesia increased 14.72 or 0.52% to 2,834.19. The Sensex index in India increased 40.20 or 0.24% to 16,875.76.

Europe Markets Review

In London FTSE 100 Index closed higher 55.71 or 1.06% to 5,318.25, in Paris CAC 40 Index increased 76.69 or 2.16% to 3,620.24 and in Frankfurt DAX index traded higher 85.92 or 1.42% to 6,152.84. In Zurich trading SMI increased 52.41 or 0.82% to 6,481.27.