Alcoa Lifts U.S. Stocks; Trade Deficit Widens

Arthi Gupta, Mayank Mehta and Sanjay Barot
13 Jul, 2010
New York City

U.S. stocks trade higher on better-than-estimated earnings from Alcoa. U.S. trade deficit widens to $42.3 billion in May. Federal Reserve Chairman Ben Bernanke noted in a speech that bank lending to small businesses declined. Moody''s downgrades credit rating of Portugal but reaffirms stable outlook.

[R]9:35 AM New York – U.S. stocks trade higher on better-than-estimated earnings from Alcoa. U.S. trade deficit widens to $42.3 billion in May. Federal Reserve Chairman Ben Bernanke noted in a speech that bank lending to small businesses declined. Moody''s downgrades credit rating of Portugal but reaffirms stable outlook.[/R]

U.S. stocks rose after encouraging domestic earnings reports and mixed trends were seen across the Asian markets after China reiterated that it would maintain lending curbs to curb real estate speculation, and European markets increased on renewed confidence about earnings in the U.S.

U.S. imports in the month of May rose at a slightly faster pace than exports, according to a report released by the Commerce Department today.

The report showed that the trade deficit widened to $42.3 billion in May from $40.3 billion in April after exports fell to $148.7 billion and imports rose to $189.0 billion.

Federal Reserve Chairman Ben Bernanke said on Monday that making credit accessible to small businesses is the key to spurring the nation''s economic recovery.

Speaking at a Fed conference in Washington, D.C., Bernanke said that the creation and growth of small businesses would help put Americans back to work.

Bernanke added that it remains tough for many small businesses to gain access to credit, pointing out that a measure of banks'' loans to small businesses dropped from $710 billion in the second quarter of 2008 to less than $670 billion in the first quarter of 2010.

The Fed chief also stressed that solving tight credit issues would involve collaboration between regulators, banks and small business owners themselves.

Moody''s Investor Services downgraded the credit rating of Portugal two notches to A1. However, the rating agency reaffirmed its stable outlook.

The two-notch downgrade reflects the rating agency''s conclusions that the Portuguese government''s financial strength will continue to weaken over the medium term, as evidenced by the ongoing deterioration in the country''s debt metrics, such as debt-to-GDP and debt-to-revenues. Moreover, the economy''s growth prospects are likely to remain relatively weak unless recent structural reforms bear fruit over the medium to longer term.

Commodities, Currencies and Yields

Dollar increased against euro to $1.2584 and decreased against the Japanese yen to 88.42.

Crude oil increased $0.45 to $75.40 a barrel for a front month contract, natural gas edged higher $0.01 cents to $4.40 per mBtu and gasoline increased 1.270 cents to 204.07 cents.

Gold increased $6.60 in New York trading to close at $1,205.30 per ounce, silver closed higher $0.093 to $18.01 per ounce and copper for the front month delivery decreased 0.600 cents to $3.00.

Yields on 10-year U.S. bonds increased to 3.05% and on 30-year U.S. bonds traded at 4.04%.

Stock Movers

Chevron Corporation added 0.5% after the energy producer reported in its interim updates that earnings for the second quarter 2010 is expected to be higher than in the first quarter.

CSX Corporation rose 0.3% after the freight-transportation company announced second quarter earnings from continuing operations of $414 million or $1.07 per share versus $282 million or $0.71 per share in the same period last year.

L-1 Identity Solutions, Inc. declined 5.7% after the maker of biometric security technology expects first half revenues to be in the range of $310.0 to $315.0 million.

MBIA Inc. gained 7.3% after the Fairholme Capital Management LLC held a stake equal to 11.1% of the bond insurer as of June 30, according to a regulatory filing.

Earnings Review

Alcoa Inc. ((AA)), the aluminum producer said second quarter sales rose 22.4% to $5.19 billion from $4.24 billion a year ago. Net income in the quarter was $136.0 million or 13 cents per diluted share compared to net loss of $454.0 million or 47 cents per share a year ago.

Novellus Systems, Inc. ((NVLS)), the equipment maker for producing computer chips said second quarter sales rose 169.6% to $321.4 million from $119.2 million a year ago. Net income in the quarter was $63.3 million or 66 cents per diluted share compared to net loss of $50.0 million or 52 cents per share a year ago.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 10.88 or 0.11% to 9,537.23, Hang Seng index in Hong Kong decreased 36.37 or 0.18% to 20,431.06 and CSI 300 index in China lower 41.62 or 1.56% to 2,634.59. ASX 200 index in Australia decreased 29.60 or 0.67% to 4,380.30. The FTSE Bursa KL Composite index in Malaysia closed higher 6.13 or 0.46% to 1,332.87.

The Kospi Index in South Korea increased 1.03 or 0.06% to close at 1,735.08. SET index in Thailand closed lower 2.26 or 0.28% to 817.35 and JSE Index in Indonesia increased 2.72 or 0.09% to 2,961.51. The Sensex index in India increased 48.70 or 0.27% to 17,985.90.

Europe Markets Review

In London FTSE 100 Index traded higher 80.51 or 1.56% to 5,247.53, in Paris CAC 40 Index increased 57.31 or 1.61% to 3,624.97 and in Frankfurt DAX index traded higher 89.92 or 1.48% to 6,167.11. In Zurich trading SMI increased 58.91 or 0.95% to 6,287.22.

Nikkei 225 Average Movers

Chiyoda Corporation led the decliners in the Nikkei 225 index of 5.6% followed by losses in Shinsei Bank, Ltd of 4.2%, in Nisshin Steel Co., Ltd of 3.3%, in Mizuho Financial Group, Inc of 2.8% and in East Japan Railway Company of 2.6%.

Pioneer Corporation led gainers in the Nikkei 225 index with a rise of 3.1% followed by gains in Fujitsu Limited of 2.1%, in Softbank Corp of 2.0%, in Kawasaki Heavy Industries, Ltd of 1.8% and in Kddi Corporation of 1.8%.