Existing Home Sales Drop 0.8%, Apple Lifts Tech Sentiment

Arthi Gupta
20 Jul, 2011
New York City

U.S. indexes rose after mortgage application activity soared. Energy Transfer agreed to acquire Southern Union in $9.4 billion deal and Ecolab agreed to buy Nalco for $5.4 billion. CNOOC agreed to acquire OPTI for $2.1 billion. Apple earnings surged on strong sales of iPhones and iPad.

[R]10:50 AM New York – U.S. indexes rose after mortgage application activity soared. Energy Transfer agreed to acquire Southern Union in $9.4 billion deal and Ecolab agreed to buy Nalco for $5.4 billion. CNOOC agreed to acquire OPTI for $2.1 billion. Apple earnings surged on strong sales of iPhones and iPad.[/R]

U.S. stocks opened higher after better than expected earnings. Tech stocks surged after Apple Inc reported a surge in iPhone and iPad sales and earnings soared 125%.

iPhone sales surged 142% annually to 20.34 million units in the third quarter, while iPad sales soared 183% to 9.25 million units.

The sentiment also improved after renewed optimism on the debt talks settlement as Senators hash out a plan to increase taxes and pass a deeper measure of spending cuts.

Asian markets rebounded on easing of global economic concerns. European indexes extended gains ahead of the Greek bailout summit. German producer prices increased 5.6%.

Greek Prime Minister George Papandreou said it """"could be a make-or-break moment for where Europe is going.""""

U.S. Existing Home Sales Fall

Existing home sales in the U.S. showed an unexpected decline in June, according to a report released by the National Association of Realtors today.

The report showed that existing home sales fell 0.8% to an annual rate of 4.77 million in June from a 4.81 million rate in May.

The drop in existing home sales reflected a 7.0% decrease in existing condominium and co-op sales, which fell to an annual rate of 530,000 in June.

U.S. Mortgage Applications Soar

The Mortgage Bankers Association''s seasonally adjusted index of mortgage application activity in the U.S. soared 15.5% in the week ended July 15, driven by a huge rise in refinancing applications.

The MBA''s seasonally adjusted index of refinancing applications surged 23.1% and the new purchase applications index was almost unchanged.

Fixed 30-year mortgage rates averaged 4.54%, down slightly from 4.55%.

Five U.S. States on Review

Moody''s Investors Service has placed on review for possible downgrade the Aaa ratings of Maryland, New Mexico, South Carolina, Tennessee, and Virginia, due to U.S. sovereign risk vulnerability. The review actions affect a combined $24 billion of general obligations and related debt.

The rating agency cited risk factors including macroeconomic sensitivity, capital markets reliance, and dependence on federal revenues.

Energy Transfer to Acquire Southern Union

Energy Transfer Equity L.P. agreed to acquire Southern Union Co. for $9.4 billion, including $5.7 billion in cash and Energy Transfer common units under an amended and restated merger agreement.

Under the terms of the revised agreement, SUG shareholders can elect to exchange their common shares for $44.25 of cash or the common unit of Energy Transfer.

CNOOC Purchases OPTI

CNOOC Luxembourg S.à r.l, an indirect wholly-owned subsidiary of China’s CNOOC Limited agreed to acquire OPTI Canada Inc. and its second lien notes for approximately $2.1 billion to strengthen its Canadian presence in the oil sands business.

The transaction includes net consideration of $1.2 billion payable to holders of OPTI''s second lien notes, $37.5 million payable to backstop parties, $34 million payable to shareholders and the assumption of $825 million first lien notes.

AMR Places Largest Aircraft Order

AMR Corp. announced the largest aircraft order in aviation history, agreeing to buy 460 narrowbody aircraft from Boeing and Airbus beginning 2013 through 2022. The agreement includes options and purchase rights for 465 additional aircraft through 2025.

The company stated these new aircraft will allow American Airlines to reduce its operating and fuel costs.

Ecolab Acquires Nalco

Ecolab, Inc., the cleaning and pest-control services provider agreed to acquire water treatment company Nalco Holding Co. for about $8.1 billion, including $2.7 billion in net debt. The fully diluted offer value for Nalco''s equity will be $5.4 billion.

Earnings Review

Altria Group, Inc. ((MO)), the cigarette maker reported second quarter net revenues slipped 5.6% to $5.92 billion from $6.27 billion in the prior year. Net earnings in the quarter slumped 57% to $444 million or 21 cents per diluted share compared to net earnings of $1.04 billion or 50 cents per share in the prior year.

AMR Corporation ((AMR)), the commercial aviation business and airline holding company reported second quarter total operating revenues grew 7.8% to $6.11 billion from $5.67 billion in the same quarter last year. Net loss in the quarter widened to $286 million or 85 cents per diluted compared to net loss of $11 million or 3 cents per diluted share in the prior-year quarter.

Apple Inc. ((AAPL)), the computing and electronics company said third quarter net sales soared 82% to $28.57 billion from $15.70 billion in the same quarter last year. Net income in the quarter surged 125% to $7.31 billion or $7.79 per share compared to net income of $3.25 billion or $3.51 per share for the year-ago quarter.

Wipro Limited ((WIT)), the Indian software services provider reported first quarter revenue increased 18% to 85.64 billion rupees from 72.36 billion rupees in the prior year. Net profit in the quarter advanced 1.2% to 13.35 billion rupees or 5.44 rupees per diluted share compared to net profit of 13.19 billion rupees or 5.42 rupees per diluted share in the prior-year period.

Yahoo! Inc. ((YHOO)), the digital media company said second quarter revenue declined 23% to $1.23 billion from $1.60 billion last year. Net earnings in the quarter rose 11% to $237 million or 18 cents per diluted share compared to net earnings of $213 million or 15 cents per diluted share in the prior-year quarter.