U.S. Indexes Calm as Debt Talks Anxieties Rise; Strong Earnings

Devan Biswas
26 Jul, 2011
New York City

The U.S. indexes struggled as earnings were ahead of expectations but debt-talks uncertainty unnerved investors. The U.S. is facing a government shutdown and a rating downgrade if the lawmakers fail to agree on a spending cut plan and lift debt ceiling before August 2.

[R]10:10 AM New York – The U.S. indexes struggled as earnings were ahead of expectations but debt-talks uncertainty unnerved investors. The U.S. is facing a government shutdown and a rating downgrade if the lawmakers fail to agree on a spending cut plan and lift debt ceiling before August 2.[/R]

U.S. indexes opened steady as debt ceiling deadline looms next week. The three popular indexes inched lower a fraction after first thirty minutes of trading but markets in general were calm.

President Barack Obama in a televised address to the nation urged lawmakers of both parties to finalize the debt talks as the nation flirts with the August 2 deadline before the federal government runs out of money.

Republican controlled U.S. House has been adamant and looking for spending cuts in the medical assistance and social security but prefers to preserve the wasteful military spending and agriculture subsidies.

At least for now, investors are not panicked and only sign of any stress is visible in the dollar index. The index that tracks the value of the dollar against a basket of currencies edged 0.5% lower and the Swiss franc rose to a new high against the dollar. The yen and the Australian dollar also edged higher.

Metropolitan home price index tracked by the S&P/Case-Shiller index declined 1% in May from April. The index tracks home prices in twenty largest U.S. cities and fell 4.5% from a year ago.

The housing market weakness is expected to persist at least till the end of the year as unemployment hovers near 9%.

Earnings also gained focus of investors as most companies reported better than expected earnings.

Ford Motor Company ((F)) added 2% after it reported quarterly earnings of 65 cents a share and cited stronger than expected momentum in international markets.

Broadcom Corp ((BRCM)) soared 9% after the maker of communication chip reported stronger than expected third quarter earnings

However, Netflix ((NFLX)) dropped 8% after the online movie streaming services and rental company reported third quarter sales and earnings that lagged analysts’ estimates. The company also guided weaker than expected outlook for the current quarter.

United Parcel Service Inc second quarter earnings increased to $1.06 billion or $1.07 a share and revenues rose 8.1%. A year ago, earnings were $845 million or 84 cents a share.

For the current year the parcel delivery company estimated earnings per share between $4.15 and $4.40.

Baidu.com, the China based search engine gained after it reported second quarter earnings surged 95% and revenues soared 78% from a year ago. The company also guided sales increase between 75.1% and 79.5% in the current quarter.

In European markets, BP Plc declined after it reported weaker than expected earnings and UBS AG dropped 4.6% after it earnings dropped more than expected.