Next Phase in U.S. Debt Brawl; Indexes Struggle on Manufacturing Slowdown

Arthi Gupta
01 Aug, 2011
New York City

U.S. indexes gained after the White House and the Congressional leaders agreed to raise the debt ceiling. First Niagara agreed to acquire 195 branches from HSBC subsidiary for $1 billion. European manufacturing activity declined in July.

[R]11:15 AM New York – U.S. indexes gained after the White House and the Congressional leaders agreed to raise the debt ceiling. After rising sharply the Dow and the S&P indexes fell 1.2% on weak manufacturing report. First Niagara agreed to acquire 195 branches from HSBC subsidiary for $1 billion. European manufacturing activity declined in July.[/R]

U.S. and global indexes edged higher in a cautious trading after U.S. President Barack Obama announced that the leaders of the Republican and Democratic parties have agreed on a deal to raise the U.S. debt ceiling just ahead of the August 2 deadline.

The tentative agreement still needs approvals from the Senate and the House that will cut about $2.2 trillion in spending over the next 10 years and allow the government to raise debt in two steps to $2.2 trillion that will be sufficient till 2013.

The deal was widely hailed as a “success” by the extreme segment of the Republican Party and most economists worried that the government spending cuts will only weaken the employment market in the immediate months.

The lack of increase in taxes will also hamper the government spending and may worsen the debt in the long term and weaken the prospect of any economic recovery in the short term.

The Dow and the S&P 500 indexes opened up more than 1% but quickly reversed the course after the manufacturing index showed a declined.

The factory index tracked by Institute for Supply Management declined to 50.9 in July from 55.3 in June. The weak U.S. manufacturing data was just another confirmation of the global economic struggle after the indexes and Europe, China and India were weaker than expected.

In Asia, China's manufacturing sector contracted in July to the lowest level since March 2009, final results from Markit Economics showed today. The HSBC manufacturing purchasing managers' index fell to 49.3 in July from 50.1 in June.

The government statistics agency showed that the manufacturing index advanced in July but at a slower pace as the index declined to 50.7 from 50.7.

European manufacturing activity fell in July and the euro area unemployment rate remained unchanged at 9.9% in June.

Peabody, ArcelorMittal Revised Offer

Peabody Energy Corp., the U.S. coal miner and steel maker ArcelorMittal on Monday confirmed they intend to launch an all-cash off-market takeover bid to acquire all the shares in Australian coal producer Macarthur Coal Ltd.

Under the offer, Macarthur shareholders will be offered A$15.50 cash per share, plus an A$0.16 per share final dividend payment valuing the equity in Macarthur at approximately A$4.7 billion.

First Niagara Acquires HSBC Branches

First Niagara Bank, N.A., a subsidiary of First Niagara Financial Group, Inc. agreed to acquire 195 Upstate New York and Connecticut branches and $15 billion of deposits from HSBC Bank USA, N.A. for about $1 billion.

The transaction includes six branches each in Westchester County and southern Connecticut. It also includes $2.8 billion of small business, residential mortgage and consumer loans, as well as $4.3 billion of assets under management.

Upon completion of the transaction, First Niagara expects to have about $38 billion in assets, $30 billion in deposits and 450 branches across Upstate New York, Connecticut, Massachusetts and Pennsylvania.

Earnings Review

Honda Motor Co., Ltd. ((HMC)), the manufacturer of automobiles and motorcycles reported first quarter fiscal 2012 net sales and other operating revenue decreased 27% to 1.7 trillion yen from 2.4 trillion yen in the previous year.

Net income in the quarter plunged 88% to 31.7 billion yen from 272.4 billion yen in the prior year. Earnings per share for the latest quarter were 17.64 yen versus 150.27 yen in the comparable period a year ago.

Humana Inc. ((HUM)), the health and supplemental benefits company stated second quarter consolidated revenues rose 8% to $9.28 billion from $8.59 billion in the year-ago quarter. Net income in the quarter climbed 35.3% to $460.29 million or $2.71 per share compared to net income of $340.08 million or $2 per share last year.

Loews Corporation ((L)), the holding company reported second quarter total revenues increased 1.6% to $3.54 billion from $3.49 billion in the prior-year quarter. Net income in the quarter declined 31.1% to $252 million or 62 cents per diluted share compared to net income of $366 million or 87 cents per share last year.

The Allstate Corporation ((ALL)), the personal lines insurer, reported second quarter consolidated revenues increased 5.6% to $8.08 billion compared with $7.66 billion in the previous year. Net loss in the quarter was $620 million or $1.19 per share compared to net profit of $145 million or 27 cents per share a year earlier.