U.S. Indexes in 8% Correction, Weak Labor Report; Kraft to Split

Darlington Musarurwa
04 Aug, 2011
New York City

U.S. markets resumed their slide after weaker than expected jobs market report. The Dow, S&P 500 and the Nasdaq are now in correction with at least 8% decline in the last two weeks. Kraft Foods decided to split the company into two and General Motors reported its sixth quarterly profit in a row.

[R]10:10 AM New York – U.S. markets resumed their slide after weaker than expected jobs market report. The Dow, S&P 500 and the Nasdaq are now in correction with at least 8% decline in the last two weeks. Kraft Foods decided to split the company into two and General Motors reported its sixth quarterly profit in a row.[/R]

The U.S. indexes dropped sharply after a day after brief gain after falling for seven days in a row. The market correction of 8% in the last two weeks was also reflected with similar losses.

The latest market slide was prompted by the weak jobs market report after a string of reports on income and spending, manufacturing and service sector health and worries of the protracted fight from Republican controlled House for $1.2 trillion of spending cuts.

Markets may test 10,000 in the Dow and 1,180 in the S&P 500 index as trading volume ebb in August.

Seasonally adjusted U.S. weekly jobless claims decreased 1,000 to 400,000 from the revised previous week claims of 401,000.

The preliminary insured unemployment rate in the week ending July 23 was unchanged to 3% from the prior week''s revised rate of 3%.

The European markets extended losses of 11% in eleven days and traded near 11-month low. The index has been in a correction for the first in a year and has been struggling since its peak in May.

The European Central Bank left its key lending rate at 1.5%. The rate was left unchanged after an increase of 25 basis points last month and the decision was widely anticipated.

The Swiss central bank yesterday cut its interest rate target range to between zero and 0.25% from zero and 0.75%.

Bond market jitters were eased after Spain completed the sale of €3.3 billion but at a higher cost. The yield on 10-year bonds after the auction declined to 6.08% and similar Italian bond yields fell to 5.99%.

Finance Minister Yoshihiko Noda told reporters that the government is prepared to do more if the currency stays above its expected level but failed to elaborate. He also confirmed that his ministry is in direct contact with officials at several other central banks around the world.

The move was widely anticipated for the last two days and Bank of Japan was expected to provide more measures to support the weakening of the yen. A day ago, the Swiss National Bank lowered its key rate near zero.

Earnings Review

Rio Tinto ((RIO)) declined 5% to 3,823 pence in London trading after the iron miner reported first half earnings increased 30% to $7.6 billion. The earnings were lower than $8.2 billion estimated by several analysts in Australia and London.

Rio Tinto also announced the plan to increase its share buyback program by $2 billion to $7 billion.

General Motors Co. ((GM)) said second quarter net increased to $2.5 billion compared to $1.3 billion and earnings per share increased to $1.54 from 85 cents in the period.

Revenues rose 19% to $39.4 billion and sales of cars and trucks rose 7% to 2.3 million. For the first time in two years, after it emerged from the bankruptcy that the company reported profits in all of its divisions.

The automaker reported its third quarterly profit in a row since it began trading as a public company in November.

Kraft Foods Inc ((KFT)) said it plans to split into two companies and separate its global snack business from the North American groceries businesses.

The global snack business will also include fast growing emerging markets operations and also recently purchased UK based Cadbury and will have revenues of $32 billion. The grocery business will have $16 billion and will include the U.S. beverage, cheese and frozen food segment and non-snack categories in Canada.

The company also said its second quarter earnings increased 4% to $976 million or 55 cents a share compared to $937 million or 53 cents a share a year ago. Revenues rose 13% to $13.88 billion from $12.25 billion a year ago quarter.

MSCI Inc said its second quarter net income increased to $45.7 million from 424.1 million a year ago and earnings per share increased 37 cents a share from 22 cents a share in the period.

Operating revenues increased 80% to $226.5 million and included $80 million in revenues from the recently acquired RiskMetrics for $1 billion.

Southwest Airlines Co ((LUV)) reported second quarter revenues increased 31% to $4.1 billion and earnings increased to $161 million from $112 million a year ago. Earnings per share increased to 21 cents from 15 cent in the period.

The company also said it booked $75 million in merger related charges stemming from the purchase of Atlanta based AirTran in May and is expected to receive approval to operate as a single airline in the first quarter of 2012.