Nasdaq, S&P 500 Plunge 3%; Polo Ralph Lauren Net Surges 52%

Arthi Gupta
10 Aug, 2011
New York City

U.S. indexes plunged 3% after the Fed guided low rates for two years and announced no new measures to lift the economic growth. U.S. mortgage applications surged to 21.7%. Capital One agreed to acquire HSBC’s domestic credit card business for $2.6 billion. Macy''s earnings soared 64%.

[R]10:00 AM New York – U.S. indexes plunged 3% after the Fed guided low rates for two years and announced no new measures to lift the economic growth. U.S. mortgage applications surged to 21.7%. Capital One agreed to acquire HSBC’s domestic credit card business for $2.6 billion. Macy''s earnings soared 64%.[/R]

U.S. indexes plunged a day after investors digested the Fed’s statement after it left its key lending rate on hold and guided low rates for the next two years.

The indexes dropped as much as 3% after the Fed announced no new measures to lift the economic growth and cited unemployment will come down gradually. The statement left a distinct impression that the Fed has run out of options and it is bidding time.

Fed also highlighted the downside risks to the economy as the economic data signals economy is at least in rut if not in a full blown recession. The housing market, manufacturing sector and persistent high unemployment are pointing weak economy in the months ahead.

European indexes turned lower tracking a plunge in New York opening.

China''s trade surplus increased more than estimated in July. The surplus rose to $31.48 billion from $22.27 billion in June and to the record high last seen in January 2009.

The Swiss National Bank on Wednesday once again had to initiate steps to contain the appreciation of the Swiss franc.

The central bank aims to rapidly raise banks'' sight deposits to Sfr120 billion from Sfr80 billion to increase the supply of liquidity to the Swiss franc money market. Additional measures include conducting foreign exchange swap transactions.

Italy sold €6.5 billion of bills today and borrowing costs fell from the previous sale after the European Central Bank began buying the country’s bonds, leading to a plunge in yields this week.

Italian bond yields declined in the first sovereign bond auction after the European Central Bank expanded its bond buying program to include Spain and Italy.

Italy sold its one-year bills to yield 2.959%, down from 3.67% at last auction on July 12. Demand was 1.94 times the amount on offer, compared with 1.55 times last month.

The IEA trimmed its 2011 global oil demand forecast by 60,000 barrels per day because citing slowing economic growth. However, the agency lifted its 2012 estimate by 70,000 barrels per day due to oil-fired power needs in Japan.

Global oil demand is now expected to average 89.5 million bpd in 2011 and 91.1 million bpd in 2012.

U.S. Mortgage Applications Surge

The Mortgage Bankers Association''s seasonally adjusted index of mortgage application activity in the U.S. rose 21.7% in the week ended August 5. The index rose 7.1% the week before.

Refinancing applications soared 30.4% but loan applications for home purchases declined 0.9% reinforcing weakness in the housing market.

Fixed 30-year mortgage rates averaged 4.37% in the week, down from 4.45% the week before.

Capital One Acquires HSBC’s Domestic Credit Card Business

Capital One Financial Corp., the diversified financial services holding company agreed to acquire HSBC''s domestic credit card and retail services business for a premium of about $2.6 billion.

The transaction includes HSBC''s $30 billion credit card portfolio, for an 8.75% premium to par value of all receivables. Also, the company expects to realize cost synergies of around $350 million and estimates to incur restructuring costs of around $420 million.

SIA Orders Boeings

Singapore Airlines agreed to order eight more Boeing 777-300ERs valued at $2.3 billion at list prices. The airline noted that the order will support its growth plans.

Earnings Review

Macy''s, Inc. ((M)), the department store holding company reported second quarter sales climbed 7.3% to $5.94 billion from $5.54 billion in the second quarter of 2010 on same-store sales rise of 6.4%.

Net income in the quarter surged 64% to $241 million or 55 cents per diluted share compared to net income of $147 million or 35 cents per share a year earlier.

Polo Ralph Lauren Corporation ((RL)), the luxury clothing and goods company reported first quarter net revenues rose 33% to $1.53 billion from $1.15 billion in the prior-year quarter. Net income in the quarter increased 52% to $184.1 million or $1.90 per diluted share compared to net income of $120.8 million or $1.21 per share for the first quarter of fiscal 2011.

Rovi Corporation ((ROVI)), the digital entertainment technology provider stated second quarter revenues increased 44% to $193.0 million from $133.9 million in the same quarter last year. Net loss in the quarter was $10.7 million or 10 cents per diluted share compared to net income of $41.2 million or 39 cents per share in the prior-year quarter.

The Walt Disney Company ((DIS)), the diversified worldwide entertainment company said third quarter revenue rose 7% to $10.68 billion from $10.00 billion in the same quarter last year. Net income in the quarter increased 11% to $1.48 billion or 77 cents per diluted share compared to net income of $1.33 billion or 67 cents per share for the year-ago quarter.