European Worries Drag Global Indexes; Toll Brothers Net Slumps

Arthi Gupta
06 Dec, 2011
New York City

The U.S. indexes futures gained despite the worsening euro area debt crisis. Standard & Poor''s warned that it may downgrade debt ratings of 15 euro-zone nations, including France and Germany if the EU summit this week is inconclusive. Toll Brothers quarterly net plunged 70%.

[R]9:10 AM New York – The U.S. indexes futures gained despite the worsening euro area debt crisis. Standard & Poor's warned that it may downgrade debt ratings of 15 euro-zone nations, including France and Germany if the EU summit this week is inconclusive. Toll Brothers quarterly net plunged 70%.[/R]

U.S. indexes futures and global indexes declined after Standard & Poor's on Monday placed its long-term sovereign ratings on 15 euro-zone nations on credit watch with negative implications.

The S&P said in a statement that ratings could be lowered one notch for Austria, Belgium, Finland, Germany, Netherlands, and Luxembourg, and two notches for the other governments if the upcoming EU summit does not deliver.

However, French Finance Minister Francois Baroin told France 3 television that the economy did not require a third round of austerity despite the Standard and Poor's decision on Monday.

The ratings agencies have lost their credibility and the late action last evening is yet another confirmation of lax and slow response to the market conditions. The three widely followed ratings agencies, S&P, Moody’s and Fitch have still left the U.S. debt near the top end of the scale when most investors wonder how the U.S. will ever repay its $15 trillion of debt that is still growing.

Many investors have begun treating the U.S. Treasury debt at below investment grade level. To put things in perspective, bond yields on Italy and Spain more than doubled in three months in the spring and then doubled again in the summer and now hover near 7%.

In other words, governments cannot control yields when rates start moving higher when investors lose confidence.

Of the 660 mutual funds managers surveyed by 123jump.com over the last six years not a single manager confirmed solely relying on the rating agencies views in selecting their bond portfolios. What worries most investors is that why are ratings mandatory from these agencies who have proven to be incompetent.

The International Monetary Fund on Monday announced the disbursement of about €2.2 billion to Greece following the completion of the fifth review of the country's economic performance.

German Chancellor Angela Merkel and French President Nicolas Sarkozy in a meeting yesterday proposed a stricter treaty that envisages tighter fiscal discipline among euro-zone members to effectively deal with the debt crisis.

BP Accuses Halliburton

BP plc, the oil and gas explorer accused Halliburton Co. of intentionally destroying unfavorable results from tests on cement used to plug the Deepwater Horizon well in the Gulf of Mexico last year. The well had blown out in April 2010, killing 11 people and unleashing a huge oil spill.

BP had used the cement mix prepared by Halliburton to plug the leaking well. Furthermore, BP added that Halliburton destroyed the test results and computer analysis because it wanted to eliminate any risk that this evidence could be used against it at trial, reports noted.

Earnings Review

AutoZone, Inc. ((AZO)), the auto-parts said first quarter net sales rose 7.3% to $1.92 billion from $1.79 billion a year ago, driven by a 4.6% improvement in domestic same-store sales. Net profit in the quarter increased 11% to $191.1 million, or $4.68 per share compared to net profit of $172.1 million, or $3.77 per share in the prior year.

BMO Financial Group ((BMO)), the provider of diversified financial services stated fourth quarter revenue rose 20.1% to C$3.88 billion from C$3.23 billion last year. Net income in the quarter advanced 21.4% to C$897 million or C$1.34 per diluted share compared to net income of C$739 million or C$1.24 per share last year.

General Motors Co. ((GM)), the automaker said that domestic sales by the company and its joint ventures in China increased 20.4% in November touching a new record of 237,130 vehicles for the month.

Toll Brothers, Inc. ((TOL)), the luxury homebuilder reported fourth quarter revenues grew 6% to $427.79 million from $402.60 million in the prior-year quarter. Net income in the quarter plunged 70% to $15.04 million or 9 cents per diluted share compared to net income of $50.48 million or 30 cents per share last year.