U.S. Indexes in Early Rebound, Banks Trade Higher

Arthi Gupta
22 Jun, 2012
New York City

U.S. indexes rebounded in early trading and banks gained despite the latest rating downgrade. Commodities prices were flat and markets in Europe dropped more than 0.4%. Arch Coal plans to halt production and cut costs.

[R]9:50 AM New York – U.S. indexes rebounded in early trading and banks gained despite the latest rating downgrade. Commodities prices were flat and markets in Europe dropped more than 0.4%. Arch Coal plans to halt production and cut costs.[/R]

U.S. indexes shot up in early trading but the declines in international markets held gains in check and bank stocks traded higher as investors surmised the latest rating action too little and too late.

European markets edged lower after German business confidence dropped and banks were in focus in Spain and in the U.S. with global operations. The euro zone finance ministers released the next bailout tranche to Greece after a meeting in Luxembourg.

The political turmoil in Greece eased after Greek Prime Minister Antonis Samaras formed a new cabinet on Thursday with new ministers mostly from his conservative New Democracy party.

Spain is expected to submit an official request for financial aid to recapitalize banks by Monday and Greece won an approval from the euro zone finance ministers to release the last tranche of 1 billion euros.

Asian markets declined as global economic slowdown worries gathered storms and central bank in India took steps to arrest the sharp fall in the rupee. The rupee torched a record low at 57 against one dollar as oil companies hunt for dollars to pay for the monthly import bill of $10 billion to $12 billion.

The Reserve Bank of India reportedly instructed oil marketing companies to route 50% of their U.S. dollar purchases through a single public sector bank to reduce market volatility and arrest the rupee''s fall.

The Japanese government reiterated its economic outlook, but warned of downside risks stemming from growing uncertainty about the economic situation in the euro-zone, the Cabinet Office said in its monthly report.

Moody''s Lowers Credit Ratings

Ratings agency Moody''s Investors Service on Thursday downgraded the credit ratings of 15 banks and securities firms with global capital markets operations. All the banks affected by these rating actions have significant exposure to the volatility and risks inherent in the capital markets business, the ratings agency said.

Citigroup and Bank of America were among the 15 banks that were downgraded and Morgan Stanley, Goldman Sachs and JPMorgan Chase also suffered rating cuts as the rating agency blamed banks for opaque balance sheets and the reliance on short term financing.

Among the largest European banks affected by the ratings downgrade are Barclays, Credit Suisse, Deutsche Bank, UBS and HSBC.

The long-term senior debt ratings of 4 of these firms were downgraded by 1 notch, the ratings of 10 banks were downgraded by 2 notches and one firm was downgraded by 3 notches.

Arch Coal to Slash Jobs, Lower Production

Arch Coal, Inc. said it plans to idle several operations and reduce production in Appalachia due to the unprecedented downturn in demand for coal-based electricity. This will result in a total workforce reduction of approximately 750 full-time employee positions.

Cabot Oil Sells Stake

Cabot Oil & Gas Corp. agreed to sell a 35% non-operated working interest in the Pearsall Shale to a wholly-owned U.S. subsidiary of Japan-based Osaka Gas Co., Ltd. for a total price of $250 million.

Under the agreement, Osaka will pay $125 million in cash to Cabot at closing and will pay an additional $125 million to carry 85% of Cabot''s share of future drilling costs in the Pearsall Shale.

Earnings Review

Darden Restaurants, Inc. ((DRI)), the full-service restaurant company said fourth quarter sales advanced 3.8% to $2.07 billion from $1.99 billion the prior-year quarter. Net earnings in the quarter rose 10% to $151.2 million or $1.15 a diluted share compared to net earnings of $137.4 million or 99 cents per share in the same quarter a year earlier.

Ryder System, Inc. ((R)), the transportation services provider lowered its second quarter and fiscal year earnings guidance.

The company estimated second quarter earnings between 90 cents and 95 cents per share, down from its prior guidance of $1.07 to $1.12 per share. Fiscal 2012 earnings were lowered to between $3.65 and $3.85 a share compared to the prior forecast of $4.02 to $4.12 a share.