Earnings Euphoria; Goldman Warrants $1.1 B

Mukesh Buch
22 Jul, 2009
New York City

Investors bid stocks up around the world on better than expected earnings from Apple, Starbucks, Intel, Caterpillar, Pepsi, Pfizer and Goldman Sachs. The earnings in UK and Europe have been ahead of expectations. Energy producers stocks fell on higher than expected inventories.

[R]4:00 PM New York, 9:00 PM London, 6:00 AM Sydney – Investors bid stocks up around the world on better than expected earnings from Apple, Starbucks, Intel, Caterpillar and Goldman Sachs. The earnings in UK and Europe have been ahead of expectations. Energy producers stocks fell on higher than expected inventories. Wells Fargo and Morgan Stanley declined.[/R]

U.S. stocks closed mixed at close but tech heavy Nasdaq increased for the eleventh day in a row. U.S. stocks in the early morning traded sideways after Morgan Stanley and Wells Fargo disappointed investors. Home builders edged higher after home prices increased in May. Starbucks and Apple lead gainers in early trading. Advanced Micro declined after it reported larger than expected loss.

Goldman Sachs agreed to pay $1.1 billion to repurchase warrants held by the U.S. Treasury. The warrants were issued to the government at the time of capital infusion of $10 billion in the bank. This payment is in addition to the $318 million of dividends paid on the preferred stocks.

Unlike JP Morgan Chase, Goldman and government agreed on the price which some industry analyst estimates as a payment of 98% on the value of the warrant. By the same measure KeyCorp agreed to pay only 60% for the warrants. The government said the JP Morgan’s bid for the warrants was too low and most likely these warrants are going to be auctioned in the public market.

Stocks in Europe edged higher for the eighth day in a row. Praktiker AG dropped more than 9% on 38% decline in earnings Wincor Nixdorf plunged 15% after it reported 28% decline in quarterly earnings.

UK stocks closed higher for the eight day in a row on optimism about global economic recovery and a steady rise in resource stocks. Galiform surged after it reported first half earning and suggested smaller decline in the second half. Euromoney issued cautious outlook.

Steelmakers surged on the expectations of rising shipments and higher prices. JFE Holdings surged as it expects to increase price for October shipments. Sumitomo Metal Mining plans to increase nickel production in the last quarter of this year. Toshiba increased on higher iPhone sales.

Mining and metals stocks surge in Shanghai. Retail investors have driven the demand for resource stocks in the last three months on the hopes of economic recovery. China Minsheng surge an approval to sell shares in Hong Kong. HK banks will pay sixty percent of principal of Lehman minibonds.

Indian Government tax collection in June increased 3.7% and India is not likely to meet its export target of $200 billion in the current fiscal year. Monsoon rains are still trailing the historical average sparking fears of drought. HDFC quarterly net gains 21%.

North American Markets

Dow Jones Industrial Average decreased 34.68 or 0.4% to a close of 8,881.26, S&P 500 Index declined 0.51 or 0.05% to 954.07, and Nasdaq Composite Index edged higher 10.18 or 0.53% to close at 1,926.38. Toronto TSX Composite Index decreased 82.97 or 0.8% to 10,432.35.

Of the stocks in S&P 500 index, 272 increased, 225 declined and 3 were unchanged.

Allegheny Tech led decliners in the S&P 500 index with a loss of 18.1% followed by losses in AMD of 13%, in CIT Group of 11%, in Whirlpool Corp of 9.9%, in St Jude Medical of 8.9% and in Genzyme Corp of 8.4%.

Caterpillar Inc led gainers in the S&P 500 index with a rise of 7.7% followed by increase in International Paper of 6.4%, in Merck & Company of 6.1%, in New York Times of 5.6%, in NetApp Inc of 5.5% and in Autodesk of 5.3%.

South American Markets Indexes

Mexico Bolsa Index increased 284.19 or 1.1% to 26,288.21. Brazil Bovespa Stock Index decreased 161.00 or 0.3% to 53,072.57.

Argentina Merval Index decreased 0.6%. Chile Stock Market Select index edged lower 0.7%, Peru Lima General Index added 0.1% and Colombia IGBC General Index increased 0.4%.

Europe Markets Review

In London FTSE 100 Index closed higher 12.56 or 0.28% to 4,493.73, in Paris CAC 40 Index increased 2.18 or 0.07% to close at 3,305.07 and in Frankfurt DAX index higher 27.59 or 0.54% to close at 5,121.56. In Zurich trading SMI increased 0.83 or 0.01% to close at 5,637.02.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed higher 71.14 or 0.74% to 9,723.16, Hang Seng index in Hong Kong decreased 253.56 or 1.30% to 19,248.17 and CSI 300 index in China closed higher 67.09 or 1.90% to 3,606.92. ASX 200 index in Australia increased 17.80 or 0.44% to 4,068.50. The FTSE Bursa KL Composite index in Malaysia closed higher 14.00 or 1.23% to 1,148.70.

The Kospi Index in South Korea increased 5.05 or 0.34% to close at 1,494.04. SET index in Thailand closed lower 11.61 or 1.90% to 598.22 and JSE Index in Indonesia decreased 20.94 or 0.98% to 2,125.62. The Sensex index in India decreased 219.37 or 1.46% to 14,843.12.

Commodities, Metals, and Currencies

Crude oil decreased $0.26 to close at $65.35 a barrel for a front month contract, natural gas increased 12 cents $3.83 per mBtu and gasoline increased 2.96 cents to 184.16 cents.

Wheat futures closed down 12.75 cents in Chicago trading to $5.22 a bushel. Sugar increased 0.19 cent in trading at 17.99 cents a pound. Soybean future closed up 3 cent to $9.08 a bushel.

Gold increased $11.40 in New York trading to close at $948.90 per ounce, silver closed up $0.20 to $13.68 per ounce and copper for the front month delivery increased 7.10 cents to $2.52 per pound.

Dollar edged lower against euro to $1.4218 and closed up against the Japanese yen to 93.52.

Yield on 10-year U.S. bond increased to 3.54% and with 30-year maturities increased to 4.44%.