Earnings, Fed Meeting and Auction

123jump.com Staff
30 Nov, -0001
New York City

Earnigs season as it eneters in the final week of peak period, market is likely to focus on earnings from Cisco, Dell, Nortel, Federated Department, and Target. Fed meeting is expected to lead interest rate hike by 25 basis points. This week's treasury auction will be closely wwatched to monitor the level of foreign Central Bank's participation.

U.S. MARKET

The stock market in the coming week will focus its attention on earnings and Fed’s treasury auction and Governors’ meeting on Wednesday.

The U.S. budgetary shortfall of at least $57 billion in July is expected to be met with 5 and 10 year government bonds. The nature and level of participation from central banks around the world will be closely watched by the market.

The market after a two week rally and trading close to 4-year highs appears to be in the mood to take profit. The rise in employment wages, dollar and commodities prices such as oil and copper has stoked fears of inflation.

Several tech stocks are scheduled to release earnings this week. Dell, Cisco, Analog Devices and Nvidia are few tech leaders to release earnings. Other companies to release earnings include, Disney, Delphi, Visteon, Federated Department Stores, Target, Kohl’s and DreamWorks Animation.

IPO MARKET

The success of Chinese Internet company IPO, Baidu.com, only highlights investor's appetite for companies with growth prospects. 32 of the last 50 of the 125 IPOs priced this year are trading at above their offer price.

125 initial public offerings have been priced so far this year. During the
first week of August, 12 IPOs are priced and 6 companies filed to go public. Of the last 50 IPOs, 32 are currently trading up, 9 are trading down, and
9 are unchanged from their offer price.

U.S. ECONOMY

Economists expect that in three of the four remaining Fed meeting in the year 2005, central bank is likely to raise interest rate by a quart point in each of the meetings. The next U.S. Fed meeting of Governors is on August 9th.

While the U.S. unemployment level remained low and stable at 5% according the Department of Labor, vast number of new jobs created in the economy remained in the low paying industrial sectors such as retail and low-end manufacturing jobs. The U.S. economy has not created more than 2.5 million annual jobs since the early eighties.

For the month of July 2005, lowest unemployment was reported in professional, managerial and office occupation category of 2.3% and highest unemployment was reported in production category of 7.1%.

The July job creation of 207,000 is not likely to be sustained in the rest of the third and fourth quarter of this year.

METALS and ENERGY

South African gold miners are likely to strike tonight if their demand for pay raise of 10% to 15% is not met. Two years ago a similar strike was averted by the miners with a last minute settlement of pay raise. South Africa produces 15% of world’s gold and gold production is 8% of its economy. In the last three months several other industry unions workers have struck asking for better pay as South Africa faces one of the worst income disparities.

During the last week,copper prices rose 1.7% after climbing 4.5% in the previous two weeks and 13% since the beginning of the year. The five-week miners strike at Asarco, unit of Grupo Mexico is still not settled and no immediate solution to the strike is seen. According to the London Metals Exchange, the world copper inventory level is still below one-day global consumption. The copper prices are likely to peak in October.

EARNINGS

More than 800 companies are expected to release earnings in the coming week. Tech companies will dominate this week's calendar.

On August 11, Dell is expected to release 2Q earnings of 38 cents, 23% jump, on revenue of $13.7 billion, 17% jump in revenue from a quarter a year ago.

Nortel is expected to release 2Q earnings on Monday, August 8th. Analysts are expecting revenue of $2.7 billion.

Cisco, expected to release earnings this Wednesday, is estimated to generate $6.5 billion in revenue and 25 cents in profit, 11% revenue higher than in the quarter a year ago and 4 cents in profit more.

DreamWorks Animation, scheduled to release earnings on Thursday, August 11th. Analysts are looking for 7 cents to 9 cents loss on revenue of $28 million. The recently priced IPO has disappointed investors and lowered its revenue and earnings guidance for the year 2005.

INTERNATIONAL TRADE

Asian currencies appreciated from 0.4% in Philippines, to 0.6% in Singapore, 0.7% in Indonesia, 1.2% in Thailand, and 1.3% in Korea. The Chinese Yuan appreciation of 2.2% on July 21, led other Asian currencies to rise and futures market expect Chinese Yuan to rise 4.1% more by the end of the year.

Chinese government plans to spend between $25 and $30 billion a year for the next five years to meet the gap between demand and supply for electric power. The plan demands new facilities for power generation and copper cable plants. However, to cool the economy, China plans to slow the growth in copper smelting capacity of the expected new 18 plants with the total capacity of 2.49 tons. China produces 13% of the world’s refined copper.

Chilean government may generate 3% budget surplus after generating 2.2% surplus last year. The world’s largest copper producer is benefiting from the Chinese demand for Copper. Peso, Chilean currency has appreciated 17% in the last 12 months and inflation has been rising steadily to 3.1% during the same period. Central Bank may raise the rated to 3.5% in the coming weeks.

Brazil registered July trade surplus of $11.1 billion rise of 9% from June surplus and total of $39.9 billion in the last 12 months. Real, Brazilian currency has appreciated 15% since the beginning of the year.

Brazil’s industrial production jumped 6.3% in June due the strength in steel, auto and mining production in the country. The latest rise was followed by a growth of 5.5% in May from a year ago. The Trade Ministry is targeting trade surplus of more than $10 billion in the second half of this year.

Canadian unemployment rose to 6.8% in July from 6.7% in June. Manufacturers are trimming payroll and added less than 6,000 jobs as manufacturing input costs rise. The Canadian dollar has advanced 31% in the last three years.