U.S. Stocks Edge Lower, $3.1 Trillion Budget

123jump.com Staff
04 Feb, 2008
New York City

U.S. stocks edged lower after the White House proposed a budget with rising deficit on the cost of war and fiscal stimulus. the budget deficit is projected to rise from 1.8% in 2007 to 2.9% in 2008 and 2.7% in 2009. The White House budget also projects a decline on receipt from lower tax revenues in 2008.

[R]10:30AM New York – U.S. stocks struggled after the White House proposed a budget of $3.1 trillion and rising budget deficit on the cost of war and fiscal stimulus.[/R]

The White Budget for the fiscal 2008 which begins in October of this year with higher than expected deficit, lower revenue projections, and rising cost of military operation in the Middle East.

The budget anticipates revenue in 2008 of $2.52 trillion, lower than $2.57 trillion in fiscal 2007. The budget estimates corporate income tax receipts of $345 billion in 2008 and $339 in 2009 and expects to spend only $70 billion in the Middle East. The low estimate on the war in Middle East is not likely to satisfy critics, who estimate that the annual cost is likely to be more like $200 to $280 billion in 2008.

The budget estimated fiscal deficit to be 2.9% in 2008 and 2.7% in 2009 compared to a budget deficit of $162 billion or 1.8% in 2007. The budget projects that by 2012the government accounts will generate a surplus of $61 billion.

The Nation’s fiscal outlook is reflected in both the annual budget deficit and the amount of Federal debt held by the public, which is debt issued to finance past and current deficit spending. Debt held by the public has ranged from 33 to 49 percent of GDP over the past 20 years, and has averaged 35 percent over the past 40 years. For 2006, debt held by the public declined from 37.4 percent to 37.0 percent of GDP. For 2012, debt held by the public is expected to be 32 percent.


Earnings News

Humana ((HUM)) fourth quarter earnings at the end of December 31, 2007 was at $1.43, significantly above the company’s previous guidance of $1.27 to $1.32 primarily due to a lower income tax rate for 2007 than previously anticipated and a gain from the sale of a venture capital investment in the quarter. The company earned $0.92 per share for the quarter ended December 31, 2006.

For the year ended December 31, 2007, the company reported EPS of $4.90 versus $2.90 for the year ended December 31, 2006. The fiscal 2007 earnings included one-time gains of $0.25 per share that are not anticipated to recur in future periods.

The company raised its earnings projection for the fiscal year 2008 to reflect a lower tax rate than previously anticipated, with EPS now expected to be in the range of $5.35 to $5.55, an increase of 9% to 13% over the year 2007.

Fourth consolidated revenues rose 12% to $6.34 billion from $5.66 billion from a year ago, with total premium and administrative services fees up 12% compared to the prior year’s quarter.

Fiscal year 2007 consolidated revenues rose 18% to $25.29 billion from $21.42 billion from a year ago with total premium and administrative services fees up 18% compared to a year ago on higher enrollment in Medicare and individual plans.

Wendy’s ((WEN)) reported fourth quarter earnings of $86.6 million, a rise of 134% from a year ago of $37 million. Diluted earnings per share increased 200% to 96 cents from 32 cents in the same period in 2006.

For the fiscal 2007, the company reported adjusted earnings of $108 million up 50% or $1.20 per share from $72 million or 62 cents per share.

The Company met its revised 2007 full-year EBITDA guidance of $295 million to $315 million, and its revised 2007 full-year EPS guidance of $1.09 to $1.23 which excluded expenses related to restructuring.

Total company-operated restaurant EBITDA margins improved 180 basis points to 10.7% in 2007, compared to 8.9% one year ago. This includes U.S., Canada and International operations. Annual same-store sales at U.S. franchise restaurants increased 1.4%, compared to a 0.6% increase in 2006.

The fourth-quarter same-store sales at U.S. franchise restaurants increased 0.2%, compared to an increase of 2.7% a year ago, and fourth-quarter same-store sales at U.S. company-operated restaurants decreased 0.8%, compared to an increase of 3.1% in the fourth quarter of 2006.

International Markets

In Tokyo Nikkei 225 Index closed higher 362.54 or 2.69% to 13,859.70, in Hong Kong Hang Seng index increased 908.50 or 3.77% closed to 25,032.08, in Australia ASX 200 index higher 24.50 or 0.42% to close 5,867.40.

In South Korea Kospi Index increased 55.60 or 3.40% to close at 1,690.13, in Thailand SET index closed higher 0.73 or 0.09% to 811.56, and Indonesia JSE Index edged increased 54.81 or 2.07% to 2,701.63. Sensex index in India increased 417.70 or 2.29% to 18,660.32.



[R]5:00AM New York, 7:00 PM Tokyo – Stocks in Japan rallied after the news Microsoft offer for Yahoo and a potential deal between eight banks to support faltering bond insurers.[/R]

Stocks in Japan gained on the news eight banks have joined hands to finance U.S. bond insurer Ambac Financial Group and after Microsoft made a $45 billion bid for rival Yahoo!

Market Sentiment

In Tokyo trading Nikkei 225 Index rose 2.69% or 362.54 to 13,859.70, and the broader Topix Index gained 2.1% or 27.86 to 1,364.72.

In the first section of the Tokyo Stock Exchange 9.3 billion shares valued at 1.1 trillion yen were traded and in the second section 498 million shares valued at 5 billion yen changed hands.

Of the Nikkei 225 stocks 187 gained, 35 declined, and 3 were unchanged. Casio Computer led advancers in the Nikkei 2205 Index stocks with a rise of 18% followed by Softbank Corp. jumping 15.81% after Microsoft Corp made up $45 billion takeover bid of Yahoo!

Market Drivers

Reuters news reported last week that a group of eight large banks have allied to bailout bond insurer Ambac Financial Group and hedge against further losses.

CNBC reportedly said the eight banks working on the plan are Barclays, BNP Paribas, Citigroup, Dresdner Bank, Royal Bank of Scotland Group, Societe Generale, UBS AG and Wachovia Corp.

Greenhill & Co are advising on the deal.

Ambac Financial has underwritten $524 billion of bonds and MBIA has issued guarantee for $679 billion of mortgage related securities.

The yen edged higher to 106.85 to 106.87 against the dollar at the close of trade.

Casio Computer led advancers in the Nikkei 225 Index shares with a rise of 17.99% followed by gains in Softbank Corp. of 15.81%, in Minea Holdings of 14.36%, in Yahoo! Japan Corp of 9.52%, and in Mitsubishi Corp of 9.01%.

Eisai Co. Limited led decliners in the Nikkei 225 Index stocks with a drop of 6.61% followed by losses in Clarion Co. Limited of 6.12%, in JFE Holdings Inc. of 5.49%, in Nikon Corp. of 3.42%, and IHI Corp. of 2.84%.

Earnings News

Casio Computer gained after reporting that third quarter net sales rose from 580 billion yen to 620 billion yen. Operating income also increased from 43.1 billion yen to 48 billion. Net income in the quarter leapt from 23.7 billion yen to 25.1 billion yen.

National Telegraph and Telephone Corp reported that third quarter profits rose 6% to 125.7 billion yen from 118.6 billion yen a year ago on a 0.9% increase in sales to 2.66 trillion yen.

Operating profit also increased 13% to 310.4 billion. Full-year profit for the year through March was left unchanged at 530 billion yen.

Mergers and Acquisitions

Softbank Corp. also rose on news that Microsoft Corp. had made a bid for Yahoo! in a bid to challenge Google in Internet search and online ad markets. Softbank has 41% equity in Yahoo! Japan and also holds 52.3 million shares of U.S. based Yahoo!

Yahoo! Japan also rose on the news.

Financial stocks rose on the news that eight financial institutions are set to provide financial support to U.S. bond insurer Ambac Financial Group. Mitsubishi UFJ Financial Group rose 3.92%, Mizuho Financial Group edged up 4.65% and Resona Holdings increased 4.32%.

Nikkei news reported today that Takeda Pharmaceutical and the U.S. bio-technology company Amgen Inc have entered into an alliance and the purchase of the Amgen Japan subsidiary. According to the preliminary details of the deal, Takeda may pay as high as $1.18 billion for Amgen Japan unit and future royalties, research and development for new drugs for the Japanese markets. Under the deal, Takeda will initially pay $200 million, while about $750 million is tied to the development of new drugs. The stock closed down 0.63% on the news.

Separately, the online news edition reported that Mitsubishi Motors will close its Australian unit in early March because of low capacity utilization due to weak sales of the large sedans produced at the plant.

Asian Markets Closings

In Tokyo Nikkei 225 Index closed higher 362.54 or 2.69% to 13,859.70, in Hong Kong Hang Seng index increased 908.50 or 3.77% closed to 25,032.08, in Australia ASX 200 index higher 24.50 or 0.42% to close 5,867.40.

In South Korea Kospi Index increased 55.60 or 3.40% to close at 1,690.13, in Thailand SET index closed higher 0.73 or 0.09% to 811.56, and Indonesia JSE Index edged increased 54.81 or 2.07% to 2,701.63. Sensex index in India increased 417.70 or 2.29% to 18,660.32.


[R]3:00AM New York, 7:00PM Sydney- ASX 200 index rose 0.4% as big miners gained.[/R]

Market Sentiment

ASX 200 index gained 0.67% or 39.40 to close at 5,921.70.

The Preliminary market turnover was 1.85 billion shares worth $6.77 billion, with 699 shares moving up, 555 moving down and 322 unchanged.

Market Driver

Rio Tinto stock rose 4.8% after Aluminum Corporation of China, Chinalco and Alcoa Inc bought a 9% stake in the company.

The development has further heightened speculation that BHP Billiton would raise its $127 billion bid for Rio as the Chinese acquisition of a $14 billion stake in Rio has further complicated its bid. Investors have raised their hopes for a higher bid from BHP.

Chinalco and Alcoa purchased was at 24% premium to the BHP Billiton preliminary offer at three-for-one stock.

Chinalco has played down making a takeover bid for the company. Chinalco president Xioa Yaqing told reporters in Australia that the consortium made a voluntary application to the Foreign Investment Review Board and says it supports Rio''s management.

Gainers and Losers

Of the ASX 200 index shares, Arrow Energy Limited led the gainers with a rise of 23% followed by increases in Queensland Gas of 17.8%, in Sundance Resource of 13.7%, in Bradken of 13.4%, and in Fortescue Metals of 10.5%.

Of the ASX 200 index stocks, Allco Finance Group led the decliners with a fall of 10.3% followed by losses in Commonwealth Bank of Australia of 4.2%, in Ramsay Health of 4.1%, in APN/UKA European of 3.6% and in AGL Energy of 3.5%.

Mitsubishi Sales Troubles

Mitsubishi is reported to have revived plans to close its Australian factory due to weak sales for the company''s cars. An unnamed company official was quoted by Bloomberg attributing the decision to the fact that their models made at the Adelaide plant had weaker than expected sales.

Mitsubishi Australia however said it was working with its parent company in Japan and no decision has been made on the future of its factory.

Mitsubishi sales were up more than 20% in 2007 but sales of the 380 model fell nearly 12%. The 380 model, its first new locally built car in nine years failed to get traction in the market.


China Investment in Fortescue

Fortescue Metals Group Ltd''s share was buoyed by Chinese media reports that China might buy a stake in the company. Fortescue rose 10%.

The company which is building a $2.7 billion ($2.4 billion) iron ore project in Australia is likely to receive a minority investment from China.

According to the reports in Bloomberg and Reuters, which cited unnamed sources, China Investment Corporation and Shenhua Group Corporation may take 15.9% stake in Fortescue from Harbinger Capital Partners. Executive Director of Operations Graeme Rowley told journalists that Fortescue has been discussing with potential investors for a separate investment proposal.

BHP Approves $1.1 billion for Western Australia Iron Ore Project

BHP Billiton today announced that it had approved expenditures of just over $1.22 billion ($1 billion) to expand its lucrative Western Australian iron ore business as part of a plan to triple iron ore volumes to 300 million tons from the region over the next seven years.

The mining giant said the approval represented expenditure for its Rapid Growth Project 5 (RPG5), one of several expansion phases. RPG5 was set to boost its installed capacity to more than 200 million tons a year (Mtpa) by calendar 2011, with plans to mine 300 Mtpa of iron ore by 2015.

This pre-approval funding will be used to commence duplication of the railway track between the Yandi mine and Port Hedland and begin the expansion of the inner harbor at Port Hedland. Construction of this second railway is expected to begin in May 2008, subject to various government approvals. Approval of the balance of the required capital for RPG5 was expected during the second half of BHP''s financial year.

MFS completes Stella sale

Troubled investment funds manager MFS today announced that it would sell 65% of its Stella tourism arm to CVC Asia Pacific for $409 million in cash.

MFS chairman Andrew Peacock disclosed that MFS would retain a 35% interest in Stella after the deal is completed although it would no longer consolidate about $905 million of Stella debt.

He said proceeds from the deal would be used to repay maturing short-term debt and give it the flexibility to manage its debt commitments.

The shareholder would not need to approve the deal although it was subject to regulatory approvals in Australia and New Zealand. CVC said it expects to obtain regulatory approvals by the end of March.

BlueScope Acquires IMSA

Australia''s largest steelmaker BlueScope Steel has completed the takeover of American based steel maker, IMSA Steel Corp. BlueScope made the acquisition through its North American based subsidiary BlueScope Steel North America Corporation from Ternium SA for $850 million.

It has steel operations in Mexico, Venezuela and Argentina.

BlueScope said the combined businesses would represent approximately 25% of BlueScope Steel''s total revenue with the company expecting to realize synergies of approximately US$40 million per year in the next three years. BlueScope rose 3%.