FYI | Jul 16 2007
By Greg Peel
Eleven of the thirty Dow stocks provide their quarterly earnings reports this week. The extraordinary rally of the previous three days, including another 45 points on Friday, has been all about earnings. Economic data has taken a back seat.
Thursday’s record run was set off by the Wal-Mart same-store sales result which, at 2.4%, was not much. The point was, however, it was positive. Other retails also posted similar results. Interestingly, the June retail sales figure was released on Friday, and it was down 0.9%, but no one seemed to care. It is also interesting that June is “back to school” month in the US, and retailers traditionally slash their margins to boost sales and shift all the merchandise out the door.
Nor was retail enthusiasm dampened on Friday when the oil price rose another 2% or US$1.43 to close at US$73.93/bbl for August delivery.
The major impetus for Friday’s rally was the General Electric result. The Dow component posted a 10% rise in profits despite having a significant interest in subprime mortgage market. No one would know, of course, what valuations the company may have ascribed. In the meantime, Lehman Bros, Bank of America and Barclays Capital have announced that the worst of the mortgage crisis is over, it’s all been overdone, and you can go back to buying investment grade credit again – please. These banks were amongst those hardest hit in terms of share price and loss of business as the subprime crisis unfolded. Dresdner Kleinwort and Bank Paribas came out and said the opposite.
Speculation is still rife that BHP Billiton (BHP) will have a swing at Alcoa and/or Alumina (AWC) in the wake of the Rio Tinto (RIO) bid for Alcan. While a natural progression, BHP will likely come up against antitrust regulations around the globe given the significant position such a conglomerate would hold in the world’s alumina/aluminium market.
But amidst all the earnings and M&A activity, the US will be inundated with economic data this week, including the June inflation numbers. Tuesday kicks off with the PPI, along with June industrial production and capacity utilisation, the July NAHB housing index and the May net long term TIC flows (which measure the movements in and out of US Treasuries and thus has significant implications for the US current account deficit and the US dollar).
Wednesday brings the June CPI, housing starts and building permits while Thursday sees the release of the minutes of the Fed’s rate decision meeting, the Philadelphia Fed’s July report, and the June leading indicators.
Today will bring the second quarter CPI result for New Zealand, and the EU will report its June CPI tonight, with the UK June CPI following on Tuesday night.
In Australia, we’ll learn June merchandise imports on Tuesday, the Westpac-Melbourne Institute leading index for May on Wednesday, and second quarter import/export prices on Friday, along with June new vehicle sales. Thursday is also important, however, as we receive the RBA’s July bulletin, which will give us some hint on future interest rate intentions.
Results are also important in Australia this week. Wednesday brings June quarter production reports from Rio Tinto, Coal & Allied (CNA), Minara Resources (MRE) and Oxiana (OXR). Woodside (WPL) releases the same on Thursday and Wesfarmers (WES) gives us its second quarter coal report on Friday.
The SPI Overnight posted a 7 point gain on Friday.
