In the U.S.: U.S. Stock Futures Advance On Report ECB May Buy Bonds

27 July 2012


Have you stopped to think of the (long term) consequences of easing and/or bailouts?

U.S. stock futures advanced, indicating the Standard & Poor’s 500 Index will rise a second day, amid expectations Europe may move toward a new round of bond purchases to ease borrowing costs in Spain and Italy.

Merck & Co. (MRK) and Amgen (AMGN) Inc. climbed at least 1.4 percent as earnings at the health-care companies beat estimates. Expedia Inc. (EXPE) surged 15 percent as the online travel company raised its dividend. Facebook Inc. (FB) tumbled 15 percent after its first earnings report as a public company showed a slower sales gain and narrower profit margins. Starbucks Corp. (SBUX) fell 9.6 percent as the coffee-shop chain forecast profit that trailed estimates.

S&P 500 futures expiring in September added 0.5 percent to 1,361.40 at 9;07 a.m. New York time. Dow Jones Industrial Average futures rose 42 points, or 0.3 percent, to 12,867.

“There’s been a lot of rhetoric as far as opening up the checkbook for whatever needs to be done to stabilize the euroland,” Michael Mullaney, who helps manage $9.5 billion as chief investment officer at Fiduciary Trust in Boston, said in a phone interview. “It’s a giant deal if they actually do what they say they are prepared to do. They’ve got to go and do what the Fed did. They’ve got to buy bonds.”

Global stocks rose as Le Monde reported the European Central Bank is preparing to buy debt in the secondary market to be followed by purchases in the primary market by government- financed bailout funds. French President Francois Hollande and German Chancellor Angela Merkel planned to speak by telephone today to discuss help for Spain and implementing a June agreement to protect governments against unsustainable borrowing costs, Hollande told reporters near Paris.

Economic Data

The U.S. economy expanded at a slower pace in the second quarter as a softening job market prompted Americans to curb spending. Gross domestic product rose at a 1.5 percent annual rate after a revised 2 percent gain in the prior quarter. The median forecast of economists surveyed by Bloomberg News called for a 1.4 percent increase.

Cooling growth makes it harder to reduce unemployment, helping explain why Federal Reserve Chairman Ben S. Bernanke told Congress last week that policy makers stand ready with more stimulus if needed. Separate data today may show the Thomson Reuters/University of Michiganfinal index of consumer sentiment fell to 72 in July, the lowest level this year, from 73.2 a month earlier, economists in the Bloomberg survey predicted.

Stocks rose yesterday, with the S&P 500 rebounding from a four day drop, as ECB PresidentMario Draghi pledged to defend the euro. Better-than-estimated corporate earnings also helped pace gains in stocks. About 72 percent of the 289 S&P 500 companies which reported second-quarter results beat estimates, according to data compiled by Bloomberg.

Amgen Rallies

Amgen, the world’s largest biotechnology company, advanced 3.4 percent to $82. Sales of the rheumatoid arthritis treatment Enbrel and Prolia, an osteoporosis drug, generated higher sales that beat analysts’ estimates for the quarter.

Gilead Sciences Inc. (GILD) added 3.1 percent to $53.30. It plans to start a combination study of two drugs in a single pill to treat hepatitis C by the end of the year, putting it on track to request U.S. regulatory approval for the medicine in 2014.

Expedia surged 15 percent to $52.35. The company raised its dividend to 13 cents from 9 cents a share.

D.R. Horton Inc. (DHI) rose 1.1 percent to $19.01. The largest U.S. homebuilder by volume reported an increase in third-quarter profit on a tax benefit and improved sales.

Facebook tumbled 15 percent to $22.95. Executives led by Chief Executive Officer Mark Zuckerberg, addressing analysts for the first time since the company’s May 17 initial public offering, issued no growth forecasts and said little else to reassure investors who fret that the company is overvalued.

Lower Forecast

Starbucks lost 9.6 percent to $47.35. The company lowered its forecast for fourth-quarter profit to as much as 45 cents a share from a previous projection for as much as 47 cents. Analysts estimated 48 cents, on average.

Newmont Mining Corp. slid 3.6 percent to $44.41. The largest U.S. gold producer reported second-quarter profit that missed analysts’ estimates as costs rose faster and production was lower than projected.

CA Inc. (CA) slumped 7.6 percent to $24.30. The maker of software for managing information technology cut its annual revenue forecast. Chief Executive Officer Bill McCracken said on a conference call that a sluggish economy and a business reorganization led to a slow start for the year.

Efforts by General Motors Co. and other companies to reduce pension obligations to employees may be essential for them to prosper worldwide, according to Tobias Levkovich, Citigroup Inc.’s chief U.S. equity strategist.

Record Deficit

Companies in the Standard & Poor’s 500 Index had a record $354.7 billion deficit in pension funds at the end of last year, according to figures compiled by S&P. The shortfall widened by 45 percent from 2010.

The larger gap reflects lower returns on U.S. stocks, Levkovich wrote two days ago in a report that cited S&P’s data. The S&P 500’s total return, including dividends, fell last year to 2.1 percent from 15 percent in 2010 and 26 percent in 2009.

“Many U.S. corporations have been attempting to address pension costs recently,” the New York-based strategist wrote. “This may be the key for the future health” of their business, he wrote, because many international competitors aren’t saddled with comparable expenses.

GM, the largest U.S. automaker, and Ford Motor Co. (F), the second biggest, have offered buyouts of payments to a total of 140,000 salaried retirees. Their pension plans were underfunded by a combined $40.8 billion at the end of 2011.

To be sure, pension-calculation changes will ease the financial burden on these companies and others that have plans, the report said. President Barack Obama signed legislation this month that lets companies use an average interest rate for the past 25 years, rather than two years, in determining payments.

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