Risk On – Asian markets were up strongly overnight and Europe is following suit in the morning trading session…US futures indicate that the markets are poised to leap higher at the open. For today, improved earnings (especially Intel’s sales guidance after the close yesterday) have investors excited that perhaps the market will be able to continue a path to better earnings in spite of high unemployment and inflation in raw materials prices.
Today’s Earnings Announcements – announcements are limited so far this morning with mixed results…today’s slate will provide a good cross-section from which to glean information about expectations for next quarter and the rest of the year.
• Tokyo Electric Power (TEPCO) will begin the process of compensating residents evacuated (roughly a 30km radius) due to radiation leakage from its crippled Fukushima nuclear power station…last week the utility promised that the initial round of claims payments will be ¥50 billion…the ultimate total of claims is estimated to be as much as ¥11 Trillion. In other news TEPCO will likely increase imports of LNG by 50% to make up for lost electricity production from nuclear capacity lost in the Fukushima disaster.
• Toyota Motors (TM) announced that the company will cut production levels in China due to supply chain disruptions…yesterday the company’s North American sales chief said that it is possible that the company will only be able to run at ½ capacity for the rest of this year. The company also announced that it will cut production at its North American plants by 75% over the next 6 weeks due to logistical interruptions…the North American plants build roughly 70% of the vehicles that TM sells in North America. The current plans have the plants running at ½ capacity on Tuesday – Thursday and closed the rest of the week. Last year, Toyota sold 7.2 million vehicles worldwide (2.2 million in Japan and 2.1 million in the US).
• Portugal sold €320 million today yielding 5.53%...this paper is virtually guaranteed to be paid back by the pledge of the large EU nations but investors continue to shun the paper of the PIG (Portugal, Ireland, Greece). Credit spreads on European sovereign debt are modestly better this morning in response to the equity market rally but it remains clear that the debt crisis is far from over.
• AES will pay $30 per share for Dayton Power & Light (DPL) and pick up 500,000 customers in Ohio…electric power acquisitions appear likely to continue as companies try to add scale and diversify their distribution areas.
• China is suspending approval of any new aluminum production projects as it faces growing excess productive capacity…this will likely accelerate China’s move to becoming a net importer of aluminum.
• Bank of England policy committee votes to hold short term rates unchanged at ½% as fears of an economic slowdown trump volatility in food and energy prices…
• Mario Draghi may be the next ECB Chairman after JCT steps down in the Fall…it appears that the Germans are now behind Draghi for ECB Chair
• Libyan rebels are reportedly happy to get help from British military advisors…the rag-tag group clearly needs training and help with communications and logistics…the only question that remains unanswered continues to be who are these people that are being trained?
• On the domestic economic release front we get more housing data today with seasonally adjusted annual sales rate estimated to be 5mm units, up from 4.9mm units last month.
Phillip Pennell, CFA
Turnberry Capital Management
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