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Markets are called to open slightly lower this morning. This is what's happening today:
Spain sold E2.54b of bonds in an auction yesterday, above the maximum target, selling 10-year debt at an average yield of 5.74%, up from 5.4% when it last sold them in January. The markets were volatile yesterday as investors tried to understand what effect this would have on the markets going forward. It is good that there was demand for Spanish 10-year paper. Though what remains a negative is the rate of interest they had to pay for this debt moving more towards an unsustainable level as the rate continues to increase.
Christine Lagarde, wants at least $400 billion in extra funds to protect countries from any worsening of the euro zone debt crisis. So far, Europe and Japan have pledged $320 billion and the IMF is relying on the BRICS to plug the hole as it seeks to double its war chest. However Brazil has said that developing nations would be happy to provide more money to ease the eurozone's debt crisis, in return for more power within the IMF.
Hollande and Sarkozy are almost certain to top the 10-person field April 22, putting them into the May 6 decider. Hollande will be in the Ardennes region today, while Sarkozy holds a rally in Nice on the Mediterranean tonight. No campaigning is permitted tomorrow or on election day.
Moving on to the US, so far 105 companies in the S&P have reported results and 82% have beaten expectations. These are excellent results though the problem is that there are so many other concerns in the world that the market isn't appreciating how great they are! Profits for companies in the S&P 500 probably rose 1.7% in the first quarter and 2% in the following period, according to analysts’ estimates compiled by Bloomberg.
Microsoft reported fiscal third-quarter profit that topped estimates on better-than-expected sales of software for businesses. Microsoft benefited from robust corporate purchasing of Office productivity programs, Windows 7 operating systems and software for servers. The company plans later this year to release Windows 8, the newest version of its operating system, to help it win back consumers and narrow Apple Inc.’s lead in the market for tablets.
Besides GE and McDonald’s, Friday’s reports include Honeywell, Schlumberger, Ingersoll-Rand, Johnson Controls, Kimberly-Clark, Under Armour, American Electric and Royal Caribbean.
I'd like to conclude with an interesting observation on Chesapeake. Chesapeake Energy Corp. Chief Executive Officer Aubrey McClendon says the second-largest US gas producer is on track to be in investment-grade shape by the end of this year. The bond market is pointing the opposite way. Credit-default swaps tied to the Oklahoma City-based company’s debt surged to levels that imply it should only be rated B2, according to Moody’s Corp.’s capital markets research group. Moody’s investors Service rates Chesapeake Energy senior unsecured debt Ba3, and Standard & Poor’s has it one step higher, BB+. The company had $10.6 billion of long-term debt at the end of last year.
Stock to watch: D.R. Horton (Price $14.62, Price Target $18)
DR Horton has been one of the most adept builders in managing its business amidst the ebb and flow of government incentives. Since those incentives have ended the company has continued to perform well with margins stabilizing amidst a volume slowdown. We expect that margins will continue to slowly improve; and that volumes should also begin to recover allowing for a nice profit recovery via leverage, hence our Buy rating on DR Horton.
For further information on D.R. Horton, contact our offices on 25688688.
Good day and happy trading!
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