03 February 2011 at 11:44 GMT
We expect U.S. stocks to open flat Thursday following a mixed European session on slightly disappointing earnings and worse than expected Eurozone retail sales. Risk appetite is on standby ahead of today’s ECB meeting and tomorrow’s nonfarm payrolls.
U.S futures are fluctuating around unchanged levels ahead of the opening and the STOXX Europe 600 index is currently down 0.3 percent on disappointing Eurozone retail sales and weak earnings from Shell. Read our macro comment on the ECB meeting scheduled later today.
There remains speculation among investors about the Egyptian situation's potential impact on the economy and financial markets. We believe speculation so far is unfounded because the latest rise in oil prices is not close to significant. When looking at oil prices during the last year (see chart below) we have seen similar increases in oil prices 12 times. Also, copper prices continue higher and currently flirt with prices at 10,000. This indicates that risk appetite has not been damaged by the events in Egypt. However, it is clear if oil prices continue to move significantly higher and the impact of the situation in Egypt spreads to neighbouring countries then it could impact markets in the short-term. In the long-term however the events will only be a bump on the way towards expected higher price levels in equity markets within the next 12 months.
Source: Bloomberg (one year price chart on Brent Crude Oil Futures)
In premarket we have more major companies announcing earnings.
VISA reported first quarter earnings per share at USD 1.23 (up 20.6 percent from last year), compared to USD 1.20 estimated by analysts, driven by global migration towards electronic payments and increased consumer spending in the U.S. Given the political risk in the U.S. about the proposed capping interchange fees at a flat 12 cents per debit-card and the company's current earnings power we don’t see much upside in the shares relative to other opportunities.
Sony reported third quarter net income of JPY 72.3 billion (down 8.6 percent from last year) compared to JPY 65.9 billion expected driven by unfavourable foreign exchange impact. Most disappointing was the company's lowering of its expectations for fiscal year 2010/11 sales to JPY 7.2 trillion from its previous forecast of JPY 7.4 trillion. Given the company’s earnings power and estimated growth rate we think the valuation is somewhat overstretched at this point.
Unilever reported fourth quarter net income of EUR 955 million compared to EUR 883 million estimated by analysts, driven by higher volume. Just like Electrolux, which reported yesterday, Unilever also see cost pressures due to rising commodity prices and management expects to pass on some of those costs to consumers in 2011.
Shell reported fourth quarter net income (excluding certain items) of USD 4.1 billion compared to USD 4.7 billion expected by analysts. This is clearly disappointing given Exxon’s earnings release Monday which exceeded expectations by 13.4 percent. Shell’s shares are currently down 2.9 percent in today’s trading.
Banco Santander met expectations by reporting fiscal year 2010 net income of EUR 8.18 billion compared to EUR 8.12 billion estimated in what Chairman Botin says was an excellent year. Management sees no need for a capital increase and less provisions from mature markets in 2011. Their main concern still centres on Spain and Portugal but it foresees a significant decline in sovereign risk. Its shares are unchanged in today’s trading.
Today’s U.S. session will focus on information technology and financials, so look out for: First Solar, Nvidia, Electronics Art, Salesforce.com, PNC Financial Services Group, AIG and Goldman Sachs.