Dow dropped 63, decliners over advancers 2-1 & NAZ fell 12. The Financial Index was off 1 to 207. The MLP index was essentially even, near 389, & the REIT index slipped a fraction to the 253s. Junk bond funds did little & Treasuries had a modest rise, taking the yield on the 10 year Treasury below 2%. Oil & gold were lower.
Surging bad loans in Spain are spurring doubts whether the gov can persuade investors that it can clean up the banks without further damaging public finances. Non-performing loans as a proportion of total lending jumped to 8.16% in Feb, the highest level since 1994, from less than 1% in 2007, according to Bank of Spain. The ratio rose from 7.91% in January as €3.8B of loans soured in Feb, a 110% increase from Jan 2011. The total credit in the economy that the regulator lists as “doubtful” is now €143.8B. Defaults are rising while credit is shrinking at a record pace with 24% unemployment corroding the quality of loans built up in the country’s credit boom & saps the appetite of banks to make new loans. Doubts about the extent of Spain’s non- performing loans problem is driving up the gov borrowing costs on concerns that the expense of propping up ailing lenders may add to the debt burden. Prime Minister Rajoy is battling to convince investors Spain’s finances are under control after his refusal last month to meet deficit targets set by the European Commission. By seeking to cut the budget deficit to 3% of GDP from 8.5% over 2 years, he risks driving bad loans as the deepest austerity measures in 3 decades push the economy back into a recession. They are already talking about how much money will be needed to bailout Spain. This is another ticking time bomb for the financial markets.
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IBM, a Dow stock, reported flat revenue as net income grew 7% in Q1 (thanks to strong profit margins in its services business). The earnings beat expectations. However, investors were worried that revenue fell shy of estimates. EPS was $2.61, up from $2.31 last year. Excluding special items such as acquisition costs & pension-related expenses, EPS was $2.78, above the $2.66 per share predicted. Revenue was flat at $24.7B. Software & services revenue increased, but hardware & financing segments saw a decline. The company has been focusing on its software & services offerings lately, which have higher profit margins. Analysts were expecting revenue of $24.8B. The revenue miss, though narrow, raised questions about IBM's ability to bring in enough new business to keep growing, even as it is able to squeeze out big profits from its software & services units. It raised full-year guidance for adjusted earnings of at least $15 per share, up from its earlier outlook of at least $14.85 per share. Analysts were looking for $14.93. Its long-term goal is to reach at least $20 per share in adjusted earnings by the end of 2015. The software revenue grew 5% to $5.6B & hardware revenue fell 7% to $3.7B. Technology services revenue grew 2% to $10B & business services revenue slid less than 2% to $4.6B. IBM announced it's selling the retail store solutions business to Toshiba for $850M. The stock dropped almost $5.
IBM reports higher 1Q earnings, flat revenueAP
Chipmaker Intel, another Dow stock, posted good but not great earnings & said sales would accelerate in the H2 with a powerful new PC processor. It added that costs associated with ramping up new production lines would hurt gross margins more than expected. INTC is ramping up production of its newest PC processor, codenamed Ivy Bridge, which is expected to drive future sales later & power a new crop of super-thin laptops dubbed "ultrabooks." But the costs of upgrading the factories where the chips are being made is temporarily hurting margins, CFO Smith said. Non-GAAP gross margins in Q2 are being guided at 62%, plus or minus 2 percentage points, down from 64% in Q1. The full-year gross margin forecast of 64% was left unchanged. Shaky economies in Europe & the US, a growing consumer preference for tablets, & a recent shortage of hard drives due to flooding in Thailand last year have taken a toll on the industry. But demand in China & other emerging economies has helped sustain growth, & INTC said business would pick up more as the industry recovers further from the hard-drive shortage & PC manufacturers replenish low component inventories. "As we ramp Ivy Bridge and people gear up for these really capable ultrabook sales in the last half of the year, you'll start to see them refilling their pipelines with new products in the back half of this year," Smith said. INTC is heavily promoting ultrabooks, which it hopes can stand up to the likes of tablets but some investors are concerned that expensive components will make them too pricey for many consumers. The stock lost 49¢.
Intel eyes sales pickup, investors cautiousat Reuters
Markets are pausing after 2 big days. But the earnings from 2 tech biggies are causing some traders to reassess the strength of the markets. Spain is shaping up as the next bailout candidate & it has a much bigger economy than Greece. Meanwhile, all is not well in the US. Expiration of decade old tax cuts next year was mentioned by Tim Geithner. Then there's gas at the pump, which is back over $3.91. So far, investors are taking these problems in stride.
JPMorgan Chase Capital XVI (AMJ)
Treasury yields:
U.S. 3-month | 0.071% | |
U.S. 2-year | 0.270% | |
U.S. 10-year | 1.986% |
| CLK12.NYM | ...Crude Oil May 12 | ...103.82 | .... 0.38 | (0.4%) |
| GCJ12.CMX | ....Gold Apr 12 | .........1,641.20 | ... 9.10 | (0.6%) |
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Surging bad loans in Spain are spurring doubts whether the gov can persuade investors that it can clean up the banks without further damaging public finances. Non-performing loans as a proportion of total lending jumped to 8.16% in Feb, the highest level since 1994, from less than 1% in 2007, according to Bank of Spain. The ratio rose from 7.91% in January as €3.8B of loans soured in Feb, a 110% increase from Jan 2011. The total credit in the economy that the regulator lists as “doubtful” is now €143.8B. Defaults are rising while credit is shrinking at a record pace with 24% unemployment corroding the quality of loans built up in the country’s credit boom & saps the appetite of banks to make new loans. Doubts about the extent of Spain’s non- performing loans problem is driving up the gov borrowing costs on concerns that the expense of propping up ailing lenders may add to the debt burden. Prime Minister Rajoy is battling to convince investors Spain’s finances are under control after his refusal last month to meet deficit targets set by the European Commission. By seeking to cut the budget deficit to 3% of GDP from 8.5% over 2 years, he risks driving bad loans as the deepest austerity measures in 3 decades push the economy back into a recession. They are already talking about how much money will be needed to bailout Spain. This is another ticking time bomb for the financial markets.
IBM, a Dow stock, reported flat revenue as net income grew 7% in Q1 (thanks to strong profit margins in its services business). The earnings beat expectations. However, investors were worried that revenue fell shy of estimates. EPS was $2.61, up from $2.31 last year. Excluding special items such as acquisition costs & pension-related expenses, EPS was $2.78, above the $2.66 per share predicted. Revenue was flat at $24.7B. Software & services revenue increased, but hardware & financing segments saw a decline. The company has been focusing on its software & services offerings lately, which have higher profit margins. Analysts were expecting revenue of $24.8B. The revenue miss, though narrow, raised questions about IBM's ability to bring in enough new business to keep growing, even as it is able to squeeze out big profits from its software & services units. It raised full-year guidance for adjusted earnings of at least $15 per share, up from its earlier outlook of at least $14.85 per share. Analysts were looking for $14.93. Its long-term goal is to reach at least $20 per share in adjusted earnings by the end of 2015. The software revenue grew 5% to $5.6B & hardware revenue fell 7% to $3.7B. Technology services revenue grew 2% to $10B & business services revenue slid less than 2% to $4.6B. IBM announced it's selling the retail store solutions business to Toshiba for $850M. The stock dropped almost $5.
IBM reports higher 1Q earnings, flat revenueAP
International Business Machines Corporation (IBM)
Chipmaker Intel, another Dow stock, posted good but not great earnings & said sales would accelerate in the H2 with a powerful new PC processor. It added that costs associated with ramping up new production lines would hurt gross margins more than expected. INTC is ramping up production of its newest PC processor, codenamed Ivy Bridge, which is expected to drive future sales later & power a new crop of super-thin laptops dubbed "ultrabooks." But the costs of upgrading the factories where the chips are being made is temporarily hurting margins, CFO Smith said. Non-GAAP gross margins in Q2 are being guided at 62%, plus or minus 2 percentage points, down from 64% in Q1. The full-year gross margin forecast of 64% was left unchanged. Shaky economies in Europe & the US, a growing consumer preference for tablets, & a recent shortage of hard drives due to flooding in Thailand last year have taken a toll on the industry. But demand in China & other emerging economies has helped sustain growth, & INTC said business would pick up more as the industry recovers further from the hard-drive shortage & PC manufacturers replenish low component inventories. "As we ramp Ivy Bridge and people gear up for these really capable ultrabook sales in the last half of the year, you'll start to see them refilling their pipelines with new products in the back half of this year," Smith said. INTC is heavily promoting ultrabooks, which it hopes can stand up to the likes of tablets but some investors are concerned that expensive components will make them too pricey for many consumers. The stock lost 49¢.
Intel eyes sales pickup, investors cautiousat Reuters
Intel Corporation (INTC)
Markets are pausing after 2 big days. But the earnings from 2 tech biggies are causing some traders to reassess the strength of the markets. Spain is shaping up as the next bailout candidate & it has a much bigger economy than Greece. Meanwhile, all is not well in the US. Expiration of decade old tax cuts next year was mentioned by Tim Geithner. Then there's gas at the pump, which is back over $3.91. So far, investors are taking these problems in stride.
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