Disappointing GDP Revision
Stocks opened higher Friday, even after the second estimate for Q4 GDP, at 2.8 percent, came in well below expectations of 3.3 percent; the prior estimate was 3.2 percent. The recovery is clearly going to be slower than hoped, and joblessness is going to remain higher longer.
The end may not be far off for Gadaffi as reports indicate he controls little besides a part of Tripoli.
1) How long will oil prices stay elevated, and how much damage will it do to global growth? We don't know, but there was plenty of commentary yesterday and this morning. The general consensus: prices will remain elevated until we have more supply to make up for the disruption in Libya. More disruptions elsewhere will severely test global capacity. Deutsche Bank noted that oil over $120 (Brent) is a key level where global growth growth has traditionally come under pressure.
2) The London Stock Exchange suspended trading before it even began today. It was yet another market data issue. Trading has now resumed midday. Earlier this week trading on the Borsa Italiana, Italy's main stock exchange which is also owned by the LSE, was halted for five hours also due to market data issues. The LSE has switched to a different trading platform, which is apparently the source of the problems.
3) Boeing is up 4 percent after the Pentagon awarded the aircraft maker a highly sought after $30 billion Air Force fuel tanker contract. The bidding process has been highly competitive, but Boeing ultimately beat out EADS North America. However, it's possible that EADS could file an appeal with the Pentagon, which could delay Boeing reaping any benefits from its victory.
4) Gap beat estimates on its top and bottom lines ($0.60 vs. $0.57 consensus). Comps for the apparel retailer were flat as slight increases at Old Navy and Banana Republic offset a 2 percent in decline at its Gap Stores.
With stagnant sales, price increases will likely be more difficult—and that could pose a problem ahead. Guidance for the current year is seen $1.88-$1.93, largely below consensus of $1.93, while margins "will likely decrease driven by pressure from sourcing cost inflation" (think cotton, energy). The company also announced at $2 billion buyback program and a 13 percent hike in its quarterly dividend.
5) JCPenney rises 3 percent after beating estimates by a penny. The department store's bottom line was helped by a better-than-expected 4.5 percent increase in same-store sales and a 3 percent reduction in expenses.
Although guidance for the current quarter is significantly below expectations ($0.21-$0.26 consensus), its full-year outlook of $2.00-$2.10 is notably above $1.77 consensus. Additionally, the company announced a $900 million stock buyback program.
6) Despite a 19 percent surge in sales Cooper Tire saw its operating profit fall nearly 10 percent largely due to escalating raw materials prices. CEO Roy Armes noted that raw materials costs have jumped 15 percent to 20 percent from the past quarter to now. The company is also implementing price increases—its latest will go in effect next month, with an average price rise of 8 percent to 9 percent (that's after a 2.5 percent price rise last month.)
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