Wall Street Breakfast: HP Shares Sink Following Weak Outlook, Poor Printer Sales

By Wall Street Breakfast :

HP’s shares were-5.7% premarket after the company gave a soft outlook and following weak FQ3 sales of printers, the most profitable part of its business. However, overall earnings in the quarter topped expectations even though revenue dropped 4% to $ 11.89B; adjusted EPS was $ 0.48 and net earnings from continuing operations grew more than a fifth to $ 843M. Encouragingly, HP’s ( HPQ ) PC business showed signs of stabilization after over a year of declines.

Economy

The German Ifo Institute’s business-climate index has unexpectedly dropped to 106.2 in August from 108.3 in July and missed consensus for a rise to 108.5. The current-situation reading and the expectations print also weakened. “The business climate index fell in nearly all industry branches, most clearly, however, in the chemical and electrical industries,” Ifo said. “The economy has fallen into a summer slump.” The DAX was-1% at the time of writing, although the euro was+0.3% at $ 1.1294.

European shares and U.S. stock futures were lower at the time of writing while Asian shares ended mixed ahead of the opening of the central bankers’ symposium at Jackson Hole today. With nothing much else going on this week market-wise – and with many of their colleagues probably lying on a beach somewhere – traders who are at work have been focusing on what Fed Chair Janet Yellen might say in a speech tomorrow about possible interest-rate rises in the U.S. Macro-strategist Kay Van-Petersen may well be speaking for many, though, in her assertion that “people are reading way, way too much” into the conference.

Brazil’s Senate is today due to begin the impeachment trial of suspended President Dilma Rousseff for violating budget laws, with the chances strong that she will be removed from office. Brazilian markets have rallied lately over the prospect of the right-wing Vice President Michel Temer permanently taking over from the leftist Rouseff, although Temer faces having to drag the economy out of its worst recession since the Great Depression and bringing down a massive budget deficit.

Colombia’s government and the Marxist rebel group the Revolutionary Armed Forces of Colombia ((FARC)) have reached a peace deal after 52 years of war that has killed over 220,000 people. In return for giving up its arms, FARC members will be allowed to reintegrate into civilian life and stand for elections. Colombian President Juan Manuel Santos has forecast that peace will add one percentage point a year to the economy, although his optimism has been disputed by many economists. The agreement will be put to a referendum in October, when it is expected to pass.

A leading House Republican plans to introduce a proposal over how to tax inter-state Internet transactions, the WSJ reports. Bob Goodlatte wants the rules affecting a transaction to be based on where the retailer is located but the tax rate to be set by the consumer’s state. For example, an Ohio company selling a pair of trousers to a buyer in Maryland would use Ohio’s regulations for taxing clothing and Maryland’s tax rate. This contrasts with the current rules in which a sale is taxed only if the seller has a physical presence in the shopper’s state.

Stocks

General Mills is preparing Jeff Harmening to become its next CEO to succeed Ken Powell, possibly next year, following Harmening’s promotion last month to President and COO, the WSJ reports. If Harmening is CEO-in-waiting, General Mills ( GIS ) will be grooming a candidate whose career mirrors Powell’s path of returning to the company’s Minneapolis headquarters after spending several years in Europe.

With Viacom coming to a settlement with Sumner Redstone, all eyes are on the underperforming Paramount film studio, which faces being sold in whole or in part. Paramount chief Brad Grey is under pressure after a series of disappointments, particularly the epically bad opening of the remake of “Ben-Hur.” Interim Viacom ([[VIA]], [[VIAB]]) CEO Tom Dooley is calling on Paramount’s leadership to ready a key turnaround plan.

While the recent rise in the stock market has boosted Berkshire Hathaway’s ([[BRK.A]], [[BRK.B]]) portfolio, the rally in Dow Chemical ( DOW ) has put that company’s $ 255M in annual dividend payments to Berkshire at risk, Dow Jones reports. Dow has been paying the money on three million preferred shares since it received $ 3B in financing in 2009 to help pay for an acquisition. However, if Dow’s shares exceed $ 53.72 for at least 20 trading days in a 30-day period, Dow can convert Berkshire’s preferred stock into common shares, which do not pay out special dividends. Dow closed yesterday at $ 53.61.

The USPTO’s Patent Trial & Appeal Board has invalidated two patents covering Teva’s ( TEVA ) top selling MS drug Copaxone. The Board is reviewing a total of three patents being challenged by generic drug makers. A decision on the third is due today. Despite yesterday’s decision, generic firms usually wait until the U.S. Court of Appeals for the Federal Circuit rules before entering the market, with such a ruling expected early next year. Analysts forecast that generic versions of Copaxone could erode $ 3.2B in sales by 2019.

Monsanto has withdrawn its application to launch its new pest-resistant cotton seeds in India amid a dispute with the government. The move comes after the latter slashed by 70% the royalties that Monsanto ( MON ) could earn from local seed businesses that use the U.S. company’s Bollgard gene technology. Major losers will be India’s seven million cotton farmers, who have benefited massively from access to GM seeds.

Today’s Markets

In Asia , Japan-0.3% to 16556. Hong Kong flat at 22827. China-0.4% to 9761. India-0.8% to 27836.
In Europe , at midday, London-0.3%. Paris-0.7%. Frankfurt-0.9%.
Futures at 6:20 , Dow-0.2%. S&P-0.15%. Nasdaq-0.2%. Crude+0.2% to $ 46.88. Gold-0.2% to $ 1326.55.
Ten-year Treasury Yield -1 bps to 1.55%.

Today’s Economic Calendar

Monetary policy symposium
8:30 Durable Goods
8:30 Initial Jobless Claims
9:45 Bloomberg Consumer Comfort Index
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
1:00 PM Results of $ 28B, 7-Year Note Auction
4:30 PM Money Supply
4:30 PM Fed Balance Sheet

Companies reporting earnings today »

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