Equites fluctuate on company news

USA

Equity prices fluctuated on company news. Cisco Systems reported in-line 4Q earnings but weaker guidance caused a mild correction in telecom and technologies sectors.

Retailer Costco Wholesale Corp. led the consumer sector lower by cutting its 4Q profit forecast on higher employee costs. Later in the week, however, several department retailers issued encouraging sales data, with Wal-Mart, Federal Department Stores and Best Buy Co. posting gains.

McDonalds rallied 9.9% on rise in sales in July as well as rating upgrade by analysts. Treasury auctions on the 5 and 10-year portions turned out well. This news came as a great relief and lifted financial stocks higher.

Energy stocks such as Exxon Mobil and Devon Energy also rose on surging natural gas prices. By contrast, other usual influential stocks traded lower on profit taking.

The market is likely stay range bound without a clear direction in the near term. This Tuesday's FOMC meeting is unlikely to ruffle any feathers since the Fed will almost sure to keep interest rates steady.

However, ample liquidity is supportive for bottom fishing given the anemic return on money market funds. The recent sharp sell-off in bond market may have reminded investors that bond investment is not always longer safe. The U.S. authorities are determined to reflate economic activities, which will boost market hopes and bode well for equity trading.

Europe

European markets with the exception of the U.K. followed the U.S. stocks lower last week. Mixed corporate results drove sector movements.

Banking stocks gained after ABN Amro, the largest Dutch bank, reported 2Q profit increased 46% on buoyed mortgage lending. Barclays Plc, the U.K. 3rd largest bank by assets, also said that profit was higher on increased consumer lending and services.

On the other hand, BASF, the German giant chemical maker, upset investors with a disappointing 2Q profit down 61% on a strong Euro and higher taxes. Bayer AG, another large chemicals maker, dropped after reporting lower sales and lukewarm guidance.

Technology companies including Alcatel, Infineon and ASML Holding slid after Cisco Systems issued lackluster revenue guidance. The most damaging news came from Alstom, the French maker of power stations, trains and ships.

The French government is leading a group of banks in a rescue package to save the company. The corporate reporting is about three-quarters finished, the indication is that a greater number of companies have reported better than expected earnings.

Japan

The Nikkei 225 index fell 3% last week, one of the largest drops among major benchmarks.

Computer-related and telecommunication stocks led the decline as Taiyo Yuden, which makes ceramic capacitors and inductors, tumbled 12% on widening full-year loss, and KDDI, Japan's second largest mobile-phone operator, fell on profit taking.

NTT DoCoMo, the world's second largest mobile-phone operator, helped to pare the market losses by affirming it is on target to meet its annual profit target. It is not sure whether foreign investors are still willing buyers of Japanese equities.

However, recent economic data did seem to indicate that the worst slump has been over. The real issue is when the stock market will come out doldrums. We are of the view that earnings visibility will remain low at the current slow pace of corporate restructuring.

Given such outlook, external factors will continue to drive the stock performance in the short run. We remain cautiously optimistic because the Japanese market, being under-owned, will likely be lifted higher by the strength of global equity markets.