Wall Street Breakfast: Must-Know News

May 24, 2012 : includes: BBVA, CNVGF.PK, COST, FB, GOOG, HPQ, MA, ORCL, QQQ, RDS.A, RIO, SPY,VSEC

Top Stories
H-P earnings top forecasts; confirms massive restructure. Hewlett-Packard (HPQ) shares jumped 8.9% pre-market after the company's FQ2 earnings beat expectations and it confirmed it would slash 27,000 jobs as part of a widely leaked restructuring plan. H-P said EPS fell to $0.98 from $1.24 and revenue slipped 3% to $30.69B, and it provided FY 2012 guidance above consensus. The computer maker's revamp will save $3B-$3.5B a year by the end of FY14, although it expects to record a $1.7B pretax charge. Opinion: H-P: Short-term pop, long-term drop.

Eurozone sinks deeper into the mire. The contraction of Eurozone factory activity has continued to speed up this month, with the flash manufacturing PMI falling to 45.0 from 45.9 previously. The composite index dropped to a 35-month low of 45.9 from 46.7. "The survey is broadly consistent with GDP falling by at least 0.5% across the region" in Q2, "as an increasingly steep downturn in the periphery infects both France and Germany," Markit said. Opinion: More is needed in Europe.

EU remains divided as "Grexit" draws nearer. With Greece's exit from the eurozone edging closer, yesterday's summit of EU leaders in Brussels produced no new steps to spark the failing eurozone economy into life, or resolve the division between France and the "Latin" bloc, and Germany and its northern allies. The EU says it wants Greece to stay in the euro but has started preparing contingency plans for it to leave. Opinion: Do EUR shorts feel comfortable?

Top Stock News
Costco's profit rises. Costco's (COST) FQ3 earnings topped Street predictions as EPS climbed to $0.88 from $0.73 and revenue 8.2% to $22.3B. Comparable sales rose 5%, with the retailer enjoying increases in the U.S. and abroad. Costco's earnings came a day after Fitch affirmed its AA- rating, citing the company's strong competitive position, operating performance and cash flow. Opinion: Why I'm bullish on Costco.

Shell mulls its options in Cove battle. Shell (RDS.A) has extended its $1.8B offer to acquire Cove Energy (CNVGF.PK) to June 13 after Thailand's PTT Exploration came in with a higher $1.9B bid yesterday. Some expect Shell to eventually pony up as much as $2.5B, although the oil major is playing it coy: it's "considering its options and will make a further announcement if appropriate." Opinion: Shelling out cash for an oil giant.

Facebook mulls NYSE offer. Facebook (FB) is considering a proposal from the NYSE for the company to list its stock there, reports Reuters. Meanwhile, Jim Cramer suspects that Facebook's reported guidance leak to analysts is the result of its May numbers being "really bad." Facebook is seeing a rapid shift in user activity from PCs to mobile devices, and mobile monetization remains very limited for now. Opinion: Don't panic over Facebook yet.

Google wins IP case against Oracle. The jury presiding over Oracle's (ORCL) patent suit against Google (GOOG) has found the latter innocent of all eight infringement claims. Oracle was seeking huge damages over Android's use of APIs related to the Java programming language. There's a good chance Oracle will appeal. Opinion: Fat lady yet to sing in Oracle vs. Google.

Spain to inject more money into Bankia. Spain will provide around €9B ($11.4B) to cover the provisioning needs of Bankia, which the government bailed out two weeks ago. Despite the huge concerns about Spanish banks, the government said Bankia's situation "shouldn't be extrapolated" to rest of the system, which is able to operate under adverse scenarios. Meanwhile, BBVA (BBVA) may sell its Latin American pension businesses, calling them attractive but non-core. Opinion:Cascading failures in Spain.

Rio affirms iron ore plans despite Chinese slowdown. Rio Tinto (RIO) is sticking to its aggressive iron ore expansion plans, confirming that its global output capacity could almost double to 450M metric tons by 2016. Despite China's slowing growth, Rio expects strong long-term demand for iron ore, although reports earlier this week said Chinese buyers are deferring or defaulting on coal and iron ore deliveries as the country is filled to the brim with the stuff. Opinion: Is this the start of a steel market collapse?

Mastercard fails in EU appeal. The EU's second-highest court has denied an appeal by Mastercard (MA) over a ruling that it charged excessive interchange fees on cross-border card payments. The company failed to convince the court that the fees were fundamental or that a significant number of European banks would stop using Mastercard if they were reduced. Opinion: Why MasterCard is undervalued.

VSE strikes it big. VSE (VSEC), which has a market cap of just $113M, has won a ten-year contract from the Department of Health that could be worth up to $20B over the next 10 years. Under the agreement, VSE will provide IT integration and outsourcing support services. Shares jumped 13.2% in AH trading. Opinion: Harris Corp. shows the trouble with government contracts.

Top Economic & Other News
Chinese PMI also falls. HSBC's flash estimate of China's PMI declined to 48.7 in May from last month's 49.3. If the preliminary reading is confirmed on June 1, it will mark seven months of manufacturing contraction, strengthening the case of those who want more stimulus. Opinion: A mixed bag for U.S.-listed China stocks.

German data mixed. While eurozone PMI continues to make depressing reading, Germany produced mixed data today, although the bad news is the more current. Flash manufacturing PMI tumbled to 45 in May from 46.2 in April and the Ifo business confidence index dropped to 113.3 vs. 117.5 as concerns about Greece weighed. However, exports rose 1.7% in Q1 vs. -1.5% in Q4, and final GDP came in at +0.5% on quarter, in-line with preliminary readings. Opinion: Siemens on the edge as German manufacturing contracts.

Chances of Iran breakthrough look slim. Talks between the P5+1 and Iran have continued for a second day, although hopes for a quick breakthrough aimed at curtailing the country's nuclear program are slim. This is because Iran wants the West to cancel its impending oil sanctions for the negotiations to continue. Not at the moment, says the U.S.Opinion: Forget peak oil. Worry about peak oil labor.

BOJ: Easing not panacea for yen strength. Bank of Japan governorMasaaki Shirakawa said the bank is committed to easing but won't do so solely to weaken the yen. Shirakawa added that the "biggest factor affecting currency moves now is investors' risk aversion," and there's no evidence that an expanded monetary base will weaken the currency.Opinion: Dollar snaps back.

Today's Markets:
In Asia, Japan +0.1%. Hong Kong -0.6%. China -0.5%. India +1.7%.
In Europe, at midday, London +1.5%. Paris +1.1%. Frankfurt +0.7%.
Futures at 7:00: Dow +0.3%. S&P +0.3%. Nasdaq +0.4%. Crude +1.1%to $90.89. Gold +1.1% to $1565.20.

Today's economic calendar:
8:30 Durable Goods
8:30 Initial Jobless Claims
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
1:00 Fed's Dudley: 'Regional Economy'
1:00 PM Results of $29B, 7-Year Note Auction
4:30 PM Money Supply
4:30 PM Fed Balance Sheet

Notable earnings before today's open: COST, HNZ, PDCO, TD, TIF

Notable earnings after today's close: PAY, RUE