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Wall St. awaits GDP data
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July 29, 1999: 6:47 a.m. ET
Telecom stocks in spotlight amid earnings reports, merger rumors
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NEW YORK (CNNfn) - Wall Street will be on economic alert as investors await a couple key pieces of the economic puzzle -- including a first report on second-quarter economic growth -- prior to Thursday's market opening, a day after Fed Chairman Alan Greenspan reiterated his warning that the central bank is ready to step in if it senses inflation has returned.
Early indications suggested that U.S. stocks were set to open lower. S&P futures on the Globex exchange system were down 4.50 at 1,363.20. That's about 9 points below fair value for the S&P futures -- a formula that takes into account interest and dividend effects -- which was estimated by London traders at 1,372.26. Typically, one point of difference between the futures index and fair value equals eight points on the Dow Jones industrial average as trading begins.
On Wednesday, the Dow industrials slipped 6.97 points to 10,972.07, with investors trading warily as Greenspan repeated the cautious outlook he gave Congress a week earlier. The Nasdaq composite index climbed 26.51 points, or just under 1 percent, to 2,705.84, and the S&P 500 index rose 2.56 points to 1,365.40.
In Asia, Tokyo stocks extended their recovery Thursday from a previous five-day losing streak after robust industrial output figures cheered buyers. The Nikkei 225 average ended up 290.01 points, or 1.65 percent, at 17,869.92, while Seoul stocks surged 5.74 percent.
In morning trading in Europe, London's FTSE 100 slumped 0.7 percent, or 43.7 points, to 6,253.5, dragged down by losses in drugmaker Glaxo Wellcome and telecommunications company British Telecom after both companies issued weak results. The Xetra Dax in Frankfurt dropped 1 percent to 5,177.45 -- off earlier lows -- after Wall Street's mixed finish.
In overnight trading on the Treasury market, the benchmark 30-year bond dropped 10/32 of a point in price, for a yield of 6.02 percent. Wednesday, the 30-year issue closed up 1/32 of a point of price at 89-17/32, yielding 6.01 percent.
In the currency markets, the dollar slipped 0.43 to 115.62 Japanese yen overnight, and stood at $1.0678 against the euro.
Several key economic reports due for release early Thursday could guide the day's trading.
The second-quarter reading of the country's gross domestic product is expected to come in at 3.3 percent annual growth, down from 4.3 percent in the previous report, according to a Reuters survey of economists. The closely monitored GDP deflator is expected to grow at a rate of 1.6 percent, the same rate as recorded previously.
The Labor Department's employment cost index -- a key inflationary gauge -- is expected 0.8 percent in the second quarter, up from 0.4 percent in the prior period, according to the Reuters survey.
In the news, Deutsche Telekom may be poised to launch a takeover bid for No. 3 U.S. long-distance carrier Sprint Corp. (FON), according to published reports Thursday.
Deutsche Telekom is a partner in Global One, a troubled joint venture with Sprint and France Telecom SA. As part of that venture, the German and French firms each holds a 10 percent stake in Sprint. Deutsche Telekom is in talks to acquire France Telecom's stake as a first step in a possible outright purchase of Sprint, although a deal isn't imminent, The Wall Street Journal reported, citing sources familiar with the situation.
In addition, Deutsche Telekom has offered 7.5 billion pounds ($12 billion) for UK cellular phone group One2One and could seal the deal within a week, according to published reports.
Telecom shares could be particularly active Thursday amid a couple of key earnings reports. Dow component AT&T (T) is expected to have earned 48 cents per share in the second quarter, up from 53 cents per share in the same three-month period last year, according to analysts polled by the First Call Corp. Also, MCI Worldcom (WCOM) is expected to post second-quarter earnings of 44 cents per share, compared with 16 cents a share a year earlier.
Wall Street will get its first opportunity Thursday morning to react to news that Compaq Computer Corp. (CPQ) plans another round of job cuts, totaling up to 8,000 positions, or 11 percent of its work force, and will close some facilities in an estimated $700 million to $900 million restructuring effort.
The top-selling PC maker late Wednesday reported a second-quarter loss of $184 million, or 10 cents a share. Last month, Compaq stunned Wall Street by warning it would post a loss in the quarter, forcing analysts to downgrade their estimates from a profit of 20 cents a share to a loss of 11 cents.
Prior to the earnings announcement, Compaq shares rose 9/16 to close at 25-15/16 on the New York Stock Exchange. Its shares inched up to 26 in after-hours trading on the Instinet system.
Shares of several Internet companies could be on the move Thursday after they all reported better-than-expected second-quarter earnings results after the closing bell. StarMedia Network Inc. (STRM), an Internet service provider targeting Latin America; search engine Ask Jeeves Inc. (ASKJ), online community ZDNet Group (ZDZ) and Juno Online Services (JWEB), another Internet service provider, all beat Wall Street's expectations for their recently completed three-month periods.
In other corporate earnings reports expected Thursday, Dow component Procter & Gamble (PG) is expected to have earned 53 cents per share, up from 47 cents, for its fiscal fourth quarter. Also, automaker DaimlerChrysler (DCX) is expected to have earned $2.00 a share in the second quarter, in only its second reporting period as a merged company. Kellogg Co. (K) is expected to have earned 36 cents per share, up from 35 cents.
Long-distance carrier Frontier Corp. (FRO), which is being acquired by fiber-optics firm Global Crossing Ltd., (GBLX), is expected to post profit of 20 cents, down from 26 cents in the 1998 second quarter. USA Networks (USAI) is expected to post a second-quarter loss of 17 cents per share, compared with a negative 2 cents a year ago.
On the initial public offerings front, printing technology firm Creo Products late Wednesday priced 5 million shares at $15 apiece -- at the high end of its estimated range. It will trade under the ticker symbol "CREO" on the Nasdaq exchange.
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