FAT-USA-22730 Jul 10

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    Market Comment

    The US government, like nearly every government around the world, has engaged in massive fiscal stimulus programs that have resulted in huge deficits. The conundrum now for each country is to decide how quickly to try and reduce these deficits without crimping the economic recovery.

      Microsoft

      Microsoft’s fourth quarter earnings showed a strong lift in revenue from a year earlier, yet the shares continue to stagnate relative to the broader technology market. Is everything priced into the stock, or has the market underestimated the recovery in the global PC market? Perhaps the answer lies more in the perception that the company’s flagship products are being overshadowed by new tablet devices than run without the help of Microsoft products.

        Wells Fargo

        The major investment banks' second quarter performance suffered from the lacklustre trading environment that prevailed through the period. Wells Fargo's business is not so exposed to the vagaries of Wall Street, given that it has a significantly smaller trading operation. The bank's performance is therefore in many ways a better indicator of the health of the US recovery.

          RIO Tinto Ltd

          The market’s outlook for commodities is highly polarised; in forming a view of the company, management’s view on the outlook for commodities carries more weight than the actual production numbers that were overall unexciting. RIO’s chief executive, Tom Albanese, said the company's operations were close to capacity. Tom Albanese reported that the markets were strong for most of the company’s products but said that the pattern of volatility in markets will continue. On another front Rio’s relationship with Ivanhoe Mines is under increasing strain.

            Petroleum & Resources Corp

            With different areas of the energy industry experiencing vastly different fortunes of late the benefits of diversification have become all too apparent. Natural gas producers have seen falling prices on the back of techniques to exploit unconventional deposits and of course the companies involved in the Gulf of Mexico spill have taken a hit. The long-term theme of increased demand and constrained supply remains and we therefore rate Petroleum & Resources Corporation (PEO) as a hold.