Benign Economic Reports Should Spark Climb

Wall Street looks set to move higher on the back of a couple of benign economic reports.

The May retail sales and producer price index releases both came in well. The PPI, which measures inflation at the wholesale level, declined by 0.1% overall against expectations of a 0.1% gain. It lost 0.2% at its core, which excludes volatile food and energy prices, which was also forecast to gain 0.1%. Retail sales rose 0.1% against expectations of 0.3% overall. Excluding autos, retail sales gained 0.4%, as expected.

Though the reports haven't done much for the Treasury market -- good numbers were expected -- they've removed an obstacle for the stock market. With the bonds behaving, it's all about Intel (INTC Quote). Not so much about what Intel the stock is going to do in the wake of last night's earnings, but what Intel the company said about what business looks like.

When the chip king's second-quarter earnings came in at 51 cents a share, 2 cents short of First Call consensus estimates, there was a bit of panic selling on the Street in the after-hours session. But the stock quickly bounced back on management's upbeat earnings outlook, and this morning, Intel bulls are gushing about the company's outlook.

"The contrast between Intel's lackluster results and upbeat outlook was startling," wrote Merrill Lynch chip analyst Joe Osha in a research note. "The company is quite conservative when talking about the future, which lends substantial credibility to the improved gross margin outlook and strong market view that Intel articulated yesterday."

Osha reiterated his short- and long-term buy recommendations on the stock. The other big Intel bull, Morgan Stanley Dean Witter's Mark Edelstone, upped his price target on the stock to 80 from 75.

Intel was doing well in the preopen, up 2 to 67 5/16. More important than the action in the stock, Intel's sense that future business is going to be good may spill over into other stocks. There's a notion in the market that stocks may have already discounted strong second-quarter earnings. But the third quarter looks even better -- estimates are that S&P 500 earnings will gain somewhere around 20% -- and what Intel said reminds people of that.

At 9 a.m. EDT, the S&P 500 futures were up 4.3. They closed near fair value, so that indicates a pretty good open.

The 30-year Treasury was flat at 90 30/32, putting the yield at 5.91%.

Tokyo's Nikkei rocketed higher in blue-chip dominated action. The index added 176.77, or 1%, to 18,357.86.

China worries shook the Hong Kong stock market, and losses there spilled over into many other Asian bourses.

Tensions between China and Taiwan remain high, after Taiwanese leader Lee Tung-hui's remarks yesterday that his country would no longer adhere to the "one China" policy that has helped prevent conflict between the island and the mainland for 50 years. Though Taiwan has since moved to soothe Chinese tempers, it has not backed down from the suggestion that it aims to become a sovereign state.

Meanwhile, there is renewed speculation that China will devalue the yuan. China's central bank governor reportedly said that yuan stability should be determined by market forces instead of government policy. That lent credence to a report by credit rating agency Duff & Phelps yesterday that the yuan would likely be devalued within the next six months.

The Hang Seng fell 405.36, or 2.9%, to 13,575.57. The Taiwan Stock Exchange Weighted Price index fell 315.84, or 3.8%, to 7888.66. The Korean and Thai stock markets also got whacked.

European bourses were strong. In Frankfurt, the Xetra Dax was up 71.43, or 1.3%, to 5645.24. In London, the FTSE was up 81.3, or 1.3%, to 6506.

Paris stocks were closed for Bastille Day.

Wednesday's Wake-Up Watchlist

By Brian Louis
Staff Reporter

Intel said after the close that it earned 51 cents a share in the second quarter, 2 cents below the 31-analyst First Call estimate but ahead of the year-ago 33 cents. TheStreet.com wrote about the chip giant's earnings in a story last night.

Ford (F Quote) posted second-quarter operating earnings of $2 a share, beating the First Call consensus estimate of $1.96 and up from the year-ago $1.91. On an operating basis, earnings were a record $2.484 billion, Ford said.

Earnings/revenue reports and previews

(Earnings estimates are from First Call.)

AlliedSignal (ALD Quote) posted second-quarter operating earnings of 70 cents a share, in line with the 15-analyst estimate and up from the year-ago 61 cents.

BestFoods (BFO Quote) reported second-quarter earnings of 61 cents a share, in line with the 14-analyst estimate and up from the year-ago 58 cents.

First Union (FTU Quote) reported second-quarter earnings of 82 cents a share, which excludes a one-time gain, beating the 25-analyst estimate by a penny, but down from the year-ago operating earnings of 92 cents.

Fleet Financial (FLT Quote) posted second-quarter earnings of 74 cents a share, beating the 21-analyst by a penny and up from the year-ago 65 cents.

Motorola (MOT Quote) after the close posted second-quarter earnings of 44 cents a share, topping the 28-analyst estimate of 41 cents and far ahead of the year-ago penny.

Polaroid (PRD Quote) posted second-quarter earnings of 33 cents a share, in line with the nine-analyst estimate and up from the year-ago 3 cents, which excludes one-time items.

Wachovia (WB Quote) posted second-quarter operating earnings of $1.22 a share, in line with the 23-analyst estimate.

Mergers, acquisitions and joint ventures

Egghead.com (EGGS Quote) and Onsale (ONSL Quote) have agreed to merge in a deal valued at $400 million.

Offerings and stock actions

Goldman Sachs priced Tibco Software's (TIBX:Nasdaq) 7.3 million-share IPO top-range at $15. The company's products allow computer applications to communicate over the Internet. Tibco is majority owned by Reuters (RTRSY Quote).

Miscellany

A New York Times article today said that Carnival Cruise Lines, a unit of Carnival (CCL Quote), reported in court papers filed yesterday that its crew members were accused of sexually assaulting passengers and fellow workers aboard its ships 62 times in a five-year period that ended last August, a rate of nearly once a month.