Cisco to Plunge on the Release of NSA Spying Tools, 7% Layoff

[This market update and analysis is taken from: FSM News.]

The stock of Cisco Systems Inc. (NASDAQ: CSCO), the largest networking company in the world, is poised for a significant decline due to the mysterious release of spying tools created by the US National Security Agency’s elite group of hackers and the massive 7-percent job cuts.

Impact of NSA Hacking Tools Leak on Cisco

A cache of highly sophisticated hacking tools codenamed Buzzdirection, Epicbanana, Egregiousblunder, and Extra Bacon, among others appeared online just recently, and Cisco products were deemed vulnerable to these. ExtraBacon particularly targets Cisco Adaptive Security Appliance firewall.

This latest news can be considered as an international scandal as the multibillion dollar tech corporation’s networking equipment are used by countless of critical state agencies and large companies all over the world. With these hacking tools leaked out into the internet for all to see, anyone from a basement hacker to a professional spy could gain access to them now. Until these cybersecurity flaws are patched, many computer systems, especially those utilizing Cisco products, may be in jeopardy.

Having said that, we believe that the CSCO stock is set to plunge. As shown in the chart below, the company’s stock is trading in the red for two consecutive sessions. As of the time of writing, the stock is trading at $30.72, down by 1.29 percent or 0.40 points. Our analysis shows that if Cisco breaks down the support at the $30.12 level, it could drop much further.


Cisco: A Layoff Machine

In addition to the leak of NSA hacking tools, reports that Cisco will layoff 5,500 employees or 7 percent of its total workforce also casted a grim shadow over the company. CSCO shares tumbled by 1.5 percent during after-hours trading due to this restructuring move, despite reporting fourth quarter earnings results that beat estimates.

On August 14, 2014, the networking corporation also reduced its workforce by 6,000 or around 8 percent of its global workforce despite posting a profit growth of 18 percent. After the announcement, CSCO shares traded nearly 3 percent lower as shown in the chart below.


During the same period in 2013 (August 14, 2013), the company stunned the tech industry when it also announced job cuts of 4,000 positions, even though it managed to top the analysts’ forecasts for that quarter. The result of this move is also a decline in Cisco’s stock.


(Chart taken from Yahoo! Finance)

Basically, every summer starting 2011 to 2014 and then this 2016, the multinational tech giant reveals massive reductions in the workforce. (July 2011= job cuts involving 6,500 employees; July 2012= a reduction of 1,300 positions.)

In general, when companies implement massive layoffs, it typically suggests weakness. With this, it is unsurprising that the company’s stock is moving to the downside each time it announces massive layoffs. Aside from serving as an indicator of weakness, some corporations also execute job cuts in order to minimize their expenses and increase revenues.

According to Adam Cobb, a management professor at Wharton, “Layoffs may look good on paper because they have an immediate effect on costs. Yet in reality there are a lot of costs that layoffs impose on firms that might not show up on an income statement quite as clearly.”

In short, some companies implement this as a strategy to respond to short-term pressures of ramping up profits, achieving earnings targets and making next quarter’s number.

Future Outlook on Cisco Stock


The recent online leak of NSA hacking tools, including one that specifically targets Cisco ASA software, coupled with the substantial reduction in the workforce should lead to a further decline in the networking company’s stock. Having said that, a Sell position is definitely recommended.



Dollar Strengthens, Gold Slips on Hawkish Fed comments

The dollar edged higher on Wednesday as the outlook for the U.S. interest rate hike turned positive following the hawkish comments from the Central Bank officials.

The U.S. currency regained its strength after hitting a 7-week low against the yen as the positive views of the Federal Reserve officials boosted the outlook for the greenback.


Since late last week, the dollar had been on the defensive against other major currencies as weak economic indicators lowered the anticipation for a near-term rate increase.

But it quickly recovered on Wednesday, following the hawkish comments expressed by the Atlanta Fed President Dennis Lockhart, who mentioned that two rate increases this year was a possibility, and by New York President William Dudley, who said there is a likelihood that the Central Bank could boost interest rates as soon as September.

“Hawkish views from Fed officials can prompt short covering in the dollar, but they are not sufficient enough to kick off an uptrend,” said a forex analyst at IG Securities in Tokyo.

“This is because the markets now expect only one or two rate hikes this year, when at the end of 2015 they had expected up to four,” he further added, as he believes that the negative economic developments in Europe and Britain following the Brexit affected the decision of the Central Bank and cancelling out any lift from positive U.S indicators.

The dollar index, which measures the greenbacks strength against other major currencies, was 0.3 percent higher at 95.025, recovering from its seven-week lows of 94.426.

The currency markets will await new hints from comments expected from the St. Louis Fed President James Bullard and the release of the Fed’s July meeting minutes due today at 2 pm Eastern Time.

“I would not rule out September. If the meeting were today, I think the economic data would justify a serious discussion” of whether to increase rates now, the Atlanta Fed President told reporters after his speech on Tuesday.

Gold Edges Lower on Positive Rate Hike Outlook

The price of safe-haven gold weakened on Wednesday, reversing its gains in the previous session as investors await fresh clues from the minutes of the Fed’s July Policy meeting due to be released later in the day.

It pushed the price of the dollar higher, which was up at 101.100 yen on Wednesday, 0.8 percent higher compared to its previous session’s price of 99.550.

The precious metal is very sensitive to the movement of the U.S. rates, as higher interest rates increases the “opportunity cost” of owning gold, which yields no income and costs money to hold.

Spot gold edged lower at $1,343.78 an ounce.

U.S Gold fell 0.67% or $9.10 to trade at $1,347.80 per ounce by 6:41 am ET.

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Boeing Books 73 Commercial Aircraft Orders

Boeing Corporation’s made 73 commercial aircraft orders in July worth almost $8.86 billion following the successful deal with Mauritania Airlines.

In July, the company delivered a total of 54 commercial aircraft to six lessors and 33 airlines, which includes three aircraft deliveries for Southwest Airlines and another three for Hainan Airlines. From that, Boeing had a year-to-date commercial aircraft delivery of 420.

The American aircraft juggernaut settled successive transaction with four of the largest airlines globally. Before July ended, Malaysia Airlines finalized the order of 25 737 MAX 8 and a 737 MAX 9 worth $2.75 billion. It was followed by the six 787-9 Dreamliners order of Ruili Airlines worth $1.59 billion.


Further, TUI Group, a multinational travel and tourism company headquartered in Germany disclosed the 10 737 MAX 8 orders worth $1.1 billion during the Farnborough Airshow last July 12. Another $2.2 billion worth of order from unnamed companies was made as well.

Among the loyal customers of Boeing include Shandong Airlines, American Airlines, Turkish Airlines, Xiamen Airlines, Emirates Airline, China Southern Airlines. Also, Irish-American lessor GECAS and SWISS, Nippon Airways, Air New Zealand, MG Aviation, Ethiopian Airlines, Qatar Airways and Royal Air Maroc are part of the list.

Boeing and Mauritania Airlines

Aside from the mentioned airlines above, Boeing has closed the deal with Mauritania Airlines. The flag carrier of Mauritania ordered for a Next-Generation 737-800 airplane worth $96 million.


Chief executive officer of Mauritania Airlines Mohamed Radhy Bennahi said  “The Boeing 737 is the backbone of Mauritania Airlines fleet because of its efficiency and superior operating economics. The addition of this new 737-800 will greatly expand our network and enhance the overall travel experience of our passengers.”

On the other hand, Van Rex Gallard, vice president of Sales for Africa, Latin America and the Caribbean, Boeing Commercial Airplanes, noted the significant contribution of Mauritania Airlines in West African aviation for the past few years.

Mr. Gallard said that the order for one additional 737-800 underlines Mauritania Airlines’ position as a leading carrier committed to providing its passengers with a growing choice of destinations and exceptional in-flight comfort.

Boeing Stock Performance

Previously, shares of Boeing went up 0.38 percent to $132.19 with a market capitalization of 82.79 billion. The American multinational aircraft corporation has a price earnings ratio of 24.28 and a dividend yield of 3.30 percent.


The stock has a 52-week high of  $150.59 and a 52-week low of $102.1. Boeing has a price to book value of 143.18, a return of assets value of 4 percent and a return of equity ratio of 83.9 percent. It has an outstanding shares  of 625.68 million and a total shares float of 623.16 million.

Further, Boeing has a 50-day simple moving average of $130.67 and a 200-day simple moving average of $131.28. The stock is one of the components of Dow Jones and headed by CEO Dennis A. Mulieburg. It has been prominent through its commercial jetliners, military aircraft, missile defense and satellites.

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Oil futures Steady Before U.S. Stockpile Data

Oil futures recovered from the recent slump despite the oversupply concerns as market players expected a downbeat U.S. crude stockpiles data to be announced later today.

Crude oil stockpiles are expected to drop around 900 barrels on average while the gasoline stockpiles are predicted to slide by 300,000 barrels. Also the stocks distillates may decline around 100, 000 barrels by the analysts.

In line with this, the American Petroleum Institute forecasted a decline of 1.3 million barrels of the U.S crude supplies from July 25 to July 29. The distillate stocks are estimated to increase approximately 539,000 and the gasoline stocks to drop by 450,000 barrels-higher than the analysts’ expectations.


Market players agreed that the oversupply in the oil market would still remain despite the forecasted decline of the stocks. Some of the drillers may even comeback to the fields as the U.S. traded oil is predicted to fall around $35 per barrel.

Earlier today, light sweet crude futures for September delivery on the New York Mercantile Exchange changed hands $0.23 higher to $39.74 per barrel while the Brent crude for October delivery on London’s Intercontinental Exchange Futures climbed $0.19 to trade $41.99 per barrel.

ICE gasoil for August delivery increased $1.75 to $359.000 per metric ton while the Nymex reformulated gasoline blendstock for September delivery advanced 25 points to trade $1.3141 per gallon. Also, September diesel changed hands 70 points higher at $1.2660.

Organization of the Petroleum Exporting countries reported an increase of supply from 33.31 million barrels per day in June to 33.41 million barrels per day in July.

Adding to the oversupply sentiment was the highly anticipated come back of productions in Nigeria as well as in Libya. The output of the two countries, which are under supply disruption concerns at the moment, will likely add to the uncontrolled supply upsurge.


Tim Evans, a Citi Futures analyst, said’ Our impression of the overall API figures for last week is that the swings are likely too small to put prices onto a different, more bullish path.”

Meanwhile, oil refineries in Japan, South Korea and China may reduce their respective production to ease off their storage. Gasoline and diesel inventories managed by the locals in China have surged 16.6 percent to 576,000 metric tons in the first two weeks of July. Relatively, the increase of inventories was the outcome of poor demand of the commodity.

The total crude imports in China is expected to decline in the coming months. Song Yen Ling, senior analyst with Platts China Oil Analytics, estimated that from the averaged 7.5 million barrels per day crude imports of China, it might decline to 7.3 million barrels per day. Song explained that When prices are in a downtrend, refiners tend to buy less because they don’t want to be stuck selling products priced at $40 when prices drop to $35.

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Greenback Rebounds on Weak GDP Data

The U.S. dollar rebounded from its previous losses after the weak gross domestic product report last week. Following the lost of the greenback was the peak of the Japanese yen as the Bank of Japan disappointed the analysts on their stimulus program.

During the weekend, the dollar traded close to its lowest level in July as the investors had an unfavorable response on the possibility of a rate hike  by September 2017.

In line with this, a director of a currency and rates risk-management company claimed that the GDP was a massive miss, thus, the huge dollar sell off that ensued was not a surprise anymore. He also explained that the immediate risk at the moment was for a bit of further weakness in the U.S. dollar on the moderated monetary tightening view.

However, the U.S dollar recovered earlier today advancing 0.4 percent to 102.42 yen while the dollar index rose 0.1 percent at 95.578.


Last Friday, the Commerce Department reported an annual growth of 1.2 percent of the U.S. gross domestic product from April to June, lower than the expected 2.6 percent increase by the economists.

A currency strategist  noted that the U.S. dollar advance was stopped in its tracks by the disappointingly weak Q2 GDP figures. He added that the  FOMC statement earlier in the week did not leave the impression that a September hike was likely, and with the poor growth numbers, the odds were downgraded further.

Federal Reserve

The U.S central bank left the interest rate unchanged from its previous policy meeting as the committee awaited for a more stable economic report after the impact of post-Brexit. The Fed noted the improvement of the labor market in June compared to the weak growth in the previous month.

Further, the central bank signaled for a gradual increase of the federal funds rate as it looks for steady inflation rate and better economic reports. On Friday, the nonfarm payrolls data will be released most of the economists agreed that there could be an increase of 175,000 jobs.


Speaking from a conference in Bali,  Federal Reserve Bank of New York President William Dudley said that it’s premature to rule out further monetary policy tightening this year. On the other hand, Dallas Fed President Robert Kaplan mentioned in his interview that the central bank must be more considerate and should not overreact on the weak GDP report in relation to its intention to raise hike soon.

Bank of Japan

The BOJ disappointed the  investors after its underwhelming stimulus program announced after its two-day policy meeting last week. The central bank of Japan decided to double its annual exchange-traded fund (ETF) purchases to $59 billion and held the negative deposit rate.

Due to the statement of the bank, the yen found its strength again, adding to the bullish trend of the currency. Adding to this, Prime Minister Shinzo Abe is expected to announce a $28 trillion yen fiscal stimulus package on August 2, Tuesday.


Takuya Kanda, a senior researcher at Research Institute Ltd, said ‘Dollar-yen is rebounding after being sold off too aggressively, But, if upcoming data strengthens the scenario where a rate increase next month isn’t possible, dollar-yen could break 100 this week.’

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Global Stocks Rally Ahead Fed Decision, Tech Up on Pre-Market

As the market waited for more earnings report for the second quarter, global stocks remained moderately higher supported by the forecast that the Federal Reserve may leave the interest rate unchanged after its policy meeting later today.

Nasdaq 100 futures went up 0.63 percent, while the Dow Jones futures increased 0.18 percent. The S&P 500 advanced 0.17 percent after trading bullish for the past few sessions.

The Federal Reserve is expected to keep its rates as the U.S. economy still couldn’t find a decent recovery from its stability. After delaying the rate hike last month, the central bank will likely push the plan in September or before the end of the year.


Aside from the Fed meeting, the market closely watched the reports of the Commerce Department and the National Association of Realtors regarding the durable good orders and pending home sales data respectively.

After the downbeat report of the American Petroleum Institute on the crude oil stocks, the government Energy Information Administration will release its weekly  crude stockpile and production as well. During the previous sessions, oil futures extended losses as the market remained to be severely over supplied.

Tech Stocks

Apple advanced 7.48 percent in the pre-market session, but it stayed flat after the market closed. Apple recently reported a decline of its iPhone sales on its third quarter earnings report. The tech juggernaut disclosed a revenue of $42.36 billion and an earnings per share of $1.42, beating the analysts’ expectations. The stock remained to be the biggest company by market capitalization globally.

Meanwhile, tech experts remained optimistic in the earnings report of Facebook as the company sounded successful on its venture on WhatsApp and Messenger. Facebook has indicated recently from the previous reports the development of its Facebook Live, encouraging more users for the application.


Facebook has been changing hands in light volume, climbing 0.99 percent in the pre-market, but stayed flat to $121.22 with a market capitalization of 345.56 billion. The stock has a price earnings ratio of 74.27. Analysts forecasted an increase of 62 percent on its earnings per share in the second quarter and the revenue to jump by 50 percent or $6 billion.

Auto Industry

After finally closing the deal with Malaysia Airlines, Boeing opened 2.19 percent higher before it ended flat to $134.85. The American aircraft manufacturer had a market capitalization of 87.14 billion, with a dividend yield of 3.23 percent.

Market analysts expected the stock to have an adjusted earnings per share of 37 percent to $2.22. However, the revenue was forecasted to plummet by 2 percent or $24.04. Currently, Boeing Co has a price earnings ratio of 18.21.


Aside from 50 MAX 737 orders from the Malaysia Airlines, the aircraft company was reported of taking $393 million after tax-charge from its KC-46 tanker program intended for the Airforce. Its Commercial sector is also having an after charge of  approximately $814 million on its 747 program and $847 million from its 787 Dreamliner.

Consumer Products

In other news, Pepsi Corporation surpassed the analysts’ expectations and reported quarterly earnings based on the forecasts of the market experts.

Pepsi’s major competitor, Coca-Cola is expected to have $11.64 billion revenue, down by 4.2 percent and an earnings per share dropping for almost 8 percent. Coca Cola lost 2.47 percent to $42.74 in the session earlier with a market capitalization of 186.49 billion. The stock had a dividend yield of 3.20 percent and a price earnings ratio of 26.45.

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Porsche To Add 1400 New Jobs

Porsche announced the addition of 1400 new jobs on Tuesday as it expands its workforce and boosts its production staff  to do the first all-electric cars, getting head to head to Tesla Motors.

According to the data provided by the car manufacturer, around 1,200 positions will be opened to build a paint shop and the new assembly line for the battery-powered Mission. From the 150 trainees previously, the company plans to make it 220 this time.

Moreover, the German automobile manufacturer is looking for 100 information-technology specialists and 50 digital experts. The other jobs will be available in the main factory in Stuttgart, Germany.


Aside from Tesla Motors, the company also will raise the bar against Google and Apple Incorporated, which has been one of the developers of highly technological vehicles.

Porsche Self-Driving and Electric Vehicles

Porsche has showed interest in self-driving technology as well, despite the recent involvement of Tesla’s Autopilot mode in accidents. The newest Panamera sports sedan showcased an adaptive control system and a satellite navigation data.

“Right now that’s very important that an assistance system, it is far away from autonomous driving. You can take your hands off for a couple of seconds, but the driver is still in control, he’s still responsible. Of course all these systems…coming to the car are the first step in that direction,” Dr Gernot Dollner, Product Line Director for Panamera said.


“We have defined various levels of autonomous driving and level five is a car without a driver, which doesn’t really makes sense for Porsche because they are driver-oriented cars. We are now on level two. Level four would be autonomous driving on special roads, like the autobahn, or for a special time, but we are a way from that,” Mr. Dollner added.

Meanwhile, a person associated with Porshe revealed that the company is building an electric car which was named as electrified 911.  The report was in-line with the initiative of Porshe to provide a hybrid version of every model in the future.

August Achleitner, 911 product director, reiterated the disadvantages of then company’s plan and the irrelevance in today’s market. Mr. Achleitner explained in an interview that it wouldn’t make sense in their opinion to offer an electric 911, or hybrid version, because there are so many disadvantages of such a concept within this narrow layout of a 911.

Porsche in India

Separately, Porsche plans to experiment a a two-pronged approach to its operations in India as the number of millionaires in the country continue to surge and the economy rebounds. The company is set to launch new models to capture the interest of the car aficionados in India.


Pavan Shetty, Porsche India’s newly appointed director, confirmed that the first plan for them is to reach their customers and for that, they will increase their representation in the country.

“We will add more dealers in the coming months. We will have a dealer in Chennai and another in Hyderabad and also improve upon the existing service facilities. We would rather have no dealers than wrong dealers for Porsche. It is going to be a strict process and hopefully, by next year we would have two more at least,” Mr. Shetty said.

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