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Positive Data, Spanish Debt Auction Perk Up Risk Appetite
4/17/2012 9:08 AM

The major U.S. index futures are pointing to a higher opening on Tuesday, with sentiment receiving a lift from a robust German economic sentiment reading and fairly positive Spanish debt auctions. Meanwhile, a U.S. housing report released earlier in the day presented a mixed picture. U.S. housing starts unexpectedly fell in March, while building permits, considered an indicator of future housing activity, rose sharply.

Earnings news has been mostly positive, with bellwethers Coca-Cola (KO) and Johnson & Johnson (JNJ) reporting better than expected earnings. The focus now shifts to the Federal Reserve's industrial production report due for release a short while from now.

U.S. stocks opened Monday's session higher, as traders digested mixed economic data, including strong retail sales growth and a moderation in the pace of manufacturing activity in the New York region. Thereafter, following the release of a report showing a dip in builder confidence levels, the averages took divergent routes, with the Dow Industrials hovering in positive territory throughout the session, while the S&P 500 Index and the Nasdaq Composite Index dipped into negative territory in early trading and continued to trade mostly below the unchanged line.

The Dow Industrials ended up 71.82 points or 0.56 percent at 12,921, while the S&P 500 Index slipped 0.69 points or 0.05 points before closing at 1,370 and the Nasdaq Composite Index closed 22.92 points or 0.76 percent lower at 2,988. Pullback by the shares of Apple (AAPL) and Google (GOOG) weighed on the tech-heavy Nasdaq.

Twenty-four of the thirty Dow components closed higher, with American Express (AXP), Bank of America (BAC), DuPont (DD), Home Depot (HD), Intel (INTC), Procter & Gamble (PG), Travelers Companies (TRV), Wal-Mart (WMT) and Exxon Mobil (XOM) among the biggest advancers in the session. On the other hand, Hewlett-Packard (HPQ) declined over 1 percent.

Utility and bank stocks gained ground, while oil service and gold stocks moved to the downside.

On the economic front, the National Association of Home Builders reported that its housing market index unexpectedly fell 3 points to 25 in April, marking the first drop since September 2011 and the biggest decline since June 2011. The current sales conditions index slid to 26 and the future sales expectations index declined 3 points, while the index measuring prospective buyer traffic declined a steeper 4 points.

U.S. retail sales rose 0.8 percent month-over-month in March, according to a report released by the U.S. Commerce Department. Even after auto sales were excluded, sales were still up 0.8 percent. Electronics and appliance sales growth quickened to 1 percent, while furniture and home furnishing sales rose 1.1 percent, reversing the 1 percent drop in February. Gas station sales growth slowed to 1.1 percent from February's 3.6 percent.

Excluding autos, gasoline and building materials, retail sales rose a healthy 0.5 percent. The month may have been benefited from the early Easter holidays this year.

The results of the New York Federal Reserve's manufacturing survey showed that its general business conditions index fell to 6.6 in April from 20.2 in March, marking the lowest reading since November 2011. The new orders index was little changed at 6.4 and the order backlogs index fell 6 points, while the shipment index dropped 12 points to 6.4. While the employment index rose 6 points to 19.3, the average workweek index slid 6 points to 19.3. The future business conditions index declined 4 points to 43.1.

Additionally, the Commerce Department reported that business inventories rose 0.6 percent in February. Business sales were up 0.7 percent. The business inventories to sales ratio remained steady at 1.28 compared to the year-ago period.

Currency, Commodity Markets

Crude oil futures are trading down $1.09 at $104.02 a barrel after advancing $0.10 to $102.93 a barrel on Monday. Gold futures are currently rising up $3.10 to $1,652.80 an ounce. In the previous session, the precious metal fell $10.50 to $1,649.70 an ounce.

Among currencies, the U.S. dollar is trading at 80.60 yen compared to the 80.41 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $ 1.3132 compared to yesterday's $1.3142.

Asia

Asian stocks ended mostly lower, as traders adopted a cautious stance ahead of the Spanish debt auctions and in reaction to mostly negative economic data out of the U.S. overnight.

Japan's Nikkei 225 average showed volatility in the afternoon after being higher for much of the morning. The index closed down 5.93 points or 0.06 percent at 9,465. The yen's strength continued to weigh on export stocks. Financial stocks also came under selling pressure.

Final estimates released by the Japanese Ministry of Economy, Trade and Industry showed that industrial output fell at a slower than initially estimated rate of 1.6 percent month-over-month in February.

A separate government report showed that a reading on Japanese consumer confidence rose to 40.3 in March from 39.9 in February. All the sub-indexes based on the surveyed also showed modest improvement.

Australia's All Ordinaries ended at 4,369, down 13.70 points or 0.31 percent, while Hong Kong's Hang Seng receded 47.78 points or 0.23 percent before closing at 20,563. The Chinese Shanghai Composite Index lost close to 1 percent.

Meanwhile, the Indian market advanced after the country’s central bank lowered interest rates by a bigger than expected 50 basis points, citing slowing growth. This was the first rate reduction in 3 years.

Europe

After a nervous start, the major European averages have all moved higher. The French CAC 40 Index and the German DAX Index are rising 0.71 percent and 0.54 percent, respectively, while the U.K.'s FTSE 100 Index is adding 0.44 percent.

In corporate news, French dairy company Danone reported higher first quarter revenues and also reaffirmed its outlook for the year. Rio Tinto reported weak growth in its first quarter iron ore, copper and coal production, hurt primarily by inclement weather. U.K. luxury goods maker Burberry reported an increase in its fourth quarter revenue from continuing operations.

On the economic front, U.K. annual consumer price inflation came in at 3.5 percent in March compared to expectations for 3.4 percent. Eurostat upwardly revised its annual inflation estimate for March to 2.7 percent from the 2.6 percent estimated initially.

The debt offering by Spain produced mixed results, with the nation selling 3.2 billion euros worth of treasury bills compared to its 3 billion-euro target. The bid-to-cover ratio was higher than the previous auctions, although the yields also came in higher.

The Zew Institute's survey showed that German economic sentiment improved in April, with the corresponding indicator rising to 23.4 in April from 22.3 in March. Economists had expected a decline in the index to 19.

U.S. Economic Reports

New housing construction in the U.S. dipped unexpectedly in March, but an equally unexpected jump in building permits offers hope for the future of the beleaguered housing market.

According to figures released by the Commerce Department, new privately-owned housing starts came in at a seasonally adjusted annual rate of 654,000, a 5.8 percent drop from February levels.



Additionally, the February figures were revised down slightly from the 698,000 rate initially reported to 694,000. The March rate of new housing starts comes in well below the expectations of most economists, who had predicted a slight uptick to a rate of 700,000.

The Federal Reserve's industrial production report is due out at 9:15 am ET. Economists estimate 0.3 percent growth in industrial production for March, while manufacturing output growth is also estimated at 0.3 percent. Capacity utilization may have edged down slightly to 78.6 percent.

Industrial production remained unchanged in February compared to expectations for 0.4 percent growth. Offering some consolation was an upward revision to the previous month's reading.

Motor vehicle and parts production slipped 1.1 percent and mining output extended its slide, dropping 1.2 percent. Capacity utilization edged down to 78.7 percent.

Stocks in Focus

Johnson & Johnson (JNJ) reported better than expected first quarter adjusted earnings, while sales declined from the year-ago and were shy of estimates. The company also raised its earnings guidance for the full year, citing positive currency effects.

Coca-Cola (KO) reported better than expected first quarter earnings and revenues.

Goldman Sachs' (GS) first quarter earnings and revenues were also above consensus estimates. The company also announced an increase in its quarterly dividend. However, revenues at its institutional clients service segment and investment banking business declined from a year-ago.

Brown & Brown (BRO) announced preliminary first quarter results, expecting earnings of 34 cents per share compared to 32 cents per share last year, as net sales climbed 15.4 percent to $302.49 million. The results exceeded estimates.

Lincare Holdings (LNCR) reported first quarter earnings of 54 cents per share, higher than 49 cents per share in the year-ago period. Net revenues rose 16 percent to $500.9 million. The results were better than expected.

Arqule (ARQL) announced the completion of its previously announced public offering of 8.22 million shares of its common stock at $7.30 per share. The company noted that it received net proceeds of about $56 million from the offering.

ICU Medical (ICUI) reported first quarter earnings of 53 cents per share compared to 57 cents per share in the year-ago period. On the other hand, revenues improved to $75.5 million from $71.5 million in the year-ago period. For 2012, the company reaffirmed its guidance that calls for earnings of $2.45-$2.70 per share on revenues of $318 million to $330 million. While the results were better than expected, the guidance surrounded the consensus estimates.

Cree (CREE), CSX (CSX), Fulton Financial (FULT), IBM (IBM), Intel (INTC), Intuitive Surgical (ISRG), Linear Technology (LLTC), Packaging Corp. of America (PKG), Seagate Technology (STX), Stanley Furniture (STLY), Stryker (SYK), United Rentals (URI) and Yahoo (YHOO) are among the companies due to release their quarter results after the markets close.



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