Market Analysis

Beyond the Numbers

Renewed Concerns About Europe May Weigh On Wall Street
2/14/2012 9:10 AM

The major U.S. index futures are pointing to lower opening on Tuesday, with renewed concerns about the financial situation in Europe likely to contribute to early weakness on Wall Street. The downward momentum for the markets is partly due to renewed concerns about the financial situation in Europe following troubling remarks from Moody’s.

Moody's cut the debt ratings of six European countries, including Italy, Spain and Portugal, and warned it could cut the triple-A ratings of France, Britain and Austria. The ratings agency attributed the actions to the area's weakening ability to implement austerity programs and reforms.

Traders are also reacting to the U.S. Commerce Department’s report on retail sales in the month of January, which showed that sales rose by less than expected amid a notable drop in auto sales.

U.S. stocks advanced strongly on Monday, capitalizing on the news that the Greek Parliament approved the austerity package required to secure a second bailout package.

The major averages opened higher but gave back some ground over the course of morning trading. Thereafter, buying interest perked back up and the averages advanced steadily until late trading before consolidating for the rest of the session.

The Dow Industrials added 72.81 points or 0.57 percent before closing at 12,874 and the S&P 500 Index ended 9.13 points or 0.68 percent higher at 1,352, while the Nasdaq Composite Index ended up 27.51 points or 0.95 percent at 2,931.

Twenty-five of the thirty Dow components closed higher, with Bank of America (BAC), Caterpillar (CAT), JP Morgan Chase (JPM) and United Technologies (UTX) among the biggest gainers.

Among the major sectors, biotechnology, transportation, retail and housing stocks advanced strongly.

Commodity, Currency Focus

Crude oil futures are climbing $0.48 to $101.39 a barrel after advancing $2.24 to $100.91 a barrel on Monday. Gold futures are sliding $5.10 to $1,719.80 an ounce. In the previous session, the precious metal edged down $0.40 to $1,724.90 an ounce.

Among currencies, the U.S. dollar is trading at 78.12 yen compared to the 77.57 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.3147 compared to yesterday’s $1.3186.


Stock markets across the Asia-Pacific region turned in a mixed performance on Tuesday, as a surprise move by the Bank of Japan to expand its asset-purchase program and expectations for further monetary policy easing in India helped offset worries over sovereign ratings downgrades in the euro zone

Japanese stocks moved higher on the day, with the Nikkei 225 Index climbing 52.89 points or 0.6 percent to 9,052, its highest closing level since September

Investors cheered the Bank of Japan's decision to implement additional monetary easing. The central bank unexpectedly eased monetary policy by increasing the size of its asset purchase by 10 trillion yen to 30 trillion yen to beat deflation and support the economy.

While Hong Kong’s Hang Seng Index also edged up 30.43 points or 0.2 percent to 20,918, Australia’s All Ordinaries Index fell by 40.50 points or 0.9 percent to 4,319.

The weakness among Australian stocks came as the news out of Europe raised concerns about the global outlook for resource demand.


The major European markets are seeing modest weakness on the day following the news from Moody’s. The German DAX Index is down by 0.2 percent, while the U.K.’s FTSE 100 Index is down by 0.3 percent and the French CAC 40 Index is down by 0.4 percent.

While the news from Moody’s has generated some negative sentiment, a report from the Mannheim-based Centre for European Economic Research showing a significant improvement in German economic expectations has helped to limit the downside for the markets.

The economic sentiment index rose by 27 points to 5.4 in February compared to expectations for an improvement to -11.8.

Separately, data from the Office for National Statistics showed that U.K. annual inflation slowed to the lowest since November of 2010 in January, as expected by economists.

U.S. Economic Reports

Retail sales in the U.S. rose by less than expected in the month of January, according to a report released by the Commerce Department on Tuesday, with a drop in auto sales partly offsetting notable increases in sales in other segments.

The report showed that retail sales rose by 0.4 percent in January, while revised data showed that sales were unchanged in December. Economists had expected sales to increase by 0.7 percent compared to the 0.1 percent increase that had been reported for the previous month.

Excluding a 1.1 percent drop in sales by motor vehicle and parts dealers, retail sales actually rose by 0.7 percent in January compared to a 0.5 percent drop in the previous month.

A separate report from the Labor Department showed that prices for both imported and exported goods in the U.S. increased in January, reversing a drop seen in December.

Labor Department figures showed an overall 0.3 percent increase in import prices in January following a 0.1 percent drop in December. The increase was in line with the expectations of most economists.

Overall export prices also increased in January, rising 0.2 percent, led by higher agricultural prices, reversing to some degree the 0.5 percent decline in December. Most economists had expected export prices to rebound, but at a lower, 0.1 percent level.

The Commerce Department is scheduled to release its business inventories report for December at 10 am ET. The report summarizes the results from the monthly retail trade, wholesale trade and factory goods orders surveys. The report is expected to show a 0.5 percent increase in business inventories for the month.

In November, business inventories were up 0.3 percent and increased 8.5 percent from the year-ago period. Business sales also rose 0.3 percent month-over-month and were 9.6 higher than in the year-ago period. The total business inventories to sales ratio was at 1.27 compared to 1.28 in November 2010.

Stocks in Focus

Cabot Microelectronics (CCMP) said its board has approved a special cash dividend of $15 per share or about $345 million.

Gilead Sciences (GILD) said the U.S. FDA has accepted the sNDA for its HIV drug Truvada and granted a 6-month priority review for once-daily Truvada for pre-exposure prophylaxis among uninfected adults.

Bristol-Myers (BMY) announced the successful completion of the tender offer to buy all outstanding shares of Inhibitex (INHX) for $26 per share.

United Stationers (USTR) reported fourth quarter adjusted earnings of 64 cents per share compared to 58 cents per share last year. Net sales rose 1.3 percent to $1.2 billion.

Charles River (CRL) said its fourth quarter non-GAAP earnings rose to 69 cents per share from 60 cents per share last year. Net sales climbed to $290.96 million from the year-ago’s $281.65 million. The results were ahead of estimates. For 2012, the company expects non-GAAP earnings of $2.60-$2.70 per share on 0-2 percent sales growth. The guidance was in line with estimates.

Health Management Associates (HMA) reported fourth quarter adjusted earnings from continuing operations of 26 cents per shares. Revenues rose 17.6 percent to $1.58 billion. The earnings were ahead of estimates, while the revenues were in line.

Gen-Probe (GPRO) reported better than expected fourth quarter earnings, while its revenues were about in line with estimates.

FIS (FIS) said its board approved an increase in its annual dividend to 80 cents per share, while it also authorized an additional stock buyback program up to $1 billion. Separately, the company announced fourth quarter adjusted earnings of 64 cents share on revenues of $1.5 billion. The results exceeded expectations.
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