Market Analysis

Beyond the Numbers

Markets May Digest Greek Deal Even as Concerns Linger
2/21/2012 9:08 AM

The major U.S. index futures are pointing to a higher opening on Tuesday, as the markets open after an extended weekend on account of the President’s Day holiday on Monday. Greece has finally managed to secure approval for a second round of bailout package at the expense of the PSI taking a deeper haircut than originally planned for. With the deal already priced in and with concerns over Greek’s fiscal situation lingering, markets across the Atlantic are seeing an insipid response to it.

Earnings from retailers have been mixed, with Home Depot (HD) beating estimates, while Wal-Mart’s (WMT) results are being perceived as being lukewarm. There have been a few deal announcements, while commodities prices have been firm. In the absence of any other major macroeconomic tidings, the markets may digest the developments, even as they trade around overbought levels.

U.S. stocks reversed close and closed higher in the week ended February 17th, with rallies by financial, resource and semiconductor stocks helping to keep the recent upward momentum broadly intact. The Dow ended at its highest closing level in nearly 4 years, with the index now tantalizingly close to the 13,000 mark.

Last Monday, the major averages advanced moderately, encouraged by the news that the Greek Parliament has approved the austerity measures required to secure another bailout package. Amid the release of a report showing a smaller than expected increase in retail sales, U.S. stocks languished in negative territory for much of Tuesday’s session before closing on a mixed note.

With doubts surfacing about the Eurogroup approving the bailout package for Greece and domestic economic concerns re-ignited by the release of some mixed economic data, the major averages closed moderately lower on Wednesday. Stocks capitalized on some upbeat economic numbers on Thursday, closing notably higher in the session.

The brightening hopes of a Greek deal supported the major averages on Friday and consequently, the Dow and the S&P 500 Index closed higher, while the Nasdaq Composite Index retreated modestly.

For the week, the Dow Industrials rose 1.16 percent, while the S&P 500 Index added 1.39 percent and the Nasdaq Composite gained 1.65 percent.

Among the sector indexes, the NYSE Arca Airline Index rose about 3 percent for the week, while the NYSE Arca Oil Index gained 1.81 percent and the Philadelphia Oil Service Index ended up 2.47 percent. The NYSE Arca Securities Broker/Dealer Index advanced 2.57 percent compared to a 2.38 percent gain by the KBW Bank Index and a 2.83 percent rise by the Philadelphia Semiconductor Index. Additionally, the S&P Retail Index added 1.67 percent.

Commodity, Currency Focus

Crude oil futures for March delivery are currently up $1.55 at $104.79 a barrel and the most actively traded April futures are advancing $1.51 to $105.11 a barrel. The March futures ended last Friday at a 6-week high of $103.24 a barrel, up $4.57 or 4.63 percent for the week ended February 17th.

Oil’s advance last week was mainly due to supply concerns, as Iran announced that it has curtailed oil exports. Additionally, the commodity benefited from a general rise in risk appetite amid Greek deal hopes.

Gold futures, which gained $0.60 to $1,725.90 an ounce last week, are currently trading up $21.60 at $1,747.50 an ounce.

Among currencies, the U.S. dollar saw weakness in the week ended February 17th, as the increase in risk appetite dragged the buck lower. The dollar fell 0.35 percent against the euro before ending the week at $1.3244. Meanwhile, against the yen, which is also considered a safe haven, the dollar gained 2.6 percent to 79.6337.

The greenback took a hit last week due to firming up risk appetite and the release of some mixed economic numbers. Meanwhile, the yen was hit hard by the Bank of Japan’s decision to increase the size of its asset purchase program.

The greenback is currently trading at 79.6875 yen and is valued at $1.3215 versus the euro.


The Asian markets traded on a lackluster note before closing mixed. Japan’s Nikkei 225 average showed volatility throughout the session before closing down 22.07 points or 0.23 percent at 9,463. After some early apprehension, Australia’s All Ordinaries advanced steadily, capitalizing on higher commodity prices.

The minutes from the Reserve Bank of Australia's February board meeting showed that the central bank is unlikely to cut interest rates soon unless Europe's debt crisis suddenly worsens.
Hong Kong’s Hang Seng Index ended up 53.93 points or 0.25 percent at 21,479.


The major European averages are trading in the red, as traders take profit on recent gains, which came on the back of Greek hopes. The French CAC 40 Index is receding 0.66 percent and the German DAX Index is moving down 0.73 percent, while the U.K.’s FTSE 100 Index is declining 0.31 percent.

Meanwhile, Spain auctioned 2.25 billion euros worth of treasury bills, at the top end of its target, and the yields were also notably below previous auctions, signaling the easing of financial strains in debt-ravaged Europe.

TNT Express, which over the weekend revealed the receipt of a 4.89 billion euro-offer from UPS (UPS), reported an operating loss of 105 million euros for 2011 despite sales rising 2.7 percent to 7.25 billion euros.

Fresenius and its unit Fresenius Medical Care reported strong profit growth for the fourth quarter and also said they expect earnings growth for 2012.

Ericsson (ERIC) announced that it is strengthening its multi-media business with focus on operations support systems, business support systems, TV& Media and M-Commerce.

U.S. Economic Reports

The unfolding week’s economic calendar is very light, with only a couple of housing readings and a consumer sentiment report possessing the potential to move markets. Traders are expected to focus on the National Association of Realtors’ existing home sales for January, the Commerce Department’s new home sales report for January, the weekly jobless claims data and the final reading of the Reuters and University of Michigan’s consumer sentiment survey for February.

The Federal House Finance Agency’s house price index for December, a regional manufacturing survey and the Treasury auctions of 2-year, 5-year and 7-year notes round up the economic events of the week.

The slow and steady upturn in the housing market from depressed levels is expected to continue due to the strengthening of the labor market and the still-benign lending terms. Despite pending home sales dipping in December, expectations are for a modest uptick in existing home sales.

Meanwhile, buoyed by an increase in mortgage origination and the improvement in homebuilders’ confidence, new home sales are expected to see bigger growth. BMO Capital Markets expects residential investment to contribute to real GDP growth in 2012, for the first time in seven years.

The Chicago Federal Reserve’s National Activity Index used for measuring overall economic activity and inflationary pressure is set to be released at 8:30 am ET.

The Treasury is also set to announce the results of the auction of 2-year notes at 1 pm ET.

Stocks in Focus

Weatherford (WFT) reported preliminary fourth quarter 2011 pre-tax income of $352 million after excluding pre-tax losses of $98 million, and revenues of $3.71 billion, up 27 percent year-over-year. Analysts expected revenues of $3.58 billion.

Cabot Oil (COG) reported fourth quarter adjusted earnings of 20 cents per share compared to 10 cents per share last year. The earnings exceeded estimates. Operating revenues rose to $268.03 million from the year-ago quarter’s $22.46 million. Separately, the company said it had total proved reserves of 3.02 trillion cubic feet equivalents, representing an increase of 22 percent on a pro forma basis.

Nordstrom (JWN) said its board has approved an $800 million stock buyback program. The board also approved a 17 percent increase in its quarterly dividend to 27 cents per share.

Meanwhile, FMC (FMC) approved a $250 million new stock buyback authorization and a 29 percent increase in its quarterly dividend to 19 cents per share.

Exelon (EXC) announced that the Maryland Public Service Commission has approved its merger with Constellation Energy (CEG). The deal is yet to receive approval by the Federal Energy Regulatory Commission.

Neenah Paper (NP) reported fourth quarter earnings from continuing operations of 47 cents per share compared to adjusted earnings of 30 cents per share in the year-ago period. The earnings were better than expected. Sales rose 3 percent to $165.5 million.

STMicroelectronics (STM) announced the appointment of Carlo Ferro as the COO of its joint venture company ST-Ericsson in a bid to turnaround the company.

F5 Networks (FFIV) announced an agreement o buy Traffix Systems, a provider of 4G Diameter signaling products for telecom service providers.

Wal-Mart (WMT) reported a drop in its fourth quarter profits despite sales rising year-over-year. Same store sales for its U.S. stores rose 1.5 percent.

CH Energy (CHG) said it has agreed to be bought by Fortis for $65 per share in cash.

URS (URS) announced an agreement to buy Canada’s Flint Energy for C$25 per share in cash or C$1.25 billion. URS will assume about C$225 million in Flint debt.

Anadarko (APC) announced that it has encountered 98 net feet of hydrocarbon pay in Upper Cretaceous-age reservoirs in the Jupiter-1 well, offshore Sierra Leone. Anadarko has a 55-percent working interest in block SL-07B-11, where the Jupiter well is located.

Brocade (BRCD), Cheesecake Factory (CAKE), Chesapeake Energy (CHK), Dell (DELL), Forest Oil (FST), Intuit (INTU), Shanda Games (GAME) and Winn-Dixie Stores (WINN) are among the prominent companies scheduled to release its results after the markets close.
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