Beyond the Numbers
Macroeconomic, Earnings and Debt Worries May Plague Markets
2/22/2012 9:00 AM
The major U.S. index futures are pointing to a lower opening on Wednesday, with sentiment once again weighed down by economic uncertainties. Across the Atlantic, the results of a survey showed that the private sector in the Eurozone unexpectedly contracted, giving a foretaste of how the whole of the economy might fare in the first quarter. Additionally, Greek fears have not ceased even after the Troika approving a second round of bailout package. The downgrade of Greece’s rating by Fitch could aggravate the worries.
Additionally, earnings news has been bordering on the negative. PC maker Dell (DELL) reported lackluster quarterly results and also issued a revenue warning. Despite the recent positive housing readings, Toll Brothers (TOL) reported an unexpected loss for its first quarter.
With the Dow finding support at its 21-day moving average, the risk of a setback is less if it holds support at this level. On the upside, resistance lies around 13,016 and 13,248.
U.S. stocks squandered much of the mid-session optimism and closed Tuesday’s session mixed, as worries regarding the implementation of Greek austerity measures kept sentiment subdued amid the overbought levels of the market.
After seeing some indecision in early trading, the major averages launched into a rally in late morning trading, as traders digested the Greek debt deal. In the process, the Dow moved above the 13,000 mark. The averages pulled back in late afternoon trading and traded below the unchanged line until late trading. Subsequently, the averages recovered only to close on a mixed note.
The Dow Industrials added 15.82 points or 0.12 percent to close at 12,966 and the S&P 500 Index ended up 0.98 points or 0.07 percent at 1,362. Meanwhile, the Nasdaq Composite fell 3.21 points or 0.11 percent before ending at 2,949.
Nineteen of the thirty Dow components closed higher, with resource stocks Alcoa (AA), Exxon Mobil (XOM) and Chevron (CVX) pacing the gains, as commodity prices surged higher. AT&T (T), Bank of America (BAC) and Kraft Foods (KFT) also advanced. On the other hand, Wal-Mart (WMT) declined 3.86 percent in reaction to its insipid earnings report. Merck (MRK) fell over 1 percent.
Gold stocks advanced strongly, while transportation, biotechnology and semiconductor stocks came under selling pressure.Commodity, Currency Focus
In their first day of trading as the front month contract, crude oil futures for April delivery are trading down $0.49 at $105.76 a barrel. The March futures expired at $105.84 a barrel on Tuesday, up $2.60 from the previous session.
Yesterday’s advance came amid the news of the Greek deal and an announcement from Iran about the curtailment of exports even before the European Union imposes a ban in protest against the Muslim nation’s nuclear ambitions.
Gold futures are currently slipping $3.10 to $1,755.40 an ounce. In the previous session, gold jumped $32.60 to $1,758.50 an ounce.
On the currency front, the U.S. dollar is trading at 80.3038 yen compared to the 79.7402 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.3227 compared to yesterday’s $1.3234.Asia
The major Asian markets ended broadly higher, with the Chinese and the Japanese markets pacing the gains. Meanwhile, the Indian, Indonesian, Malaysian, New Zealand and Singaporean markets closed lower. Higher commodity prices and the weakening of domestic currencies lent support to the markets.
After some early apprehension, Japan’s Nikkei 225 average advanced in the afternoon, as the yen weakened past the 80-yen level against the dollar. Export stocks capitalized on the yen’s weakness and advanced solidly. The Nikkei 225 ended up 90.98 points or 0.96 percent at 9,554, representing the highest closing level in about 6-1/2 months.
Australia’s All Ordinaries languished in the red till late afternoon trading before breaking above the unchanged line and closing up merely 3.90 points or 0.09 percent at 4,372.
Hong Kong’s Hang Seng Index added 70.56 points or 0.33 percent before closing at 21,549.Europe
In Europe, the unexpected contraction in Eurozone private sector activity generated negative sentiment, sending stocks lower. The French CAC 40 Index is declining 0.47 percent and the German DAX Index is slipping 0.95 percent, while the U.K.’s FTSE 100 Index is receding 0.43 percent.
France Telecom (FTE) reduced its dividend and also backed off its earlier decision to buy back shares after reporting a drop in its fourth quarter profit and sales. Meanwhile, Schneider Electric reported an increase in its 2011 profits, which were also ahead expectations. Hotel operator Accor also reported solid 2011 results.
Shell (RDS) announced a proposed cash offer of 195 pence per share for Cove Energy. The offer values all issued and to be issued Cove shares at 992.4 million pounds. Swedish truck maker Volvo reported a 2 percent increase in its total truck deliveries to 15,647 in January.
On the economic front, a Markit Economics survey revealed that private sector activity in the eurozone contracted in February, with the corresponding composite output index dipping below the ‘50’ cut-off mark to 49.7. The data re-ignited concerns of a recession.U.S. Economic Reports
The National Association of Realtors is scheduled to release its report on existing home sales for January at 10 am ET. Economists estimate existing home sales of 4.69 million for the month.
Existing home sales rose 5 percent to a seasonally adjusted annual rate of 4.61 million units in December from a downwardly revised reading of 4.39 million in November. On a year-over-year basis, sales were 3.6 percent higher. Total existing home inventories at the end of December fell 9.2 percent to 2.38 million units in absolute terms, representing a 6.2 months of supply compared to 7.2 months in November. The national median price of an existing home fell 2.5 percent year-over-year to $164,500.
Additionally, the results of the Treasury auction of 5-year notes are due at 1 pm ET.Stocks in Focus
Dell reported fourth quarter earnings that trailed estimates and also issued below-consensus revenue growth guidance for the first quarter.
Luxury homebuilder Toll Brothers reported a first quarter loss of 2 cents per share compared to a profit of 2 cents estimated by analysts. The revenues were also less than expected.
Brocade (BRCD) reported better than expected first quarter earnings and also issued in-line guidance for its second quarter. The company slightly raised the low and high end of its earnings guidance for the full year, which surrounds the consensus estimate.
Intuit’s (INTU) second quarter adjusted earnings of 51 cents per share exceeded the 45 cents per share consensus estimate. Revenues were about in line with estimates.
Johnson & Johnson (JNJ) announced the retirement of Bill Weldon from the post of CEO and the appointment of Alex Gorsky as its new CEO, effective April 26th, 2012.
Timken (TKR) said it would invest $225 million at the Faircrest Steel Plant in Stark County, Ohio.
Great Plains Energy (GXP) said it has appointed its president and COO Terry Bassham as its CEO, as Michael Chesser is set to retire from the position of CEO, effective May 31, 2012.
Community Health Systems (CYH) reported fourth quarter adjusted income from continuing operations of 85 cents per shares, up from 82 cents per share in the year-ago period. Net operating revenues rose 3.9 percent to $3.44 billion. While earnings exceeded estimates, revenues were below estimates.
La-Z-Boy (LZB) reported better than expected third quarter results.
Cheesecake Factory’s (CAKE) fourth quarter results also exceeded estimates.
Papa John’s (PZZA) reported fourth quarter earnings of 65 cents per share, up from adjusted earnings of 51 cents per share last year. Revenues rose 6.8 percent to $306.2 million. The earnings beat estimates, while THE revenues were below estimates. The company reaffirmed its previously issued earnings guidance of $2.33-$2.43 per share for 2012. T
Packaging Corp. of America (PKG) announced that its board approved a 25 percent increase in its dividend to 25 cents per share. Gentex (GNTX) increased its quarterly dividend by 8 percent to 13 cents per share.
Mylan (MYL) said at an investor meeting that it expects adjusted earnings of $2.30-$2.45 per share on revenues of $6.8 billion to $7.2 billion for 2012, while it also reaffirmed its 2013 adjusted earnings guidance of $2.75 per share. The company’s 2012 guidance surrounded the consensus estimates, while its 2013 earnings guidance was above estimates.
The prominent companies due to release their results after the markets close include Analog Devices (ADI), DryShips (DRYS), Equity One (EQY), Fluor (FLR), Hertz Global (HTZ), Hewlett-Packard (HPQ), Jack in the Box (JACK), Liberty Global (LBTYA), SM Energy (SM), Williams Cos. (WMB) and Yamana Gold (AUY).