Market Analysis

Beyond the Numbers

Traders Optimistic of Completion of Greek Debt Swap Deal
3/8/2012 9:25 AM

The major U.S. index futures are pointing to a higher opening on Thursday, with optimism lingering amid expectations that there would be adequate participation from Greece’s private sector investors in the debt swap offer for it to go through. Meanwhile, a report released short while ago showed that jobless claims came in more than expected, creating some uneasiness among market participants about tomorrow’s non-farm payrolls report. Despite the nervousness, risk appetite is still holding up, as reflected by a rally in commodity prices and the upside seen in risky currencies.

U.S. stocks rebounded on Wednesday, recouping part of the losses they experienced in the previous session, as the private payrolls numbers released by ADP came in better than expected.

After a tentative start, the major averages rose sharply in late morning before climbing steadily and closing moderately higher. The Dow Industrials added 78.18 points or 0.61 percent to close at 12,837 and the Nasdaq Composite ended 25.37 points or 0.87 percent higher at 2,936, while the S&P 500 Index ended at 1,353, up 9.27 points or 0.69 percent.

Twenty-three of the thirty Dow components closed higher, with Bank of America (BAC) (up 4.02 percent), Caterpillar (CAT) (up 2.22 percent) and Home Depot (HD) (up 2.16 percent) leading the gains.

Oil service, retail, housing, semiconductor and financial stocks were among the notable gainers of the session.

On the economic front, the ADP survey showed that 216,000 jobs were added by the private sector in February compared to the 173,000 jobs added in January, accentuating the return to health by the labor market.

A report released by the Federal Reserve showed that outstanding consumer credit rose by $17.8 billion or 8.6 percent to $2.51 trillion in January, with non-revolving credit surging up $20.7 billion or 14.7 percent. The component benefited from an unadjusted gain of $28 billion in student loans. Meanwhile, revolving credit tied to credit cards fell by $2.9 billion.

Commodity, Currency Focus

Crude oil futures are rising $0.36 to $106.52 a barrel after advancing $1.46 to $106.16 a barrel on Wednesday. Wednesday’s gain came amid the release of the positive private payrolls report and the inventory report, which showed crude oil stockpiles rose by 0.8 million barrels to 345.7 million barrels in the week ended March 2nd. Inventories were in the upper limit of the average range.

On the other hand, gasoline inventories fell by 0.4 million barrel and yet were in the upper limit of the average range. Distillate inventories were down a steeper1.9 million barrels, with inventories remaining in the middle of the average range. Refinery capacity utilization averaged 84.2 percent over the four weeks ended March 2nd compared to 84 percent over the previous four weeks.

Gold futures, which rose $11.80 to $1,683.90 an ounce on Wednesday, are currently rising $11.70 to $1,695.60 an ounce.

On the currency front, the U.S. dollar is trading at 81.55 yen compared to the 81.0.09 yen it fetched at the close of trading on Wednesday. Against the euro, the dollar is valued at $1.3247 compared to yesterday’s $1.3149.


The positive close on Wall Street overnight fueled a rally in the Asian markets, helping the averages in the region to break a 3-session losing streak. The Indian market remained closed on account of a public holiday.

Japan’s Nikkei 225 average opened higher and moved sideways in the morning before going about a steady advance. The index closed up 192.90 points or 2.01 percent at 9,769.

Australia’s All Ordinaries ended 27.80 points or 0.66 percent higher at 4,262 and Hong Kong’s Hang Seng Index climbed 272.95 points or 1.32 percent before closing at 20,901.

In economic news, Japan released its revised fourth quarter GDP report, which showed a 0.2 percent decline in GDP compared to the third quarter. The reading came in line with expectations, although it represented a narrower contraction than initially estimated. On an annual basis, GDP fell 0.7 percent compared to the 2.3 percent drop estimated initially.

A Ministry of Finance report showed that Japan’s current account showed a deficit of 437.3 billion yen in January compared to the 320 billion yen deficit expected by economists. The trade deficit widened to 1.381 trillion yen from a 145.8 billion deficit in December.

The Australian Bureau of Statistics reported that the nation’s unemployment rate came in at a seasonally adjusted 5.2 percent in February compared to a 5.1 percent rate in January. The number of full time employees remained almost unchanged at 8.06 million, while part time employees decreased by 15,400 to 3.38 million.


The major European markets are also advancing for the second straight day, with the French CAC 40 Index rising 1.60 percent and the German DAX Index gaining 1.68 percent, while the U.K.’s FTSE 100 Index is adding 1.16 percent.

In corporate news, Airbus parent EADS reported adjusted EBIT of 1.8 billion euros in 2011, higher than 1.3 billion euros in the previous year. Revenues rose 7 percent to 49.1 billion euros. For 2012, the company expects adjusted EBIT of over 2.5 billion euros. The company also announced the doubling of its dividend. Meanwhile, French retailer Carrefour halved its dividend after it reported a decline in its full year profits.

German chemical maker Henkel reported higher profits and sales for its fourth quarter. At the same time, the company confirmed its adjusted EBIT and sales target for 2012. Air France-KLM reported a loss of $1.06 billion for the full year on higher fuel costs and sluggish traffic.

On the economic front, France reported a trade deficit of 5.324 billion euros for January compared to the 5.15 billion euro-deficit expected by economists. A revised report released by French statistical office INSEE showed that payrolls shrank by 0.1 percent in the fourth quarter compared to the previous quarter.

As expected, the European Central Bank and the Bank of England opted to hold interest rates unchanged at the current record low levels. The latter also maintained the size of its asset purchase program unchanged.

U.S. Economic Reports

New claims for unemployment insurance in the U.S. ticked up unexpectedly last week, according to figures released by the Labor Department. DOL figures put the level of new jobless claims at a seasonally adjusted level of 362,000 for the week ending March 3, an increase of 8,000 from the previous week's revised figure of 354,000.

Additionally, the previous week's claims levels were revised up from the 351,000 initially reported. While most economists had predicted that new claims would hold level at the 351,000 level initially reported for the previous week, the figure still remains comfortably below the 400,000 level that most economists believe is the threshold for lowering the overall unemployment rate.

Stocks in Focus

Simon Property Group (SPG) announced an agreement to buy a 28.7 percent stake in Paris-based real estate company Klepierre for 28 euros per share or a total of 1.5 billion euros.

Talisman Energy (TLM) said it has agreed to sell certain non-producing non-core coal properties located in Northeast British Columbia to Xstrata for $500 million in cash.

Pall Corp. (PLL) reported second quarter pro forma earnings of 76 cents per share compared to 68 cents per share last year, as sales rose 8.2 percent to $698 million. The company’s results exceeded estimates. The company also said its task is to deliver earnings in line or better than the $3.20 per share mid-point of its earlier guidance range for 2012, while analysts estimate earnings of $3.21 per share.

AutoZone (AZO) said its board has authorized the buyback of an additional $750 million shares.

Korn/Ferry (KFY) reported third quarter adjusted earnings of 26 cents per share on revenues of $194.6 million. The earnings trailed estimates, while revenues were better than expected. For the fourth quarter, the company expects adjusted earnings of 24-30 cents per share on fee revenues of $182 million to $196 million. The earnings guidance was below expectations.

General Dynamics (GD) announced an 8.5 increase in its regular dividend to 51 cents per share.

Semtech (SMTC) said it has acquired Cycleo SAS and all its assets, related companies and operations. Separately, the company reported fourth quarter non-GAAP earnings of 32 cents per share on revenues of $104.03 million. The earnings were ahead of estimates, while the revenues missed expectations. For the first quarter, the company expects non-GAAP earnings of 28-32 cents per share on net sales of $102 million to $108 million. The guidance was below consensus estimates.

Coldwater Creek (CWTR) reported a loss of 11 cents per share for its fourth quarter, narrower than the year-ago loss of 40 cents per share and the consensus estimate for a loss of 20 cents per share. Net sales declined from the year-ago period but were above consensus expectations. The company also said it expects a net loss of 18-24 cents per share for the first quarter. Analysts estimate a loss of 19 cents per share.

H&R Block (HRB) reported a third quarter loss from continuing operation of 1 cent per share compared to a loss of 4 cents per share last year. The bottom line results trailed estimates. Meanwhile, revenues fell 2.5 percent to $663.3 million.

Men’s Wearhouse (MW) reported a narrower than expected loss for its fourth quarter, while its revenues were slightly shy of estimates. The company issued above consensus earnings guidance for 2012.

Hot Topic (HOTT) reported fourth quarter earnings of 21 cents per share compared to non-GAAP earnings of 12 cents per share last year. Sales fell 1.2 percent to $209.9 million. The company also said its board approved a 14 percent increase in its dividend to 8 cents per share. For the first quarter, the company expects earnings of 2-5 cents per share. The company’s results were better than expected and its guidance was also upbeat.

Amylin Pharmaceuticals (AMLN) announced that it is offering to sell its common stock in an underwritten public offering.

Standard & Poor’s announced that Crown Castle (CCI) will replace Constellation Energy (CEG) in the S&P 500 Index after the close of trading on a date to be announced. Constellation Energy has agreed to be acquired by Exelon Corp. (EXC).

Aeropostale (ARO), Comtech Telecom (CMTL), Quiksilver (ZQK), Smith & Wesson (SWHC) and Zumiez (ZUMZ) are among the companies due to release their quarterly results after the markets close.
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