NYSE Morning Update:
Ahead of the Bell: Dow futures are trading up 63 points and S&P futures are trading up 7 points despite uncertainty over the so called sequester as Congress reconvenes to try and agree on a plan for the $85 billion in automatic spending cuts due to take effect on March1. The White House on Sunday issued more dire warnings about the harm the cuts will do to Americans, but Republicans, who advocate budget cuts, said the warning was overplayed. Market participants will also be focusing on the Italian elections which close later today. Although some uncertainty remains, concerns of a victory for former prime minister, Silvio Berlusconi has eased.
On the economic calendar today, no major reports are due. The Chicago Federal Reserves national activity index for February will be release before the market opens.
The dollar is up against the British pound and down against the euro and Japanese yen. Gold is trading at $1,591. Crude oil is currently trading at $94 a barrel.
The week ahead, investors face another Washington-imposed deadline on government spending cuts this week, but it seems to not be generating the same level of concern as the fiscal cliff did two months ago. The National elections in Italy, which close on Monday, could also add to investor concern. Most investors expect a government headed by Pier Luigi Bersani to win and continue with reforms to tackle Italy’s debt problems. However, a rebirth by former leader Silvio Berlusconi has raised doubts and could weigh on financial markets. If lawmakers fail to reach an agreement on reducing the U.S. budget deficit in the next few days, a sequester would include significant cuts in defense spending. The latest data on Q4 U.S. GDP is scheduled to be released on Thursday, and some analysts predict an upward revision following trade data that showed America’s deficit shrank in December to its narrowest in nearly three years. Also, investors will be looking for any hints of changes in the Fed’s policy of monetary easing when Fed Chairman, Ben Bernanke speaks before congressional committees on Tuesday and Wednesday.
Happy Monday and have a wonderful week!
DJIA up 119.95 pts/+0.86%/ 14,000.57
S&P up 13.18 pts/+0.88%/1,515.60
Nasdaq up 30.33 pts/0.97%/3,161.82
Dow Futures up 63.17 pts/+0.45%
S&P Futures up 7.25 pts/+0.48%
Nasdaq Fut up 19.75 pts/+0.69%
CAC 40 +1.93%
NIKKEI 225 +2.43%
HANG SENG +0.17%
Overseas: World stock markets are higher today ahead of the Italian elections, as concerns of a victory for former prime minister, Silvio Berlusconi eased.
Barnes & Noble (BKS) founder and Chairman, Leonard Riggio said in an SEC filing that he plans an offer to buy the retail assets of the bookstore chain.
Reports indicate Hewlett-Packard (HP) Chairman Ray Lane and fellow board members plan to meet with about 20 of the computer maker’s big investors Monday in hopes of heading off a campaign to unseat Lane and two other directors.
Lowes (LOW) announced today it authorized a new $5 billion share buyback program that it expects to use in the next two years.
According to sources, Knight Capital Group (KCG) has struck a deal to sell its credit-brokerage unit to Stifel Financial Corp.
BlackRock (BLK), the world’s largest money manager, has got approval from the U.S. securities regulator to list a copper-backed exchange-traded fund.
Gold: up $18.60 to $1,591.40
Oil: up 1.26 to $94.39
EUR/USD 1.3300 +0.0100
USD/JPY 93.9350 +0.9500
GBP/USD 1.5135 -0.0100
Volatility Index (VIX): As of the close of business Friday, February 22, the VIX is down 1.05 at 14.17
Companies Reporting Quarterly Earnings:
Lowe’s reports Q4 EPS 26c, vs. Est. 23c and reports Q4 revenue $11.05B, vs. Est. $10.84B.
Hertz Global reports Q4 adjusted EPS 33c, vs. Est. 31c and reports Q4 revenue $2.3B, vs. Est. $2.24B.
Todays Opening and Closing Bells:
Alon USA Partners, LP Visits the NYSE. Paul Eisman, President and Chief Executive Officer will ring the opening bell.
The Committee of Encouraging Corporate Philanthropy Celebrates International Corporate Philanthropy Day at the New York Stock Exchange. Corporate Giving Executives will ring the closing bell.
NYSE MAC DESK MID-DAY MARKET UPDATE:
DOW 13,953 (-47 points), S&P500 1510 (-4 handles), Crude $93.01/barrel (-$0.12)
MARKET DRIVERS: Stocks were following global markets higher early on as traders initially pointed to positive Italian election results. This rapidly changed when early results showed Silvio Berlusconi surprisingly leading the voting results. Elsewhere further monetary easing prospects in Japan and another solid round of earnings on the home-front are trying to keep the Italian results in check
HSBC’s flash China PMI manufacturing index fell to 50.4 in February, down from 52.3 in January. Economists had predicted only a slight downtick to 52.2 for the current month.
Italian stocks mixed amid concerns that Silvio Berlusconis coalition will prevail in Senate elections and move the nation away from austerity plans.
President Obama takes hardnosed stance with Governors and pledges to go to the public rather than negotiate on the sequestration.
According to reports, Haruhiko Kuroda, current head of the Asian Development Bank and an established dove on monetary policy, is likely to take over at the Bank of Japan in March.
On the earnings-front, Lowes, the second largest U.S. home-improvement retailer, reported Q4 EPS of 26c; topping the consensus of 23c. The company also beat on the top-line; reporting Q4 revenue of $11.05B, vs. consensus of $10.84B.
Looking ahead, massive U.S. government budget cuts will take effect on Friday if lawmakers fail to reach an agreement over spending and taxes.
The charge to new all-time highs in the major indices was back on-track early this morning as the Dow came within 100 points of its all-time intra-day high of 14,165. Since then, unfortunately, some news out of Italy that the elections arent going as planned has brought some sellers out, (uncertainty never good for markets.) We hope this move is temporary While todays U.S. economic calendar is light, the remainder of the week promises to be busy and eventful. Here is a brief list of what we need to be watchful of in the days ahead:
1. We have the appearance of several Fed speakers throughout the week, including three separate appearances by Chairman Bernanke. On Tuesday, Dr. B. will testify in the Senate and on Wednesday, he’ll reprise in the House. Bernanke will be expected to correct or clarify impressions raised by last week’s release of the FOMC Minutes. (Remember, the market took a two-day hit post-minutes last week.)
2. The week also promises to be one of our busiest according to the U.S. economic calendar. Market-watchers specifically point to the GDP and consumer sentiment data along with Fridays manufacturing numbers for positive signs on the economic recovery-front.
3. On top of everything, the markets will have its eyes and ears on developments in D.C. as the pending sequester cuts issue appears as though it will be the week’s dominant story.
Moving on, the Dow is drifting to session-lows, amid concern that the center right party is leading the Italian elections Volume is very light for this time of day. Breadth is mixed with issues and volume bearish while new highs to new lows are bullish (positive divergence). Advancing Issues: 1134 / Declining Issues: 1776 — for a ratio of 0.6 to 1. Advancing Volume: 71,053,000 / Declining Volume: 193,754,000 — for a ratio of 0.4 to 1. New 52-Week Highs: 191 / New 52-Week Lows: 22 Technically, we are putting S&P resistance at 1520/1523. Support looks like 1506/1509 While this market continues to want to go higher in anticipation that the Fed Chairman will provide further reassurances this week, the surprising news out of the Italian elections and the stern tone adopted by the President with the nations Governors has changed the script to one of concern today. As always, we will keep you posted Have a tremendous day!
Rebecca’s option commentary follows: Option volumes are running a little heavier than normal about 10% above the average, as equities trade about 10% *below* their usual noontime level with the relative predominance of option buyers reflected in an 8% increase in the VIX (15.32 at last print). Premium-buyers are particularly active in near-term contracts on the SPY, which is down 58 cents at $151.31, driving the order flow in March 1 weeklies at the $152 call and $150 put, and in the regular March front-month contract at $148 strike. Overall, put buyers are outspending call buyers in SPY by more than 2-to-1 as measured in raw active premium, and skew which measures the price of equally-out-of-the-money puts versus calls has also risen on the put side, further illustrating the near-term bearish mood
Economic Calendar for the Week:
Chicago Fed National Activity Index
Dallas Fed Mfg Survey
FHFA House Price Index
S&P Case-Shiller HPI
New Home Sales
Ben Bernanke Speaks
Richmond Fed Manufacturing Index
MBA Purchase Applications
Durable Goods Orders
Pending Home Sales Index
EIA Petroleum Status Report
Richard Fisher Speaks
Kansas City Fed Manufacturing Index
Motor Vehicle Sales
Personal Income and Outlays
PMI Manufacturing Index
ISM Mfg Index
Financials the worst performer with the S&P Financials Index (0.9%)
o Insurers lagging. GNW (3.3%), MET (1.5%) and PL (1.1%) leading the life insurers to the downside. AIG (1.4%) and ALL (1.1%) the other notable performers in the space.
o Banks underperforming with the BKX (1%). Investment banks led lower by MS (3.1%), JEF (2.3%) and GS (1.6%). BAC (1.8%) the notable decliner among the money-center names. Regional led to the downside by PNC (1.4%) and STI (1.4%).
o Asset managers outperforming. APO +4.5% and FIG +1.8% topping gains. Downside limited with WDR (1.1%) the laggard.
Materials underperforming with the S&P Materials Index (0.7%)
Industrial metals underperforming. Steel equities led lower by RS (2.6%), AKS (2.4%) and SCHN (1.9%). Aluminum space mixed with KALU +1.2% topping gains and NOR (2.7%) lagging. RIO (0.9%) and BHP (0.8%) the notable performers among the global miners. FCX (1.4%) the other notable performer in the space.
Chemicals mostly lower. Ag chemicals mostly lower, though losses are limited with CF (0.9%) lagging. AGU +0.6% the notable gainer. Diversified names led lower by EMN (2.5%). Ti02 names led higher by HUN +0.2%.
Precious metals equities outperforming. Underlying assets trading higher with SLV +0.8% leading GLD +0.6%. Majority of the miners trading up >1%. PAAS +4.4% and HMY +2% topping gains. The former was upgraded at Canaccord Genuity.
Other notable performers: IP (0.4%), trading lower despite an upgrade at JPMorgan.
Tech outperforming with the S&P Information Technology Index (0.3%)
Software outperforming. AKAM +2%, TIBX +2%, SAP +0.7%, ORCL +0.4% and ADBE +0.4% leading the way higher. AKAM was upgraded at Macquarie Research this morning. Note SAP announced plans to acquire SmartOps over the weekend. MSFT +0.1% another notable performer. Stifel reiterated its buy rating on the stock, and suggested splitting the company into two segments. CRM (2%) and JIVE (1.2%) the laggards.
Internet space mixed. NFLX +2.7% and FB +1.3% leading the way to the upside. MWW (1.4%) and EBAY (0.8%) the notable decliners.
Semis mixed with the SOX (0.2%). SNDK +1.9%, QCOM +1.7%, MU +1.7% and MRVL +1.5% topping gains. CREE (2.1%), CRUS (2.1%), AMD (1.9%), TQNT (1.7%) and KLAC (1.2%) the notable performers to the downside.
Hardware mostly lower. BBRY +1.6% the notable outperformer after reports that production for the BB10 has been increased due to higher than expected sales. WDC (1.5%), STX (1.2%) and AAPL (0.3%) the notable performers to the downside.
Consumer discretionary outperforming with the S&P Consumer Discretionary Index (0.3%)
Footwear and sporting goods outperforming. DKS +1.4%, COLM +1.3% and DECK +1.2% leading the way higher. Barron’s was positive on DKS over the weekend. FINL (1.8%) the laggard.
OTAs outperforming. OWW +2.2%, TRIP +2% and PCLN +0.2% the notable gainers. EXPE (1.5%) the laggard.
Retail mixed with the RTH +0.4%. SKS +0.7% leading the department stores to the upside, while JWN (1.6%) lags. Apparel names mixed. ANN +1.1% and TRLG +1.1% topping gains, while HOTT (2.9%), CHS (2.6%) and WTSL (2.3%) the laggards. Note ARO outperforming despite a downgrade at KeyBanc. Office-supplies names mostly lower, with ODP (5%) and OMX (4.4%) leading the way, while SPLS +1.5% outperforms. LOW +0.1% in focus among the housing-related names after beating earnings expectations and authorizing a $5B share repurchase program.
Homebuilders underperforming. TOL (2.3%), RYL (2.3%) and MDC (1.7%) leading the way lower. NVR +0.2% the only notable gainer.
Other notable performers: HTZ +6.2%, CTB +5.7%. Both beat earnings expectations.
Healthcare outperforming with the S&P Healthcare Index (0.2%
Pharma outperforming with the DRG (0.1%). ELN +7.4% in focus after announcing that Royalty Pharma made a proposal to acquire the company for $11/share, which ELN noted was “highly opportunistic timing”. ENDP +8.1% the other notable gainer after naming Rajiv De Silva President and CEO effective 18-March. ACT +1.6% also outperforming after receiving FDA approval on its ANDA for Buprenorphine HCI and Naloxone HCI Dihydrate SL Tablets. GSK (1.4%) the laggard.
Med-tech/device outperforming. MAKO +3% and EW +1.4% topping gains. SNN (1.5%) and WMGI (0.8%) the notable decliners.
Hospitals underperforming. HMA (1.7%), THC (1.7%) and CYH (0.9%) leading the way lower.
Other notable performers: AMGN +3.9%, AFFY (85.2%). Piper Jaffray raised its target on AMGN following the recall of AFFY’s Omontys. AFFY was downgraded at multiple sell-side firms following its voluntary recall of Omontys.
What’s impacting the markets today? Italy. Analysis from Morgan Stanley:
- The first indications, with 55% of the votes counted so far in the Senate, point to a great degree of uncertainty, with the centre-right and the Five Star Movement having performed better than expected. While a Bersani-Monti
alliance that should ensure an absolute majority in the both chambers is possible, we do not take this for granted.
- As such, compared to more uncertain options, a Bersani-Monti alliance could present a positive outcome in the near term, given the parties have declared their commitment to fixing some of Italys structural problems. Conversely, we would view an uncertain situation, perhaps leading to new elections in a few months, as negative.
- But such a fragmented and heterogeneous parliament points to a degree of political fragility. Were cautious about Italys ability to implement deep reforms, and think that such risk is underappreciated in the market. This note
also looks at the implications across asset classes and banks.
What to Watch Now
Whats going on: With 55% of the votes counted so far, the election outcome is far from final. Yet these preliminary indications, if confirmed, suggest either a very fragile Bersani-Monti majority in both chambers or a fragmented and heterogeneous parliament, potentially pointing to a degree of political fragility and indicating the possibility that nobody secures a majority.
Whats a positive scenario? Everyone would of course prefer a blue-sky scenario with a strong and stable government capable of implementing substantial structural reforms over a short timeframe. But the reality is that, among the feasible scenarios, a positive one would include a victory of those ahead in the polls, who seem committed to fixing, maybe not very quickly but perhaps steadily, some of Italys problems. Thus, a Bersani-led government, with
(i.e., an alliance is needed) or without Mr. Monti (i.e., Bersani has a majority of his own) is likely to be taken positively by market participants.
Whats a negative scenario? There are various possibilities. First, a very fragmented parliament where the centre-left performs poorly and the centre-right more strongly than expected. Second, an unstable coalition where the junior partners closer to the extremes of the political spectrum gain more than expected (e.g., far-left SEL). Third, a strong result of parties likely to pursue populist policies (e.g., far-left Five Star Movement, M5S). Of these scenarios, the rise of the M5S beyond expectations of a 15% gain is an important risk (partial count suggests more than 20%).