Evening Market Update

Markets Hampered by Familiar Theme

The unrelenting rise in oil prices and anxiety of its affect on the economic recovery disheartened traders today, with stocks losing ground but off the worst levels of the day. Weakness in technology shares on an analyst downgrade of the semiconductor sector also applied pressure and led to some profit-taking out of the chip arena, while Dow member AT&T announced that its CFO will resign. In M& A activity, Western Digital said it has agreed to acquire Hitachi’s global storage technology subsidiary for a little more than $4 billion. Treasuries moved lower following a late-afternoon report that showed consumer credit rose for the fourth consecutive month.

The Dow Jones Industrial Average fell 80 points (0.7%) to 12,090, the S&P 500 Index lost 11 points (0.8%) to 1,310, and the Nasdaq Composite dropped 39 points (1.4%) to 2,746. In moderate volume, 1.0 billion shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.02 to $105.44 per barrel, wholesale gasoline fell $0.05 to $3.00 per gallon, while the Bloomberg gold spot price added $6.10 to $1,434.70 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies— was 0.1% lower at 76.47.

Technology shares came under pressure today following an analyst downgrade of the semiconductor sector, with Intel Corp. (INTC $21), Qualcomm Inc. (QCOM $58), Xilinx Inc. (XLNX $34) and Analog Devices Inc. (ADI $40) all suffering. In other tech news, Ciena Corp. (CIEN $26) fell nearly 10% after a larger-than-expected rise in 1Q revenues to $433.3 million was overshadowed by a 1Q loss that widened to $0.14 per share, and after the network solutions provider said that revenues for the current quarter would fall short of Street estimates, citing supply-chain constraints.

Dow member AT&T Inc. (T $28) announced that its Chief Financial Officer (CFO) Rick Lindner will retire effective June 1, 2011, and will be replaced by the company’s Controller, John Stephens, who has been with the firm for 19 years. The company said, “Rick and John have worked together closely for more than 15 years, and we expect a seamless transition.” Shares finished nearly unchanged.

In M&A news, Western Digital Corp. (WDC $35) announced that it has reached a definitive agreement with Hitachi Ltd. (HIT $65), whereby WDC will acquire Hitachi Global Storage Technologies, a subsidiary of HIT, in cash and stock valued at about $4.3 billion. Shares of WDC were sharply higher, while HIT also traded solidly to the upside.

Economic calendar on the light side, consumer credit increases

Consumer credit was the only item on today’s economic docket, which came in the final hour of trading, showing that consumer borrowing rose by $5.0 billion during January, the fourth consecutive monthly increase and well above the $3.4 billion expected by economists surveyed by Bloomberg. December’s figure was revised downward to a $4.1 billion increase from an initially-reported $6.1 billion gain. Revolving debt, which includes credit cards, fell by $4.2 billion, while non-revolving debt, which includes loans for cars and mobile homes, rose $9.1 billion, its sixth-consecutive monthly gain.

Treasuries moved lower following the consumer credit report. The yield on the 2-year note was up 1 bp to 0.70%, the yield on the 10-year note was 1 bp higher at 3.51%, while the 30-year bond yield gained 2 bps to 4.62%.

Tomorrow’s economic calendar will be empty and the rest of the week is expected to be light with the sole major release being Friday’s  advance retail sales, forecasted to rise 1.0% month-over-month (m/m) in February, after gaining 0.3% in January, while sales ex-autos are estimated to grow 0.7%, after advancing by 0.3% in January. Same-store sales results-sales at stores open at least a year-reported by retailers were generally better-than-expected. The retail sales report includes spending at supermarkets and gas stations.

Greece downgraded by Moody’s

Anxiety over the nonstop surge in oil prices, courtesy of the continued geopolitical concerns in the Middle East and North Africa, and negative news out of Greece sapped sentiment in overseas trading. Moody’s Investors Service cut Greece’s credit rating by three notches to B1 from Ba1, while assigning a negative outlook on the bailed out euro-zone nation. The credit rating agency cited significant risks to the Greek government’s fiscal consolidation program and difficulties in reforming healthcare and state-owned companies, per Reuters. Greece’s Finance Ministry said, “The rating downgrade announced by Moody’s today is completely unjustified.”

Economic news across the pond was very light, with the lone release being an improvement in euro-zone investor confidence, which came in slightly lower than what economists had forecasted.

The festering concerns toward the Middle East and North Africa and corresponding rise in oil prices also negatively affected the mood in the Asia/Pacific part of the world. Also pressuring sentiment in the region, Standard & Poor’s downgraded the debt rating of Toyota Motor Corp. (TM $91) to AA- from AA, citing the world’s largest automaker’s “weak profitability.” Meanwhile, the resignation of Japan’s Foreign Minister Maehara over political donations received from a Korean resident garnered some attention as it damaged Prime Minister Kan’s fight to implement his budget and remain in his job. Economic news in the East was also fairly light, with only a few reports worth a mention. Japan’s Leading Index improved, but by an amount that was less than what economists were expecting, and Taiwan’s trade surplus narrowed by a smaller amount than forecasts after exports beat estimates. However, stocks in China were able to buck the trend after the government said domestic consumption will drive economic growth, per Reuters.

Tomorrow’s international economic calendar will include UK retail sales, German factory orders, France’s trade balance, and Switzerland’s unemployment rate. Further east, Japan will report its trade balance and bank loans.