Evening Market Update

Equities Get Help from Commodities

After a sluggish start, stocks managed to gain steam, aided by a rebound in commodity prices from last week’s declines. Sentiment was hamstrung early following anxiety over increased expectations that Greece would need a change to its eurozone bailout package, and after Standard & Poor’s downgraded the debt-laden nation’s sovereign credit rating. On the equity front, Dow member McDonald’s saw an impressive rise in April same-store sales, Tyson Foods fell short of analysts’ earnings expectations but issued an upbeat outlook, and Sysco Corp. bested the Street’s forecasts but warned of future inflation issues. In M&A activity, Hertz Global Holdings sweetened its offer for Dollar Thrifty Automotive Group to about $2.36 billion, while Tenet Healthcare firmly rejected Community Health Systems’ latest acquisition proposal. Treasuries finished mostly flat as the US economic calendar was void of any major releases today.

The Dow Jones Industrial Average gained 46 points (0.4%) to 12,685, the S&P 500 Index rose 6 points (0.5%) to 1,346, and the Nasdaq Composite advanced 16 points (0.6%) to 2,843. In moderately light volume, 778 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil soared $5.37 to $102.55 per barrel, wholesale gasoline jumped $0.19 to $3.28 per gallon, while the Bloomberg gold spot price gained $16.62 to $1,512.20 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was 0.2% higher at 74.68..

Dow member  McDonald’s Corp. (MCD $79) reported April global same-store sales growth—sales at stores open at least thirteen months—of 6.0% year-over-year (y/y), with US sales rising 4.0%, while sales out of its Europe, and Asia/Pacific, Middle East and Africa (APMEA) segments increased 6.5%. MCD’s McCafe beverage line-up supported its US results, while beef and chicken options, along with dessert offerings drove the advance in Europe and value and locally-relevant menu options buoyed its APMEA sales. Shares were higher.

Tyson Foods Inc. (TSN $18) reported fiscal 2Q earnings of $0.42 per share, just below the $0.43 consensus estimate of analysts surveyed by Reuters, but revenues rose 15.7% y/y to $8.0 billion, topping the $7.5 billion that the Street had expected. The meat producer also issued full-year revenue guidance that was above analysts’ estimates, mostly due to price increases associated with rising raw material costs. TSN noted in a conference call with analysts that modest optimism about increased demand in 2011 is “waning” as rising gas prices eat into consumers’ budgets, per Dow Jones Newswires. Shares ended solidly lower.

In other earnings news, Sysco Corp. (SYY $32) achieved fiscal 3Q earnings of $0.44 per share, above the $0.41 median forecast, on a 9.1% rise in revenue to $9.76 billion, also above the expectation of analysts which were looking for $9.48 billion. As a result of higher food and fuel prices, the food company said operating costs surged 11% y/y, but gross margins only narrowed to 18.6% from 18.8%, citing successful execution. On a conference call with analysts, the company’s CEO said the “unfavorable economic factors do create ripple effects throughout our business that may continue to create choppiness in our near-term results.” Shares finished nearly 11% higher.

In M&A news, Hertz Global Holdings Inc. (HTZ $17) announced that it has increased its previously rejected offer to acquire Dollar Thrifty Automotive Group Inc. (DTG $79) to $72 per share in cash and stock, or about $2.36 billion. The previous bid was for $50.99 per share and is at a 24% premium to the offer from rival Avis Budget Group Inc. (CAR $18) to acquire DTG. In response to the offer, DTG said it Board of Directors will review and consider HTZ’s proposal, advising its shareholders to “take no action pending the Board’s review.” DTG was sharply higher and CAR was nearly unchanged, while HTZ traded lower.

In other M&A news, Tenet Healthcare Corp. (THC $7) rejected Community Health Systems Inc’s (CYH $31) $7.25 per share in cash acquisition proposal. THC said it views the bid as “grossly” undervaluing the company, and opted to authorize the repurchase of up to $400 million of THC’s common stock. Shares of both companies were modestly lower.

Slow start to economic calendar but inflation data to dominate the second half of the week

Treasuries finished mostly unchanged as there were no major economic reports scheduled for release today. The yield on the 2-year note was down 2 bps to 0.54%, the yield on the 10-year note was down 1 bp to 3.14%, while the 30-year bond yield ticked 1 bp higher to 4.30%.

The bulk of the week’s US economic data will be focused on inflation, beginning with tomorrow’s report on import prices, expected to rise 1.8% month-over-month (m/m) in April, after rising 2.7% in March, and the y/y rate is forecasted to be 10.4% higher, after increasing 9.7% in the previous month.

However, the inflation data that will likely garner the most attention will come in the second-half of the week, with Thursday’s Producer Price Index (PPI), expected to show prices at the wholesale level rose 0.6% m/m in April, while the core rate, which excludes food and energy, is expected to increase 0.2%. The release precedes Friday’s Consumer Price Index (CPI) report, forecasted to show a 0.4% m/m increase, while ex-food and energy it is expected to rise 0.2%.

The only other economic report set for release tomorrow is wholesale inventories, forecasted to rise 1.0% m/m during March, matching February’s increase.

Euro debt the focus overseas

The euro-area debt crisis hampered sentiment overseas after a late-Friday meeting of top eurozone finance ministers showed most agreed that recently bailed out Greece would need new adjustments to its bailout package. The consensus reached over the weekend prompted Ireland to say any concessions given to Greece should mean better terms for its bailout package, per Reuters. Moreover, sentiment was exacerbated by Standard & Poor’s downgrading its sovereign credit rating on Greece, reflecting its view of “increasing sentiment among Greece’s key eurozone official creditors to extend the debt payment maturities of their 80 billion euros ($115 billion) of bilateral loans pooled by the European Commission.” Also, Moody’s Investors Service placed Greece’s ratings on review for a possible downgrade.

In economic news across the pond, Germany’s trade surplus surprisingly widened in March, supported by a sharp increase in exports, while UK home prices unexpectedly fell in April and a separate read on eurozone investor confidence deteriorated by a larger amount than expected. Further east, economic news was in short supply with only Australia reporting that its business confidence deteriorated. Back in the Americas, Canada’s housing starts declined by a larger-than-expected amount.

Tomorrow’s international economic calendar will include: industrial production figures from France, Italy and Sweden, CPI from Switzerland, while China will report its trade balance.