Evening Market Update

Equities Unhampered by Greek Debt Concerns

Despite continuing concerns surrounding a sovereign debt default of Greece, US equities were able to shake early negative sentiment to finish the first trading day of the week in the plus column. Some positive reports on the equity front helped to solidify gains, as the US economic calendar was dormant today. Wal-Mart Stores received a favorable Supreme Court ruling over a massive discrimination lawsuit, PNC Financial Services Group inked a deal to acquire the US retail banking business of Royal Bank of Canada for $3.45 billion, Canada-based Agrium upped its 2Q guidance, but Nabors Industries Ltd issued a disappointing outlook. Treasuries pared initial gains to finish mixed. 

The Dow Jones Industrial Average gained 76 points (0.6%) to 12,080 and the S&P 500 Index rose 7 points (0.5%) to 1,278, while the Nasdaq Composite was up 13 points (0.5%) to 2,630. In lighter volume, 786 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.25 to $93.26 per barrel, wholesale gasoline lost $0.04 to $2.91 per gallon, and the Bloomberg gold spot price inched $0.16 higher to $1,539.56 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was unchanged at 75.05.

Dow member Wal-Mart Stores Inc. (WMT 53) was higher after the US Supreme Court rejected an employment discrimination class-action lawsuit case against the world’s largest retailer. The gender-discrimination lawsuit was filed on behalf of every woman who worked for the company since 1998—roughly more than a million women—and the Court ruled that the case cannot proceed as one large class action suit. Justice Scalia cited several problems with the suit, with one being that the plaintiffs did not have enough in common to pool all of their claims into a single case, per Dow Jones Newswires. WMT said it was pleased with today’s ruling, which made clear that the plaintiffs’ claims “were worlds away from showing a companywide discrimination pay and promotion policy.” The company added that, “By reversing the Ninth Circuit Court of Appeals decision, the majority effectively ends this class action lawsuit.”

PNC Financial Services Group Inc. (PNC $57) announced that it has reached a definitive agreement to acquire the US retail banking business of Royal Bank of Canada (RY $56) for $3.45 billion. Under the terms of the agreement, PNC will have the option to deliver to RY up to $1 billion of the consideration in common stock and the transaction is expected to be accretive to earnings by the end of 2013 or sooner depending on the amount, if any, of the $3.45 billion purchase price paid in the form of PNC stock. PNC traded lower, while RY was modestly higher.

Nabors Industries Ltd. (NBR $24) traded lower after the company issued 2Q and full-year operating income guidance that came in below the consensus estimates of analysts. The energy drilling and well-servicing firm said its outlook reflects “lower-than-anticipated” results from its pressure pumping, US offshore, and international businesses, partially offset by better results in its US lower 48 and Canadian operations.

Agrium Inc. (AGU $83) finished higher after the Canadian agriculture firm increased its 2Q EPS guidance from a range of $3.38-3.88 to between $4.10-4.40, due to “very strong” retail performance and increasing nutrient pricing supported by “continued strong crop fundamentals.” Analysts surveyed by Reuters had forecasted the company to report 2Q EPS of $3.88.

Economic calendar quiet before the storm

Treasuries are lower in afternoon action after erasing early gains that came amid the continued euro-area debt concerns and as there are no major US economic reports scheduled for release today. The yield on the 2-year note is up 1 bp to 0.39%, the yield on the 10-year note is gaining 3 bps to 2.97%, and the 30-year bond rate is 1 bp higher at 4.22%.

Tomorrow, existing home sales will kick off the economic calendar, forecasted to drop 5.0% month-over-month (m/m) to an annual rate of 4.80 million units in May, after unexpectedly falling to 5.05 million units in April. Existing home sales represent the largest portion of the total market and reflect closings from contracts entered one to two months earlier. Tomorrow’s release will precede Thursday’s new home sales report, expected to drop 4.0% m/m to an annual rate of 310,000 units, after April’s unexpected increase to 323,000 units. New home sales are based on contract signings.

Moreover, tomorrow, the  Federal Open Market Committee (FOMC) will begin its two-day monetary policy meeting, with no major changes expected to the Fed’s stance and the statement will be released at its new time at 12:30 p.m. EST on Wednesday, followed by the post-statement news conference and Q&A session led by Fed Chair Ben Bernanke beginning at 2:15 p.m. EST. 

While the lack of even modest improvement is starting to concern us more, several factors are important to note. First, housing is very regional, with the major areas of weakness concentrated in a few areas such as California, Florida, and Nevada; so it's somewhat difficult to make a broad, nationwide statement on housing. Additionally, housing affordability remains near record highs. There's little doubt weather issues dented demand and activity, but we need to start to see at least some signs of improvement to become more confident in the second half.

Financial aid to Greece on the back burner

Festering default uncertainty toward the troubled nation of Greece weighed on sentiment overseas, after eurozone finance ministers concluded a meeting over the weekend without making a decision on paying Greece a $17 billion emergency loan payment in order to help the debt-laden nation meet its obligations coming due in July. A decision to pay the loan to Greece was expected to be announced, but the group of eurozone finance ministers opted to wait and see if the peripheral eurozone nation is making good on the tough austerity measures that are needed to get its fiscal problems on a sustainable path. Greek Prime Minister Papandreou last week reshuffled his cabinet in an attempt to unify the government in order to make passing his austerity plan, and he faces a key confidence vote late tomorrow. Also, Greece’s Parliament is expected to vote on Papandreou’s latest austerity plan at the end of this month.

However, Dow Jones Newswires reported that eurozone finance ministers said they have narrowed their differences over how private-sector creditors should participate in helping solve the fiscal crisis in Greece, and they aim to have a final plan in place “by early July.” Finance ministers continued talks today and the next discussion of the Greece debt situation will be later this week in a Brussels summit of European Union leaders. Exacerbating the uneasiness, Moody’s Investors Service warned that it may cut Italy’s sovereign debt rating, due to economic growth challenges and the prospect of higher interest rates in the region, per Reuters.

The euro-area debt crisis again overshadowed the economic calendar, which had little impact on today’s trading. However, there were some reports that are worth a mention, with German producer prices coming in cooler than economists expected in May, UK home prices rising in June, and Italian industrial orders falling more than anticipated.

The uncertainty about a potential sovereign debt default in Greece was also the main variable affecting the mood in Asia, with most markets showing weakness, as economic data was in short supply. The only item of note was a report that showed Japan’s trade deficit widened in May, as exports fell more than expected and imports grew by an amount that exceeded projections.

Tomorrow’s international economic calendar will be on the light side, highlighted by the Zew Economic Sentiment survey out of Germany, while Canada will report its leading index and retail sales.