Evening Market Update

Investors Confident Ahead of Greek Vote

Concerns over Greece’s ability to receive aid for its short-tem debt obligations were tempered today, with stocks closing near the highs, as investors appeared to be confident in the outcome of a key vote of confidence for Greek Prime Minister Papandreou that will occur later today. The vote is the first step in the troubled nation’s ability to pass tough austerity measures to qualify for further financial aid from the eurozone’s bailout program. In equity news, Walgreen Co bested the Street’s earnings forecasts, but the drugstore chain announced that it will likely not be a member of Express Scripts’ pharmacy provider network, and CVS Caremark revealed a large contract to administer prescription drug benefits for the California Public Employees’ Retirement System. Elsewhere, Best Buy upped its quarterly dividend and instituted a new $5 billion share repurchase program. Treasuries were marginally lower amid the gain in stocks and the start of the Federal Reserve’s two-day monetary policy meeting, showing little reaction to another drop in US existing home sales.

The Dow Jones Industrial Average gained 110 points (0.9%) to 12,190, the S&P 500 Index rose 17 points (1.3%) to 1,296, and the Nasdaq Composite jumped 58 points (2.2%) to 2,687. In moderate volume, 851 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.54 to $94.17 per barrel, wholesale gasoline lost $0.03 to $2.88 per gallon, and the Bloomberg gold spot price was $6.44 higher at $1,547.04 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was 0.5% lower at 74.58.

Walgreen Co. (WAG $43) reported fiscal 3Q earnings of $0.65 per share, above the $0.63 consensus estimate of analysts surveyed by Reuters, with revenues rising 6.8% year-over-year (y/y) to $18.4 billion, inline with the Street’s forecast. The pharmacy retailer said its same-store sales---sales at stores open at least a year—increased 4.1% y/y. However, shares came under heavy pressure after the company also announced that renewal negotiations with pharmacy benefit manager Express Scripts Inc. (ESRX $55) “have been unsuccessful,” and as a result, WAG is planning not to be part of ESRX’s pharmacy provider network as of January 1, 2012. ESRX was modestly higher.

In related industry news, CVS Caremark Corp. (CVS $38) announced that the California Public Employees’ Retirement System has selected the company to administer prescription drug benefits for more than 346,000 members of the pension plan. The deal is a three-year contract that represents about $565 million in annual drug spending. CVS traded higher.

Best Buy Co. Inc. (BBY $32) was higher after the electronics retailer announced that its Board of Directors approved a 7% increase in the company’s quarterly cash dividend to $0.16 per share. BBY also reported that its Board has authorized a new $5 billion share repurchase program, replacing a prior $5.5 billion buyback program, which had about $800 million remaining.

Existing home sales decline as expected, while Fed begins two-day policy meeting 

Existing-home sales declined roughly inline with expectations, falling 3.8% month-over-month (m/m) in May to an annual rate of 4.81 million units, compared to the decrease to 4.80 million units forecasted by economists surveyed by Bloomberg, and April’s figure was downwardly revised to 5.00 million units, from 5.05 million. Sales are down 15.3% y/y, when sales were boosted by the looming deadline for the home buyer tax credit. The median existing-home price declined 4.6% from a year ago to $166,500, but was 1.7% higher m/m. The supply of homes decreased by 1.0% m/m to 3.72 million units, equating to 9.3 months of supply at the current sales pace, up from 9.0 in April. Single-family home sales fell 3.2% m/m, and multi-family sales dropped 8.1%.

Sales of existing homes reflect closings from contracts entered one to two months earlier, and first-time buyers accounted for 35% of sales in May, down slightly from 36% in April, while investors dipped from 20% of the total to 19%. Also, distressed home sales—home that are usually sold at a discount of about 20%, per the National Association of Realtors—accounted for 31% of sales, down from 37% in April. Declines in sales were seen in the Northeast, Midwest, and the South, while in the West, sales were unchanged.

Meanwhile, the Federal Open Market Committee’s (FOMC) two-day monetary policy meeting began today. No major changes to the Fed’s stance are expected and the statement will be released at its new time at 12:30 p.m. EST tomorrow, followed by the post-statement news conference and Q&A session led by Fed Chair Ben Bernanke beginning at 2:15 p.m. EST. Traders will be looking for any signs on whether the recent string of soft data will evoke a response in the form of monetary policy action as the Fed’s asset purchase program is expected to come to a close at the end of this month. 

Treasuries were marginally lower following the housing sales report and before tomorrow’s Fed decision, with the yield on the 2-year note unchanged at 0.38% and the yields on the 10-year note and the 30-year bond up 2 bps to 2.98% and 4.22%, respectively.

Overseas markets gain ground ahead of Greek confidence vote

Traders across the pond appeared to be in a better mood as optimism that Greece will receive additional eurozone financial aid in time to meet its July debt obligations boosted sentiment. However, Greek Prime Minister Papandreou faces a confidence vote tonight at about 5:00 p.m. ET that could prove pivotal in Greece’s ability to implement tough austerity measures in order to qualify for further financial aid to the debt-laden nation. In economic news, a read on economic sentiment in Germany—Europe’s largest economy—showed a larger-than-expected decline. The German ZEW Survey of Economic Sentiment fell to -9.0 in June, from 3.1 in May, compared to the decline to -3.0 that economists had expected. Elsewhere, UK public sector net borrowing rose by a smaller-than-anticipated amount in May, but nearly double the figure posted in April. Finally, fellow peripheral euro-area nation Spain, which is a key player in the eurozone debt crisis, conducted a debt auction that raised 3 billion euros, near the country’s maximum target, while yields ticked higher compared to previous bond auctions.

Sentiment in Asia was mostly positive following the advance in the US yesterday and with no new developments surfacing regarding the debt crisis in Greece, keeping default concerns relatively subdued and fostering some bargain hunting in the region. However, traders remained cautious ahead on tonight’s confidence vote in Greece and tomorrow’s conclusion of the US Federal Reserve’s monetary policy meeting. Meanwhile, on the economic front, the Reserve Bank of Australia (RBA) released the minutes from its latest monetary policy meeting, which showed economic growth was forecasted to grow “somewhat above” trend over the next few years, and a gradual pick-up in inflation could be expected. The RBA added that this outlook suggested that further tightening in policy “would be necessary at some point.”

Back in the Americas, Canadian retail sales improved during May, rising 0.3% m/m from a 0.1% decline in April, but below the 0.5% expected by economists. As well, the nation’s leading index rose 1.0%, double what was forecasted.

While most of the focus tomorrow will surround the impact of tonight’s confidence vote in Greece and the conclusion of the Federal Reserve’s monetary policy meeting, there are some items on the international calendar that will garner some attention. France will report business confidence, industrial orders will come from the eurozone, and the Bank of England will release the minutes from its June 8-9 monetary policy meeting.