Evening Market Update

European Moves Continue to Wag Stocks

Stocks rose today after a positive step toward solving Greece’s near-term funding needs came from French banks reportedly volunteering to roll-over 70% of their bonds into longer-term maturity debt, while trading was light ahead of the Greek parliament vote on austerity measures on Wednesday. Meanwhile, negative data on the state of the US economy, in the form of misses on US personal income and spending, as well as a plunge in manufacturing activity in Dallas were largely ignored, and Treasuries fell. Meanwhile, the US dollar reversed course midday, falling after an ECB member made hawkish comments. In equity news, Stanley Black & Decker Inc announced an offer to acquire Swedish-based Niscayah for roughly $1.2 billion, Delta Air Lines gave an upbeat outlook, and portable navigation product maker TomTom issued a negative forecast.

The Dow Jones Industrial Average gained 109 points (0.9%) to 12,044, the S&P 500 Index rose 12 points (0.9%) to 1,280, and the Nasdaq Composite advanced 35 points (1.3%) to 2,688. In moderately light volume, 835 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.55 to $90.61 per barrel, while wholesale gasoline gained $0.02 to $2.74 per gallon, and the Bloomberg gold spot price was $6.13 lower at $1,496.42 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was 0.3% lower at 75.34.

Stanley Black & Decker Inc. (SWK $70) announced that it has made an offer to acquire all of the outstanding common stock and warrants of Swedish-based commercial security and monitoring company Niscayah (NSYHF $3) for 18 kronor per share, or about $1.2 billion. Niscayah’s Board of Directors has unanimously recommended that shareholders and warrant holders accept the offer, which SWK said is expected to be accretive to EPS by approximately $0.20 per share in year one, and $0.45 per share by year three. SWK was higher, while shares of NSYHF were sharply higher in European trading.

Delta Air Lines Inc. (DAL $10) was higher after the airline said that it expects passenger revenue to be 10% higher year-over-year (y/y) in 2Q, which will largely offset the impact of over $1 billion in higher fuel prices, resulting in a “solidly profitable” quarter. DAL also forecasted lower fuel prices quarter-over-quarter (q/q) in 3Q. However, the air carrier forecasted higher-than-expected non-fuel costs in 2Q, due to higher maintenance costs combined with lower capacity than planned.

European maker of portable navigation products (PND) TomTom NV (TMOAF $7) lowered its forecast, noting that the American PND market was experiencing a “faster rate of decline than earlier in the year” and it now expects the market to be down 30% for the year as a whole, while the European market is forecasted to decline by 10%. The company noted consumers are opting for entry level products and the supply chain is holding lower levels of inventory. While TomTom shares were nearly unchanged in European trading, shares of competitor Garmin Ltd (GRMN $32) fell in US trading.

Personal income and spending below forecasts, regional manufacturing contracts further 

Personal income increased 0.3% month-over-month (m/m) in May, just shy of expectations of economists surveyed by Bloomberg, which called for a 0.4% rise, and April’s 0.4% increase was revised to a 0.3% gain. Also, personal spending was unchanged m/m in May, compared to expectations of a 0.1% advance, and April’s 0.4% rise was revised to a 0.3% increase. The savings rate came in at 5.0% for May, after April’s unrevised 4.9% rate.

Also, the  PCE Price Index, which is released with the income and spending data, was up 2.5% year-over-year (y/y) in May, matching expectations, after April’s 2.2% increase was unrevised. The core PCE Price Index, which excludes food and energy, was up 0.3% m/m, above forecasts of a 0.2% increase, while y/y, core prices moved 1.2% higher, versus the 1.1% gain that was expected.

In other economic news, the Dallas Fed Manufacturing Index fell deeper into contraction, dropping from -7.4 in May to -17.5 for June. A reading below zero denotes contraction. Production and capacity utilization led the larger-than-estimated decline, offsetting a solid rebound in new orders. The report is the latest in a string of lackluster manufacturing reports as early this month both the Empire Manufacturing Index and the Philadelphia Fed Manufacturing Index fell solidly to levels depicting contraction, exacerbating recent global economic growth sentiment. Tomorrow brings another regional reading, in the Richmond Fed Manufacturing Index, expected to rise to -3 in June from -6 in May, and we will get a national read on manufacturing activity on Friday, in the form of the ISM Manufacturing Index, forecasted to decline to 51.8 in June from 53.5 in May, according to a Bloomberg survey of economists. A reading at the national level above 50 depicts expansion.

Treasuries were lower despite the data, moving inverse to the rise in equities, with the yield on the 2-year note rising 6 bps to 0.39%, the yield on the 10-year note increasing 5 bps to 2.92%, and the 30-year bond rate 10 bps higher at 4.28%.

Greece austerity remained focus overseas

Traders in international markets treaded cautiously ahead of Wednesday’s key vote on Greece’s austerity plan aimed at getting its debt crisis under control in order to qualify for further eurozone financial aid, potentially helping it avoid a default. Greece’s Parliament began debating the austerity plan today. If the austerity plan passes in Greece, the previously agreed eurozone aid will likely follow to help it meet its short term debt obligations, with a second bailout package likely to follow, which may include voluntary rollovers of the nation’s debt by its largest private creditors. To that end, French President Sarkozy said his nation’s banks—one of the largest holders of Greece’s debt—have reached an outline agreement to rollover holdings of Greek debt, per Reuters. If the Greek austerity plan passes the Parliamentary vote, an implementation vote will occur on Thursday. Meanwhile, European Central Bank Board member Juergen Stark said the central bank is “very vigilant” on inflation, adding “We are not ready to leave the interest-rate increase from April stand by itself.” Regarding the debt crisis, Stark said “The epicenter of the crisis is in the periphery and those countries have to contribute to solving their crisis.”

Elsewhere, financials lagged behind amid reports that the international regulators will impose tougher capital requirements, as part of the Basel III capital rules, for the world’s largest lenders. According to proposals that were released over the weekend, banks will face an additional capital surcharge and will not be able to count contingent capital when calculating their capital adequacy targets. The surcharge was expected, while the exclusion of contingent capital is being seen as a disappointment to some financial institutions and investors, per Reuters

In light economic news, a read on UK business activity improved in June, while a separate report showed a UK housing survey declined in June. Elsewhere, Moody’s Investors Service warned that the Japanese government’s failure to meet a self-imposed June 20 deadline for a long-term fiscal plan to deal with its debt issues is “credit negative’ and the nation could face a third “lost decade.”

Housing data on the US docket tomorrow

Tomorrow, the US economic calendar will yield the release of the S&P/CaseShiller Home Price Index, forecasted to fall 0.2% month-over-month and decrease 4.0% y/y in April. Pricing data lags sales data by a month and prices are expected to remain under pressure amid a still depressed housing market.

Outside of the previously discussed Richmond Fed Manufacturing Index, the other US release tomorrow is Consumer Confidence, expected to increase to 61.0 in June from 60.8 in May.

International releases will include Japan retail sales and small business confidence, the German Gfk consumer confidence survey and CPI, Italian PPI, the final 1Q GDP reading for the UK, French jobseekers, and the Chinese leading index is expected sometime this week.