Evening Market Update

Bulls Run Wild Ahead of Greek Austerity Vote

Stocks posted a second-straight day of solid gains, as expectations that Greece will approve its austerity plan tomorrow to potentially avoid a default continued to guide the market higher. The domestic economic front finally provided a sliver of good news, as home prices increased for the first time in eight months on a non-seasonally adjusted basis, while the Richmond manufacturing report also improved, although the reports were partially offset by a disappointing read on US consumer confidence. Equity news was light today, highlighted by a solid earnings beat from Nike Corp, while Dow member Microsoft Corp unveiled the new online version of its Office software. Additionally, shares of Dow component Kraft Foods moved higher on news that an activist investor has acquired a $420 million stake in the company. Treasuries finished lower amid the strong gain in equities, while the US dollar lost ground.

The Dow Jones Industrial Average gained 145 points (1.2%) to 12,189, the S&P 500 Index rose 17 points (1.3%) to 1,297, and the Nasdaq Composite advanced 41 points (1.5%) to 2,729. In moderately light volume, 804 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil rose $2.30 to $92.91 per barrel, while wholesale gasoline gained $0.08 to $2.88 per gallon, and the Bloomberg gold spot price was $2.82 higher at $1,500.75 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was 0.3% lower at 75.07.

Nike Inc. (NKE $90) reported 4Q earnings of $1.24 per share, above the $1.16 consensus estimate of analysts surveyed by Reuters, with revenues rising 14% year-over-year (y/y) to $5.8 billion, exceeding the $5.5 billion that the Street had forecasted. The athletic apparel and shoe company said its revenues were driven by growth in all geographies except Japan and Central and Eastern Europe. NKE reported that futures orders for its products scheduled for delivery from June through November 2011, totaled $10.3 billion, an increase of 15% y/y. Shares traded nicely higher.

Shares of Dow member Microsoft Corp. (MSFT $26) moved higher after the company unveiled an online version of its Office software, called Office 365, at a new product event in New York. The product offers versions of Word and Excel that can be edited by multiple users at once and viewed by mobile devices. MSFT CEO Steve Ballmer said the product will “level the playing field, giving small and midsize businesses powerful collaboration tools that have given big businesses an edge for years.”

Meanwhile, fellow Dow component  Kraft Foods Inc. (KFT $35) finished higher after the disclosure in a regulatory filing with the Security Exchange Commission (SEC) that activist investor Nelson Peltz’s hedge fund Trian Fund Management LP acquired a stake of about $420 million in the food company.

Home prices data mixed, consumer confidence falls, but regional manufacturing improves

The S&P/Case-Shiller Home Price Index showed a decline in home prices of 3.96% y/y in April on a seasonally adjusted (SA) basis, compared to the 3.95% drop that economists surveyed by Bloomberg had expected. Month-over-month (m/m), SA home prices were 0.1% lower, compared to forecasts, which called for a decline of 0.20%. However, on a non-seasonally adjusted (NSA) basis, home prices rose 0.7% m/m, the first increase in eight months, with seven cities of the twenty that make up the index declining, compared to eighteen that saw lower prices in March. But Chairman of the S&P Index Committee David Blitzer said the seasonally adjusted numbers show that much of the improvement reflects the beginning of the Spring-Summer home buying season and “It is much too early to tell if this is a turning point or simply due to some warmer weather.” He added that the report was “better news,” but “still a lot of questions and a long way to go.”

Meanwhile, the Consumer Confidence Index came in below expectations, dropping from an upwardly revised 61.7 in May to 58.5 for June, compared to the 61.0 that economists anticipated. The disappointing read on sentiment came as consumers’ assessment of the short-term outlook on business conditions and the current situation both declined. Moreover, their appraisal of jobs being “plentiful” declined slightly, while their view that jobs are “hard to get” increased modestly. However, on inflation, the report showed consumers expect inflation to fall to 6.0% twelve months from now, from the 6.5% projection in May.

Finally, the Richmond Fed Manufacturing Index showed manufacturing activity in the southeast improved more than expected, back to a level depicting expansion, rising from -6 in May to 3 in June, compared to the increase to -3 that was expected by economists. A reading above zero depicts expansion. The improvement in the index came as new orders volume and shipments both posted double-digit improvements, offsetting a slight decline in the number of employees.

Treasuries were lower amid the gains in the equity markets and despite the consumer sentiment data, as the yield on the 2-year note gained 7 bps to 0.49%, the 10-year note advanced 11 bps to 3.04%, and the 30-year bond rate was 4 bps higher at 4.33%.

Greece vote looms over international markets

Sentiment across the pond was cautiously optimistic, as expectations are high that Greece will approve a key austerity plan tomorrow that will result in further financial aid for the debt-laden nation to fulfill its near-term funding needs. Greek markets showed strength ahead of the vote and despite public austerity protests in the streets of the troubled nation. Meanwhile, European Central Bank (ECB) President Jean-Claude Trichet implied that a rate hike is likely on the way when the central bank conducts in policy meeting next week. Trichet said the ECB is in “strong vigilance mode,” per Bloomberg, in its efforts to control inflation, and the euro was higher, despite some favorable inflation reports. Germany reported that consumer prices came in cooler than anticipated for June, while import prices fell more than expected.

In other economic news in the region, the German GfK Consumer Confidence Survey posted an unexpected improvement for July and Italy’s business confidence declined more than anticipated. Elsewhere, UK 1Q GDP was left unrevised at a 0.5% rate of expansion quarter-over-quarter (q/q), while its y/y pace of growth was unexpectedly revised lower, to a 1.6% gain, from a previous report of a 1.8% expansion.

In Asia/Pacific economic news, Japan released a better-than-expected report on the nation’s retail trade in May and an improvement in small business confidence for June. Meanwhile, after the close in Hong Kong, the government reported that the nation’s trade deficit narrowed more than expected, as exports jumped 10.1%, while South Korea’s current account surplus widened in May.

Pending home sales on tap for tomorrow

The highlight of tomorrow’s US economic calendar will be pending home sales, which economists are expecting to increase 3.0% in May, after plunging 11.6% in April. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales. The only other report on the domestic docket will be the MBA Mortgage Application Index, which fell 5.9% last week.

Releases on the international front will include Japanese industrial production, the final revision to 1Q GDP in France, UK mortgage approvals, euro-zone consumer confidence, and Canadian CPI. Additionally, the Central Bank of Brazil will release its 2Q inflation report, and China will release its Leading Index sometime in the next two days.