Morning Market Update

Greece Rescue Optimism Provides Lifeline for Bulls

The US equity markets are nicely higher in early action as optimism that eurozone leaders are close to agreeing on a plan to help Greece avoid a sovereign debt default is helping boost demand for stocks. Treasuries are lower amid the solid gains in the equity markets, ahead of reports on consumer sentiment and leading economic indicators. In equity news, Canada’s Research in Motion Ltd is solidly lower after the maker of BlackBerry smartphones issued disappointing 2Q and full-year guidance, while Capital One Financial Corp confirmed that it has agreed to purchase the US online banking business of ING Groep NV for cash and stock valued at $9 billion. Overseas, Asia finished mostly lower as the euro-area debt crisis and concerns toward the global economy depressed sentiment, while European stocks are gaining solid ground on the encouraging signs of a rescue for Greece.

As of 8:45 a.m. ET, the September S&P 500 Index Globex future is 13 points above fair value, the Nasdaq 100 Index is 15 points above fair value, and the DJIA is 96 points above fair value. WTI crude oil is $0.97 lower at $93.98 per barrel, and the Bloomberg gold spot price is down $1.55 at $1,528.03 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.3% at 75.20.

Canada’s Research in Motion Ltd. (RIMM $35) is under heavy pressure after the maker of BlackBerry smartphones issued disappointing 2Q and full-year guidance. RIMM said it expects 2Q EPS ex-items to range between $0.75-1.05, and revenues to come in between $4.2-4.8 billion, while full-year EPS are projected to span a range of $5.25-6.00. Analysts surveyed by Reuters had forecasted 2Q earnings of $1.40 per share and revenues of $5.4 billion, while full-year EPS at the company was anticipated to come in at $6.25.

The company said fiscal 2012 has “gotten off to a challenging start,” as the slowdown it saw in 1Q is continuing into 2Q, and delays in new product introductions into the very late part of August is leading to a lower-than-expected outlook in 2Q. The guidance came as the company reported 1Q EPS of $1.33, one penny ahead of expectations, and a 12% quarter-over-quarter (q/q) drop in revenues to $4.9 billion, below the $5.1 billion that the Street had anticipated.

In M&A news, Capital One Financial Corp (COF $49) confirmed that it has reached a definitive agreement to purchase the US online banking business of ING Groep NV (ING $11) in a deal valued at $9 billion, consisting of $6.2 billion in cash and $2.8 billion in stock. ING will assume a 9.9% ownership stake in COF, which expects to finance the cash portion of the deal through a public equity raise of about $2 billion and debt offerings of approximately $3.7 billion. COF said the deal is anticipated to be “immediately accretive to EPS and tangible book value per share.”

Economic calendar set to fire after the opening bell

Treasuries are modestly lower in morning action ahead of reports on consumer sentiment and leading indicators, with the yield on the 2-year note up 1 bp to 0.39%, the yield on the 10-year note advancing 4 bps to 2.96%, and the 30-year bond rate 3 bps higher to 4.21%.

After the opening bell, we will get the releases of the preliminary University of Michigan’s Consumer Sentiment Index, forecasted to dip from 74.3 in May to 74.0 in June, as well as the Index of Leading Economic Indicators, projected to rise 0.3% month-over-month (m/m) in May, after falling 0.3% in April, which snapped a nine-month winning streak for the index (economic calendar).

Greek concerns ease to help boost European equities

The equity markets in Europe are finishing out a tough week in positive fashion, with the broad markets solidly higher to pare losses for the week, with financials leading the way following comments from Germany and France suggesting that a deal to help the troubled nation of Greece was closer to an agreement. In a joint press conference with German Chancellor Merkel and French President Sarkozy, the dissension among key eurozone members regarding the role of private bondholders in a rescue plan for Greece appeared to dissipate somewhat. Merkel noted that Germany would like to have a participation of private creditors “on a voluntary basis,” retreating from previous demands that bondholders should be forced to shoulder a “substantial” share of the Greek bailout, per Bloomberg. Also, hopes of a deal to help Greece meet is debt obligations in the short-term were boosted following the press conference as the two major eurozone powers urged rapid action in constructing a plan for Greece and vowed to protect the euro, with Merkel saying that the issue must be resolved “as quickly as possible.” However, any rescue efforts for Greece depends on the debt-laden nation’s ability to carry out its tough austerity measures and Greek Prime Minister Papandreou has reshuffled his cabinet in order unify the government to make tackling the fiscal problems an easier task.

Meanwhile, as the euro-area debt crisis continues to garner the most attention, economic data across the pond remains on the back burner, with reports showing construction output in the eurozone rose in April and the euro-area trade deficit widening more than expected having little impact on the markets.

The UK FTSE 100 Index is 0.3% higher, France’s CAC-40 Index is gaining 1.0%, and Germany’s DAX Index is advancing 1.3%, while Greece’s Athex Composite Index is surging 4.5%.

Asia finishes lower to end the week on euro-debt and global economic concerns

Stocks in Asia finished mostly lower as traders remained cautious ahead of the weekend amid growing concerns about a default by the debt-troubled nation of Greece and festering uneasiness regarding the health of the global economy. Japan’s Nikkei 225 Index declined 0.6% amid the European uncertainty and economic uneasiness and following a report that showed the nation’s department store sales fell 2.4% year-over-year (y/y) in May. Meanwhile, stocks in China paced the declines in the region, with the Shanghai Composite Index falling 0.8% and the Hong Kong Hang Seng Index declining 1.2%, while South Korean stocks also found pressure, as the Kospi Index dropped 0.7% on solid weakness in the technology sector. However, Australia’s S&P/ASX 200 Index managed to eke out a 0.1% gain after paring a majority of early gains on the cautious global sentiment.