Morning Market Update

Greece Clears a Hurdle but Bulls Tripped Up by Uncertainty

The US equity markets are under pressure in early action as the enthusiasm from last night’s favorable confidence vote for the Greek government is being replaced by skepticism whether the troubled nation can tackle its long-term fiscal challenges. Meanwhile, traders are treading with some caution ahead of the afternoon conclusion of the US Federal Reserve’s monetary policy meeting, in which no major announcements are anticipated. Treasuries are higher in morning action, with a decline in US mortgage applications fostering little reaction. In equity news, FedEx Corp topped the Street’s 4Q estimates and issued modestly favorable guidance, while CarMax Inc also topped analysts’ quarterly projections. In M&A news, UK-based AstraZeneca Plc agreed to sell its dental implants unit to US-based DENTSPLY International Inc for $1.8 billion in cash. Overseas, Asian markets finished higher in subdued trading ahead of the Fed’s policy statement, while European markets are lower in afternoon action.

As of 8:50 a.m. ET, the September S&P 500 Index Globex future is 5 points below fair value, the Nasdaq 100 Index is 9 points below fair value, and the DJIA is 52 points below fair value. WTI crude oil is $0.53 lower at $93.64 per barrel, and the Bloomberg gold spot price is down $1.38 at $1,544.90 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.2% at 74.77.

FedEx Corp. (FDX $89) reported fiscal 4Q EPS of $1.75, three cents above the consensus estimate of analysts surveyed by Reuters, with revenues growing 12% year-over-year (y/y) to $10.6 billion, above the $10.4 billion that the Street had forecasted. The package delivery company said its results were aided by continued strong yield improvement in all transportation segments and volume growth of ground and international express shipments. Also, the company’s freight unit’s return to profitability also improved operating results. FDX issued 1Q and full-year EPS estimates that were slightly above expectations, assuming continued moderate growth in the global economy and “subsiding cost headwinds.” Also, the company said it will benefit from the tax expensing/accelerated depreciation provisions included in the Tax Relief Act of 2010 passed last December.

Meanwhile, CarMax Inc. (KMX $31) announced fiscal 1Q profits ex-items of $0.52 per share, above the $0.47 that analysts had projected, as revenues increased 18% y/y to $2.7 billion, exceeding the Street’s forecast of $2.5 billion. The auto retailer said its 1Q used car same-store sales—sales at stores open at least a year—rose 6% y/y.

In M&A news, UK-based AstraZeneca Plc. (AZN $49) announced that it has agreed to sell its dental implants unit Astra Tech to US-based DENTSPLY International Inc. (XRAY $38) for $1.8 billion in cash. XRAY said the transaction is expected to be immediately accretive to its adjusted EPS.

Mortgage applications decline, Fed meeting concludes this afternoon

The MBA Mortgage Application Index declined 5.9% last week, after the index that can be quite volatile on a week-to-week basis, jumped by 13.0% in the previous week. The decrease came as a 7.2% drop in the Refinance Index, was accompanied by a 2.8% decline in the Purchase Index. Elsewhere, the average 30-year mortgage rate rose by 6 basis points (bps) to 4.57%.

Treasuries are higher in morning action following the data and the pressure on equities, with the yield on the 2-year note down 1 bp to 0.36%, the yield on the 10-year note declining 3 bps to 2.95%, and the 30-year bond rate 2 bps lower at 4.19%.

Europe lower ahead of US Fed decision and continued uncertainty toward Greece

The equity markets are lower in afternoon action, ahead of today’s conclusion of the US Fed’s monetary policy meeting, and as last night’s successful confidence vote for Greek Prime Minister Papandreou was widely expected. Moreover, uncertainty whether Greece can redirect its fiscal situation to a sustainable path continues to hamstring the enthusiasm from last night’s vote. Greece’s Parliament voted 155-145 in favor of keeping a recently reshuffled government intact, clearing the first hurdle for the debt-laden nation to receive further financial aid from the eurozone bailout facility. However, next week the Greek Parliament will vote on Papandreou’s austerity plan, which aims to cut 78 billion euros ($112 billion) from the government’s budget in order to stave off a debt default, per Bloomberg. Also, most feel that any further financial aid received from the eurozone rescue package will only provide a short-term stay from the fiscal issues facing Greece and remain skeptical that Greece’s long-term debt issues can be successfully corrected with the current plan.

Outside of Greece, shares of Philips Electronics NV (PHG $26) are down sharply after the company issued a softer-than-forecasted sales forecast for its lighting and consumer electronics units. In economic news across the pond, eurozone industrial new orders rose at a smaller pace in April than economists forecasted, while French business confidence unexpectedly improved in June. Finally, the Bank of England (BoE) released the minutes from its most recent monetary policy meeting, which showed policymakers remained split 7-2 on the direction of its policy, with two members calling for an increase in interest rates, and 8-1 on it asset purchase program with one wanting an increase in purchases.

The UK FTSE 100 Index and France’s CAC-40 Index are declining 0.3%, Germany’s DAX Index is decreasing 0.2%, and Greece’s Athex Composite Index is falling 0.4%.

Asia mostly higher as Greece vote tempers debt concerns somewhat

Stocks in Asia finished higher following the solid gains seen in the US yesterday and after the Greek Prime Minister Papandreou received a favorable confidence vote that eased concerns about a sovereign debt default of the troubled nation. However, gains were kept in check as traders shifted their attention to the remaining long-term fiscal challenges that Greece faces and there was some caution ahead of today’s monetary policy meeting by the US Federal Reserve. Japan’s Nikkei 225 Index jumped 1.8% to lead the way with financials pacing the solid advance. Meanwhile, gains in other parts of the Asia/Pacific region were more modest, with China’s Shanghai Composite Index rising 0.1%, Hong Kong’s Hang Seng Index finishing flat, and Australia’s S&P/ASX 200 Index advancing 0.5% after paring early gains in late-day trading. In economic news, Australia’s Leading Index rose 0.2% month-over-month (m/m) in April, after rising an upwardly revised 0.6% in March. Elsewhere, South Korea’s Kospi Index increased 0.8%, on strength in crude oil refiners and chemical issues, which offset a sharp drop in shares of Industrial Bank of Korea after the government reported that it plans to sell part of its stake in the bank.