Evening Update

Markets Recoup Some of Last Week’s Losses

Despite a much larger-than-expected decline in existing home sales, markets were able to finish modestly in the green, as investors were able to snatch up beaten-down stocks following last week’s solid decline, and as investors may have grown more confident that Fed Chief Ben Bernanke will be reconfirmed. Earnings season continued in earnest, with Halliburton, Quest Diagnostics, and AK Steel all reporting results that exceeded analysts’ expectations, and as the week’s earnings calendar will be full of major reports, especially from the tech sector. In other equity news, Wal-Mart announced that it will cut over 11,000 jobs at its Sam’s Club warehouses, Exxon Mobil inked an agreement to redevelop an oil field in Southern Iraq, General Motors announced its interim CEO will become the permanent head of the company, and Liberty Global sold its 38% stake in Jupiter Telecommunications for about $4 billion to number-two Japanese wireless operator KDDI. Treasuries finished lower after an initial bump following the housing report.

The Dow Jones Industrial Average rose 24 points (0.2%) to close at 10,197, the S&P 500 Index added 5 points (0.5%) to 1,097, and the Nasdaq Composite gained 3 points (0.6%) to 2,211. In moderately light volume, 1.1 billion shares were traded on the NYSE and 2.1 billion shares were traded on the Nasdaq. Crude oil was $0.72 higher at $75.26 per barrel, wholesale gasoline rose $0.04 to $2.01 per gallon, and the Bloomberg gold spot price increased $4.80 to $1,098.00 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was down 0.1% to 78.16.

Dow member Wal-Mart (WMT $53) announced that it will eliminate more than 11,000 jobs at its Sam’s Club warehouses, most of which are part-time employees who had run in-store product demonstrations as the company will use a third party firm to conduct the demonstrations. Sam’s Club’s CEO said he did not expect any “material impact” on its financial results and he pointed out that the move is an investment in the in-club experience, stressing that the move is not a short term cost-cutting measure, per CNBC. Shares were nearly unchanged on the day.

Fellow Dow component Exxon Mobil (XOM $66) announced that its affiliate ExxonMobil Iraq Limited signed an agreement with the Iraq Ministry of Oil to redevelop and expand an oil field in Southern Iraq. XOM is part of a contractor consortium to carry out the redevelopment of the Iraqi oil field as it will be the lead contractor with a 60% interest, while the Iraqi government-owned Oil Exploration Company will have a 25% interest and the remaining 15% will go to Royal Dutch Shell (RDS/A $58). This represents the first time a US-led consortium has been given access to Iraq’s oil fields since 2003. Both XOM and RDS/A were higher.

In other energy-related news, Halliburton (HAL $31) reported 4Q EPS ex-items of $0.28, one penny above the estimate of Wall Street analysts, with revenues up about 3% versus last quarter to $3.7 billion, slightly above the $3.6 billion that was forecasted by analysts. The energy firm said it focused on managing costs and weak global demand and volatility in the commodity markets negatively impacted the oil service industry. HAL added that revenue growth was driven by increased action in North America, while its international results were impacted by the reduction of activity due to weather-related seasonality, lower than normal equipment sales and a decrease of natural gas activity in Mexico. Shares were able to move off an early loss and close modestly higher.

General Motors announced that Chairman and interim CEO Ed Whitacre will become the permanent chief of the US automaker that recently emerged from a government-sponsored bankruptcy. Whitacre had become the acting CEO last month when the company’s board ousted former CEO Fritz Henderson.

Quest Diagnostics (DGX $57) announced 4Q EPS of $0.97, above the $0.96 estimate that analysts were expecting, with revenues increasing 2.7% year-over-year (y/y) to $1.8 billion, just shy of the $1.9 billion that was forecasted by the Street. The healthcare diagnostic testing company said clinical testing volume decreased by 0.3%, due to lower drugs-of-abuse testing, which is sensitive to hiring trends. Excluding the impact of drugs-of-abuse testing, volumes increased by about 0.5%. DGX said it expects 2010 EPS to be between $4.10-4.30, compared to analysts’ forecasts, which is calling for the company to report full-year earnings in 2010 of $4.20 per share. However, shares came under pressure as the company also forecasted revenue growth of between 3-4%, which was lighter than some analysts were expecting.

AK Steel (AKS $21) closed 5% higher after it reported 4Q EPS of $0.36, above the $0.20 that the Street had forecasted, with revenues down 9.5% to $1.3 billion, inline with analysts’ forecasts. The company shipped about 1.4 million tons up from about 1.1 million tons a year ago, and it said the increased quarterly shipments reflect an improvement in the demand for steel y/y. Its 4Q revenues and average selling prices were lower y/y as US and global markets continue a gradual recovery. AKS said it expects 1Q shipments to be approximately the same as 4Q, while the average selling prices are expected to rise approximately 4-5% over the previous quarter.

Liberty Global (LBTYA $25) was solidly higher after it reported that it will sell its 38% ownership interest in Jupiter Telecommunications (JUPIY $84)—a Japanese broadband provider of communications services—for about $4 billion to KDDI (KDDIY $58), Japan’s second-largest wireless operator.

Existing home sales plummet

Existing home sales tumbled 16.7% month-over-month (m/m) in December to an annual rate of 5.45 million units, worse than the 9.8% decrease to 5.90 million units forecasted by a Bloomberg survey of economists, and after advancing 7.4% in November and 9.9% in October. The median existing-home price rose 1.5% y/y in December to $178,300, and the supply of homes fell 6.6% to 3.29 million units, representing 7.2 months of sales at the current pace. A rush of first-time buyers seeking to close before the initial expiration of the tax incentive drove results in November and October, as first-timers accounted for 50% of sales during the two months, and 43% for December.

Although the headline number disappointed, the report did suggest that trends in existing home sales are improving as the National Association of Realtors (NAR) said that there were “no surprises in the data,” while noting that “It’s significant that home sales remain above year-ago levels,” as the 5.45 million units level is 15% above the level in December 2008. The report also showed that for all of 2009 there were 5.16 million existing home sales—4.9% higher than 2008—the first annual sales gain since 2005. The NAR also noted that “We’ll likely have another surge in the spring as home buyers take advantage of the extended and expanded tax credit.”

Treasuries initially jumped following the report, but were able to move back to pre-release levels and remained modestly lower. The yields on the 2-year note, the 10-year note, and the 30-year bond all gained 2 bps to 0.81%, 3.63%, and 4.55%, respectively.

The housing market will remain in focus with tomorrow’s release of the S&P/Case-Shiller Home Price Index, which is expected to show a 5.0% y/y decline in November, with seasonally-adjusted prices expected to increase 0.3% m/m, marking the sixth-consecutive monthly increase. This series lags the existing home and new home sales data by a month and is a three-month average of prices in 20 cities. Price declines have been stabilizing, aided by a falling supply of homes available for sale, increasing affordability, seasonal factors and the first-time homebuyer tax credit. Moreover, today’s existing home sales report showed the first y/y price gain since August 2007. The trend of higher m/m price gains could help soothe consumer sentiment as home values have plummeted during the financial crisis and has contributed to a severe drop in household net worth.

The only other report on tomorrow’s economic calendar is the Conference Board’s Consumer Confidence Index, forecast to rise to 53.5 in January from 52.9 in December.

Greece bonds attract heavy interest

Greece received more than 25 billion euros of investor interest in its first bond issuance this year. The European nation is offering 8 billion euros in 5-year bonds at 0.3 percentage points above its current debt in the hopes of spurring investor interest after having its sovereign debt downgraded by Standard & Poor’s, Moody’s Investor Services and Fitch Ratings in November. Head of Greece’s debt agency said he was pleased with the size of the interest and said, “We expect the spread to start to tighten after the sale because Greece has been misread and misjudged.”

On the economic front in the eurozone, a gauge of consumer confidence in Germany—Europe’s largest economy—fell to 3.2 for February from a revised 3.4 in January, but above the 3.1 level forecasted by economists surveyed by Bloomberg. Gfk AG, the market research firm which conducted the survey, cited an expected rise in unemployment and diminished income expectations for the lack of confidence in survey participants. Elsewhere, producer prices in Spain rose 0.1% m/m, 0.4% on a year-over-year basis, following a 1.8% drop in November.

In the Asia/Pacific region, Australia’s producer price index dipped 0.4% from 3Q, short of the 0.1% gain expected by economists polled by Bloomberg, and Taiwan’s industrial production rose more than expected, rising 47.3% y/y in December, compared to the 40.9% that was expected by economists surveyed by Bloomberg.

Economic reports on tomorrow’s international calendar include the German Ifo Business Climate Index and the Import Price Index, consumer spending in France, retail sales and consumer and business confidence in Italy, and the first release of 1Q GDP in the UK. The Bank of Japan will announce the results of its monetary policy meeting as well.