Evening Update

Relief Rally on Tempered Greece Debt Concerns

Stocks were able to recover Monday’s losses and more as sovereign debt concerns in the Eurozone were eased by speculation that European officials may be nearing a plan to help Greece get its deficit issues in order. The optimism was augmented by a Reuters report that a senior German official said Eurozone governments have decided in principle to help Greece, and the Wall Street Journal reporting that a plan for a loan guarantee by Germany and other EU countries was in the mix. The dollar lost ground versus the euro and most other major currencies, boosting commodity-related issues and aiding the overall advance in the equity markets. In equity news, Coca-Cola Co. matched earnings expectations and bested revenue projections, McDonald’s reported global same-store sales for January that beat analysts’ forecasts, Electronic Arts missed the Street’s profit estimate and issued disappointing guidance, Toyota announced another recall that was widely expected, and Pulte Homes posted a wider-than-expected loss. Treasuries were lower, holding onto losses following an unexpected drop in wholesale inventories.

The Dow Jones Industrial Average jumped 150 points (1.5%) to close at 10,057, the S&P 500 Index gained 14 points (1.3%) to 1,071 and the Nasdaq Composite advanced 25 points (1.2%) to 2,151. In moderate volume, 1.2 billion shares were traded on the NYSE and 2.2 billion shares were traded on the Nasdaq. Crude oil rose $1.86 to $73.75 per barrel, wholesale gasoline was $0.04 higher at $1.93 per gallon, and the Bloomberg gold spot price gained $13.63 to $1,076.47 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—dropped 0.8% to 79.76.

Dow member Coca-Cola Co. (KO $54) reported 4Q EPS of $0.66, matching the estimate of Wall Street analysts, with revenue increasing 5% year-over-year (y/y) to $7.5 billion, above the $7.2 billion that the Street expected. The company said it had strong worldwide unit case volume growth of 5%, driven by international volume growth, but North American volume declined 1%. Shares were nicely higher.

Fellow Dow component McDonald’s Corp. (MCD $63) reported January global same-store sales—sales at stores open at least thirteen months—rose 2.6%, versus the 1.4% analyst estimate, as sales in its Europe segment, as well as its Asia/Pacific, Middle East and Africa unit were both up 4.3%, while sales in the US were down 0.7%. Shares were higher.

Electronic Arts Inc. (ERTS $16) reported fiscal 3Q EPS ex-items of $0.33, two cents below the Street’s forecast as revenues fell 23% y/y to $1.35 billion, matching the expectations of analysts. The video game software maker said it is growing market share in its packaged goods business—publishing of video games—and its digital businesses continue to grow rapidly. Shares came under solid pressure, closing nearly 9% lower, after ERTS issued 4Q and 1Q EPS guidance that missed analyst expectations, and its initial fiscal full-year 2011 sales and EPS outlooks also fell short of expectations.

Toyota Motor Corp. (TM $75) rebounded in Asia and was higher in the US after it expectedly announced that it will recall about 437,000 of its new Prius and other hybrid cars to fix braking issues, adding to the over 8 million vehicles that have been recalled recently, due to unintended acceleration. However, following the announcement, Moody’s placed TM’s senior unsecured long-term credit rating on review for a possible downgrade.

Pulte Homes (PHM $11) reported a net loss of $0.31 per share, compared to the loss of $0.19 per share that the Street had expected. PHM said the results included significant charges for goodwill, land, mergers, and mortgage repurchases, which were partially offset by income tax benefits. Excluding these charges, PHM said its results would have been approximately breakeven. The company said its revenue increased 6% y/y to $1.7 billion, compared to the $1.5 billion that the Street forecasted. PHM said its net new home orders increased 113% y/y to 3,748 homes and closings rose 13% to 6,200 homes, but average selling price fell 7% to $258,000. Despite the miss, shares finished nearly unchanged.

Wholesale stockpiles surprise to the downside

Wholesale inventories unexpectedly fell, decreasing 0.8% in December month-over-month (m/m), versus the Bloomberg consensus, which called for a 0.5% advance, and November’s 1.5% increase was revised to a 1.6% advance. Petroleum inventories increased 3.6%, computer equipment jumped 6.6% and professional equipment gained 2.5%. However, automotive inventories fell 2.5%, apparel dropped by 3.6%, and farm products decreased 4.5%. Sales rose 0.8%, bringing the inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—to 1.12 months from 1.14.

Tomorrow’s scheduled testimony by Federal Reserve Chairman Ben Bernanke before the House Financial Services Committee has been postponed due to inclement weather in the nation’s capital. However, the Federal Reserve will release the prepared text of Mr. Bernanke’s testimony at 10 a.m. ET.

Treasuries headed lower following the inventory report and remained in negative territory with the yield on the 2-year note gaining 6 bps to 0.83%, the yield on the 10-year note 8 bps higher at 3.64%, and the yield on the 30-year bond up 7 bps to 4.58%.

Conflicting Greece aid reports garner attention

Speculation of a potential Greek deficit relief plan was fanned early in the day following European Central Bank President Jean-Claude Trichet’s decision to leave a gathering of policymakers in Sydney, Australia prematurely in order to attend an EU summit on Feb. 11, where leaders will confer on the nation’s plans to reduce its deficit. However, the ECB said the plans were purely because of logistics and Trichet changed his plans in order to catch a connecting flight so he did not miss the summit, which he had already been scheduled to attend. Elsewhere, citing a senior German coalition source, Reuters reported that Eurozone governments had agreed in principle to help Greece with various options under consideration, but German government spokesperson Ulrich Wilhelm released a statement saying that no such agreement had been reached. Adding to the drama, late in the day, the Wall Street Journal reported that Germany, along with other EU countries, are considering a plan for a loan guarantee for the troubled country.

In international economic news, Germany’s trade balance came in smaller than expected, as imports rose 4.5%, more than economists surveyed by Bloomberg had forecasted, offsetting a surprising 3.0% increase in exports, above the 0.1% rise forecast, and the fourth-consecutive monthly gain. As well, the final reading of consumer prices in Europe’s largest economy were left unrevised as expected at a 0.8% increase y/y and a 0.6% decline month-over-month (m/m). Elsewhere, the UK’s trade deficit came in larger than anticipated, rising to 7.3 billion pounds ($11.4 billion), with imports moving 5.2% higher m/m while exports advanced 4.5% m/m.

Tomorrow’s US economic calendar will yield the trade balance for December, forecast to narrow to -$35.8 billion from -$36.4 billion in November, as well as the MBA Mortgage Application Index.

On the international front, economic reports will include industrial production from France, Italy and the UK, employment in Australia, and China will release CPI and PPI.