Evening Update

Another Morning Rise, Afternoon Fall

Stocks ended the day mixed after giving up early gains for the second day in a row, but still managed to finish the week in the black. The market gained momentum from the positive news of a bailout package for Greece, but appeared to abate after traders were spooked by reports of a naval conflict between North and South Korea. Treasuries managed to gain back some ground today, but still finished considerably lower on the week after low demand in auctions earlier this week. The dollar finished to the downside today, as Greek default seems to be off the table at this point, giving strength to the euro. Economic releases today included a final reading of 4Q GDP that was downwardly adjusted and a reading on consumer sentiment that was unchanged. In equity news, Oracle announced earnings that were inline with estimates, while Accenture missed expectations and lowered future guidance. Elsewhere, Brinker International raised its earnings forecast, boosted its dividend and expanded a stock buyback, and RadioShack rounded out the equity news with a report that it may be up for sale.

The Dow Jones Industrial Average rose 9 points (0.08%) to close at 10,850, the S&P 500 Index gained 1 point (0.07%) to 1167, and the Nasdaq Composite was 2 points (0.7%) lower at 2,395, respectively. In moderate volume, 1.0 billion shares were traded on the NYSE and 2.2 billion shares were traded on the Nasdaq. Crude oil was $0.39 lower at $80.14 per barrel, wholesale gasoline was flat at $2.21 per gallon, and the Bloomberg gold spot price gained $17.00 to $1,107.50 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was down 0.7% to 81.56. For the week, the DJIA rose 1.0%, the S&P 500 Index advanced by 0.6%, and the Nasdaq Composite gained 0.9%.

Oracle Corp (ORCL $26) reported 3Q revenue of $6.4 billion and non-GAAP earnings per share of $0.38, inline with Thomson Reuters estimates. Results included one month of results from Sun Microsystems, after the acquisition of the hardware maker closed in late January, and the company said the integration was going “even better than we expected.” New license revenue gained 13%, 10% excluding Sun, and rose 8% excluding currency changes. During the conference call, the company gave guidance for 4Q new software license growth of 3-13% at current exchange rates and hardware product revenues of $1.2-1.3 billion. The company noted its plans to make the Sun business more “profit aware” and that guidance was conservative for the business. Management emphasized that pipelines for new business were strong for both software and hardware, but that the close rates for new software business used in guidance were “more conservative than typical 4Q” rates. Shares traded lower.

Accenture PLC (ACN $42) announced 2Q earnings of $0.60, below the Street EPS estimate of $0.61, on net revenue, or revenue before reimbursements, of $5.54 billion. The company said that new bookings for the quarter were $6.52 billion, with consulting bookings of $3.39 billion and outsourcing bookings of $3.13 billion. The consulting and outsourcing company reduced its full-year earnings by $0.06 to $2.61-2.69 per share, and said revenue will be at the low end of prior guidance. In commenting on the results, the CEO said that the results reflected strong business management in a challenging economic environment. During the quarter, the company repurchased 10.4 million shares for $434 million, including 2.4 million shares in the open market, while the share buyback program has $4.1 billion remaining as of February 28. Shares were higher.

In filings with the SEC, Brinker International (EAT $20) said that 3Q earnings ex-items would be $0.41-0.44 per share, higher than the consensus forecast of $0.40. Same-store sales for 3Q, sales at stores open more than a year, are expected to fall 3.5-4.5%, as weather lowered comparable store sales by 1%. The company also raised full-year earnings to a range of $1.40-1.44 per share. Brinker, operator of Chili’s Grill & Bar, also boosted its quarterly dividend to $0.14 per share and expanded its share buyback program by an additional $250 million. Separately, the company said it was selling its On The Border chain to an affiliate of Golden Gate Capital for an undisclosed amount. Shares finished lower.

The New York Post reported that RadioShack Corp (RSH $24) is considering sale of the company that could fetch more than $3 billion, and the strength in the shares today has the market capitalization of the company nearing in on the figure. A spokeswoman said the company would not comment on market rumors. Shares were higher on the speculation.

Final report lowers reported 4Q economic growth, while consumer sentiment unchanged

The final look at 4Q Gross Domestic Product, the broadest measure of economic output, was released this morning and showed a 5.6% annualized rate of growth, compared to the 5.9% advance in the prior report, while the Bloomberg forecast called for output in the final quarter of the year to remain unchanged. Personal consumption advanced 1.6%, below the 1.7% that was forecasted to be unrevised. Real final sales, which exclude changes in inventory, were 1.7% higher, versus the 1.9% that was last reported. Revisions from the second estimate of 4Q GDP primarily reflected downward revisions to non-residential construction, inventory investment and consumer spending.

The GDP Price Index rose 0.5%, versus the 0.4% consensus rise of economists surveyed by Bloomberg. The core PCE Index, which excludes food and energy, gained 1.8%, versus expectations of 1.6%.

GDP was boosted by a slower pace of inventory consolidation, which added 3.8% to GDP, as well as capital spending on equipment and software, which contributed 1.1% and rose at a 19.0% pace in 4Q, the most since 2006. Meanwhile, net exports added 0.3%, as exports increased at a 22.8% pace and imports (a subtraction from GDP) gained 15.8%, and consumer spending contributed 1.2%.

Meanwhile, the final University of Michigan consumer sentiment survey (chart) was unchanged in March from February, at 73.6, higher than the preliminary reading of 72.5 and the forecast of 73.0. The current economic conditions component of the report rose to 82.4 from 81.8, the highest in two years according to Bloomberg, while the index of expectations six months from now fell to 67.9 from 68.4. The report showed the one-year and five-year inflation outlooks unchanged at 2.7% each.

The Obama administration announced plans aimed at reducing foreclosures by making adjustments to the Home Affordable Modification Program (HAMP) and to the Federal Housing Administration (FHA) programs. Banks participating in HAMP will now be required to consider writing down principal for eligible borrowers whose mortgage debt is more than 115% of the current value of their homes, and principal will be reduced in stages over three years if payments are kept current. Additionally, HAMP will provide temporary assistance for unemployed homeowners while they search for re-employment. Changes in the FHA programs also use principal write down as a new way for borrowers to refinance into a smaller loan. Funding will be provided through the $50 billion already allocated to housing programs under the Troubled Asset Relief Program (TARP).

Treasuries moved higher, as the yield on the 2-year note lost 3 bps to 1.05%, the yield on the 10-year note fell 3 bps to 3.85%, and the 30-year bond yield declined 1 bp to 4.75%.

Greek rescue plan finally in place

A plan to aid Greece was reached late yesterday, helping to alleviate some concerns over the government debt problems in Europe, highlighted by a credit rating downgrade of the debt of Portugal earlier this week. European Central Bank President Jean-Claude Trichet toned down his opposition to International Monetary Fund (IMF) involvement, telling reporters late yesterday that he was “extraordinarily happy that the governments of the euro area found out a workable solution,” while in earlier remarks he said an IMF role would be “very, very bad.” Trichet’s change in view came as European governments would be in control of the process, providing more than half of the loans in a mix of IMF assistance and bilateral loans, wherein help would be extended from the entire 16-nation euro region. EU leaders said that the objective was to provide financing at “average euro-area interest rates” but said that Greece probably won’t need help as markets were still funding its credit needs. In commenting on the plan, German Chancellor Angela Merkel said that, “Europe has shown it is capable of dealing with an important issue and at the same time take action for the stability of the euro and for a country struggling with difficulties.” The plan for aid to Greece today is expected to be a template for any euro-nation country that needs assistance.

In Asia/Pacific economic news, Japanese core consumer prices declined for the twelfth- consecutive month in February, and the prospect of continued deflation contributed to a decision last week by the Bank of Japan to extend a credit program for commercial lenders of 20 trillion yen ($220 billion). Chinese central bank Deputy Governor Zhu Min said that interest rates are a “heavy-duty weapon” and that alternative tools to address credit liquidity are working well. Chinese currency policy was also in news headlines again today, after Fan Gang, an adviser to the country’s central bank, wrote an opinion piece in the government-backed China Daily. Fan said that, “China may resume a managed float of its exchange rate, particularly if the uncertainty of the overall post-crisis economic situation diminishes,” but added that, “If the adjustment came abruptly, Chinese companies would suffer a sudden loss of competitiveness.”

An index of leading economic indicators in Australia rounded out the international news, showing a decline in January for the first time in eight months. The index fell 0.2% to 113.7, while the index of coincident indicators, a gauge of current growth rates, increased 0.4% to 115.1. Australia’s central bank has raised interest rates four times since last October, the first major economy to do so, in an attempt to cool its growing economy.

Slow and steady continued to win the race this week

The equity markets continued their recent theme of nudging modestly higher this week, as mixed economic reports and mostly positive earnings reports failed to provide traders with proof of where the global economy is headed. The week began with news of the passage of the legislation to overhaul health care, although stocks showed little reaction to the news, suggesting the outcome was already priced into the market. Economic data continued to pour in as the week progressed, including a decrease in the Chicago Fed National Activity Index, an improvement in the Richmond Fed Manufacturing Index, a less-than-expected increase in durable goods orders, an optimistic decrease in weekly initial jobless claims and a slight downward revision in 4Q GDP. Additional releases painted a more cautious tone for the housing market, as existing home sales declined, new home sales fell to a record low and the US MBA Mortgage Application Index also came in at a lower level. Treasuries reacted strongly to the economic news, moving lower for the week on the heels of auctions of 3, 5, and 7-year notes that were all met with low demand.

Uneasiness dominated the international front for much of the week, as the Greek debt concern was debated on a daily basis, and appeared to be resolved late in the week as a plan was developed in which European governments would be in control of the process, providing more than half of the loans in a mix of IMF assistance and bilateral loans, wherein help would be extended from the entire 16-nation euro region.

Employment report expected to show gain in jobs in holiday shortened week

Economic releases next week start with the release of the S&P/CaseShiller Home Price Index, which lags the sales data by a month and is expected to show prices declined 0.6% year-over-year for January. On Thursday, the release of the ISM Manufacturing Index is expected to show an increase to 57.0 in March from 56.5 in February, with 50 being the level that separates contraction versus expansion in the economy. Manufacturing has been strong on export strength and as factories ramped up after businesses allowed inventories to plunge by unsustainable amounts.

Wednesday will also bring the ADP Employment Change Report, where the forecast is that private sector employers added 40,000 jobs in March after declining by 36,000 in February. The ADP report is a reading of the state of the job market excluding government payrolls, which are expected to be boosted by Census Bureau hiring over the next several months.

Nonfarm payrolls will headline the week on Friday, with the Bloomberg survey of economists forecasting payrolls grew by 190,000 in March, after falling by 36,000 in February, while the unemployment rate is estimated to be unchanged at 9.7%. Jobs data will start getting a boost from the government, as the Census Bureau has said it expects to hire 181,000 workers from January to March and 971,000 in the following three months, peaking in May, where they are anticipating adding 500,000 workers.

Other releases on next week’s busy US economic calendar include personal income and spending, construction spending, the Conference Board Consumer Confidence Index, MBA Mortgage Applications, initial jobless claims, factory orders, and consumer credit. US markets are closed on Friday in observation of Good Friday.

The international economic calendar will also be heavy, including euro-zone and UK manufacturing PMI reports, euro-zone CPI, employment and consumer confidence, UK GDP and retail sales, and German retail sales. In the Americas, Canada releases GDP, while Brazil announces manufacturing PMI and industrial production.

In the Asia/Pacific region, announcements include Japan’s retail sales, employment, industrial production, housing starts, vehicle sales and production, China’s manufacturing PMI index, and Australian retail sales and building approvals.