Evening Market Update

Stocks Bounce Despite Bland Earnings Season Opener

1Q earnings season got off to an uninspiring start, courtesy of disappointing top-line results from Dow member Alcoa. However, the below-par report and uneasiness regarding the interest rates Greece will need to pay for its latest debt offerings, which sapped strength overseas, weren’t able to keep stocks down, as equities continued their upward march to close above the 11,000 mark for a second day. In other equity news, industrial firm Fastenal Co. reported earnings that beat the Street, CF Industries Holdings Inc. issued 1Q sales guidance that fell short of expectations, and Avon Products Inc. confirmed that it has put four executives on administrative leave due to a bribery investigation. Despite the strength in equities, Treasuries finished mixed with the mid-to-long end of the yield curve flattening a tad after import prices increased by a smaller amount than forecasted, while the trade deficit widened.

The Dow Jones Industrial Average gained 13 points (0.1%) to close at 11,019, the S&P 500 Index rose 1 point to 1,197, and the Nasdaq Composite was 8 points (0.3%) higher at 2,467. In moderately light volume, 1.1 billion shares were traded on the NYSE and 2.5 billion shares were traded on the Nasdaq. Crude oil was $0.29 lower at $84.05 per barrel, wholesale gasoline was $0.01 higher at $2.31 per gallon, and the Bloomberg gold spot price lost $5.35 to $1,150.85 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was down 0.1% to 80.49.

Alcoa Inc. (AA $14) became the first Dow member to report 1Q results and unofficially kicked off earnings season, by reporting EPS ex-items of $0.10, inline with the consensus estimate of Wall Street analysts. However, the aluminum producer posted a revenue decline of 10% compared to the previous quarter to $4.9 billion, which was below the $5.2 billion that analysts were anticipating. The company said its results for the quarter benefitted from productivity gains and higher realized prices for alumina and aluminum, which grew 13% and 8%, respectively, compared to last quarter, but were hampered by lower volumes and higher energy costs. The company said its markets are “gradually improving” and both policy trends and consumer sentiment “bode well for aluminum demand.” Shares were lower.

Fastenal Co.(FAST $53) reported 1Q EPS of $0.38, five cents above analysts’ forecasts, with revenues growing 6.4% year-over-year (y/y) to $521 million, versus the $511 million that the Street had expected. The industrial company said fluctuations caused by the weakened economy continue to have a “substantial impact” on its business, but daily sales to its manufacturing customers—which have historically accounted for 50% of its business—rose 15.7% after posting double-digit contractions in every quarter last year. However, daily sales in non-residential construction customers—about 20-25% of its total business—contracted about 14.7%. Shares were higher.

CF Industries Holdings Inc. (CF $89) finished lower after the fertilizer firm said it expects 1Q net sales to be approximately $502 million, or about 26% lower y/y, as sales volumes is forecast to be down 6% compared to the same period last year. CF said the decline in both sales and volume is due to decreases in both the nitrogen and phosphate segments. Analysts are expecting the company to report sales of $561 million.

Avon Products Inc. (AVP $32) was solidly lower after the beauty products company confirmed that it has put four executives on administrative leave as it investigates bribery allegations, according to the Wall Street Journal, which cited an Avon spokesperson.

Import prices rise by a smaller amount than anticipated, trade deficit widens

The Import Price Index (chart) rose 0.7% month-over-month (m/m) for March, compared to the expectation of economists, which called for the index to increase by 1.0%. Year-over-year, import prices are higher by 11.4%, versus the 11.7% forecast of economists. Fuel prices rose to contribute about 80% of overall increase in the index, while nonfuel industrial supplies and materials, consumer goods, and foods, feeds, and beverages also contributed to the rise. However, lower prices for capital goods and automotive vehicles partly offset the overall advance.

The trade deficit widened from a slightly smaller-than-initially reported $37.0 billion in January to $39.7 billion in February, versus the Bloomberg estimate calling for the deficit to increase to $38.5 billion. Imports rose 1.7% m/m to $182.9 billion, outpacing exports, which inched up 0.2% to $143.2 billion. Imports were led by consumer goods and industrial supplies and materials, along with royalties and fees, which included payments for rights to broadcast the 2010 Winter Olympic Games. Exports were led by capital goods—such as automotive vehicles, parts, and engines—industrial supplies and materials, and freight and port services. The price paid for crude oil declined from $73.89 per barrel in January to $72.92, totaling $17.7 billion, down from $18.1 billion.

Treasuries finished mixed following the import price and trade data. The yield on the 2-year note was flat at 1.04%, while the yield on the 10-year note lost 3 bps to 3.82% and the 30-year bond yield fell 2 bps to 4.68%. The yield on the 10-year note has been paring some of the recent advance that took it to the 4% level.

Higher rates for Greece debt fosters uneasiness

Greece headlined news in the euro region as the debt-ridden nation conducted its first debt offering since the 45-billion euro bailout package backed by euro-members and the International Monetary Fund (IMF) was announced. Greece raised about 1.6 billion euros in 26-week and 52-week bills, which both drew strong demand, but the interest rates on the offerings were relatively high, causing some uneasiness. The yield on the 26-week bill was 4.55% and the yield on the 52-week bill was 4.85%, compared to similar auctions conducted in January, which had yields of 1.38% and 2.2%, respectively. The country’s ability to raise capital in the markets is one of the key factors on whether the country will need to tap into the financial backstop that euro-zone members announced over the weekend.

Economic reports across the pond were mixed, as UK home price increases slowed to the smallest pace in eight months, per Bloomberg, and Britain’s trade deficit fell to a narrower-than-expected 6.18 billion pounds. Elsewhere, prices at the consumer level in Germany—Europe’s largest economy—were left unrevised at a 0.5% gain m/m in March, while a separate report showed wholesale prices rose more than forecast. Meanwhile, French consumer prices increased by an amount that exceeded expectations, while its current account deficit narrowed.

In the Asia/Pacific region, a report in Australia showed that the nation’s business conditions improved, but the report also showed business confidence deteriorated.

Full economic day on tap

Wednesday’s economic data starts with the Consumer Price Index (CPI), anticipated to have risen 0.1% m/m in March, after posting a flat m/m reading in February, and ex-food and energy, the core CPI rate is forecasted to have risen 0.1%, inline with the 0.1% increase in February. February’s core reading of 1.3% year-over-year growth was the smallest since 2004, demonstrating that inflation is not a current concern.

Advance retail sales for March will also be released, forecasted to advance by 1.2% m/m, after growing 0.3% in February, while sales ex-autos are estimated to increase 0.5% in March, on the heels of a rise of 0.8% in February.

Shortly after the market open, Federal Reserve Chairman Ben Bernanke testifies before the Joint Economic Committee on the economic outlook, while the Beige Book, a summary of anecdotal economic data from all twelve Federal Reserve districts used in preparation for the next Federal Open Market Committee (FOMC) meeting scheduled for April 27-28, will be released mid-day.

Other releases on the economic calendar include the weekly MBA Mortgage Applications Index and business inventories, expected to rise 0.4% in March.

International economic releases include euro-zone industrial production, Brazilian retail sales, and Chinese 1Q GDP, CPI, producer prices, retail sales and industrial production.