Avid Trader Official Blog

Market Slide Continues

Stocks are under pressure in morning trading as last week’s steep losses are being extended by continued weakness in the euro as the European debt crisis remains a drag on sentiment, exacerbated by the weekend’s government bailout of a Spanish financial firm. Treasuries are moving higher amid the downward move by the equity markets and ahead of the release of existing home sales, which will begin a plethora of housing reports for the week. In equity news, Dow component International Business Machines Corp announced it will acquire business-to-business solutions firm Sterling Commerce from fellow Dow member AT&T Inc for $1.4 billion, while Campbell Soup reported better-than-expected earnings. Overseas, Asia was mostly higher, while Europe is under pressure in afternoon action.

As of 8:41 a.m. ET, the June S&P 500 Index Globex future is 10 points below fair value, the Nasdaq 100 Index is 13 points below fair value, while the DJIA is 79 points below fair value. Crude oil is up $0.19 at $70.23 per barrel, and the Bloomberg gold spot price is up $9.20 at $1,186.30 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 1.2% at 86.37.

In M&A news, Dow member International Business Machines Corp. (IBM $125) announced that it has entered into a definitive agreement to acquire business-to-business solutions firm Sterling Commerce from fellow Dow component AT&T Inc. (T $25) for $1.4 billion in cash. IBM said the deal will give it new tools to help clients build dynamic business networks that connect partners, suppliers and clients.

Campbell Soup Co. (CPB $35) reported fiscal 3Q EPS ex-items of $0.54, three cents above the consensus forecast of Wall Street analysts, with revenues increasing 7% year-over-year (y/y) to $1.8 billion, inline with the Street’s forecast. The company said it saw an improvement in volume trends, while its V8 V-Fusion juices and Prego and Pace sauces helped its US beverages and sauces units post an “outstanding quarter.” CPB said it expects full-year adjusted EPS growth to be at the high end of a range between 9-11%.

Housing data to likely dominate economic calendar

Treasuries are higher amid the early decline in the equity markets and ahead of this morning’s release of existing home sales, forecast to increase 5.6% to an annual rate of 5.65 million units for April, kicking of the week’s economic calendar, which will yield a heavy dose of data pertaining to the housing market. Wednesday’s new home sales report will complete the sales picture, expected to rise 3.4% m/m. The homebuyer tax credit expired in April and is likely to have impacted home sales during the month. Other reports on housing will provide insight to housing prices and activity, with Tuesday’s reading of the S&P/CaseShiller Home Price Index, forecasted to dip 0.3% m/m for March, and Wednesday’s release of MBA Mortgage Applications for last week, which declined in the previous week’s report on a sharp drop in purchase applications, possibly as a result of the expired tax credit.

Moreover, traders will likely pay attention to Thursday’s second look at 1Q GDP, expected to be revised slightly higher, from an expansion of 3.2% in the advance report, to a reading of 3.4% growth. Inventory building, along with consumer and capital spending, all contributed to the solid pace of expansion. Since the first GDP report, we have seen strong factory orders and construction spending reports for March, as well as increases in consumer spending and both wholesale and business inventories for the final month of 1Q, which may help explain the upward revision forecast.

Other reports on this week’s US economic calendar include, the Richmond Fed Manufacturing Index, consumer confidence, durable goods orders, weekly initial jobless claims, personal income and spending, the Chicago Purchasing Managers Index, and the final University of Michigan Consumer Sentiment Index for May.

Euro resumes slide on Spanish bank bailout

Stocks in Europe are under some pressure in afternoon action, led by oil and gas issues and financials as global economic recovery concerns remain and the euro is solidly lower versus the dollar and most major currencies as the euro-area debt crisis continues to stymie sentiment. The aforementioned pressure on the euro is being exacerbated by the announcement over the weekend that the Bank of Spain took over a regional savings bank Cajasur, guaranteeing the obligations of the firm so “depositors and creditors can maintain absolute peace of mind,” according to BoS Governor Miguel Angel Fernandez Ordonez. The euro is down solidly and is near the four-year low compared to the US dollar that it hit last week. Meanwhile, the British pound has relinquished an early gain and is lower versus the US dollar on the heels of the nation’s plan to cut government spending by nearly $9 billion in order to rein in its elevated budget deficit. There are no major economic reports in the euro-area and volume is lighter than usual as some markets across the pond, such as Switzerland and Greece, are closed for holidays.

The UK FTSE 100 Index is down 0.4%, France’s CAC-40 Index is off 0.5%, Germany’s DAX Index is declining 1.0%, and Spain’s IBEX 35 Index is 2.1% lower.

Asia mostly higher but Japan lags behind

Stocks in Asia were mostly higher, led by a solid advance in stocks in China, with the Shanghai Composite Index rising 3.5% on growing speculation that the government may be slowing its pledge to cool off the economy, partly due to the recent euro-area debt crisis and the impact it could have on the global economic recovery. Reuters reported that a Chinese newspaper said the government would delay a property tax, but the report was denied by a Chinese government official, while Bloomberg cited commentary by separate official saying that China should be cautious in introducing new tightening measures as the global economic environment is complex. Meanwhile, Japanese stocks came under some pressure, with the Nikkei 225 Index falling 0.3% as the recent strength in the yen dampened the outlook for revenues of export companies. However, Thailand’s SET dropped 2.8% after being closed since Wednesday amid violent protests against the government, despite a report that showed the nation’s 1Q GDP rose 3.8% quarter-over-quarter (q/q), compared to the rise of 1.7% that was expected by economists. Elsewhere, Taiwan’s Taiex Index increased 1.2% after reports showed the nation’s unemployment rate fell more than expected, and industrial production jumped more than anticipated. Rounding out the day in Asia, Hong Kong’s Hang Seng Index rose 0.6%, South Korea’s Kospi Index increased 0.3%, and India’s BSE Sensex 30 Index gained 0.2%, while Australia’s S&P/ASX 200 Index jumped 2.1%.