Evening Market Update

Markets Lack Catalyst

Amid little equity news, an empty US economic calendar and last week’s midterm elections and Fed action in the past, stocks couldn’t find a golden ring to grab onto in trading to start the week and finished mixed, as strength in the US dollar appears to have been the main source of pressure for the markets. On the equity front, Dow member McDonald’s reported better-than-expected global same-store sales results for October, while food distributor Sysco matched analysts’ profit forecasts. Treasuries finished mixed, with weakness at the short-to-mid end of the yield curve.

The Dow Jones Industrial Average fell 37 points (0.3%) to 11,407, the S&P 500 Index lost 3 points (0.2%) to 1,223, while the Nasdaq Composite gained 1 point (0.04%) to 2,580. In moderate volume, 909 million shares were traded on the NYSE and 1.8 billion shares were traded on the Nasdaq. Crude oil gained $0.21 to $87.06 per barrel, wholesale gasoline was unchanged at $2.18 per gallon, while the Bloomberg gold spot price increased $15.70 to $1,409.35 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was 0.7% higher at 77.05.

Dow member McDonald’s Corp. (MCD $79) announced global October same-store sales—sales at stores open at least thirteen months—rose 6.5% year-over-year (y/y), above the 5.4% that analysts surveyed by Reuters were anticipating. Sales in the US were up 5.6%, led by its core products and its McCafe beverages, but analysts forecasted a 6.1% increase. Elsewhere, sales in Europe rose 5.8%, with France, the UK and Russia posting strong performances, while its Asia/Pacific, Middle East and Africa unit delivered a 5.3% increase in sales, fueled by growth in Japan, China, and Australia. Shares finished unchanged.

Sysco Corporation (SYY $29) reported fiscal 1Q EPS of $0.51, matching analysts’ forecasts, with earnings boosted by $0.02 per share from its corporate owned life insurance business. But revenues increased 7.4% y/y to $9.8 billion, above the $9.5 billion that the Street had expected. The food distributor said it was pleased with the volume growth and productivity improvements during the quarter but it missed its goal for operating income growth. The company also said food cost inflation was 3.3%—compared to deflation of 3.4% a year ago—driven by nearly 10% inflation in the combined categories of meat, dairy and seafood. Shares were lower.

Economic docket relatively light

The yield curve flattened a tad as Treasuries were mixed with weakness at the short-to-mid end as the there were no major economic releases scheduled for today. The yield on the two-year note gained 3 bps to 0.40%, the yield on the 10-year note rose 2 bps to 2.55%, while the 30-year bond yield was 1 bp lower at 4.11%.

The equity markets ramped up to two-year highs last week, aided by expectations that the US Federal Reserve will deploy further stimulus measures and the Republicans will gain control of the House in the midterm elections, both of which came to fruition last week. Traders are looking to see if the momentum for stocks can continue now that we have gained some clarity on some of the major economic uncertainties that had dominated sentiment.

Economic data mixed in Europe, Ireland looking for help

Economic news across the pond was dominated by reports out of Germany—Europe’s largest economy—as the nation’s exports rose 3.0% month-over-month (m/m), twice the amount of what economists had expected for September, and its trade surplus expanded by a larger amount than forecasted. However, German industrial production unexpectedly fell 0.8% m/m in September, compared to the 0.5% gain expected by economists, which took some of the luster off of the favorable trade data. In other economic news, euro-zone investor confidence rose more than expected for November, and Switzerland’s unemployment data matched estimates.

Elsewhere, lingering concerns over the sovereign health of Ireland moved to the forefront, as the European nation is looking for support from the European Union (EU) in order to avoid a bailout similar to one of its brethren—Greece—as investors are turning their backs on the country’s bonds. The spread between Irish 10-year bonds and the similar German bund has widened to a record 550 basis points. Ireland announced new measures last week to bring its debt inline with the 3% of GDP limit for euro members by 2014, which includes spending cuts and increased taxes of as much as 6 billion euros ($8.4 billion). The EU’s Commissioner of Economic and Monetary Affairs will be in Dublin for a two-day meeting to look over the austerity plan. Moreover, Greek Prime Minister Papandreou won a local election, per Bloomberg, saying that he will continue to move forward in reducing the country’s deficit and debt load.

Further east, the economic calendar was relatively light with Japan’s Leading Index deteriorating more than expected in September and Taiwan’s trade surplus expanding more than anticipated in October.

Amid a light week on the US economic docket, the only item scheduled for release tomorrow is September wholesale inventories, forecast to increase 1.0% m/m following a 0.8% gain in August. Economic reports on the international front will be dominated by the UK which will offer retail sales, a measure of housing prices, its trade balance and industrial production, Germany will release CPI, while France and Japan will also provide trade balance figures.