Evening Market Update

 

 

Tax-Cut Uncertainty Keeps Equity Markets In Check

Stocks finished mostly unchanged after early gains were pared in a range-bound session highlighted by a larger-than-forecasted drop in US weekly jobless claims and an increase in wholesale inventories that surpassed expectations. However, enthusiasm seemed to wane after House Democrats voted to reject the deal reached earlier this week to extend tax cuts for all Americans, which will at least temporarily stall the process until further agreements can be reached. Treasuries were mostly higher, as yields pulled back from their recent surge, especially on the long end of the curve. On the equity front, Dow member DuPont reaffirmed its full-year EPS outlook and guidance for 2011, while Dell and Compellent Technologies announced that they are in merger talks. In other equity news, Whole Foods Market reinstated its quarterly cash dividend and Freeport-McMoRan Copper & Gold announced a special dividend and two-for-one stock split.

The Dow Jones Industrial Average was flat at 11,370, while the S&P 500 Index gained 5 points (0.4%) to 1,233, and the Nasdaq Composite advanced 8 points (0.3%) to 2,617. In light volume, 1.0 billion shares were traded on the NYSE and 1.9 billion shares were traded on the Nasdaq. Crude oil gained $0.17 to $88.45 per barrel, wholesale gasoline rose $0.04 to $2.34 per gallon, and the Bloomberg gold spot price advanced $4.50 to $1,386.58 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was unchanged at 80.04.

Dow member DuPont (DD $48) traded lower after the diversified materials company reaffirmed its full-year 2010 EPS outlook of about $3.10, and raised its revenue forecast. Moreover, the company issued 2011 guidance that was roughly inline with analysts’ expectations. However, shares are under pressure as its full-year 2010 EPS was short of the $3.13 that analysts surveyed by Reuters had expected and the company said it anticipates a decline in pharmaceutical royalties, due to patent expirations.

Whole Foods Market Inc. (WFMI $49) announced that its Board of Directors has approved the reinstatement of the company’s quarterly cash dividend of $0.10 per share, with the first dividend being payable January 20, 2011. The natural and organic foods supermarket said its favorable financial position and long-term outlook give it confidence to reinstate its quarterly cash dividend. WFMI finished lower.

In other corporate finance announcements,  Freeport-McMoRan Copper & Gold Inc. (FCX $111) announced that its Board of Directors authorized a special common stock dividend of $1.00 per share, to be paid December 30, 2010. Also, the company’s Board declared a two-for-one split of its common stock, which will be carried out in the form of a stock dividend payable on February 1, 2011. Shares moved to the upside.

Moreover, Dell Inc. (DELL $14) and data storage firm Compellent Technologies (CML $29) announced that they are engaged in advanced discussions regarding a possible business combination. The companies said they entered into an exclusive agreement to negotiate a merger agreement in which DELL would acquire all of the outstanding common stock of CML at a price of $27.50 per share in cash. They added that there can be no assurances that an agreement will be reached and they do not intend to comment further until an agreement is reached or discussions are terminated. DELL traded slightly lower, while CML finished sharply to the downside.

Jobless claims decline, while wholesale inventories move higher

Weekly initial jobless claims   decreased by 17,000 to 421,000, versus last week's figure which was upwardly revised by 2,000 to 438,000, and versus the consensus estimate of economists surveyed by Bloomberg, which called for claims to decline to 425,000. The four-week moving average, considered a smoother look at the trend in claims, fell by 4,000 to 427,500, and continuing claims tumbled by 191,000 to 4,086,000, below the forecast of economists, which called for claims to come in at 4,237,000.

In other economic news, wholesale inventories for October rose 1.9% month-over-month (m/m) compared to the 0.8% increase that economists had expected. Sales rose 2.2%, with farm product raw materials, petroleum, and nondurable goods sales leading the way. The inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—remained at 1.18 months.

Treasuries finished mostly higher, especially at the long end of the curve, as the yield on the two-year note was flat at 0.62%, the yield on the 10-year note fell 6 bps to 3.22%, and the 30-year bond yield dropped 6 bps to 4.40%. Yields are taking a break from a recent surge, which saw the ten-year rate reach a level not seen since June, amid a string of favorable US data, which has prompted optimism regarding the health of the economy. Moreover, this week’s tentative agreement to extend the Bush-era tax cuts in Washington amplified US economic sentiment, applying further pressure on bonds. However, that agreement hit a snag today as House Democrats voted to reject the tax deal in its current form, although it is unclear how much change is needed in order to get the proposal to a House vote.

BOE keeps rates unchanged, Japanese GDP revised higher

Traders in Europe were met with a string of economic data, highlighted by the Bank of England keeping its benchmark interest rate unchanged at 0.5% and leaving its asset purchase program unchanged at 200 billion pounds, in moves that were widely anticipated by economists. Other reports on the economic docket across the pond showed French 3Q nonfarm payrolls were unexpectedly revised to a lower rate of growth, and Germany’s Consumer Price Index was left unrevised as expected, while a gauge of UK home prices fell by a smaller amount than anticipated on a m/m basis. Meanwhile, Greece’s 3Q GDP was revised to a larger rate of contraction than originally reported.

Economic news out of Asia/Pacific was highlighted by a revision to Japan’s 3Q GDP to a larger rate of expansion than economists had expected. Japan’s 3Q output was revised to an annualized rate of 4.5%, from a preliminary reading of 3.9%, and compared to the 4.1% growth that was anticipated. Also, on a quarter-over-quarter (q/q) basis, Japan’s economic expansion was 1.1%, upwardly revised from 0.9%, and above the 1.0% growth that was expected.  Elsewhere, Australia’s employment change rose more than double what economists expected, the Bank of Korea kept its benchmark interest rate unchanged at 2.50% as expected, and India’s central bank Governor said inflation remains above “tolerance level,” according to Bloomberg.

Releases on tomorrow’s US economic calendar include the trade balance for October, which is expected to narrow to a deficit of $43.9 billion and the preliminary University of Michigan Consumer Sentiment Index, which is expected to improve to 72.5 in December from a November reading of 71.6.

The international calendar will yield French industrial and manufacturing production, Italian industrial production and 3Q GDP, UK PPI and Indian industrial production.