Evening Market Update

Modest Gains on Strength in Tech and Financials

Stocks continued to crawl higher in another day of light volume and little economic data, as advances in financial and technology stocks kept the markets on the positive side of the ledger. Gains were kept in check by further increases in the price of crude oil, while Treasuries moved lower after a drop in mortgage applications. In equity news, shares of Dow member Cisco Systems rose as CEO John Chambers said the company will make moves to simplify operations, while Monsanto beat the Street’s profit expectations and American Superconductor warned of a significant drop in earnings due to a contract issue. M&A activity continued to garner headlines, with Smithfield Foods confirming that it is in discussions to acquire a controlling stake in Spanish-based Campfrio Food Group and Cephalon rejecting an unsolicited offer to be acquired by Valeant Pharmaceuticals International for $5.7 billion.

The Dow Jones Industrial Average rose 33 points (0.3%) to 12,427, the S&P 500 Index was 3 points (0.2%) higher at 1,336, and the Nasdaq Composite gained 9 points (0.3%) to 2,800. In moderately light volume, 886 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.27 to $108.61 per barrel, wholesale gasoline fell $0.01 to $3.19 per gallon, while the Bloomberg gold spot price gained $4.85 to $1,460.70 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies— was 0.5% lower at 75.53.

Monsanto Co. (MON $69) reported fiscal 2Q EPS ex-items of $1.87, above the $1.84 consensus estimate of analysts surveyed by Reuters, with revenues rising 6.0% to $4.1 billion, compared to the $4.2 billion that the Street had forecasted. The agriculture firm said its sales were driven by volume in both its seeds & genomics and agricultural productivity segments. MON reaffirmed its full-year outlook as it sees a solid sales season for its US seeds and traits business. Shares traded lower.

Meanwhile, shares of  American Superconductor Corp. (AMSC $14) were down over 40% after the global power technologies firm warned that its 4Q and full-year results will be lower than anticipated. AMSC said the results were impacted by a refusal by China’s Sinovel Wind Group Co Ltd to accept contracted shipments of wind turbine electrical components and spare parts that the company was prepared to deliver.

Cephalon Inc. (CEPH $77) announced that after a thorough review, its Board of Directors has formally rejected Valeant Pharmaceuticals International Inc’s (VRX $52) unsolicited $73.00 per share ($5.7 billion) proposal to acquire the drugmaker. CEPH said the Canadian-based company’s proposal “significantly undervalues the company.” VRX said it was disappointed by the rejection of its offer and it “remains committed to our process.” Shares of both companies finished lower.

Smithfield Foods Inc. (SFD $23) moved lower after the pork producer confirmed that it is in discussions with Campofrio Food Group’s Chairman regarding launching a joint-bid for the remaining 50% of the Spanish-based meat packaging company, giving it a controlling stake. SFD said the bid would be for 9.5 euros ($13.60) per share, bringing its total stake to 87.6%, from 37%. SFD said the acquisition, which is valued at about $700 million, would further its long-term strategy of becoming a leading global consumer-packaged meats company.

MBA mortgage applications decline

The MBA Mortgage Application Index decreased by 2.0% last week, after the index that can be quite volatile on a week-to-week basis, declined by 7.5% in the previous week. The decrease came as the Refinance Index fell 6.2%, while the Purchase Index posted a 6.7% increase, and the average 30-year mortgage rate ticked higher by 1 basis point (bp) to 4.93%.

That said, while housing is important, its influence on the economy has lessened substantially, falling from over 6% of GDP at the bubble peak to about 2% presently. Also, housing affordability remains at a record high, job growth should help support demand, and the Conference Board’s recent survey showed consumers’ plans to buy a home spiked to levels not seen in over a decade.

Treasuries moved lower, as the yield on the 2-year note gained 2 bps to 0.84%, the yield on the 10-year note increased 7 bps to 3.55% and the 30-year bond rate rose 9 bps to 4.60%.

Europe gains momentum ahead of tomorrow’s central bank meetings

The economic front in Europe was highlighted by a report showing German factory orders rose 2.4% month-over-month (m/m) in February, well above the 0.5% increase that was expected, and the y/y rate of orders rose 20.1%, exceeding the 17.4% increase that was forecasted. Other reports out today included: euro-zone 4Q GDP being unrevised at a 2.0% y/y increase, while UK home prices were below expectations, and UK manufacturing and industrial production missed expectations.

Meanwhile, Portugal’s government confirmed that it does need financing from the European Union, after refusing to ask for assistance in recent months despite deteriorating financial conditions. It is unclear whether the assistance will be a short-term loan to secure financing until a June 5th election, or a complete bailout like those received by Greece and Ireland. Portugal also sold nearly 1 billion euros in six-and-twelve month bills today and the yields demanded by lenders rose solidly again compared to similar maturities that were auctioned off last month.

In Asia/Pacific economic news, Australia’s home loans fell much more than economists forecasted and Japan’s Leading Index improved in the month preceding March’s disaster.

Tomorrow’s US economic calendar will yield weekly initial jobless claims, expected to fall slightly to 385,000 from 388,000, and consumer credit, which is expected to have increased $4.6 billion in February, after rising $5.0 billion in January.

Central bank action will highlight the international scene tomorrow, as the European Central Bank (ECB) is highly expected to raise its benchmark interest rate by 25 basis points to 1.25%, while the Bank of England is expected to leave its target rate unchanged. Additionally, the Bank of Japan will conclude its policy meeting, with some looking to see if the central bank will announce further measures to stimulate the economy in the aftermath of the recent natural disasters. Other economic releases will include German industrial production, Canadian building permits, the Japanese trade balance, Brazilian IBGE inflation, and Australia’s unemployment rate.