Strength in technology stocks helped to push the blue chips into positive territory on the first trading day of the week. However, weakness in financials and little news for investors to grab hold of kept the gains in check, while the S&P 500 and Nasdaq finished mostly flat. As well, optimism over a potential end to the unrest in Libya faded amid the growing lack of economic confidence toward Europe and the US. Treasuries finished lower amid a dormant US economic calendar, while crude oil prices came in flat, gold continued its rally, and the US dollar was modestly to the upside. On the equity front, the strike of 45,000 workers at Dow member Verizon Communications has come to an end, Dollar Thrifty Automotive Group asked Hertz Global Holdings and Avis Budget Group to submit their “best and final definitive proposals” by early October, while Lowe’s Companies announced a repurchase program of up to $5 billion.
The Dow Jones Industrial Average gained 37 points (0.3%) to 10,887, the S&P 500 Index was unchanged at 1,124, and the Nasdaq Composite picked up 4 points (0.2%) to 2,345. In moderate volume, 1.2 billion shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.01 to $84.42 per barrel, wholesale gasoline was flat at $2.84 per gallon, and the Bloomberg gold spot price soared $43.10 to $1,895.17 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was up 0.1% to 74.10.
A more than two-week strike at Dow member Verizon Communications Inc. (VZ $35), impacting 45,000 workers has ended, but the labor contract continues to be negotiated, as they reached an accord to work under the expired contract until a new labor agreement is reached. A VZ spokesperson said “both sides were making progress on local and regional issues,” and the Wall Street Journal reported that the unions said they decided to return to work because they had succeeded in getting VZ to take their concerns seriously and negotiate more equitably at the bargaining table. VZ was higher.
In M&A news, Dollar Thrifty Automotive Group Inc. (DTG $63) asked Hertz Global Holdings Inc. (HTZ $9) and Avis Budget Group Inc. (CAR $11), which already have issued competing bids to acquire DTG, to submit their “best and final definitive proposals” by early October. DTG said it believes that it is time to ascertain whether a transaction can be accomplished with HTZ and CAR or another party that is in the best interests of the company and its shareholders. DTG requested the takeover offer as it believes HTZ and CAR are both “well positioned to complete the regulatory process in a manner that would permit a combination to be completed with limited economic impact.” Shares of DTG were higher, while both HTZ and CAR finished lower.
In other corporate finance news, Lowe’s Companies Inc. (LOW $20) announced that it has authorized the repurchase of up to $5 billion of the company’s common stock. The world’s second-largest home improvement retailer said although this new repurchase authorization has no expiration date, the company expects to use the full amount over the next two to three years. Shares were higher.
GDP and Fed’s Jackson Hole gathering headline economic calendar this week
Treasuries finished lower as there were no major US reports scheduled for today’s economic calendar. The yield on the 2-year note was up 2 bp to 0.21%, the yield on the 10-year note was 3 bps higher at 2.10%, and the 30-year bond rate rose 2 bps to 3.41%.
Tomorrow, the US economic calendar will begin to yield data with the release of new home sales, forecasted to decline 0.6% month-over-month (m/m) in July to an annual rate of 310,000 units, after falling 1.0% in June. The new home sales report is considered a timely indicator of conditions in the housing market as it is based on signings, while existing home sales, which unexpectedly fell 3.5% m/m in July, uses closings. Meanwhile, durable goods orders will be reported on Wednesday, and weekly initial jobless claims will come out on Thursday, bridging the gap to the likely pinnacle of the week’s economic docket on Friday, where we will get the first revision to 2Q GDP and Federal Reserve Chairman Ben Bernanke’s speech in Jackson Hole, Wyoming.
Other releases on this week’s US economic calendar include: the Richmond Fed Manufacturing Index, the MBA Mortgage Applications Index, and the final University of Michigan Consumer Sentiment Index reading for August.
Conviction lacking in Europe amid continued unease toward eurozone crisis
Optimism regarding an end to the civil war in Libya, where opposition forces have reportedly taken control of the capital city of Tripoli and could be close to forcing out Muammar Qaddafi, lifted the mood across the pond. However, concerns surrounding the eurozone contagion crisis kept sentiment in check, exacerbated by German Chancellor Angela Merkel further dampening expectations of the creation of a Eurobond in the near-term. Merkel noted in an interview that bringing in Eurobonds at this time would further undermine economic stability, per Bloomberg. Meanwhile, traders are awaiting Friday’s speech in Jackson Hole, Wyoming, from US Federal Reserve Chairman Ben Bernanke, looking for any signs of further stimulus efforts amid the growing concerns about the possibility of a return to a recession. Also, European Central Bank President Trichet is expected to speak at the Fed’s annual gathering on Saturday, and traders will likely be looking for any comments by the ECB chief indicating how committed the central bank is to buying sovereign debt to help stabilize the financial markets until the expanded powers of the European Financial Stability Facility (EFSF) are ratified and can take over the region’s bond purchases. No major European economic reports were released today, but tomorrow, a plethora of PMI data in Europe, depicting manufacturing activity across the pond amid the backdrop of increasing eurozone recession worries, is on tap.
The eurozone debt crisis and worries about a recession in the US and Europe dampened sentiment in the Asia/Pacific region as well. Economic news in the region was also in short supply, with only a few reports of note. Thailand’s 2Q GDP unexpectedly contracted, declining by 0.2% q/q, after expanding by 2.0% in 1Q, while consumer prices in Hong Kong rose 7.9% year-over-year (y/y) in July—the fastest pace since 1995—compared to the 8.2% increase that was estimated, and an acceleration from the 5.6% y/y gain that was seen in June.
Tomorrow’s international economic calendar will be busier, with a number of PMI reports coming from France, Germany, and the eurozone. Meanwhile, Germany will also release its ZEW Economic Sentiment Survey, the eurozone will report consumer confidence, and retail sales will come from Canada. Further east, we will get China’s PMI, as reported by HSBC, as well as the nation’s trade balance. Go to http://www.AvidTrader.com