What’s the Story?

by CC February 29, 2012 8:54 am • Commentary


U.S. stock index futures added to gains Wednesday, following a better-than-expected GDP report and after a higher-than-expected take up of the ECB’s second long-term refinancing operation. European banks bought 529.5 billion euros ($713 billion) of the cheap loans.

On the economic front, GDP grew at a 3 percent annual rate, logging the fastest gain since the second quarter of 2010, according to the Commerce Department. Economists had expected GDP to be unchanged at a 2.8 percent rate. The economy expanded at a 1.8 percent pace in the third quarter.

Federal Reserve Chairman Ben Bernanke will be presenting his semi-annual monetary policy report to Congress at 10 a.m. ET. Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser are also expected to speak.

The Fed will release its latest Beige Book, its region-by-region assessment of the U.S. economy, at 2 p.m.

The Chicago Purchasing Managers Index of manufacturing activity will issue results for February at 9:45 a.m. Analysts polled by Briefing.com expect the index to fall from 60.2 to 60.0.

At 10:30 a.m., crude inventories for the week ended February 25 will be released. In the prior week, levels were at 1.63 million.


The economy grew a bit faster than initially thought in the fourth quarter on slightly firmer consumer and business spending, which could help to allay fears of a sharp slowdown in growth in early 2012.

Gross domestic product expanded at a 3 percent annual rate, the quickest pace since the second quarter of 2010, the Commerce Department said in its second estimate. That was a step up from the 2.8 percent pace it reported in January.

Economists polled by Reuters had expected fourth-quarter GDP would be unrevised at a 2.8 percent pace. The economy grew at a 1.8 percent pace in the third quarter.

While the build-up in business inventories still accounted for much of rise in output in the last quarter, the revisions to GDP unveiled an improved tone for the first-quarter growth outlook.

Businesses were not as aggressive in their restocking efforts, which should help to allay fears of a sharper slowdown in output this quarter.

In addition, consumer spending – which accounts for about 70 percent of U.S. economic activity – was a touch firmer than initially thought. Consumer spending rose at a 2.1 percent rate instead of 2 percent.

Even spending on home building was firmer than previously estimated and investment on nonresidential structures was modestly weak.

So far data ranging from employment to manufacturing have shown underlying strength in the economy, reducing the need for the Federal Reserve to ease monetary policy further by launching a third round of asset purchases or quantitative easing.


The second round of the European Central Bank’s mass release of loans at its record low interest rate into the European banking system was slightly higher than expectations, sending European markets higher on Wednesday.

The euro fell slightly against the dollar after the ECB announced that the second long-term refinancing operation (LTRO) with a maturity of three years had a take-up of 529.5 billion euros ($713 billion) Wednesday, ahead of analysts’ predictions of around 500 billion euros. In December’s operation, 489 billion euros was taken up.

This time, 800 banks around Europe took up the cheap funding offered by the LTRO, up from 523 last time round, indicating that the initial stigma surrounding the operation had been removed.

Banks including HSBC, Belgium’s Dexia, Austrian bank Erste Group, and Spain’s CaixaBank and Banco Bilbao told Dow Jones that they had taken up funds from the second LTRO.


Costco Wholesale Corp. COST +0.47% reported stronger-than-expected fiscal-second-quarter net income and sales.

Office-supplies retailer Staples Inc. SPLS -1.88% reported fiscal-fourth-quarter net income rose 3.2% on 0.7% higher sales.

U.S.-listed shares of Central European Distribution Corp. CEDC -27.31%  fell 17% in preopen trading after the Polish-based maker of vodka reported wider fourth-quarter losses.

Shares of First Solar Inc. FSLR -5.58%  fell 7% in premarket trading after the maker of solar modules cut its 2012 earnings and sales forecasts late the prior day.

Shares of Dreamworks Animation SKG Inc. DWA -8.75%  could be in focus. The stock fell in after-hours trading on Tuesday after the animation studio posted a 71% drop in fourth-quarter profit from the year-ago period. Earnings of 29 cents a share fell short of analysts’ forecasts.

Most Asia stocks closed out February with solid gains, except in China, where the Shanghai Composite Index CN:000001 -0.95%  closed down 1%.

Crude-oil futures for April delivery CLJ2 +0.33%  rose 28 cents, or 0.3% to $106.83 a barrel.

The dollar index DXY -.00%  traded at 78.182, down from 78.222 late Tuesday.

Among other commodities, gold for April delivery GCJ2 -0.21%   weakened in the wake of the ECB’s long-term refinancing operation results. Gold fell 70 cents to $1,787.70 an ounce.


Overnight Headlines (Links)

Euro-Zone Crisis

Banks Borrow €529.5 Billion From ECB

What Will Banks Do When ECB Tap Closes?

Portugal Needs the Luck of the Irish

In the Markets

Optimism Drives Dow Past Milestone

Low Rates Aid Congressional Can-Kickers

Demand Worries Catch Up to Crude

Hong Kong Stocks: Miserable to Sizzling

U.S. and World

Romney Wins Michigan Republican Primary

Insider Probe Targets a Top Goldman Manager

U.S. Cuts Iran Cash Pipeline