What’s the Story

by CC September 5, 2012 9:20 am • Commentary


U.S. stock futures were little changed as speculation Europe will act to tame its debt crisis offset a slump in FedEx Corp. and disappointing economic data.

FedEx, a barometer for the economy because it delivers goods from mobile phones to pharmaceuticals, slid 2.9 percent after projecting its first decline in quarterly earnings in almost three years. Facebook Inc. (FB) rose 2.9 percent after Chief Executive Officer Mark Zuckerberg said he won’t start selling his holdings in the company for at least a year.


U.S. nonfarm productivity increased at a much faster clip than previously thought in the second quarter as businesses squeezed more output from employees, government data showed on Wednesday.

Productivity increased at a 2.2 percent annual rate rather than 1.6 percent, the Labor Department said. Productivity, which measures hourly output per worker, fell at a 0.5 percent rate in the first three months of 2012.

Economists had expected second-quarter productivity would be raised to a 1.8 percent rate. The revision reflects an upward adjustment to the country’s second-quarter economic growth estimate to a 1.7 percent pace from 1.5 percent.


European stocks recovered after the lack of interest in Germany’s 10 year bond auction reinforced market views that the European Central Bank will take steps to ease the burden on fiscally stretched sovereign nations in the euro zone.

Germany’s DAXand France’s CAC 40 were recently 0.2% higher while London’s FTSE 100 was down 0.1%, dragged lower by a fall in major oil companies, which are heavily weighted on the index.

The Bundesbank said it sold €3.610 billion ($4.54 billion) of the 10-year Bund. Bids totaled €3.92 billion, less than the €5 billion offer size. The auction itself was disappointing but the lack of interest in the safe haven suggested that investors are once again putting their faith in the ECB.

The euro was off earlier lows and was at $1.2543 from $1.2565 late Tuesday in New York. The benchmark Stoxx 600 index was up 0.2% at 265.92, coming out of negative territory after the auction. The December Bund fell but then settled and by 0630 ET was at 141.6, down 0.16.

Earlier, European stocks markets drifted lower after the euro-zone services purchasing mangers’ index survey for August showed a modest reduction to 47.2 from the preliminary reading of 47.5 in August. Euro-zone retail sales were broadly in line with expectations.

Investors are marking time ahead of the conclusion of the ECB policy meeting on Thursday, with market participants widely expecting the central bank’s president to outline a framework for a bond-buying program.


Media reports on Wednesday said that the European Central Bank would, with broad support from its council members, unveil an unlimited, sterilized program of bond purchases.


European Central Bank President Mario Draghi’s bond-buying proposal involves unlimited purchases of government debt that will be sterilized to assuage concerns about printing money, two central bank officials briefed on the plan said.

Under the blueprint, which may be called “Monetary Outright Transactions,” the ECB would refrain from setting a public cap on yields, according to the people, and a third official, who spoke on condition of anonymity. The plan will only focus on government bonds rather than a broader range of assets and will target short-dated maturities of up to about three years, two of the people said.

The euro jumped half a cent on the report to $1.2596 and European stocks advanced. An ECB spokesman referred to an Aug. 20 statement in which the Frankfurt-based central bank said it was misleading to report on decisions that haven’t been taken yet.

Calculated Risk

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

The Refinance Index decreased 3 percent from the previous week to the lowest level since May 2012. The seasonally adjusted Purchase Index decreased 0.8 percent from one week earlier.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.78 percent from 3.80 percent, with points decreasing to 0.37 from 0.42 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.


Dollar General [DG  50.66        ]– The retailer reported quarterly profit of $0.69 per share, excluding certain items. That was five cents above estimates, with Dollar General also raising its full-year forecast based on strong same-store sales gains.

Facebook [FB  17.729        ] – CEO Mark Zuckerberg has pledged not to sell any stock in the company for a year. That statement was contained in a U.S. Securities and Exchange Commission filing. Additionally, investor Marc Andreessen is clarifying his intentions regarding Facebook shares, saying he’ll only sell enough to cover his tax obligations and hold onto the remaining shares “indefinitely.” (Read More: Facebook Handled the IPO Exactly Right: Mark Cuban.)

FedEx [FDX  87.54        ] – FedEx is cutting its earnings outlook for the quarter that ended Aug. 31, saying it now expects to report fiscal first-quarter profit of $1.37 to $1.43 per share, versus Street estimates of $1.56. The delivery company says a weak global economy is impacting demand at its FedEx Express unit.

AMR – A judge has ruled that the American Airlines parent can terminate labor contracts with its pilots as it tries to work its way out of bankruptcy protection.

3M [MMM  91.68  —  UNCH    ] – 3M said, contrary to reports, it has not dropped its plan to acquire Avery Dennison’s [AVY  29.60  —  UNCH    ] office and consumer products group for $550 million. That follows a threatened antitrust lawsuit from the U.S. Department of Justice, which said the deal would hurt competition in the sale of labels and sticky notes. 3M said it plans to work to address the department’s concerns.

NetEase [NTES  50.84  —  UNCH    ], Activision Blizzard [ATVI  11.68  —  UNCH    ] – China online gaming company NetEase has received government approval to launch the latest version of Activision’s “World of Warcraft” in China.

Oracle [ORCL  31.57  —  UNCH    ] – The software giant said it will continue to provide support for Hewlett-Packard [HPQ  16.99        ] servers based on Intel’s [INTC  24.415        ] Itanium chips. That follows a lawsuit in which Oracle had maintained it was not required to update its database software to be compatible with those servers.

Nokia [NOK  2.83        ], Microsoft [MSFT  30.385        ] – The two companies will unveil the new Lumia smartphone today, made by Nokia and based on the newest version of Microsoft’s Windows Phone software. Analysts said this may be Nokia’s last chance to win back market share from rivals such as Motorola, Apple [AAPL  674.97        ], and Samsung Electronics.

Pfizer [PFE  23.775        ] – The drugmaker has received U.S. Food and Drug Administration approval for a new pill that treats a rare type of leukemia.

Pep Boys [PBY  8.99        ] – Pep Boys saw fiscal second-quarter profit more than double, with the auto parts retailer benefiting substantially from a breakup fee paid by a private-equity firm after a buyout deal fell apart.

Francesca’s [FRAN  36.07        ] – Chief Executive John De Meritt is retiring from the women’s specialty retailer at the end of the year. President Neill Davis will take over as CEO as of Jan. 1.

Williams-Sonoma [WSM  41.22        ] – The housewares retailer’s shares were upgraded to “buy” at Deutsche Bank, which cited the strength of the chain’s merchandising as well as other fundamentals that are driving sales growth and boosting profit margins.