The Day Ahead: European Strength Boosting Futures

 | Oct 12, 2011 | 8:30 AM EDT  | Comments
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In the Headlines

Slovakian politicians and lower prices for aluminum failed to sink world stocks Wednesday, despite much pundit hand-wringing about those developments on Tuesday.

On the heels of the strong start to European trading, NYSE and Nasdaq futures indicated a higher open. Slovakia, the last eurozone nation to vote on expanding the European Financial Stability Facility, nixed the idea Tuesday. However, European analysts say the nation's domestic political squabbles were behind the move, and the measure will ultimately pass.

Meanwhile, DJIA component Alcoa (AA) missed third-quarter earnings estimates after the close on Tuesday. The company said production costs have been rising, while aluminum prices have been falling on the London Metal Exchange. Alcoa cited slowing demand in Europe, but gave an optimistic view on China. The stock was down $0.38, or 3.69%, to $9.92 in premarket trade. However, Alcoa did not put a dent in DJIA futures this morning.

European stocks showed solid gains before Wall Street's open. Miners and manufacturers were among the price leaders, boosted by optimism that the European bailout plan would ultimately be approved. The euro was on the rise early Wednesday.

In Asia, indices finished mixed, but ended above session lows on a rally in financials. Early in the Asian session, the Slovakian vote and Alcoa earnings miss had spooked traders, but the impact of those events eventually waned.

Government Moves

Ahead of the open, the Mortgage Bankers Association said loan applications were up 1.3% last week, with government lending programs driving interest.

The Treasury Department is planning to auction off 10-year notes at 1 p.m. EDT today. Ahead of Wall Street trade this morning, the yield on the 10-year note rose to 2.16%.

At 2 p.m. EDT, the Federal Reserve is scheduled to issue minutes from its most recent FOMC meeting. Economists and traders will be attentive to further insights from the meeting that resulted in Operation Twist.

Commodities Corner

Gold jumped $24.80 in early electronic trade, to $1,685.80 per ounce.

Crude oil advanced $0.50 to $86.31 per barrel.

Earnings News

Ahead of the open, Pepsico (PEP) reported earnings per share of $1.31, a penny ahead of views. Revenue was $17.6 billion, topping expectations of $17.19 billion. The beverage and snack maker also reaffirmed its guidance for 2011. It said emerging markets continued to show strength, but noted that global commodities costs were on the rise. Shares rose by a nickel, a fractional gain, to $61 in premarket trade.

DJIA component Wal-Mart (WMT) holds its annual meeting today. The company is expected to give shareholders and analysts a glimpse of its holiday strategy. There was no premarket trade in the stock as of this writing, but it could be a name to watch today, as journalists are on site to cover announcements.

Early Movers

In addition to PepsiCo, early price gainers included big financials. Bank of America (BAC) advanced $0.14, 2.2%, to $6.51. Morgan Stanley (MS) was up $0.28, 1.82%, to $15.67. Both stocks are showing gains this week, after rallying from last week's lows.

Chevron (CVX) gained $0.41, 0.42%, to $98.01 in early trade. Late Tuesday, the company said it expects lower third-quarter results from its oil exploration and production business.

Fiber-optic cable and electronic gear maker TE Connectivity (TEL) bolted $1.81 higher, or 5.9%, to $32.50 in premarket trade. The stock joins the S&P 500 after Friday's close, replacing Cephalon (CEPH), which is being acquired by Teva Pharmaceuticals (TEVA).

Analysts' Actions

Goldman Sachs initiated or resumed coverage on a number of companies from the restaurant industry. It started Cheesecake Factory (CAKE) with a rating of Sell. Meanwhile, the firm initiated coverage on DineEquity (DIN) with a Neutral designation.

Goldman analysts resumed coverage on Brinker International (EAT) and P.F. Chang's (PFCB), giving the companies Neutral ratings, and the firm renewed coverage on Darden Restaurants (DRI) with a Buy rating. Darden shares rose $0.59 ahead of the opening bell, a gain of 1.29%, to $46.50.

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