The Day Ahead: Debt Deal Celebrated

 | Oct 27, 2011 | 8:28 AM EDT  | Comments
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In the Headlines

Traders around the world celebrated a European debt deal by sending global indices higher Thursday.

Wall Street futures participated in the euphoria, with NYSE and Nasdaq stocks poised for a sharply higher open.

Terms of the deal call for a $1.4 trillion bailout fund. Private investors in Greek debt – meaning banks – will take a 50% loss on their holdings. European banks are now forced to raise additional capital to fend off a possible Greek default. Analysts say the total amount banks need to raise is north of $170 billion, which will likely take some time to accomplish.

French banks appear to be better positioned than earlier believed. Several European financial stocks bolted more than 10% before Wall Street's open.

The euro spiked to its best levels since early September.

Plenty of bearish skeptics are already weighing in, predicting more trouble for Europe, and by extension, the world markets. But this morning, the markets like what they are seeing.

Asian stocks also participated in Thursday's rally. Japan's Nikkei jumped more than 2%, to an eight-week high. Some company news helped, as manufacturer Olympus soared 23% on news that the company CEO had resigned in the midst of questions about various financial transactions.

Meanwhile, Sony (SNE) climbed more than 5% in Japanese trade, on news that it would buy Ericsson's (ERIC) share in handset venture Sony Ericsson. The deal is valued at $1.47billion.

Commodities Corner

Gold, which has climbed in each of the past four sessions, fell $1.80, to $1,721.70 per ounce in early electronic trade Thursday.

Crude oil rallied on the European news, gaining $2.30 per barrel to $92.50.

Economic Docket

There are some high-profile U.S. economics reports due out today. While the drama has played out in Europe, attention has shifted from the U.S. employment data -- which haven't improved much, anyway.

At 8:30 a.m. EDT, the Labor Department is scheduled to release the weekly data on new jobless claims. As usual, the 400,000 level will be eyed. Last week's numbers showed 403,000 new claims filed.

At the same time, the Commerce Department is set to issue its first pass at third-quarter GDP numbers. Economists are anticipating growth of 2.3%, which would mark a sizeable quarter-over-quarter increase for the second time in a row.

At 10 a.m., the National Association of Realtors will release its September report on pending home sales. There are no consensus forecasts on this, but the month-over-month number dropped 1.2% in August.

Earnings News

There is plenty of earnings news today. DJIA component Procter & Gamble (PG) reported its fiscal first quarter before the bell. Earnings of $1.03 per share met views. Sales were ahead of expectations, coming in at $21.9 billion. Analysts had expected $21.5 billion.

On the conference call, investors will be listening for comments about input costs and business in global markets. Procter & Gamble advanced $0.57, 0.88%, to $65.52 in early trade.

Fellow blue chip Exxon Mobil (XOM) is expected to report third-quarter earnings of $2.13 a share on revenue of $113.56 billion. Those would be year-over-year increases. Analysts will be attuned to any news about the company's plans for natural gas, following its acquisition of XTO Energy last year. XOM earned $2.13 per share, a penny ahead of views. Exxon Mobil shares were up $0.92, or 1.13%, to $81.99 on the news.

Drug maker Bristol-Myers Squibb (BMY) also reported before the bell. The S&P 500 component has been on a tear, notching significant price gains in each of the past three months, reaching its best levels since 2002. Analysts will be listening for updates on new products. The company earned $0.61 a share, excluding items, on revenue of $5.35 billion. Analysts had expected the company to report income of $0.58 a share on revenue of $5.3 billion. Bristol-Myers jumped $0.99, or 3.05%, to $33.50 in the premarket.

After the bell, shoemaker Deckers Outdoor (DECK) is seen reporting third-quarter earnings of $1.35 a share on sales of $387 million, increases over the year-ago quarter. While many high-beta momentum stocks have floundered in recent months, despite solid fundamentals, Deckers has bucked that trend. The stock rallied to an all-time high earlier this month, and closed Wednesday about 5% below that level, well above its 50-day moving average.

A big premarket gainer was Akamai (AKAM), jumping $3.33, 14%, to $27.11 after a better-than-expected fourth-quarter estimate. Akamai CEO David Kenny, seen as a candidate for Yahoo!'s (YHOO) top post, resigned to pursue "emerging opportunities in the consumer Internet."

Another mover was Southwest Airlines (LUV), which had advanced $0.14, or 1.62%, to $8.77 ahead of the bell. Following its third-quarter report last week, the company has gotten several positive write-ups in the financial media that favorably compared it to its other airline-industry peers.

Analyst Actions

Analyst actions before Thursday's open included a UBS upgrade of Cisco (CSCO) to Buy from Neutral. UBS cited stabilization in Europe and improved U.S. demand for networking gear. Cisco shares rose $0.49, 2.78%, to $18.10 in early trade.

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