The Day Ahead: Now It's Italy's Turn

 | Nov 07, 2011 | 8:09 AM EST  | Comments
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In the Headlines

The new trading week gets under way with U.S. stock futures indicating a weak open, but were showing an improvement over earlier lows.

As usual, European events were affecting global equities trade. Greece's prime minister is preparing to step down, part of a deal reached over the weekend. Today, he meets with the leader of the opposing party to select a new prime minister. Once a new coalition government is in place, parliament will vote on the bailout deal, which the European Union crafted last month.

As of Monday morning, the measure is expected to pass.

Italy, which had lurked in the background as a concern last week, is emerging as a bigger worry. Yields on the nation's 10-year bond bolted to 6.58% as investors required more inducement to buy its debt.

There were conflicting reports early Monday regarding a possible resignation of Italian Prime Minister Silvio Berlusconi. Even his political allies have lost confidence that he will effectively deal with Italy's debt crisis, and have been pressuring him to exit.

European indices were trading lower early Monday, with France's CAC 40 showing the biggest decline.

The euro was weak vs. the dollar ahead of today's open.

In Asia, the European turmoil kept a lid on stocks, with most major indices closing lower.

Commodity Corner

Gold, which has closed higher in each of the past two weeks, got a lift from the eurozone uncertainty, rising $21.60 to $1,777.70 per ounce in early trade.

Crude oil gained $0.30 before Wall Street's open, to $94.56 per barrel.

Petroleum industry researcher Lundberg Survey said gasoline prices for U.S. consumers dropped by an average of $0.04 per gallon over the past couple of weeks.

Economic Docket

Monday is often a slow day on the U.S. econ report schedule, and today is no exception. Traders have to wait until 3 p.m. EST for their dose of government data, when the Federal Reserve reports consumer credit numbers for September.

Borrowing is expected to have increased by $5 billion, following a decrease of $9.5 billion in August. These numbers often have no effect on equities trade when they are released.

Earnings

It's also a fairly slow pace for earnings reports today. Before the opening bell, food and restaurant supplies wholesaler Sysco (SYY) reports its first quarter. It's expected to show income of $0.52 a share on revenue of $10.49 billion. Those would mark year-over-year increases.

The stock has been rallying from intermediate lows since early October, but some analysts fret that industry trends, such as higher commodity costs and a slowdown in overall customer traffic, could put a dent in Sysco's outlook.

After the bell will be a closely watched third-quarter report from large-cap growth leader Priceline.com (PCLN). The online travel company is seen earning $9.30 per share on revenue of $1.42 billion. In recent months, as the general market has struggled, Priceline has been unable to clear resistance above $554.

A smaller growth name reporting after the close is Web hosting specialist Rackspace (RAX). Shares have been climbing up the right side of a price consolidation in recent weeks, although upside volume has been below average. The company is expected to earn $0.14 a share on revenue of $261.63 million.

Market Movers

Early price gainers Monday included Starwood Hotels & Resorts (HOT).Last week Standard & Poor's said it was more likely that the company's debt would be boosted to investment grade because of improving credit conditions. The company also increased its yearly dividend by 67%.

Starwood rose $0.37, 0.731%, to $51 in premarket trade.

On the downside, Frontier Communications (FTR), which provides telecom and Internet services to rural customers, skidded $0.21, 3.71%, to $5.45 before the open.

Analysts are speculating that the company may slash its dividend. Earnings growth has declined in the past five quarters. Its yield is currently a sky-high 13.3%, as shares trade at 2½-year lows.

Analyst Actions

Home Depot (HD) was upgraded to Outperform from Sector Perform at RBC Capital. The analyst cited valuation, better industry trends and technology improvements at the chain as factors contributing to the upgrade.

 

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