The major market focuses this week include the start of second quarter earnings season. The U.S. Treasury market faces supply with three auctions; $32 billion 3-Year notes on Tuesday, $21 billion 10-Year notes on Wednesday and $13 billion 30-Year bonds on Thursday. Inflation is front and center with the latest readings for PPI and CPI on Thursday and Friday. Retail Sales for June is reported on Thursday and Industrial Production is another focus for Friday. The Dow Jones Industrial Average opened lower trading below 12,475 in the final hour of trading. The NASDAQ traded below 2800 into the final hour of trading. The daily charts for both the Dow and NASDAQ remain overbought.
U.S. stocks posted modest gains last week with the Dow Industrial Average up 74 points to 12,657 up 9.3% year to date. The NASDAQ popped 44 points to 2860, up 7.8% year to date with this total rise tacked on in just the past two weeks.
Asian stocks were lower on Monday following the poor employment report seen in the U.S. on Friday. The Nikkei 225 was down 0.7% to 10,070. The Hang Seng tumbled 1.7% to 22,347. European stocks were lower on Monday on the concern that Italy is the next country in Europe to have a debt crisis. On Monday, the FTSE 100 shed 1.1%, the DAX plunged 2.3% and the CAC 40 got crushed by 2.7%. The yield on the 10-Year US Treasury note traded down from 3.041 percent to 2.912 on Monday as a flight to quality trumped the stalled debt talks in Washington DC. Gold surged on Monday as another flight to quality trading up from $1542.3 the Troy ounce to $1557.6 versus the May 2nd all time high at $1577.4. Crude oil continued to trade between its 200-day simple moving average at $93.69 and its 50-day simple moving average at $98.78. The euro versus the US dollar traded down from 1.4226 to 1.3988 versus the 200-week simple moving average at 1.4022 and the 200-day simple moving average at 1.3906.
Energy
Peabody Energy (BTU) and ArcelorMittal (MT) jointly offered $5B ($15.50 / share – 40% premium) to buy Australia’s Macarthur Coal (MACDY), the world’s biggest producer of pulverized coal. EQT Corp (EQT) is raised to Buy from Neutral at SunTrust Robinson Humphrey. Teekay Tankers (TNK) is taken to Neutral from Buy at Bank of America-Merrill Lynch with a new target of $10. SunPower Corp (SPWRA) is now Neutral from Outperform at Baird. In afternoon trading: Shares of BPZ Resources (BPZ) are down about 8%. Shares of Uranium Energy (UEC) are down about 7.75%. Shares of Oasis Petroleum (OAS) are down about 7%.
Energy Select Sector SPDR (XLE) was trading at $75.07 at 4:00 PM on Monday, down 2.37% on the day – up 9.99% year-to-date.
Basic Materials
Peabody Energy (BTU) and ArcelorMittal (MT) jointly offered $5B ($15.50 / share – 40% premium) to buy Australia’s Macarthur Coal (MACDY.PK), the world’s biggest producer of pulverized coal. Alcoa (AA) kicks off the Q2 earnings season for blue-chips after the close today. Analysts expect EPS of $0.34 (versus $0.13 prior year), and revenue of $6.3B (versus $5.19B prior year). There is also hope Alcoa will increase its guidance following a recent $1B order from Airbus (EADSY). Monsanto (MON) and Sinochem have reportedly been in talks for months about significantly deepening their ties, including the possibility of a large JV, the sale of a minority stake or Sinochem playing a larger role marketing Monsanto products in China. Lonza (LZAGF) announced this morning that it’s buying Arch Chemicals (ARJ) for $1.4B ($47.20 / share – 37% premium) in a deal that creates the world’s largest microbial-control business. Yara ASA (YARIY) is upgraded to Buy from Neutral at UBS. ArcelorMittal (MT) gets moved to Buy from Neutral at Bank of America-Merrill Lynch. Cemex S.A. (CX) is cut to Underperform from Market Perform at Credit Suisse. In afternoon trading: Shares of Arch Chemicals are up about 11.75%.
The Basic Materials Select Sector SPDR (XLB) traded at $39.42 at 4:00 PM on Monday, down 2.01% on the day – up 2.63% year-to-date.
Industrials
Alcoa (AA) kicks off the Q2 earnings season for blue-chips after the close today. Analysts expect EPS of $0.34 (versus $0.13 prior year), and revenue of $6.3B (versus $5.19B prior year). There is also hope Alcoa will increase its guidance following a recent $1B order from Airbus (EADSY). Hertz (HTZ) extended its $2.36B offer to buy Dollar Thrifty (DTG) until August 5 from July 8. Caterpillar (CAT) is resumed with an Overweight at JPMorgan. Higher One (ONE) is hoisted to Buy from Neutral at Goldman. Navigant Consulting (NCI) is now Outperform from Neutral By brokers Robert W. Baird with a new target price of $15. Lufthansa (DLAKY) is lowered to Neutral from Buy at UBS. Shaw Group (SHAW) is reduced to Neutral from Outperform at Robert Baird with a $34 target. In afternoon trading: Shares of Capstone Turbine (CPST) are down about 9.75%. Shares of YRC Worldwide (YRCW) are up about 11.25%.
The Industrial Select Sector SPDR (XLI) traded at $37.12 at 4:00 PM on Monday, down 1.85% on the day – up 6.45% year-to-date.
Consumer Discretionary
News Corp.’s (NWS) hopes of buying BSkyB (BSYBY) may be fading after the U.K. government said it would seek fresh regulatory advice about the acquisition following the phone-hacking scandal at the News of the World. Comcast (CMCSA), DirecTV (DTV) and DISH Network (DISH) are all new Buys at Brean Murray, which has Holds on Time Warner Cable (TWC) and Cablevision Systems (CVC). Fossil (FOSL) is picked up with an Overweight rating and $150 price objective at JPMorgan. Goldman Sachs upgraded British Sky Broadcasting (BSYBY) to Buy from Neutral. TJX Cos (TJX) is boosted to Overweight from Equalweight by Barclays Capital. PetMed Express (PETS) is moved to Market Perform from Outperform at Brokerage William Blair. In afternoon trading: Shares of E-Commerce China Dangdang (DANG) are down about 8.5%. Shares of News Corp are down about 7.5%.
The Consumer Discretionary Select Sector SPDR (XLY) traded at $40.57 at 4:00 PM on Monday, down 1.93% on the day – up 8.45% year-to-date.
Consumer Staples
After years of on-and-off talks, Nestle (NSRGY) has finally struck a deal to buy 60% of Chinese confectioner Hsu Fu Chi for $1.7B. Whole Foods (WFMI) is added to the Conviction Buy List at Goldman Sachs. Diageo (DEO) is downgraded to Marker Perform from Outperform by Sanford Bernstein. In afternoon trading: Shares of Farmer Brothers (FARM) are up about 24.5%. Shares of Central European Distribution (CEDC) are down about 6.5%.
The Consumer Staples Select Sector SPDR (XLP) traded at $31.51 at 4:00 PM on Monday, down 0.72% on the day – up 7.51% year-to-date.
Healthcare
Lonza (LZAGF) announced this morning that it’s buying Arch Chemicals (ARJ) for $1.4B ($47.20 / share – 37% premium) in a deal that creates the world’s largest microbial-control business. Sanofi’s (SNY) Lemtrada treatment was successful in reducing the relapse rate in multiple sclerosis patients in Phase III trials. Sanofi agreed to sell its Dermik skincare unit to Valeant Pharmaceuticals (VRX) for $425M as it becomes the latest drug giant to shed non-core assets. Varian Medical (VAR) is moved to Buy from Neutral with an $84 objective at Ticonderoga. In afternoon trading: Shares of PDL BioPharma (PDLI) are up about 8.9%. Shares of Pluristem Therapeutics (PSTI) are up about 7.8%.
The Health Care Select Sector SPDR (XLV) traded at $35.29 at 4:00 PM on Monday, down 1.37% on the day – up 12.03% year-to-date.
Financials
Natixis (NTXFF) is a new Neutral at Credit Suisse. NetSpend (NTSP) is now Neutral from Buy at Goldman. Torchmark (TMK) is taken to Neutral from Overweight at JPMorgan. In afternoon trading: Shares of E-House China Holdings (EJ) are down about 11.2%. Shares of ING Group (ING) are down about 9.75%. Shares of BNP Paribus (BNPQY) are down about 9.1%. Shares of Commerce Bank (CRZBY) are down about 9.1%.
The Financial Select Sector SPDR (XLF) traded at $15.04 at 4:00 PM on Monday, down 2.72% on the day – down 5.71% year-to-date.
Information Technology
EMC Corp. (EMC) is picked up at Positive at Susquehanna. Concur Technologies (CNQR) and NetSuite (N) are both new Equalweights at Barclays Capital, which assigns an Overweight on Ariba (ARBA). ASML Holding NV (ASML) and KLA-Tencor Corp (KLAC) are both raised to Hold from Sell at Citigroup. Lam Research (LRCX) is lifted to Buy from Sell at Citigroup. Microsemi (MSCC) is upgraded to Outperform from Perform with a $28 target at Oppenheimer. Advanced Micro Devices (AMD) gets downgraded to Underperform from Market Perform at JMP Securities. In afternoon trading: Shares of Local.com (LOCM) are up about 11.5%. Shares of Evergreen Solar (ESLR) are up about 9%. Shares of Renren (RENN) are down about 8.5%.
The Technology Select Sector SPDR (XLK) traded at $26.03 at 4:00 PM on Monday, down 1.66% on the day – up 3.33% year-to-date.
Telecommunications Services
Millicom (MIICF) is added to the Conviction Buy list at Goldman. In afternoon trading: Shares of TerreStar (TSTRQ) are up about 19%. Shares of Telecom Italia (TI) are down about 7.2%. Shares of Portugal Telecom (PT) are down about 6%. Shares of Abovenet (ABVT) are down about 5.5%. Shares of Clearwire (CLWR) are down about 4.75%. Shares of France Telecom (FTE) are down about 4.3%. Shares of Telefonica (TEF) are down about 4.3%.
The NASDAQ Telecommunications Index (IXTC) traded at $212.06 at 4:00 PM on Monday, down 2.28% on the day – down 5.91% year-to-date.
Utilities
In afternoon trading: Actives: Shares of Duke Energy (DUK) are down about a quarter of a percent. Shares of Genon Energy (GEN) are down about 2.9%. Shares of Southern (SO) are down about 0.4%. Shares of AES Corp (AES) are down about 2.3%. Shares of Exelon (EXC) are down about 1.4%. Shares of PPL Corp (PPL) are down about 1.1%. Shares of Centerpoint Energy (CNP) are down about 2.3%. Shares of Pepco Holdings (POM) are down about 2%.
The Utilities Select Sector SPDR (XLU) traded at $33.40 at 4:00 PM on Monday, down 1.07% on the day – up 6.57% year-to-date.
STOCKS: BTU, MT, MACDY, EQT, TNK, SPWRA, BPZ, UEC, OAS, AA, EADSY, MON, LZAGF, ARJ, YARIY, CX, HTZ, DTG, CAT, ONE, NCI, DLAKY, SHAW, CPST, YRCW, NWS, BSYBY, CMCSA, DTV, DISH, TWC, CVC, FOSL, TJX, PETS, DANG, NSRGY, WFMI, DEO, FARM, CEDC, SNY, VRX, VAR, PDLI, PSTI, NTXFF, NTSP, TMK, EJ, ING, BNPQY, CRZYBY, EMC, CNQR, N, ARBA, ASML, KLAC, LRCX, MSCC, AMD, LOCM, ESLR, RENN, MIICF, TSTRQ, TI, PT, ABVT, CLWR, FTE, TEF, DUK, GEN, SO, AES, EXC, PPL, CNP, POM
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