Friday, June 24, 2011
Positive economic reports on the U.S. front and lingering optimism from Thursday’s Greek deal are expected to help stocks push higher today. Approval from the Greek parliament next week for the new austerity plan will pave the way for a fresh multi-year rescue fund for the country.
On the domestic economic front, we got a better than expected Durable Goods report for May and the first quarter GDP growth estimate was modestly revised higher. The positive Durable Goods report is evidence that the manufacturing sector is still quite healthy. The internals of the report were also quite good, showing a reversal of the negative trend that we saw in the April report.
Other than the reassuring report on the manufacturing side, a positive recent development has been the downtrend in oil prices. This favorable trend got a boost from Thursday’s surprise intervention by the International Energy Agency (IEA) in the oil markets. The move is quite unprecedented, as prior interventions were always in response to real supply disruptions from natural or man-made disasters.
The shortfall from Libya, the reason cited for the well-coordinated move, does not make sense as the war in that country has been going on for months now. And oil prices had been trending down on their own in recent days. But whatever the reason for the intervention, the drop in oil prices is a welcome stimulus for the economy at a time of fading support from the fiscal and monetary sides.
In corporate news, Oracle (ORCL) reported solid results after the close on Thursday on the back of strength in its software and services offerings, though results on the hardware side were less robust. Micron Technology (MU), the semiconductor maker, came short of expectations in its quarterly results on Thursday after the close.
We also have the making of a bidding war between Williams Companies (WMB) and Energy Transfer (ETE), two titans of the natural gas pipeline space, for Southern Union (SUG). Williams came out with an all-cash $5 billion cash offer on Thursday, following a $4.1 billion deal between Energy Transfer and Southern Union that was announced a few days back.
The overall mood in the market should be on the positive side today given the favorable news on the economic front, the making of a deal in Europe, and stimulating effect of falling oil prices.
Sheraz Mian
Director of Research
Zacks Investment Research
