Dow Higher on Valuation, Deals; Euro in Rearview

Bikram Pandey
20 Jun, 2011
New York City

U.S. stocks gained for the third day in a row but broader indexes struggle as the valuation trade near the lows of two decades. Deals news and positive views on the Greek saga lifted indexes from the early weak opening. European indexes closed at the low of the day. Asian markets closed mixed.

[R]4:00 PM New York – U.S. stocks gained for the third day in a row but broader indexes struggle as the valuation trade near the lows of two decades. Deals news and positive views on the Greek saga lifted indexes from the early weak opening. European indexes closed at the low of the day. Asian markets closed mixed.[/R]

U.S. indexes rebounded from the initial decline as investors focused on valuations and merger news. The S&P 500 index is trading at sixteen times earnings if the current full year earnings estimates pan out, lowest in last two decades. The index has rallied more than 80% in the last fifteen months and lost all the gains for the year in the last six weeks.

Investors also took a positive view of the ongoing discussions between the European regulators and Greece and surmised that Greece will get is portion of bailout funds and the euro-zone will avoid the debt contagion spreading at least for now.

In deals news, PNC Financial agreed to buy the U.S. arm of the RBC Bank for $3.45 billion. Boeing won $1.7 billion order from Qatar Airways. Colgate purchased Sanex personal care brand from Unilever for $952 million.

Publicis Groupe agreed to acquire Genedigi for expansion in China. Carpenter agreed to acquire Latrobe Specialty Metals for $558 million. Travelers agreed to acquire 43% stack in Brazil insurance JMalucelli for $410 million.

The European indexes slumped after euro-zone finance ministers failed to reach a consensus on the disbursement of the second tranche of aid to Greece. Italian index dropped 2.2% after a rating agency placed its debt on a watch with a downward bias.

On the economic front, Euro-zone hourly labor cost climbed in the first quarter and current account deficit widened in April. French new industrial orders rose in April. German producer price inflation slowed in May.

The UK indexes fell after European finance ministers deferred extending financial bailout to Greece. The UK gross mortgage lending rose in May and home prices gained in June. Rolls-Royce secured $2.2 billion contract from Brazil-based TAM Airlines. Rexam agreed to sell Closures to U.S.-based Berry Plastics for $360 million.

Stocks in Japan declined in the early trading but recovered the losses in the afternoon after utilities closed higher. Japan government said nuclear plants can resume operation as scheduled. Mazda and Olympus rose on the higher earnings estimates.

The benchmark index in Mumbai, India dropped 2% on the worries that the government may tax capital gains routed through Mauritius.

Australian stocks dropped as markets in Asia declined after the euro-zone finance ministers failed to agree on Greek bailout terms and delayed the decision to early July. The uncertainty and rising prospect of Greek defaults unnerved the Asian markets. Caltex lowered its profit estimate by as much as 40%.

Commodities, Bonds and Currencies

The 10-year bond yield increased to 2.95% and 30-year bond traded up to 4.19%.

The U.S. dollar increased to $1.4307 to one euro and fell against the Japanese yen to 80.29 yen.

Immediate delivery futures of Texas crude oil increased $0.28 to $93.29 a barrel and futures of natural gas fell 0.006 cents to $4.32 per mbtu and gasoline price fell 3.7 cents to 290.87 cents a gallon.

In metals trading, copper fell 2.6 cents to $4.09 per pound, gold gained $2.50 to $1,541.60 per ounce and silver increased $0.30 to $36.05.