Indexes Advance on Budget Deal, Greek Bailout Prospects, Microsoft Exceeds

Bikram Pandey
21 Jul, 2011
New York City

The U.S. indexes soared on positive earnings and improving sentiment as the debt negotiations advance in the U.S. and Europe. The Dow and the S&P 500 indexes gained more than 1.2%. Express Scripts agreed to acquire Medco for $29.1 billion to form the largest pharmacy benefits manager.

[R]5:10 PM New York – The U.S. indexes soared on positive earnings and improving sentiment as the debt negotiations advance in the U.S. and Europe. The Dow and the S&P 500 indexes gained more than 1.2%. Express Scripts agreed to acquire Medco for $29.1 billion to form the largest pharmacy benefits manager.[/R]

U.S. indexes gained after the on-again-off-again debt talks among the U.S. lawmakers regained a new momentum and France and Germany negotiated a compromise that may involve private lenders and selective default of Greek debt.

The Democrats and Republicans both positioned to preserve their political priorities but one thing is certain that more than $3 trillion of expenses are likely to cut over the next ten years and $1 trillion of new taxes in the period.

Market indexes shot up after initial reports of a possible compromise, both sides walked away from the reports of compromise and the White House spokesman described the situation “fluid.”

At least one of the proposals likely to be accepted by European ministers may lend Greece new loans for 15 years at 3.5% interest rate through the European Financial Stability Facility compared to current rate of more than 26% charged by the market.

Germany is pushing for a plan to swap as much as 90% of Greek loans to swap for a longer maturity at a lower rate that will lead to a reduction in net present value by 20%.

The main objective of the meeting of the European ministers today is to cut the net debt of Greece between 20% and 40% and share some of the pain with private lenders.

Weekly U.S. jobless claims rose 10,000 to 418,000.

Express Scripts agreed to buy Medco Health for $29.1 billion or $71.36 a share, 28% above its closing price on Wednesday. After the merger, Express Script shareholders will control 59% of the combined company.

One the largest deals of the year will see a creation of the largest benefits manager in the U.S.

In the earnings news, ABB second quarter net earnings soared 43% to $893 million. AT&T second quarter net income fell 10% to $3.59 billion. Danaher second quarter net income surged to $648.8 million. Morgan Stanley reported second quarter loss of $558 million. PepsiCo net income in the quarter rose 18% to $1.9 billion.

After the close, Microsoft Corp exceeded earnings expectations and reported quarter earnings of $5.87 billion or 69 cents a share compared to $4.52 billion or 51 cents a share in the quarter a year ago. Sales rose 8% to $17.4 billion.

European indexes traded lower ahead of the euro-zone summit in Brussels today as France and Germany struck a deal to provide a bailout and restrict private lenders participation. The Spanish Treasury completed the sale of €2.75 billion bonds at elevated yields. Nokia swung to quarterly loss.

European private sector growth slowed in July. Euro area current account deficit widened and German construction orders improved in May. Swiss investor confidence slumped in July. Dutch jobless rate slid in June.

The UK indexes traded higher after retail sales rose 0.3% and public sector net borrowing fell in June. Investors turned cautious ahead of the European ministers’ summit that is expected to finalize the Greek bailout. Kingfisher quarterly same store sales declined 0.5%.

Stocks in Japan edged higher on a regional rally and after it posted a surprise trade surplus in June. The exports decline slowed to 1.6% fall in the month but imports rose to 9.8%. Japan still logged the third largest trade deficit in the first half since record keeping began in 1979.

The benchmark index in Australia closed higher after resource stocks rebounded. The world sentiment improved after the U.S. debt talks progressed and European minister appear to have a plan for the second Greek bailout. Newcrest Mining said gold production soared 16%.

Commodities, Bonds and Currencies

The 10-year U.S. bond yield increased to 3.02% and 30-year U.S. bond traded up to 4.32%.

The U.S. dollar decreased at $1.437 to one euro and fell against the Japanese yen to 78.56 yen.

Immediate delivery futures of Texas crude oil increased $0.88 to $99.27 a barrel and futures of natural gas decreased 0.13 cents to $4.35 per mbtu and gasoline price decreased 4.90 cents to 309.78 cents a gallon.

In metals trading, copper decreased 5.25 cents to $4.38 per pound, gold fell $6.00 to $1,591.60 per ounce and silver decreased $0.42 to $39.14.