U.S. Durable Goods Orders Drop; Europe in Focus

Arthi Gupta
28 Sep, 2011
New York City

U.S. indexes gained after durable goods orders unexpectedly fell 0.1% in August. Investors are focused on developments in Europe. The European Parliament voted to adopt the proposals on economic governance to protect the region from future economic crises.

[R]10:15 AM New York – U.S. indexes gained after durable goods orders unexpectedly fell 0.1% in August. Investors are focused on developments in Europe. The European Parliament voted to adopt the proposals on economic governance to protect the region from future economic crises.[/R]

U.S. indexes extended gains for the third day in a row and durable goods orders unexpectedly fell in August. The optimism about the euro zone was stoked further after Finland approved the setting up of the rescue fund. Germany is expected to vote in the favour of measure tomorrow.

European stocks traded sideways after the European Commission President Jose Manuel Barroso on Wednesday called for more flexibility and powers for the European rescue fund and proposed a financial transaction tax.

Barroso said that the commission will adopt proposal for the financial transaction tax that would raise around €55 billion a year. The proposed tax, to be levied on all transactions on financial instruments, would come into effect from January 1, 2014.

The proposal though supported by Germany and France is not likely to be implemented as UK, the Netherlands and Sweden are only willing to extend their support if the proposal is accepted globally.

Barroso also reiterated that Greece will remain in euro-zone while addressing the European Parliament in his annual state of the union speech.

German Chancellor Angela Merkel said on Wednesday that she is awaiting a report from troika of the ECB, EU and the IMF on the progress made by Greece in cutting its budget deficit, before deciding whether the July 21 deal need to be renegotiated or not, according to reports.

Investors are speculating that the bailout deal negotiated in July maybe revised and Greece may ask banks to take higher losses and may fall short of its target to cut deficit and raise new revenues.

Euro-zone countries are divided over the terms of Greece''s second €109 billion bailout deal with 7 of the 17 member countries demanding private creditors to share a bigger write-down on their Greek bond holdings.

Seven nations have still not approved the setting up of the rescue fund and Finland approved the measure today in 103-66 vote with 30 absentees. Germany is scheduled to vote on the measure Thursday and Austria on Friday.

Malta, the Netherlands, Cyprus, Slovakia and Estonia are scheduled to vote on the measure in the next six to eight weeks.

The European Parliament on Wednesday voted to adopt the six legislative proposals on economic governance to protect the region from future economic crises.

Proposals include broader and enhanced surveillance of fiscal policies, macroeconomic policies and structural reforms. Further, new enforcement mechanisms are foreseen for non-compliant euro area Member States, the EU said in a statement.

Asian markets traded mixed.

U.S. Durable Goods Orders Drop

U.S. durable goods orders declined $200 million or 0.1% to $201.8 billion in August, according to data released by the U.S. Commerce Department today. The drop in new orders partly offsets the 4.1% surge in durable goods orders in July.

Excluding a 0.3% drop in orders for transportation equipment, durable goods orders fell 0.1% in August compared to a 0.7% increase in July.

Earnings Review

Darden Restaurants, Inc. ((DRI)), the full-service restaurant company reported first quarter sales increased 7.5% to $1.94 billion from $1.81 billion in the same quarter last year.

Net earnings in the quarter declined 5.7% to $106.6 million or 78 cents per diluted share compared to net earnings of $113.1 million or 80 cents per share in the previous year.

Family Dollar Stores, Inc. ((FDO)), the retail discount stores operator reported fourth quarter net sales expanded 9.1% to $2.13 billion from $1.96 billion last year on comparable stores sales rise of 5.6%.

Net income in the quarter increased 8% to $79.85 million or 66 cents per diluted share compared to net income of $73.95 million or 56 cents per share in 2010.

McCormick & Co., Inc. ((MKC)), the spices and seasonings maker reported third quarter net sales soared 16% to $920.4 million from $794.6 million in the same quarter last year.

Net in the quarter declined 10.2% to $92.0 million or 69 cents per diluted share compared to net income of $102.4 million or 76 cents per share in the prior-year quarter.