U.S. Stocks Waver; Jeffries Cuts European Debt Portfolio By Half

Nichole Harper
07 Nov, 2011
New York City

U.S. stocks wavered after investors focused on the political developments in Europe. U.S. domestic earnings lifted stocks in the morning and bond yields rose in Europe. German production fell at the fastest pace in September. CME lowered margin requirements for the transfer of MF Global accounts.

[R]11:20 AM New York – U.S. stocks wavered in the early trading after investors focused on the political developments in Europe. U.S. domestic earnings lifted select stocks in the morning. German industrial production fell at the fastest pace in September. CME lowered margin requirements for the transfer of MF Global accounts. Jeffries said it lowered its European sovereign bonds holdings by half.[/R]

U.S. stocks traded higher after domestic companies report better than expected sales and rising earnings.

Stocks wavered in the early trading in the absence of any economic news and focused on the political changes in Europe. Greece is set to form a new government tomorrow and Italian government may fall as early as tomorrow.

The bond market yields on the peripheral euro zone continued to rise today. Italian bond yields surged to a new high of 6.7% that most economists view as near danger zone and blunt the effect of austerity measures to trim the debt.

Italy may be the next nation that faces debt restructuring that will set a wave of bank failure in the euro zone.

Italy Takes Center Stage in Euro Zone Turmoil

In a cautious trading, European markets edged lower after Greek Prime Minister George Papandreou worked with the opposition leader to form a government.

The decision was widely expected as two leaders worked to form a unity government that will focus on passing the Greek budget, approve bailout plan proposed by the EU and implement austerity measures.

Investors are also worried on the rising political tensions in Europe. The market index in Milan surged on the expectations that Prime Minister Silvio Berlusconi may resign as early as today.

Two separate reports from local news papers raised the possibility of his resignation. Giuliano Ferrara, editor of the Foglio newspaper comments on Berlusconi and said “It is a question of hours, some say of minutes.”

However, later in the day, Berlusconi rejected the rumors and said he is not contemplating to resign. Berlusconi is facing a routine vote on Tuesday on the budget approval that was defeated last month. If he loses the vote, that will set the stage for a confidence vote and yet another deal backing that may weaken his grip on the power.

Italian bond yields soared to 6.67%, up 40 basis points in trading today on the political uncertainties. The slow moving political process in the European Union and may lead to once unthinkable Italian bond restructuring as early as next year.

Italy has €1.9 trillion of sovereign debt and needs at least €300 billion of new debt every year to support its budget. Unless new austerity measures kick in, the approved spending cuts of €85 billion will be eaten up by the higher yields that the markets demand.

Italy may be forced to restructure its debt as Greece was forced to agree to debt restructuring that cuts its debt by 50%, which was unthinkable only eighteen months ago.

Stock Movers

Amgen, Inc ((AMGN)) soared 4.5% to $57.63 after the drug maker said it will repurchase $5 billion of its stock between $54 and $60 a share.

CME Group Inc. ((CME)) rose 0.1% or 31 cents to $271.64 after the exchange operator agreed to establish joint venture with The McGraw-Hill Companies, Inc. to manage indexes. Approximately $6 trillion in assets are benchmarked against indices published by the McGraw Hill subsidiary Standard & Poor’s.

CME also said it will roll back margin requirements for account transfers from MF Global customers. The decision also helped to relieve some selling pressures in equities markets as it averted margin calls.

Cameco Corporation ((CCJ)) dropped 4% or 88 cents to $20.57 after the Canada based uranium producer reported third quarter revenue increased 26% to $527 million from $419 million in the year-ago quarter. Net earnings in the quarter declined 60% to $39 million or 10 cents per diluted share compared to $98 million or 25 cents per share in the year ago.

Coeur d’Alene Mines Corporation ((CDE)) advanced 7.7% or $2.12 to $29.37 after the gold and silver producer reported third quarter net sales soared 190% to $343.6 million from $118.6 million in the year-ago quarter. Net income in the quarter swung to $31.1 million or 35 cents per diluted share compared to net loss of $22.6 million or 25 cents per share in the year ago earlier.

DISH Network Corporation ((DISH)) increased 6.1% or $1.44 to $24.92 after the pay-television service provider reported third quarter revenue increased 12.3% to $3.60 billion from $3.21 billion in the year-ago quarter. Net income in the quarter soared 30.3% to $319 million or 71 cents per diluted share compared to $245 million or 55 cents per share in the year ago.

EchoStar Corporation ((SATS)) slumped 8% or $2.12 to $24.32 after the holding company reported third quarter total revenue surged 42% to $863 million from $607 million in the year-ago quarter. Net loss in the quarter swung to $19 million or 22 cents per diluted share compared to net income of $5.2 million or 6 cents per share in the year ago quarter.

Jefferies Group, Inc increased 13 cents to $12.19 after it published the list of sovereign euro bonds from Greece, Italy, Portugal, Spain and Ireland.

Jeffries also said in a statement that it lowered its long and short position to $1.1 billion at the close Friday’s trading from the long position of $2.4 billion and $2.3 billion of short position.

The holdings in the European sovereign debts were trimmed to half after the company faced a barrage of questions on its trading strategy last week. The move did not result in any meaningful profit or loss for the broker.

The company has been reducing the European sovereign debt exposure after MF Global filed a bankruptcy protection.

Jeffries also said that its current net exposure to the peripheral euro zone sovereign bond market is $59 million or 1.7% of shareholder equity.

Sysco Corporation ((SYY)) fell 0.5% or 15 cents to $27.65 after the grocery retailer reported first quarter increased 8.6% to $10.6 billion from $9.8 billion in the year-ago quarter. Net earnings in the quarter rose 1.2% to $302.6 million or 51 cents per diluted share compared to $299.1 million or 51 cents per share in the year ago.