Trader Talk

Markets Hanging on Italian Debt 'Crisis'

You can see how tightly wound markets are around this Italian debt crisis. The euro rallied and S&P futures moved almost 18 points — solely on vague rumors that the ECB may be buying Italian debt. I very much doubt that. More importantly, EU leaders will be holding a special summit on the debt crisis to be held on Friday July 15th — that is more important.

Regardless; the rumor caused a squeeze in European financials. Some Italian banks like Unicredit are positive this morning.

So what we have here is a sea of rumors that causes shorts to cover, then put on positions again. Nothing is fixed. Nothing has changed. Real money still looks like it wants to sell this story.

You can see how untenable the debt game in Europe is becoming by just looking at the Italian auction of one-year Treasury bills that occured today. Italy sold 6.75 billion euros of Treasury bills at an average yield of 3.67 percent; but on June 10 they sold similar securities with a yield of 2.147 percent. And demand was lower this time around.

The Italian stock market is has rallied and is up about 1 percent.


1) Is tech a problem this quarter? Chip maker Microchip Technology lowered its sales forecast for Q2 to down 1.5 percent sequentially, from previous guidance of up 1 to 6 percent sequentially. Guidance was also lowered.

"We are seeing broad-based weakness in our business due to a number of factors," CEO Steve Sanghi said, citing lower automotive production, soft consumer business due to poorer global conditions, and reduced purchases in the computer portion of the business "by multiple large customers."

MCHP sells chips in many different business, and this is the kind of kitchen-sink commentary that seems unlikely to be company-specific; MCHP is down 10 percent pre-open.

Semiconductor capital equipment giant Novellus also issued weak Q3 guidance. Here's a snippet one trader sent me from the conference call:

"Since the late May mid-quarter update, CEO Hill says they have visited their top six customers and indicates that each provided a "cautious tone and a feeling of uncertainty"; they point toward weak economic data, sluggish PC growth forecasts and lower volumes for smartphones and tables through the remainder of the year."

2) Cummins today increased the company's quarterly cash dividend on common stock by 52 percent to 40 cents per share from 26.25 cents per share. It's been a good year for dividends: according to Standard and Poor's, through the first half of the year there were more increases (in dollar terms) than in all of 2010. We have recently seen dividend increases from Darden , General Mills , and Best Buy .

3) In its interim report, Chevron forecasted higher Q2 earnings on improved refining profit margins. Although production has fallen 3 percent in the quarter, the oil giant's downstream profits were boosted by higher oil prices.

4) International Paper revealed that it is going hostile for packaging firm Temple Inland . That comes after Temple Inland rejected International Paper's $3.3 billion/$30.60 per share offer. Even if the hostile bid succeeds, many on the Street are not sure if the deal would get antitrust clearance as it would create an unrivaled packaging industry giant.

5) ATM manufacturer NCR agreed to acquire Radiant Systems for $1.2 billion in cash. Radiant shareholders will get $28/share, a 31 percent premium from yesterday's close. The deal would give NCR a larger presence in the hospitality and retail industries since Radiant makes point-of-sale devices that consumers use to swipe their credit cards upon checking out at stores, and touchscreen terminals used by hotels and restaurants.

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