Trader Talk

European and U.S. Markets Shrug Off Italian Debt Downgrade

Europe continues to dominate the attention, as poor data here in the U.S. failed to move stock futures earlier.

August housing starts fell 5 percent, more than the 2.3 percent decline expected by economists, led lower by a 30 percent drop in the Northeast region. In addition, the July data point was revised lower from down 1.5 percent to down 2.3 percent. However, offsetting that disappointing report, August building permits rose 3.2 percent, more than the 1.8 percent consensus estimate.

Stocks opened slightly higher, once again following Europe’s lead—but this time to the upside. European markets are up 1 percent to 2 percent this morning, shrugging off S&P’s downgrade of Italy’s sovereign debt last night. Traders are anxiously awaiting the outcome from the continuation of Greece’s conference call with the "troika" after Europe’s close today. The markets are riding hopes that a deal between the two sides will be made, ensuring Greece will receive another tranche of aid.

Other factors easing concerns this morning in Europe:

a. The European Central Bank continues to buy Italian bonds, despite the credit downgrade.

b. Greece repaid 769 million euros in bond coupons.

c. Spain successfully auctioned off 4.46 billion euros in 12-month and 18-month Treasury bills, albeit at higher yields.

The euro continues to bounce off Monday's seven-month low vs. the dollar, rising back above $1.37 and 1.5 cents off yesterday’s low. That’s providing some relief to the commodity complex, which largely sold off Monday as the dollar strengthened.


1. In a bearish sign, TrimTabs notes that corporate insider buying has plunged over the past 5 days. Insiders bought just $13 million in stock per day in each of the last 5 days—down 92 percent from levels seen in early August. Between Aug. 4 and Aug. 10, insider buying peaked at $162 million per day.

2. ConAgra falls 3 percent after missing first-quarter estimates (29  cents a share vs. 31 cents a share consensus). Although sales were better-than-expected due to higher pricing, volumes were flat and margins were under pressure as costs escalated even more. The food producer expects higher-than-expected commodity costs for the rest of the year.

Separately, ConAgra pulled its $94 per share cash bid for private-label food maker Ralcorp after the offer was spurned numerous times by the company’s board.

3. AutoZone tops fourth-quarter estimates ($7.18 a share vs. $6.97 a share consensus) as same-store sales grew 4.5 percent, more than expected. The auto-parts retailer also saw improved margins thanks to higher pricing. The company’s stock closed at a historic high Monday.

4. Air Products announced a $1 billion stock buyback program, worth about 6 percent of its market cap.

5. The International Air Transport Association raised its previously-lowered profit forecast for the airline industry this year. Citing strong first-half traffic and more efficient use of airplanes, the association now expects the industry to earn $6.9 billion this year, up from its $4 billion forecast in June. That June forecast had been cut from an earlier profit forecast of $8.6 billion, however. More challenges are ahead, with 2012 industry profits seen falling to $4.9 billion as global economic growth slows.

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