Italy Auction Calms Europe

Italy successfully auctioned 3, 7, & 10 year notes Friday, which should further calm markets. Bottom line: for the moment, it appears that European countries can access capital markets, with the possible exception of Greece.

Now they just have to sell the austerity programs; comments out of Spain this morning indicate that talks with unions to cut benefits to state workers was not going well.

Spain, by the way, lowered its 2012 and 2013 GDP growth estimates by 0.4 percentage points each. 2012 growth is now forecasted at 2.5 percent, down from 2.9 percent, while 2013 GDP is expected to grow 2.7 percent, down from 3.1 percent.


1) Sell in May and go to hell: with one day left, the S&P 500 is down 7.1 percent for the month, the worst monthly performance since February 2009.

2) The strong dollar is beginning to impact profits of U.S. corporations with significant business in Europe. Last night Guess reported earnings of $0.54, well ahead of their own guidance of $0.46-$0.48.

The bad news: even though they beat, they lowered guidance for the full year to $2.80-$2.85 from $2.87-$2.95.

The reason: weaker euro, stronger dollar. For the entire year currency will have a net negative impact of 28 cents to earnings, prior they thought it would have a 12 cent negative impact.

The impact will lead to European sales in dollars up only 10 percent compared to gains in the low to mid 20 percent in local currencies.

"The fear isn't just the currency per se, but also the impact of European economic instability on sales of discretionary goods in Europe," one retail stock trader told me.

They're not the only one worried about this. Yesterday Heinz CEO William Johnson cautioned the company will feel effects of "significant currency fluctuations" in the current fiscal year. Heinz gets 55 percent of total sales overseas.

3) J Crew does not have a large international presence. Stock up 5 percent after earnings doubled from a year ago and far exceeded estimates ($0.68 vs. $0.57 consensus). The apparel retailer is seeing the benefits of pent-up demand for its clothing. Same-store sales jumped 15 percent, well ahead of expectations. Margins also expanded nearly 7 percentage points to 49% as a result of fewer markdowns and promotions.

Guidance for the full-year was raised to $2.35-$2.45 above the Street's consensus of $2.34, but its Q2 forecast of $0.40-$0.45 remains inline with estimates of $0.44.

4) Toys R Us announced its filing for an $800 million IPO. Using the ticker "TOYS," the toy retailer will return to the NYSE, where it traded until 2005. Since then, it has been held by private equity firms KKR, Bain, and Vornado Realty Trust, which acquired the company for $6.6 billion.

5) Royal Dutch Shell announced the acquisition of privately-owned natural gas producer East Resources for $4.7 billion in cash. The deal will give Shell more exposure to natural gas resources in North America, providing access to a critical source of natural gas in the Northeast (Marcellus Shale). As a result of the deal, Shell's daily gas production will also increase by 7.5 percent.

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