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Deficit Hawks, Doves Clash in Europe

Big battle between the deficit hawks and doves in Europe is becoming very public ahead of the G20 meeting this weekend.

German Chancellor Angela Merkel is sticking to her plan to cut spending, despite criticism from George Soros. Even President Obama has warned against withdrawing stimulus too soon.

The Toronto meeting this weekend is shaping up to be more interesting than usual.

The US 10 year bond, at 3.07 percent, is now at its lowest yield since at least 1962. Yields are are also moving up on Greek government debt (the 2-year is now over 10 percent).

Elsewhere:

1) Futures moved up a bit as initial jobless claims were in line with estimates, while the May headline durable goods number of a decline of 1.1 percent was not as bad as the decline of 1.3 percent expected.

2) bear in mind that the end of the quarter and the Russell rebalancing this Friday will create some short-term distortions in trading.

3) Lennar falls 1 percent despite posting a surprising Q2 profit ($0.21 vs. breakeven consensus). Although the homebuilder's bottom line was stronger, other metrics were disappointing. New orders dropped 10 percent, deliveries fell 7.5 percent, and prices declined by 4.4 percent. The expiration of the homebuyer's tax credit on April 30 certainly affected the builder's orders as the entire decline was solely due to a poor May.

However, in a sign of optimism, CEO Stuart Miller said he believes the housing slowdown in May "will be temporary and that the market will improve in the second half of 2010."

However, unlike Toll, there was no commentary on sales in June.

4) Darden Restaurants missed Q4 estimates ($0.86 vs. $0.88 consensus) as same-store sales fell 2.3 percent. Sales were dragged down by declining sales at its Red Lobster (down 4.6 percent) and Olive Garden (down 1.5 percent) restaurants.

Despite the disappointing quarter, the restaurant operator is still optimistic for the new fiscal year. CEO Clarence Otis believes that economic and industry conditions will "continue to improve." Earnings guidance of $3.26-$3.34 falls inline with estimates for $3.28, while same-store sales are seen growing 2 percent-3 percent at its major chains.

Darden also increased its quarterly dividend by 28 percent to $0.32 per share.

4) Nike falls 3 percent in light trading pre-open amid inline Q4 earnings and slightly disappointing revenues. Margins improved and revenues remained strong in China (up 12 percent) and emerging market countries (up 47 percent). That was a stark contrast to the smaller gains in North America (up 4 percent) and Western Europe (up 2 percent) and the 8 percent decline in Japan.

Futures orders — an indicator of demand growth — grew 7 percent. However, it warned volatility in the Euro would have notable effects on its European revenues. Excluding currency impact, futures orders 11 percent higher in Western Europe and 3 percent higher in Central/Eastern Europe. However with the currency effect, futures orders are seen DOWN 2 percent for both regions.

5) Hasbro jumps 11 percent on a Wall Street Journal report that the toymaker was in early talks to be acquired by private equity firm Providence Equity Partners. If a deal is consummated, it would likely be the largest private equity buyout of the year (Hasbro's current market cap: $6 billion)

Best Buy raised it quarterly dividend by 7 percent to $0.15 per share.

Chairman and Chief Executive Clarence Otis said that month-to-month sales volatility during the period was an indication that consumers remain cautious.

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