One of the last few flurries of first quarter earnings news will hit a market Tuesday that will split its focus between the latest headlines from Europe and the domestic economy and earnings.
European weekend elections put socialist Francois Hollande into the French presidency and left no clear government in Greece. That however, did not unhinge U.S. markets, as some investors had feared during Friday’s steep stock market selloff.
Stocks Monday were mixed with not even a full point move in the S&P 500, which finished flat at 1,369. The Nasdaq gained 1 point to 2,957, and the Dow lost 29 points to 13,008.
“I suspect we might be subject to another day where a lot of the action happens overnight, and we’re just the tail of the dog,” said John Briggs, senior Treasury strategist at RBS. In the bond market, the yield on the 10-year was basically unchanged at 1.879 percent.
“We’ve had a two basis points range in the whole New York session. It feels like we had ‘sell the rumor, buy the fact’ in many markets,” like European and U.S. equities, said Briggs. “The bond market still feels like it’s casting a skeptical eye towards any optimistic scenario.”
Earnings are expected from HSBC, DirecTV, Discovery Communications, Liberty Media, Molson Coors, Statoil, Scotts Miracle-Gro, Tenet Healthcare and Wendy’s. McDonald's also releases its April sales report Tuesday morning. After the bell reports are expected from Disney, EOG Resources, XL Group and Energy Transfer Partners.
There is also a 1 p.m. ET auction of $32 billion in 3-year notes. “The last four auctions have come within 0.2 of a basis point or less from the 1 o’clock level. I don’t expect tomorrow to be any different. 10s and 30s will be more interesting and more of a bellwether,” he said. There are auctions of 10-year notes Wednesday and 30-year bonds Thursday.
There is little data Tuesday to interest markets, which are keen on any clues to the U.S. economy after Friday’s weak jobs report. The NFIB small business survey is released at 7:30 a.m., and the Labor Department releases JOLTS data on the labor market at 10 a.m. ET.
Facebook Friending Investors
Facebook continues its roadshow and its executives will be in Boston Tuesday, after kicking off the tour in New York Monday. Facebook is expected to raise as much as $12 billion in its much anticipated IPO May 17.
“We’ve heard so much talk about Facebook but in terms of the overall market, I don’t think it really speaks to the breadth of the market in terms of what direction we’re heading in… in terms of the IPO market, it’s hugely important,” said Peter Kenny of Knight Trading.
Kenny said Facebook may have the power to stir up some individual investor interest in the market. “The interesting thing about Facebook because of the nature of what it is and represents, it should have a very solid retail book, and as a result it’s going to bring awareness of the market and the potential of the market to have a positive impact on the way people invest and what opportunities are out there,” he said.
“IPOs, unlike any other financial instrument, have the ability to bring excitement and bring awareness that things can change and change for the positive,” he said.
But the big IPO could keep some other issuers sidelined. There are about a dozen IPOs on Renaissance Capital’s calendar for this week.
“It’s harder for smaller cap and mid cap companies to operate in a true IPO market when you have companies the size of Facebook. You really do take a lot of air out of the room. That’s not a knock on Facebook,” he said.
David Gilmore of Foreign Exchange Analytics said the currency market’s reaction to European elections also played out more Sunday and overnight than during the U.S. trading day.
It will remain a major focus in foreign exchange markets Tuesday. “There’s still reason to be nervous. Nobody can rule out anything from Greece, but I would say an early exit from the euro zone is an overstated risk,” Gilmore said.
Greece’s dominant parties lost seats to candidates from the right and left who opposed austerity measures, and the first effort to form a coalition government failed Monday. Gilmore said it is likely a second Greek election in June will result in the formation of a new government.
“The reality is there is wiggle room for Greece. The idea of when they implement is not written in stone. The euro zone could double the time period of when they need to meet the obligations,” Gilmore said. Greece is required to undertake austerity and budget reforms as part of its bailout agreement.
“This whole crisis has been a series of can kicking exercises and no long run solution, so maybe the can kick today was that the electoral outcome was such a strong message that maybe it will result in a slowdown of austerity and reform,” he said.
The uncertainties around Europe, and other factors, weighed again on oil prices Monday. WTI crude finished the day $0.55 lower at $97.94, its lowest closing price since February. WTI crude was down 7.7 percent over the past four days.
“It broke all kinds of technical levels. The euro versus the dollar is putting some pressure on it,” said John Kilduff of Again Capital. Oil sold off sharply Friday after the disappointing April employment report put the spotlight on a slower growing U.S. economy, at the same time investors consider Europe’s fragile economy and slower growth in China. Oil has also lost ground on more signs that there is sufficient world oil supplies, as well as less concern about an escalation of the situation with Iran, for now.
Brent slipped $0.02 per barrel Monday to $113.16.
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