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Cisco, Jobless Claims Could Sway Market as Investors Watch Europe

Cisco’s disappointing outlook and weekly jobless claims may serve as distractions to a market that will otherwise be focused on Europe.

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AP

Whether Greece heads toward a new election should become clear Thursday, and investors will continue to keep an eye on Spain, where the government Wednesday said it would nationalize troubled Bankia.

Cisco late Thursday reported a jump in profits, but gave a weaker-than-expected forecast for the current quarter and described a “cautious” spending environment. Cisco pointed to concerns about Europe, the public sector market and conservative IT spending.

Cisco shares fell more than 8 percent in afterhours trading, and its weakness could spill into other tech names as it gave a sober view of tech spending. Cisco earned $2.2 billion, up from $1.8 billion in the fiscal third quarter last year. Revenues rose 7 percent to $11.6 billion.

Weekly jobless claims are expected at 8:30 a.m. ET, and economist are forecasting 370,000 claims, slightly above last week’s 365,000. Any number greater than that will be seen as a real negative, after Friday’s disappointing April employment report. The trade deficit and import prices are also reported at 8:30 a.m.

Fed Chairman Ben Bernanke speaks at 9:30 a.m. on banks and bank lending at an annual conference on bank structure and competition.

Earnings are expected from Kohl’s, Sony, Arcelor Mittal, Anglogold Ashanti, Sun Life, AMC Networks, Brookfield Asset Management, and Windstream. After the bell reports are expected from Nordstrom and Express Scripts.

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ANG
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JWN
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KSS
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There is also a 1 p.m. auction of $16 billion in 30-year bonds, following Wednesday’s auction of $24 billion 10-year notes. The 10-year auction saw the lowest yields ever, at 1.86 percent. The previous record was 1.9 percent in January. The 10-year finished the day with a yield of 1.83 percent, but had dipped below 1.8 earlier in the day, as worries about Greece and Europe’s sovereign crisis sent buyers to the safety of bonds.

Stocks Wednesday sold off sharply early, then staged a comeback, but still ended the day with losses. The Dow was down 97 at 12,835, and the S&P 500 was down 9 at 1,354.

“It was rumor monger’s Olympics today,” said Art Cashin, director of floor operations at UBS. Rumors circulated in the morning that Spain would need a bailout, that Greece wouldn’t get the funds it needs and that the Spanish banks would all be nationalized. Some of the rumors were later reversed, as Greece got its money and Spain moved to nationalize one bank.

“Europe, with the exception of Spain, closed kind of mixed,” Cashin said of European equities markets.

Paul Christopher, chief international strategist for Wells Fargo Advisors, said he expects to see the U.S. market do better than European markets as long as the current issues remain viewed as localized. “The U.S. could be taken much lower if the risks begins to be perceived as global, and we’re not there yet,” he said.

Christopher does not see a high probability that the markets repeat the performance of the last year, when Europe became a major source of concern. “I would give it 10 to 15 percent probability of last July/August happening again,” he said.

He said the difference this year is that European leaders have become better focused on the issues and reduced the risk of financial collapse by building up their bailout fund and creating the LTRO liquidity program. The U.S. economy is also stronger.

“If you look at the U.S. and European industrial production, they’re diverging. That doesn’t happen very often,” he said. “There’s only been a couple of times when they’ve been unsynchronized. And one was in 1992. That was great for us.” Christopher notes that Europe could potentially benefit from stronger U.S. industrial production as U.S. economic strength could help offset weakness in Europe.

But he said risks remain. For instance, Germany could continue to press the weakest countries to harsher austerity programs than they can bear. One possible solution, he said, would be for the ECB to ease interest rates. “Easing is one of the things they could do now that would not cost the German taxpayer any more money,” he said.

Follow Patti Domm on Twitter: @pattidomm

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