EmailThe early line today is that things haven't gone fully according to plan. To wit, EU finance ministers have rejected the debt settlement offer made by Greece's private creditors and the earnings results since yesterday's close have been mixed.
The mitigating factor on both fronts is that neither development has been accepted as a be all, end all development.
According to reports, finance ministers want Greece to negotiate a lower coupon (i.e. 3.5% or less versus 4.0% now) with private creditors, yet the tenor of remarks is such that there is a standing belief this settlement will ultimately be reached so that Greece does not default on a EUR 14.5 bln debt payment due in March.
Time will tell, but with relatively modest losses seen in most European markets (down ~1.0%), the S&P futures down eight points, the euro off 0.5% against the dollar, and the 10-year U.S. Treasury note little changed, it is fair to say that market participants are still thinking along the same lines.
Not long ago, this type of headline setback would have been greeted with a much stronger risk-averse mindset.
It has helped matter some that surveys on manufacturing and services sector activity in the eurozone for January were both better than expected, tempering concerns for the time being about the eurozone running the risk of falling into a deep recession on account of austerity measures, waning consumer confidence, and a contraction in lending.
On a related note, the IMF will release its updated global GDP projections at 10:00 a.m. ET. The updated forecasts will likely contain a number of downward revisions that could be a catalyst for further profit-taking efforts after the strong run to begin the year.
The mixed earnings results have certainly given rise to some selling pressure. Companies, however, are not communicating a wholly bleak outlook and that has helped keep selling efforts in check.
Texas Instruments (TXN), for one, beat the Capital IQ consensus earnings estimate by $0.09 for the December quarter and noted that higher revenue across all product lines reinforced its belief that it is at the bottom of a downturn.
McDonald's (MCD) beat by $0.03 and provided solid January sales guidance. Other notable companies that exceeded the Capital IQ consensus earnings estimate included DuPont (DD), Harley-Davidson (HOG), EMC Corp. (EMC), Coach (COH), and Johnson & Johnson (JNJ).
JNJ embodied the mixed nature of the earnings reporting, though, as its FY12 EPS guidance of $5.05-5.15 was below the current consensus estimate of $5.21. Still, it's a safe bet for investors that JNJ is not going to have any problem making good on its dividend payments.
Some notable companies that either came up shy of the Capital IQ consensus estimate and/or issued guidance below current consensus estimates included Verizon (VZ), Travelers (TRV), Kimberly-Clark (KMB), CSX Corp. (CSX), Peabody Energy (BTU), and STMicroelectronics (STM).
There aren't any major economic releases today in the U.S., so the market is apt to spend some time wrestling with the idea that it is overextended on a short-term basis (up 9.2% since December 19 and up 19.7% since October 3) and due for a period of consolidation.
Today's headlines have provided the excuses to do some selling.
As a reminder, there will be a $35 bln 2-year Note auction at 1:00 p.m. ET today. Also, the FOMC begins a two-day meeting today with the State of the Union Address tonight serving as a buffer between its highly-anticipated policy directive.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
