Domestic equities rallied on Monday, adding to last week's solid gains, as crude oil prices jumped on the heels of a report from the International Energy Agency, which noted in its medium-term outlook that U.S. shale oil production is expected to decline. In economic news, Markit's preliminary U.S. Manufacturing PMI Index for February declined, but remained in expansion territory. In equity news, CNBC reported that Honeywell International Inc (N:HON) recently approached Dow member United Technologies Corporation (N:UTX) about a possible merger. Meantime, Treasuries and gold were lower, while the U.S. dollar advanced.
The Dow Jones Industrial Average (DJIA) rallied 229 points (1.4%) to 16,621, the S&P 500 Index advanced 28 points (1.4%) to 1,945, and the Nasdaq Composite gained 66 points (1.5%) to 4,571. In moderately-heavy volume, 1.0 billion shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil increased $1.64 to $33.39 per barrel and wholesale gasoline added $0.04 to $1.25 per gallon, while the Bloomberg gold spot price lost $18.72 to $1,208.09 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.8% higher at 97.37.
Dean Foods Company (N:DF) (DF $19) reported 4Q earnings-per-share (EPS) ex-items of $0.36, above the $0.34 FactSet estimate, with revenues declining 15.6% year-over-year (y/y) to $2.0 billion, versus the projected $2.1 billion. DF issued stronger-than-expected 1Q EPS guidance. Shares traded solidly lower.
North American foodservice distributor, Sysco Corp. (N:SYY $43) announced an agreement to acquire European foodservice distributor, Brakes Group, in a transaction valued at about $3.1 billion. SYY finished solidly to the downside.
Shares of Dow member United Technologies Corp. (N:UTX $92) rallied on the heels of a report from CNBC that Honeywell International Inc. (N:HON $105) recently approached the aerospace & defense company about a potential merger. However, the report noted that UTX is said to have substantial antitrust concerns and there is no certainty a deal would get done. Neither company commented on the report. Shares of HON closed lower.
Preliminary manufacturing report shows growth slowed
The preliminary Markit U.S. Manufacturing PMI Index for February declined to 51.0 from January's 52.4 level, where economists surveyed by Bloomberg had forecasted it to remain. However, a reading above 50 denotes expansion.
Treasuries were modestly lower, with the yield on the 2-Year note ticking 2 basis points (bps) higher to 0.76%, while the yields on the 10-Year note and the 30-Year bond rose 1 bp to 1.76% and 2.61%, respectively.
Tomorrow's U.S. economic calendar will be headlined by some reads on the housing market and a look at the psyche of the consumer. January existing home sales are projected to show the largest portion of the housing sales market declined 2.4% month-over-month (m/m) to an annual rate of 5.33 million units. Also, February Consumer Confidence is expected to dip to 97.2 from 98.1 in January. Other reports slated for tomorrow include: the S&P/Case-Shiller Home Price Index and the Richmond Fed Manufacturing Index, with the former forecasted to show home prices continued to rise, and the latter estimated to show growth continued modestly.
The U.S. economy remains bifurcated—manufacturing is in recession, but services are hanging in there. Market-based measures of the economy—for instance, yield spreads, the shape of the yield curve and stock market prices—are sending louder recession signals, while high-frequency economic-data-based leading indicators—like unemployment claims and some housing-based data—are not yet waving a red flag. Overall, the leading economic indicators have not rolled over to the extent typically seen before recessions.
Europe and Asia mostly higher to begin the week
European equities traded higher, with oil and gas and basic materials stocks leading the way amid rallying oil prices and as commodity issues recovered amid eased risk aversion. Stocks in the region shrugged off a disappointing read on eurozone business activity, softer-than-expected quarterly results from HSBC Holdings (L:HSBA) PLC. (HSBC $32), and heightened uncertainty regarding the U.K.'s future in the European Union (EU). Markit's preliminary Eurozone Composite PMI Index—a gauge of business activity in both the manufacturing and services sectors—declined to 52.7 in February, from 53.6 in January, and compared to the decrease to 53.3 that economists had projected. However, a reading above 50 denotes expansion.
The British pound fell the most since 2009, per Bloomberg, including a sharp drop versus the U.S. dollar, after London Mayor Boris Johnson said he will campaign for Britain to leave the EU in a June 23rd referendum. The news comes as over the weekend Prime Minister David Cameron said he would fight to keep Britain in the EU after securing a deal on membership terms with leaders in Brussels. U.K. stocks are moving higher on the strength in basic materials issues and the drop in the pound. The euro dropped versus the U.S. dollar and bond yields in the region moved mostly to the downside.
Stocks in Asia added to the solid gains posted last week, with commodity issues gaining ground as risk aversion that has ramped up to begin the year appears to be continuing to wane, while crude oil prices moved higher. Japanese equities advanced, despite a larger-than-expected slowdown in the nation's manufacturing growth in February, aided by some weakness in the yen. The yen has rallied recently on concerns about the late-January decision by the Bank of Japan (BoJ) to adopt a negative interest rate policy (NIRP).
Mainland Chinese stocks rallied, bolstered by reports that China has replaced the head of its securities regulator, and that the government cut taxes on home transactions. Australian securities advanced amid strength in basic materials stocks, along with gains in the financial sector. Finally, equities in India ticked higher and South Korean listings finished flat in choppy trading.
The international economic docket for tomorrow will be light, offering 4Q GDP and the Ifo business climate survey from Germany and manufacturing confidence from France.
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