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Ahead of Wall Street

Tuesday, June 26, 2012

Today’s housing and consumer confidence reports on the home front will likely not be enough to offset the market’s Europe-centric worries even though pre-market indications have been modestly on the positive side. It’s a headline driven market and the key headlines are from Europe. 

In headlines from across the pond today, the German chancellor seems to trying to tamp down expectations for this week’s Euro-zone summit even as government bond auctions in Spain and Italy resulted in the highest yields this year on those maturities. This is having an impact in the secondary markets as well, where yields on benchmark 10-year instruments for those two countries inched up. A rating agency’s downgrade of Spanish banks doesn’t help mattes either. In other Euro-zone news, Cyprus became the fifth country to ask for an EU bailout when the small island nation asked for a €10 bailout to recapitalize its banks which have been hit hard by losses in Greek government bonds.

On the domestic data docket today, we will get the April Case-Shiller home price index and the Conference Board’s May Consumer Confidence reading after the market opens. The Case-Shiller index is expected to show a 2.5% drop from the year-earlier period after a 2.6% drop in March. But a number of other more timely home price indicators are showing signs of stabilization in home prices. The consumer confidence measure is expected to show a modest pullback from April’s 64.9 level, reflecting the recent run of soft labor market and other data.

In corporate news, News Corp (NWSA - Analyst Report) is reportedly contemplating splitting itself into two companies – one focused on the company’s entertainment businesses, while the other housing its publishing assets. While a number of major companies have been going this route lately to capitalize on the market’s appreciation of such moves, the catalyst for News Corp is reportedly the regulatory scrutiny that the company’s British newspaper assets have received lately due to a well publicized phone-hacking scandal. This move is expected to help the company segregate the broader company from the negative U.K.-centric news flow arising from that scandal.

In other news, Facebook (FB - Analyst Report) appears on track to receive a lot more research coverage from Wall Street firms in the next few days. Analysts at brokerage houses that were part of the company’s underwriting team were barred from covering the stock for the initial 40-day quiet period, which comes to an end today.

This means that about two dozen analysts, including analysts at Morgan Stanley (MS - Analyst Report), Goldman Sachs (GS - Analyst Report), and J.P. Morgan (JPM - Analyst Report) will come out with their recommendations and research on the social network giant from Wednesday onwards. While some may discount the recommendations from underwriting firms given the less-than-stellar performance of the IPO, historically the favorable recommendations of many such underwriting analysts have been beneficial to the stock. It will be interesting to see if we will see a similar trend play out in the case of Facebook shares in the next few days as well.

Sheraz Mian
Director of Research

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