Stocks Bounce With Financials In The Lead

U.S. equities posted solid gains with financials leading the way, adding to their recent rebound, and as Treasury yields at the mid-to-long end of the curve saw gains. Technology issues stabilized from their recent tumble and energy stocks gained ground on an uptick in crude oil prices, despite an unexpected bearish inventory report. The U.S. dollar finished nearly unchanged after a choppy session, on some euro volatility and as comments from Bank of England Governor Carney boosted the pound. Gold was higher.

The Dow Jones Industrial Average (DJIA) rose 144 points (0.7%) to 21,455, the S&P 500 Index increased 21 points (0.9%) to 2,441, and the NASDAQ Composite jumped 88 points (1.4%) to 6,234. In moderate volume, 854 million shares were traded on the NYSE and 2.1 billion shares changed hands on the NASDAQ. WTI crude oil gained $0.50 to $44.74 per barrel and wholesale gasoline was $0.02 higher at $1.47 per gallon. Elsewhere, the Bloomberg gold spot price increased $3.03 to $1,250.20 per ounce, and the dollar index, a comparison of the U.S. dollar to six major world currencies, was flat at 95.99.

General Mills Inc. (NYSE:GIS $57) reported Q4 earnings-per-share (EPS) of $0.69, or $0.73 ex-items, versus the $0.71 FactSet estimate, as revenues declined 3.0% year-over-year (y/y) to $3.8 billion, roughly in line with forecasts. GIS issued current year EPS guidance that came in slightly below forecasts. Separately, the company increased its quarterly dividend by 2.1% to $0.49 per share. Shares were higher.

KB Home (NYSE:KBH $24) posted fiscal Q2 EPS of $0.33, above the projected $0.26, as revenues grew 24.0% y/y to $1.0 billion, north of the expected $930 million. Home deliveries rose 11% y/y, while net order and backlog values both posted mid-to-high double-digit growth. KBH said the housing market recovery continues on a steady path, supported by favorable industry fundamentals, while raising its full-year guidance. KBH gained ground.

Spectranetics Corp. (NASDAQ:SPNC $38) surged over 25% after Royal Philips (NYSE:PHG $36) agreed to acquire the maker of devices to treat cardiac disease for $38.50 per share in cash or about $1.7 billion.

Pending home sales unexpectedly decline, mortgage applications fall

Pending home sales declined 0.8% month-over-month (m/m) in May, versus the Bloomberg projection of a 1.0% increase, and following the downwardly revised 1.7% drop registered in April. Compared to last year, sales were 0.5% higher, matching forecasts. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which surprised to the upside in May.

The MBA Mortgage Application Index fell 6.2% last week, following the previous week's 0.6% rise. The drop came as an 8.6% fall in the Refinance Index was met with a 4.1% decline for the Purchase Index. The average 30-year mortgage rate remained at 4.13%.

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The advance goods trade deficit narrowed more than expected to $65.9 billion in May, from the downwardly revised $67.1 billion in April, and compared to the Bloomberg expectation of $66.0 billion.

Preliminary wholesale inventories rose 0.3% m/m in May, versus forecasts for a 0.2% increase, and following April's favorably revised 0.4% decrease.

Treasuries were mixed, as the yield on the 2-Year note declined 2 basis points (bps) to 1.35%, while the yield on the 10-Year note ticked 1 bp higher to 2.22% and the 30-Year bond rate rose 2 bps to 2.77%. Bond yields have rebounded somewhat as of late from depressed levels.

Finally, the political front remains in focus with yesterday's delay in the Senate healthcare bill vote until after the July 4th holiday exacerbating uncertainty, while the debt ceiling debate continues and the markets are looking for any developments on tax and regulatory reforms, as well as other reflationary policy implementation.

Tomorrow's economic docket will consist of the third and final read for Q1 GDP, with economists anticipating no revision to the quarterly 1.2% annualized growth rate in the second release, nor the 2.2% increase in personal consumption, as well as weekly initial jobless claims, forecasted to tick lower to 240,000 from the prior week's 241,000.

European mixed amid euro and pound volatility, Asia mostly lower on uncertainties

European equities finished mixed following a brief afternoon recovery on a short-lived reverse to the downside for the euro on reports that European Central Bank (ECB) members are saying the markets misjudged President Mario Draghi's comments yesterday. The euro moved back into the green, extending yesterday's rally that came as the markets appeared to have a hawkish takeaway from Draghi's speech. He pointed out a strengthening and broadening recovery, while saying that pressures on inflation are temporary and that "the threat of deflation is gone and reflationary forces are at play."

Bond yields in the region finished mixed. The British pound rallied versus the U.S. dollar as Bank of England Governor Mark Carney said policy makers may need to begin the removal of stimulus if the trade-off between growth and inflation continues to lessen and the central bank will discuss this in the coming months. Oil and gas issues pared early pressure as crude oil prices reversed losses. Political uncertainty continued to linger ahead of key elections in the eurozone and as U.K. Brexit negotiations are set to ramp up. In economic news, French consumer confidence jumped and Spanish retail sales rebounded.

Stocks in Asia finished mostly lower following the declines in the U.S. and Europe yesterday that came courtesy of the continued rollover in technology stocks, the delayed U.S. healthcare bill vote and hawkish commentary from ECB President Draghi that boosted the euro. Japanese equities declined, with the yen choppy following a recent decline. Mainland Chinese stocks and those in Hong Kong declined amid the aforementioned headwinds, and ahead of Friday's release of manufacturing and services sector reports.

Meanwhile, Australian securities advanced nicely, led by strength in basic materials, oil and gas and financial issues amid a rise in global bond yields and continued rebound in crude oil prices, while markets in South Korea and India declined.

Tomorrow's international economic calendar will include retail sales and the trade balance from Japan, CPI from Spain, consumer and business confidence from the Eurozone, and CPI from Germany.

Written By: Marvin Clark