Ahead of Wall Street - February 14, 2012 - Ahead of Wall Street
February 14 2012 - 3:15AM
Zacks
Tuesday, February 14, 2012
Moody’s downgrade appears to have had little impact on Italy’s
borrowing costs as the country held a successful bond auction today
where yields fell. Spain also suffered a downgrade from Moody’s and
experienced a similar rate contraction. This appears to be becoming
a trend now, with the bond market paying little attention to
sovereign ratings downgrades. We saw that with the Standard &
Poor’s downgrade of the U.S. rating last summer and a number of
European credits a month back. The same trend seems to be playing
out with Moody’s downgrades now. The recent non-effectiveness of
sovereign credit ratings aside, there is no denying the fact that
sovereign balance sheets are out of shape, particularly in
Europe.
Europe aside, the major news of the day pertains to the mixed
Retail Sales numbers for January on the home front, with the
‘headline’ number coming weaker than expected, but the ‘core’
number better than expected. Retail Sales came in weaker than
expected on the headline basis, up 0.4% compared to expectations of
0.7% gains. This compares to the ‘unchanged’ December reading,
which was revised downwards from the originally reported 0.1% gain.
'Core' Retail Sales, which excludes automobile and gasoline sales
data, came in better than expected, up 0.7% compared to
expectations of a 0.6% gain. The ‘core’ reading for December was
also revised downwards.
The weak ‘headline’ Retail Sales reading runs counter to
positive reports of auto sales and other indicators from the
broader economy. Measures of consumer confidence have been moving
up and the labor market has been steadily moving in the right
direction. The Retail Sales report is admittedly not a perfect
proxy for consumer spending since it only includes 'goods' sales at
retail establishments and leaves out the much bigger consumer
outlays on 'services'. But it nevertheless provides valuable clues
to trend in consumer spending, which is the backbone of the U.S.
economy. The downward revision to the December ‘core’ Retail Sales
numbers could be pointing towards a downward adjustment to the
fourth quarter GDP numbers coming out later this month.
On the earnings front, we got weaker than expected results from
Avon Products (AVP), with a number of unusual
items in the company’s report. The company is currently in the
process of hiring a CEO to replace Andrea Jung, who will remain the
company’s chairman. Goodyear Tire & Rubber
(GT) missed both EPS and revenue expectations, though results were
a significant improvement from the year-earlier quarter.
Sheraz Mian
Director of Research
AVON PRODS INC (AVP): Free Stock Analysis Report
GOODYEAR TIRE (GT): Free Stock Analysis Report
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