Spanish Protests Dictate Trade

The Morning Greek

Today's Market Impact Factor: -2
(-5 to +5)

As Spanish protests evolve today, so will go stocks. Some 2 million or so Spaniards are estimated to be hitting the streets in protest of public sector pay cuts today. This latest copy of "Morning Greek" offers analysis of weekly same-store sales, small business sentiment, DC drivers, international market activity and corporate news factors.

"The Greek" earned clients a 23% average annual return over five years as a stock analyst on Wall Street. While writing for Wall Street Greek and others, he presciently predicted the financial crisis and housing and banking failures of the Great Recession. Visit the front pages of Wall Street Greek now to see our current coverage of business news, global financial markets, real estate, shipping, fine art, technical analysis and global affairs.

(Tickers: NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ, NYSE: EWP, Nasdaq: XSNFX)

Spanish Protests Dictate Trade

The day's activity hinges on how the Spanish protests evolve. If the Spaniards march on Parliament ala the Greek protests against austerity, then all hell might break loose on stocks. Trading should be cautious both today and tomorrow as investors and traders closely watch the unfolding events in Spain and Portugal.

International Market Drivers
Market Impact: -3

Europe is back in the market's keen focus again today, as Spanish unions hit the street to protest Spain's recently proposed government pay cuts. The Spanish government wants to cut the salaries of several public sector industries, including the health and education fields. This comes to Spaniards just one month after austerity measures intended to save 15 billion euro barely passed through its parliament. Thus, there is no guaranty new legislation can pass, and if it does, expect the government to pass on as well.

"This is the clearest and most present danger to Europe and the whole of the world; turnover of government toward radical leadership that might destabilize world peace in future years."

Spain's version of austerity is along the lines of Greece, and intended to prevent the ugly crisis Greece is now enthralled within. For Spaniards, in addition to the cutting of public-sector pay, the austerity measures also call for suspending automatic inflation-adjusted pensions and the end to payouts for parents when they birth children. Okay, so some of these measures make perfect sense, but in Democracy, when you take things away, you can expect to be taken away - especially in Europe.

Some 2 to 2.5 million Spaniards are reportedly hitting the streets today. Thus far, very little violence has occurred, but one major roadway was blocked by burning tires this morning. As the day progresses, the extent of civil disobedience will dictate US market direction. Global instability is perhaps the most major threat to stocks today and always.

This latest measure is seen as a test for future, tougher changes targeted against unions and employee rights in Spain. The unions see the day as a pivot point to take a stand against such threats. Thus, before the sun sets in Spain, the civil situation could change dramatically. Tomorrow, Portugal catches fire when the Portuguese government seeks to strangle its citizens...

International Market Action:

Europe:

* ESTX 50: -1.3%
* FTSE 100: -1.2%
* CAC 40: -1.4%
* DAX: -1.2%
* Athex: +0.5%

Asia:

* NIKKEI 225: +0.2%
* Hang Seng: +0.6%
* S&P ASX 200: +1.3%
* CSI 300: +0.1%
* KRX 100: +0.8%
* BSE Sensex 30: -1.0%

US State Primary Elections Today
Market Factor: +2

The day offers 12 primary elections across several US states, including Tea-Party contention in Nevada. California is another story, where the GOP spent big and put up big name contender Carly Fiorina to compete for a senate seat. California is also seeking a new governor to replace term-limited Governor Arnold Schwarzenegger.

ICSC Weekly Same-Store Sales
Market Factor: +1

We've been keeping a close eye on the weekly same-store sales data out of the International Council of Shopping Centers (ICSC). The latest data, reported this morning for the period ended June 6, showed another week's worth of improved sales pace.

On the weekly check up, sales gained 0.8%, versus the prior week's gain of 0.6% (-0.8% drop the week before that). On a year-to-year basis, the sales growth pace picked up to 3.0% against the prior year period; that compared against last week's growth rate of 2.5%, and 1.3% the week before that. Better weather surely played a role between the last two weeks. That said, this latest data is appeasing to our concerns that consumer activity might be normalizing to a stall. Still, the absolute level of activity remains nothing to write home about, and economic activity still appears to me at risk of stalling.

Redbook also releases its weekly sales data every Tuesday morning, but we do not typically report it due to its limitations. It tends to reflect the story told by ICSC anyway. In this latest case, the week's year-to-year sales pace picked up to 3.6%, versus the prior week's 2.5% pace.

Small Business Optimism Survey
Market Impact: +1

The NFIB (a small business organization) produced its Small Business Optimism Index for June today. The measure showed improvement again this month, rising by 1.6 points to 92.2. June's reading is the best since September 2008, just before it fell off a cliff a month later.

Seven of ten index components improved, but the NFIB reports that small businesses are still not prepared to put their money where their expectations are. Employment and capital investment plans did not budge much and remained at what the NFIB calls "recession levels." We'll have more to say on small business in a follow up piece.

DC Drivers
Market Impact: +1

The President, also known as a reflection of popular sentiment, which is in turn a reflection of media and survey results, is today taking a stronger position against BP (NYSE: BP) and its responsibility to make oil spill victims financially whole.

Federal Reserve Chairman Ben Bernanke participated late last evening in an interview forum at the Woodrow Wilson International Center for Scholars. You could have heard it on Bloomberg Radio (like me). Last week, the Chairman gave a speech on Small Business in Michigan that you Midwestern readers can see here.

Earlier this morning, Fed Governor Elizabeth A. Duke addressed the Consumer Bankers Association Conference entitled, "Moving Beyond the Financial Crisis." You can read Governor Duke's statement here.

Corporate News Schedule

The corporate news schedule is a busy one Tuesday.

Transocean (NYSE: RIG) makes its case against BP when it presents at the RBC Capital Markets conference today. Dr. Pepper Snapple (NYSE: DPS) will present to shareholders, and General Mills (NYSE: GIS) will split its shares 2-for-1. Lockup curbs expire for the shares of Assured Guaranty (NYSE: AGO), EQT (NYSE: EQT) and International Coal Group (NYSE: ICO). Meanwhile, Societe Generale's rogue trader faces trial.

Broadcom (Nasdaq: BRCM) reported quarterly results after the close yesterday. The company beat expectations and BRCM shares are down more than 1% to start the morning. Broadcom beat Thomson Reuters consensus estimates by 11 cents. It also provided revenue guidance above consensus for its next quarter, but kept margin expectations in line. Looks like the market was expecting the good result, and perhaps thought better numbers or guidance were pending; thus the shares are lower. Broadcom also noted its long-term growth stability is secure and strong. Looks like margins have been set low in order to allow the company to beat again next quarter. However, the market is not a fool, and learns and sets expectations accordingly. Thus BRCM management's attempts to set up its shares' performance is useless, though useful for defensive purposes. The goal is rather to not disappoint, versus beating expectations. However, expectations are clearly not tied to published EPS estimates - so the value of game playing comes into question.

RF Micro Devices (Nasdaq: RFMD) is down near 2% this morning, after its EPS report at the close yesterday. RF also beat estimates by 5 cents, and is lower as well. RF reported that its June quarter revenue is "fully booked", and sees gross margin comparable to the March quarter. Perhaps the driver of share decline, if it was not expectations that were simply set too high, transceiver revenue is expected to increase sequentially in the June quarter, but will begin ramping down in September. Also, free cash flow generation is expected to be stable, versus growing. However, the company expects to be cash positive in its FY 11.

Also reporting results overnight, Flextronics (Nasdaq: FLEX) (down 1% in morning trading) and Dow Chemical (NYSE: DOW) (down 1%). Dollar General (NYSE: DG) reported results this morning.

Upgrades/Downgrades

Receiving upgrades today: Corning (NYSE: GLW), Boeing (NYSE: BA), Altra Holdings (Nasdaq: AIMC), Bed, Bath & Beyond (Nasdaq: BBBY), Colfax (NYSE: CFX), IPC, The Hospitalist (Nasdaq: IPCM), Marathon Oil (NYSE: MRO), MPG Office Trust (NYSE: MPG), Semtech (Nasdaq: SMTC), SunTrust Banks (NYSE: STI) and Tesoro (NYSE: TSO). Receiving downgrades: Baker Hughes (NYSE: BHI), Diamond Offshore (NYSE: DO), Hess (NYSE: HES), Noble Corp. (NYSE: NE), Valero Energy (NYSE: VLO).

EPS Schedule

The EPS schedule includes Bob Evans Farms (Nasdaq: BOBE), C&D Technologies (NYSE: CHP), Cantel Medical (NYSE: CMN), CorVel (Nasdaq: CRVL), CPI Corp. (NYSE: CPY), Dollar General (NYSE: DG), Forest City Enterprises (Nasdaq: FCEA), Mitcham Industries (Nasdaq: MIND), Mobile Telesystems (NYSE: MBT), ModusLink Global (Nasdaq: MLNK), NCI Building Systems (NYSE: NCS), Oil-Dri Corp. (NYSE: ODC), Oxford Industries (NYSE: OXM), Pall Corp. (NYSE: PLL), Pep Boys (NYSE: PBY), Take-Two Interactive (Nasdaq: TTWO), Talbots (NYSE: TLB) and Texas Instruments (NYSE: TXN).



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