Opening View: Italian Bond Yields Skyrocket; DJIA to Follow European Stocks Lower

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Optimism over Italian Prime Minister Silvio Berlusconi's resignation pledge has seemingly faded overnight, with U.S. stocks headed lower in pre-market action. Amid the uncertainty over Italy's future leadership -- and in the wake of a notable margin-call hike on Italian debt -- bond holders hit the proverbial exits en masse , sending 10-year yields to a euro-era high of 7.4%. Typically, borrowing rates above 7% are considered to be unsustainable over the long term. Against this backdrop, and thanks to re-emerging fears of fiscal contagion, the Dow Jones Industrial Average (DJIA) and its U.S. comrades are set to follow European stocks into the red.

Dow, S&P and Nasdaq futures

In equities news, Adobe Systems (ADBE - 30.42) last night announced restructuring measures to better focus on its digital media and marketing software. As a result, the firm expects to cut 750 jobs, and predicted revenue growth of 4% to 6% next year. Analysts, on average, were calling for full-year growth of around 9%. Furthermore, ADBE trimmed its unadjusted quarterly earnings outlook to a range of 30 cents to 38 cents per share, compared to its previous guidance for a per-share profit of 41 cents to 50 cents. At last check, ADBE is set to start the session with a 10.6% drop.


In earnings news, Weight Watchers International (WTW - 71.84) last night reported a third-quarter profit of $80.7 million, or $1.09 per share - up 82% from last year's profit of $44.4 million, or 59 cents per share. Revenue was also on the rise, increasing 29.6% to $428.4 million. WTW continued its recent history of besting expectations, as analysts, on average, were projecting a profit of 94 cents per share on revenue of $411 million. Looking ahead, WTW upped its 2011 fiscal guidance for the third time this year, and now expects earnings in the range of $4.05 to $4.10 per share. Analysts, meanwhile, are predicting earnings of $3.98 per share. In pre-market trading, WTW has shed 8.8%.

Meanwhile, Activision Blizzard (ATVI - 13.93) said its third-quarter profit nearly tripled to $148 million, or 13 cents per share, from last year's earnings of $51 million, or 4 cents per share. Excluding items, ATVI earned 7 cents per share, while revenue increased 1.2% to $754 million. The video game publisher's results toppled Wall Street's prediction for a profit of 2 cents per share on $558.4 million in revenue. For the current quarter, ATVI expects adjusted earnings of 55 cents per share on $2.17 billion in sales, while analysts are looking for 53 cents per share on revenue of $2.10 billion. The Santa Monica, Calif.-based company also raised its fiscal 2011 adjusted earnings outlook to 85 cents per share on revenue of $4.25 billion. Analysts, on average, are anticipating 79 cents per share in earnings on $4.11 billion in sales. Ahead of the bell, ATVI is lingering about 1.7% south of breakeven.

Finally, Caribou Coffee (CBOU - 14.41) reported a third-quarter profit of $1.8 million, or 9 cents per share, up from $1.6 million, or 8 cents per share, in the year-ago period. Excluding items, CBOU earned $1.6 million, or 7 cents per share, compared to $1.0 million, or 5 cents per share, in year prior. Meanwhile, net sales rose 16.1% to $81.4 million, boosted by a 4.1% increase in same-store sales. Analysts, on average, were expecting a profit of 6 cents per share on revenue of $78.1 million. For fiscal 2011, the company is expecting its adjusted profit to arrive near the top end of its previously forecast range of 39 cents to 41 cents per share, falling roughly in line with the consensus estimate of 41 cents per share. At last look, CBOU is poised to open 2.3% lower.

Earnings Preview

Today's earnings docket will also feature reports from 99 Cents Only Stores ( NDN ), Advance Auto Parts ( AAP ), Ashland ( ASH ), Cisco Systems ( CSCO ), Computer Sciences ( CSC ), Comverge (COMV), Dean Foods (DF), Energy Conversion Devices (ENER), Fuel Systems Solutions (FSYS), General Growth Properties (GGP), General Motors (GM), Green Mountain Coffee Roasters (GMCR), Liz Claiborne (LIZ), Macy's (M), Medivation (MDVN), Ralph Lauren (RL), Silver Wheaton (SLW), SodaStream International (SODA), Wendy's (WEN), and Zhongpin (HOGS). Keep your browser at SchaeffersResearch.com for more news as it breaks.

Economic Calendar

Data on wholesale inventories is due out today, along with the usual report on domestic petroleum supplies. Thursday brings a relative onslaught of economic news, including import/export prices, the U.S. trade balance, the Treasury budget, and the weekly report on jobless claims. The week wraps up on Friday with the Thomson Reuters/University of Michigan consumer sentiment survey for early November.

Market Statistics

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 885,746 call contracts traded on Tuesday, compared to 568,137 put contracts. The resultant single-session put/call ratio arrived at 0.64, while the 21-day moving average was 0.68.

NYSE and Nasdaq summary

Volatility indices

Overseas Trading

Stocks in Asia caught a lift today, following suit with healthy gains on Wall Street after Italian Prime Minister Berlusconi announced his intention to resign . Traders also cheered an encouraging round of inflation data out of China, which showed that producer prices rose by a tamer-than-forecast 5% in October. Easing inflation could give policymakers some room to relax their tightening regime, potentially averting the "hard landing" that many have feared for the key emerging market. By the close, Hong Kong's Hang Seng added 1.7%, Japan's Nikkei rose 1.2%, China's Shanghai Composite tacked on 0.8%, and South Korea's Kospi gained 0.2%.

Conversely, the major European benchmarks have turned south at midday. The initial enthusiasm over Berlusconi's impending departure has faded, thanks to soaring Italian bond yields. The yield on 10-year notes spiked north of 7% today after clearing house LCH.Clearnet upped the initial margin call on Italian debt by 3.5 to 5 percentage points across all bond maturities. At last look, the German DAX is down 2.6%, the French CAC 40 is off 2.3%, and London's FTSE 100 is 1.8% lower.

Overseas markets

Currencies and Commodities

The greenback has reclaimed some ground this morning, with the U.S. dollar up about 1.1% at last check. Elsewhere, crude futures have pared some of their recent gains, with the front-month contract down $1.16, or 1.2%, at $95.64 per barrel. Likewise, gold futures have retreated from multi-week peaks, with the precious metal last seen $7.40, or 0.4%, lower at $1,791.80 an ounce.

Currencies and commodities

Unusual Put and Call Activity:

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This article appears in: Investing , Options

Referenced Stocks: AAP , ASH , CSC , CSCO , NDN

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