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The Markets Now: Complications From Cyprus Bailout Help Send Stocks Lower


Plus, two companies make counteroffers for Dell.

Stocks have turned negative after opening higher today as optimism about the Cyprus bailout faded on negative news from Europe. Dutch Finance Minister Jeroen Dijsselbloem, the head of the Eurogroup of eurozone finance ministers, stated euro-area nations with large banking industries may need to cut the size of these institutions. The Cyprus bailout may act as a template for future bank restructuring, and he said shareholders, bondholders, and even depositors would need to sacrifice their holdings to help recapitalize banks. Also, German economic advisors cut the 2013 economic growth forecast for the largest economy in the eurozone from 0.8% to 0.3%. The Dow (INDEXDJX:.DJI) decreased 0.34% to 14,463.37. The S&P 500 (INDEXSP:.INX) dropped 0.21% to 1,553.69, and the Nasdaq (INDEXNASDAQ:.IXIC) fell 0.19% to 3,238.83.

The Federal Reserve Bank of Chicago reported today that the Chicago Fed National Activity Index, or CFNAI, increased to 0.44 points in February compared to a revised negative 0.49 for January. The index is a weighted average of 85 indicators of national economic activity and inflationary pressures grouped in four categories: production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories. All four categories saw gains, and a rating greater than zero indicates growth above the historical trend.

The 3-month moving average is 0.09, the fourth consecutive reading above zero. The CFNAI Diffusion Index, which measures the degree to which the change is spread out among the 85 indicators over a quarterly period, increased to 0.14 in February from 0.13 in January. Of the 85 indicators, 58 contributed to increasing the CFNAI.

The Federal Reserve Bank of Dallas reported that the indices of its Texas Manufacturing Outlook Survey showed substantial gains. The production index increased from 6.2 in February to 9.9 in March, and 92 Texas manufacturers surveyed showed more optimism as the general business activity index increased from 2.2 to 7.4, its highest reading in a year. Plus, the company outlook index moved from 6.3 to 9.6.

Other categories of the survey saw strong gains. The new orders index climbed from 2.8 to 8.7, and the shipments index rose from 2.6 to 10.6. The capacity utilization index remained flat at 5.5, the fourth consecutive positive reading.

Costs increased with the raw materials price index lifting from 15.8 to 19.1. Prices rose too, and the finished goods price index changed from 4.6 to 7.2. The wages and benefits index turned upwards from 12.9 to 18.5.

The US Treasury announced today that it will auction $45 billion worth of 4-week Treasury bills tomorrow.

Today, the US Treasury auctioned $35 billion worth of 3-month Treasury bills with a 0.075% rate and a 4.53 bid-to-cover ratio. The Treasury also auctioned $30 billion worth of 6-month Treasury bills with a 0.105% rate and a 4.85 bid-to-cover ratio.

Dell (NASDAQ:DELL) jumped 3.08% to $14.58. Two new bids for Dell have been made by Carl Icahn of Icahn Enterprises (NASDAQ:IEP) and a private-equity fund managed by Blackstone Group (NYSE:BX) that may prove better offers than Michael Dell's proposal made last month. Mr. Dell offered $13.65 per share, valuing the company at $24.4 billion. Icahn and his company, which owns a 4.6% stake in the company, offered a $5 billion equity commitment. He will purchase $2 billion of the surviving firm's shares at $15 per share along with $2 billion in cash equity financing. The company will also maintain its current holdings. Blackstone's bid includes buying Dell for $14.25 per share in cash or stock and existing shareholders will have the opportunity to remain owners in the company. Blackstone's offer expires at 5 p.m. this Thursday.

Oracle (NASDAQ:ORCL) fell 1.94% to $31.36. It will acquire Tekelec (NASDAQ:TKLC), a provider of network signaling, policy control, and subscriber data management solutions for communications networks.

Apollo Group (NASDAQ:APOL) spiked 8.22% to $18.44. Even though its fiscal second-quarter net income plummeted 79% from $63.9 million, or $0.51 per share, in the prior-year quarter to $13.5 million, or $0.12 per share, the numbers beat Wall Street expectations. After excluding restructuring charges and other one-time items, the for-profit education company's adjusted profit was $0.34 per share. Revenue dropped 13% from $962.7 million to $838.4 million. Analysts on average expected a quarterly profit of $0.19 per share on $824.9 million in revenue.

Apollo cited a drop in enrollment as the reason for the weakness in revenue. It projects a fiscal 2013 revenue of between $3.65 billion and $3.75 billion; analysts anticipate revenue of $3.73 billion.

Ebay (NASDA:EBAY) dropped 3.17% to $51.58. The Internet auction website may face new competition from Swedish online payments firm Klarna. The European company could take market share away from PayPal if it decides to expand in the US.

Red Hat (NYSE:RHT) decreased 4.54% to $48.49. Raymond James (NYSE:RJF) analyst Michael Turits lowered his rating for Red Hat from "Outperform" to "Market Perform." He expects the company's fiscal fourth-quarter results to match expectations, but he warns investors that its 2014 revenue guidance may disappoint.

Twitter: @ChrisWitrak
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The author has a position in Blackstone Group.
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