News Column

MARKET ANALYSIS: Uncertainty Could Impede Recovery Attempt

May 19, 2014

WASHINGTON (Alliance News) - The major US index futures are pointing to a lower opening on Monday, with sentiment suggesting nervousness among traders, given the uncertainty surrounding the economic outlook and its implication for monetary policy. The uncertainty is likely to impede any potential recovery attempt. The absence of any major catalysts is likely to make a recovery even harder. European stocks are also seeing a listless outing amid some negative corporate news flow.

US stocks ended mixed in the week ended May 16th, as the overbought levels of the markets exerting downward pressure on the markets.

Last Monday, the major averages advanced strongly despite the ongoing concerns about Ukraine, as traders focused on some positive cues from China, which announced measures to reform its stock market. Amid the release of lukewarm retail sales data on Tuesday, the major averages showed a lack of direction before closing mixed.

With the Dow Industrials and S&P 500 Index perched at record closing highs and the lack of any major economic catalysts, valuation concerns weighed in the minds of traders on Wednesday. Consequently, the averages closed the session moderately lower. Mixed earnings and economic news pressured stocks on Thursday, sending the averages lower once again. Notwithstanding the lackluster performance for much of the session on Friday, the major averages ended higher amid the release of mixed economic data.

For the week ended May 16th, the Dow Industrials fell 0.55% and the S&P 500 Index receded 0.03%, while the Nasdaq Composite Index rose 0.46%.

Among the sector indexes, the Philadelphia Oil Service Index and the NYSE Arca Securities Broker/Dealer Index fell 2.92% and 2.22%, respectively. Additionally, the KBW Bank Index and the NYSE Arca Gold Bugs Index slipped over 1% each. On the other hand, the Dow Jones Transportation Average rose 1.64%.

The Dow Industrials bounced between its 21 and 50-day moving average last Friday and settled in between these. Immediate resistance for the index is found around its 21-day MA (currently at 16,520). Further above, the index has resistance around the 16,573 and 16,621. On the downside, the index has support around 16,449, its 50-day MA (currently at 16,403) and 16,357.

Commodity, Currency Markets

Crude oil futures are rising USD0.65 to USD102.67 a barrel after climbing USD2.03 or 2.03% to USD102.02 a barrel in the week ended May 16th. Last Monday, oil rose moderately amid an increase in risk appetite. The commodity rallied over USD1-a-barrel, as traders digested the lukewarm US retail sales report.

Oil extended its gains on Wednesday, rising moderately in the session. However, the commodity snapped its winning run and declined close to USD1-a-barrel on Thursday but rose rebounded on Friday, thus advancing in all but one session of the week.

Gold futures, which added USD5.80 or 0.45 to USD1,293.40 an ounce in the previous week, are currently rising USD10.70 to USD1,304.10 an ounce.

Among currencies, the dollar closed the week ended May 16th on a mixed note, with the greenback slipping 0.35% against the yen to 101.50. Meanwhile, the dollar gained 0.47% against the euro before ending the week at USD1.3694, with the common currency shared by 18 nations coming under pressure in the wake of weaker than expected GDP data that re-opened the possibility of the European Central Bank lowering rates to preserve the economic momentum.

The US dollar is currently trading at 101.15 yen and is valued at USD1.3718 versus the euro.


The major Asian markets closed mostly lower, although the Indian market extended its post-election rally. The South Korean and Taiwanese markets also posted modest gains.

The Japanese market came under pressure, as the yen continued to remain firm. The Nikkei 225 average, which was trading on a lackluster manner in the morning, moved decisively lower in late afternoon trading and ended the session down 90.15 points or 0.64% at 14,006. Real estate, telecom, financial and export stocks led the retreat, while resource and retail stocks gained ground.

Australia's All Ordinaries declined steadily throughout the session before ending down 68.60 points or 1.26% at 5,390. The market witnessed broad based weakness, with energy, healthcare and material stocks coming under intense selling pressure.

Hong Kong'sHang Seng Index closed 8.41 points or 0.04% lower at 22,705 and China's Shanghai Composite Index ended at 2,005, down 21.32 points or 1.05%.

On the economic front, core machinery orders rose 19.1% month-over-month in March, according to a report released by Japan'sCabinet Office. Economists had expected a 6% increase for the month. Annually, core machinery orders were up a better than expected 16.1%,


European stocks opened mixed and declined sharply after early trading, as traders digested corporate news. The major averages in the region are currently notably lower.

In corporate news, low cost carrier Ryanair reported a decline in its earnings for the fiscal year ended March, the first drop in five years.

On the economic front, Right Move reported that the average asking price for a house in the UK surged up 3.6% month-over-month in May following a 2.6% increase in April. Annually, price growth accelerated to 8.9% from 7.3%. Eurostat reported that euro area construction output fell 0.6% month-over-month in March, reversing most of the 0.7% increase in March.

US Economic Reports

Housing data, FOMC minutes and several Fed speeches are among the closely watched economic events/reports of the unfolding week. Traders may focus on the National Association of Realtor's existing home sales and the Commerce Department's new home sales report, both for April, the jobless claims report, flash estimate of Markit's US manufacturing purchasing managers' index for May and the minutes of the April FOMC meeting.

Several Fed speeches scheduled for the week, including one from Federal Reserve Chair Janet Yellen, may also be in focus. The Conference Board's leading economic indicators index for April, a couple of regional Federal Reserves' manufacturing activity readings and announcements concerning the Treasury auctions of 2-year, 5-year and 7-year notes round up the economic events of the week.

Dallas Fed President Richard Fisher and San Francisco Fed President John Williams are due to be on a panel discussing the role of the Federal Reserve in Dallas at 12:10 pm ET.

Stocks in Focus

Campbell Soup (CPB) reported third quarter adjusted earnings that were ahead of estimates but its net sales were slightly shy of estimates. The company also lowered its full year earnings outlook.

Pfizer (PFE) sweetened its offer for AstraZeneca (AZN), which the predator termed as final and cannot be increased. The revised proposal offers for each AstraZeneca shares 1.747 shares in the combined company and 2,476 pence in cash, working out to an indicative value of 55 pounds per AstraZeneca share. Following the announcement, AstraZeneca rejected the offer on the grounds that the offer undervalues the company and its attractive prospects.

AT&T (T) announced an agreement to buy DIRECTV in a cash and stock deal valued at USD95 per share. AT&T expects the deal to be accretive on a free cash flow per share and adjusted EPS basis within the first 12 months after closing.

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Source: Alliance News

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