News Column

MARKET ANALYSIS: Markets Continue To Relish Positive Economic Tidings

May 27, 2014



WASHINGTON (Alliance News) - The major US index futures are pointing to a higher opening on Tuesday, with sentiment suggesting that the markets may build on their recent momentum, as economic data continues to be supportive. An economic report released earlier in the day showed that durable goods orders rose unexpectedly and there were substantial upward revisions to the March data. The results of a house price survey also came in better than expected, vouching for the strength of recovery in the housing market. The markets may also focus on the results of two separate surveys on service sector and consumer confidence. That said, recent gains may make traders wary of any further upside and introduce caution.

US stocks advanced in the week ended May 23rd following the mixed performance in the previous week. Solid economic data and earnings helped the markets overcome valuation fears, with the S&P 500 Index ending the week at a record high.

Last Monday, the major averages received support from M&A news and ended the session higher. Amid a lack of any major trading cues, uncertainty returned to the markets on Tuesday, sending the averages moderately lower.

The markets rebounded on Wednesday, with the dovish FOMC minutes providing motivation for traders to remain invested in stocks. The averages all ended the session notably higher. The averages extended their gains on Thursday, thanks to fairly positive economic data and retail earnings. Notwithstanding valuation concerns, stocks advanced on Friday, with positive economic data and earnings once again offering encouragement to traders.

For the week ended May 23rd, the Dow Industrials and the S&P 500 Index added 0.70% and 1.21%, respectively, while the Nasdaq Composite Index jumped 2.33%.

The Dow Industrials moved up to a resistance around 16,630 but closed shy of the level. If the level is broken to the upside, the index has another resistance around 16,714. On the downside, the index has support around 16,573, its 21-day MA (currently around 16,529), 16,453 and its 50-day MA (currently at 16,421).

Among the major sectors, the NYSE Arca Airline Index rallied 3.76% for the week, and the Philadelphia Semiconductor Index, the NYSE Arca Broker/Dealer Index and the Philadelphia Housing Sector Index all rose over 2%.

Commodity, Currency Markets

Crude oil futures are slipping USD0.14 to USD104.21 a barrel after advancing USD2.33 or 2.28% to USD104.35 a barrel in the week ended May 23rd.

Last Monday, oil rose moderately amid the equity market strength. However, the commodity dipped modestly on Tuesday before rallying close to USD1.75-a-barrel on Wednesday in the wake of dollar's weakness in reaction to the FOMC minutes.

After pulling back modestly on Thursday despite solid economic data, the commodity rebounded moderately on Friday, helped by positive new home sales data.

Gold futures, which fell USD1.70 or 0.13% to USD1,291.70 an ounce last week, are currently sliding USD15 to USD1,276.70 an ounce.

In the currency market, the dollar finished the week ended May 23rd mostly higher despite the dovish overtone of the Fed minutes. The greenback derived strength from solid domestic data, which helped the currency gain 0.35% against the euro to USD1.3646 and 0.43% against the yen to 101.94 yen.

The US dollar is currently trading at 101.95 yen and is valued at USD1.3640 versus the euro.

Asia

The major Asian markets closed mixed, with the Japanese, Australian, Malaysian and Taiwanese markets advancing modestly, while the rest of the major markets in the region moved to the downside. The mood was cautious against the backdrop of an intensification of tensions between China and Vietnam even as traders were hoping that the European Central Bank would ease monetary policy further.

Japan'sNikkei 225 Index opened lower but rose sharply in early trading. After moving roughly sideways for much of the remainder of the session, the index gave back some of its gains yet closed up 34 points or 0.23% at 14,637, its highest closing level since April 7th. While the yen's strength negatively impacted export stocks, construction, resource, financial, real estate, telecom, utility and pharma stocks supported the index.

Australia's All Ordinaries moved about in a volatile manner, although holding mostly above the unchanged before closing up 0.40 points or 0.01% at 5,491. Consumer staple, energy and material stocks saw modest strength, while financial, utility, consumer discretionary and telecom stocks came under selling pressure.

Meanwhile, Hong Kong'sHang Seng Index ended down 18.88 points or 0.08% at 22,944, and China's Shanghai Composite Index closed at 2,035, down 6.91 points or 0.34%.

On the economic front, corporate service prices in Japan were up 3.4% year-over-year in April, the Bank of Japan said. This follows the 0.7% increase in March. On a monthly basis, corporate service prices jumped 2.4% after rising 0.7% in the previous month.

Europe

European stocks are currently mixed, with the French CAC 40 Index trading lower amid some volatility, while the German market is advancing after some early weakness. The UK market, which was closed yesterday, is playing catch up to yesterday's gains in the region, with the FTSE 100 Index currently moderately higher.

In corporate news, Lloyds Bank announced that it will offload 25% of its stake in TSB through a public offering and also stated that it would sell the remainder of its stake before the end of 2015.

US Economic Reports

The holiday-shortened week has some key data releases that could provide additional clarity regarding the economic outlook. The Commerce Department's durable goods orders report for April, the results of consumer sentiment surveys by the Conference Board and Reuters and the University of Michigan, the jobless claims report, the National Association of Realtors' pending home sales index for April, the results of MNI Indicators' manufacturing survey for the Chicago region and the Commerce Department's personal income and spending report for April are among the closely tracked reports of the unfolding week.

The results of March house price surveys by the Federal House Finance Agency and S&P/Case-Shiller, the results of Markit's preliminary US service sector survey for May, the preliminary first quarter GDP report, some Fed speeches, the results of a couple of regional manufacturing surveys and the results of Treasury auctions of 2-year, 5-year and 7-year notes round up the economic events of the week.

New orders for US manufactured durable goods unexpectedly saw continued growth in the month of April, according to a report released by the Commerce Department on Tuesday, with orders rising for the third consecutive month. The report said durable goods orders increased by 0.8% in April after surging up by an upwardly revised 3.6% in March.

The continued growth came as a surprise to economists, who had expected orders to drop by 0.7% compared to the 2.9 jump that had been reported for the previous month. Excluding an increase in orders for transportation equipment, durable goods orders edged up by a more modest 0.1% in April.

The Federal House Finance Agency is scheduled to release the results of its house price survey for March at 9 am ET. The consensus estimate calls for a seasonally adjusted 0.5% month-over-month increase in the index following a 0.6% increase in February.

The results of S&P/Case-Shiller house price survey for March showed that the 20-city house price index based on the survey rose a better than expected 0.9% month-over-month, faster than the 0.7% increase expected by economists.

The flash estimate of Markit's service sector for the US is expected to show an increase in the service sector purchasing managers index to 55.4 in May from 54.2 in April. The report is due at 9:45 am ET.

The Conference Board is scheduled to release the results of its consumer confidence survey at 10 am ET. Economists expect the headline index to increase to 83 in May from 82.3 in April.

The consumer confidence index fell to 82.3 in April from 83.9 in March, with the weakness stemming from a less favorable assessment of current conditions. The present situation index slipped to 78.3 from 82.5, while the expectations index edged up 0.1 points to 84.9.

Also at 10 am ET, the Richmond Federal Reserve is due to release its manufacturing index for May. The index is expected to rise 2 points to 9. Half an hour later, the Dallas Federal Reserve will release the results of its Texas manufacturing survey for May. The index is expected to slip to 9.6 from 11.7 in April

Atlanta Federal Reserve Bank President Dennis Lockhart will speak at Louisiana State University in Baton Rouge at 8:10 pm ET.

Stocks in Focus

Pfizer announced on Monday that it does not intend to make another offer for AstraZeneca (AZN) after the latter's board rejected its final merger proposal on May 18th.

AutoZone (AZO) reported third quarter earnings that beat estimates by a penny and its revenues met expectations.



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Source: Alliance News


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