News Column

MARKET ANALYSIS: Disappointing Spending Data May Weigh On The Markets

May 30, 2014



WASHINGTON (Alliance News) - The major US index futures are currently pointing to a modestly lower opening on Friday following the release of a report showing an unexpected drop in personal spending in the month of April. While most economists are likely to continue to expect a rebound in economic activity in the second quarter, the data may still lead to some trepidation after yesterday's report showing a contraction in first quarter GDP.

Stocks moved mostly higher over the course of the trading day on Thursday, more than offsetting the modest weakness seen in the previous session. With the gains on the day, the S&P 500 reached another new record closing high.

The major averages saw further upside going into the close, ending the session at their best levels of the day. The Dow rose 65.56 points or 0.4% to 16,698.74, the Nasdaq climbed 22.87 points or 0.5% to 4,247.95 and the S&P 500 advanced 10.25 points or 0.5% to 1,920.03.

The strength on Wall Street partly reflected a positive reaction to a mixed batch of economic data, including a report from the Labor Department showing a bigger than expected drop in initial jobless claims.

The report said initial jobless claims fell to 300,000 in the week ended May 24th, a decrease of 27,000 from the previous week's revised level of 327,000. Economists had been expecting jobless claims to dip to 317,000.

Meanwhile, revised data from the Commerce Department showed that GDP fell by 1.0% in the first quarter compared to the initial estimate for a 0.1% uptick. The drop marked the first contraction in GDP since the first quarter of 2011 and was steeper than the 0.5% drop expected by economists.

While a majority of the major sectors moved higher on the day, most finished the session showing relatively modest moves. Tobacco, oil service, chemical, software, and internet stocks saw some strength on the day.

Commodities, Currency Markets

Crude oil futures are falling USD0.70 to USD102.88 a barrel after climbing USD0.86 to USD103.58 a barrel on Thursday. Gold futures are sliding USD3.10 to USD1,254 an ounce. In the previous session, gold dipped USD2.60 to USD1,257.10 an ounce.

Among currencies, the US dollar is trading at 101.68 yen compared to the 101.79 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at USD1.3617 compared to yesterday's USD1.3602.

Asia

Asian stocks moved mostly lower on Friday following the disappointing US GDP data. Investors were also looking ahead to official Chinese manufacturing data slated for release over the weekend as well as next Thursday's monetary policy meeting at the European Central Bank.

Japanese shares ended slightly lower, snapping a six-day winning streak as investors locked in some profits. The Nikkei 225 Index turned lower after seeing initial strength, ending the day down 49.34 points or 0.3% at 14,632.38.

Brokerage and pulp and paper stocks led the way lower. Heavyweight Fast Retailing dropped 1.3% and Fanuc shed 0.9%, while SoftBank advanced 1.5%.

Official figures showed Japanese consumer prices rose at their fastest pace in 23 years in April, diminishing chances for further easing by the Bank of Japan. Nationwide core inflation rose 3.2% from a year earlier, beating forecasts and up sharply from 1.3% in the previous month.

The Japanese jobless rate came in at a seasonally adjusted 3.6% in April, unchanged from the previous month and in line with expectations, while industrial output fell more than expected in April.

Australian shares fell as an extended sell-off in iron ore prices hurt miners. The All Ordinaries Index slid 25.40 points or 0.5% to 5,473.80. Mining giants BHP Billiton and Rio Tinto dropped about 1.3% each.

In economic news, total private sector credit in Australia grew 0.5% in April from the previous month, central bank data showed. That beat expectations for a 0.4% rise.

China's Shanghai Composite Index also edged down 1.38 points or 0.1% to 2,039.21, as investors adopted a cautious stance ahead of a long weekend.

On the other hand, Hong Kong'sHang Seng Index bucked the downtrend and rose 71.51 points or 0.3% to 23,081.65, led by gains by property developers.

Europe

The major European markets have moved to the downside on the day. While the German DAX Index is just below the unchanged line, the UK'sFTSE 100 Index and the French CAC 40 Index are down by 0.2% and 0.4%, respectively.

In corporate news, BNP Paribas has come under pressure amid reports that the US is seeking USD10 billion to settle some investigations. Fenner is also posting a steep loss after warning of a full year pre-tax profit sharply below market expectations.

Bucking the downtrend trend, Smith & Nephew is seeing further upside amid talks of an acquisition offer from US-based Stryker (SYK).

On the economic front, German retail sales unexpectedly fell in April after rising for three consecutive months, Destatis said. Retail sales in April declined by 0.9% from March, when sales edged up by 0.1%. Sales were expected to rise 0.2%.

US Economic Reports

The Commerce Department recently released a report showing that US personal income rose in line with economist estimates in the month of April, although the report also showed an unexpected drop in personal spending for the month.

The report showed that personal income rose by 0.3% in April following a 0.5% increase in March. The increase marked the fourth straight month of growth and matched expectations.

On the other hand, the Commerce Department said personal spending edged down by 0.1% in April after surging up by 1.0% in March. The modest decrease surprised economists, who had expected spending to rise by 0.2%.

At 9:45 am ET, MNI Indicators is scheduled to release its report on Chicago-area business activity in the month of May. The business barometer is expected to dip to 61.0, although a reading above 50 would indicate continued growth.

MNI Indicators said the Chicago business barometer surged up to 63.0 in April from 55.9 in March. Economists had been expecting the barometer to climb to a reading of 57.0.

With the much bigger than expected increase, the business barometer bounced well off the seven-month low set in March to reach its highest level since last October.

Thomson Reuters and the University of Michigan are also scheduled to release their revised report on consumer sentiment in May at 9:55 am ET.

The consumer sentiment index for May is expected to be upwardly revised to 82.5 from the mid-month reading of 81.8, which was down from 84.1 in April.

Additionally, incoming Cleveland Federal Reserve Bank President Loretta Mester is scheduled to speak at a conference on inflation and monetary policy in Cleveland at 12:30 pm ET.

Richmond Fed President Jeffrey Lacker is also due to discuss a paper on lender of last resort in Stanford, California at 2 pm ET, while Philadelphia Fed President Charles Plosser and San Francisco Fed President John Williams will appear on a panel on monetary policy at 5 pm ET.

Stocks in Focus

Shares of Big Lots (BIG) are likely to see early strength after the closeout retailer reported better than expected first quarter earnings. The company also raised its full-year earnings outlook.

Meanwhile, teen apparel retailer Pacific Sunwear (PSUN) is likely to come under pressure after the company reported a narrower than expected first quarter loss but provided disappointing guidance.

Shares of Express (EXPR) are also likely to see early weakness after the apparel retailer reported weaker than expected first quarter earnings and forecast second quarter earnings below analyst estimates.



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Source: Alliance News


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