News Column

MARKET ANALYSIS: Markets On Consolidation Mode Amid Valuation Concerns

May 6, 2014

WASHINGTON (Alliance News) - The major US index futures are pointing to a modestly lower opening on Tuesday, with sentiment reflecting nervousness of traders amid valuation concerns Global cues are mixed, with Asian stocks closing mostly higher, while the European markets are trading lower. The trade balance report, which showed a narrower than expected deficit for March, is unlikely to have much of an impact on the markets. With no compelling catalysts, the markets could go about on a consolidation mode

US stocks ended Monday's session modestly higher, helped by some positive domestic economic data. The major averages opened lower but pared their losses over the course of the morning trading. After moving above the unchanged line by the early afternoon, the averages moved about in a nervous manner until late afternoon trading. Thereafter, the averages advanced till late trading before moving sideways and closing higher.

The Dow Industrials ended up 17.66 points or 0.11% at 16,531, the S&P 500 Index added 3.52 points or 0.19% before closing at 1,885 and the Nasdaq Composite ended at 4,138, up 14.16 points or 0.34%.

Sixteen of the thirty Dow components closed higher, with Boeing (BA), Disney (DIS) and Visa (V) leading the gains. On the other hand, Pfizer (PFE), JP Morgan Chase (JPM) and Goldman Sachs (GS) declined notably.

Biotechnology stocks were among the best performers of the session, while most of the other major sectors showed only modest moves.

On the economic front, the results of the Institute for Supply Management's service sector survey showed that its non-manufacturing index rose to 55.2 in April from 53.1 in March, reaching the best reading since August 2013. The new orders index climbed 5 points to 58.2, while the index measuring order backlogs fell 2.5 points to 49 and the employment index slipped 2.3 points to 51.3. Of the 18 industries surveyed, 14 reported growth.

Markit's survey showed that its index of service sector activity edged down to 55 in April from 55.3 in March, although it was higher than the mid-month reading of 54.2.

Defying the overbought levels, traders bought into stocks on Monday, with the Dow Industrials climbing above a key resistance. With today's second-tier data, the markets may face difficulty building on the momentum. On the downside, the index has support around 16,506, 16,481, 16,449, 16,413, its 21-day MA (currently at 16,396) and its 50-day MA (currently at 16,353). On the upside, the index has resistance around 16,568, 16,589 and 16,629.

Commodity, Currency Markets

Crude oil futures are rising USD0.12 to USD99.60 a barrel after rising USD0.28 to USD99.48 a barrel on Monday. Gold futures are sliding USD1 to USD1,308.30 an ounce. On Monday, gold climbed USD6.40 to USD1,309.30 an ounce.

Among currencies, the US dollar is trading at 101.56 yen compared to the 102.14 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is trading at USD1.3945 compared to yesterday's USD1.375.


Most Asian markets that were open for trading closed higher for the session, encouraged by the positive lead from Wall Street overnight. The Japanese, Hong Kong and South Korean markets remained closed for public holidays.

Australia's All Ordinaries held above the unchanged line throughout the session although there was a loss of momentum in the mid-session amid the Reserve Bank of Australia's monetary policy announcement. The index ended up 19.30 points or 0.35% at 5,463. The market witnessed broad based strength, although real estate stocks lost some ground.

China's Shanghai Composite Index closed 0.68 points or 0.03% higher at 2,028, while New Zealand's NZ50 Index retreated moderately.

On the economic front, the Reserve Bank of Australia left its key interest rate unchanged at a record low 2.5%, reasoning that the current monetary policy is appropriately configured to boost demand growth and keep inflation within the target. The Australian Bureau of Statistics reported that Australia's trade surplus declined to AUD731 million in March from AUD1.257 billion in February, as exports fell and imports remained unchanged.


After opening higher, European stocks have pulled back in late morning trading and are currently trading lower amid the release of private sector activity data and domestic earnings.

In corporate news, Swiss investment bank UBS (UBS) reported 7% profit growth for its first quarter. German automaker BMW reported better than expected first quarter results and confirmed its outlook for 2014. Lufthansa reported a narrower loss for its first quarter, and tire maker Continental reported higher first quarter profits.

Meanwhile, Lafarge said its earnings were hurt by winter weather in the US and adverse currency impact. Barclay's (BCS) first quarter earnings trailed estimates, and Fresenius' first quarter profit was also below expectations

On the economic front, final estimates released by Markit Economics showed that the euro area's private sector expanded at a faster rate in April. The composite purchasing managers' index rose 0.9 points to 54, in line with the flash estimate. The service sector PMI was also unchanged from the flash estimate at 53.1.

Meanwhile, growth in service sector activity in the UK accelerated in April, according to the results of a survey by Markit and the CIPS. The relevant purchasing managers' index rose 1.1 points to 58.7, ahead of the consensus estimate of 57.8.

US Economic Reports

With the value of exports rebounding after showing a notable decrease in the previous month, the Commerce Department released a report showing that the US trade deficit narrowed by slightly more than expected in the month of March.

The report showed that the trade deficit narrowed to USD40.4 billion in March from a revised USD41.9 billion in February. Economists had expected a deficit of USD40.5 billion compared to the USD42.3 billion deficit originally reported for the previous month.

The Treasury Department is scheduled to release the results of its auction of USD29 billion worth of 3-year notes at 1 pm ET.

Federal Reserve Governor Jeremy Stein is scheduled to speak in New York at 6:15 pm ET.

Stocks in Focus

Merck (MRK) announced a deal to sell its consumer care business to Bayer for USD14.2 billion. In a related transaction, Merck and Bayer also agreed to enter into a strategic pharma collaboration to market and develop novel therapies for cardiovascular diseases with a focus on soluble guanylate cyclase or sGC modulation. For this, Bayer will receive a USD1 billion up-front payment with the potential for additional milestone payments.

Office Depot's (ODP) first quarter adjusted earnings were in line and its revenues exceeded expectations. The company raised its operating profit outlook for 2014.

Discovery Communications (DISCA) reported better than expected first quarter earnings, while its revenues were slightly shy of estimates. The company confirmed its outlook for 2014.

AIG (AIG) reported a decline in its first quarter earnings, but its adjusted earnings were ahead of estimates.

Anadarko Petroleum (APC) reported better than expected first quarter earnings and its revenues rose 50% to USD5.84 billion. The company raised the mid-point of its full year sales volume guidance by 3.5 million barrels of oil equivalent.

Vornado (VNO) reported higher adjusted funds from operations per share for its first quarter, while its revenues trailed expectations.

Baxter (BAX) announced a 6% increase in its quarterly dividend to 52 cents per share.

Thor Industries (THO) announced preliminary third quarter sales from continuing operations of USD1.05 billion, up 13% year-over-year but below the consensus estimate. The forecasted shortfall was blamed on several factors, including severe winter weather.

Trinity Industries (TRN) announced a 2-for-1 stock split and a 33% increase in its quarterly dividend.

Activision Blizzard (ATVI), Allstate (ALL), Community Health (CYH), DDR (DDR), Electronic Arts (EA), Extreme Networks (EXTR), First Solar (FSLR), FMC Corp. (FMC), Groupon (GRPN), Liberty Global (LBTYA), Live Nation (LYV), Marathon Oil (MRO), Microchip (MCHP), Papa John's (PZZA), Pioneer Natural Resources (PXD), Sotheby's (BID), Spansion (CODE), TripAdvisor (TRIP), Whole Foods (WFM) and Disney (DIS) are among the companies due to release their quarterly results after the close of trading.

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Source: Alliance News

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