News Column

MARKET ANALYSIS: Markets Looking To Regain Momentum Ahead Of Yellen's Testimony

May 7, 2014

WASHINGTON (Alliance News) - The major US index futures are pointing to a higher opening on Wednesday, with sentiment suggesting a reversal after yesterday's retreat. Earlier in the global trading day, Asian stocks closed mostly lower, with risk aversion generating strong selling in Japan, Hong Kong, China and Australia. Meanwhile, European stocks have turned mixed after a weak start amid the release of mixed earnings and mostly positive economic data. The domestic markets are left to react to some domestic earnings, with video game publishers Electronic Arts and Activision and Disney reporting solid results, and testimony by Fed Chair Janet Yellen, due shortly after the markets open.

US stocks moved to the downside on Tuesday, as traders remained cautious amid the lack of any compelling catalysts. The major averages opened lower and moved sideways in early trading. Thereafter, the averages declined steadily throughout the session before closing notably lower.

The Dow Industrials ended down 129.53 points or 0.78% at 16,401, the S&P 500 Index receded 16.94 points or 0.90% before closing at 1,868 and the Nasdaq Composite closed at 4,081, down 57.30 points or 1.38%.

Twenty-seven of the thirty Dow components closed lower, with Merck (MRK), Pfizer (PFE), Nike (NKE), JP Morgan Chase (JPM), Cisco Systems (CSCO) and American Express (AXP) leading the declines.

Retail, housing, biotechnology, computer hardware and financial stocks were among the worst performers of the session.

On the economic front, the Commerce Department reported that the US trade deficit narrowed to USD40.4 billion in March from USD41.9 billion in February. Exports rose 2.1% month-over-month, rebounding from the 1.3% drop in February. At the same time, imports were up 1.1%.

The Dow Industrials settled just short of its 21-day MA (currently at 16,395) following yesterday's retreat. Though the index could be supported at this level, a lack of major trading catalysts exposes the index to the risk of a further pullback. The other support levels to watch for are the index's 50-day MA (currently at 16,357), 16,298 and its 100-day MA (currently at 16,236). On the upside, the index has resistance around 16,445, 16,503 and 16,577.

Commodity, Currency Markets

Crude oil futures are climbing USD0.73 to USD100.23 a barrel after edging up USD0.02 to USD99.50 a barrel on Tuesday. An ounce of gold is currently fetching USD1,303.40, down USD5.20 from the previous session's close of USD1,308.60. On Tuesday, gold dipped USD0.70.

Among currencies, the US dollar is trading at 101.83 yen compared to the 101.68 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at USD1.3930 compared to yesterday's USD1.3928.


The Asian markets closed mostly lower, hit by the negative lead from Wall Street overnight and the intensifying tensions between Ukraine and Russia. The Japanese market retreated sharply, as the safe haven yen rose in response in the increase in risk aversion.

Japan's Nikkei 225 index opened notably lower and moved roughly sideways thereafter. The index closed down 424.06 points or 2.93% at 14,034, its lowest level since April 14th. Re-opening after an extended weekend, the market witnessed broad based weakness, with export stocks leading the slide.

Australia's All Ordinaries ended 43.60 points or 0.80% lower at 5,419. A majority of stocks moved to the downside, led by healthcare, material and financial stocks.

Additionally, Hong Kong'sHang Seng Index closed at 21,746, down 230.07 points or 1.05%, and China's Shanghai Composite Index fell 17.95 points or 0.89% before closing at 2,010.

On the economic front, revised estimates released by Markit Economics showed that Chinese service sector growth slowed in April. The service sector purchasing managers' index eased to 51.4 in April from 51.9 in March. The HSBC composite output index came in at 49.5 in April, suggesting a contraction in private sector activity.

Meanwhile, a report released by the Australian Industry Group and the Housing Industry Association showed that the Australian construction sector continued to contract in April, with the rate of contraction worsening.

A separate report released by the Australian Bureau of Statistics showed that retail sales in Australia rose 0.1% month-over-month in March, shy of forecasts for a 0.4% increase.


European stocks have turned in a lackluster performance on the day, with the major markets currently mixed amid the release of a flurry of earnings.

In corporate news, Siemens (SI) reported first quarter earnings that were below estimates by most analysts. Dutch insurer ING also reported weak first quarter results.

Meanwhile, Alstom, which is being pursued by Siemens and General Electric (GE), reported fairly positive first quarter results and announced its plan to scrap its dividend.

Among banks, Societe Generale reported a decline in its first quarter profits, while Credit Agricole's earnings rose. Meanwhile, Commerzbank reported below consensus profits for its first quarter.

On the economic front, the German Federal Statistical Office reported that German factory orders fell 2.8% month-over-month in March, belying expectations for a 0.3% increase.

Meanwhile, German construction sector activity moved into contraction zone in April, the results of a survey by Markit showed, with the purchasing managers' index slipping 2.8 points to 49.7.

A separate report showed that the French trade deficit widened more than expected in March.

US Economic Reports

Labor productivity in the US fell by more than anticipated in the first quarter of 2014, according to a report released by the Labor Department, with a modest increase in output more than offset by continued growth in hours worked.

The Labor Department said productivity fell by 1.7% in the first quarter following a revised 2.3% increase in the fourth quarter. Economists had been expecting productivity to drop by about 1.2% compared to the 1.8% growth that had been reported for the previous quarter.

Meanwhile, the report also showed that unit labor costs surged up by 4.2% in the first quarter after edging down by 0.4% in the fourth quarter. Costs had been expected to increase by 2.8%.

At 10:30 am ET, the Energy Information Administration is scheduled to release its petroleum status report for the week ended May 2nd.

Crude oil stockpiles rose by 1.7 million barrels to 399.4 million barrels in the week ended April 25th. Inventories remained above the average range for this time of the year.

Distillate stockpiles increased by 1.9 million barrels but were below the lower limit of the average range. Additionally, gasoline inventories rose by 1.6 million barrels yet were in the lower half of the average range.

Refinery capacity utilization averaged 89.6% over the four weeks ended April 25th compared to 88.8% over the four weeks ended April 18th.

Yellen is due to testify before the Joint Economic Committee in Washington at 10 am ET.

The Treasury Department is set to announce the results of its auction of USD24 billion worth of 10-year notes at 1 pm ET.

The Federal Reserve is scheduled to release its consumer credit report for March at 3 pm ET. Economists expect outstanding consumer credit to have risen by USD15.1 billion in March.

Outstanding consumer credit increased by USD16.5 billion in February. Non-revolving credit tied to auto loans climbed by USD18.9 billion, while revolving credit tied to credit card loans fell by USD2.4 billion.

Stocks in Focus

Disney (DIS) reported better than expected second quarter results. Activision Blizzard (ATVI) also reported above consensus results for its first quarter and issued strong revenue guidance for 2014, although its earnings guidance was weak. Rival Electronic Arts' (EA) fourth quarter results also exceeded expectations, and its guidance for fiscal 2015 was strong.

Liberty Global (LBTYA) reported a loss for its first quarter, while its revenues were about in line with the consensus estimate. Allstate's (ALL) first quarter operating income per share was ahead of expectations.

AOL (AOL) reported first quarter results earnings that trailed estimates, while its revenues were ahead of estimates.

Humana (HUM) reported better than expected first quarter results and raised its 2014 revenue guidance.

Papa John's (PZZA) reported first quarter earnings that trailed expectations, while its revenues were ahead of estimates. The company reaffirmed its 2014 guidance.

Marathon Oil's (MRO) first quarter results were better than expected. FMC Corp. (FMC) also reported first quarter earnings and revenues that beat estimates. The company also reaffirmed its 2014 earnings guidance.

Microchip Technology (MCHP) reported fourth quarter results that were ahead of expectations and issued upbeat guidance for the first quarter.

On the other hand, Groupon (GRPN) offered weak guidance for its second quarter despite reporting better than expected first quarter results.

Cimarex (XEC) announced an agreement to buy oil and gas assets primarily in the Cana-Woodford shale pay in Western Oklahoma for USD497.4 million in cash. The company also agreed to sell a 50% stake in these assets to Devon Energy (DVN) for USD248.7 million.

Avis Budget (CAR), (CTRP), Dynegy (DYN), Expeditors International (EXPD), Hain Celestial (HAIN), Protective Life (PL), Prudential (PRU) and tw Telecom (TWTC) 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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