News Column

MARKET ANALYSIS: Overbought Fears Linger Amid Geopolitical Risks, Economic Uncertainty

June 13, 2014

WASHINGTON (Alliance News) - The major US index futures are pointing to a narrowly mixed opening on Friday, with sentiment suggesting that the markets are still nervous over the overbought levels. The geopolitical concerns surrounding the political unrest in Iraq and uncertainty surrounding the economic outlook could constrain any rebound even as the markets are likely to take some cues from the consumer sentiment data due to be released shortly after the markets open. Intel's positive outlook could give the markets a reason to cheer.

US stocks extended their slide on Thursday amid the release of lukewarm economic data. The major averages opened lower and declined steadily in early trading. After recouping some of the losses by early afternoon trading, the averages declined yet again throughout the remainder of the session before closing notably lower.

The Dow Industrials ended down 109.69 points or 0.65% at 16,734, the S&P 500 Index closed 13.78 points or 0.71% lower at 1,930 and the Nasdaq Composite Index ended at 4,298, down 34.30 points or 0.79%.

Twenty-four of the thirty Dow components closed lower, while the remaining six stocks advanced. Caterpillar (CAT), Cisco Systems (CSCO), Disney (DIS) and Home Depot (HD) were among the biggest decliners of the session.

Transportation stocks pulled back sharply, hurt by a jump by the price of crude oil, while basic material, computer hardware and retail stocks also saw weakness. On the other hand, gold stocks rallied strongly.

On the economic front, the Commerce Department reported that retail sales rose 0.3% month-over-month in May compared to expectations for a 0.6% increase. However, the previous month's increase was upwardly revised by 0.4 %age points. Retail sales, excluding gasoline, building material and autos, were unchanged. Department store, clothing, sporting goods, restaurant and electronic store sales declined, while auto sales remained strong. The rate of increase in furniture store sales slowed.

The Labor Department reported that initial claims for unemployment benefits rose to 317,000 in the week ended June 7th from 313,000 in the previous week. The four-week average also rose to 315,250 from 310,500. Continuing claims calculated with a week's lag rose by 11,000 in the week ended May 31st.

The Commerce Department said business inventories rose 0.6% month-over-month in April and climbed 5% from a year ago. At the same time, business sales rose 0.7% month-over-month and by 5.4% year-over-year. The business inventories to sales ratio came in at 1.29 in April compared to 1.30 a year ago.

The Dow Industrials saw a small correction in the past two sessions after its untiring rally toward record closing highs. If the index stems the slide and reverses course, it could target upside resistances around 16,838 and 16,941. On the downside, the index has support around 16,712, 16,674 and 16.636.

Commodity, Currency Markets

Crude oil futures are rising USD0.29 to USD106.82 a barrel after jumping USD2.13 to USD106.53 a barrel on Thursday. Meanwhile, gold futures are slipping USD0.20 to USD1,273.80 an ounce. In the previous session, gold climbed USD12.80 to USD1,274 an ounce.

Among currencies, the US dollar is trading at 10.98 yen compared to the 101.70 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at USD1.3540 compared to yesterday's USD1.3552.


The major Asian markets closed mixed, as traders reacted to the negative lead from Wall Street, the Bank of Japan's monetary policy announcement, a slew of data from China and upbeat guidance from Intel.

The Japanese market advanced, taking cues from a weaker yen, which reacted to an unchanged monetary policy stance by the Bank of Japan. The Nikkei 225 average opened lower and traded sideways below the unchanged line. Following the monetary policy announcement, the index recovered in late treading and advanced thereafter, ending up 124.31 points or 0.83% at 15,098.

Export, resource and banking stocks advanced, while insurance, real estate, rail, utilities and construction machinery makers came under selling pressure.

Australia's All Ordinaries languished below the unchanged line throughout the session before closing down 24.20 points or 0.45% at 5,384. A majority of stocks declined, although energy stocks received strong support from rallying oil prices.

Hong Kong'sHang Seng Index ended at 23,319, up 144.15 points or 0.62%, and China's Shanghai Composite Index added 19 points or 0.93% before closing at 2,071.

On the economic front, the Bank of Japan announced that it is maintaining its monetary policy unchanged, while it raised its assessment of growth in overseas economies. The bank left its target of raising the monetary base at a pace of 60-70 trillion yen unchanged.

A report released by Japan'sMinistry of Economy, Trade and Industry showed that industrial output in Japan declined 2.8% month-over-month in April, a faster rate of decline than the preliminary estimate of a 2.5% fall. In March, production had risen 0.7%. On a year-over-year basis, industrial output rose by a revised 3.8%, down from the preliminary estimate of a 4.1% increase.

A trio of reports released by the Chinese National Bureau of Statistics showed that economic momentum in China is still intact. Industrial output rose 8.8% year-over-year in May following an 8.7% increase in April. The increase was in line with estimates. Retail sales growth of 12.5% exceeded expectations for a 12.1% increase, while fixed asset investment in the January-May period rose 17.2%, in line with estimates.


European stocks opened lower and have seen further downside since then.

On the economic front, final estimates released by the Federal Statistical Office of Germany showed that consumer prices rose 0.9% year-over-year, in line with estimates, marking the slowest increase since June 2010. The HICP annual inflation was at 0.6%, the slowest increase since February 2010.

US Economic Reports Partly reflecting a notable decrease in prices for trade services, the Labor Department released a report on Friday showing an unexpected decrease in US producer prices in the month of May.

The Labor Department said its producer price index for final demand dipped by 0.2% in May after climbing by 0.6% in April. The modest decrease by the index came as a surprise to economists, who had expected prices to inch up by 0.1%.

Excluding food and energy prices, core producer prices edged down by 0.1% in May following a 0.5% increase in April. Economists had expected core prices to tick up by 0.1%.

Reuters and the University of Michigan are due to release the preliminary estimate of their consumer sentiment index for June at 9:55 am ET. The consumer sentiment index is expected to increase to 83 from 81.9 in May.

Stocks in Focus

Intel (INTC) raised its second quarter guidance, citing stronger than expected demand for business PCs. The company now expects second quarter revenues to be at USD13.7 billion, plus or minus USD300 million, up from its previous guidance of USD13 billion, plus or minus USD500 million. The company also lifted its gross margin guidance. For the year, the company now expects some revenue growth compared to its previous estimate for flat revenues.

C.R. Bard (BCR) announced that the FDA Circulatory, System Devices Advisory Panel provided a unanimous favorable recommendation to the FDA for the use of Lutonix drug coated balloon PTA Catheter in the US The company noted that the FDA will consider the recommendation in its review of the PMA application submitted in November 2013.

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Source: Alliance News

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