News Column

MARKET ANALYSIS: Sentiment Weak As Uncertainty Stifles Momentum

June 27, 2014



WASHINGTON (Alliance News) - The major US index futures are pointing to a lower opening on Friday, with sentiment leaning towards negativity, as traders await more trading cues. Earnings reports that the markets got to digest were mixed, with DuPont lowering its outlook, while Nike and KB Home reported better than expected results. Across the Atlantic, European stocks are also seeing nervousness as the EU leaders meet to elect the next president for the European Commission. The domestic markets may also focus on a consumer sentiment report due to be released shortly after the markets open.

US stocks declined on Thursday amid the release of economic data on jobless claims and consumer spending. The major averages opened little changed but dipped sharply in early trading in reaction to the data. However, the averages recouped most of their losses over the course of the session and yet closed modestly lower.

The Dow Industrials ended down 21.38 points or 0.13% at 16,846, the S&P 500 Index closed 2.31 points or 0.12% lower at 1,957 and the Nasdaq Composite ended at 4,379, down 0.71 points or 0.02%.

Twenty-two of the thirty Dow components closed lower and one stock ended unchanged, while the remaining seven stocks advanced. Wal-Mart Stores (WMT) and Procter & Gamble (PG) were among the worst performers of the session.

On the economic front, the Commerce Department reported that personal spending rose 0.2% month-over-month in May, slower than the 0.4% increase expected by economists. At the same time, personal income was up 0.4%, in line with estimates. Spending growth was fueled by motor vehicles/parts, while spending on non-durable goods and services were down. The personal savings rate was up at 4.8% compared to 4.5% in April, the highest rate since September 2013. The core PCE inflation deflator was at 1.5%, the highest since February 2013.

The Labor Department reported that jobless claims rose 2,000 to 312,000 in the week ended June 21st. The four-week average was up 2,000 to 314,000. Meanwhile, continuing claims calculated with a week's lag fell by 12,000 to 2.57 million in the week ended June 14th.

The Dow Industrials pulled back towards its 21-day MA (currently at 16,831) yesterday, with the level likely to offer near term support for the index. However, if the 21-day MA is violated to the downside, the index also has support around 16,800, 16,731, 16,688 and its 50-day MA (currently at 16,427). On the upside, the index has resistance around 16,927 and 16,980.

Commodity, Currency Markets Crude oil futures are rising USD0.28 to USD106.12 a barrel after declining USD0.66 to USD105.84 a barrel on Thursday. Meanwhile, gold futures are adding USD0.90 to USD1,317.90 an ounce. In the previous session, gold fell USD5.60 to USD1,317 an ounce. Among currencies, the US dollar is trading at 101.38 yen compared to the 101.73 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at USD1.3625 compared to yesterday's USD1.3612.

Asia

Most Asian markets declined, dragged lower by the negative lead from Wall Street overnight. Hawkish comments by a Fed official concerning an early rate hike were also weighing in the minds of investors even as mixed economic data failed to give a clear picture concerning the economic recovery in the US

The Japanese market fell sharply, as the yen remained firm. The Nikkei 225 average opened slightly lower and declined steadily in the morning before seeing a sharp decline in late afternoon trading. Thereafter, the average moved roughly sideways before closing down 213.49 points or 1.39% at 15,095. A majority of stocks moved to the downside, led by Toyobo, Okuma, Nitto Boseki, NH Foods and Toho Zinc.

After holding mostly above the unchanged till early afternoon trading, Australia's All Ordinaries declined steadily before moving roughly sideways in late trading. At the close of trading, the index was down 17.70 points or 0.32% at 5,429. Most sectors saw modest strength, with the exception of energy, telecom and real estate stocks.

China's Shanghai Composite Index ended at 2,037, down 2.17 points or 0.11%. Meanwhile, Hong Kong'sHang Seng Index traded below the unchanged line for much of the session but inched up in the final few minutes of trading, closing up 23.69 points or 0.10% at 23,222.

On the economic front, a report released Japan'sMinistry of Internal Affairs and Communications showed that core annual inflation in the UK accelerated to 3.4% in May from 3.2% in April. The rate was in line with expectations. Core annual inflation in the Tokyo region considered a leading indicator for the whole of Japan remained at 2.8% in June, also in line with estimates. A separate report showed that the average household spending in Japan declined 8% year-over-year in May, steeper than the 2.1% drop expected by economists. Meanwhile, the jobless rate in Japan eased 0.1 points to 3.5%.

The Japanese Ministry of Economy, Trade and Industry reported that retail sales fell 0.4% month-over-month in May, not as worse as the 2% drop expected by economists.

China'sNational Bureau of Statistics reported that industrial profits in China rose 8.9% in May, slower than the 0.6% increase in April.

Europe

After seeing some volatility in early trading, European stocks moved higher in late morning trading. However, by the mid-session, the stocks in the region gave back much of their gains and yet are holding above the unchanged line. EU leaders are meeting in Brussels to discuss the candidature of Jean-Claude Juncker as the president of the European Commission. The leaders are also scheduled to discuss the developments in Ukraine.

On the economic front, the results of a survey by Hometrack showed that UK house prices rose 0.3% month-over-month in June compared to the 0.5% increase in May, the slowest rate of growth since June 2014. The results of GfK's consumer confidence survey for the UK showed an improvement in confidence of the UK consumers. The consumer confidence index rose 1 point to 1 in June, although it was lesser than the consensus forecast for a reading of 2.

A report released by the German Federal Statistical Office showed that import prices fell 2.1% year-over-year following a 2.4% drop in April. Economists expected a 2.2% drop. On a monthly basis, import prices were unchanged. At the same time, export prices fell 0.6% year-over-year.

French statistical office INSEE confirmed the stagnant economic performance for its first quarter following a 0.2% increase in the fourth quarter. A separate report showed that French producer prices continued to drop in May. Another report showed that household spending in France rose a better than expected 1% month-over-month in May, boosted by higher spending on energy products.

UK's first quarter sequential GDP growth was confirmed at 0.8%, according to revised estimates released by the UK Office for National Statistics. The year-over-year growth was downwardly revised to 3% from 3.1%.

US Economic Reports

Reuter and the University of Michigan are scheduled to release their final consumer sentiment reading for June at 9:55 am ET. Economists expect the index to be upwardly revised to 81.9 from 81.2 in May.

Stocks in Focus

Nike (NKE) reported fourth quarter earnings from continuing operations of USD7.4 billion, up 3% year-over-year/ Revenues from continuing operations climbed 11% to USD7.4 billion. The results exceeded estimates. The company also noted that worldwide futures orders at the end of the quarter were up 11% year-over-year.

KB Home (KBH) reported better than expected second quarter results. Finish Line (FINL) also reported better than expected first quarter results.

DuPont (DD) lowered its operating earnings per share guidance for the second quarter and the full year, citing lower than expected quarterly performance of its agriculture and to a less extent, performance chemicals segment. The company now expects operating earnings to be below the USD1.28 per share recorded in the year-ago period. The company also downwardly revised its full year operating earnings per share guidance to USD4 to USD4.10. The guidance trailed expectations.

Progress Software (PRGS) reported second quarter non-GAAP earnings from continuing operations of 37 cents per share, higher than 27 cents per share last year. Revenues from continuing operations eased to USD80.8 million from USD81.7 million last year. For the full year, the company expects non-GAAP earnings of USD1.38-USD1.45 per share on revenues of USD331 million to USD338 million. The results exceeded estimates and the guidance was positive.

Citrix Systems (CTXS) announced that its President and CEO Mark Templeton will not retire next year, as previously announced. The company also said Robert Calderoni will join the company's board, effective immediately.

Liberty Global (LBTYA) announced a recommended public offer for all issued and outstanding shares of Dutch cable operator Ziggo it does not own already in a cash and stock deal. Each of Ziggo shareholders will receive 11euro per share in cash, 0.2282 Liberty Class A ordinary share and 0.5630 Liberty Class C ordinary shares for each share Ziggo share they hold.

Amsurg (AMSG) announced that it has priced its concurrent public offerings of 8.50 million shares of its common stock at USD45 per share and 1.50 million shares of its 5.250% mandatory convertible preferred stock series A-1 at USD100 per share.

United Technologies (UTX) announced that its Sikorsky unit has been awarded a US Air Force contract to develop new combat search and rescue helicopters for an estimated USD1.28 billion. The company also noted that the contract is the first step in the eventual production of up to 112 aircraft with a potential value of about USD7.9 billion.

Expedia (EXPE) announced an agreement to buy European online car rental reservation company AutoEscape. While stating that the deal is expected to close during the third quarter, Expedia did not disclose additional terms.



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Source: Alliance News


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