News Column

MARKET ANALYSIS: Momentum Falters Amid Absence Of Catalysts

June 3, 2014



WASHINGTON (Alliance News) - The major US index futures are pointing to a lower opening on Tuesday, with sentiment suggesting a let up in momentum after resiliently holding up yesterday. The record run of the Dow Industrials and the S&P 500 Index is likely to make traders wary of any further upside. Notwithstanding rate cut hopes rising following the release of tamer eurozone inflation data, European stocks are seeing lackluster sentiment. With the factory orders report being the lone economic report scheduled for the day, the domestic markets may show a lack of direction, although the momentum could still help to curtail the losses.

US stocks closed Monday's session mostly higher after a volatile morning triggered by the release of an erroneous manufacturing reading. The major averages opened higher but pulled back sharply in early trading following the release of the Institute for Supply Management's initially disappointing manufacturing data. However, once the correction to the erroneous figure was announced, the indexes pared their losses.

The Dow Industrials and the S&P 500 Index rose above the unchanged line in the mid-session, with the Dow trading sideways modestly above the unchanged line before closing at another record high of 16,744, up 26.46 points or 0.16%. The S&P 500 Index showed volatility, moving in and out of the positive territory a few times before closing up 1.40 points or 0.07% at a fresh record of 1,925. Meanwhile, the Nasdaq Composite languished below the unchanged line for the bulk of the session before ending off its lows at 4,237, down 5.42 points or 0.13%.

Sixteen of the thirty Dow components closed higher, while the remaining fourteen stocks ended lower. Caterpillar (CAT) and United Technologies (UTX) were among the best performers of the session.

On the economic front, the Institute for Supply Management's national manufacturing survey showed that its manufacturing index rose 0.5 points to 55.4, roughly in line with the estimated reading of 55.5. The new orders index rose 1.8 points to 56.9 and the production index was up 5.3 points to 61. Meanwhile, the employment index slipped 2.7 points to 54.7.

Final estimates released by Markit showed that its US manufacturing index rose to an upwardly revised reading of 56.4 in May from 55.4 in April.

The Commerce Department reported that construction spending rose 0.2% month-over-month in April, in line with estimates. Annually, construction spending was up 8.6%. Spending on private construction, accounting for about 72% of the total spending, was almost flat with the previous month, with a 0.1% increase in residential construction spending offsetting a 0.1% drop in non-residential construction spending. Meanwhile, public construction spending rose 0.8%.

The Dow Industrials set a fresh closing high yesterday, and its 14-day relative strength index (currently at 52.55) does not preclude a further rally. Nevertheless, if profit taking materializes, it may be worth to watch for support levels around 16,689, 16,575, the index's 50-day MA (currently at 16,466) and its 100-day MA (currently at 16,300).

Commodity, Currency Markets

Crude oil futures are rising USD0.09 to USD102.56 a barrel after receding USD0.24 to USD102.47 a barrel on Monday. Meanwhile, gold futures are rising USD1.50 to USD1,245.50 an ounce. On Monday, gold fell USD2 to USD1,244 an ounce.

Among currencies, the US dollar is trading at 102.33 yen compared to the 102.38 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is trading at USD1.3640 compared to yesterday's USD1.3597.

Asia

The Asian markets had a mixed outing, as the resilience of Wall Street overnight and positive Chinese manufacturing data partly offset weakness triggered by profit taking.

The Japanese market extended its gains, as the yen remained supportive. The Nikkei 225 average opened higher and moved roughly sideways for the rest of the session, ending up 98.33 points or 0.66% at 15,034. Export stocks led the gains, while real estate, utility, resource and retail stocks lost ground.

After trading on a lackluster note until late morning trading, Australia's All Ordinaries declined steadily before ending down 38.70 points or 0.70% at 5,461. The market witnessed broad based weakness, with only utility stocks bucking the trend with modest gains.

Hong Kong'sHang Seng Index ended up 209.39 points or 0.91% at 23,291, while China's Shanghai Composite Index dipped 0.91 points or 0.04% to 2,038.

On the economic front, revised estimates released by Markit and HSBC showed that their manufacturing purchasing managers' index for China came in at a downwardly revised reading of 49.4 in May, although it was higher than the April reading of 48.1.

Meanwhile, the Reserve Bank of Australia announced its decision to retain its key interest rate at a record low level of 2.50%, reasoning that the most prudent course is likely to persist with a period of stability in interest rates.

The Australian Bureau of Statistics reported that retail sales in Australia rose at a less than expected rate of 0.2% month-over-month in April compared to a 0.1% increase in March.

A separate report showed that the nation's current account balance was in a deficit of AUD5.67 billion in the first quarter, compared to a deficit of AUD11.7 billion in the fourth quarter.

A report released by Japan'sMinistry of Health, Labor and Welfare showed that total labor cash earnings in Japan rose 0.9% year-over-year in April following a 0.7% increase in March.

Europe

European stocks opened lower and are seen languishing below the unchanged line on valuation concerns.

In corporate news, UK building materials distributor Wolseley reported higher revenues for its third quarter.

On the economic front, UK house prices rose a bigger-than-expected 0.7% month-over-month in May following a 1.2% increase in April, a report released by the Nationwide Building Society showed. The growth exceeded forecasts for a 0.6% increase and marked the 13th straight month of growth in house prices.

The results of a survey by Markit and the Chartered Institute for Purchasing and Supply showed that their UK construction purchasing managers' index eased to 60 in May from 60.8 in April. Economists had expected an increase in the index to 61.

Flash estimates released by Eurostat showed that annual inflation in the region slowed more than expected to 0.5% in May

US Economic Reports

The Commerce Department is scheduled to release its factory orders report for April at 10 am ET. Economists expect factory orders to have risen by 0.5% month-over-month.

In March, factory orders rose 1.1% following a 1.5% increase in February. Excluding transportation, new orders were up 0.6%. Transportation orders climbed 4% and were responsible for much of the upside.

Meanwhile, durable goods orders accounting for the bulk of factory orders rose 0.8% in April, with a 2.3% increase in transportation orders propping up the headline number.

Automakers are due to release monthly sales data for May, with the consensus estimate calling for total vehicle sales coming in at a seasonally adjusted annual rate of 16.1 million compared to the 12.8 million unit rate in April.

Kansas City Federal Reserve Bank President Esther George will speak on monetary policy in Breckenridge, Colorado at 1:50 pm ET. Stocks in Focus

Dollar General (DG) reported first quarter results that trailed estimates but reaffirmed its guidance for 2014.

Quiksilver (ZQK) reported second quarter net revenues of USD408.21 million, down from USD455.56 million last year. The company's loss from continuing operations widened to 27 cents per share from 20 cents per share in the year-ago period. The company also stated that it expects net revenues in the North America and Europe wholesale channels to continue to decline, while it expects net revenues in emerging markets and e-commerce to increase. Pro forma adjusted EBITDA for 2014 are expected to be below the USD118 million reported for 2013.

Raytheon (RTN) announced that it has been awarded a USD298 million contract by the US Army for the modification for the Family of Advanced Beyond Line of Sight Terminals Command Post Terminals Production program.

Republic Services (RSG) announced the appointment of Robert Maruster as its COO, effective June 9th, 2014. Meanwhile, International Paper (IP) said it has promoted company veteran Mark Sutton to the role of COO.



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Source: Alliance News


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