News Column

MARKET ANALYSIS: Markets Await Economic Data Amid Nervousness

June 30, 2014



WASHINGTON (Alliance News) - The major US index futures are pointing to a mixed opening on Monday, with sentiment reflecting nervousness characteristic of recent sessions, as the markets scout for direction. Global cues are also lackluster, with European stocks also seeing lackluster sentiment amid the release of inflation data for the eurozone, which came in slightly below estimates. With two economic readings on the manufacturing and housing sectors due for the session, the markets could derive some cues from these data. That said, some impetus could be provided by M&A activity characteristic of Mondays.

US stocks closed the week ended June 27th on a mixed note, as overbought fears continued to weigh on the markets amid the release of mixed economic data and ongoing geopolitical tensions.

Last Monday, the major averages showed a lack of direction, as valuation concerns offset the positive sentiment generated by better than expected housing and manufacturing readings. The averages ended the session narrowly mixed. The overbought markets continued to show jitteriness on Tuesday before closing lower. The weakness came despite the release of positive new home sales and consumer confidence data.

With economic data turning mixed on Wednesday, the major averages rebounded, closing the session moderately higher. The mood turned negative on Thursday amid the release of mixed economic data, and the averages closed modestly lower. After spending much of the session below the unchanged line as traders digested mixed corporate news on Friday, the Dow Industrials and the S&P 500 Index recovered in the final few minutes of trading before ending slightly higher. The Nasdaq Composite experienced volatility throughout the day, ending the session moderately higher.

For the week ended June 27th, the Dow Industrials and the S&P 500 Index slid 0.56% and 0.10%, respectively, while the Nasdaq Composite added 0.68%.

Among the sector indexes, the NYSE Arca Oil Index lost close to 2% for the week, and the NYSE Arca Securities Broker/Dealer Index slid 1.14%. While the Philadelphia Semiconductor Index fell about 1%, the Philadelphia Housing Sector Index added 1.91% and the Dow Jones Utility Average rose close to 1%.

Commodity, Currency Markets

Crude oil futures are sliding USD0.51 to USD105.23 a barrel after falling USD1.09 or 1.02% to USD105.74 a barrel in the week ended June 27th.

Last Monday, oil fell moderately following the previous week's marginal retreat. The commodity retreated modestly on Tuesday despite the strong domestic data.

Oil reversed course on Wednesday, rising moderately in reaction to the weekly oil inventory report and the mixed economic data. The commodity pulled back on Thursday amid the release of lukewarm economic readings and edged down on Friday, thereby ending lower for the week.

Gold futures, which rose USD3.40 to USD1,320 an ounce in the previous week, are currently slipping USD6 to USD1,314 an ounce.

Among currencies, the dollar weakened in the week ended June 27th, with the greenback slipping 0.36% over the week against the euro to USD1.3649. The dollar also fell 0.64% against the yen before ending the week at 101.42 yen. The dollar suffered the onslaught of revised estimates released by the Commerce Department showing a bigger than initially estimated contraction for the first quarter.

The US dollar is currently trading at 101.36 yen and is valued at USD1.3653 versus the euro.

Asia

The major Asian markets closed mixed, with the Australian, Hong Kong and New Zealand markets closing lower, while most other major markets in the region advanced. Even as Wall Street's resilient rebound last Friday provided encouragement, traders exercised restraint given the recent run up of the markets.

The Japanese market advanced, although amid some volatility, as the yen remained subdued. The Nikkei 225 average opened slightly higher and rose sharply in early trading. After paring its gains, the index dropped below the unchanged line by the mid-session. Thereafter, the average recovered and held above the unchanged line before closing up 67.10 points or 0.44% at 15,162. Export stocks moved mostly to the upside, but resource, construction machinery, real estate, retail, electric utility and auto stocks saw some weakness.

Australia's All Ordinaries opened little changed and fell sharply in early trading. Subsequently, the average moved sideways before seeing further downside going into the close. The index ended down 47.10 points or 0.87% at 5,382. The market witnessed broad based weakness, with financial, healthcare, industrial, material, real estate and telecom stocks seeing notable weakness.

Hong Kong'sHang Seng Index closed at 23,191, down 30.80 points or 0.13%, while China's Shanghai Composite Index closed 11.92 points or 0.59% higher at 2,048.

On the economic front, preliminary estimates released by Japan'sMinistry of Economy, Trade and Industry showed that industrial output in Japan rose 0.5% month-over-month in May, slower than the 0.9% increase forecast by economists. The annual growth of 0.8% was also less than expected.

Japan'sMinistry of Land, Infrastructure, Transport and Tourism reported that housing starts fell 15% year-over-year in May, more than the 10.5% decline expected by economists. In April, housing starts had declined 3.3%.

A separate report showed that the value of construction orders received by prime contractors rose 8.7% on year in May following a 26.1% surge in April.

A report released by the Reserve Bank of Australia showed that private sector credit in Australia rose 0.4% month-over-month in May compared to a 0.5% increase in April. The increase was in line with estimates.

Meanwhile, new home sales in Australia declined for the first time in five months in May, the results of a survey by the Housing Industry Association showed. Sales fell 4.3% month-over-month in May.

Europe

European stocks opened higher and spiked sharply in early trading only to give back much of their gains shortly after. Traders digested some domestic corporate news and looked ahead to the US pending home sales and regional manufacturing data.

In corporate news, Philips (PHG) announced that it will merge its Lumileds LED components and automotive lighting business into a subsidiary and would be exploring strategic options for the subsidiary, including a possible spin-off.

On the economic front, a report released by the German Federal Statistical Office showed that German retail sales fell 0.6% month-over-month in May compared to a 1.5% drop in April. The decline was not as steep as the 0.8% drop expected by economists. Annually, retail sales rose a better than expected 1.9%.

The European Central Bank reported that the M3 money supply in the euro area rose 1% year-over-year in May compared to the 0.7% increase expected by economists. Meanwhile, loans to the private sector fell a steeper than expected 2%.

US Economic Reports

The unfolding, holiday-shortened week has a few first-tier economic reports that have potential to move the markets. Traders are likely to closely track the monthly non-farm payrolls report for June, ADP's private payrolls data for June, jobless claims data, the results of Institute for Supply Management's manufacturing and non-manufacturing surveys for June, final manufacturing and non-manufacturing indexes based on Markit's separate surveys for June and the National Association of Realtors' pending home sales report for May.

The results of MNI Indicators' June manufacturing survey of the Chicago region, some Fed speeches, including one by Federal Reserve Chair Janet Yellen, monthly sales results of automakers, the Commerce Department's construction spending and factory orders reports for May and announcements concerning Treasury auctions of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.

MNI Indicators is scheduled to release the results of its manufacturing survey of the Chicago region at 9:45 am ET. Economists expect the business barometer to rise to 64 in June from 65.5 in May.

In May, the business barometer rose 2.5 points to 65.5, marking the highest reading since October. New orders showed a mild expansion, but production dipped in May following a sharp increase in April. The employees index fell slightly below the average seen over the past 12 months.

The National Association of Realtors will release its pending home sales data at 10 am ET. The consensus estimate calls for pending home sales growth of 1% month-over-month in May.

The pending home sales index rose for the second straight month in April, edging up 0.4%, although it remained 9.2% below the reading for the year-ago period. Pending home sales in the Northeast and the Midwest rose 0.6% and 5% month-over-month, respectively, while sales fell 0.6% in the South and declined by 2.9% in the West.

The Dallas Federal Reserve is due to release the results of its survey of manufacturers in Texas at 10:30 am ET.

San Francisco Federal Reserve Bank President John Williams will speak at a banking conference in Sun Valley, Idaho at 1:10 pm ET.

Stocks in Focus

PPG Industries (PPG) announced that it agreed to acquire Consorcio Comex, an architectural and industrial coatings company with headquarters in Mexico City, Mexico, for USD2.3 billion.

Lockheed Martin (LMT) said it agreed to acquire Zeta Associates, Inc., a maker of software systems for collecting and providing information to intelligence and defense communities.

TreeHouse Foods (THS) announced that it will acquire Flagstone Foods, a provider of private label healthy snacks. The company has agreed to pay Gryphon Investors and other shareholders USD860 million in cash for the business, subject to an adjustment for working capital.

Novatel Wireless (NVTL) announced the appointment of Tom Allen as its interim CFO even as it has engaged an executive search firm to evaluate candidates for a permanent CFO.



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Source: Alliance News


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