News Column

MARKET ANALYSIS: Traders Hopeful Of Strong Manufacturing Activity

July 1, 2014

WASHINGTON (Alliance News) - The major US index futures are pointing to a higher opening on Tuesday, with sentiment reflecting modest optimism ahead of the market open. A slew of manufacturing data from several nations showed that factory activity has been vibrant, offering support to the global economic momentum. The markets now train their eyes on two separate domestic reports on manufacturing activity. If the data signals a resonating manufacturing sector, traders will be encouraged that the economic will recover from first quarter's slump.

US stocks showed a lack of direction on Monday amid the release of mixed economic readings before closing mixed. The major averages opened mixed, with the Dow Industrials and the S&P 500 Index opening lower, while the Nasdaq Composite was higher at the open. The Dow Industrials and the S&P 500 Indexes experienced choppy trading, with the Dow languishing below the unchanged for the better part of the session before closing down 25.24 points or 0.15% at 16,827.

The S&P 500 Index stayed mostly above the unchanged line but retreated into negative territory going into the close. The index ended down 0.73 points or 0.04% at 1,960. Meanwhile, the Nasdaq Composite remained above the unchanged line throughout the session before closing up 10.25 points or 0.23% at 4,408, with semiconductor stocks offering some support.

Nineteen of the thirty Dow components closed lower and one stock ended unchanged, while the remaining nine stocks advanced. Boeing (BA) and Microsoft (MSFT) were among the biggest decliners of the session.

On the economic front, the results of a survey by MNI Indicators on behalf of the ISM-Chicago showed that Chicago-area business activity grew at a slower rate in June. The Chicago business barometer fell to 62.6 in June from 65.5 in May.

Meanwhile, a report from the National Association of Realtors said pending home sales jumped 6.1% month-over-month in May, notably above the 1.5% increase expected by economists. Pending home sales were higher in all four regions. However, annually, pending home sales were down 5.2%.

The Dow Industrials settled below its 21-day MA (currently at 16,844) after yesterday's consolidation move. This level could serve as a strong resistance for the index. A break above this level could take the index towards other near term resistances around 16,870, 16,919 and 16,946. On the downside, the index has support around 16,809, 16,776 and 16,736.

Commodity, Currency Markets

Crude oil futures are climbing USD0.44 to USD105.81 barrel after sliding USD0.37 to USD105.37 a barrel on Monday. Meanwhile, gold futures are rising USD5 to USD1,327 an ounce. On Monday, gold rose USD2 to USD1,322 an ounce.

Among currencies, the US dollar is trading at 101.53 yen compared to the 101.33 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is trading at USD1.3687 compared to yesterday's USD1.3692.


The major Asian markets closed mixed, tracking the mixed lead from Wall Street overnight and mixed domestic economic data. Even as Chinese manufacturing data offered encouragement, the results of the Tankan survey for Japan were weaker than expected.

Notwithstanding the weak data, Japanese stocks rode higher on the yen's weakness. The Nikkei 225 average opened higher but saw modest weakness in early trading only to recover and advance strongly. After moving sideways till early afternoon trading, the index legged up before once again moving sideways into the close. The index ended up 164.10 points or 1.08% at 15,326. A majority of stocks advanced, led by export stocks, while some utility, food, resource and banking stocks moved to the downside.

Australia's All Ordinaries moved about in a listless manner in the morning, as traders digested the Chinese manufacturing data and awaited the domestic central bank decision. Following an unchanged stance announced by the Reserve Bank of Australia, the index declined steadily for the rest of the session, closing 15.50 points or 0.29% lower at 5,367. Material, industrial and IT stocks advanced solidly in the session, while financial stocks came under selling pressure.

China's Shanghai Composite Index added 2.05 points or 0.10% before closing at 2,050, while markets in Hong Kong and Thailand were closed for holidays.

On the economic front, the results of a survey by the China Federation Of Logistics And Purchasing and the National Bureau of Statistics showed that Chinese manufacturing activity picked up pace in June, with the corresponding index rising 0.2 points to 51, in line with estimates.

Meanwhile, revised estimates released by Markit and HSBC bank confirmed that Chinese manufacturing activity rebounded in June. The HSBC manufacturing PMI rose to 50.7 in June, missing the consensus estimate of 50.8 but up from 49.4 in May.

The Reserve Bank of Australia left its key interest rate unchanged at a record-low level of 2.50%, as the current policy was seen as appropriately configured to foster growth in demand. The rate has been at the current level since August 2013.

Meanwhile, the results of the Bank of Japan's quarterly Tankan survey showed that business sentiment among large Japanese manufacturers weakened in the June quarter. The business confidence index for large manufacturers fell to 12 in the three months ended in June from 17 in the three months ended in March. The index was forecast to come in at 15.


European stocks have opened higher and are holding up after yesterday's mixed performance, as traders digest domestic manufacturing activity data from several euro area countries and the UK

On the economic front, Markit's survey showed that manufacturing activity in Germany fell to 51.8 in June from 52.2 in May, downwardly revised from the flash estimate of 51.9.

Estimates released by the German Federal Labor Agency showed that the German jobless rate was unchanged at 6.7% in June, in line with expectations. The number of unemployed people rose by 9,000.

A separate survey showed that manufacturing activity in the UK gained further ground in June, with the Markit/CIPS manufacturing purchasing managers' index rising 0.5 points to 57.5.

US Economic Reports

US automakers are scheduled to release auto sales results for June. Economists expect total vehicle sales to come in at a seasonally adjusted annual rate of 16.4 million units in June compared to a 16.8 million unit rate in June.

Markit is due to release its final manufacturing activity reading for the US at 9:45 am ET. Economists expect the index to be downwardly revised to 57 in June from the flash estimate of 57.5, although higher than the May reading of 56.4.

The results of the Institute for Supply Management's national manufacturing survey are due at 10 am ET. Economists expect the index to be edge up to 55.6 in June.

The manufacturing index rose 0.5 points to 55.4 in May, 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.

Also at 10 am ET, the Commerce Department will release its construction spending report for May. The consensus estimate calls for a 0.5% month-over-month increase in construction spending for May.

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%.

Stocks in Focus

Timken (TKR) announced that it has completed its spin-off of TimkenSteel, which will begin trading as an independent company on the NYSE under the symbol TMST. Timken shareholders will receive one share of TimkenSteel for every 2 Timken shares they hold.

Northrop Grumman (NOC) said the US Navy has awarded the company a USD3.6 billion fixed price, incentive fee multi-year contract to deliver 25 new E-2D Advanced Hawkeye aircraft, bringing the total number of aircraft on contract to 50.

Hormel Foods (HRL) announced an agreement to acquire CytoSport Holdings, the maker of Muscle Milk for about USD450 million. Hormel expects the deal to close within 30 days and the transaction to add 5 cents per share to its earnings in 2015 after remaining neutral to its earnings for 2014.

Cooper Companies (COO) agreed to buy soft contact lenses and solutions maker Sauflon Pharma for about USD1.2 billion. The company expects the deal to be accretive to its adjusted earnings in 2015. (CRM) announced the appointment of Autodesk (ADSK) executive Mark Hawkins as its CFO, effective August 1st, 2014. While confirming the departure of Hawkins, Autodesk said it expects to report revenues and earnings per share at or above the previously issued business outlook for its second quarter, which calls for non-GAAP earnings of 25-30 cents per share on revenues of USD595 million to USD610 million. The company also reiterated its 2015 guidance of 4-6% revenue growth.

Johnson & Johnson (JNJ) announced the completion of its divestiture of its Ortho-Clinical Diagnostics business to Carlyle Group for about USD4 billion.

Actavis (ACT) and Forest Labs (FRX) announced that the Federal Trade Commission has approved Actavis' proposed acquisition of Forest Labs. Under the consent order with the FTC, the companies have agreed to divest certain products. The deal is expected to close on July 1st, 2014.

Twitter (TWTR) acquired New York-based advertising technology start-up Tap Commerce. Financial terms of the deal were not disclosed, though media reports indicated that the deal is valued at about USD100 million.

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Source: Alliance News

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