News Column

MARKET ANALYSIS: Portuguese Concerns Could Overwhelm Markets

July 10, 2014



WASHINGTON (Alliance News) - The major US index futures are pointing to a lower opening on Thursday, with sentiment taking a hit from global concerns after it emerged that one of the major banks in Portugal would soon announce bad tidings concerning its health. European stocks are also seeing a sell-off after Asian stocks closed mixed earlier in the global trading day. With jobless claims data coming in stronger than expected, traders may also show uneasiness concerning the future course of monetary policy. Coupled with these, valuations concerns could drive stocks lower.

US stocks reversed course on Wednesday following two straight sessions of declines, as Alcoa's (AA) positive quarterly results and dovish FOMC minutes lifted markets. The major averages opened higher and advanced steadily until late afternoon amid some volatility. Following the release of the FOMC minutes, the markets saw a short, sharp spike. Thereafter, the averages moved roughly sideways before closing moderately higher.

The Dow Industrials ended up 78.99 points or 0.47% at 16,986 and the S&P 500 Index closed 9.12 points or 0.46% higher at 1,972, while the Nasdaq Composite ended at 4,419, up 27.57 points or 0.63%.

Twenty-two of the thirty Dow components closed higher and one stock ended unchanged, while the remaining seven stocks retreated. Cisco Systems (CSCO), Chevron (CVX), Disney (DIS), UnitedHealth (UNH), McDonald's (MCD), Nike (NKE) and Procter & Gamble (PG) were among the biggest gainers of the session.

Airline, biotechnology and gold stocks gained ground in the session.

Commodity, Currency Markets

Crude oil futures are sliding USD0.24 to USD102.05 a barrel after falling USD1.11 to USD102.29 a barrel on Wednesday.

The previous session's decrease came amid the release of the weekly petroleum status report, which showed that crude oil stockpiles fell by 2.4 million barrels to 382.60 million barrels in the week ended July 4. Notwithstanding the drop, inventories were above the upper limit of the average range for this time of the year.

Meanwhile, gasoline stockpiles increased by 0.6 million barrels and were in the middle of the average range. Distillate inventories edged up by 0.2 million barrels but were near the lower limit of the average range.

Refinery capacity utilization averaged 89.6% over the four weeks ended July 4 compared to 88.7% over the four weeks ended June 27.

Gold futures, which rose USD7.80 to USD1,324.30 an ounce in the previous session, are currently jumping USD18.80 to USD1,343.10 an ounce.

Among currencies, the US dollar is trading at 101.30 yen compared to the 101.64 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at USD1.3608 compared to yesterday's USD1.3642.

Asia

The Asian markets closed on a mixed note, with most markets advancing, encouraged by the Fed minutes, although the Japanese, Indian and Chinese markets retreated on domestic developments.

Australia's All Ordinaries experienced a bout of volatility in the morning before advancing steadily in the afternoon. The index ended up 12.10 points or 0.22% at 5,454. Real estate, material, energy, financial and consumer discretionary stocks led the gains.

Hong Kong'sHang Seng Index ended at 23,238, up 62.92 points or 0.27%.

Meanwhile, Japan'sNikkei 225 average opened on a nervous note amid the release of lackluster capital goods orders data and languished below the unchanged line for the bulk of the session. The index back sharply in late trading and closed down 86.18 points or 0.56% at 15,217.

A majority of stocks declined, with Nisshin Steel and Nomura Holdings turning in two of the worst performances of the session. Exports stocks moved to the downside, while food and resource found some strength.

China's Shanghai Composite Index edged down 0.27 points or 0.01% before closing at 2,038, hurt by domestic trade data.

Meanwhile, India's overbought Sensex retreated following the year's budgetary presentation by the new government headed by Prime Minister Narendra Modi.

On the economic front, a report released by Japan'sCabinet Office showed that core machinery orders fell 19.5% month-over-month in May, marking the biggest monthly drop on record. Economists had expected a 0.7% increase.

A separate report showed that Japanese consumer confidence improved in June, with the corresponding index rising to 41.1 from 39.3 in May.

Meanwhile, Japan'sMinistry of Economy, Trade and Industry reported that its index measuring activity in tertiary industries rose 0.9% month-over-month in June, smaller than the 1.7% increase expected by economists.

Corporate goods prices in Japan rose 0.2% month-over-month in June, according to a report released by the Bank of Japan. Economists expected a more modest 0.1% increase.

The Australian Bureau of Statistics reported that the unemployment rate in Australia increased to a seasonally adjusted 6% in June, more than the 5.9% consensus estimate and the highest level in 11 years. The rise in the jobless rate reflected a faster rate of growth in the number of unemployed individuals and an uptick in participation rate.

China'sGeneral Administration of Customs released trade balance data showing a decline in the trade surplus to USD31.6 billion in June from USD35.9 billion in May, as exports and imports increased by less than expected.

Europe

European stocks opened lower and have declined further amid the release of some domestic data and fears concerning the financial health of major Portuguese banks have re-ignited risk aversion. The major averages are notably lower along with other risky assets.

Portuguese Banco Espirito Santo fell sharply ahead of a trading halt, pending an announcement from the bank, which triggered concerns about banks in the country.

In corporate news, British luxury brand Burberry reported first quarter profits that were ahead of estimates by most analysts. UK homebuilder Barratt Development reported higher profits for its fiscal year 2014, helped by higher home prices.

Meanwhile, Associated British Food reported a 3% drop in its third quarter sales, hurt by a stronger currency.

On the economic front, French statistical office INSEE reported that industrial output in France fell 1.7% month-over-month in May, belying expectations for a 0.2% increase. A separate report showed a slowdown in annual French consumer price inflation in June.

The UK Office for National Statistics reported that the visible trade deficit in the UK came in wider than expected in May.

US Economic Reports

In another upbeat sign for the labor market, the Labor Department released a report showing an unexpected drop in first-time claims for US unemployment benefits in the week ended July 5th.

The report said initial jobless claims fell to 304,000, a decrease of 11,000 from the previous week's unrevised level of 315,000. Economists had expected claims to come in unchanged compared to the previous week.

The Commerce Department is due to release its wholesale inventories report for May at 10 am ET. The consensus estimate calls for a 0.6% month-over-month increase in wholesale inventories.

Wholesale sales rose 1.3% month-over-month in April. Annually, wholesale sales climbed 7.8%. Meanwhile, business inventories were up 1.1% from the previous month and 6.7% higher than a year ago. The wholesale inventories to sales ratio came in at 1.18 from 1.19 in the same month last year.

The Treasury Department will announce the results of its auction of USD13 billion worth of thirty-year bonds at 1 pm ET.

Kansas City Federal Reserve Bank President Esther George is set to speak on the economy and monetary policy in Shawnee, Oklahoma at 1:15 pm ET.

Federal Reserve Vice Chair Stanley Fischer is scheduled to speak on financial sector reform to the NBER conference in Cambridge, Massachusetts at 4:30 pm ET.

Stocks in Focus

PC makers may be in the spotlight after Gartner (IT) announced that worldwide PC shipments were largely unchanged in the second quarter, with shipments edging up 0.1% year-over-year to 75.8 million units. Lenovo continued to be the leader of the pack, with its share rising to 19.2% from 16.7% last year. HP (HP) also grew its share to 17.7% from 16.2%. Lenovo and HP saw shipment growth of 15.1% and 9.3%, respectively. Dell's shipments rose 12.5% and accounted for 13.3% for the overall market, up from 11.9% last year.

Zumiez (ZUMZ) announced that its total sales rose 11.1% in the five-week period ended July, while comparable store sales rose 3.1%. Based on better than forecast sales, the company raised its second quarter earnings guidance to 19-21 cents per share and revenue guidance to USD174 million to USD176 million.

Family Dollar's (FDO) third quarter adjusted earnings missed analysts' estimates, while its revenues beat the view. The company backed its fourth-quarter earnings forecast, and tightened its fiscal 2014 view. Family Dollar also noted that its June comparable store sales were approximately flat.

WD-40 Company (WDFC) reported third quarter earnings of 69 cents per share on net sales of USD95.7 million. For 2014, the company expects earnings of USD2.70-USD2.83 per share on net sales of USD380 million to USD387 million. The results exceeded estimates, while the guidance was in line.

General Cable (BGC) announced a restructuring program aimed at bringing in ongoing annual savings of USD75 million, beginning in 2014, with the full realization of cost savings expected from 2016. Towards the restructuring action, the company expects to record pre-cash charges of USD200 million, with the bulk of the charges to be incurred in 2014. The company also lowered its second half outlook, citing typical seasonality and uneven demand and pricing.

La-Z-Boy (LZB) announced the promotion of Daniel King to the role of President of its retail segment.

Regeneron (REGN) and Sanofi (SNY) announced positive results from a Phase IIB dose-ranging study of its investigational therapy for treating a chronic form of eczema.



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Source: Alliance News


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