News Column

MARKET ANALYSIS: Momentum Could Be Preserved On Global Cues, Citi Earnings

July 14, 2014

WASHINGTON (Alliance News) - The major US index futures are pointing to a higher opening on Monday, with sentiment suggesting that markets may be well on their way to preserve the upward momentum. Citi, though reporting a decline in its second quarter earnings, has managed to beat estimates. The earnings results from the banking giant could bode well for the rest of the bank earnings. Positive performance by the rest of the global markets could also add to the buoyancy of the markets. That said, the optimism could be guarded, given the important economic events/reports scheduled for the rest of the week.

US stocks came under pressure in the week ended July 11th, as overbought fears and signs of trouble brewing in the banking system in Portugal pushed traders to the defensive.

Last Monday, the major averages moved to the downside amid valuation concerns and a lack of major catalysts. The major averages extended their slide on Tuesday, declining notably, as traders expressed anxiety concerning the unfolding second quarter reporting season. Helped by Alcoa's (AA) positive earnings and dovish FOMC minutes, the major averages halted their declines and moved moderately higher.

Hurt by worries of a banking crisis in Portugal, US stocks closed Thursday's session moderately lower after being down sharply early on in the session. Though valuation concerns and lukewarm bank earnings kept sentiment subdued in morning trading on Friday, the major averages recovered over the course of the session before closing higher.

For the week, the Dow Industrials slid 0.73% and the S&P 500 Index lost 0.90%, while the Nasdaq Composite declined 1.57%.

Among the sector indexes, the NYSE Arca Securities Broker/Dealer Index fell 4.24% for the week and the Philadelphia Oil Service Index and the Philadelphia Housing Sector Index receded over 3% each. Additionally, the KBW Bank Index, the NYSE Arca Oil Index and the NYSE Arca Biotechnology Index all lost about 2%. On the other hand, the NYSE Arca Gold Bugs Index rose 3.13%.

Commodity, Currency Markets

Crude oil futures are slipping USD0.15 to USD100.68 a barrel after declining USD3.23 or 3.10% to USD100.83 a barrel in the week ended July 11th.

Last Monday, oil retreated moderately amid lackluster sentiment. The commodity fell modestly on Tuesday and declined by over USD1-a-barrel on Wednesday.

Oil rebounded by a moderate margin on Thursday only to fall by over USD2-a-barrel on Friday, as supply concerns eased on indications that crude oil supplies will not be hit by conflicts in the Middle East.

Gold futures, which climbed USD16.80 or 1.27% to USD1,337.40 an ounce in last week, are currently tumbling USD23.20 to USD1,314.20 an ounce. The precious metal retained its luster for most of last week due to its safe haven status amid the risk aversion.

On the currency front, the dollar lost some ground in the week ended July 11th, with the greenback slipping 0.75% against the yen before ending the week at 101.30 yen. The dollar also lost about 0.1% against the euro over the week to USD1.3608, as the easing of concerns about Portugal's banking system following reassurances by the nation's central bank mitigated the weakness generated by some weak economic data.

The US dollar is currently trading at 101.53 yen and is valued at USD1.3626 versus the euro.


Most Asian markets advanced, tracking the recovery by US stocks last Friday.

The Japanese market rode on the back of the weakness of the yen, which retreated in reaction to the rise in appetite. The Nikkei 225 average opened higher and moved sideways until late trading, when the average rose sharply before moving sideways once again. The index ended up 132.78 points or 0.88% at 15,297.

Most sectors advanced, with the exception of some defensive stocks. Sumitomo Dainippon Pharma, Toho, Konami, NEC and Yaskawa Electric were among the biggest gainers of the session.

Australia's All Ordinaries also hovered above the unchanged line throughout the session before closing up 21.20 points or 0.39% at 5,496. The market witnessed broad based strength, with only utility stocks bucking the uptrend.

China's Shanghai Composite Index ended 19.69 points or 0.96% higher at 2,067 and Hong Kong'sHang Seng Index closed at 23,347, up 113.22 points or 0.49%.

On the economic front, revised estimates released by Japan'sMinistry of Economy, Trade and Industry showed that industrial output rose 0.7% month-over-month in May, faster than the 0.5% growth estimated initially. However, output growth slowed from the 2.8% pace recorded in April. Shipments and inventories were also upwardly revised.


European stocks opened higher and have seen further upside since then on a day light on corporate news.

In corporate news, Shire said it would recommend AbbVie's revised takeover proposal, offering to buy the company for 53.20 pounds per share in cash and stock.

US Economic Reports

Consumer, manufacturing and housing market indicators along with Federal Reserve Chair Janet Yellen's semi-annual monetary policy testimony to Congress are among the closely watched economic events of the unfolding week.

Traders may focus on the Commerce Department's retail sales report for June, the results of the manufacturing surveys for July by the New York Federal Reserve and the Philadelphia Federal Reserve, the Commerce Department's housing starts report for June, the National Association of Home Builders' housing market index for July, the weekly jobless claims report, the Federal Reserve's industrial production report for June and preliminary results of the consumer sentiment survey for July by Reuters and the University of Michigan.

The Commerce Department's business inventories report for May, the Labor Department's import and export prices report for June, the Labor Department report on producer prices for final demand, the Federal Reserve's Beige Book, the Conference Board's leading economic indicators index for June and some Fed speeches round up the economic events of the week.

Stocks in Focus

Citigroup (C) reported a decline in its second quarter earnings, excluding CVA/DVA and the impact of mortgage settlement, of USD1.24 per share, which however was above expectations. Revenues also exceeded estimates.

SkyWest (SKYW) reported a 1.4% drop in revenue passenger miles and a 2.5% decline in available seat miles for June. Load factor rose 0.9 percentage points to 84.6%.

Ryder System (R) said its board approved a 3 cent increase in its regular quarterly dividend to 37 cents per share.

Allergan (AGN) recommended that its shareholders take no action in connection with Pershing Square's request to call a special meeting of stockholders to remove a majority of the company's existing directors in connection with Valeant Pharma's (VRX) unsolicited offer to buy all outstanding shares of Allergan in a cash and stock deal.

Noble Corp. (NE) announced that its board has approved the spin-off of its subsidiary Paragon Offshore through a pro rata distribution of an aggregate of 84.75 million Paragon ordinary shares to the holders of Noble ordinary shares. Following the distribution of Paragon ordinary shares, Paragon will be a separately traded public company and would be listed on the NYSE under the ticker symbol 'PGN.'

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Source: Alliance News

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