News Column

MARKET ANALYSIS: Sentiment Weak Amid Mixed Data, Mostly Positive Earnings

July 17, 2014





WASHINGTON (Alliance News) - The major US index futures are pointing to a lower opening on Thursday, with sentiment suggesting nervousness despite fairly robust earnings released by companies. Economic data released during the day has been mixed, with jobless claims declining by more than expected, while housing starts came in weaker than expected. The mixed data could engender uncertainty, as the overbought markets seek direction. The markets could also stay focused on the results of a regional manufacturing survey due shortly after the markets open.

US stocks advanced moderately on Wednesday, thanks to a slew of positive economic data and earnings. The major averages opened higher but gave back some ground amid fears that evidence pointing toward a strong economy may prompt the Fed to act sooner than anticipated. After trimming their gains till early afternoon trading, the averages rose through the middle of the session and moved roughly sideways thereafter.

The Dow Industrials ended up 77.52 points or 0.45% at a new record closing high of 17,138. The S&P 500 Index added 8,29 points or 0.42% before closing at 1,982, while the Nasdaq Composite ended at 4,426 by virtue of its 9.58 point or 0.22% advance over the session.

Twenty-one of the thirty Dow components closed higher, while the remaining nine stocks retreated. Intel (INTC), Microsoft (MSFT), Exxon Mobil (XOM), Pfizer (PFE), IBM (IBM), General Electric (GE), Chevron (CVX), Cisco Systems (CSCO) and Caterpillar (CAT) were among the biggest gainers of the session, while Boeing (BA), Disney (DIS), Nike (NKE), Johnson & Johnson (JNJ) and McDonald's (MCD) came under pressure.

Energy, gold, semiconductor, computer hardware and housing stocks saw considerable strength on the day. On the other hand, biotech and financial stocks moved to the downside.

On the economic front, the Labor Department reported that producer prices for final demand rose 0.4% month-over-month in June, while core producer prices were up 0.2%. The annual rates of producer price and core producer price inflation were 1.9% and 1.8%, respectively. Energy prices climbed 2.1% from the previous month, propping up the headline number, while food prices were down 0.2%.

The Federal Reserve reported that industrial production rose 0.2% month-over-month in June. The previous month's output was downwardly revised by 0.1 percentage points. Manufacturing output was up a mere 0.1%, with auto/parts and machinery serving as drags. Mining output was up 0.8%. Capacity utilization was unchanged at 79.1%, below the 30-year average of 79.6%.

The National Association of Home Builders reported that its housing market index rose to 53 in July from 49 in June, exceeding expectations. The index was back up above the '50' cut-off mark after five months. The futures sales expectations index rose by 6 points and the present sales conditions index was up 4 points. The index measuring prospective buyer traffic climbed 3 points, although it remains at a depressed level of 39.

The Beige Book showed that all 12 Federal Reserve districts saw a continued expansion in economic activity. Consumer spending was also reported to have expanded in every district, with vehicle sales driving overall spending. The Fed noted that non-financial services activity expanded at a modest to moderate pace. At the same time, real estate activity varied across the districts. All 12 districts reported slight to moderate employment growth, while wage pressures remained modest.

Commodity, Currency Markets

Crude oil futures are climbing USD1.42 to USD102.62 a barrel after rising USD1.24 to USD101.20 a barrel on Wednesday.

The previous session's increase came amid the release of the weekly petroleum status report, which showed that crude oil stockpiles fell by 7.5 million barrels to 375 million barrels in the week ended July 11th. Inventories dropped near the upper limit of the average range for this time of the year.

Meanwhile, gasoline stockpiles increased by 0.2 million barrels and were in the middle of the average range. Distillate inventories rose by 2.5 million barrels but were near the lower limit of the average range.

Refinery capacity utilization averaged 91.3% over the four weeks ended July 11th compared to 89.6% over the four weeks ended July 4th.

Gold futures, which rose USD2.70 to USD1,299.80 an ounce in the previous session, are currently gaining USD5.40 to USD1,305.20 an ounce.

Among currencies, the US dollar is trading at 101.46 yen compared to the 101.67 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at USD1.3532 compared to yesterday's USD1.3525.

Asia

The major Asian markets closed mostly lower on a lackluster day, as fears of early monetary policy normalization by the Federal Reserve gripped traders following a flurry of positive earnings and economic data.

The Japanese market ended lower, as the yen firmed up over the course of the Asian session. The Nikkei 225 average opened higher but declined over the course of the session, dipping decisively below the unchanged line in late trading. The index ended down 9.04 points or 0.06% at 15,370. Export stocks moved mostly to the downside.

China's Shanghai Composite Index fell 11.68 points or 0.57% to 2,056, and Hong Kong'sHang Seng Index ended at 23,521, down 2.41 points or 0.01%.

Meanwhile, Australia's All Ordinaries opened higher and rose sharply in early trading only to give back most of the gains over the course of the session. However, the index ended up 5.40 points or 0.10% at 5,510.

Material and IT stocks saw strong gains and industrial and consumer stocks also found some buying interest, while utility, financial, healthcare and telecom stocks lost ground.

On the economic front, a report released by the Conference Board showed that its leading index for Australia rose 0.2% month-over-month in May following a 0.2% drop in April.

Europe

European stocks opened lower amid some profit taking following yesterday's gains and have seen further downside since then.

In corporate news, Germany'sSAP AG reported a decline in its second quarter profits, although the company raised its cloud applications revenue guidance for the full year. Novartis (NVS) reported second quarter adjusted earnings that trailed estimates but the company confirmed its full year guidance.

Carrefour reported higher sales for its second quarter, while Anglo American's second quarter iron ore and copper production increased year-over-year.

On the economic front, data released by the European Automobile Manufacturers Association showed that new passenger car registrations in Europe grew 4.5% year-over-year in June, the same rate of growth as in May.

Nonetheless, registrations totaled only 1.18 million units, which was the second lowest level reached for June since ACEA began the series in 2003 with the enlarged EU.

US Economic Reports

New residential construction in the US unexpectedly showed a steep drop in the month of June, the Commerce Department revealed in a report, with housing starts falling to a nine-month low. The Commerce Department said housing starts tumbled 9.3% to an annual rate of 893,000 in June from the revised May estimate of 985,000.

The sharp drop came as a surprise to economists, who had expected housing starts to climb to 1.020 million from the 1.001 million originally reported for the previous month. Building permits, an indicator future housing demand, also fell 4.2% to an annual rate of 963,000 in June from the revised May rate of 1.005 million.

First-time claims for US unemployment benefits unexpectedly showed a modest decrease in the week ended July 12th, according to a report released by the Labor Department.

The Labor Department said initial jobless claims edged down to 302,000, a decrease of 3,000 from the previous week's revised level of 305,000. Economists had expected jobless claims to climb to 310,000 from the 304,000 originally reported for the previous week.

The Philadelphia Federal Reserve is due to release the results of its regional manufacturing survey at 10 am ET. The consensus estimate calls for the diffusion index of manufacturing activity to decline to 16.9 in July from 17.8 in June.

The diffusion index of business activity rose to 17.8 in June from 15.4 in May, reaching the highest level since September. The new orders index rose 6.3 points to 16.8, the shipments index was up 1.3 points to 15.5 and the order backlogs index climbed 14 points to 11.5.

The employment indexes also improved, with both the number of employees index and the average workweek index rising from the previous month. The 6-month outlook index for business activity also jumped to 52 from 37.4.

St. Louis Federal Reserve Bank President James Bullard is scheduled to speak on the economy and monetary policy in Owensboro, Kentucky at 1:35 pm ET.

Stocks in Focus

Earnings

eBay (EBAY) reported better than expected second quarter earnings, while its revenues were slightly shy of estimates. The company's third quarter guidance was weak and its full year guidance was tepid.

Morgan Stanley (MS) reported better than expected second quarter results. Among smaller peers, M&T Bank (MTB) reported second quarter earnings that beat estimates. KeyCorp.'s (KEY) second quarter results also beat estimates.

Philip Morris (PM) reported second quarter results that exceeded estimates and it also reaffirmed its full year earnings guidance. Meanwhile, Mattel's (MAT) second quarter results trailed estimates.

United Rentals (URI) reported second quarter results that beat estimates and raised its full year revenue guidance.

Yum! Brands' (YUM) first quarter results trailed estimates, while the company reaffirmed its full year earnings per share growth forecast of at least 20%.

SanDisk (SNDK) reported better than expected second quarter results. Select Comfort (SCSS) also reported second quarter results that were ahead of expectations, but the company's 2014 earnings guidance trailed estimates.

Las Vegas Sands (LVS) reported second quarter earnings and revenues that were below estimates.

AMD (AMD), Capital One (COF), Google (GOOG), IBM (IBM), Resources Connect (RECN), Schlumberger (SLB), Seagate Technology (STX) and Skyworks (SWKS) are among the companies due to release their quarterly results after the close of trading.

Other Corporate News

Liberty Global (LBTYA) said it has acquired 259.9 million shares of ITV from British Sky Broadcasting for 481 million pounds, giving Liberty a 6.4% stake in ITV.

Tyson (TSN) announced that it has commenced a cash tender offer for all outstanding shares of Hillshire Brands (HSH) at a price of USD63 per share pursuant to its previously announced merger agreement.

AmSurg (AMSG) said it has completed its previously announced acquisition of Sheridan Healthcare for USD2.35 billion in cash and stock.

J.M. Smucker (SJM) announced an increase in its quarterly dividend to 64 cents per share from 58 cents per share.

Danaher (DHR) announced that its Beckman Coulter unit has agreed to buy the clinical microbiology business of Siemens Healthcare Diagnostics.

Treehouse Foods (THS) said it has priced its previously announced underwritten public offering of 4.30 million shares of its common stock at USD75.50 per share. The company would realize net proceeds of USD312 million from the offering.The major US index futures are pointing to a lower opening on Thursday, with sentiment suggesting nervousness despite fairly robust earnings released by companies. Economic data released during the day has been mixed, with jobless claims declining by more than expected, while housing starts came in weaker than expected. The mixed data could engender uncertainty, as the overbought markets seek direction. The markets could also stay focused on the results of a regional manufacturing survey due shortly after the markets open.

US stocks advanced moderately on Wednesday, thanks to a slew of positive economic data and earnings. The major averages opened higher but gave back some ground amid fears that evidence pointing toward a strong economy may prompt the Fed to act sooner than anticipated. After trimming their gains till early afternoon trading, the averages rose through the middle of the session and moved roughly sideways thereafter.

The Dow Industrials ended up 77.52 points or 0.45% at a new record closing high of 17,138. The S&P 500 Index added 8,29 points or 0.42% before closing at 1,982, while the Nasdaq Composite ended at 4,426 by virtue of its 9.58 point or 0.22% advance over the session.

Twenty-one of the thirty Dow components closed higher, while the remaining nine stocks retreated. Intel (INTC), Microsoft (MSFT), Exxon Mobil (XOM), Pfizer (PFE), IBM (IBM), General Electric (GE), Chevron (CVX), Cisco Systems (CSCO) and Caterpillar (CAT) were among the biggest gainers of the session, while Boeing (BA), Disney (DIS), Nike (NKE), Johnson & Johnson (JNJ) and McDonald's (MCD) came under pressure.

Energy, gold, semiconductor, computer hardware and housing stocks saw considerable strength on the day. On the other hand, biotech and financial stocks moved to the downside.

On the economic front, the Labor Department reported that producer prices for final demand rose 0.4% month-over-month in June, while core producer prices were up 0.2%. The annual rates of producer price and core producer price inflation were 1.9% and 1.8%, respectively. Energy prices climbed 2.1% from the previous month, propping up the headline number, while food prices were down 0.2%.

The Federal Reserve reported that industrial production rose 0.2% month-over-month in June. The previous month's output was downwardly revised by 0.1 percentage points. Manufacturing output was up a mere 0.1%, with auto/parts and machinery serving as drags. Mining output was up 0.8%. Capacity utilization was unchanged at 79.1%, below the 30-year average of 79.6%.

The National Association of Home Builders reported that its housing market index rose to 53 in July from 49 in June, exceeding expectations. The index was back up above the '50' cut-off mark after five months. The futures sales expectations index rose by 6 points and the present sales conditions index was up 4 points. The index measuring prospective buyer traffic climbed 3 points, although it remains at a depressed level of 39.

The Beige Book showed that all 12 Federal Reserve districts saw a continued expansion in economic activity. Consumer spending was also reported to have expanded in every district, with vehicle sales driving overall spending. The Fed noted that non-financial services activity expanded at a modest to moderate pace. At the same time, real estate activity varied across the districts. All 12 districts reported slight to moderate employment growth, while wage pressures remained modest.

Commodity, Currency Markets

Crude oil futures are climbing USD1.42 to USD102.62 a barrel after rising USD1.24 to USD101.20 a barrel on Wednesday.

The previous session's increase came amid the release of the weekly petroleum status report, which showed that crude oil stockpiles fell by 7.5 million barrels to 375 million barrels in the week ended July 11th. Inventories dropped near the upper limit of the average range for this time of the year.

Meanwhile, gasoline stockpiles increased by 0.2 million barrels and were in the middle of the average range. Distillate inventories rose by 2.5 million barrels but were near the lower limit of the average range.

Refinery capacity utilization averaged 91.3% over the four weeks ended July 11th compared to 89.6% over the four weeks ended July 4th.

Gold futures, which rose USD2.70 to USD1,299.80 an ounce in the previous session, are currently gaining USD5.40 to USD1,305.20 an ounce.

Among currencies, the US dollar is trading at 101.46 yen compared to the 101.67 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at USD1.3532 compared to yesterday's USD1.3525.

Asia

The major Asian markets closed mostly lower on a lackluster day, as fears of early monetary policy normalization by the Federal Reserve gripped traders following a flurry of positive earnings and economic data.

The Japanese market ended lower, as the yen firmed up over the course of the Asian session. The Nikkei 225 average opened higher but declined over the course of the session, dipping decisively below the unchanged line in late trading. The index ended down 9.04 points or 0.06% at 15,370. Export stocks moved mostly to the downside.

China's Shanghai Composite Index fell 11.68 points or 0.57% to 2,056, and Hong Kong'sHang Seng Index ended at 23,521, down 2.41 points or 0.01%.

Meanwhile, Australia's All Ordinaries opened higher and rose sharply in early trading only to give back most of the gains over the course of the session. However, the index ended up 5.40 points or 0.10% at 5,510.

Material and IT stocks saw strong gains and industrial and consumer stocks also found some buying interest, while utility, financial, healthcare and telecom stocks lost ground.

On the economic front, a report released by the Conference Board showed that its leading index for Australia rose 0.2% month-over-month in May following a 0.2% drop in April.

Europe

European stocks opened lower amid some profit taking following yesterday's gains and have seen further downside since then.

In corporate news, Germany'sSAP AG reported a decline in its second quarter profits, although the company raised its cloud applications revenue guidance for the full year. Novartis (NVS) reported second quarter adjusted earnings that trailed estimates but the company confirmed its full year guidance.

Carrefour reported higher sales for its second quarter, while Anglo American's second quarter iron ore and copper production increased year-over-year.

On the economic front, data released by the European Automobile Manufacturers Association showed that new passenger car registrations in Europe grew 4.5% year-over-year in June, the same rate of growth as in May.

Nonetheless, registrations totaled only 1.18 million units, which was the second lowest level reached for June since ACEA began the series in 2003 with the enlarged EU.

US Economic Reports

New residential construction in the US unexpectedly showed a steep drop in the month of June, the Commerce Department revealed in a report, with housing starts falling to a nine-month low. The Commerce Department said housing starts tumbled 9.3% to an annual rate of 893,000 in June from the revised May estimate of 985,000.




The sharp drop came as a surprise to economists, who had expected housing starts to climb to 1.020 million from the 1.001 million originally reported for the previous month. Building permits, an indicator future housing demand, also fell 4.2% to an annual rate of 963,000 in June from the revised May rate of 1.005 million.

First-time claims for US unemployment benefits unexpectedly showed a modest decrease in the week ended July 12th, according to a report released by the Labor Department.




The Labor Department said initial jobless claims edged down to 302,000, a decrease of 3,000 from the previous week's revised level of 305,000. Economists had expected jobless claims to climb to 310,000 from the 304,000 originally reported for the previous week.

The Philadelphia Federal Reserve is due to release the results of its regional manufacturing survey at 10 am ET. The consensus estimate calls for the diffusion index of manufacturing activity to decline to 16.9 in July from 17.8 in June.


The diffusion index of business activity rose to 17.8 in June from 15.4 in May, reaching the highest level since September. The new orders index rose 6.3 points to 16.8, the shipments index was up 1.3 points to 15.5 and the order backlogs index climbed 14 points to 11.5.

The employment indexes also improved, with both the number of employees index and the average workweek index rising from the previous month. The 6-month outlook index for business activity also jumped to 52 from 37.4.

St. Louis Federal Reserve Bank President James Bullard is scheduled to speak on the economy and monetary policy in Owensboro, Kentucky at 1:35 pm ET.

Stocks in Focus

Earnings

eBay (EBAY) reported better than expected second quarter earnings, while its revenues were slightly shy of estimates. The company's third quarter guidance was weak and its full year guidance was tepid.

Morgan Stanley (MS) reported better than expected second quarter results. Among smaller peers, M&T Bank (MTB) reported second quarter earnings that beat estimates. KeyCorp.'s (KEY) second quarter results also beat estimates.

Philip Morris (PM) reported second quarter results that exceeded estimates and it also reaffirmed its full year earnings guidance. Meanwhile, Mattel's (MAT) second quarter results trailed estimates.

United Rentals (URI) reported second quarter results that beat estimates and raised its full year revenue guidance.

Yum! Brands' (YUM) first quarter results trailed estimates, while the company reaffirmed its full year earnings per share growth forecast of at least 20%.

SanDisk (SNDK) reported better than expected second quarter results. Select Comfort (SCSS) also reported second quarter results that were ahead of expectations, but the company's 2014 earnings guidance trailed estimates.

Las Vegas Sands (LVS) reported second quarter earnings and revenues that were below estimates.

AMD (AMD), Capital One (COF), Google (GOOG), IBM (IBM), Resources Connect (RECN), Schlumberger (SLB), Seagate Technology (STX) and Skyworks (SWKS) are among the companies due to release their quarterly results after the close of trading.

Other Corporate News

Liberty Global (LBTYA) said it has acquired 259.9 million shares of ITV from British Sky Broadcasting for 481 million pounds, giving Liberty a 6.4% stake in ITV.

Tyson (TSN) announced that it has commenced a cash tender offer for all outstanding shares of Hillshire Brands (HSH) at a price of USD63 per share pursuant to its previously announced merger agreement.

AmSurg (AMSG) said it has completed its previously announced acquisition of Sheridan Healthcare for USD2.35 billion in cash and stock.

J.M. Smucker (SJM) announced an increase in its quarterly dividend to 64 cents per share from 58 cents per share.

Danaher (DHR) announced that its Beckman Coulter unit has agreed to buy the clinical microbiology business of Siemens Healthcare Diagnostics.

Treehouse Foods (THS) said it has priced its previously announced underwritten public offering of 4.30 million shares of its common stock at USD75.50 per share. The company would realize net proceeds of USD312 million from the offering.



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Source: Alliance News


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