News Column

MARKET ANALYSIS: Strong Job Gains And Overbought Levels Could Introduce Caution

July 2, 2014



WASHINGTON (Alliance News) - The major US index futures are pointing to a higher opening on Wednesday, with stocks likely to get an early lift from a report released earlier in the day, which showed bigger than expected job gains by the private sector in the US Corporate news flow of the day has been mixed. The domestic markets now turn their attention to a speech by Federal Reserve Chair Janet Yellen. With the Dow and the S&P Index trading in record territory and the Dow flirting with a psychological barrier of 17,000, market mood may remain cautious ahead of tomorrow's government non-farm employment report.

US stocks advanced strongly on Tuesday, as manufacturing activity data released from several countries reinforced the belief that the global economic momentum is intact. The major averages opened higher and advanced until late afternoon trading. Thereafter, the averages moved roughly sideways before closing notably higher.

The Dow Industrials added 129.47 points or 0.77% before closing at a new record closing high of 16,956, and the S&P 500 Index closed 13.09 points or 0.67% higher at 1,973, another record closing high for the index. The Nasdaq Composite ended up 50.47 points or 1.14% at 4,459.

Twenty-six of the thirty Dow components closed higher, with Visa (V), Travelers (TRV), Pfizer (PFE), Merck (MRK), Johnson & Johnson (JNJ), IBM (IBM) and Home Depot (HD) leading the gains.

Airline, biotechnology, retail, semiconductor and computer hardware stocks advanced solidly in the session, while gold stocks came under selling pressure.

On the economic front, the Institute for Supply Management's national manufacturing survey showed that manufacturing conditions remained little changed in June. Of the 18 industries surveyed, 15 industries showed expansion. The manufacturing purchasing managers' index eased to 55.3 in June from 55.4 in May. The new orders index rose 2 points to 58.9, reaching the highest level since December 2013, while the order backlogs index slipped 4.5 points to 48, the lowest reading since January. The production index was down 1 point.

Final estimates released by Markit showed that its manufacturing purchasing managers' index for the US climbed to 57.3 in June from 56.4 in May.

June vehicle sales came in at a seasonally adjusted annual rate of 17 million units, up from May's 16.8 million annual rate.

A separate report released by the Commerce Department showed that construction spending edged up 0.1% month-over-month in May. April's spending was upwardly revised to show a 0.8% increase. Spending on non-residential construction rose 1.1%, while residential construction spending was down 1.4%.

With the Dow Industrials back in record territory, valuation concerns may re-emerge unless the economic data continues to be stellar. In the eventuality of selling setting in, support levels to watch for are 16,945, 16,920, 16,871, the index's 21-day MA (currently at 16,854), and 16,837.

Commodity, Currency Markets

Crude oil futures are sliding USD0.49 to USD104.85 a barrel after edging down USD0.03 to USD105.34 a barrel on Tuesday. An ounce of gold is currently fetching USD1,326, down USD0.60 from the previous session's close of USD1,326.60. On Tuesday, gold rose USD4.60.

Among currencies, the US dollar is trading at 101.72 yen compared to the 101.63 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at USD1.3646 compared to yesterday's USD1.3679.

Asia

The Asian markets advanced strongly, tracking the positive close on Wall Street overnight. The Australian, Hong Kong and Indian markets were the standout performers, with the major averages of these countries raking in gains in excess of 1% each.

The Japanese market ended higher, as a weaker yen in the wake of the risk appetite in the markets lent support to stocks. The Nikkei 225 average opened higher but gave back some of its gains in early trading. Thereafter, the index moved roughly sideways before closing up 43.77 points or 0.29% at 15,370. Export stocks rallied strongly, while construction, resource and paper stocks came under selling pressure.

Australia's All Ordinaries opened higher and rose sharply in early trading before moving sideways thereafter. The index ended up 75.20 points or 1.40% at 5,442. The market witnessed broad based strength, with consumer, material and financial stocks rising notably.

Hong Kong'sHang Seng Index closed at 23,550, up 358.90 points or 1.55%, and China's Shanghai Composite Index ended 9.04 points or 0.44% higher at 2,059.

On the economic front, a report released by the Australian Bureau of Statistics showed that Australia's trade deficit widened to AUD1.911 billion in May from AUD780 million in April. Economists expected a deficit of AUD200 million for the month.

The monetary base in Japan surged 42.6% year-over-year in June, according to data released by the Bank of Japan. This follows a 45.6% spike in May.

Europe

After opening mixed, European stocks are seeing some volatility in early trading. Nervousness ahead of some key US data and central bank decisions from the region and yesterday's strong advances could keep sentiment subdued in the markets.

In corporate news, Tullow Oil said it expects flat revenues for the first half of the year. The company also maintained its production forecast for the year.

US-based maternity apparel retailer Destination Maternity (DEST) confirmed its interest in acquiring UK-based mother and baby retailer Mothercare in a cash and stock deal.

On the economic front, the results of a survey by housing society Nationwide showed that house prices in the UK rose 1% month-over-month in June, more than the 0.5% increase expected by economists and the 0.7% rise recorded in May. This marked the fourteenth consecutive month of growth.

US Economic Reports

Private sector employment in the US increased by much more than anticipated in the month of June, according to a report released by payroll processor ADP.

ADP said employment in the private sector surged up by 281,000 jobs in June following an increase of 179,000 jobs in May. Economists had been expecting employment to climb by about 205,000 jobs.

The Commerce Department is set to release its factory orders report for May at 10 am ET. Economists expect a 0.3% drop in orders following a 0.7% increase in the previous month.

The 0.7% month-over-month increase in factory orders in April came about due to a 0.6% increase in durable goods orders, which make up the bulk of factory orders. Meanwhile, the durable goods orders report for May released last week showed a 1% drop. Excluding transportation equipment, orders were down a more modest 0.1%. Non-defense capital goods orders, excluding aircraft, rose 0.7%.

The Energy Information Administration is due to release its weekly petroleum status report for the week ended June 27th at 10:30 am ET.

Crude oil stockpiles rose by 1.7 million barrels to 388.1 million barrels in the week ended June 20th. Inventories were in the upper half of the average range for this time of the year.

Distillate stockpiles increased by 1.2 million barrels, rising near the lower limit of the average range. Additionally, gasoline inventories climbed by 0.7 million barrels and were in the middle of the average range.

Yellen is scheduled to speak on monetary policy to the IMF central banking conference in Washington at 11 am ET.

Stocks in Focus

Paychex (PAYX) reported fourth quarter earnings of 40 cents per share, up 18% year-over-year, while its total revenues, excluding PEO adjustment, rose 5% to USD617.2 million. The earnings were in line, while the revenues were slightly shy of estimates. The company also stated that it expects 2015 earnings to grow 6-8%.

Cliff Natural (CLF) appealed to shareholders to support its nine director nominees in order to thwart attempts by Casablanca Capital to acquire control of the company's board.

Constellation Brands (STZ) reported better than expected first quarter results and raised its guidance for 2014.

International Paper (IP) announced the completion of its previously announced spin-off of its distribution solutions business xpedx and xpedx's merger with Unisource. The company also stated that the combined companies will now operate as Veritiv Corp, which is set to begin trading on the NYSE under the ticker symbol VRTV.

A. Schulman (SHLM) reported third quarter net adjusted earnings from continuing operations of 74 cents per share on revenues of USD645.74 million. The company raised its 2014 adjusted earnings guidance to USD2.31-USD2.36 per share. The results exceeded estimates and the guidance was positive. Separately, the company announced the completion of its acquisition of a selected majority of the assets of Specialty Plastics business segment from Ferro Corp (FOE) for USD91 million in cash.

Monsanto (MON) said it has entered into an accelerated share repurchase agreement with JP Morgan Chase Bank and Goldman Sachs to repurchase an aggregate of USD6 billion worth of its common stock from the USD10 billion authorization it announced on June 25th.

JP Morgan (JPM) CEO Jamie Dimon informed shareholders that he has been diagnosed with throat cancer, although he will be able to continue to be actively involved in running the business.



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Source: Alliance News


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