News Column

MARKET ANALYSIS: Earnings Could Give Solid Lift To Markets

July 22, 2014



WASHINGTON (Alliance News) - The major US index futures are pointing to a higher opening on Tuesday, with markets seeking to stage a solid rebound following the weakness in the previous session. Earnings news has largely been encouraging, although there were disappointments as well in the form of sub-par results from McDonald's and Travelers Companies. Across the Atlantic, pushed upward by some positive corporate earnings, European stocks are seeing solid gains. For the time being, these buoyant earnings report may temporarily alleviate geopolitical concerns that had come to worry markets in recent sessions.

US stocks retreated on Monday, dragged lower by mixed earnings news and the geopolitical tensions in the Middle East and Ukraine. The major averages opened lower and saw further downside in late morning trading. However, the averages recouped some of their losses before moving roughly sideways in late afternoon trading.

The Dow Industrials ended down 48.45 points or 0.28% at 17,052, the S&P 500 Index closed 4.59 points or 0.23% lower at 1,974 and the Nasdaq Composite ended at 4,425, down 7.44 points or 0.17%.

Twenty-two of the thirty Dow components closed lower, while the remaining eight stocks advanced. General Electric (GE), McDonald's (MCD) and Pfizer (PFE) were among the biggest losers of the session, while Intel (INTC) rose strongly.

Commodity, Currency Markets

In the first day of trading as the front month contract, crude oil futures for September delivery are trading down USD0.11 at USD102.75 a barrel. The August futures expired at USD104.59 a barrel, up USD1.46 on Monday. Meanwhile, gold futures are sliding USD1.40 to USD1,312.50 an ounce. On Monday, gold rose USD4.50 to USD1,313.90 an ounce.

Among currencies, the US dollar is trading at 10138 yen compared to the 101.40 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is trading at USD1.3493 compared to yesterday's USD1.3524.

Asia

Most Asian markets advanced, with the exception of Indonesia, as geopolitical concerns faded and confidence in the economic momentum increased. In the process, the markets largely ignored the negative performance by Wall Street stocks overnight.

The Japanese market benefited from the yen's weakness, with the Nikkei 225 average opening higher and advancing steadily in the morning before moving roughly sideways in the afternoon. The index ended up 127.57 points or 0.84% at 15,343. A majority of stocks advanced, led by export stocks, while some defensive stocks came under pressure.

Australia's All Ordinaries showed volatility throughout the session, moving back and forth across the unchanged line, before ending up 5.30 points or 0.10% at 5,534. Material and utility stocks gained ground, while consumer staple, energy and financial stocks moved to the downside.

Hong Kong'sHang Seng Index closed at 23,782, up 394.97 points or 1.69%, and China's Shanghai Composite Index added 21 points or 1.02% before closing at 2,076.

On the economic front, a report released by Japan'sMinistry of Economy, Trade and Industry showed that its all industry activity index rose 0.6% month-over-month in May following the 4.6% drop in April, in line with the consensus estimate.

The Japanese government downgraded its growth outlook for fiscal year 2014, citing weak exports and subdued demand after the sales tax hike in April. The Council on Economic and Fiscal Policy, the top advisory panel, said real gross domestic product will grow 1.2% in the fiscal year ending in March compared to the 1.4% growth estimated in January.

A leading indicator of economic activity in China rose at an accelerated pace in June, the results of a survey by the Conference Board showed. The Conference Board's leading economic indicators index for China increased 1.3% month-on-month in June following the 0.7% rise in May.

Europe

European stocks opened higher and have sustained the momentum since then amid the release of some key earnings.

In corporate news, Credit Suisse reported a loss for its second quarter, hurt by the fine imposed for tax evasion in the US The bank also announced its decision to withdraw from commodities trading and trim its investment banking business.

Aluminum producer Norsk Hydro reported lower second quarter earnings on an adjusted basis despite an increase in its revenues.

UK chipmaker ARM Holdings reported higher profits for its second quarter and also raised its interim dividend.

US Economic Reports

With energy prices showing a significant increase amid rising gasoline prices, the Labor Department released a report showing that US consumer prices rose in line with economist estimates in the month of June.

The Labor Department said its consumer price index rose by 0.3% in June after climbing by 0.4% in May. The increase by the index matched the consensus estimate.

Excluding food and energy prices, core consumer prices inched up by 0.1% in June after rising by 0.3% in the previous month. Economists had expected core prices to edge up by 0.2%.

The Federal Housing Finance Agency is due to release its house price index for May at 9 am ET. The consensus estimate calls for a 0.3% month-over-month increase in house prices following an unchanged reading in the previous month.

At 10 am ET, the Commerce Department is set to release its existing home sales report for June. Economists expect existing home sales to come in at a seasonally adjusted annual rate of 4.99 million units compared to 4.89 million units in May.

Existing home sales rose to a seasonally adjusted annual rate of 4.89 million units in May from 4.66 million units in April, reaching the best reading since October 2013. Single-family sales totaled 4.33 million units, rising to the highest level since December 2013.

Inventories as measured by the months of supply eased to 5.6 months from 5.7 months. The share of first time buyers fell to 27% in May from 29% in April. The median sales price of an existing home rose 5.9% month-over-month and was up 5.1% year-over-year to USD213,400.

Also at 10 am ET, the Richmond Federal Reserve will release the results of its regional manufacturing survey. Economists expect the manufacturing index to rise to 5.5 in July from 3 in June.

Stocks in Focus

Earnings

DuPont (DD) reported second quarter earnings that met estimates, while its revenues were slightly shy of estimates. The company expects a strong second half performance and also backed its earnings guidance for 2014.

Coca-Cola (KO) reported second quarter earnings that beat estimates, while its revenues were about in line. However, the company warned of second-half profit due to higher-than-expected unfavorable impact of structural items.

McDonald's (MCD) second quarter results trailed estimates. The company also said it expects comparable store sales growth to be negative in July.

United Technologies (UTX) reported better than expected second quarter results and its raised earnings guidance for the full year.

Verizon's (VZ) second quarter earnings and revenues exceeded estimates.

Travelers Companies (TRV) reported second quarter earnings that trailed estimates.

utx, vz, trv

Texas Instruments (TXN) reported second quarter results that were ahead of estimates, while the company's third quarter guidance was in line.

Waste Connections (WCN) also reported better than expected second quarter results. Steel Dynamics' (STLD) second quarter results also beat estimates.

Rambus (RMBS) reported second quarter adjusted earnings and revenues that were ahead of estimates. However, the company's third quarter revenue guidance was lackluster.

Sanmina (SANM) reported better than expected third quarter results and issued positive fourth quarter guidance.

Netflix (NFLX) reported second quarter earnings that trailed estimates, while its revenues were ahead of estimates. The company issued weak guidance for the third quarter.

Rent-A-Center (RCII) reported second quarter earnings that were in line but its revenues exceeded estimates. Meanwhile, the company lowered its guidance for 2014.

Crocs (CROX) announced a restructuring exercise that includes a reduction of 183 jobs after reporting a decline in its second quarter results. Chipotle Mexican Grill (CMG) reported better than expected second quarter results and said it expects comparable store sales for the full year to increase in the mid-teens compared to its earlier estimate for a high single-digit increase.

Apple (AAPL), Broadcom (BRCM), Discover Financial Services (DFS), FMC Tech (FTI), Fulton Financial (FULT), Hertz Global (HTZ), Intuitive Surgical (ISRG), Juniper Networks (JNPR), Linear Technology (LLTC), Microsoft (MSFT), Unisys (UIS), Vmware (VMW) and Xilinx (XLNX) are among the companies due to release their quarterly results after the close of trading.

Other Corporate News

Johnson & Johnson (JNJ) announced a USD5 million stock buy back program. BorgWarner (BWA) said its board approved a 4% increase in its quarterly dividend to 13 cents per share.

Yahoo! (YHOO) announced a deal to acquire mobile analytics firm Flurry.

Boston Scientific (BSX) said it has received FDA approval for its REBEL Platinum Chromium Coronary Stent System, which is used to treat coronary artery disease.



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Source: Alliance News


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