News Column

MARKET COMMENT: Pharma Stocks To Boost Wall Street Amid Cautious Trade

July 29, 2014

Jon Darby

LONDON (Alliance News) - US futures are indicating that a slightly higher open can be expected on Wall Street, with the pharmaceutical sector providing a boost after both Merck and Pfizer beat second quarter earnings expectations ahead of the opening bell.

Trading may remain a little soft, however, as markets continue to be restrained by caution ahead of the most important economic announcements of the month, which are scheduled to begin on Wednesday with the initial estimate of US second quarter GDP, as well as the latest policy decision from the Federal Reserve.

Geopolitical events also continue to weigh on sentiment, as EU leaders meet in Brussels to discuss a new round of sanctions against Russia for its part in the downing of MH17, and as the shelling between Israel and Hamas continues to intensify, with reports of another 110 deaths in Gaza within the last 24-hours.

Amid a lull in corporate earnings on Monday, US equities struggled for direction and closed broadly unchanged. Ahead of the opening bell Tuesday, futures trading indicates that a slightly higher start can be expected, with the S&P 500, the DJIA, and the Nasdaq Composite all set to open about 0.2% higher.

There are more earnings releases in the US corporate calendar Tuesday, however, with Merck and Pfizer providing a boost to the pharmaceutical sector, having both beaten expectations ahead of the open. Merck reported earnings per share of USD0.85, beating the expectation of USD0.81, while Pfizer reported USD0.58, beating the expected USD0.57. The two pharmaceutical stocks are up 1.1% and 1.3%, respectively, in the pre-market.

The tobacco sector will also be back in focus Tuesday, following the recent merger and acquisition activity, as Reynold, of which British America Tobacco maintains a 42% stake, is due to report its second quarter numbers.

With social media stocks still under the spotlight following Fed Chair Janet Yellen's recent comments that their valuations are stretched, Twitter's results will be closely watched when they're released after the closing bell. Last quarter the controversial company disappointed investors with weak user growth figures, this time it is expected to lose USD0.01 per share on revenue of USD283 million.

The Federal Reserve Open Market Committee will no doubt have an eye on those earnings as it begins its two day July policy meeting Tuesday, although there will be no announcement from the FOMC until Wednesday, at which point it is widely expected to maintain its taper path by cutting monthly asset purchases by USD10 billion.

In terms of data releases from the US on Tuesday, the latest consumer confidence survey is released at 1500 BST. Economists expect the reading to rise fractionally to 85.3 in July from 85.2 in June. While this would represent the third consecutive monthly rise, the rises are small and the index still has a way to go to get back to pre-crisis levels.

Analysts at Rabobank note that the survey was at 107.1 back in July 2006, and at the present rate of increase, it would take about another year to get back to that level.

Ahead of that, at 1400 BST, the S&P/Case-Shiller home price index will also be of interest given current concerns over the US housing market. The index is expected to ease slightly to 10.0% year-on-year in May from 10.8% in April.

UK stock indices have been edging higher since mid-morning, buoyed by the banking stocks, as well as some strong performers in the retail sector, while the Oil and Gas giants are capping index gains as investors continue to remain cautious ahead of an expected sanction announcement from Brussels which could hit the whole energy sector.

The FTSE 100 is up 0.3% at 6,810.19, the FTSE 250 is up 0.6% at 15,710.15, and the AIM All-Share is fractionally lower at 771.48.

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Source: Alliance News

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