News Column

MARKET ANALYSIS: Overbought Levels, Lack Of Catalysts May Render Mood Cautious

July 7, 2014

WASHINGTON (Alliance News) - The major US index futures are pointing to a lower opening on Monday, with sentiment reflecting nervousness of traders amid a lack of any major trading cues. The impending start of the corporate reporting season, the Fed speeches and the FOMC minutes scheduled for the week could introduce caution among traders, as the markets trade in overbought territory.

US stocks rallied strongly in the holiday-shortened week ended July 3rd, as strong data helped to soothe growth concerns, sending two of the three major averages into record territory. The markets were closed on Friday in observance of Independence Day.

Last Monday, the major averages showed a lack of direction amid the release of mixed economic data before closing mixed. Positive manufacturing activity data from several countries helped the markets advance notably on Tuesday.

The overbought markets showed a muted reaction to strong private payrolls numbers on Wednesday before closing mixed. Riding on strong job growth and a decline in the jobless rate to a nearly 6-year low, the major averages advanced moderately on Thursday, throwing caution over valuation to the winds. The Dow and the S&P 500 set record closing highs, while the Nasdaq reached its best levels since 2000.

For the week ended July 3rd, the Dow Industrials and the S&P 500 Index gained 1.28% and 1.25%, respectively, while the Nasdaq Composite Index surged up 2%.

Among the sector indexes, the NYSE Arca Biotechnology Index and the Philadelphia Semiconductor Index rose over 3% each for the week. Additionally, the NYSE Arca Broker/Dealer Index added 2.09%, while the Dow Jones Utility Average slipped 3.05%.

Commodity, Currency Markets

Crude oil futures are receding USD0.16 to USD103.90 a barrel after declining USD1.68 or 1.59% to USD104.06 a barrel in the week ended July 3rd.

Last Monday, oil extended its slide, declining modestly amid the release of mixed economic data. Notwithstanding strong global manufacturing data, oil eased modestly again on Tuesday.

The commodity saw further downside on Wednesday, moving down moderately in the session before regaining some ground on Thursday. Nevertheless, oil ended the week lower.

Gold futures, which edged up USD0.20 to USD1,320.60 an ounce in the previous week, are currently slipping USD4.30 to USD1,316.30 an ounce.

The dollar advanced solidly in the week ended July 3rd, as rate hike expectations were fueled by strong domestic economic data. With the markets pricing in an earlier than initially expected rate hike, the dollar added 0.63% against the yen last week to 102.06 yen and it advanced 0.52% versus the euro to USD1.3595

The US dollar is currently trading at 101.90 yen and is valued at USD1.3593 versus the euro.


The major Asian markets moved about in a lackluster manner following their recent gains. The indecisive mood was also due to the lack of a lead from Wall Street, which remained closed on Friday.

The Japanese market retreated due to profit taking, as the Nikkei 225 average opened little changed but managed to stay afloat for much of the morning before pulling back in the afternoon. The index ended down 57.69 points or 0.37% at 15,379. Oil, export and financial stocks moved mostly to the downside.

After opening higher and remaining above the unchanged line until early afternoon trading, Australia's All Ordinaries retreated and spent much of the remainder of the session below the flat line. At the close of trading, the index was down 5.50 points or 0.10% at 5,506. Most sectors declined, with the exception of consumer, IT and real estate stocks.

Hong Kong'sHang Seng Index ended at 23,541, down 5.44 points or 0.02%, while China's Shanghai Composite Index inched up 0.55 points or 0.03% to 2,060.

On the economic front, preliminary estimates released by Japan'sCabinet Office showed that its leading indicators index for Japan declined 0.8 points to 105.7 in May, the lowest reading since February 2013. Economists expected a more modest drop to 105.9.


European stocks opened lower and have been showing weakness since then, as traders adopt a wait-and-see attitude before the emergence of the next meaningful catalysts.

In corporate news, miner Anglo American said it would sell its 50% stake in Lafarge Tarmac to its joint venture partner Lafarge for 885 million pounds. The move would allow Lafarge to sell the unit, a regulatory requirement to complete its proposed merger with Holcim. Renault said its sales for the first half rose 4.7%, helped by a strong performance in Europe.

On the economic front, German industrial production continued to decline in May, according to data released by the German Federal Statistical Office. Industrial output fell 1.8% month-over-month, declining for the third straight month and belying expectations for a 0.2% increase.

US Economic Reports

After a strong jobs report released last week underlined the strength of the US economy, we move into a week that is fairly light both in terms of the number and importance of data.

Nevertheless, traders are likely to focus on a slew of Federal Reserve speeches scheduled for the week and the minutes of the June FOMC meeting. These are likely to provide additional insight into the Fed's thinking on how the economy is evolving and the appropriate monetary policy stance.

The weekly jobless claims report, the Commerce Department report on wholesale inventories for May, the Federal Reserve's consumer credit report for May, the results of Treasury auctions of 3-year and 10-year notes and 30-year bonds and the Treasury Budget for June round up the economic events of the week.

Stocks in Focus

Bed Bath & Beyond (BBBY) announced a new USD2 billion stock buyback program.

Expedia (EXPE) announced an agreement to acquire Australian online trace company Holdings for USD658 million. The company expects the deal to close during the fourth quarter of 2014.

ACE (ACE) said it has signed a definitive agreement to buy the corporate property and casualty business of Itau Seguros from Brazil'sItau Unibanco for about USD685 million. The deal is expected to close in the first quarter of 2015 and be immediately accretive to the company's earnings.

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Source: Alliance News

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