News Column

MARKET COMMENT: Wall Street Set To Open Down As Markets Eye Q2 Earnings

July 8, 2014

Jon Darby

LONDON (Alliance News) - US stock markets are set to follow their European counterparts lower Tuesday as investors cautiously await the start of the second-quarter earnings season, traditionally signified by the release of Aluminium producer Alcoa Inc's numbers, which are due after the market close Tuesday.

Futures trading indicates that the DJIA is expected to open 28 points lower, just below the 17,000 level, and the S&P 500 expected to open 3 points lower at 1,974, while the Nasdaq Composite is set to open 1 point lower.

The stakes are high for this round of company updates, with stock markets having rallied to fresh all-time highs in recent days on the back of improving macro economic data and the expectation that it will translate into improved corporate earnings.

"Earnings season kicks off today, with Alcoa taking its usual over-hyped spot, but the focus will be on whether US companies can manage a bounce back from the first quarter, mirroring the shift in economic news," said IG market analyst David Madden.

Analysts are expecting Alcoa to report second-quarter earnings of USD0.12 per share, on revenue of USD5.66 billion.

As well as the expectation of stronger earnings this quarter, US stocks have been pushed to their recent highs by the consistent message from the Federal Reserve that interest rates are staying low for some time to come. Investors will therefore be listening to Minneapolis Federal Reserve president Narayana Kocherlakota for clues on future policy when he delivers a speech at 1845 BST.

Outside of any unexpectedly positive corporate numbers, investors may well remain cautious towards equities ahead of the release of the minutes from the June Federal Reserve policy meeting, due on Wednesday.

The US NFIB business optimism index, just released, will do little to lift stocks Tuesday. The small business sentiment tracker came in lower than expected at 95.0 in June, down from 96.6 in May, missing economists expectations for a rise to 97.3.

Economic data released from the UK and Europe so far this week has been notably softer than the bumper US jobs report last week that sent equities surging. So far Tuesday, data has shown a slowdown in both imports and exports in Germany, while UK industrial and manufacturing production went into reverse in May, knocking expectations for an improved second-quarter UK GDP reading.

The injection of a profit warning in the European airline sector Tuesday, this time from Air France-KLM, has added to investor concern and sent stock markets in the UK and Europe tumbling, with the major indices having now erased all of the gains seen at the end of last week after the US jobs report.

Heading towards the Wall Street opening bell, the FTSE 100 is down 0.5% at 6,788.29, the FTSE 250 is down 1.0% at 15,728.38, and the AIM All-Share is down 0.4% at 784.68. The German DAX 30 and the French CAC 40 are both down about 0.5%.

Within the UK equity sectors, the airlines continue to lead the fallers, with International Consolidated Airlines down 4.5%, and easyJet down 3.3%, following the Air France-KLM profit warning. The mining sector continues to provide support, with Glencore up 1.0% and leading the blue-chip gainers after Barclays upgraded its outlook on the European Mining Sector to Positive.

The pound is amongst the worst performing major currencies Tuesday, although it has recovers from earlier lows reached after the disappointing UK production data. Again the dollar, sterling has recovered to USD1.7115 from an earlier low of USD1.7081, and against the euro the pound trades at EUR1.2586 having recovered from a low of EUR1.2559.

Economists point out that the industrial and manufacturing production data are a volatile series, and indeed the last time manufacturing output showed a significant fall was a 1.0% decline in August 2013. At that time it was promptly followed up by a 1.3% gain the next month.

Still of interest in the UK calendar Tuesday, the National Institute of Economic and Social research is due to release its estimate of UK GDP in the three months to June at 1500 BST. In the three months to May, the NIESR estimated the UK economy to have grown by 0.9%.

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Source: Alliance News

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