News Column

MARKET ANALYSIS: Alleviation Of Geopolitical Worries Could Reignite Risk Appetite

August 11, 2014

WASHINGTON (Alliance News) - The major US index futures are pointing to a higher opening on Monday, with sentiment reflecting a return of risk appetite following the easing of geopolitical tensions. With the global markets seeing a sell-off last week in the wake of geopolitical tensions, stocks got a boost from bargain hunting as the risk mitigated. With little economic and earnings news to guide trading, the buoyancy could pervade into the domestic markets and result in some buying.

US stocks advanced in the week ended August 8, as the averages ended a volatile week, which saw geopolitical tensions grip the markets, moderately higher.

Last Monday, the averages advanced moderately amid profit taking following the sell-off witnessed in the previous week. Hurt by intensification of the crisis in Ukraine and fears of early monetary policy normalization in the wake of some strong service sector readings, the major averages fell notably on Tuesday.

Geopolitical concerns and the scuttling of a couple of deal talks kept sentiment subdued on Wednesday and consequently, the averages ended little changed. Geopolitical concerns continued to haunt the markets on Thursday, as the major averages ended moderately lower after President Obama authorized air strikes against Islamic militants in Iraq. Signs of thawing of the crisis in Ukraine helped stocks stage a solid rebound on Friday, helping the major averages end higher for the week.

For the week ended August 8, the Dow Industrials and the S&P 500 Index added 0.37% and 0.33%, respectively, while the Nasdaq Composite Index closed 0.42% higher.

Among the sector indexes, the NYSE Arca Gold Bugs Index rose 2.30% for the week, while the NYSE Arca Oil Index, the Philadelphia Housing Sector Index and the NYSE Arca Biotechnology Index all ended over 1% each. On the other hand, the NYSE Arca Airline Index slid 2.75%.

Commodity, Currency Markets

Crude futures are rising USD0.29 to USD97.94 a barrel after moving down USD0.23 or 0.24% to USD97.65 a barrel in the week ended August 8. Last Monday, oil rose moderately along with the equity markets. However, the commodity declined close to USD1-a-barrel on Tuesday.

After adding moderately to its losses on Wednesday, oil rebounded moderately on Thursday. The commodity extended its gains on Friday before ending the week modestly higher.

Gold futures, which rose USD16.20 or 1.25% to USD1,311 an ounce in the previous week, are currently slipping USD0.80 to USD1,310.20 an ounce.

Among currencies, the dollar ended mixed in the week ended August 8, as the risk aversion set in motion by geopolitical tensions increased the appeal of safe havens. The dollar added 0.10% against the euro before ending the week at USD1.3410, while it slid 0.56% against the yen over the week to 102.04 yen.

The US dollar is currently trading at 102.11 yen and is valued at USD1.3391 versus the euro.


The major Asian markets rebounded, as signs emerged that geopolitical tensions across the globe are easing. The Japanese market led the gains in the region, while the Chinese and Hong Kong markets also advanced strongly.

The retreat by the yen in response to the re-emergence of risk appetite pushed Japanese stocks higher. The Nikkei 225 average opened higher and moved sideways in the morning. After taking a leg up in early afternoon, the index once again moved roughly sideways before closing up 352.15 points or 2.38% at 15,131. The market witnessed broad based strength, with Mitsui Mining & Smelting, Daiwa House Industry, T&D Holdings, NTN, NKSJ Holdings, Casio Computer and NSK leading the gains.

Australia's All Ordinaries hovered in positive territory throughout the session, ending up 19.80 points or 0.36% at 5,449. A majority of stocks advanced, although consumer discretionary stocks bucked the uptrend. IT, real estate and utility stocks were among the best performers of the session.

Hong kong's Hang Seng Index ended at 24,650, up 318.89 points or 1.31%, and China's Shanghai Composite Index closed 30.23 points or 1.38% higher at 2,225.

On the economic front, data released by the Chinese National Bureau of Statistics over last weekend showed that annual consumer price inflation in China remained unchanged at 2.3% in July. On a monthly basis, consumer prices edged up 0.1%, reversing the 0.1% drop in the previous month. The decline in producer price index slowed to 0.9% year-over-year from 1.1% in June.

The Ministry of Economy, Trade and Industry of Japan reported that its index measuring activity in the tertiary industries edged down 0.1% month-over-month in June following the 0.9% increase in May. Economists expected an unchanged reading for the month. A Bank of Japan report showed that the M3 money supply in Japan rose 2.4% year-over-year in July, in line with estimates. Meanwhile, confidence among consumers in Japan rose for the third straight month in July, according to a report released by Japan'sCabinet Office. The consumer confidence index rose to 41.5 in July from 41.1 in June. Europe

European stocks opened higher and have advanced further, as bargain hunting is lifting the markets from multi-month lows on encouraging developments on the geopolitical front.

In corporate news, UK'sBalfour Beatty has rejected a revised takeover offer from Carillion. The company also reported a narrower loss for its first quarter.

US Economic Reports

A few consumer and manufacturing data along with some Fed speeches are among the market moving economic events of the unfolding week. The focus of the week is likely to be on the Commerce Department's retail sales report for July, a preliminary consumer sentiment data due from Reuters and the University of Michigan, the customary jobless claims data, Federal Reserve's industrial production report for July and the results of the New York Federal Reserve's manufacturing survey for August.

The Treasury's monthly budgetary statement, the Commerce Department's business inventories report for June, the Labor Department's reports on import and export prices and producer prices for final demand, both for July and the results of the Treasury auctions of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.

Stocks in Focus

Kinder Morgan (KMI) announced that it would buy all outstanding equity securities of Kinder Morgan Energy Partners (KMP), Kinder Morgan Management (KMR) and El Paso Pipeline Partners (EPB) for a total transaction value of about USD70 billion. The company also said it would have a projected dividend of USD2 in 2015, a 16% increase.

Sysco (SYY) reported in line adjusted earnings for its fourth quarter, while its revenues beat estimates.

Dean Foods (DF) reported a wider than expected loss for its second quarter. After forecasting a loss for its third quarter, the company withdrew its guidance for the full year. The company also cut its capital expenditure guidance.'s (PCLN) second quarter earnings beat estimates, while its revenues missed expectations.

SkyWest (SKYW) reported that its load factor rose to 84.4% in July from 82.6% in the year-ago period. Traffic rose 0.7%, while capacity declined 1.4%.

Sanofi (SNY) and Mannkind (MNKD) announced a licensing agreement for the development and commercialization of Afrezza inhalation powder for adults with type 1 and type 2 diabetes. Under the agreement, Mannkind will receive an upfront payment of USD150 million and potential milestone payments of up to USD775 million.

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Source: Alliance News

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