News Column

MARKET ANALYSIS: Modest Optimism Prevails As Markets Await More Data

August 21, 2014



WASHINGTON (Alliance News) - The major US index futures are pointing to a higher opening on Thursday, with sentiment reflecting strength as traders digest some positive corporate tidings from companies, including Hewlett-Packard. Although manufacturing data from China disappointed to the downside, German private sector activity data was fairly robust. Domestically, the jobless claims data released earlier in the day showed a bigger than expected drop. Traders may also react to a few other economic data on the manufacturing sector and the housing market due later today and await Fed Chair Janet Yellen's speech at the Jackson Hole symposium scheduled for Friday.

US stocks closed mixed on Wednesday amid the release of disappointing corporate tidings and the FOMC minutes that struck a hawkish tone. The major averages started lower after some retail companies issued lackluster forward guidance. However, the averages recouped their losses over the course of the morning, moving into positive territory in late morning trading.

The Dow Industrials and the S&P 500 Index remained mostly above the unchanged line for the rest of the session, although some selling emerged in the wake of the FOMC minutes. The Dow Industrials ended up 59.54 points or 0.35% at 16,979 and the S&P 500 Index closed 4.91 points or 0.25% higher at 1,987. Meanwhile, the Nasdaq Composite Index showed volatility throughout the session before ending down 1.03 points or 0.02% at 4,527, off its 14-year high.

Twenty-two of the thirty Dow components closed higher, with Home Depot (HD), Boeing (BA), General Electric (GE) and United Technologies (UTX) leading the gains.

Retail and airline stocks were the best performers of the session.

Commodity, Currency Markets Crude oil futures are slipping USD0.57 to USD92.88 a barrel after advancing USD0.59 to USD93.45 a barrel on Wednesday. The previous session's gain came amid the release of the weekly petroleum status report, which showed that crude oil stockpiles fell by 4.5 million barrels to 362.50 million barrels in the week ended August 15. Inventories remained above the upper half of the average range for this time of the year. Distillate inventories fell by 2.5 million barrels and were below the lower limit of the average range. Meanwhile, gasoline stockpiles increased by 0.6 million barrels and remained in the middle of the average range. Refinery capacity utilization averaged 92.7% over the four weeks ended August 15 compared to 92.8% over the four weeks ended August 8. Gold futures, which fell USD1.50 to USD1,295.20 an ounce in the previous session, are currently slipping USD17.60 to USD1,277.60 an ounce. Among currencies, the US dollar is trading at 103.76 yen compared to the 102.76 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at USD1.3266 compared to yesterday's USD1.3259.

Asia

The Asian markets closed on a mixed note, as the positive sentiment generated by Wall Street's resilience overnight was offset by weak Chinese manufacturing data. The Japanese, Australian and New Zealand markets advanced, while the rest of the markets ended lower.

The Japanese market continued to be the beneficiary of a weaker yen, with the Nikkei 225 average remained solidly higher throughout the session. The index ended up 131.75 points or 0.85% at 15,586, advancing for the eighth straight session. A majority of stocks advanced, led by FUJIFILM Holdings, Nomura, Credit Saison, Konica Minolta and Dainippon Screen Manufacturing.

Australia's All Ordinaries opened higher and rallied sharply in early trading and then moved sideways until early afternoon trading. Subsequently, the average pared back most of its gains in reaction to the soft Chinese manufacturing data and yet ended up merely 4.80 points or 0.09% at 5,634. Energy, IT and telecom stocks advanced strongly, while consumer and material stocks came under selling pressure.

Meanwhile, Hong Kong'sHang Seng Index ended down 165.66 points or 0.66% at 24,994 and China's Shanghai Composite Index closed at 2,231, down 9.75 points or 0.44%.

On the economic front, the results of a preliminary survey by HSBC and Markit showed that their index measuring manufacturing activity in China fell 1.4 points to 50.3 in August. Economists had expected a reading of 51.5. Meanwhile, the Markit's manufacturing purchasing managers' index for Japan rose about 2 points to 52.4, ahead of the 51.5 forecast by economists.

The Conference Board reported that its leading economic indicators index for Australia rose 0.4% month-over-month in June following a 0.2% increase in April. Europe

European stocks rebounded following yesterday's retreat, as traders digested domestic private sector activity data.

In corporate news, Air Berlin reversed to a profit in its second quarter and also unveiled restructuring plans. Germany'sGEA Group announced the elimination of 1,000 positions as part of a restructuring exercise and also announced a new group structure. Dutch supermarket chain Ahold reported a decline in its sales and profits for its second quarter. Meanwhile, copper miner Kazakhmys reversed to a profit in its first half.

On the economic front, private sector activity in the eurozone slowed more than expected in August, with the composite purchasing managers' index slipping to 52.8 from 53.8 in July. The index was expected to drop to 53.4. The manufacturing purchasing managers' index fell to a 13-month low of 50.8 and the service sector purchasing managers' index eased 0.7 points to 53.5.

Meanwhile, UK Office for National Statistics reported that UK retail sales rose a less than expected 0.1% month-over-month and 2.6% year-over-year.

US Economic Reports

Initial jobless claims in the US fell by slightly more than expected in the week ended August 16th, according to a report released by the Labor Department on Thursday.

The Labor Department said jobless claims fell to 298,000, a decrease of 14,000 from the previous week's revised level of 312,000. Economists had been expecting jobless claims to pull back to 300,000 from the 311,000 originally reported for the previous week.

Markit is due to release the results of its preliminary US manufacturing purchasing managers' survey for August at 9:45 am ET.

The National Association of Realtors will release its existing home sales report for July at 10 am ET. The consensus estimate calls for existing home sales to come in at a seasonally adjusted annual rate of 5 million units compared to a 5.04 million rate in June.

Existing home sales rose to a seasonally adjusted annual rate of 5.04 million units in June from a 4.91 million-unit rate in May. Inventories measured in terms of months of supply were unchanged at 5.5 months. The median sales price of an existing home was up 4.3% year-over-year, the slowest rate of growth since 2012. First time buyers accounted for 28% of the total sales, up from 27% in May.

Around the same time, the Philadelphia Federal Reserve is scheduled to release the results of its regional manufacturing survey. Economists expect the diffusion business activity index to decline to 20 in August from 23.9 in July.

The diffusion index of business activity rose to 23.9 in July from 17.8 in June, reaching the highest reading since March 2011. The new orders index roughly doubled to 34.2, while the order backlogs index fell by 2.4 points. The employment index was up 0.3 points to 12.2. The 6-month outlook index also increased in July.

Also at 10 am ET, the Conference Board is due to release its leading economic indicators index for the US The consensus estimate calls for a 0.6% month-over-month increase in the index.

In June, the leading economic indicators index rose a less than expected 0.3% month-over-month, with 7 of the 10 components improving. Leading the gains was the yield spread. The coincident index was up 0.2%.

The Treasury is set to make announcements concerning the auction of 2-year, 5-year and 7-year notes at 11 am ET.

Stocks in Focus

Hewlett-Packard (HPQ) reported in line earnings for its third quarter and above consensus revenues. The company's full year earnings guidance was in line with estimates.

International Rectifier (IRF) announced a deal to be bought by Infineon Technologies (IFNNY) for USD3 billion in cash. The company also announced fourth quarter results that came in ahead of estimates.

Synopsys (SNPS) reported better than expected third quarter results and issued in line guidance for the full year. However, the company's fourth quarter guidance was weak.

Semtech's (SMTC) second quarter results were also better than expected and its third quarter adjusted earnings guidance was in line, while its revenue guidance for the quarter was lackluster.

L Brands (LB) also reported better than expected second quarter results and raised its earnings guidance for the full year.



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Source: Alliance News


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