News Column

MARKET ANALYSIS: Deal News And Central Bank Benevolence Upholding Risk Appetite

August 25, 2014

WASHINGTON (Alliance News) - The major US index futures are pointing to a higher opening on Monday, with sentiment improving after last Friday's lackluster showing in the wake of the Jackson Hole economic symposium. The mood has been apparently supported by strong performance by the markets across the Atlantic and a few deal news that reflected corporate America's faith in profit growth. Markets may also take cues from the new home sales data and a service sector reading due shortly after the markets open.

US stocks advanced solidly in the week ended August 22, extending their gains from their previous week. The gains of the week came on the back of some solid corporate news and better than expected economic data, with the alleviation of geopolitical tensions also aiding sentiment.

Last Monday, easing of geopolitical tensions triggered strong buying in the markets, sending the major averages notably higher. Positive earnings, especially from Home Depot (HD), and strong housing starts data led to more buying on Tuesday, with all the three major averages ending moderately higher.

Amid the release of some lackluster corporate news and hawkish FOMC minutes, the major averages ended mixed on Wednesday. With corporate tidings remaining mostly positive and economic data encouraging, the major averages advanced modestly on Thursday. However, sentiment weakened on Friday, as Fed Chair Janet Yellen's speech at the economic symposium hosted by the Kansas City Federal Reserve at Jackson Hole struck a more neutral tone, a deviation from her dovish speeches in the past. The major averages ended mixed.

For the week ended August 22, the Dow Industrials ended up 2.03%, while the S&P 500 Index and the Nasdaq Composite advanced 1.71% and 1.65%, respectively. The Nasdaq Composite closed at fresh 14-year high, while the S&P 500 Index closed slightly off another record closing high hit earlier last week.

Among the sector indexes, the Philadelphia Housing Sector Index and the NYSE Arca Airline Index climbed over 3% for the week. The Dow Jones Transportation, the NYSE Arca Securities Broker/Dealer Index and the Philadelphia Semiconductor Index all ended up over 2%. On the other hand, the NYSE Arca Gold Bugs Index slid 3.07%.

Commodity, Currency Markets

Crude oil futures are rising USD0.07 to USD93.72 a barrel after retreating USD3.70 or 3.80% to USD93.65 a barrel in the week ended August 22.

Last Monday, oil extended its declines from the previous week, slipping close to a dollar per barrel. Oil tumbled close to USD2-a-barrel on Tuesday before bouncing back moderately on Wednesday amid weakening risk appetite and the release of the weekly petroleum status report. After rising moderately on Thursday, the commodity retreated once again on Friday to end the week notably lower.

Gold futures, which fell USD26 or 1.99% to USD1,280.20 an ounce in the previous week, are currently moving down USD1.80 to USD1,278.40 an ounce. The precious metal was hit hard last week due to the dollar's strength.

Among currencies, the US dollar rallied in the week ended August 22, helped by some solid economic data and the message of policy divergence that emerged from the Jackson Hole economic symposium last week. The dollar added 1.55% against the yen before ending the week at 103.95 yen and it settled 1.19% higher against the euro at USD1.3242 versus the euro.

Last week, policymakers at the European Central Bank and the Bank of Japan suggested that they are open to unveiling more stimuli to support growth and fight deflation at their respective economies. At the same time, Yellen's tone was more balanced.

The US dollar is currently trading at 104.02 yen and is valued at USD1.3195 versus the euro.


The major Asian markets closed mixed, with the Australian, Chinese, and Malaysian and Indonesian markets retreating, while the remainder of the major markets advanced. The weakness of the domestic currencies lent support to markets of some export-dependent economies, while commodity weakness weighed on a few markets.

The Japanese market opened higher and hovered above the unchanged line throughout the session, as the yen weakened further. The Nikkei settled up 74.06 points or 0.48% at 15,613, representing its highest level since July 31, 2014. Export stocks gained ground, while some defensive stocks came under selling pressure. Chugai Pharma slumped over 9% after Roche' deal to buy InterMune dashed hopes of the former buying out the Japanese company.

Meanwhile, Australia's All Ordinaries showed some apprehension in early trading before moving decisively lower in early afternoon trading. The index languished below the unchanged line thereafter before closing down 7.70 points or 0.14% at 5,633. Material and financial stocks came under selling pressure, while most other stocks saw some strength.

China's Shanghai Composite Index closed 11.54 points or 0.51% lower at 2,229, while Hong Kong'sHang Seng Index ended up 54.68 points or 0.22% at 25,167.


European stocks are rallying strongly, as traders bought bargains despite the crisis in Ukraine escalating and German business sentiment weakening for the fourth month. With European Central Bank president Mario Draghi pledging unstinted support to the recovery, traders appear to be taking heart.

The results of a survey by the IfO Institute showed that its business climate index for Germany fell 1.7 points to 106.3 in August, the lowest level since July 2013. Economists had expected a more modest drop to 107. Both the current sentiment and the economic expectations index declined.

US Economic Reports

Housing, manufacturing and consumer data are among an assortment of economic data scheduled for the unfolding week. The Commerce Department's new home sales data for July, the results of separate consumer confidence surveys by the Conference Board and the Reuters and the University of Michigan combine, the Commerce Department's durable goods orders data for July, jobless claims data, the National Association of Realtors' pending home sales index for July, the results of MNI Indicators' manufacturing survey for the Chicago region and the Commerce Department's personal income and spending report for July are among the mostly sought after economic readings of the week.

The service sector purchasing managers' index for August based on Markit's preliminary survey, S&P/Case-Shiller as well as Federal House Finance Agency's house price indexes for June, the results of some regional Federal Reserve's manufacturing surveys, preliminary second quarter GDP data and the results of the Treasury auctions of 2-year, 5-year and 7-year notes round up the economic events of the week.

Markit is due to release the results of its preliminary service sector for the US at 9:45 am ET. The service sector purchasing managers' index based on the survey is expected to improve to 62 in August from 61 in July.

At 10 am ET, the Commerce Department will release its new home sales data for July. The consensus estimate calls for new home sales to come in at a seasonally adjusted annual rate of 430,000 compared to 406,000 in June.

New home sales tumbled to a seasonally adjusted annual rate of 406,000 in June from a downwardly revised rate of 406,000 in May. Inventories measured in terms of months of supply rose to 5.8 months from 5.2 months in the previous month, with the inventory levels in June the most since October 2011. All four geographical regions saw month-over-month declines. The median price of a new home rose 5.3% year-over-year but fell 3.2% month-over-month to USD273,500. Short while after at 10:30 am ET, the Dallas Federal Reserve is due to release of its business activity index for August. The business activity index is expected to increase to 13.5 from 12.7 in July.

Stocks in Focus

InterMune (ITMN) announced that it has entered into a definitive agreement to be acquired by Swiss drug giant Roche for USD74 per share in cash, translating to a total deal value of USD8.3 billion. The deal is expected to be neutral to Roche's earnings in 2015 and accretive from 2016.

McDermott (MDR) announced the appointment of Stuart Spence, its accounting officer, as its CFO following the resignation of the incumbent Perry Elders, effective August 23, 2014.

Sonoco Products (SON) announced that it has signed a definitive agreement to acquire family-owned Weidenhammer Packaging Group for 286 million euros or approximately USD383 million in cash.

Burger King (BKW) confirmed late Sunday that it is in talks to acquire Canadian quick-service restaurant chain Tim Hortons, Inc. (THI) to create a combined entity that will be publicly-listed and headquartered in Canada.

ResMed (RMD) announced that an administrative law judge of the ITC ruled that each of the nine products of Chinese medical device manufacturer BMC Medical has infringed one or more of its patents. The judge recommended the ITC to ban BMC and its US distributor 3B Medical from importing or selling any of the infringing products in the US

Weatherford (WFT) announced that it has recommended its shareholders reject an unsolicited mini-tender offer by TRC Capital to buy up to 5 million shares amounting to a 0.65% stake in the company at USD21.15 per share.

Goldman Sachs (GS) announced that it has reached agreements with the Federal House Finance Agency to resolve all federal and state securities law related to residential mortgage backed securities, which Goldman agreed to repurchase for USD3.15 billion. The company said the cost of resolving these matters are substantially covered by reserves as of the second quarter of 2014.

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Source: Alliance News

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