News Column

MARKET ANALYSIS: Sentiment Nervous Amid Weak Consumer Spending Data

August 29, 2014





WASHINGTON (Alliance News) - The major US index futures are pointing to a higher opening on Friday, with sentiment remaining lackluster as traders take a cautious stance, weighing in all the uncertainties. Additionally, the sojourn of the major averages close to either record highs or multi-year highs may push traders to the defensive. A report released earlier in the day showed an unexpected drop in consumer spending, serving to re-ignite growth worries. Traders may also look to consumer sentiment and regional manufacturing readings due shortly after the markets open.

US stocks opened notably lower amid the general risk aversion in play, triggered in part by fears of overvaluation. Although the averages recouped some of their losses over the course of the morning, they began moving sideways modestly below the unchanged line in the afternoon before closing lower.

The Dow Industrials ended down 42.44 points or 0.25% at 17,080 and the Nasdaq Composite slid 11.93 points or 0.26% before closing at 4,558, while the S&P 500 Index closed 3.38 points or 0.17% lower at 1,997.

Eighteen of the thirty Dow components closed lower, while the remaining twelve stocks advanced, with Visa (V) falling the most. On the economic front, jobless claims fell 1,000 to 298,000 n the week ended August 23 from an upwardly revised reading of 299,000 for the week ended August 16 Economists expected claims to have increased to 300,000 from initially reported claims of 298,000 for the previous week. The four-week average was at 299,750, down from 300,750 for the previous week. Continuing claims calculated with a week's lag rose to 2.527 million in the week ended August 16 from 2.502 million in the week ended August 9.

The National Association of Realtors' reported that pending home sales rose 3.3% month-over-month, coming in ahead of expectations. Sales rose strongly in the Northeast followed by the South and the West, while sales declined in the Midwest.

GDP growth for the first quarter was upwardly revised to 4.2%, with gross personal investment upwardly revised to show 17.5% growth. Inventories added 1.39 percentage points to growth and net exports were less of a drag than what was reported earlier. Personal consumption expenditure was left unrevised.

Commodity, Currency Markets

Crude oil futures are rising USD0.44 to USD94.99 a barrel after climbing USD0.67 to USD94.55 a barrel on Thursday. Meanwhile, gold futures are slipping USD4.10 to USD1,286.30 an ounce. In the previous session, gold rose USD7 to USD1,290.40 an ounce.

Among currencies, the US dollar is trading at 103.94 yen compared to the 103.72 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at USD1.3192 compared to yesterday's USD1.3182.

Asia

The major Asian markets closed mixed, with traders digesting the negative close on Wall Street overnight and a slew of economic data from Japan.

The Japanese market retreated, with the yen's strength amid the risk aversion exerting downward pressure on stocks. The Nikkei 225 average languished below the unchanged line throughout the session before closing down 35.27 points or 0.23% at 15,425. Realty, resource, pharma, financial, real estate and export stocks moved mostly to the downside, while utility stocks gained ground.

Australia's All Ordinaries moved about in a volatile manner, moving back and forth across the unchanged line before closing up 3.30 points or 0.06% at 5,625. Energy, financial, industrial and IT stocks advanced, while material, consumer staple and healthcare stocks came under selling pressure,

Hong Kong'sHang Seng Index ended up merely 1.06 points at 24,742 and China's Shnaghai Composite closed 21.38 points or 0.97% higher at 2,217.

Among the slew of data released from Japan, the Ministry of Internal Affairs and Communication reported that annual core consumer price inflation in Japan was at 3.3% in July, in line with estimates. A separate report showed that the unemployment rate in Japan came in at 3.8% in July, bigger than the 3.7% rate expected by economists.

A Ministry of Economy Trade and Industry showed that retail sales grew 0.5% year-over-year in July, belying expectations for a 0.2% drop. Another report from the ministry showed that industrial production in Japan was up 0.2% month-over-month in July, trailing expectations for a 1% increase. Annually, industrial output fell a worse than expected 0.9%. Housing starts fell more than expected in July, according to a separate report.

Europe

After opening higher amid some bargain hunting, European stocks have given back some of their gains amid a lack of momentum to push stocks higher. The major averages are currently mixed.

On the economic front, a report released by the GfK showed that its index measuring consumer confidence in the UK rebounded to 1 in August, exceeding expectations for a score of -1. Final estimates released by Eurostat showed that the annual inflation in the eurozone eased to 0.3% in August from 0.4% in July, in line with estimates. Another report showed that the unemployment rate in the euro area remained unchanged at a 21-month low of 11.5% in July.

US Economic Reports

The Commerce Department reported that personal income rose by 0.2% month-over-month in July, slower than the 03% increase expected by economists. This represented a slowdown from the 0.5% increase in June. Wages and salaries were up 0.2%, slower than the 0.3% increase in June.




However, personal spending fell 0.2%, belying expectations for a 0.2% increase and reversing some of the 0.4% increase in June. The price consumption expenditure index, excluding food and energy, was up a stable 1.5%.

MNI Indicators is due to release the results of its manufacturing purchasing managers' survey for the Chicago region at 9:45 am ET. The business barometer for the region is expected to come in at 56.4 in August compared to 52.6 in June.


The Chicago business barometer fell 10 points to 52.6 in July, hitting the lowest level since July 2013. The new orders, backlog orders, inventories and production indexes all declined, while the employment index improved.

Reuters and the University of Michigan are scheduled to release its final consumer sentiment reading for August at 9:55 am ET. Economists expect the index to be upwardly revised 80.5 from the mid-month reading of 79.2.

Stocks in Focus

Microchip Technology (MCHP) announced that it has had preliminary mutual discussions with CSR PLC for a probable deal to buy CSR. The company cautioned that the discussions are at a very preliminary stage and there can be no certainty an offer will be made.

Pacific Sunwear (PSUN) reported a loss on an adjusted basis for its second quarter, which was in line with estimates. The company's revenues exceeded estimates.

Fred's (FRED) reversed to a loss in its second quarter but its revenues were ahead of estimates. The company's 2014 earning guidance was lackluster. In a restructuring exercise, the company announced plans to close 60 stores that have no pharmacies and don't meet operational performance targets. With improvement expected from the restructuring exercise, the company expects fiscal year 2015 profits that is above the consensus estimate.



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Source: Alliance News


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