News Column

MARKET ANALYSIS: Uncertainties Worry Traders Ahead Of Service Sector Data

August 5, 2014



WASHINGTON (Alliance News) - The major US index futures are pointing to a lower opening on Tuesday, with sentiment remaining negative, as traders grapple with the uncertainties. With the markets still in the overbought territory despite the recent sell-off, traders are jittery, and the markets could move in reaction to each incoming economic evidence. Two service sector readings due shortly after the markets open could render direction to the market in today's session.

US stocks rebounded on Monday following the sell-off seen late last week. The major averages opened higher and held in positive territory in early trading. After pulling back below the unchanged line in late morning trading, the averages recovered and advanced steadily throughout the remainder of the session.

The Dow Industrials ended up 75.91 points or 0.46% at 16,569, while the S&P 500 Index closed 13.84 points or 0.72% higher at 1,939 and the Nasdaq Composite ended at 4,384, up 31.25 points or 0.72%.

Twenty-five of the thirty Dow components closed higher and one stock ended unchanged, while the remaining four stocks receded. Disney (DIS), Exxon Mobil (XOM), Microsoft (MSFT), UnitedHealth (UNH), Caterpillar (CAT) and Intel (INTC) were among the best performers of the session.

Energy, basic material, biotechnology, retail and computer hardware stocks advanced notably, while gold stocks came under selling pressure.

Commodity, Currency Markets

Crude oil futures are edging up USD0.10 to USD98.19 a barrel after climbing USD0.41 to USD98.29 a barrel on Monday. Meanwhile, gold futures are rising USD0.20 to USD1,289.10 an ounce. On Monday, gold fell USD5.90 to USD1,288.90 an ounce.

Among currencies, the US dollar is trading at 102.76 yen compared to the 102.57 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is trading at USD1.3383 compared to yesterday's USD1.3422.

Asia

Most Asian markets declined, hurt by weak Chinese manufacturing data, although the Hong Kong and New Zealand bucked the downtrend. In the process, the averages largely ignored the positive lead from Wall Street overnight.

After seeing nervousness in the morning, Japan'sNikkei 225 average moved steadily lower, extending its losses for the fourth straight session. The index ended down 154.19 points or 1% at 15,320.

A majority of stocks declined, led by Japan Steel Works, which fell 8.62%. Nippon Suisan, Taisei, Bank of Yokohama and Sumitomo Osaka Cement also fell sharply.

Australia's All Ordinaries languished below the unchanged line for much of the session before closing down 21.80 points or 0.39% at 5,512. Consumer, financial, material and industrial stocks came under selling pressure, while energy and IT stocks advanced.

China's Shanghai Composite Index closed 3.39 points or 0.15% lower at 2,220, while Hong Kong'sHang Seng Index ended up 48.18 points or 0.2% at 24,648. Taiwan's Weighted Average slumped 2.02%.

On the economic front, the Reserve Bank of Australia once again left its key interest rate unchanged at a record-low, with policymakers reiterating their thinking that the most prudent course is likely to be a period of stability in interest rates.

India's Reserve Bank of India also left its key interest rates unchanged, as policymakers preferred to wait for more signs to confirm the downward trajectory of inflation.

A report released by the Australian Industry Group showed that service sector activity in Australia continued to contract, with the corresponding index rising to 49.3 in July from 47.6 in June.

A separate government report showed that the trade balance for Australia showed a deficit of AUD1.683 billion in June, narrower than the AUD2.043 billion deficit in May. Economists expected a deficit of AUD2 billion.

The results of a survey by Markit Economics and HSBC showed that the Chinese service sector saw activity stall in July. The service sector purchasing managers' index fell to 50 in July from 53.1 in June.

Nevertheless, due to buoyant manufacturing activity, the composite purchasing managers' index at 51.6 suggested expanding private sector activity.

Europe

European stocks opened higher and are holding above the unchanged line, as traders digest domestic earnings and react to final private sector activity data from the region. Bargain hunting is also in play as traders look out for beaten down stocks following four sessions of declines.

In corporate news, French bank Credit Agricole reported a decline in its second quarter profits, hurt by losses from its investment in Portugal'sBanco Espirito Santo. Logistics firm Deutsche Post reported a 9% increase in its second quarter earnings and reaffirmed its outlook for 2014.

Spain'sTelefonica announced a deal to buy Global Village Telecom from Vivendi for USD9 billion. InterContinental Hotels reported a decline in its earnings and revenues for its first half. BMW's second quarter earnings rose sharply, while Asian carmaker Toyota (TM) also posted strong profit growth for its quarter.

Revised estimates released by Markit showed that the composite purchasing managers' index for the euro area rose to 53.8 in July from 52.8 in June, although it represents a downward revision to the flash estimate of 54. The service sector purchasing managers' index was also downwardly revised to 54.2.

Meanwhile, a separate survey by Markit showed that UK service sector activity accelerated further in July, with the corresponding index rising to 59.1 in July from 57.7 in June. Economists expected a more modest increase to 58.

US Economic Reports

Markit is scheduled to release final estimates of its non-manufacturing index for the US at 9:45 am ET. Economists expect the index to be left unrevised at 61.

The Commerce Department is due to release its factory orders data for June at 10 am ET. The consensus estimate calls for a 0.6% month-over-month increase in factory orders following a 0.5% drop in May.

In May, factory orders fell 0.5% month-over-month, with durable goods orders declining 0.9%. Transportation equipment orders fell 2.9%, serving as a drag on the headline number.

Meanwhile, durable goods orders, accounting for the bulk of factory orders, saw a 0.7% month-over-month increase in June. Transportation equipment orders were up 0.6% and machinery orders rose 2.4%.

The Institute for Supply Management is scheduled to release the results of its service sector survey at 10 am ET. Economists expect the index to rise to 56.5 in July from 56 in June.

The June survey showed that non-manufacturing activity continued to expand for the 53rd consecutive month, although the non-manufacturing index edged down 0.3 points to 56. The business activity index fell 4.6 points to 57.5, while the new orders index rose 0.7 points to 61.2. The employment index rose 2 points to 54.4. While 14 industries reported growth, 4 industries reported contraction.

Stocks in Focus

AIG (AIG) reported second quarter operating earnings that exceeded estimates. Separately, AIG said in a regulatory filing that it agreed to pay USD960 million to settle claims it misled investors over its financial health in the years leading up to the 2008 financial crisis.

Protective Life (PL) reported better than expected second quarter operating earnings.

Pioneer Natural Resources (PXD) announced that it has agreed to sell all of its assets in the Houghton field and the Barnett Shale to Linn Energy (LINE) for USD495 million.

Avis Budget's (CAR) second quarter results exceeded estimates. The company also raised its adjusted earnings guidance for the full year.

Vornado's (VNO) second quarter funds from operations and revenues trailed expectations.

Marathon Oil (MRO) reported second quarter adjusted earnings that were ahead of expectations, while its revenues trailed estimates. MDU Resources (MDU) reported in line second quarter earnings, while its revenues were shy of estimates. The company maintained its full year earnings outlook.

Panera Bread (PNRA) announced that its CFO Roger Matthews has tendered his resignation to pursue outside opportunities. The company also noted that its executive VP Bill Moreton will serve as interim CFO, effective August 6th.

Tenet Healthcare (THC) reported second quarter adjusted earnings from continuing operations and revenues that exceeded estimates. The company also raised its 2014 adjusted EBITDA guidance.

Thor Industries (THO) announced preliminary fourth quarter sales from continuing operations of USD1.04 billion, while full year sales are estimated at USD3.53 billion. The guidance was slightly shy of estimates.

Activision Blizzard (ATVI), DryShips (DRYS), EOG Resources (EOG), First Solar (FSLR), Forest Oil (FST), Groupon (GRPN), Hertz Global (HTZ), Liberty Global (LBTYA), Papa John's (PZZA), Scientific Games (SGMS), Take-two (TTWO) and Disney (DIS) are among the companies due to release their quarterly results after the close of trading.



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Source: Alliance News


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