News Column

MARKET ANALYSIS: Caution Likely As Traders Take Stock Of Geopolitical Developments

August 8, 2014

WASHINGTON (Alliance News) - The major US index futures are pointing to a modestly higher opening on Friday, with sentiment reflecting some strength, apparently the result of some bargain hunting related buying. Among the domestic data releases, a Labor Department report showed that non-farm productivity rose more than expected in the second quarter. Although Asian stocks were spooked by geopolitical concerns, European stocks have recovered from a weak start and are currently trading mixed. With geopolitical concerns still raging, stocks are unlikely to make big headway, and at the best could go about a consolidation move.

US President Barack Obama announced late Thursday that he has authorized air strikes against Islamic militants in Iraq in a bid to protect US personnel. Obama also approved the dropping of humanitarian aid to people stranded in the strife-torn nation.

US stocks succumbed to geopolitical concerns on Thursday, ending the session moderately lower. After positive jobless claims data gave an early thrust to the markets, the major averages retreated in late morning trading. Thereafter, the averages languished below the unchanged line before closing lower.

The Dow Industrials ended down 75.07 points or 0.46% at 16,368, the S&P 500 Index closed 10.67 points or 0.56% lower at 1,910 and the Nasdaq Composite Index ended at 4,335, down 20.08 points or 0.46%.

Twenty-four of the thirty Dow components closed lower, while the remaining six stocks advanced. UnitedHealth (UNH), Disney (DIS), IBM (IBM), Coca-Cola (KO), Nike (NKE), Procter & Gamble (PG), AT&T (T) and Verizon (VZ) were among the worst performers of the session. On the other hand, Boeing (BA) and Microsoft (MSFT) rose over 1% each.

Airline, biotechnology, financial and semiconductor stocks declined sharply, while utility stocks gained ground.

On the economic front, jobless claims fell to 289,000 in the week ended August 2nd from 303,000 in the previous week. The four-week average declined to 294,000 from 298,000, hitting the lowest level since February 2006. Continuing claims calculated with a week's lag fell to 24,000 to in the week ended July 26th.

Commodity, Currency Markets

Crude oil futures are advancing USD0.18 to USD97.52 a barrel after rising USD0.42 to USD97.34 a barrel on Thursday. Meanwhile, gold futures are slipping USD3.40 to USD1,308.10 an ounce. In the previous session, gold rose USD4.30 to USD1,312.50an ounce.

Among currencies, the US dollar is trading at 102.05 yen compared to the 102.10 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at USD1.3385 compared to yesterday's USD1.3364.


Stung by geopolitical concerns, especially after president Obama announced air strikes on Iraq, the Asian markets wilted, with the Japanese, South Korean, Australian and Indian markets seeing marked weakness.

The increase in risk aversion that gravitated investment towards safe haven assets such as the yen worked out negatively for stocks in Japan. The Nikkei 225 average declined steadily in the morning before moving roughly sideways and closing down 454 points or 2.98% at 14,778, its lowest level since May 30th.

All but three of the index components declined. Nisshin Steel, Nikon, Taiyo Yuden and Nippon Electric Glass were among the worst performers of the session.

Australia's All Ordinaries also languished below the unchanged line throughout the session, ending down 71.10 points or 1.29% at 5,430. The market witnessed broad based weakness, with stocks cutting across sectors declining sharply.

Hong Kong'sHang Seng Index closed at 24,331, down 56.15 points or 0.23%, while China's Shanghai Composite bucked the downtrend with a 6.76 points or 0.31% advance to 2,194 in reaction to strong domestic trade data.

On the economic front, a report released by China'sGeneral Administration of Customs showed that China's trade surplus rose to a record USD47.3 billion in July from USD31.6 in June, as exports rose at more than the double the pace expected.

The Bank of Japan's Monetary Policy Board opted to keep its monetary policy stance unchanged. While the central bank maintained its commentary on the economy, inflation and the outlook largely unchanged, it pointed to the weakening of exports.

Japan'sMinistry of Finance reported that Japanese exports rose at a slower rate than imports in June, resulting in the widening of the nation's trade deficit to 537.1 billion yen.

Meanwhile, bank lending in Japan rose a less than expected 2.3% year-over-year in July, according to data released by the Bank of Japan. Europe

After coming under pressure in early trading amid the intensification of geopolitical worries, European stocks have turned mixed over the course of the session.

In corporate news, German insurer Allianz reported higher second quarter net income. Franco-Belgian bank Dexia reported a wider net loss for its first half, while the UK's TUI reported higher profits for its third quarter.

On the economic front, a report released by the German Federal Statistical Office showed that German exports rose 0.9% month-over-month in June and imports climbed 4.5%. The trade surplus fell to 16.3 billion euros in June from 18.8 billion in May.

Meanwhile, French statistical office INSEE reported that French industrial output rose 1.3% month-over-month in June, reversing some of the 2.3% drop in May. Manufacturing output was up 1.6%.

Based on the results of a survey, the Bank of France said it expects the French economy to expand by 0.2% sequentially in the third quarter, unchanged from the growth seen in the second quarter.

French business sentiment unexpectedly fell in July, according to the results of the central bank's survey. The business confidence index fell a point to 96 in June, while economists expected the index to have remained unchanged.

US Economic Reports

Labor productivity in the US increased by more than anticipated in the second quarter, according to a report released by the Labor Department on Friday, with the jump in productivity contributing to a smaller than expected increase in labor costs. The report said labor productivity climbed by 2.5% in the second quarter compared to economist estimate for an increase of 1.5%.

The Labor Department also said unit labor costs edged up by 0.6% in the second quarter, well below the 1.4% growth expected by economists. At the same time, the report said labor productivity in the first quarter tumbled by a revised 4.5%, contributing to an 11.8% jump in unit labor costs.

The Commerce Department will release its wholesale inventories report for June at 10 am ET. The consensus estimate calls for a 0.7% month-over-month increase in wholesale inventories.

In May, wholesale inventories rose 0.5% month-over-month and climbed 7.9% year-over-year. At the same time, wholesale sales were up 0.7% compared to the previous month and 6.6% higher than a year ago. The wholesale inventories to sales ratio was at 1.18 compared to 1.16 in the year-ago period.

Stocks in Focus

CSC (CSC) reported first quarter earnings and revenues that beat estimates and issued in line earnings guidance for 2015.

CBS (CBS) reported second quarter adjusted earnings that came in above estimates.

Allscripts' (MDRX) second quarter adjusted earnings were in line, while its revenues exceeded estimates.

Hbbett Sporting (HIBB) announced that it expects second quarter earnings of 30-32 cents per share on 4.2% revenue growth to USD194 million achieved on the back of a 0.1% increase in comparable store sales. The estimates were below estimates, with the company blaming the predicament on weaker than expected traffic.

Gap (GPS) said its July comparable store sales rose 2% compared to a 1% increase in the year-ago period. For the second quarter, the company expects earnings of 73-74 cents per share, which includes a 5 cents per share gain on the sale of a building owned but not occupied by the company. The guidance was above estimates.

NVIDIA (NVDA) reported better than expected second quarter earnings and in line revenues. The company's third quarter revenue guidance was also in line.

Monster Beverage (MNST) reported second quarter earnings that were ahead of expectations, while its revenues trailed expectations.

DeVry (DV) also reported above consensus earnings for its fourth quarter, while its revenues were shy of estimates.

Emulex's (ELX) third quarter results were ahead of expectations and its first quarter guidance was also positive.

Sonic (SONC) announced that its board initiated a cash dividend program and has declared a dividend of 9 cents per share to be paid on November 21, 2014 to shareholders of record as of November 12, 2014.

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Source: Alliance News

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