News Column

MARKET ANALYSIS: Removal Of Ukrainian Overhang Could Cheer Markets

September 3, 2014



WASHINGTON (Alliance News) - The major US index futures are pointing to a higher opening on Wednesday, with sentiment reflecting a relief that the Ukrainian crisis may be drawing to a close following Russia and Ukraine agreeing on a permanent ceasefire, sparing more trouble for the troubled eurozone economy. The relief could engender risk appetite, prompting traders to increase their holdings of risky bets such as equities. With ADP's private payrolls report being delayed by a day, the optimism that prevails now could see the markets through.

US stocks moved about in a lackluster manner on Monday amid the release of an upbeat manufacturing reading before closing mixed. The major averages opened mixed and experienced volatility following the release of a report showing an unexpected acceleration in US manufacturing activity. After giving back their gains over the course of the morning, the Dow Industrials and the S&P 500 Index slipped below the unchanged line in late morning trading and languished below the unchanged for rest of the session.

The Nasdaq Composite recovered after mid-session weakness before advancing in the afternoon and closing up 17.02 points or 0.39% at 4,598, Meanwhile, the Dow Industrials ended down 30.89 points or 0.18% at 17,068, and the S&P 500 Index closed 1.09 points or 0.05% lower at 2,002.

Twenty-one of the thirty Dow components closed lower, while the remaining nine stocks advanced. Boeing (BA), Chevron (CVX), Home Depot (HD), Intel (INTC), McDonald's (MCD) and Exxon Mobil (XOM) declined sharply in the session, while Visa (V), United Technologies (UTX), Nike (NKE) and Disney (DIS) gained some ground.

Among the sectors, transportation stocks, especially airlines, moved solidly to the upside. Meanwhile, gold, energy and utilities stocks came under selling pressure.

On the economic front, the Institute for Supply Management reported that its manufacturing purchasing managers' index rose 1.9 points to 59 in August. Economists had expected a reading of 56.8. Of the 18 industries surveyed, 17 reported growth.

Most sub-indexes showed growth, with the new orders and production indexes rising 3.3 points each to 66.7 and 64.5, respectively. The order backlogs index was up 3 points to 52.5. Meanwhile, the employment index eased 0.1 points to 58.1.

A separate Commerce Department report showed that construction spending rose 1.8% month-over-month in July following a revised 0.9% drop in June. Spending on private non-residential construction surged up 2.1% and private residential construction spending rose 0.7%.

Final estimates released by Markit showed that its manufacturing purchasing managers' index for the US rose to 57.8 in August from 55.8 in July, although it represented a decline from the mid-month reading of 58.

Commodity, Currency Markets

Crude oil futures are climbing USD1.02 to USD93.90 a barrel after plunging USD3.08 to USD92.88 a barrel on Tuesday. Meanwhile, an ounce of gold is currently trading at USD1,267.80, up USD2.80 from the previous session's close of USD1,265. On Tuesday, gold tumbled USD22.40.

On the currency front, the US dollar is trading at 104.98 yen compared to the 105.09 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at USD1.3152 compared to yesterday's USD1.3133.

Asia

The major Asian markets ended mostly higher, although the Australian and South Korean markets came under slight selling pressure. Although the buoyant mood evident yesterday was tempered, traders in the region took kindly to the US manufacturing reading and a Chinese service sector reading.

The strong US data has proved detrimental for the yen, which remained under pressure. Consequently, Japanese stocks firmed up. The Nikkei 225 average hovered in positive territory throughout the day, although it closed off its highs of the session. At the close of trading, the Nikkei average was up 59.75 points or 0.38% at 15,728.

Most export stocks gained ground, while defensive telecom, pharma, utility, food and retail stocks moved mostly to the downside.

Hong Kong'sHang Seng Index rallied strongly before ending up 568.93 points or 2.30% at 25,317, and China's Shanghai Composite Index ended 22.58 points or 1% higher at 2,289.

Meanwhile, Australia's All Ordinaries opened lower but recovered in late morning trading. After holding above the unchanged line till late trading, the index retreated, closing down 2.30 points or 0.04%.

Material and energy stocks dragged the market lower, offsetting strength witnessed among most other stocks.

On the economic front, final estimates released by HSBC and Markit showed that Chinese service sector activity picked up pace in August, with the corresponding index rising 4.1 points to 54.1.

Meanwhile, a combined survey by JMMA and Markit showed that service sector activity in Japan contracted in August. The index of activity in the sector dipped to 49.9 in August from 50.4 in July, with a reading below 50 indicating a contraction.

A report released by the Australian Bureau of Statistics showed that sequential GDP growth in Australia was at 0.5% in the second quarter, faster than the 0.4% growth expected by economists but slower than the 1.1% rate reported for the first quarter.

On the other hand, the results of a survey by the Australian Industry Group showed that service sector activity in Australia continued to contract in August, albeit at a slower rate.

Europe

After opening higher, European stocks have gained further ground, as traders digest the positive Chinese service sector reading, some domestic corporate news and the ceasefire agreement between Russia and Ukraine.

In corporate news, French luxury group LVMH announced an agreement to settle its dispute with Hermes by agreeing to shed its 23.2% stake in the maker of luxury handbags.

French dairy company Danone announced that its long-time CEO Franck Riboud will step down from the position, effective October 1st, and be succeeded by deputy CEO Emmanuel Faber. Riboud will continue to serve as the Chairman of the company.

On the economic front, final estimates released by Markit showed that its composite PMI that measures the performance of both the European manufacturing and service sectors eased to 52.5 in August from 53.8 in July, while economists expected a reading of 52.8. The service sector PMI declined 0.4 points to 53.1.

The results of a combined survey by Markit and the Chartered Institute of Purchasing and Supply showed that service sector activity in the UK unexpectedly accelerated in August. The corresponding indicator rose to 60.5 from 59.1 in July.

The British Retail Consortium reported that shop prices in the UK fell 1.6% year-over-year in August, a steeper drop than the 0.2% decline expected by economists.

US Economic Reports

The nation's automakers are scheduled to release their monthly auto sales results for August.

At 10 am ET, the Commerce Department is due to release its factory orders report for July. The consensus estimate calls for a 10.9% jump in factory orders in July.

In June, factory orders rose 1.1% month-over-month, helped by strong machinery orders, which boosted durable goods orders.

Durable goods orders, which make up the bulk of factory orders, surged up a record 22.6% month-over-month in July, with a 74.2% spike in transportation orders leading the way higher. Commercial airplane orders secured by Boeing (BA) provided the boost. However, excluding transportation, orders were down 0.8% compared to expectations for an increase.

The Federal Reserve is scheduled to release its Beige Book report at 2 pm ET. The report consists of anecdotal evidence of economic conditions in the twelve Federal Reserve districts and is usually released roughly two weeks ahead of the Federal Open Market Committee meeting.

Stocks in Focus

Teva Pharma (TEVA) announced that the UK High Court has issued a positive judgment supporting its patent case against AstraZeneca (AZN) relating to the validity of a patent covering the SMART indicator for AstraZeneca's Symbicort.

Danaher (DHR) announced that its board has appointed Thomas Joyce as its CEO, effective September 9th, as per its previously announced succession plan, replacing Lawrence Culp Jr., who will be transitioning to a senior advisory role.

Flextronics (FLEX) said it has received shareholder approval to buy up to 20% of its outstanding shares. Additionally, the company said its board has authorized the repurchase of USD500 million worth of shares.

Old Dominion Freight (ODFL) announced an increase to its third-quarter less-than-truckload tons per day growth guidance to a range of 18 -18.5% year-over-year from 17-18%. The company also affirmed its previously disclosed expectations for comparable-quarter growth in its LTL revenue per hundredweight, excluding fuel surcharges, to be in a range of 2-2.5%.

Toll Brothers (TOL) reported better than expected third quarter results and tightened its guidance for 2014.

Seagate (STX) said it has completed the acquisition of the assets of LSI's Accelerated Solutions Divisions and Flash Components Division from Avago Technologies (AVGO).

Baker Hughes (BHI) said it has closed its previously announced acquisition of Weartherford's (WFT) pipeline and specialty services business.

Pre-announcing third quarter results ahead of the Leucadia Investor Meeting to be held on Wednesday, Jefferies, a part of Leucadia National (LUK), said it expects net earnings of USD82 million on net revenues of USD835 million.

Office Depot (ODP) reiterated its guidance for the full year and also announced a USD100 million contract win from Corporate United.

HanesBrands (HBI), said it completed the acquisition of DBApparel, a marketer of intimate apparel, hosiery and underwear in Europe, for 400 million euros or around USD528 million. The company also raised its full year guidance to reflect contribution from the acquisition.

Blyth (BTH) announced that the founders of its ViSalus marketing subsidiary along with some preferred stockholders have agreed to exchange redeemable convertible preferred stock in the subsidiary for common stock. Consequently, Blyth's stake in the unit will be diluted to 10% from the current 80.9%, while the stake of the founders and other preferred stockholders will increase to 90%.

ABM Industries (ABM), Christopher & Banks (CBK), H&R Block (HRB), PVH (PVH) and Shoe Carnival (SCVL) 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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