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Sentiment Falters As Chinese Growth Disappoints

The major U.S. index futures are pointing to a sharply lower opening on Friday, with sentiment faltering after the gains of the previous two sessions. Though a slowdown in Chinese first quarter was expected, the magnitude of deceleration was more than expected. Market reaction to the earnings reports of JP Morgan Chase (JPM) and Wells Fargo (WFC) has been muted, while Google (GOOG) steamrolled with stellar results.

Meanwhile, the debt crisis in Europe simmers along, with costs of borrowing for Spanish banks remaining high. Traders may now turn their attention to a consumer sentiment report to be released shortly after the markets open.

U.S. stocks extended their gains on Thursday amid the release of some mixed economic data and earnings hopes. The major U.S. averages opened higher after a report showed that the trade balance narrowed notably in February. The markets chose to ignore a jump in jobless claims. Buying momentum slowed in the afternoon after the sharp advance in the morning, with the major averages closing with handsome gains.

The Dow Industrials ended up 189.19 points or 1.41 percent at 12,987 and the S&P 500 Index added 18.86 points or 1.38 percent before closing at 1,388, while the Nasdaq Composite Index closed 39.09 points or 1.30 percent higher at 3,056.

Twenty-six of the thirty Dow components closed higher, with Caterpillar (CAT), Bank of America (BAC), Intel (INTC), Microsoft (MSFT), United Technologies (UTX), Boeing (BA) and Alcoa (AA) leading the gains. On the other hand, McDonald's (MCD) fell about 1 percent.

Transportation, housing, resource, semiconductor, retail and financial stocks all advanced strongly.

On the economic front, the Commerce Department's trade balance report showed that the trade deficit narrowed more than expected in February, marking the first decrease since October. The trade deficit narrowed to $46 billion in February, although exports rose a mere 0.1 percent compared to the previous month. However, imports fell 2.7 percent.

U.S. jobless claims unexpectedly rose in the week ended April 7th, with claims rising 13,000 to 380,000. Some sort of distorting influence may have come from the Good Friday holiday during the week. This marks the second straight increase and with that increase, the four-week average rose to 368,500. Meanwhile, continuing claims declined a steep 98,000 to 3.251 million, marking the lowest level since July 2008.

Helped by benign oil and food prices, headline producer inflation remained unchanged in March compared to the previous month. Energy prices declined 1 percent, while food prices were up just 0.2 percent. The year-over-year rate of the producer price inflation was 2.8 percent. Excluding food and energy prices, the core producer price index rose a bigger than expected 0.3 percent.

Currency, Commodity Markets

Crude oil futures are trading down $0.45 at $103.19 a barrel after rising $0.94 to $103.64 a barrel on Thursday. Oil benefited from the increase in risk appetite in the previous session.

Gold futures are currently declining $11.20 to $1,669.40 an ounce. In the previous session, the precious metal added $20.30 to $1,680.60 an ounce. Among currencies, the U.S. dollar is trading at 81.04 yen compared to the 80.89 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.3126 compared to yesterday's $1.3188.

Asia

The major Asian markets closed higher, inspired by Wall Street's rally overnight. Additionally, reports suggesting that North Korea's rocket launch failed brought about some relief.

Japan's Nikkei 225 average opened higher and moved broadly sideways before closing up 113.20 points or 1.19 percent at 9,638. Fast Retailing surged up over 8 percent after reporting an 11.8 percent increase in its first half operating profit, while Sony lost 5.50 percent in reaction to its job cut announcement.

Australia's All Ordinaries closed 42.50 points or 0.97 percent higher at 4,404 and Hong Kong's Hang Seng Index added 373.72 points or 1.84 percent before closing at 20,701.

Data released by the Chinese National Bureau of Statistics showed that China's economic growth slowed to 8.1 percent in the first quarter, slower than the fourth quarter growth of 8.6 percent. Economists had expected a more modest slowdown to 8.4 percent.

The statistical agency also released industrial production data for March, showing that production rose 11.9 percent compared to the 11.5 percent increase expected by economists. The retail sales growth for March was also better than expected.

Europe

The major European markets are seeing weakness after a two-session rally. Evidence of slowing growth in China and mixed earnings reported by U.S. financial companies are keeping sentiment subdued.

Final estimates released by the German Federal Statistics Office showed that annual inflation eased to 2.3 percent in March from the 2.5 percent rate in February.

A producer price inflation report released by the U.K.'s Office for National Statistics showed that the U.K.'s output price inflation slowed to 3.6 percent year-over-year in March, the slowest pace in about 2 years. Nevertheless, the inflation rate came in above the 3.5 percent forecast by economists.

U.S. Economic Reports

U.S. Consumer prices continued to rise in March though slowed somewhat by the increases posted for February, according to figures released by the Labor Department. The Consumer Price Index, a measure of inflationary pressures in the economy, increased 0.3 percent in March, slightly less than the 0.4 percent increase posted in February. The increase was in line with the expectations of most economists.

The 'core' consumer price index, a measure which excludes the volatile food and energy sectors, also increased, but by a somewhat smaller 0.2 percent - also matching the expectations of most economists.

The preliminary report on the Reuters/University of Michigan's consumer sentiment survey for April is scheduled to be released at 9.55 am ET. The consumer sentiment index is expected to remain unchanged at 76.2.

Federal Reserve Chairman Bernanke will also speak to the Russell Sage Foundation/The Century Foundation Conference on "Rethinking Finance" at 1 pm ET.

Stocks in Focus

Google (GOOG) reported first quarter adjusted earnings of $10.08 per share, exceeding the consensus estimate. Revenues, excluding traffic acquisition costs, rose 24 percent to $8.14 billion, slightly shy of estimates. The company also announced plans to create a new class of non-voting shares, which would be distributed through a stock dividend to all existing shareholders.

J.P. Morgan Chase (JPM) reported a decline in first quarter profit despite total net revenue improving and coming in above the consensus estimate.

Wells Fargo's (WFC) first quarter profit and revenue improved from the previous year and were also above Wall Street view.

Best Buy (BBY) said its board is creating a committee to run a global search process to identify a new CEO. The search is expected to take 6-9 months to complete.

TIBCO Software (TIBX) announced the completion of the acquisition of LogLogic, a private company offering scalable log and security management platforms designed for the enterprise and cloud.

Dow Chemical (DOW) announced that its board approved a 28 percent increase in its second quarter dividend to 32 cents per share.

J.B. Hunt (JBHT) said its first quarter earnings rose to 57 cents per share from 40 cents per share in the year-ago period. Total operating revenues rose to $1.17 billion to $1.00 billion. The results were better than expected.

Coinstar (CSTR) announced preliminary first quarter results, forecasting core earnings of $1.36-$1.40 per share on revenues of $567 million to $569.2 million. The company raised its 2012 guidance to $2.155 billion to $2.280 billion in revenues and $4.40-$4.80 per share in core earnings per share. The preliminary first quarter guidance was above consensus estimates and the updated full year earnings guidance also exceeded expectations. The full year revenue guidance surrounded the consensus estimates.

by RTT Staff Writer

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