The major U.S. index futures are pointing to a lower opening on Monday, with sentiment extremely weak, as traders focus on the situation in the eurozone. Spain has formally sought a bailout for its banking system. Skepticism about the EU nations being able to thrash out a solution for the debt crisis is increasing, given the enormity of the issue and Germany's resistance towards issuance of eurobonds. If the U.S. new home sales report shows outperformance relative to expectations, there is a likelihood that some of the weakness may be mitigated.
U.S. stocks closed the week ended June 22nd on a mixed note, with the Dow Industrials and the S&P 500 Index closing lower, while the tech-heavy Nasdaq Composite Index ended higher. Somber domestic economic data and disappointment over the Fed decision worked in the minds of traders, sapping their risk appetite and sending stocks lower.
Last Monday, the major averages closed on a mixed note amid worries about the debt situation in Europe. The averages moved higher on Tuesday, as the 2-day FOMC meeting got underway and traders picked up stocks on hopes that the Federal Reserve will announce additional easing measures.
The major U.S. averages closed Wednesday's session on a narrowly mixed note after the Fed announced only very little measures to stem the domestic economic slackness. Thursday brought more disappointment to the markets, as domestic manufacturing and housing market data grossly disappointed to the downside. However, the averages rebounded on Friday amid a lack of any major catalysts, as bargain hunting and hopes that the upcoming Eurogroup meeting will offer some solution to the debt crisis offered support to the markets.
For the week ended June 22nd, the Dow Industrials fell 0.99 percent and the S&P 500 Index declined 0.58 percent, while the Nasdaq Composite Index rose 0.68 percent.
Among the major sector indexes, the Philadelphia Oil Service Index and the NYSE Arca Gold Bugs Index declined 5.19 percent and 4.81 percent, respectively for the week, while the NYSE Arca Oil Index slipped 3.02 percent. Additionally, the Dow Jones Utility Average lost 2.28 percent. On the other hand, the NYSE Arca Airline Index added 5.68 percent.
Currency, Commodity Markets
Crude oil futures are sliding $0.82 to $78.94 a barrel after declining $4.27or 5.08 percent to $79.76 a barrel in the week ended June 22nd.
Last Monday, oil fell modestly, extending the weakness from the previous week. The commodity rebounded on Tuesday on hopes that the Federal Reserve will announce additional stimulus measures.
The dashing of hopes of incremental stimulus support weighed heavily on oil on Wednesday, as it slumped over $2-a-barrel. The commodity tumbled over $3-a-barrel on Thursday after the release of a batch of disappointing U.S. economic data. Oil fought back from its losses on Friday, as the equity markets rallied.
Gold futures, which closed down $61.20 or 3.76 percent at $1,566.90 last week, are currently climbing $5 to $1,571.90 an ounce.
Among currencies, the U.S. dollar strengthened in the week ended June 22nd, given the risk aversion in the markets for much of the week. The Fed decision not to announce any radical easing measures also supported the currency. The dollar rose 2.16 percent against the yen before closing the week at 80.43 yen and it added 0.54 percent against the euro before settling the week at $1.2570.
The greenback is currently trading at 79.63yen and is valued at $1.2494 versus the euro.
Most Asian markets retreated, as traders focused on the eurozone amid a lack of any major catalysts.
Japan's Nikkei 225 average opened higher but quickly reversed course and showed some volatility till late morning trading. Thereafter, the averages declined steadily, closing down 63.73 points or 0.72 percent at 8,735. Sentiment was hit by a stalling in the rally of the dollar against the yen.
Most stocks, with the exception of defensive stocks, came under selling pressure. Export-dependent and resource stocks were the worst hit, while pharma, telecom and construction stocks got a reprieve.
Australia's All Ordinaries declined sharply in the morning only to pare back some of its losses over the rest of the session. The index closed down 21.80 points or 0.53 percent at 4,072, but off its low of 4,041.
Material stocks came under severe selling pressure, with BHP Billiton slipping over 1 percent, while peer Rio Tinto posted a more modest loss. Newcrest Mining also pulled back sharply. Miners reacted negatively to a UBS (UBS) report warned of shrinking net incomes in the immediate years for BHP Billiton and Rio Tinto due to lower commodity prices and as the mining and carbon tax takes effect in less than a week.
Despite staging a mid-session recovery, Hong Kong's Hang Seng Index closed down 97.68 points or 0.51 percent at 18,898.
China's Shanghai Composite Index retreated 1.63 percent before closing at 2,224.
The major European markets are retreating sharply amid the uncertain outlook for the resolution of the debt crisis. Spain made a formal request for a bailout for its banking system, although no further details were available.
Meanwhile, Fitch became the last rating agency to downgrade Cyprus' debt rating to 'BB+', signaling junk status, from 'BBB-' while maintaining a negative outlook.
If the eurozone is to stay intact and avoid any potential disintegration, a tighter European integration and greater stability in the region's financial system is considered essential. BNP Paribas is of the view that this calls for integrated oversight of the European banking system and the introduction of a deposit guarantee system.
Financial, resource and utility stocks were among the worst hit.
U.S. Economic Reports
With the Fed decision now behind us, the focus shifts back to economic data in the unfolding week. The Commerce Department's new homes sales report for May, the National Association of Realtors' pending home sales index for May, the Conference Board's consumer confidence index for June and the revised consumer sentiment index compiled by Thomson Reuters and the University of Michigan are among the market moving reports of the week.
Traders may also focus on the weekly jobless claims data, the results of the ISM-Chicago's manufacturing survey for June, the Commerce Department's personal income and spending report for May and the durable goods orders report for May. A few regional manufacturing indexes, the S&P Case-Shiller house price index for April, the final first quarter GDP report and Treasury auctions of 2-year, 5-year and 7-year notes round up the economic events of the week.
The consumer sentiment index may have declined in June, as the softening of labor market conditions and volatile equity markets offset optimism stemming from a retreat in gas prices. Additionally, the fluid global macroeconomic environment could also weigh on consumer sentiment.
Durable orders may have seen a rebound, as reflected by the new orders component of the Institute for Supply Management's national manufacturing survey. Excluding aircraft and defense orders, order growth may have been fairly decent. That said, BMO Capital Markets expects only modest growth in capital spending in the second quarter, in line with the trend in the first quarter, as the eurozone debt crisis is delaying new orders and business capital expenditure.
The Commerce Department is due to release its new home sales report for May at 10 am ET. The consensus estimate calls for new homes sales of 350,000.
New home sales rose 3.3 percent month-over-month to a seasonally adjusted annual rate of 343,000 units in April, while March's reading was upwardly revised to 332,000 units. Inventories rose 1.4 percent, while the months of supply fell to 5.1 months. Meanwhile, the median price of a new home rose 5 percent year-over-year and was 0.7 percent higher than in the previous month.
Stocks in Focus
Lockheed Martin (LMT) said it has reached a tentative agreement with the representatives of the International Association of Machinists and Aerospace Workers, District 776 to end an ongoing strike. The company did not disclose the terms of the tentative agreement.
Teva (TEVA) announced that a U.S. district court has found in favor of Teva (TEVA) in its patent infringement lawsuit against Momenta Pharma (MNTA)/Sandoz and Mylan (MYL)/Natco Pharma regarding its relapsing MS product COPAXONE.
Shire (SHPGY) said the FDA approved a generic version of its hyperactivity drug Adderall XR meant to treat attention deficit hyperactivity disorder.
Kirby Corp. (KEX) lowered its second quarter and full year guidance below the consensus estimates, citing a deterioration in the manufacturing area and softness in the oil field related engine and transmission sales and service and parts sales at its United Holdings unit. The company now expects second quarter earnings of 80-85 cents per share compared to its earlier estimate of 97 cents to $1.02 per share. The company also lowered its full year earnings guidance to $3.45-$3.70 per share from $3.85-$4.05 per share.
Jacobs Engineering (JEC) announced its intention to buy 100 percent of the shares of Team Maroc through its Casablanca-based joint venture Jacobs Engineering SA. The companies did not reveal the terms of the deal.
by RTT Staff Writer
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