The major U.S. index futures are pointing to a narrowly mixed opening on Monday, with sentiment reflecting caution about the macroeconomic outlook. With the EU meeting now behind us and the euphoria over some concrete measures announced last week subsiding, traders may now ponder over the practicality of implementing these measures and the viability of these measures to stem the debt rot. The markets may also react to the results of a national manufacturing survey due to be released shortly after the markets open and a deluge of M&A announcements.
U.S. stocks advanced in the week ended June 29th, capitalizing on the resolve of European leaders to find a genuine solution to the debt malaise plaguing the region. Along with other risk assets, equities rallied, with energy and housing stocks leading the gains.
Last Monday, the major U.S. averages declined sharply, as eurozone worries took hold of the markets, after Spain formally sought a bailout for its banking system. The averages reversed course and advanced moderately on Tuesday, thanks to a positive house price survey.
The indexes extended their gains on Wednesday, encouraged by the release of positive domestic economic data on durable goods orders and pending home sales. The averages declined on Thursday ahead of any concrete announcements from the two-day EU summit. Meanwhile, as the markets digested announcements from the EU summit, including a decision to allow direct recapitalization of banks by the EFSF/ESM, the major averages rose sharply on Friday, ending the week notably higher.
For the week, the Dow Industrials added 1.89 percent and the Nasdaq Composite Index gained 1.47 percent, while the S&P 500 Index moved up 2.03 percent.
Among the sector indexes, the Philadelphia Housing Sector Index climbed 9.33 percent for the week, while the NYSE Arca Oil Index and the Philadelphia Oil Service Index gained over 4 percent each. Additionally, the Dow Jones Transportation Average, the NYSE Arca Securities Broker/Dealer Index and the Dow Jones U.S. Basic Materials Index climbed over 2 percent.
Currency, Commodity Markets
Crude oil futures are slipping $1.25 to $83.71 a barrel after advancing $5.02 or 6.52 percent to $84.96 a barrel in the week ended June 29th. The previous week's gain came on the back of EU measures announced to tackle the region's debt crisis.
Last Monday oil declined moderately amid euro worries. The commodity rebounded on Tuesday after the S&P Case-Shiller house price survey eased some macroeconomic concerns.
Oil rose yet again on Wednesday, responding to the positive U.S. economic data, only to plunge on Thursday, as debt worries multiplied amid scant hopes from the EU summit. The commodity came back up with a spring in its steps on Friday, comforted by the EU announcements.
Gold futures, which climbed $37.30 or 2.38 percent to $1,604.20 an ounce in the previous week, are currently declining $11.70 to $1,592.50 an ounce. The dollar's retreat amid the increase in risk appetite worked in favor of the precious metal.
The dollar retreated across the board in the week ended June 29th following the developments on the eurozone debt crisis and efforts on to diffuse it. The currency slipped 0.76 percent against the euro before settling the week at $1.2666. Meanwhile, the dollar lost 0.80 against the yen to 79.79 yen.
The U.S. dollar is currently trading at 79.76 yen and is valued at $1.2604 versus the euro.
The major Asian markets, with the exception of the Japanese and the South Korean markets, closed higher, as sentiment about the situation in the eurozone remained positive in the wake of the EU proposals. Sentiment also got a boost from the positive results of the Bank of Japan's quarterly Tankan survey. The Hong Kong market remained closed on account of a public holiday.
Australia's All Ordinaries opened higher and rose steadily till late morning trading. Thereafter, the average consolidated before closing up 37 points or 0.89 percent at 4,173. Energy and material stocks spearheaded the advance following the increase in the price of commodities.
Japan's Nikkei 225 average opened sharply higher, but surrendered most of its advance by the afternoon. The index moved broadly sideways thereafter, closing down 3.30 points or 0.04 percent at 9,003. The strengthening of the yen in response to the positive Tankan survey weighed on exporters. Glass makers, resource and real estate stocks also came under selling pressure.
On the economic front, an index measuring sentiment among large Japanese manufacturers improved to -1 in the second quarter compared to expectations for -4. The index measuring the outlook for the third quarter came in at 1, while economists had expected a reading of -4.
The results of HSBC and Markit Economics' survey of the manufacturing sector in China showed that the sector contracted for the 8th consecutive month. The purchasing managers' index came in at 48.2 for June compared to the preliminary reading of 48.1 and the May reading of 48.4.
Meanwhile, the purchasing managers' index compiled by the China Federation of Logistics and Purchasing and the National Bureau of Statistics showed that the index for measuring activity in the Chinese manufacturing sector fell to a 7-month low of 50.2 in June from 50.4 in May.
The European markets are adding on to their gains, as traders remain optimistic regarding the domestic debt situation. Financial, engineering and construction stocks are advancing strongly.
As widely speculated, Barclays (BCS) announced the resignation of its Chairman Marcus Agius following the $453 million settlement the bank made last week in connection with accusations related to manipulating the LIBOR rates.
Final estimates released by Markit Economics showed that the euro area's manufacturing sector contracted for the eleventh straight month in June. The purchasing managers' index remained flat at 45.1, although it represented an upward revision from the preliminary reading of 44.8.
A report released by Eurostat showed that the eurozone's unemployment rate rose to a record 11.1 percent in May from 11 percent in April.
U.S. Economic Reports
The Labor Department's monthly jobs report, the weekly jobless claims data, ADP's private sector payrolls numbers and the results of the Institute for Supply Management's manufacturing and non-manufacturing surveys are among the closely watched reports of the unfolding week.
Commerce Department reports on construction spending and factory orders and announcements concerning the Treasury auctions of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.
The non-farm payrolls report is expected to show a pick up in the pace of hiring relative to May. That said, a meaningful drop in the unemployment rate isn't likely to happen anytime soon. BMO Capital Markets believes that businesses are waiting for the resolution of the eurozone debt crisis and the brightening of global economic prospects. Additionally, the uncertainty surrounding the U.S. fiscal issues is preventing employers from going on a hiring spree.
Separate surveys by the Institute for Supply Management may show that the manufacturing and service sectors experienced a slowdown in the pace of expansion. The manufacturing sector is beginning to take a hit from the debt storm raging across the Atlantic and the slowdown in global growth. Meanwhile slowing job growth and receding consumer confidence is likely to have hit retail trade and related services even as the recent resurgence seen in the housing market gives a lift to industries tied to the housing sector.
The results of the Institute for Supply Management's manufacturing survey, which are based on data compiled from purchasing and supply executives nationwide, are due out at 10 am ET. Economists expect the index to show a reading of 52 for June.
Economic activity expanded in the manufacturing sector in May, with the results of the national survey showing that purchasing managers' index coming in at 53.5, although down from 54.8 in April. Of the 18 industries surveyed, 13 reported growth. While the new orders index rose 1.9 points to 60.1, the order backlogs index fell 2.5 points to 47.
The production index slipped by 5.4 points to 55.6 and the employment index edged down 0.4 points to 56.9.
The Commerce Department's construction spending report to be released at 10 am ET is expected to show a 0.2 percent increase in May.
Construction spending rose 0.3 percent month-over-month in April, resulting in an annual increase of 6.8 percent. The monthly comparison showed that private construction spending climbed 1.2 percent, while public construction declined 1.4 percent.
Stocks in Focus
In corporate news, GlaxoSmithKline (GSK) and Theravance (THRX) said the results of four pivotal phase III studies of its treatment for chronic obstructive pulmonary disease showed statistically significant improvement compared to placebo.
Bristol-Myers Squibb (BMY) announced a deal to buy Amylin Pharma (AMLN) for $31 per share in cash or about $5.3 billion. AstraZeneca (AZN) will make a $3.4 billion cash payment to Amylin following the completion of its acquisition by Bristol-Myers Squibb.
Dell (DELL) has agreed to acquire Quest Software (QSFT) for $28.00 per share in cash for an aggregate purchase price of approximately $2.4 billion, net of cash and debt.
Linde announced that it has signed an agreement with Lincare Holdings (LNCR) for acquiring Lincare for $41.50 per share in cash or $4.6 billion in total.
Brightpoint (CELL) pre-announced second quarter results, expecting adjusted income from continuing operations of 14 cents per share on revenues of $1.25 billion to $1.3 billion. The company also said it is withdrawing its full year guidance. Separately, the company announced a deal to be bought by Ingram Micro (IM) for $9 per share in cash or $840 million in total.
Avnet (AVT) announced a deal to buy data center solutions and services distributor Magirus Group. The deal is expected to close in October 2012.
by RTT Staff Writer
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