The major U.S. index futures are pointing to a narrowly mixed opening on Tuesday, with sentiment reflecting caution as the markets head into a truncated session ahead of the Independence Day holiday tomorrow. The U.S. economic outlook is increasingly becoming murkier, with each piece of incoming economic evidence pointing to softness in almost all segments of the economy. The housing market seems to be an exception, showing some semblance of stability of the ravages it experienced post the bursting of the housing bubble.
The jobs reports due to be released over the course of the week may also introduce some caution. That said, crude oil is trading sharply higher and currencies are mixed.
After showing lackluster sentiment for much of Monday's session, U.S. stocks closed on a mixed note. The major averages opened little changed but rose in early trading, as traders digested a slew of M&A announcements. However, with the national manufacturing survey suggesting a contraction, the short rally petered out and the major averages remained largely below the unchanged line for the rest of the session.
Some buying emerged in late trading on hopes that the Fed will inject more stimulus to kickstart the recovery that has begun to show signs of slackening. Nevertheless, the averages closed on a mixed note.
The Dow Industrials ended down 8.70 points or 0.07 percent at 12,871, while the S&P 500 Index rose 3.35 points or 0.25 percent to 1,366 and the Nasdaq Composite closed at 2,951, up 16.18 points or 0.55 percent.
The breath among the Dow components was even, with 15 stocks closing lower, while the remaining 15 stocks advanced. Dupont (DD), Alcoa (AA), Boeing (BA), Bank of America (BAC), Caterpillar (CAT) and General Electric (GE) declined sharply, while JP Morgan Chase (JPM), AT&T (T) and Verizon (VZ) advanced notably.
Biotechnology stocks surged on M&A activity in the sector.
On the economic front, the results of the Institute for Supply Management's national manufacturing survey showed that manufacturing conditions activity contracted in June. The manufacturing purchasing managers' index slipped to 49.7 in June from 53.5 in May. The new orders index declined sharply to 47.8, marking the weakest level since April 2009, and the order backlogs index fell by 2.5 points to 44.5. The production index also slipped, dropping 4.6 points to 51, and the employment index edged down 0.3 points to 56.6. Of the 18 industries surveyed, 7 industries reported growth and 2 reported little change, while the rest contracted.
Meanwhile, the Commerce Department said construction spending rose a better than expected 0.9 percent month-over-month in May, while annually, construction spending was up 7 percent. Private construction spending rose 1.6 percent month-over-month compared to a 0.4 percent drop in the spending on public construction. Among private construction, spending on residential construction climbed 3 percent and spending on non-residential construction improved a more modest 0.4 percent.
Currency, Commodity Markets
Crude oil futures are gaining $2.01 to $84.76 a barrel after declining $1.21 to $83.75 a barrel on Monday.
Gold futures are currently adding $16.80 to $1,614.50 an ounce. In the previous session, the precious metal declined $6.50 to $1,597.70 an ounce.
Among currencies, the U.S. dollar is trading at 79.85 yen compared to the 79.52 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.2568 compared to yesterday's $1.2576.
With the exception of the Australian market, the major Asian markets closed higher, as stimulus hopes strengthened following the release of weak manufacturing data from the U.S., China and Europe.
Japan's Nikkei 225 average opened higher and advanced in the morning before going about a consolidation move in the afternoon. The index closed up 63.11 points or 0.70 percent at 9,067.
Most sector stocks advanced, with financial, utility, real estate and some export stocks among the biggest gainers. On the other hand, Kawasaki Kisen Kaisha and All Nippon Airways fell over 14 percent and 13 percent, respectively. Resource stocks also came under selling pressure.
After moving back and forth in a narrow range in the morning, Australia's All Ordinaries moved decisively into the negative territory in the afternoon. The index closed down 6.10 points or 0.15 percent at 4,166 amid the decision by the nation's central bank to keep interest rates unchanged. Energy stocks served as a drag on the index.
The Reserve Bank of Australia opted to keep its key interest rate unchanged, as it awaits the pass through of the effects of the two consecutive rates cuts implemented this year. The central bank held the benchmark cash rate steady at 3.5 percent, as widely expected. This followed a 50 basis point reduction in May and a quarter-point cut in June.
Although today's statement showed that the bank preferred to stay on hold to assess the impact of the material easing it has already delivered, Westpac is of the view that rates need to go down further. The firm expects 25 basis point cuts in August and September and a final cut of the same magnitude in the December quarter.
Hong Kong's Hang Seng Index, which opened after Monday's public holiday, ended up 279.99 points or 1.44 percent at 19,722.
In economic news, the results of a survey by China Federation of Logistics and Purchasing showed that the non-manufacturing sector in the China expanded at a faster rate in June than in May. The non-manufacturing purchasing managers' index rose 1.5 points to 56.7.
The Bank of Japan reported that the monetary base in Japan rose 5.9 percent year-over-year in June on top of the 2.4 percent increase in May. Building approvals rose more than expected in Australia in May, according to a separate report released by the Australian Bureau of Statistics.
The major European markets are also advancing, although the buying has assumed a much more subdued tone. The meetings of the monetary policy setting arms of the two major central banks of the region are due this week, with most economists expecting additional stimulus measures.
In corporate news, Netherlands-based telecom company KPN announced the appointment of Eric Hageman as its new CFO. After Marcus Agius quit as Barclays (BCS) chairman yesterday, he was reinstated, as the company announced the resignation of CEO Robert Diamond over the LIBOR rate fixing scandal.
On the economic front, Markit Economics reported that its purchasing managers' index for the construction sector fell to 48.2 in June from 54.4 in May. Data released by the Bank of England showed that the number of mortgages approved for home purchases fell slightly to 51,098 in May. Lending to individuals as well as lending secured on dwellings increased.
U.S. Economic Reports
Individual automakers are scheduled to release their monthly U.S. sales results for June. The data will reveal the unit sales of domestically produced cars and light duty trucks, including sports utility vehicles and mini-vans, during the month. Economists expect domestic vehicle sales of 13.9 million for June, up from 13.8 million last month.
The Commerce Department is due to release its report on factory goods orders for May at 10 am ET. Economists estimate a 0.1 percent increase in orders for factory goods.
The April report showed that factory goods orders fell 0.6 percent month-over-month. Meanwhile, durable goods orders, which make up the bulk of the factory goods orders, rose 1.1 percent month-over-month in May after declining by 0.2 percent in April. Excluding transportation orders, the order growth was merely 0.4 percent, which was below expectations.
That said, orders for machinery, computers, electrical equipment and transportation equipment all increased. Core orders, defined as non-defense capital goods order, excluding aircrafts, increased by 1.6 percent in May, while shipments of this category of goods edged up by 0.4 percent, reversing the 0.6 percent drop in April.
Stocks in Focus
Avnet (AVT) announced the acquisition of electromechanical components distributor Altron GmbH & Co. Altron generated revenues of $30 million in 2011.
Microsoft (MSFT) announced that it would take a non-cash non-tax-deductible income statement charge for the impairment of goodwill amounting to $6.2 billion related to its 2007 acquisition of aQuantive. The company expects to record the charge in the fourth quarter.
Men's Wearhouse (MW) announced that its CFO Neill Davis has communicated his intention to leave the company on August 2nd. Diana Wilson, currently serving as an executive VP, will serve as the interim CEO.
by RTT Staff Writer
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