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Eurozone Worries Could Apply Brakes On Rally

11/26/2012 9:11 AM ET

The major U.S. index futures are pointing to a lower opening on Monday, with sentiment getting a hit from the uncertainties surrounding the eurozone debt crisis. Reflecting extreme cautiousness among consumers, a private survey showed that German consumer sentiment is expected to weaken in December. The fiscal situations in Spain and Greece are of grave concern and the downside risks posed by them are exemplified by some developments.

Meanwhile, the domestic fiscal situation is also keeping traders on the tenterhook. Watch out for key downside support for the Dow Industrials around 12,926, which incidentally is also its 21-day moving average.

U.S. stocks advanced in the week ended November 23rd, as traders picked up bargains after the recent sell-off on hopes that the economic travails are not insurmountable.

Last Monday, helped by positive results reported by home improvement retailer Lowe's (LOW) and on hopes concerning the resolution of the U.S. fiscal cliff, the major averages closed notably higher. The mood turned lackluster on Tuesday, as the major averages traded on a subdued manner for much of the session before closing flat.

The averages relished the news of a ceasefire in Gaze and a positive jobless claims report and ended moderately higher on Wednesday. In the truncated session that followed the Thanksgiving holiday on Friday, stocks advanced notably amid renewed economic hopes.

For the week ended November 23rd, the Dow Industrials added 3.35 percent and the S&P 500 Index closed up 3.62 percent, while the Nasdaq Composite rose 3.99 percent.

Among the sub-indexes, the Philadelphia Housing Sector Index and the NYSE Arca Biotechnology Index both rose over 6 percent for the week, while the NYSE Arca Gold Bugs Index advanced 5.024 percent. Additionally, the NYSE Arca Biotechnology Index and the NYSE Arca Oil Index added over 4 percent each. The Dow Jones Transportation Average, the NYSE Arca Airline Index, the NYSE Arca Broker/Dealer Index and the Philadelphia Semiconductor Index all gained over 3 percent.

Currency, Commodity Markets

Crude oil futures are slipping $0.42 to $87.86 a barrel after advancing $1.36 or 1.57 percent to $88.28 a barrel in the week ended November 23rd.

Last Monday, crude started off on a firm note, adding over $2.25-a-barrel, but lost much more on Tuesday, as Bernanke's warning triggered a sell-off in the commodity. However, the commodity rebounded moderately on Wednesday along with the equity markets and rose by over $1-a-barrel on Friday, thereby ending the week higher.

Gold futures, which added $36.70 or 2.14 percent to $1,751.40 an ounce in the previous week, are currently slipping $0.70 to $1,750.70 an ounce.

The dollar extended its weakness in the week ended November 23rd, as risk appetite was revived on investor perception that the economic fear-led sell-off was overdone. The dollar declined 1.80 percent against the euro before ending the week at $1.2972. The euro also received ample support last week from expectations that Greece may finally receive the next tranche of financing that it has been waiting for. Meanwhile, against the fellow safe haven yen, the dollar rose 1.32 percent to 82.39 yen.

The U.S. dollar is currently trading at 82.14 yen and is valued at $1.2961 versus the euro.

Asia

The major Asian markets closed on a mixed note, with the Australian, Japanese, Indian, Indonesian, New Zealand, Singaporean and Taiwanese markets closing higher, while the Chinese, Hong Kong, Malaysian and South Korean markets ended in negative territory.

Optimism over the likelihood of Greece securing an additional tranche of financing was offset by worries over Spain's ability to push through reforms after pro-independence parties won elections in the regional province of Catalonia.

Japan's Nikkei 225 average opened higher following Friday's public holiday but pared much of its gains over the course of the session before closing well off its highs. Rising for the third straight session, the index closed up 22.14 points or 0.24 percent at a 7-month high of 9,389.

The domestic market was lifted by the yen's weakness, which retreated in reaction to the release of the minutes of the October 30th monetary policy meeting. Export stocks were mostly higher, while real estate, pharma and telecom stocks saw weakness.

The minutes revealed that the members vowed to continue with powerful monetary policy easing until the inflation target of 1 percent is at least in sight, if not achieved. The bank also pushed back its hopes of hitting the inflation target. The core consumer price index is now forecast to fall 0.1 percent in fiscal 2012 compared to its prior estimate of a 0.2 percent increase.

Australia's All Ordinaries remained mostly above the unchanged line, although amid some volatility, before closing up 12 points or 0.27 percent at 4,444. Energy and material stocks advanced, while defensive sectors such as telecom and real estate declined. Financial stocks also came under selling pressure.

Hong Kong's Hang Seng Index closed at 21,862, down 52.17 points or 0.24 percent.

Europe

European stocks opened lower and have fallen further since then, as the regional elections in Spain have kick started worries concerning the likelihood of the nation requesting a bailout or being able to push through austerity measures. Meanwhile, the Eurozone finance ministers are meeting yet again on finalizing aid payment to Greece.

In corporate news, UBS was fined 29.7 million pounds by the U.K.'s Financial Services Authority for failing to prevent a $2.3 billion loss caused by a former trader".

Reinsurer Swiss Re said it expects claims of about $900 million from Hurricane Sandy that hit the U.S. East coast in late October. The firm expects total insured losses of about $20 billion to $25 billion.

Qatar Holding said it sold its remaining 379 million units of warrants in Barclays (BCS) as part of its active portfolio management even as it hold on to its 6.7 percent stake in the bank.

A consumer climate survey by GfK showed that German consumer confidence is set to weaken in December. The forward looking consumer climate indicator for December is expected to decline to 5.9 in December from 6.1 in November. The index was expected to increase to 6.2.

U.S. Economic Reports

A few housing reports and several Fed speeches are likely to predominate proceedings on Main Street in the unfolding week. Traders could seek more clarity on the recent housing market revival from some housing market data, including the Commerce Department's new home sales report for October, the results of house price surveys by S&P/Case-Shiller and the Federal House Finance Agency and the National Association of Realtors' pending home sales index for October.

The focus is also likely to be on a host of Fed speeches scheduled for the week, including one by Federal Reserve Chairman Ben Bernanke. The Conference Board's consumer confidence index for November, the weekly jobless claims data, the Federal Reserve's Beige Book and the Commerce Department's personal income and spending report for October may also garner market attention. The results of the manufacturing survey by the ISM-Chicago, the preliminary estimate of third quarter GDP growth and the results of the Treasury auctions of 2-year, 5-year and 7-year notes round up the economic events of the week.

The Chicago Federal Reserve is due to release the results of its manufacturing survey at 8:30 am ET. The national activity index based on the survey is expected to come in at 0.18 in October compared to 0 for the previous month.

The general business activity index based on the manufacturing survey by the Dallas Federal Reserve is scheduled to be released at 10:30 am ET. The index is expected to improve to 4.7 in November from 1.8 in October.

Stocks in Focus

CNH Global (CNH) announced a merger agreement with Fiat Industrial under which Fiat Industrial shareholders will receive one NewCo share and CNH shareholders will receive 3.828 NewCo share for each CNH share. Prior to the completion of the merger, CNH will pay a dividend of $10 per CNH share to its minority shareholders. The NewCo shares will be listed on the NYSE.

Retailers may be in focus after the National Retail Federation said about 247 million shoppers visited retail stores this Black Friday weekend, up over 9 percent from last year. The average spending by a shopper also increased to $423 from $398. The federation's estimates put holiday sales this year at $586 billion, up 4.1 percent year-over-year.

Shanda Games (GAME) and Thor Industries (THO) are among the companies due to release their quarterly results after the close of trading.

by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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