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Preoccupation With Fiscal Cliff Impacting Sentiment

12/6/2012 9:18 AM ET

The major U.S. index futures are pointing to a lower opening on Thursday, with sentiment not seeing a real lift despite the release of a report showing a bigger than expected decline in jobless claims. The two central bank decisions across the Atlantic were along the expected lines. The fiscal cliff issue may pre-occupy the minds of traders, given the lack of agreement among lawmakers concerning measures to avert a fall off the cliff. The non-farm payrolls report due to be released tomorrow may also prevent traders may building positions for want of clarity on the economic outlook.

U.S. stocks ended Wednesday's session on a mixed note, as traders held onto optimism about the global economic outlook following indications from the new Chinese leadership team that urbanization will receive an impetus, the release of a positive U.S. service sector reading and the progress made in talks on averting the fiscal cliff.

The major U.S. averages opened little changed after the release of disappointing private sector payrolls data. After declining till late morning trading, the averages cut their losses. The Dow Industrials and the S&P 500 Index moved above the unchanged line in early afternoon trading and advanced sharply till the mid-session before going about a consolidation move. Despite trimming its loss, the Nasdaq Composite languished in negative territory throughout the session, weighed down by a sharp pullback by the shares of Apple (AAPL).

The Dow Industrials ended up 82.71 points or 0.64 percent at 13,035 and the S&P 500 Index closed 2.23 points or 0.16 percent higher at 1,409, while the Nasdaq Composite Index ended at 2,974, down 22.99 points or 0.77 percent.

Twenty-two of the Dow components closed higher, with Bank of America (BAC) and Travelers Companies (TRV) leading the way higher with gains of 5.66 percent and 4.92 percent. Alcoa (AA), Caterpillar (CAT), General Electric (GE), Hewlett-Packard (HPQ), J.P. Morgan Chase (JPM) and Pfizer (PFE) also posted notable gains.

Financial and utility stocks advanced strongly, while housing and gold stocks came under selling pressure.

On the economic front, the results of the Institute for Supply Management's service sector survey showed that its non-manufacturing index rose to 54.7 in November from 54.2 in October. Out of the 18 industries surveyed, 11 reported growth and 1 saw no change, while the remaining 6 industries reported contraction. The new orders index climbed 3.3 points to 58.1, the business activity index rose 5.8 points to 61.2 and the order backlogs index climbed 4.5 points to 53.5. On the other hand, the employment index declined to 50.3 from 54.9.

Additionally, the Commerce Department reported that factory orders rose a better than expected 0.8 percent month-over-month in October compared to expectations for no change.

Meanwhile, the ADP survey showed that the private sector added 118,000 jobs in November compared to 157,000 in October. ADP said that about 86,000 jobs were lost due to Hurricane Sandy. The construction sector added 23,000 jobs, while the manufacturing sector lost 16,000 jobs.

Currency, Commodity Markets

Crude oil futures are slipping $0.52 to $87.36 a barrel after declining $0.62 to $87.88 a barrel on Wednesday.

Yesterday's decline came amid the release of the inventory report, which showed that crude oil inventories fell by 2.4 million barrels to 371.8 million barrels in the week ended November 30th. Despite the decline, inventories were well above the upper limit the average range for this time of the year.

Meanwhile, gasoline inventories rose by 7.9 million barrels, climbing to the upper half of the average range. Distillate inventories increased by 3 million barrels yet remained well below the lower limit of the average range. Refinery capacity utilization averaged 88.2 percent over the four weeks ended November 30th compared to 86.9 percent over the four weeks ended November 23rd.

Gold futures, which fell $2 to $1,693.80 an ounce in the previous session, are currently slipping $4.10 to $1,689.70 an ounce.

Among currencies, the U.S. dollar is trading at 82.36 yen compared to the 82.47 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.3037 compared to yesterday's $1.3070.

Asia

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

Japan's Nikkei 225 average opened higher and moved sideways for the rest of the session before closing up 76.32 points or 0.81 percent at 9,545. Resource and export stocks were among the best performers of the session.

NTN rallied 12.12 percent, while Sharp and Pacific Metals also saw notable gains. On the other hand, marine transportation, real estate and some pharma and financial stocks declined.

Australia's All Ordinaries squandered its early gains, dipping below the unchanged line in early trading. Thereafter, the average continued to languish in negative territory. The index ended down 12.30 points or 0.27 percent. Energy and financial stocks saw some weakness, while healthcare and utility stocks advanced.

Hong Kong's Hang Seng Index closed at 22,250, down 21.10 points or 0.09 percent.

On the economic front, a report released by the Australian Bureau of Statistics showed that Australia's seasonally adjusted unemployment rate came in at 5.2 percent in November compared to the consensus forecast of 5.5 percent and the October rate of 5.4 percent. The economy added 13,900 jobs compared to expectations for no change.

The Bank of Korea downwardly revised its third quarter sequential growth estimate for the South Korean economy to 0.1 percent from its preliminary estimate of 0.5 percent. In the second quarter, the economy grew 0.3 percent.

In a rate decision from the region, the Reserve Bank of New Zealand maintained its official cash rate unchanged at 2.5 percent, in line with expectations.

Europe

European stocks are higher, although amid some volatility, amid the central bank decisions from the region.

The Bank of England maintained the size of its asset purchase program at a record low following the end of its 2-day rate-setting meeting. The asset purchase program now stands unchanged at 375 billion pounds.

The European Central Bank also left its key interest rate unchanged at a record low for the fifth consecutive month.The main refinancing rate was held at 0.75 percent, with the decision coming in line with economists' expectations. The previous change in interest rates was a quarter-point reduction in July. As expected, the GDP forecast for 2013 was downwardly revised.

In corporate news, German steel maker Thyssenkrupp announced that three of its board members, namely Olaf Berlien, Edwin Eichler and Juergen Claasen, will step down, as the company grapples with its U.S. steel operations. Airbus operator EADS said Germany will become a stakeholder in the firm, owning about a 12 percent stake in the company. Daimler and Lagardere are seeking to divest their stakes in the company. French utility GDF Suez lowered its 2012 profit forecast, citing the challenging economic conditions.

On the economic front, a house price survey by the Halifax division of the Lloyds Banking Group showed that U.K. house prices rose 1 percent month-over-month in November compared to the more modest 0.1 percent increase expected by economists.

A report released by INSEE showed that France's unemployment rate measured on the basis of ILO standards rose to 9.9 percent in the third quarter from 9.8 percent in the second quarter.

U.S. Economic Reports

First-time claims for U.S. unemployment benefits fell by more than expected in the week ended December 1st, according to a report released by the Labor Department, with claims continuing to settle down following the volatility seen due to Hurricane Sandy.

The Labor Department said jobless claims fell to 370,000, a decrease of 25,000 from the previous week's revised figure of 395,000. Economists had expected jobless claims to drop to 380,000 from the 393,000 originally reported for the previous week.

Stocks in Focus

Men's Wearhouse (MW) reported third quarter earnings of 95 cents per share compared to adjusted earnings of 79 cents per share last year. Net sales rose 7.9 percent to $631 million. The results missed estimates. The company lowered its 2012 guidance and now expects earnings of $2.57-$2.63 per share on 4.7-5.0 percent sales growth. The guidance was below estimates.

Celestica (CLS) announced the appointment of Darren Myers as its CFO, effective December 28th, replacing Paul Nicoletti, who will be leaving the company to pursue other interests. The company also reaffirmed its fourth quarter guidance, which calls for earnings of 15-21 cents per share on sales of $1.425 billion to $1.525 billion.

Horace Mann (HMN) said its board has approved a 23 percent increase in its quarterly dividend to 16 cents per share. Dick's Sporting (DKS) declared a special cash dividend of $2 per share on the company's common stock and Class B stock.

Emulex (ELX) said it intends to take over New Zealand-based network performance management company Endace in an all cash deal valued at 500 pence per share or $130 million in total. The company expects the deal to be neutral to its non-GAAP earnings per share in 2013 and accretive at the beginning of 2014.

Broadcom (BRCM) raised the lower end of its earlier fourth quarter revenue guidance and now expects net revenues of $2 billion to $2.10 billion, with the revision attributed to slightly better than expected revenue in its mobile wireless business.

ProAssurance (PRA) said its board has authorized a 2-for-1 stock split. Following the split, shareholders will also receive a special dividend of $2.50 per share.

Synopsys (SNPS) reported fourth quarter non-GAAP earnings of 47 cents per share, higher than 45 cents per share in the year-ago period. Revenues rose to $454.2 million from the year-ago quarter's $390.5 million. The earnings were in line, while the revenues exceeded estimates. For the full year 2013, the company expects non-GAAP earnings of $2.26-$2.31 per share on revenues of $1.955 billion to $1.975 billion. The earnings guidance surrounded the consensus estimate, while the revenue guidance exceeded expectations.

Finisar (FNSR) reported second quarter non-GAAP earnings of 15 cents per share compared to 23 cents per share last year. Revenues climbed to $232.04 million from $220.53 million last year. For the third quarter, the company expects non-GAAP earnings of 14-18 cents per share on revenues of $230 million to $245 million. The results exceeded estimates, while the guidance surrounded the consensus estimate.

Pacific Ethanol (PEIX) said it received a letter from the Nasdaq granting a 180-day extension or at least until June 3rd, 2013 for regaining compliance with a Nasdaq Listing rule prescribing a minimum closing bid price of at least $1 per share.

Comtech Telecom (CMTL), Cooper Companies (COO), Esterline Technologies (ESL) and Smith & Wesson (SWHC) are among the companies due to release their quarterly results after the markets close.

by RTT Staff Writer

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