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European Worries Sapping Risk Appetite

The major U.S. index futures are pointing to a notably lower opening on Monday, with the negativity engulfing Europe on the back of rising bond yields in Italy and Spain being contagious. Italian and Spanish bonds rose sharply due to developments that have a bearing on the political situation in the respective countries. The resultant economic anxiety could lead some traders to take profits from the stretched markets. Commodities and risk assets are pulling back, reflecting the risk aversion in play in the markets. Against the backdrop, the factory orders report is likely to have little bearing on sentiment.

U.S. stocks extended their gains in the week ended February 1st, thanks to some benign economic data and positive corporate earnings. These twin catalysts kept the momentum going despite the overbought levels of the markets.

Last Monday, the major averages closed mixed amid the release of separate reports showing a strong increase in durable orders and a steep decline in pending home sales. With earnings continuing to be encouraging, the major averages, with the exception of the Nasdaq Composite, advanced moderately on Tuesday. The tech-weighted Nasdaq Composite ended only slightly lower.

The averages closed uniformly lower on Wednesday as the FOMC announced its first monetary policy decision of the year, with the outcome in line with expectations. An unexpected decline in fourth quarter GDP unnerved traders even as a private payrolls survey showed a bigger than expected addition to private sector payrolls in January.

Notwithstanding a positive jobless claims report and a better than expected regional manufacturing reading, stocks closed lower on Thursday. Meanwhile, the major averages received solid support from the Labor Department's January non-farm payrolls report and the Institute of Supply Management's manufacturing survey and settled notably higher on Friday.

For the week ended February 1st, the Dow Industrials added 0.82 percent and the Nasdaq Composite Index rose 0.93 percent, while the S&P 500 Index was up 0.68 percent.

Among the sector indexes, the NYSE Arca Securities Broker/Dealer Index rose 3.77 percent for the week, while the NYSE Arca Oil Index and the Philadelphia Oil Service Index gained over 2 percent each. On the other hand, the NYSE Arca Airline Index lost 3.72 percent.

Currency, Commodity Markets

Crude oil futures are sliding $1.34 to $96.43 a barrel after advancing $1.89 or 1.97 percent to $97.77 a barrel in the week ended February 1st.

Last Monday, crude oil futures rose moderately amid the release of the better than expected durable goods orders data. The commodity extended its gains on Tuesday, rising over $1-a-barrel despite some lackluster economic readings.

Ignoring the report showing an unexpected contraction by domestic GDP in the fourth quarter, oil rose modestly on Wednesday. Oil fell moderately on Thursday, as traders digested mixed economic data, only to rise modestly on Friday in reaction to the monthly non-farm payrolls report.

Gold futures, which rose $14 or 0.85 percent to $1,670.60 an ounce in the previous week, are currently falling $6.10 to $1,664.50 an ounce.

Among currencies, risky currencies gained ground in the week ended February 1st, as both domestic and overseas economic data were mostly positive and the earnings news flow also offered encouragement.

The dollar fell 1.30 percent against the euro before ending the week at $1.3639, while the greenback gained 2.05 percent against fellow safe haven, the yen, to end the week at 92.77 yen.

The U.S. dollar is currently trading at 92.58 yen and is valued at $1.3559 against the euro.

Asia

The major Asian markets closed mixed, with the positive U.S. economic data giving traders enough reason to stay invested in stocks even as caution prevailed due to the recent run up. While the Chinese, Indonesian, Malaysian, Japanese, New Zealand, Singaporean and Taiwanese markets firmed up, the Australian, Hong Kong, Indian and the South Korean markets settled modestly lower.

Japan's Nikkei 225 average traded mostly above the unchanged line throughout the session before closing up 69.01 points or 0.62 percent at 11,260. The index ended higher for the fifth straight session and continued to be supported by the yen's depressed levels.

Exports stocks continued to strengthen, while defensive telecom, utility, banking and pharma stocks were among the worst performers of the session.

Toyobo rallied over 34 percent and Mitsubishi Motors jumped 21.36 percent. Panasonic gained 16.89 percent after it reported an unexpected profit for the December quarter. Alps Electric, Oki Electric Industry, Pioneer, NEC, JFE Holdings and Mitsui Engineering & Shipbuilding also rose notably.

Australia's All Ordinaries opened higher and spiked sharply in early trading only to give back all its gains, dropping below the unchanged line by the mid-session. The index continued to decline steadily and ended down 12.80 points or 0.26 percent at 4,929.

Healthcare and financial stocks came under selling pressure, while energy stocks also showed weakness. Meanwhile, material stocks saw modest buying interest.

Hong Kong's Hang Seng Index closed at 23,805, up 83.40 points or 0.35 percent. China's Shanghai Composite Index settled at a nearly 9-month high of 2,428 after rising 9.39 points or 0.39 percent in the session.

On the economic front, the results of a survey by the China Federation of Logistics and Purchasing and the National Bureau of Statistics showed that their non-manufacturing index edged up 0.1 points to 56.2 in January. The reading suggested that service sector activity expanded for the fourth straight month.

A measure of inflation in Australia compiled by TD Securities rose 0.3 percent month-over-month in January compared to a 0.4 percent increase in December. Annually, inflation is expected at 2.5 percent.

Meanwhile, a report released by the Australian Bureau of Statistics showed that building approvals fell 4.4 percent month-over-month in December compared to expectations for a 1 percent increase. The annual increase of 9.3 percent trailed the 14.9 percent increase expected by economists.

Europe

The major European averages opened lower and have seen some further downside over the course of the session. Debt fears returned after a corruption scandal threatened the government of Prime Minister Mariano Rajoy in Spain and as uncertainty intensified ahead of general elections in Italy.

In corporate news, re-insurer Hannover Re said it expects its 2013 profits to come in around 800 million euros, almost flat with the profit it is expected to post for 2012. Swiss watchmaker Swatch reported a 26 percent profit growth for 2012, which was better than what most analysts expected. Randgold Resources (GOLD) reported an 18 percent increase in its fourth quarter profits to $141.03 million.

Barclays (BCS) announced the retirement of its Group finance director Chris Lucas and Group General Counsel Mark Harding. Lucas is one of the executives who have been under investigation by the Financial Services Authority related to fundraising from Middle East investors.

On the economic front, an index measuring investor sentiment in the eurozone remained depressed in February, according to the results of a survey by Sentix. The sentix investor confidence index came in at -3.9 in February compared to -3.3 expected by economists. Meanwhile, Markit's survey showed that construction sector activity in the U.K. contracted at a faster than expected rate in January. The CIPS/Markit construction purchasing managers' index remained unchanged at 48.7, while economists expected a reading of 49.6.

U.S. Economic Reports

The unfolding week's economic calendar is light, with only a handful of key economic data important enough to lend direction to the markets. The focus of the week is likely to be on the results of the Institute for Supply Management's non-manufacturing survey for January, the weekly jobless claims report and the Commerce Department's trade balance report for December.

The Commerce Department's factory orders report for December, the preliminary fourth quarter productivity & costs report, the Federal Reserve's consumer credit report for December, the wholesales inventories report for December and announcements concerning Treasury auctions of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.

The Commerce Department is scheduled to release its factory goods orders report for December at 10 am ET. Economists estimate factory goods orders to have increased by 2.4 percent month-over-month.

In November, new orders for manufactured goods rose marginally following a 0.8 percent increase in October. Excluding transportation orders, factory orders were up 0.2 percent.

Meanwhile, durable goods orders, making up the bulk of factory orders, released last week showed a 4.6 percent month-over-month increase for December. The bulk of the upside came from transportation equipment, which jumped 11.9 percent. Stripping off transportation equipment orders, the order growth was still a decent 1.3 percent. Non-defense capital goods orders, excluding aircrafts & parts, considered a proxy for future capital spending, edged up 0.2 percent.

Stocks in Focus

CarMax (KMX) said its board has approved a $500 million extension of its existing share repurchase program for its outstanding stock.

Sysco (SYY) reported fourth quarter earnings that topped estimates, while its revenues missed expectations.

Oracle (ORCL) announced a deal to buyout Acme Packet (APKT) for $29.25 per share or about $1.7 billion, net of Acme's cash.

Humana (HUM) reported better than expected fourth quarter earnings, while its revenues missed estimates. The company's first quarter earnings guidance was above estimates, while its 2013 earnings guidance trailed estimates.

Sohu.com (SOHU) reported fourth quarter results that exceeded estimates, while its first quarter earnings guidance was weak. Changyou's (CYOU) fourth quarter results were also better than expected and its first quarter guidance was also positive.

DuPont (DD) said it has completed the sale of DuPont Performance Coatings to the Carlyle Group for $4.9 billion in cash. The company said it expects to use the proceeds to buy back $1 billion worth of its common stocks during the first half of the year.

Anadarko Petroleum (APC), Baidu.com (BIDU), Edwards Lifesciences (EW), General Growth Properties (GGP), Gilead Sciences (GILD), Hartford Financial (HIG), Hologic (HOLX), Leggett & Platt (LEG), MDU Resources (MDU), Post Properties (PPS) and Yum Brands (YUM) are among the notable companies due to release their quarterly results after the close of trading.

by RTT Staff Writer

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