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Traders Nervous Ahead Of Budget Sequestration

2/28/2013 9:07 AM ET

The major U.S. index futures are pointing to a mixed opening on Thursday, with sentiment turning lackluster following the release of mixed economic data. The jobless claims report showed a bigger than expected drop in first time claims for unemployment benefits, while the fourth quarter GDP was upwardly revised, although by a much less than expected magnitude. Traders may also react to some retail earnings and the results of the ISM-Chicago's regional manufacturing survey. Meanwhile, budget sequestration ahead of the March 1st deadline could keep traders on tenterhooks even as they nervously hold positions in an overbought market.

U.S. stocks advanced strongly on Wednesday, helped by buying that came about in reaction to some positive data points. The major averages opened on a tentative note after the release of a durable goods orders report, whose inner details were positive. With the pending home sales data coming in better than expected, the averages launched into a strong rally, finishing notably higher for the session.

The Dow Industrials ended up 175.25 points or 1.26 percent at 14,075 and the S&P 500 Index closed 19.05 points or 1.27 percent higher at 1,516. The Nasdaq Composite closed at 3,162, up 32.61 points or 1.04 percent.

Twenty-nine of the thirty Dow components closed higher, with JP Morgan Chase (JPM), Boeing (BA) and Caterpillar (CAT) leading the gains.

Transportation, biotechnology, housing, retail, banking, semiconductor and resource stocks were among the best performers of the session, while gold stocks retreated.

With Wednesday's advance, the Dow closed near a long-term resistance around 14.085. If this resistance is clearly broken to the upside, which looks less likely, given the sequestration overhang, the index could make an attempt at its next resistance around 14,162. On the downside, the index could make a stop at the 13,984 and the 13,856 levels.

On the economic front, the Commerce Department reported that durable goods orders fell 5.2 percent month-over-month in January, with the bulk of the negativity due to weakness in transportation orders. Excluding transportation, orders rose a better than expected 1.9 percent. Non-defense capital goods orders, excluding aircraft, considered an indicator of capital spending jumped 6.3 percent, marking the biggest gain since December 2011. At the same time, shipments of this category of goods, which go into GDP calculations, declined 1.7 percent.

The National Association of Realtors reported that its pending home sales index rose 4.5 percent month-over-month in January following a 1.9 percent drop in December. Pending home sales rose in all the regions.

Currency, Commodity Markets

Crude oil futures are rising $0.06 to $92.82 a barrel after advancing $0.13 to $92.76 a barrel on Wednesday. Yesterday's gains came amid the increase in risk appetite and the release of the oil inventory report, which showed that crude oil stockpiles rose by 1.1 million barrels to 377.5 million barrels in the week ended February 22nd. Inventories were above the upper limit of the average range.

Distillate inventories edged up by 0.6 million barrels and remained in the lower half of the average range. Meanwhile, gasoline inventories fell by 1.9 million barrels and yet remained in the upper limit of the average range. Refinery capacity utilization averaged 84 percent over the four weeks ended February 22nd compared to 84 percent over the four weeks ended February 15th.

Gold futures, which fell $19.80 to $1,595.70 an ounce in the previous session, are currently slipping $4.10 to $1,591.60 an ounce.

Among currencies, the U.S. dollar is trading at 92.37 yen compared to the 92.24 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.3129 compared to yesterday's $1.3139.

Asia

The Asian markets advanced strongly, led by the Chinese market, as Wall Street's buoyancy became contagious. However, amid the release of the Union budget for the fiscal year 2013-14, the Indian markets retreated sharply.

Japan's Nikkei 225 average opened higher and moved sideways until the afternoon. The index advanced steadily thereafter, closing up 305.39 points or 2.71 percent at 11,559.

Australia's All Ordinaries hovered in positive territory throughout the session before closing up 67.30 points or 1.33 percent at 5,120. Barring defensive telecom and real estate, most stocks advanced. Energy, consumer staple, healthcare and material stocks were among the best performers of the session.

Hong Kong's Hang Seng closed at 23,020, up 443.26 points or 1.96 percent.

On the economic front, a report released by Japan's Ministry of Economy, Trade and Industry showed that Japanese industrial production rose 1 percent month-over-month in January. Economists expected output growth of 1.5 percent. Japanese housing starts came in a less than expected 863,000 in January, according to a separate government report.

Confirming speculation, the Japanese government nominated ADB president Haruhiko Kuroda to the post of the Governor of the Bank of Japan. Kuroda is supposed to favor an easier monetary policy.

The Reserve Bank of Australia reported that overall private sector credit in Australia increased 0.2 percent month-over-month in January compared to a 0.4 percent increase in December. A separate report showed that new capital spending in Australia fell by 1.2 percent sequentially in the fourth quarter, belying expectations for a 1 percent increase.

Europe

Economists European stocks are advancing, encouraged by a central bank pledge of continued stimulatory support. European Central Bank President Mario Draghi indicated that the central bank is in no hurry to exit stimulus as he anticipates inflation to come significantly below the bank's target this year, giving room for maintaining an accommodative monetary stance.

Deutsche Telekom (DT) reversed to a profit in its fourth quarter, but its adjusted profit fell 12.7 percent, weighed down by softness in Europe and the U.S. Separately, the company's T-Mobile USA unit reported a drop in its adjusted OIBDA and revenues. Utility Veolia Environment reversed to a profit in its full year. Meanwhile, GDF Suez reported a decline in its full year profit but confirmed its outlook for 2013. German crop science and chemicals company Bayer reported a 18.4 percent increase in its adjusted EBITDA and a 7.3 percent sales growth.

A survey showed that U.K. consumer confidence flat lined at depressed levels in February. The consumer confidence index based on GfK's survey remained unchanged at -26.

The German Federal Labor Agency reported that the number of unemployed persons in Germany fell by 3,000 to 2.917 million in February. The jobless rate held unchanged at 6.9 percent in February. Meanwhile, a parallel labor market survey by the German Federal Statistical Office showed that the unemployment rate was unchanged at 5.3 percent in January.

A revised inflation report released by Eurostat showed that the harmonized index of consumer prices rose 2 percent year-over-year in January after rising 2.2 percent in December. The inflation rate was in line with the preliminary estimate.

U.S. Economic Reports

While fourth quarter U.S. GDP data was revised to show economic growth compared to the previously reported contraction, the pace of growth fell well short of economist estimates.

A report released by the Commerce Department on Thursday said GDP increased at an annual rate of 0.1 percent in the fourth quarter compared to the 0.1 percent drop that was originally reported. Economists had been expecting a more substantial upward revision, with the consensus estimate calling for the revised report to show 0.5 percent growth.

In an upbeat sign for the job market, the Labor Department released a report on Thursday showing that first-time claims for U.S. unemployment benefits fell by much more than anticipated in the week ended February 23rd.

The report said initial jobless claims dropped to 344,000, a decrease of 22,000 from the previous week's revised figure of 366,000. Economists had expected jobless claims to edge down to 360,000 from the 362,000 originally reported for the previous week.

The ISM-Chicago is due to release the results of its regional manufacturing survey at 10 am ET. The business barometer based on the survey is expected to decline to 55 in February from 55.6 in January.

The manufacturing index rose 5.6 points to 55.6 in January, climbing to the highest level since May 2012. The employment index jumped to 58 from 46.8 and the new orders index rose to 58.2 from 50.4. The production index also improved to 60.9 from 52.4.

Federal Reserve Governor Sarah Bloom Raskin is scheduled to speak at the Atlanta Federal Reserve's Banking Outlook Conference at 12:30 pm ET. Dallas Federal Reserve Bank President Richard Fisher will speak on the economic outlook at Columbia University in New York at 4:30 pm ET. Chicago Federal Reserve Bank President Charles Evans is scheduled to speak on the economy to the CFA Society of Iowa in Des Moines at 8 pm ET.

Stocks in Focus

Limited Brands (LTD) reported adjusted fourth quarter earnings of $1.76 per share compared to $1.50 per share last year. Net sales rose to $3.86 billion. For 2013, the company expects adjusted earnings of $2.92-$3.12 per share. The results exceeded estimates, while the revenue guidance trailed expectations.

Groupon (GRPN) reported a loss of 12 cents per share, including a non-operating loss of $50.6 million, for its fourth quarter on revenues of $638.3 million. Analysts' estimates that exclude one-time items called for earnings of 3 cents per share on revenues of $638.4 million. The company guided first quarter revenues below consensus estimates.

Copart (CPRT) reported second quarter earnings of 31 cents per share on revenues of $266.2 million. The earnings missed estimates, while the revenues were in line.

Pall Corp. (PLL) reported second quarter pro forma earnings of 73 cents per share on revenues of $662.5 million. The results exceeded estimates.

Equity Residential (EQR) announced that the company and AvlonBay Communities have completed their previously announced acquisition of the assets and liabilities of Archstone Enterprise from Lehman Brothers.

Mylan Labs (MYL) announced an agreement to buy generic injectable products maker Agila Specialities from India's Strides Arcolab for $1.6 billion in cash. Separately, the company reported fourth quarter adjusted earnings of 65 cents per share on revenues of $1.72 billion. The earnings exceeded estimates, while the revenues were about in line. For 2013, the company expects earnings of $2.75-$2.95 per share on revenues of $7 billion to $7.4 billion, surrounding the consensus estimate.

Nordstrom (JWN) announced that its board authorized an $800 million stock repurchase program. The company also announced an 11 percent increase in its quarterly dividend.

Monster Beverage (MNST) reported fourth quarter earnings of 39 cents per share on sales of $451 million. The results trailed estimates.

MBIA (MBI) reported fourth quarter earnings of $3.26 per share compared to a loss of $3.23 per share last year. The company's adjusted book value per share, a non-GAAP measure, rose to $30.64 per share compared to $16.22 per share last year.

Nabors (NBR) said its board has approved the initiation of a quarterly dividend.

Riverbed Technology (RVBD) announced the appointment of Ernie Maddock, currently the CFO of Lam Research (LRCX) as its CFO.

Deckers Outdoor (DECK), Gap (GPS), Mentor Graphics (MENT), MolyCorp. (MCP), Salesforce.com (CRM), Scientific Games (SGMS), Sonus Networks (SONS) and Sotheby's (BID) are among the companies due to release their quarterly results after the close of trading.

by RTT Staff Writer

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