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Traders Await Resolution Of Fiscal Crisis

3/1/2013 9:16 AM ET

The major U.S. index futures are pointing to a lower opening on Friday, with sentiment reflecting nervousness of traders as the March 1st midnight deadline for the spending cuts to come into effect looms large. Traders should be hoping against all odds that sequestration does not kick in. Meanwhile, accentuating worries, a report released earlier the day showed that personal spending saw anemic growth in January and personal income fell by much less than expected. Traders may also look ahead to the results of a national manufacturing survey and a consumer sentiment reading, both due after the markets open.

U.S. stocks moved about in a lackluster manner on Thursday amid the release of mixed economic data and fears ahead of the budget sequestration. The major averages opened little changed and nervously clung to the unchanged line before rising steadily in the mid-session. Thereafter, the indexes gave back their gains over the remainder of the session, closing marginally lower.

The Dow Industrials ended down 20.88 points or 0.15 percent at 14,055 and the S&P 500 Index closed 1.31 points or 0.09 percent lower at 1,515, while the Nasdaq Composite closed at 3,160, down 2.07 points or 0.07 percent.

Eighteen of the thirty Dow components closed higher, with Wal-Mart (WMT) leading the declines with a 1.23 percent retreat. On the other hand, Hewlett-Packard (HPQ) rose 1.87 percent.

Gold stocks were among the worst performers of the session, moving lower along with the price of the precious metal.

Candlestick pattern analysis of the Dow Industrials shows a graveyard doji formation with a long upper shadow. The formation following an uptrend could signal some form of correction in the market. However, if the fiscal crisis is tackled without much of a hurt to the economy and economic indicators continue to be benign, the markets could withstand a selling onslaught. As indicated in Thursday's article, watch out for a pullback towards the 13,984 and 13,856 levels.

On the economic front, the Commerce Department reported that U.S. GDP rose at an upwardly revised pace of 0.1 percent sequentially in the fourth quarter. The upward revision was primarily due to a sharper than initially estimated pullback in imports and a smaller than estimated decline in exports. Residential construction was upwardly revised.

At the same time, jobless claims declined a bigger than expected 22,000 to 344,000 in the week ended February 22nd. The four-week average fell to 355,000. Continuing claims calculated with a week's lag declined 91,000 to 3.074 million in the week ended February 16th.

The results of the ISM-Chicago's manufacturing survey showed that manufacturing activity in the region expanded at a faster rate in February. The business barometer rose 1.2 points to 56.8, marking the highest level since March 2012. The new orders index rose 2 points to 60.2 and the order backlogs index climbed more than 4 points to 50.9. Meanwhile, the production and employment indexes fell from the month-ago levels.

Currency, Commodity Markets

Crude oil futures are slipping $1.15 to $90.90 a barrel after receding $0.71 to $92.05 a barrel on Thursday. Gold futures are currently rising $4.90 to $1,583 an ounce after declining $17.60 to $1,578.10 an ounce.

On the currency front, the U.S. dollar is trading at 92.78 yen compared to the 92.56 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is trading at $1.3010 compared to yesterday's $1.3058.

Asia

The major Asian markets ended on a mixed note, with sentiment impacted by a lackluster lead from Wall Street overnight and weak Chinese manufacturing data.

Japan's Nikkei 225 average opened lower but began trimming its losses and moved above the unchanged line by the mid-session. Thereafter, the index hovered in positive territory and closed up 47.02 points or 0.41 percent. Real estate stocks found particular buying interest on hopes of monetary policy easing.

Australia's All Ordinaries languished below the unchanged line throughout the session before closing down 19.50 points or 0.38 percent at 5,101. Material, energy, healthcare, industrial and utility stocks came under selling pressure, while financial stocks were on a firmer footing.

Hong Kong's Hang Seng Index closed at 22,880, down 140.05 points or 0.61 percent.

On the economic front, the results of an official survey showed that Chinese manufacturing activity eased in February. The Chinese Federation of Logistics and Purchasing reported that its manufacturing index fell 0.3 points to 50.1.

An inflation report released by Japan's Ministry of Internal Affairs and Communications showed that annual consumer price inflation was a negative 0.2 percent in January, unchanged from the previous month and in line with estimates. A separate report showed that household spending rose 2.4 percent year-over-year in January, exceeding the 0.4 percent increase forecast by economists. The average monthly income per household rose 1.1 percent.

The Ministry of Finance reported that capital spending in Japan declined 8.7 percent year-over-year in the fourth quarter. Economists had expected a more modest 7.2 percent drop. Excluding software, capital spending fell a steeper than expected 7.2 percent.

Europe

European stocks are retreating after the disappointing Chinese data and as the U.S automatic spending cuts take effect.

In corporate news, U.K. banking giant Lloyds reported an underlying profit of 2.6 billion pounds for the full year compared to 638 million pounds a year ago. On a reported basis, the company reported a loss of 1.4 billion pounds for the full year, partly due to charges set aside to compensate customers to whom it inappropriately sold financial products.

U.K. ad firm WPP reported better than expected full year organic revenue growth and higher pre-tax profits. Insurer Old Mutual reported higher full year pre-tax profits.

On the economic front, the Nationwide Building Society reported that e U.K. house prices remained unchanged in February compared to expectations for a 0.2 percent drop.

The German Federal Statistical Office released retail sales data for January, showing that sales rose at a faster than expected pace. Retail sales rose 3.1 percent month-over-month, rebounding from the 2.1 percent drop in December. Economists expected a more modest 0.9 percent increase.

Revised estimated released by Markit Economics showed that euro area's manufacturing activity contracted at a slightly slower than expected rate in February. The manufacturing purchasing managers' index was upwardly revised to 47.9 from the preliminary estimate of 47.8.

Meanwhile, the U.K.'s manufacturing sector unexpectedly contracted in February, according to Markit's survey.

Eurostat reported that the euroarea's unemployment rate rose to a record high of 11.9 percent in January compared to expectations of 11.8 percent. A separate report showed that Eurozone inflation slowed more than expected in February. Annual Inflation eased to 1.8 percent, from 2 percent in January. Economists had expected the rate to ease to 1.9 percent.

U.S. Economic Reports

Personal income in the U.S. fell by more than anticipated in the month of January, according to a report released by the Commerce Department, although the report also showed that personal spending rose in line with estimates.

The report said personal income tumbled by 3.6 percent in January after surging up by 2.6 percent in December. Economists had been expecting income to pull back by about 2.1 percent.

At the same time, the Commerce Department said personal spending edged up by 0.2 percent in January after inching up by 0.1 percent in December. The increase in spending matched economists' expectations.

The automakers will release their vehicle sales for the month of February. Economists expect vehicle sales to come in at a seasonally adjusted annual rate of 15.2 million units compared to a 15.3 million unit rate for January.

The final estimate of a consumer sentiment survey by Reuters and the University of Michigan is due at 9:55 am ET. The final consumer sentiment index based on the survey is expected to be downwardly revised to 76 in February from the mid-month reading of 76.3.

The Institute for Supply Management is scheduled to release the results of its manufacturing survey for February at 10 am ET. The consensus expectations call for a drop in the manufacturing index to 53.1 in February from 52.8 in January.

In January, the manufacturing purchasing managers' index rose 2.9 points to 53.1. Of the 18 industries surveyed, 13 industries reported growth. The new orders index rose 3.6 points to 53.3 and the production index increased 1 point to 53.6. The employment index climbed 2.1 points to 54. On the other hand, the order backlogs index slipped 1 point to 47.5.

Around the same time, the Commerce Department will release its construction spending report for January. Economists expect spending to have increased by 0.6 percent compared to a 0.9 percent increase in December.

Construction spending rose 0.9 percent month-over-month in December, while annually the increase was 7.8 percent. Spending on private construction rose 2 percent, with residential and non-residential construction spending increasing 2.2 percent and 1.8 percent, respectively. Meanwhile, public construction spending fell 1.4 percent.

Federal Reserve Chairman Ben Bernanke is scheduled to speak on low long-term interest rates at a San Francisco Fed research conference at 10 pm ET.

Stocks in Focus

Salesforce.com (CRM) reported fourth quarter non-GAAP earnings of 51 cents per share on revenues of $385 million. For 2014, the company estimates non-GAAP earnings of $1.93-$1.97 per share on revenues of $3.82 billion to $3.87 billion. The results exceeded estimates, while the guidance was in line.

Digital River (DRIV) announced the appointment of former CA Technologies executive David Dobson as its CEO, succeeding Thomas Madison, who was serving as the CEO on an interim basis.

Groupon (GRPN) announced the ouster of its chief executive Andrew Mason, a move that came just a day after it reported another disappointing quarterly loss. The company has appointed Executive Chairman Eric Lefkofsky and Vice Chairman Ted Leonsis to the newly created Office of the chief executive to serve in that role on an interim basis.

Best Buy's (BBY) fourth quarter loss narrowed from the prior year period. Revenue for the quarter topped the consensus estimate. The company also announced that it received no offer from its founder Schulze and the deadline to make an offer has expired yesterday.

Mentor Graphics (MENT) reported fourth quarter non-GAAP earnings of 58 cents per share on revenues of $331.2 million. The earnings exceeded estimates, while the revenues were shy of estimates. For 2014, the company estimates non-GAAP earnings of $1.53 per share on revenues of $1.155 billion. The guidance was lackluster.

Air Lease (AL) reported fourth quarter earnings of 38 cents per share compared to 24 cents per share in the year-ago period. Revenues rose to $190.095 million, up 65 percent year-over-year. The results exceeded estimates. The company also announced its first quarterly cash dividend of $0.025 per share.

Deckers Outdoor (DECK) reported better than expected fourth quarter earnings but below-consensus revenues. The company's 2013 guidance was above consensus estimates.

Sotheby's (BID) reported fourth quarter earnings of 96 cents per share on revenues of $269.96 million. The results trailed expectations.

Sonus Network (SONS) reported fourth quarter adjusted earnings that beat estimates, while its revenues trailed expectations. The company's full year guidance was in line with estimates.

Gap (GPS) reported fourth quarter earnings of 73 cents per share compared to 44 cents per share last year. Net sales rose to $4.73 billion from $4.28 billion in the year-ago quarter. The results exceeded estimates. The company said it expects full year earnings of $2.52-$2.60 per share, below the consensus estimate. The company also announced a 20 percent increase in its quarterly dividend.

Sempra Energy's (SRE) Sempra U.S. Gas & Power unit announced the completion of the sale of a 625 megawatt block of its 1,250 MW Mesquite Power natural gas fired power plant for $371 million. Group 1 Automotive (GPI) also announced the completion of its previously announced acquisition of Brazilian automotive retailer UAB Motors for about $47.4 million in cash and 1.45 million shares of its common stock and the assumption of about $62 million of net non-floorplan debt.

by RTT Staff Writer

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