Market Analysis

Beyond the Numbers

Yellen's Speech Keeps Markets on Tenterhooks
5/27/2016 8:53 AM

The major U.S. index futures are pointing to a modestly higher opening on Friday, with sentiment still fragile despite GDP data showing an upward revision to first estimates, roughly in line with estimates.  Commodities are mostly lower and the dollar is firmer. The mood across the Atlantic is also wavering after Asian stocks closed mostly higher. The domestic markets could keep an eye on the direction of commodity prices and a domestic consumer sentiment reading ahead of an all important speech by Fed Chair Janet Yellen.
U.S. stocks closed a lackluster session on Thursday on a mixed note amid the release of some strong data and a retreat in oil prices. 
The major averages opened higher after two separate reports revealed that jobless claims fell more than expected and durable goods orders rose more than expected. However, the major averages retreated in early trading and moved about in a lackluster manner until late afternoon trading. 
The Dow Industrials continued to trade mostly lower before ending down 23.22 points or 0.13 percent at 17,828. Despite recovering in late afternoon trading and holding above the unchanged line till late trading, the S&P 500 Index pulled back in the final few minutes and ended 0.44 points or 0.02 percent lower at 2,090.  
The Nasdaq Composite moved higher in the afternoon, recovering from a insipid morning session, with the tech heavy index adding 6.88 points or 0.14 percent before ending at a new one-month high of 4,902. 
Eighteen of the thirty Dow components ended the session higher, while the remaining twelve stocks declined. DuPont (DD) and Goldman Sachs (GS) were among the worst performers of the session. 
Among the sectors, airline, basic material, oil service, banking and biotechnology stocks came under selling pressure but utility and steel stocks gained ground. 
On the economic front, the jobless claims report for the week ended May 21st showed that jobless claims fell to 268,000 from the previous week's unrevised reading of 278,000. Economists had expected claims to have fallen more modestly to 275,000.?? 
However, the four-week average rose by 2,750 to 278,500. Continuing claims calculated with a week’s lag also rose by 10,000 to 2.163 million in the week ended May 14th.? 
A report released by the Commerce Department showed that durable goods orders jumped 3.4 percent month-over-month in April, much faster than the 0.3 percent increase forecast by economists and an upwardly revised 1.9 percent gain for March. Excluding transportation, orders were up 0.4 percent, in line with expectations. 
The National Association of Realtors reported that pending home sales surged up 5.1 percent month-over-month in April, much stronger than the 0.8 percent increase expected by economists. Among the regions, the West saw an 11.4 percent jump in pending sales, and pending sales increased 5.1 percent in the South.  

Currency, Commodity Markets 
Crude oil futures for July delivery are sliding $0.36 to $49.12 a barrel after?slipping?$0.08 to $49.48 a barrel on Thursday.  
The most actively traded gold futures for August delivery are currently trading at $1,222.60 an ounce, down $0.1 from the previous session’s close of $1,222.70 an ounce. The June futures ended at $1,220.40 an ounce on Thursday, down $3.40. 
On the currency front, the U.S. dollar is trading at 109.59 yen compared to the 109.76 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1167 compared to yesterday’s $1.1194.? 
The Asian markets advanced, ignoring the lackluster showing by Wall Street stocks overnight. The Indian and Singaporean markets moved notably higher, while the Chinese market bucked the uptrend with a marginal loss. 
The Japanese market rose as yen trading was subdued following tame inflation data that led to expectations that the government will delay a proposed sales tax hike.  
The Nikkei 225 Index opened higher and rose steadily in early trading. After pulling back slightly in late morning trading, the index moved roughly sideways before ending up 62.38 points or 0.37 percent at a one-month high of 16,835. 
Housing, chemical, pharma, financial, real estate, utility and most export stocks moved to the upside, while food stocks ended mixed. On the other hand, retail and paper stocks came under selling pressure. 
Australia’s All Ordinaries Index hovered in positive territory throughout the session before ending 17.80 points or 0.33 percent higher at a more than nine-month high of 5,470. The market witnessed broad based strength led by consumer staple and IT stocks. However, material and industrial stocks moved to the downside. 
Hong Kong’s Hang Seng Index ended at 20,577, up 179.66 points or 0.88 percent, while China’s Shanghai Composite edged down 1.40 points or 0.05 percent to 2,821. 
On the economic front, a report released by Japan’s Ministry of Internal Affairs and Communications showed that annual core consumer price inflation came in at –0.3 percent in April, the same rate as in March. Economists expected a –0.4 percent rate for the month.  
Core consumer prices for the Tokyo region, considered a leading indicator for the trend in the whole of Japan, fell 0.5 percent in May following a 0.3 percent drop in April. Economists expected a 0.4 percent decrease for the month. 
Data released by the Chinese National Bureau of Statistics showed that industrial profits rose 4.2 percent year-over-year in April, slower than the 11.1 percent increase in March. 
European stocks opened lower as the G7 heads of states meet today for the second day in Japan. Weakness in commodity prices and apprehension ahead of a public appearance by the Fed Chair also dented optimism. The averages are currently mixed. 
In major corporate news, Philips Lighting, the splinter group of Dutch consumer electronics giant Philips (PHG), saw its shares rally on its debut. 
On the economic front, the results of a survey by GfK Group showed that U.K. consumer confidence remained depressed in May despite improving from the previous month. The index came in at –1 compared to –3 in April and the –4 expected by economists. 
French consumer confidence unexpectedly strengthened to its highest level in more than fifteen years in May, as households were less pessimistic regarding their future financial situation and saving intentions for the next 12 months, data from French statistical office INSEE showed.? 
The consumer confidence index rose to 98 in May from 94 in March and April. Economists had expected the measure to remain steady.? 
U.S. Economic Reports 
While the Commerce Department released a report showing stronger than previously estimated U.S. economic growth in the first quarter, the pace of growth still reflects a significant slowdown.
The report said the pace of growth in gross domestic product was upwardly revised to 0.8 percent from the initial estimate of 0.5 percent. Nonetheless, the revised GDP growth in the first quarter compares to the 1.4 percent jump seen in the fourth quarter and the 0.9 percent increase expected by economists.

Consumer spending growth?slowed?to 1.9 percent from 2.4 percent. Non-residential investment fell 5.9 percent, with the drop tempered by a 14.8 percent jump in residential investment. Inventories and net exports?also?deducted from growth.? 
At 10 am ET, the University of Michigan is scheduled to release its final U.S. consumer sentiment index for May. The consensus estimate calls for a small downward revision to the mid-month reading to 95.5. 
Yellen?will receive an award from the Radcliffe Institute for Advanced Study at Harvard University and speak with Harvard Professor Gregory Mankiw at 1:15 pm ET. 
Stocks in Focus 
Updating its June quarter guidance to reflect the SanDisk acquisition, Western Digital (WDC) said it expects non-GAAP earnings of 65-70 cents per share, down from its earlier guidance of $1 to $1.10 per share. The company raised its revenue guidance to $3.35 billion to $3.45 billion from $2.6 billion to $2.7 billion. 

Big Lots (BIG) reported better than expected first quarter results and raised its earnings per share guidance for the full year.
GameStop (GME) reported better than expected first quarter non-GAAP earnings per share but its revenues fell 4.3 percent year-over-year. The company’s second quarter and full year guidance was lackluster. 
Deckers Brands (DECK) said Dave Powers will assume the role of CEO following the retirement of Angel Martinez, effective May 31st, 2016. The company reported better than expected fourth quarter non-GAAP earnings per share and 11.2 percent sales growth. However, the company’s first quarter and full year 2017 guidance was weak. 

Lab equipment maker Thermo Fisher Scientific (TMO) has agreed to acquire electron microscope maker FEI Co. (FEIC) for about $4.2 billion in cash.
Waste Connections (WCN) announced shareholder approval of its previously announced acquisition by Progressive Waste. 
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