Market Analysis

Beyond the Number

Sentiment Turns Negative Ahead of Fed Speeches
10/20/2014 9:10 AM

The major U.S. index futures are pointing to a mixed opening on Monday, with sentiment reflecting apprehension after last Friday’s run up. With European markets sinking in the wake of some disappointing earnings, the negative sentiment may be contagious. The absence of any major catalysts, save some Fed speeches, could also render the mood cautious. That said, other risk assets such as commodities and risk currencies are higher, suggesting that risk appetite is still intact. The Fed speeches scheduled for the day could be the clinching catalyst for the session.

U.S. stocks retreated in the week ended October 17th, as selling pressure generated by global growth concerns early in the week was partly mitigated by positive sentiment generated by strong U.S. economic data released in the second half of the week.

Last Monday, the major averages closed notably lower, as a lack of major catalysts prevented traders from bargain hunting. Amid the release of mixed economic reports that gave traders some reason to buy stocks, the major averages closed mixed on Tuesday.

Selling resumed on Wednesday, triggered by weak U.S. economic data on consumer spending and the manufacturing sector and fears of an ebola outbreak. With a Fed official sounding out an extension of the stimulus program, stocks closed narrowly mixed on Thursday. The release of encouraging data on U.S. consumer sentiment and housing starts led to a strong rally on Wall Street on Friday, helping to limit the week’s losses.

For the week ended October 17th, the Dow Industrials fell 0.99 percent and the S&P 500 Index receded 1.02 percent, while the Nasdaq Composite declined a more modest 0.42 percent.

Among the sector indexes, the KBW Bank Index declined 3.09, the NYSE Arca Oil Index slid 1.79 percent and the NYSE Arca Gold Bugs Index receded 1.04 percent.

On the other hand, the Philadelphia Housing Sector Index rallied 4.12 percent, the Dow Jones Transportation Average gained 3.23 percent, the NYSE Arca Airline Index rose 2.42 percent and the Philadelphia Semiconductor Index added 2.48 percent.

Currency, Commodity Markets

Crude oil futures are rising $0.31 to $83.06 a barrel after slipping $3.07 or 3.58 percent to $82.75 a barrel in the week ended October 17th. The most actively traded December futures are currently up $0.25 at $82.31 a barrel.

Last Monday, crude oil ended nearly flat with a downside bias following steep losses in the previous week. Oil plunged by close to $4-a-barrel on Tuesday amid weak data. The commodity edged down modestly on Wednesday before staging a rebound on Thursday, when it rose close to $1-a-barrel. The commodity rose modestly yet again on Friday, yet closed the week lower.

Gold futures, which rose $17.30 or 1.42 percent to $1,239 an ounce in the previous week, are currently climbing $7.20 to $1,246.20 an ounce.

Among currencies, the U.S. dollar gave back ground against most currencies in the week ended October 17th amid the risk aversion seen for much of the week. The U.S. dollar fell 0.72 percent against the yen before ending the week at 106.88 yen. The greenback dropped 1.05 percent against the euro over the week to $1.2761.

The U.S. dollar is currently trading at 106.91 yen and is valued at $1.2776 versus the euro.


Asian stocks rose across the board, as risk appetite returned following the positive performance by Wall Street stocks overnight. The Japanese market led from the front, as the yen weakened.

The Japanese Nikkei 225 average opened notably higher and saw a steady advance before closing up 578.72 points or 3.98 percent at 15,111. The index thus reclaimed the 15,000 level following the sharp pullback in the previous two sessions.

All the index components advanced, with Tokyu Fudosan, Hitachi Zosen, Minebea, Fuji Heavy Industries, NSK and Unitika posting notable gains.

Australia’s All Ordinaries opened higher and rose sharply in early trading. After giving back some of its gains by the mid-session, the index moved roughly sideways before closing up 47.20 points or 0.90 percent at 5,307.

The market witnessed broad based strength, with financial, material, consumer discretionary, industrial and IT stocks leading the gains.

Hong Kong’s Hang Seng Index ended at 23,070, up 47.05 points or 0.20 percent, and China’s Shanghai Composite Index closed 15.54 points or 0.66 percent higher at 2,357.

On the economic front, revised estimates by Japan’s Cabinet Office showed that its leading economic indicators index fell to 104.4 in August from 105.5 in July, a smaller than initially estimated drop. The coincident index was down 1.6 points at 108.3 and the lagging index fell 0.4 points to 117.7.


After seeing initial weakness, European stocks have seen some further downside and are currently trading notably lower. Traders are reacting to some key earnings announcements.

In corporate news, business enterprise solutions provider SAP reported higher third quarter earnings but lowered its full year earnings forecast. German department store Metro AG reported a modest drop in its fourth quarter sales, although the drop was in line with estimates.

Hurt by weak performances in China and Russia, Philips reported a net loss for its third quarter. However, Swedish white goods giant Electrolux reported higher profit for its third quarter.

On the economic front, Rightmove reported that the average asking price of a house in the U.K. rose 2.6 percent month-over-month in October following a 0.9 percent increase in September. Annually, house prices were up 7.6 percent.

German producer prices decreased at a faster rate in September, a report from the German Federal Statistical Office showed. Producer prices fell 1 percent year-over-year in September following the 0.8 percent decrease in August. The drop was in line with the consensus estimate. On a month-over-month basis, producer prices remained flat in September, as expected by the economists.

The European Central Bank released data on the euro area’s current account balance, showing a decline in the surplus to 18.9 billion euros in August from 21.6 billion euros in July.

U.S. Economic Reports

Housing, manufacturing and jobs reports are among the key economic data scheduled for release in the unfolding week.

Traders may focus on the National Association of Realtors’ existing home sales report and the Commerce Department’s new home sales reports, both for September, the Federal Home Finance house price index for August, the weekly jobless claims report and the flash estimate of Markit’s U.S. manufacturing survey for October.

Some Fed speeches scheduled for the week may also attract the attention of traders. The Labor Department’s consumer price inflation report for September, the Conference Board’s leading economic indicators index for September, the results of a regional manufacturing survey and announcements concerning Treasury auctions of 2-year, 5-year and 7-year notes round up the economic events of the week.

Federal Reserve Governor Jerome Powell is scheduled to speak during a St Louis Fed webinar and conference call on community banking at 10 am ET. Fed Governor Daniel Tarullo is also due to speak to the New York Fed conference on reforming the financial industry at 12 pm ET.

Stocks in Focus

Halliburton (HAL) reported better than expected third quarter results and raised its dividend by 20 percent.

Hasbro’s (HAS) reported better than expected third quarter earnings and its revenues were in line.

Gannett (GCI) reported third quarter results that were ahead of estimates and its revenues were in line.

Valeant Pharma (VRX) reported higher earnings and revenues for its third quarter. The company raised its cash earnings per share guidance for its fourth quarter and full year.

Apple (AAPL), Chipotle Mexican Grill (CMG), IBM (IBM), Illumina (ILMN), Packaging Corp. (PKG), Rambus (RMBS), Rent-A-Center (RCII), Steel Dynamics (STLD) and Texas Instruments (TXN) are among the companies due to release their quarterly results after the close of trading.

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