Market Analysis

Beyond the Numbers

Markets Turn Wary After Four Session Winning Streak
1/23/2015 9:12 AM

The major U.S. index futures are pointing to a lower opening on Friday, with sentiment turning apprehensive following four straight sessions of gains. Meanwhile, the mood across the Atlantic was ebullient, with markets still euphoric over the unprecedented stimulus from the region’s central bank. Positive private sector activity data from the eurozone and an unexpected increase in the U.K. retail sales are also aiding sentiment. The domestic markets are set to digest some mixed earning news flow and a report on existing home sales due shortly after the markets open.

After a tentative start, U.S. stocks advanced solidly on Thursday, as the European Central Bank’s benevolent stimulus set in motion a wave of buying interest. The major averages opened slightly higher but dipped briefly below the unchanged line only to recover immediately after. After rising modestly till late morning trading, the averages moved roughly sideways till late afternoon. Subsequently, the averages climbed sharply and held on to their gains going into the close.

The Dow Industrials ended up 259.70 points or 1.48 percent at 17,814 and the S&P 500 Index closed 31.03 points or 1.53 percent higher at 2,063, while the Nasdaq Composite closed at 4,750, up 82.98 points or 1.78 percent.

Twenty-seven of the thirty Dow components closed higher, with JP Morgan Chase (JPM), Travelers (TRV) and UnitedHealth (UNH) leading the gains. On the other hand, American Express (AXP) fell 3.76 percent following the release of its financial results.

On the economic front, the Labor Department reported that jobless claims fell to 307,000 in the week ended January 17th from 317,000 in the previous week, while economists expected a steeper drop for the week. However, the four-week average rose to 306,500 from 298,000. Continuing claims calculated with a week’s lag climbed by 15,000 to 2.443 million in the week ended January 10th.

The Federal Housing Finance Agency’s house price index for November rose a bigger than expected 0.8 percent month-over-month in November. Annually, prices were up a solid 5.3 percent.

Currency, Commodity Markets

Crude oil futures are slipping $0.10 to $46.21 a barrel after sliding $1.47 to $46.31 a barrel on Wednesday.

The previous session’s decline came amid the dollar’s strength in the wake of the ECB announcement and the release of the weekly petroleum status report, which showed that crude oil stockpiles increased by 10.1 million barrels to 397.9 million barrels in the week ended January 16th. Inventories were at the highest level for this time of year in at least the last 80 years.

Meanwhile, gasoline inventories increased by 0.6 million barrels and were well above the upper limit of the average range. On the other hand, distillate inventories fell by 3.3 million barrels and were in the lower half of the average range.

Refinery capacity utilization averaged 91.2 percent over the four weeks ended January 16th compared to 93.2 percent over the four weeks ended January 9th.

Gold futures, which rose $7 to $1,300.70 an ounce in the previous session, are currently receding $3.20 to $1,2957.50 an ounce.

Among currencies, the U.S. dollar is trading at 117.96 yen compared to the 118.49 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1218 compared to yesterday’s $1.1366.


The Asian markets rallied, drawing inspiration from yesterday’s ECB move. The Japanese, Australian, Hong Kong, Indonesian, Singaporean and Taiwanese markets all ended notably higher. Positive Chinese manufacturing data also provided a shot in the arm for the markets.

The Nikkei 225 average opened higher and moved roughly sideways throughout the session, ending up 182.73 points or 1.05 percent at nearly a 1-month high of 17,512.

A majority of stocks advanced in the session, with export, resource and financial stocks seeing marked strength. On the other hand, some defensive stocks moved to the downside.

After opening higher, Australia’s All Ordinaries advanced sharply in early trading and steadily thereafter. The index ended 77.70 points or 1.44 percent higher at a nearly 2-1/2 month high of 5,468.

The market witnessed broad based strength, with real estate, energy and consumer discretionary stocks leading the way higher.

China’s Shanghai Composite Index added 8.42 points or 0.25 percent before closing at 3,352 and Hong Kong’s Hang Seng Index ended at 24,851, up 327.82 points or 1.34 percent, reaching the highest level since September 8th, 2014.

On the economic front, a flash estimate released by Markit and HSBC showed that the Chinese manufacturing sector continued to contract in January, although at a slower pace. The manufacturing purchasing managers’ index rose 2 points to 49.8, exceeding the 49.5 consensus estimate.


European stocks are extending their gains, as the ECB optimism continues to generate strength in the markets.

In corporate news, Telefonica said it has agreed to sell its O2 U.K. unit to Hutchison Whampoa for 10.25 billion pounds in cash.

Adidas reported a 2 percent increase in its sales for the fiscal year and announced a deal to sell its Rockport Business.

On the economic front, a report released by Markit showed that the French private sector contracted further in January, with service sector PMI slipping into the contraction zone at 49.5, while the manufacturing PMI rose 2 points to 49.5.

Activity in the German manufacturing sector slackened in January, according to another report released by Markit. The manufacturing purchasing managers index eased 0.2 points to 51, while the service sector purchasing managers’ index rose 0.6 points to 52.7.

Meanwhile, Eurozone’s composite output index rose more-than-expected to a five-month high of 52.2 in January from 51.4 in December. Economists had forecast the measure to climb to 51.7. The flash services Purchasing Managers' Index rise to 52.3 in January from 51.6 a month ago. It was the highest reading in three months. Economists had forecast the index to move up to 52. At the same time, the manufacturing PMI increased slightly to a six-month high of 51.0, in line with forecasts, from 50.6 in December.

The volume of retail sales, including automotive fuel, increased 0.4 percent month-over-month in December, but the growth was slower than the 1.6 percent rise in November, figures from the Office for National Statistics showed. Sales were expected to decline 0.6 percent.

Similarly, retail sales excluding automotive fuel advanced 0.2 percent after the 1.7 percent increase in November, when they were forecast to fall 0.7 percent.

The results of a survey released by French statistical office INSEE showed that French business confidence held steady in January. The business confidence index based on the survey was unchanged at 99, as expected by economists.

U.S. Economic Reports

The National Association of Realtors is scheduled to release its existing home sales data for December at 10 am ET. Economists expect existing home sales to come in at a seasonally adjusted annual rate of 5.05 million units compared to the 4.930 million-unit rate in November.

In November, existing home sales fell 6.1 percent month-over-month. The decline was broad based, with all the four regions showing modest decreases.

At the same time, inventories of new home sales sold fell to 2.09 million units from 2.24 million units, with inventories measured in terms of months of supply remaining steady at 5.1 months.

The Conference Board is also due to release its leading economic indicators index for December at 10 am ET. The consensus estimate calls for a 0.4 percent month-over-month increase by the index.

In November, the leading economic indicators index rose 0.6 percent month-over-month following a matching increase in the previous month. Yield spread, manufacturing orders and credit indicators contributed solidly to the index, while building permits and jobless claims served as drags.

Stocks in Focus

General Electric (GE) reported better than expected fourth quarter results but its revenues were slightly shy of estimates. Honeywell (HON) reported better than expected fourth quarter results and affirmed its outlook for 2015.

Starbucks (SBUX) reported in line earnings and revenues for the first quarter. However, the company’s second quarter and full year earnings guidance was lackluster. Separately, the company announced the appointment of Kevin Johnson as its president and COO, effective March 1st.

Bank of Mellon’s (BK) fourth quarter results trailed estimates, while State Street (STT) reported better than expected fourth quarter results.

McDonald’s (MCD) fourth quarter results were below estimates.

Altera’s (ALTR) fourth quarter earnings exceeded estimates, while its revenues were shy of estimates. The company’s first quarter revenue growth guidance was lackluster.

Chip equipment maker KLA-Tencor’s (KLAC) second quarter results exceeded estimates, while its third quarter guidance was weak.

E*TRADE (ETFC) and Intuitive Surgical (ISRG) also reported better than expected fourth quarter results and ResMed’s (RMD) second quarter results exceeded estimates, while Capital One Financial’s (COF) fourth quarter earnings trailed estimates by a penny.

Skyworks Solutions (SWKS) reported first quarter earnings and revenues that were ahead of estimates. The company’s second quarter guidance was also positive.

Gentiva Health (GTV) announced that Gentiva’s shareholders approved all proposals necessary for its combination with Kindred Health (KND).

Dai-ichi Life Insurance Company announced the receipt of all necessary regulatory approves for its impending acquisition of Protective Life (PL). The deal is expected to close by February 1st.

RadioShack (RSH) said it has received a continued listing standards notice from the NYSE due to its average market capitalization falling below $50 million over a period of 30 consecutive trading days.

Apache (APA) announced the appointment of Stephen Riney as its CFO, effective February.
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