Market Analysis

Beyond the Numbers

Buying Interest May Re-emerge Amid Light Trading
9/30/2016 9:02 AM

The major U.S. index futures are pointing to a higher opening on Friday, with stocks looking to regain some ground following the sharp pullback seen in the previous session. Trading activity may be somewhat subdued, however, as traders take a breather following recent volatility.

U.S. stocks ended notably lower on Thursday, as weakness in the financial space after Deutsche Bank’s (DB) plunge led the markets lower. Deutsche Bank plummeted by 6.7 percent after Bloomberg reported that several hedge funds have withdrawn excess cash and positions held at the German financial giant.

The major averages opened lower and nervously tread around the unchanged line until the mid-session. Subsequently, the averages pulled back sharply before moving sideways for the rest of the session.

The Dow Industrials ended down 195.79 points or 1.07 percent at 18,144, the S&P 500 Index closed 20.24 points or 0.93 percent lower at 2,151 and the Nasdaq Composite ended at 5,269, down 49.39 points or 0.93 percent.

Twenty-eight of the thirty Dow components closed lower for the session, while two stocks advanced. Nike (NKE), Merck (MRK) and Goldman Sachs (GS) were among the worst performers of the session. On the other hand, Caterpillar (CAT) rose 1 percent.

Among the sectors, biotechnology, utility, financial, housing and computer hardware stocks fell sharply, but semiconductor and oil service stocks rallied.

On the economic front, the Labor Department reported that jobless claims rose to 254,000 in the week ended September 24th from a downwardly revised 251,000 for the previous week. The four-week average fell to 256,000 from 258,250. Continuing claims calculated with a week’s lag were down 46,000 to 2.062 million.

The National Association of Realtors reported that pending home sales fell 2.4 percent month-over-month in August, reversing the 1.2 percent gain in July. All but one of the geographic regions posted declines, with only the Northeast seeing a gain.

Preliminary data released by the Commerce Department showed that wholesale inventories at the end of August eased 0.1 percent compared to a downwardly revised 0.1 percent drop in July. Another report showed that the goods deficit unexpectedly narrowed to $58.4 billion in August from a revised $58.8 billion in July. Economists expected a wider deficit of $62.3 billion for the month. Exports rose 0.7 percent compared to a 0.3 increase in imports.

A separate report released by the Commerce Department showed that the U.S. economy expanded at an upwardly revised 1.4 percent rate in the second quarter compared to the previous estimate of 1.1 percent growth and the consensus estimate of 1.3 percent growth. The upward revision reflected a bump up to non-residential fixed investment.

Commodity, Currency Markets

Crude oil futures for November delivery are inching up $0.02 to $47.85 barrel after climbing $0.78 to $47.83 a barrel on Thursday. Gold futures are currently trading at $1,330.70 an ounce, up $4.70 from the previous session’s close of $1,326 an ounce. On Thursday, gold rose $2.30.

On the currency front, the U.S. dollar is trading at 101.19 yen compared to the 101.03 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 $1.1242.


Most Asian markets ended lower, as risk aversion continued to roil the markets. The key averages in Japan, Hong Kong, Indonesia, Malaysia, South Korea and Taiwan all fell over 1 percent each, although the Chinese, Indian and New Zealand markets posted modest gains.

Renewed strength in the yen dragged Japanese stocks lower. The Nikkei 225 Index opened notably lower and moved roughly sideways for the rest of the session. The index ended down 243.87 points or 1.46 percent at 16,450. Financial and export stocks fell the most on a day, but the weakness was broad based.

Australia’s All Ordinaries Index languished below the unchanged line throughout the session before ending down 33 points or 0.59 percent at 5,525. Financial and consumer discretionary stocks led the way lower, although energy and telecom stocks made modest gains.

Hong Kong’s Hang Seng Index closed at 23,297, down 442.32 points or 1.86 percent, while China’s Shanghai Composite Index added 6.22 points or 0.21 percent before ending at 3,005.

On the economic front, a slew of data out of Japan showed that industrial output rose more than expected in August, but household spending dropped for the sixth straight month, the unemployment rate inched up and consumer price inflation fell again.

A private gauge of Chinese factory activity pointed to a modest expansion in September, adding to recent signs of stability.


European stocks opened notably lower and have been languishing around the lower levels, as fears concerning the European banking systems continue to grip the markets after the developments at Deutsche Bank.

On the economic front, U.K. consumer confidence continued to recover from the Brexit shock in September, as rising wages and low interest rates encouraged people to spend rather than save, according to GfK. The headline sentiment index stood at -1, remaining negative for the seventh consecutive month but up sharply from -7 in August.

French consumer price inflation accelerated as expected in September after remaining stable in the two previous months, preliminary figures from INSEE showed. The headline consumer price index rose an annual 0.4 percent, faster than August's 0.2 percent rise. Meanwhile, a Destatis report showed that German retail sale fell at a steeper than expected rate in August.

The eurozone's annual rate of inflation accelerated in September to reach its highest level in almost two years, while the region's jobless rate held steady at a five-year low for a fourth straight month in August, separate reports from Eurostat showed

U.S. Economic Reports

The Commerce Department released a report showing an uptick in U.S. personal income in the month of August, although the report also said personal spending was little changed during the month.

The report said personal income edged up by 0.2 percent in August after climbing by 0.4 percent in July. The modest increase in income matched economist estimates.

Meanwhile, the Commerce Department said personal spending was virtually unchanged in August following an upwardly revised 0.4 percent increase in July. Economists had been expecting spending to rise by 0.2 percent compared to the 0.3 percent growth originally reported for the previous month.

A reading on inflation said to be preferred by the Federal Reserve showed that core consumer prices rose by 0.2 percent in August, matching expectations. The annual rate of growth accelerated to 1.7 percent from 1.6 percent.

At 9:45 am ET, the MNI Indicators is due to release its Chicago business barometer for September. The business barometer is expected to rise modestly to 52.

The business barometer fell to 51.5 in August from 55.8 in July, while economists expected a reading of 55.2. The new orders and production indexes showed slower expansions and the order backlogs index fell steeply. However, the employment component of the survey exuded optimism.

The University of Michigan is scheduled to release its final U.S. consumer sentiment index for September at 10 am ET. The consensus estimate calls for a reading of 90.1, up from August’s 89.8.

Dallas Federal Reserve President Rob Kaplan will participate in a Q&A at the Stemmons Corridor Business Association Annual Meeting in Dallas at 1 pm ET.

Stocks in Focus

Before the start of today’s trading, spice maker McCormick (MKC) reported better than expected third quarter results and raised its full-year guidance.

AT&T (T) said it has reached tentative agreements with the Communications Workers of America in negotiations covering CWA-represented DIRECTV field services employees in its Midwest, Southeast and Southwest regions.

Alcoa (AA) announced that its board approved the completion of its separation into two independent, public companies: Arconic, focusing on downstream projects, and Alcoa, focusing on upstream projects. The separation will be effective November 1st, 2016.

Costco Wholesale (COST) reported better than expected fourth quarter earnings per share but revenues were below estimates.

Comtech Telecommunications (CMTL) announced that its Chairman Fred Kornberg will return to assume the role of CEO and President. The incumbent Stanton Sloane is leaving the company, while Michael Galletti was appointed COO.
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