Market Analysis

Beyond the Numbers

Sentiment Remains Negative as Mixed Data Accentuate Uncertainties
9/23/2014 9:10 AM

The major U.S. index futures are pointing to a lower opening on Tuesday, with sentiment suggesting an extension of yesterday’s declines, as the markets weigh in uncertainties. After Chinese manufacturing data beat estimates by a slight margin, the results of Markit’s private sector survey for the eurozone showed decelerating activity levels. Against this backdrop, the overbought levels of the markets may introduce caution among traders. Traders in the domestic markets may also focus on the results of Markit’s U.S. manufacturing data and some Fed speeches scheduled for the day.

Global growth worries haunted traders on Monday, with U.S. stocks retreating notably. After Chinese officials hinted that stimulus is not forthcoming despite signs of weakening Chinese economic growth, the major averages opened lower and moved roughly sideways in early trading. The release of a report showing a drop in existing home sales exerted further downward pressure on the markets, and the averages declined steadily until late trading before closing firmly in the red.

The Dow Industrials ended down 107.06 points or 0.62 percent at 17,173, the S&P 500 Index closed 16.11 points or 0.80 percent lower at 1,994 and the Nasdaq Composite Index lost 52.10 points or 1.14 percent before closing at 4,528.

Twenty-five of the thirty Dow components closed lower, with Visa (V), United Technologies (UTX), Nike (NKE), Microsoft (MSFT), Disney (DIS), Chevron (CVX) and Caterpillar (CAT) leading the slide.

Transportation, energy, gold, utility, housing and semiconductor stocks were among the worst performers of the session.

On the economic front, the National Association of Realtors reported that existing home sales came in at a seasonally adjusted annual rate of 5.05 million units in August, down 1.8 percent from a revised reading of 5.14 million units in July. Inventories measured in terms of months of supply remained unchanged at 5.5 months. First-time buyers accounted for 29 percent of total existing home sales, the same as in July. The median price of an existing home rose 4.8 percent year-over-year to $219,800.

With yesterday’s retreat, the Dow Industrials has moved close to a near-term support around 17,135. In the eventuality of the weakness continuing, the 17,081 level could also offer support. On the upside, the index has resistance around 17,230 and 17,275.

Currency, Commodity Markets

In the first day of trading as the front month contract, crude oil futures for November delivery are currently trading up $0.64 at $91.51 a barrel. The October futures expired at $91.52 a barrel, down $0.89, on Monday. Meanwhile, gold futures are climbing $8.70 to $1,226.60 an ounce. On Monday, gold rose $1.30 to $1,217.90 an ounce.

Among currencies, the U.S. dollar is trading at 108.55 yen compared to the 108.84 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is trading at $1.2881 compared to yesterday’s $1.2849.


The major Asian markets received some support from positive Chinese manufacturing data but ended mixed for the session. The Australian, New Zealand, Singaporean and Chinese markets advanced, while the Hong Kong, Indian, Indonesian, Malaysian, South Korean and Taiwanese markets moved to the downside. The Japanese market was closed for a public holiday.

Australia, which exports most of its resources to commodity hungry China, was encouraged by a report showing a pick up in manufacturing activity in September. The All Ordinaries opened lower and saw some weakness till late morning trading. Thereafter, the index advanced steadily before closing up 47.90 points or 0.89 percent at 5,416. IT, consumer, financial, telecom and utility stocks all ended notably higher for the session.

China’s Shanghai Composite Index hovered above the unchanged line for much of the session and ended 15.23 points or 0.67 percent higher at 2,305. Meanwhile, Hong Kong’s Hang Seng Index ended at 23,837, down 118.42 points or 0.49 percent.

On the economic front, a preliminary report released by HSBC and Markit Economics showed that Chinese manufacturing activity accelerated in September. The manufacturing purchasing managers’ index rose to 50.5 in September from 50.2 in August, while economists had expected the index to dip to 50.0.


European stocks opened lower and have seen further downside since then, as private sector activity data came in below expectations.

In corporate news, Philips announced plans to split into two companies, one focusing on the HealthTech and the other on lighting solutions opportunities. Citing additional costs and weakness in markets, the company said it now expects adjusted EBITA for the second half of the year to be lower than in the year-ago period.

Tesco announced that Alan Stewart, a former Marks & Spencer executive, will join as its CFO, effective today, earlier than the previously announced date of December 1st.

Financial services firm Close Brothers reported higher profits for its full year and also raised its dividend. The company also stated that it is entering 2015 with confidence.

Tate & Lyle warned that its profit for the first half will be impacted by significant disruption to its supply chain and an increasingly competitive market for its Splenda sucralose sweetener.

Reports suggest that Unicredit and Banco Santander are in talks to merge their asset management units. Meanwhile, there are also rumors of a consortium-led by Kellogg (K) making an offer for the U.K.’s United Biscuits.

On the economic front, Markit’s survey showed that private sector activity in the eurozone expanded at the slowest rate in 9 months. The composite purchasing managers’ index eased to 52.3 in September from 52.5 in August, while the index was expected to remain unchanged.

The manufacturing purchasing managers’ index eased to 50.5 from 50.7, and the service sector purchasing managers’ index declined 0.3 points to 52.8.

Revised estimates released by French statistical office INSEE showed that French GDP stagnated in the second quarter compared to the previous quarter. This was in line with the preliminary estimate.

Meanwhile, a separate report showed that the business climate in France weakened in September, with the corresponding business confidence index slipping 1 point to 91. The decline was in line with expectations.

U.S. Economic Reports

Federal Reserve Governor Jerome Powell is scheduled to speak on community banking at the St. Louis Fed conference at 8:20 am ET. Kansas City Fed President President Esther George will also speak at the St. Louis Fed conference at 8:30 am ET. St. Louis Fed President James Bullard is scheduled to open the community banking conference and hold a press briefing at 9 am ET.

The Federal House Finance Agency is due to release its house price index for July at 9 am ET. Economists expect the house price index to rise 0.4 percent month-over-month in July following an increase of the same magnitude in June.

Markit is scheduled to release the flash estimate of its U.S. manufacturing purchasing managers’ index for September at 9:45 am ET. The consensus estimate calls for a small increase in the headline index to 58.1 in September from 57.9 in August.

The Richmond Federal Reserve will release the results of its regional manufacturing index for September at 10 am ET. Economists expect the index to remain unchanged at 12.

The Treasury Department is scheduled to release the results of its auction of 2-year notes at 1 pm ET.

Esther George is also due to speak on the economy in Cheyenne, Wyoming at 9:15 pm ET.

Stocks in Focus

Adobe (ABBE) said it has acquired Aviary, a privately held developer of mobile software development kits, in a bid to fast track creative cloud application development.

CarMax (KMX) reported better than expected second quarter results. Comparable store used unit sales were up only marginally.

Parkway Properties (PKY) announced that it has priced its previously announced public offering of 10 million shares at $18.60 per share. The company expects to mobilize net proceeds of about $178.1 million from the offering.

Owens & Minor (OMI) signed an agreement to buy privately held surgical kitting company ArcRoyal, based in Ireland. The terms of the deal, which is expected to close in the fourth quarter of 2014, were not disclosed.

AAR Corp. (AIR), Bed Bath & Beyond (BBBY), Copart (CPRT) and Steelcase (SCS) are among the companies due to release their quarterly results after the close of trading.

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