Market Analysis

Beyond the Numbers

Risk Aversion Takes Hold Amid Rate, Greek Debt Worries
3/31/2015 9:08 AM

The major U.S. index futures are pointing to lower opening on Tuesday, with sentiment turning negative following the advances in the previous two sessions. With the Greek crisis and fears of U.S. monetary policy normalization, which has served to strengthen the dollar, continuing to serve as overhangs, the markets are being tossed like waves, reacting to each incoming economic evidence. The volatility in oil prices and the fragile global economic recovery have also worried the markets. The results of a regional manufacturing survey and a consumer confidence reading due shortly after the markets open may also render direction to the markets in today’s session.

U.S. stocks saw considerable strength on Monday, encouraged by hopes of easy monetary policy and M&A news flow. The major averages opened higher and saw a short advance in early trading. Thereafter, the averages moved roughly sideways before closing notably higher.

The Dow Industrials rallied 263.65 points or 1.49 percent before closing at 17,976, the S&P 500 Index closed 25.22 points or 1.22 percent higher at 2,086 and the Nasdaq Composite ended at 4,947, up 56.22 points or 1.15 percent.

Twenty-eight of the thirty Dow components closed higher, with Apple (AAPL), Boeing (BA), Caterpillar (CAT), Chevron (CVX), JP Morgan Chase (JPM), UnitedHealth (UNH) and Exxon Mobil (XOM) leading the gains. On the other hand, Intel (INTC) retreated sharply.

Among the sectors, transportation, utility, biotechnology, basic material, oil, housing, retail, semiconductor and financial stocks were among the best performers, while gold stocks came under selling pressure.

On the economic front, the Commerce Department reported that personal income rose 0.4 percent month-over-month in February, with the increase slightly ahead of expectations. Wages and salaries climbed 0.3 percent. At the same time, personal spending was up a mere 0.1 percent compared to expectations for a 0.2 percent increase. Spending on durable goods fell and spending on services slowed. Income adjusted for inflation was up 0.2 percent, while real spending was down by 0.1 percent. The annual core price consumption expenditure index was up a mere 0.3 percent, with energy prices serving as a drag. The core rate was up 1.4 percent.

The National Association of Realtors reported that its pending home sales index rose 3.1 percent month-over-month in February, much more than the 0.3 percent increase expected by economists. Pending home sales rose notably in the Midwest and the West, while the Northeast and South saw declines.

The regional business activity index compiled by the Dallas Federal Reserve fell to –17.4 in March from –11.2 in February, while economists had expected an improvement to –9.

Currency, Commodity Markets

Crude oil futures are declining $0.89 to $47.79 a barrel after slipping $0.19 to $48.68 a barrel on Monday. Meanwhile, an ounce of gold is currently trading at $1,186.50, up $1.20 from the previous session’s close of $1,185.30. On Monday, gold fell $15.40.

On the currency front, the U.S. dollar is trading at 119.85 yen compared to the 120.07 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.0774 compared to yesterday’s $1.0833.


The major Asian markets closed mixed, with the Japanese and Chinese markets retreating sharply, while most other major markets in the region advanced.

Optimism over stimulatory support for China and the positive close on Wall Street overnight set in motion a wave of buying in most markets. Expectations that the Reserve Bank of Australia will cut rates when it meets next week also encouraged traders to pick up stocks.

Australia’s All Ordinaries opened higher and rallied strongly in early trading. After moving sideways in the morning, the index gave back some of its gains yet closed 45.60 points or 0.78 percent higher at 5,862.

Most sectors advanced, led by IT and material stocks, while real estate stocks came under selling pressure.

Hong Kong’s Hang Seng Index ended at, up points or percent, while China’s Shanghai Composite Index closed 38.67 points or 1.02 percent lower at 3,748.

Japanese stocks came under pressure despite the yen remaining depressed. After trading above the unchanged line until the mid-session, the Nikkei 225 average retreated in late afternoon trading before ending down 204.41 points or 1.05 percent at 19,207.

A majority of stocks declined, led by rail utilities and food stocks. Other utilities, financial, retail, telecom and some resource stocks also came under selling pressure. At the same time, export stocks ended mostly higher.

On the economic front, data released by the Japanese Ministry of Land, Infrastructure, Transport and Tourism showed that housing starts fell 3.1 percent year-over-year in February, smaller than the 13 percent decline in January.

The Reserve Bank of Australia released private sector credit data for February, which rose 0.5 percent month-over-month in February compared to a 0.6 percent increase in January. Annually, credit was up 6.2 percent.

New home sales in Australia rose yet again in February, according to a report released by the Housing Industry Association. New home sales rose 1.1 percent on top of a 1.8 percent climb in January. The number of construction orders received by big 50 contractors grew at a much slower pace of 1 percent on a yearly basis in February.

The Japanese Automobile Manufacturers Association reported that vehicle production volume fell 5.3 percent year-over-year in February, with domestic demand falling sharply.


European stocks opened mostly lower and saw some volatility in early trading after yesterday’s solid advance. The major averages have now turned uniformly lower and are notably lower.

The debt crisis in Greece is still in limbo, as the nation scrambles to secure financing ahead of the April 20th deadline.

In corporate news, Royal Philips Electronics (PHG) announced a deal to sell an 80.1 percent stake in its lighting division to Go Scale Capital for $2.8 billion. U.K.’s Kingfisher reported a decline in its full year profits and also announced plans to close 60 underperforming B&Q stores.

U.K. travel company Thomas Cook said in its pre-close update that it is confident of meeting its full year expectations, as its European operations showed improvement.

On the economic front, a report released by the GfK Institute showed that consumer confidence in the U.K. rose to a 12 –year high in March, with the corresponding index rising to 4 from 1 in February.

German retail sales rose 3.6 percent year-over-year in February, slower than the 5 percent jump in January, a report released by the German Federal Statistical Office showed. Economists expected a 3.4 percent increase.

A separate report showed that the jobless rate in Germany came in at 4.8 percent in February, unchanged from the previous month. The number of unemployed persons rose 7.3 percent compared to a more modest 0.1 percent increase in the number of employed individuals.

Meanwhile, the German Federal Labor Agency reported that the jobless rate in German came in at 6.4 percent in March compared to the 6.5 percent rate expected by economists.

Revised estimates released by the U.K. Office for National Statistics showed that U.K. fourth quarter GDP rose at an upwardly revised sequential rate of 0.6 percent and the year-over-year growth rate was also revised to 3 percent from 2.7 percent.

Flash estimate released by Eurostat showed that euro area's annual consumer price inflation remained negative for the fourth straight month in March, while the jobless rate eased 0.1 percentage points to 11.3 percent.

U.S. Economic Reports

Kansas City Federal Reserve Bank President Esther George is scheduled to speak in New York. At 9 am ET, Richmond Fed President Jeffrey Lacker is due to speak on the economic outlook in Richmond.

Cleveland Fed President Loretta Mester will also moderate a panel on the future of banks at the Atlanta Fed conference in Stone Mountain, Georgia, at 9 am ET.

S&P/Case-Shiller is due to release its house price index for January at 9 am ET. The 20-city house price index is expected to rise 0.7 percent month-over-month on a seasonally adjusted basis compared to a 0.9 percent increase in December. Annually, house prices may have risen an unadjusted 4.6 percent.

MNI Indicators is due to release the results of its Chicago business survey for March at 9:45 am ET. The business barometer is expected to increase to 50.2 from 45.8 in February.

The Chicago business barometer slumped 13.6 points to 45.8 in February, the lowest level since July 2009. The sharp retreat was due to bad weather and effects related to the West Coast port slowdown. The new orders, production and employment indexes all declined notably during the month.

At 10 am ET, the Conference Board is set to release its consumer confidence index for March. The consensus estimate calls for a small drop in the index to 95.5 from 96.4 in February.

The consumer confidence index for the U.S. pulled back in February. The consumer confidence index fell to 96.4 from a 7-1/2 year high of 103.8 in January, coming in below the expected reading of 99.1. The expectations index fell 9.8 points to 87.2, while the present situations index was down a more modest 2.7 points to 110.2.

Stocks in Focus

Actavis’ (ACT) subsidiary Actavis Australia and Amneal Pharma announced a deal under which the latter will acquire substantially all of the former’s in-country generic pharma business. The companies did not reveal the financial terms of the deal.

Agilent Technologies (A) announced an agreement for Japanese scientific instrumentation company Rigaku to acquire Agilent’s X-ray diffraction business. The deal is expected to be final May 1st, 2015.

TD Ameritrade (AMTD) announced that banking veteran Steve Boyle will succeed Bill Gerber as its CFO at the conclusion of its fiscal year 2015.

Analogic (ALOG) announced the departure of its CFO Michael Levitz, effective April 2015, and the appointment of Michael Bourque, its VP and Corporate Controller, to the CFO position on an interim basis.

Media General (MEG) announced a secondary offering of 6.8 million shares of its common stocks by one of its stockholders.
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