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Beyond the Numbers

Central Bank Optimism Wanes Amid Limited Catalysts
12/19/2014 9:10 AM

The major U.S. index futures are pointing to a higher opening on Friday, with optimism waning following the exuberance seen in the past two sessions in the wake of benevolent policy actions from global central banks. European stocks are currently mixed, while the Asian markets closed higher for the session. The mixed corporate tidings and quadruple witching scheduled for the session render the predictability of the market movement difficult. Some degree of consolidation or a pullback could most likely to be the order of the day.

U.S. stocks advanced solidly on Thursday, as traders continued to react positively to the Federal Reserve’s pledge to remain patient. The Swiss National Bank’s decision to lower rates also encouraged traders and offered hope that more easing could be forthcoming from its European counterpart. The major averages opened sharply higher and moved roughly sideways till late trading before advancing further in the final hour of trading.

The Dow Industrials ended up 421.28 points or 2.43 percent at 17,778, the S&P 500 Index closed 48.34 points or 2.40 percent higher at 2,061 and the Nasdaq Composite Index ended at 4,784, up 104.08 points or 2.24 percent.

All thirty of the Dow components closed higher for the second straight session, with American Express (AXP), Cisco Systems (CSCO), Goldman Sachs (GS), IBM (IBM), Microsoft (MSFT) and UnitedHealth (UNH) leading the gains.

On the economic front, the Labor Department reported that jobless claims fell to 289,000 in the week ended December 13th from an upwardly revised reading of 295,000 in the previous week. The four-week average eased to 298,750 from 299,500 in the previous week. Continuing claims calculated with a week’s lag slipped by 147,000 to 2.373 million in the week ended December 6th.

Flash estimates released by Markit showed that U.S. service sector activity unexpectedly grew at a slower rate in December. The service sector purchasing managers’ index fell to 53.6 from 56.3 in November, while it was expected to increase to 57.3.

The results of the Philadelphia Federal Reserve’s manufacturing survey showed that the pace of growth in regional manufacturing activity slowed in line with expectations in December. The diffusion index of business activity fell to 24.5 in December from 40.8 in November. The new orders index tumbled to 15.7 from 35.7, the shipments index plunged to 16.1 from 31.9 and the unfilled orders index declined to 1.5 from 7.1. The outlook index, though remaining strong, eased to 51.9 from 57.7.

The Conference Board reported that its leading economic indicators index for the U.S. rose 0.6 percent month-over-month in November, in line with estimates. The interest rate spread, stock market performance and manufacturing orders contributed positively to the index, while jobless claims and building permits served as drags.

Currency, Commodity Markets

Crude oil futures for January are climbing $0.64 to $54.75 a barrel after receding $2.36 to $54.11 a barrel on Thursday. An ounce of gold is currently trading at $1,197.50, up $2.70 from the previous session’s close of $1,194.80. On Thursday, gold edged up $0.30.

Among currencies, the U.S. dollar is trading at 119.12 yen compared to the 118.84 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.2292 compared to yesterday’s $1.2286.

Asia

Asian stocks rallied for the third straight session, as risk appetite firmed up amid expectations of easy monetary policy from the global central banks.

The Japanese markets rallied, as the yen extended its weakness amid the nation’s central bank announcing an unchanged monetary policy stance at its December meeting. The Nikkei 225 average opened higher and moved sideways in the morning before making a small leg up in the afternoon and moving sideways thereafter. At the close of trading, the index was up 385.56 points or 2.24 percent at 17,596.

A majority of stocks advanced, with export stocks seeing particular strength. Ricoh, Mitsubishi Motors, Tokyo Electron, IHI, Sumitomo Realty and Hino Motors were among the biggest gainers of the session.

Australia’s All Ordinaries traded above the unchanged line throughout the session before closing up 123 points or 2.37 percent at 5,313. The market witnessed broad based strength, with energy, financial, consumer, industrial and material stocks advancing strongly.

China’s Shanghai Composite Index ended at 3,109, up 51.07 points or 1.67 percent, and Hong Kong’s Hang Seng Index rallied 284.42 points or 1.25 percent before closing at 23,117.

On the economic front, the Bank of Japan announced its decision to maintain its target of raising its monetary base by 80 trillion yen annually following the conclusion of its 2-day meeting. The status quo decision came despite falling oil prices posing a deflationary threat. The bank also opted to keep its asset purchase program intact, while it gave an upbeat assessment of the domestic economy.

Revised estimates released by Japan’s Cabinet Office showed that its leading economic indicators index was upwardly revised by 0.5 points to 104.5 in October, though lower than the previous month’s 106.2.

A Ministry of Economy, Trade and Industry report showed that an index measuring all industry activity in Japan fell 0.1 percent month-over-month in October following a revised 1.4 percent increase in September.

Based on the latest census, China’s National Bureau of Statistics revised its GDP estimate for 2013 to 58.8 trillion yuan, up 3.4 percent from the previous 56.8 trillion yuan.

Europe

After opening higher, European stocks have given back some ground and are currently trading mixed. The markets have not been enthused much by a report showing an improvement in German consumer confidence.

On the economic front, confidence among British consumers slid in December, according to the results of a survey by the GfK Institute. The consumer confidence index fell to –4 from –2 in November, while economists had estimated an improvement to –1.

Meanwhile, GfK’s survey of consumer confidence in Germany showed an improvement to an 8-year high. The forward looking consumer confidence is set to increase to 9 in January from 8.7 in December. Economists had expected a more modest improvement to 8.8.

Eurostat reported that the eurozone’s current account surplus fell to 30.6 billion euros in October from 32.9 billion euros in September.

U.S. Economic Reports

Chicago Federal Reserve Bank President Charles Evans is due to open a conference on regional competitiveness in Chicago at 10 am ET.

The Kansas City Federal Reserve is scheduled to release its manufacturing index for the region at 11 am ET. Economists expect the manufacturing index to rise to 8 in December from 7 in the previous month.

Richmond Federal Reserve Bank President Jeffrey Lacker will take part in a panel discussing the economic outlook in Charlotte, North Carolina at 12:30 pm ET.

Stocks in Focus

Nike’s (NKE) second quarter earnings and revenues exceeded estimates, while the company said worldwide future orders for Nike Brand athletic footwear and apparel scheduled for delivery from December 2014 through April 2015 rose 7 percent, slower than in the previous quarter.

CarMax (KMX) reported better than expected third quarter results. Paychex (PAYX) reported second quarter earnings and revenues that exceeded estimates.

Xerox (XRX) announced an agreement to sell its IT outsourcing business to France’s Atos for $1.05 billion, prior to closing adjustment, with additional consideration of $50 million, subject to the condition of certain asset closing. Reflecting the impact of the pending acquisition, Xerox updated its 2015 adjusted earnings guidance to $1.05-$1.11 per share. The company also said it expects adjusted earnings from continuing operations of $1.04-$1.06 per share for 2014 and 28-30 cents per share for the fourth quarter. Analysts expect earnings of $1.12 per share for 2014 and $1.17 per share for 2015.

Red Hat (RHT) reported third quarter earnings and revenues that exceeded estimates. AAR Corp.’s (AIR) second quarter results also exceeded estimates.

First Line (FINL) also reported better than expected third quarter results but issued weak guidance for 2015.

BlackBerry Ltd. (BBRY) reported third quarter adjusted earnings ahead of estimates, while its revenues trailed estimates Separately, BlackBerry said it completed the acquisition of Secusmart GmbH following regulatory approval. Terms of the deal were not disclosed.

Pier 1 Imports (PIR) reported third quarter earnings that came in line with estimates, while its revenues missed expectations. The company continues to see 2014 earnings per share above the consensus estimate.

Cintas (CTAS) reported better than expected second quarter results and raised its full year earnings per share guidance.

BCG Partners (BGCP) said it expects its quarterly revenues for distributable earnings for the fourth quarter to be around the high end of its previously stated guidance of $475 million to $510 million. The company also said it expects pre-tax distributable earnings to be around the mid-point of its previously issued guidance of $69 million to $79 million.

FMC Technologies (FTI) said it has received an order from Eni Angola worth $393 million to supply subsea production systems for its deepwater Block 150/6 East Hub development.



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