Market Analysis

Beyond the Numbers

Markets on Track For Strong Start Amid Fairly Positive Data
10/23/2014 8:45 AM

The major U.S. index futures are pointing to a notably higher opening on Thursday, with sentiment reflecting a return of optimism. Earnings news, though mixed, has largely been encouraging. Earlier in the global trading, a private survey showed that Chinese manufacturing activity expanded at a slightly faster pace. Private sector activity data from the eurozone also suggested an improvement, although the inner details of the survey were mixed. With jobless claims rising roughly in line with expectations, traders may be encouraged to pick up bargains.

U.S. stocks closed Wednesday’s session notably lower, as positive earnings failed to inspire confidence amid worries concerning the economy and a shooting at the Canadian parliament. The major averages opened higher and stayed mostly above the unchanged line until the mid-session. Thereafter, the averages retreated steadily for the rest of the session.

The Dow Industrials ended down 153.49 points or 0.92 percent at 16,461, the Nasdaq Composite Index slid 36.63 points or 0.83 percent before closing at 4,383 and the S&P 500 Index closed 14.17 points or 0.73 percent lower at 1,927.

Twenty-four of the thirty Dow components closed lower, with Boeing (BA), American Express (AXP) and Goldman Sachs (GS) leading the slide. On the other hand, Travelers (TRV) and Johnson & Johnson (JNJ) gained some ground.

Transportation, resource, financial and semiconductor stocks were among the worst performers of the session.

Currency, Commodity Markets

Crude oil futures are climbing $0.61 to $81.13 a barrel after plunging $1.97 to $80.52 a barrel on Wednesday.

The previous session’s slump came amid the release of the weekly petroleum status report, which showed that crude oil stockpiles rose by 7.1 million barrels to 377.7 million barrels in the week ended October 17th, moving near the upper limit of the average range.

Distillate inventories rose by 1 million barrels yet were in the lower half of the average range. Meanwhile, gasoline inventories declined by 1.3 million barrels and were in the lower half of the average range.

Refinery capacity utilization averaged 88.5 percent over the four weeks ended October 17th compared to 90.1 percent over the four weeks ended October 10th.

Gold futures, which fell $6.20 to $1,245.50 an ounce in the previous session, are currently sliding $12 to $1,233.50 an ounce.

Among currencies, the U.S. dollar is trading at 107.69 yen compared to the 107.14 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.2668 compared to yesterday’s $1.2649.


Most major Asian markets ended lower, with the Australian, Chinese, Hong Kong, Japanese, South Korean and Taiwanese markets retreating, while the Singaporean, Malaysian, New Zealand and Indonesian markets ended higher. The Indian market was closed for a public holiday.

The negative lead from Wall Street weighed on the markets even as Chinese manufacturing activity data offered some encouragement.

The Japanese market retreated, as the yen firmed up on rising risk aversion. The Nikkei 225 average opened lower and languished below the unchanged line for the bulk of the session before closing down 56.81 points or 0.37 percent at 15,139.

Export stocks moved mostly to the downside, while utility, food and resource stocks gained ground.

Australia’s All Ordinaries also spent the better part of the session below the unchanged line, ending down 3.40 points or 0.06 percent at 5,370.

Material and energy stocks came under intense selling pressure, while telecom, real estate, healthcare and financial stocks gained ground.

Hong Kong’s Hang Seng Index closed at 23,333, down 70.79 points or 0.30 percent, and China’s Shanghai Composite Index ended 24.14 points or 1.04 percent lower at 2,302.

On the economic front, the results of a survey by Markit Economics and HSBC showed that Chinese manufacturing activity picked up pace in October. The manufacturing index edged up 0.2 points to 50.4.

A separate report released by the National Australia Bank showed that business confidence in Australia was unchanged in the third quarter. The business confidence index was flat at 6 in the third quarter, but the business conditions index rose to 3 from 1 in the second quarter.

The results of a survey by Markit and the JMMA showed that the pace of expansion by the Japanese manufacturing sector accelerated in October. The manufacturing index rose 1.1 points to 52.8 in October.


After opening lower, European stocks recovered in early trading. However, the major averages in the region have given back ground and are currently trading mixed, as traders digest domestic earning and private sector activity data.

In corporate news, Credit Suisse (CS) reported third quarter profits that were ahead of expectations. Finland’s Nokia (NOK) also reported better than expected profit growth for its third quarter and raised its full year core operating margin forecast.

German automaker Daimler reported a sharp increase in its third quarter profits on broad based growth across most of its markets.

Meanwhile, French telecom company Orange reported a decline in its third quarter earnings, although the drop was not as steep as expected. The company also confirmed its outlook for the full year.

Unilever (UL) reported a smaller than expected increase in third quarter underlying sales, with China seeing marked weakness. Reed Elsevier reported a modest increase in its underlying revenues for the nine-month period and also maintained its forecast for the year.

Anglo American reported higher iron ore output for the third quarter. French brewer Pernod Ricard reported better than expected sales growth despite weakness in China, while Tesco’s profits plunged amid accounting woes.

On the economic front, Markit reported that private sector activity in the eurozone saw a mild upturn in October. The composite purchasing managers’ index rose to 52.2 in October from 52 in September. Economists expected a decline in the index to 51.5.

The manufacturing PMI rose 0.4 points to 50.7, suggesting an unexpected expansion, while the service sector PMI was unchanged at 52.4.

The U.K. Office for National Statistics reported that retail sales in the U.K. fell 0.3 percent month-over-month in September, marking the first drop in four months. Economists expected a 0.1 percent drop for the month. Annually, retail sales rose a less than expected 2.7 percent.

U.S. Economic Reports

After reporting first-time claims for U.S. unemployment benefits at a fourteen-year low in the previous week, the Labor Department released a report on Thursday showing that initial jobless claims rebounded in the week ended October 18th.

The report said initial jobless claims climbed to 283,000, an increase of 17,000 from the previous week's revised level of 266,000. Economists had expected jobless claims to rise to 285,000 from the 264,000 originally reported for the previous week.

The Federal House Finance Agency is due to release its house price index for August at 9 am ET. Economists expect the house price index to increase 0.3 percent month-over-month following a 0.1 percent increase in July.

Markit is scheduled to release the flash estimate of its national manufacturing survey at 9:45 am ET. The consensus estimate calls for a decline in the index to 57 in October from 57.9 in September.

The Conference Board is due to release its leading economic indicators index for September at 10 am ET. Economists expect a 0.6 percent month-over-month increase by the index.

The leading economic indicators index rose 0.2 percent month-over-month in August, with the yield spread and new orders index contributing to the upside, while building permits acted as a drag. The coincident index also rose by 0.2 percent.

The Kansas City Federal Reserve will release the results of its regional manufacturing survey at 11 am ET. The manufacturing index based on the survey is expected to remain unchanged at 6 in October.

The Treasury Department will make announcements concerning next week’s auctions of 2-year, 5-year and 7-year notes at 11 am ET.

Stocks in Focus

AT&T (T) reported third quarter earnings and revenues that trailed estimates and reduced its revenue guidance for the full year, blaming the action on less than expected subscriber additions for its no-contract Next wireless plans.

CA Technologies’ (CA) second quarter earnings exceeded estimates, while its revenues were slightly shy of estimates. The company’s full year guidance was lukewarm.

Cheesecake Factory (CAKE) reported third quarter earnings that trailed estimates, while its revenues were ahead of estimates.

3M Companies (MMM) reported better than expected third quarter results, while its revenues were below estimates. The company narrowed its 2014 guidance.

Caterpillar (CAT) reported third quarter result that exceeded estimates. The company narrowed its revenue guidance for 2014 but upwardly revised its earnings outlook.

General Motors (GM) reported higher net profit for the third quarter, while its revenues were below estimates.

Sallie Mae (SLM) reported third quarter earnings in line with estimates and raised the low end of its full year earnings guidance.

O’Reilly (ORLY) reported better than expected third quarter results and raised its guidance for 2014.

Logitech’s (LOGI) second quarter earnings and revenues beat estimates, and the company reiterated its above consensus sales guidance for 2015.

CarMax (KMX) announced that its board has approved a $2 billion increase to its stock buyback program. Seagate Technology (STX) said its board has approved a 26 percent increase in its target regular cash dividend.

Everest Re (RE) reported better than expected third quarter operating earnings and revenues.

Lam Research (LRCX) reported better than expected first quarter earnings and in line revenues.

Altera (ALTR), (AMZN), BJ Restaurants (BJRI), Callaway Golf (ELY), CB&I (CBI), Deckers Outdoor (DECK), DeVry (DV), Edward Lifesciences (EW), Ingram Micro (IM), KLA-Tencor (KLAC), Maxim Integrated (MXIM), Microsoft (MSFT), NETGEAR (NTGR), NetSuite (N), Swift Transportation (SWFT), VeriSign (VRSN) and Wynn Resorts (WYNN) are among the companies due to release their quarterly results after the close of trading.

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