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Beyond the Numbers

Caution Likely Amid Muted Risk Sentiment
7/21/2014 9:18 AM

The major U.S. index futures are pointing to a lower opening on Monday, with sentiment weak, as traders stare at the uncertainty engendered by a lack of any major catalysts. The gains notched up last Friday may also make traders wary of any further upside. Global cues aren’t encouraging either, with Asian stocks scrambling to a mixed close, while the European markets are seeing weakness, with the geopolitical crisis surrounding Ukraine and its ramification for the region weighing down on sentiment.

U.S. stocks rebounded in the week ended July 18th, with earnings and mostly positive economic data supporting the major averages.

Last Monday, the major averages started on a positive note, thanks to Citigroup’s (C) positive earnings. The major averages went about in a lackluster fashion on Tuesday before closing mixed amid the first day of Federal Reserve Chair Janet Yellen’s Congressional testimony, where she seemed to suggest that monetary policy normalization could come earlier than thought.

Helped by positive earnings and economic data, the major averages ended moderately higher on Wednesday, with the Dow Industrials closing at a new record high. With the markets shifting their focus to geopolitical uncertainty and away from positive earnings and economic data, the major averages retreated sharply on Thursday. Stocks rebounded solidly on Friday, once again propped up by positive earnings.

For the week, the Dow Industrials added 0.92 percent, the S&P 500 Index rose 0.54 percent and the Nasdaq Composite gained 0.38 percent.

Among the sector indexes, the Dow Jones Transportation Average, the Philadelphia Oil Service Index and the NYSE Arca Securities Broker/Dealer Index gained over 1 percent each. Meanwhile, the NYSE Arca Biotechnology Index fell 2.5 percent and the NYSE Arca Airline Index and the NYSE Arca Gold Bugs Index declined over 1 percent each.



Commodity, Currency Markets

Crude oil futures are edging up $0.28 to $103.41 a barrel after rising $2.30 or 2.28 percent to $103.13 a barrel in the week ended July 18th.

Last Monday, oil reversed course, rising marginally in the session. However, the commodity declined sharply on Tuesday, dropping by close to $1-a-barrel.

Oil rose close to $1.25-a-barrel on Wednesday and added $1.99 a barrel on Thursday but slipped slightly on Friday.

Gold futures, which fell $28 or 2.09 percent to $1,309.40 an ounce in the previous week, are currently climbing $7.20 to $1,316.60 an ounce.

Among currencies, the U.S. dollar rebounded in the week ended July 18th, inching up 0.04 percent against the yen before ending the week at 101.34. The greenback added 0.62 percent against the euro over the week to $1.3524.

The euro came under selling pressure last week after comments by central bank officials suggested that additional monetary policy easing may be in the offing. Additionally, risk aversion triggered by geopolitical tensions also weakened the common currency.

The U.S. dollar is currently trading at 101.29 yen and is valued at $1.3524 versus the euro.

Asia

The major Asian markets closed mixed, with the Australian, Indian, Indonesian, New Zealand and Taiwanese markets advancing, while most of the remaining major markets in the region retreated.

Even as the solid performance on Wall Street offered some support, traders exercised caution due to the absence of any major trading catalysts. The Japanese markets remained closed for a public holiday.

Australia’s All Ordinaries opened higher and held mostly above the unchanged line before closing up 9.50 points or 0.17 percent at 5,529. Most sectors advanced, with the exception of material, telecom and utility stocks.

Hong Kong’s Hang Seng Index ended at 23,387, down 67.65 points or 0.29 percent, and China’s Shanghai Composite Index closed 4.59 points or 0.22 percent lower at 2,055.

Europe

European stocks opened slightly lower and have fallen further since then, as traders digest some corporate news.

In corporate news, Norsk Hydro CEO Svein Brandtzeg announced his decision to leave the company to take over the CEO role at Norwegian fertilizer group Yara International, effective February 1, 2015 at the latest. Philips (PHG) reported second quarter results that were ahead of expectations by most analysts.

The U.K.’s Tesco announced that its CEO Philip Clarke will leave the company and be replaced by Unilever executive Dave Lewis in the role, effective October 1. The company also said its expects sales and trading profit for the first half of the year to be slightly below expectations.

On the economic front, revised estimates released by the German Federal Statistical Office showed that German producer prices fell 0.7 percent year-over-year in June, in line with the preliminary estimate but smaller than the 0.8 percent drop in May. On a monthly basis, producer prices were unchanged.

Property tracking website RightMove said the average asking price for a house in the U.K. declined 0.8 percent month-over-month in July following a 0.1 percent increase in June. This marked the first drop in seven months. Annually, house prices rose 6.5 percent, slower than the 7.7 percent increase in May.

U.S. Economic Reports

Housing data is likely to dominate proceedings on Main Street in the unfolding week, which is fairly light on the economic calendar. Traders are expected to focus on the National Association of Realtors’ existing home sales report and the Commerce Department’s new home sales report, both for June, and the Federal Housing Finance Agency’s house price index for May.

The regularly scheduled jobless claims report, the Commerce Department’s durable goods orders report for June and the flash estimate of Markit’s manufacturing purchasing managers’ index for July may also be in the spotlight.

The results of a couple of regional manufacturing surveys, the Labor Department’s consumer price inflation report and announcements concerning the Treasury Department’s auctions of 2-year, 5-year and 7-year notes round up the economic events of the week.

Stocks in Focus

Earnings

Halliburton (HAL) reported second quarter results that came in line, while its revenues were ahead of estimates.

BB&T (BBT) reported second quarter results that missed estimates. However, Sun Trust Banks (STI) reported second quarter adjusted earnings and revenues that beat estimates.

Hasbro’s (HAS) second quarter earnings beat estimates, while its revenues missed estimates.

Chipotle Mexican Grill (CMG), Netflix (NFLX), Packaging Corp (PKG), Rambus (RMBS), Rent-A-Center (RCII), Sanmina (SANM), Steel Dynamics (STLD), Texas Instruments (TXN) and Waste Connections (WCN) are among the companies due to release their quarterly results after the close of trading.

Other Corporate News

Steel Dynamics (STLD) announced a deal to buy 100 percent of Severstal Columbus from OAO Severstal for $1.625 billion in cash. The company said the proposed purchase will boost its steel shipping capacity by 11 million tons, amounting to a 40 percent increase.

Meanwhile, AK Steel (AKS) said it would buy Severstal North America’s integrated steelmaking assets located in Dearborn, Michigan for $700 million in cash.

TETRA Technologies (TTI) announced that its publicly traded partnership Compressco has agreed to purchase all outstanding shares of Compressor Systems (CSI) for $825 million in cash.

CBS Outdoor Americas (CBSO) announced that it agreed to acquire certain outdoor advertising businesses from Van Wagner Communications for $690 million in cash. It is expected to be immediately accretive to adjusted funds from operations.




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