Market Analysis

Beyond the Number

Job Market Optimism Pitched Against Greek Worries
7/2/2015 9:03 AM

The major U.S. index futures are pointing to a higher opening on Thursday, with early mood suggesting that U.S. Stocks may get off to a positive opening on the support lent by a fairly robust U.S. Non-farm payrolls report. Notwithstanding downward revisions to the previous months' data, the pace of job additions in June was robust and the jobless rate slipped to a 7-year low. However, the jobless claims data came in worse than expected. With the Greek crisis continuing to remain an overhang on the markets and the approach of the extended weekend owing to the July 4th Independence holiday being observed on Friday, any optimism thereof could be muted.

U.S. stocks hovered in positive throughout Wednesday’s session, although they closed off their highs. The gains came amid the release of positive domestic data and signals that Greece may be embracing the bailout proposals put forward by its international creditors.

The major averages opened higher and moved sideways in early trading but gave back some of their gains over the course of the morning. The averages moved back to the upside going into the close, ending the day firmly in positive territory.

The Dow Industrials ended up 138.40 points or 0.79 percent at 17,758, the S&P 500 Index closed 14.31 points or 0.69 percent higher at 2,077 and the Nasdaq Composite ended at 5,013, up 26.26 points or 0.53 percent.

Twenty-four of the thirty Dow components closed the session higher, while the remaining six stocks retreated. Travelers (TRV), Boeing (BA), Disney (DIS), Nike (NKE), Procter & Gamble (PG) and Wal-Mart (WMT) were among the biggest gainers of the session, while Exxon Mobil (XOM) and Caterpillar (CAT) declined notably.

Among the sectors, financial, housing and retail stocks gained ground, while airline, gold and energy stocks moved to the downside.

On the economic front, ADP’s survey showed a bigger than expected increase of 237,000 private sector jobs in June.

The results of the Institute for Supply Management’s national manufacturing survey showed that manufacturing activity expanded for the 30th consecutive month in June. The manufacturing PMI rose to 53.5 in June from 52.8 in May.

Of the 18 industries surveyed, 11 reported growth in June. The new orders index edged up 0.2 points to 56 and the employment index climbed 3.8 points to 55.5, while the production index slid 0.5 points to 54.

Meanwhile, final estimates from Markit’s survey showed that its manufacturing PMI slipped to 53.6 in June from 54 in May, while economists had expected a reading of 53.7.

The Commerce Department reported that construction spending rose 0.8 percent month-over-month in May, while annually the increase was 8.2 percent. Spending on private construction was up 0.9 percent compared to the previous month, with residential and non-residential construction spending rising 0.3 percent and 1.5 percent, respectively. Public construction spending climbed 0.7 percent.

Monthly total vehicle sales came in at a seasonally adjusted annual rate of 17.2 million units in June compared to a 17.8 million-unit rate in May.

Currency, Commodity Markets

Crude oil futures are rising $0.22 to $57.18 a barrel after slumping $2.51 to $56.96 a barrel on Wednesday.

The previous session’s sell-off came amid the release of the weekly petroleum status report, which showed that crude oil stockpiles rose by 2.4 million barrels to 465.4 million barrels in the week ended June 26th. Inventories were near levels not seen for this time of year in at least the last 80 years.

Distillate stockpiles climbed by 0.4 million barrels and were in the middle of the average range for this time of the year. Meanwhile, gasoline inventories fell by 1.8 million barrels yet were in the upper half of the average range.

Refinery capacity utilization averaged 94.2 percent over the four weeks ended June 26th compared to 93.7 percent over the four weeks ended June 19th.

Gold futures, which fell $2.50 to $1,169.30 an ounce in the previous session, are currently sliding $8.10 to $1,161.20 an ounce.

Among currencies, the U.S. dollar is trading at 123.20 yen compared to the 123.17 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1083 compared to yesterday’s $1.1053.


Most of the major Asian markets rose for the third straight session, as traders digested developments on the Greek debt front. However, the Chinese market extended its sell-off, with the Shanghai Composite Index sliding over 3 percent.

Japanese stocks advanced strongly, as the yen retreated amid the prevalence of risk appetite. The Nikkei 225 Index opened higher and rose steadily in early trading before moving sideways. The index ended up 193.18 points or 0.95 percent at 20,523.

Export stocks moved mostly to the upside, although food, paper, heavy machinery makers and electric utilities came under selling pressure.

Australia’s All Ordinaries Index rose steadily throughout the session before ending up 81.90 points or 1.49 percent at 5,588. The market witnessed broad based strength, with consumer, energy, IT and utility stocks leading the gains.

Hong Kong’s Hang Seng Index closed 32.29 points or 0.12 percent higher at 26,282, while China’s Shanghai Composite Index lost 140.93 points or 3.48 percent before closing at 3,913.

On the economic front, a report released by the Bank of Japan showed that the monetary base rose 34.2 percent year-over-year in June following a 35.6 percent increase in May. On an adjusted basis, the monetary base climbed 17 percent.

The Australian Bureau of Statistics reported that the trade deficit for Australia widened to A$2.751 billion in May from A$1.36 billion in April. Economists expected a deficit of A$2.225 billion. Exports rose 1 percent month-over-month, while imports fell 4 percent.


European stocks opened higher and after the early strength, sentiment wavered as the Greek crisis plays out. Greek officials are clamoring for a ‘No’ vote on the referendum even as Eurozone leaders hope that the Greeks approve the bailout proposals put forward by the country’s creditors.

Meanwhile, Eurogroup President Jeroen Dijsselboem ruled out any further talks at the Eurogroup level or between Greek authorities and the institutions until after the referendum, given Greece’s stance and the recommendation of a ‘No’ vote by the Greek government.

The European Central Bank, which reviewed the emergency liquidity assistance to Greek banks, decided to maintain the ELA assistance to Greece at last Friday’s level.

In corporate news, Ryanair reported a 5 percent point year-over-year increase in load factor to 93 percent in June. Traffic rose 14 percent.

On the economic front, a report released by the U.K. Nationwide Building Society showed that U.K. house prices eased 0.2 percent month-over-month in June, belying expectations for a 0.5 percent increase. This marked the first decline in four months. The annual increase in house prices slowed to 3.3 percent from 4.6 percent.

The Swedish central bank lowered its benchmark interest rate to –0.35 percent from –0.25 percent. The Riskbank also extended its government bond purchase program by a further 45 billion Swedish Krona with effect from September until the end of the year. 

The results of a survey by Markit and the Chartered Institute of Procurement and Supply showed that U.K. construction sector activity accelerated in June. The corresponding PMI rose to 58.1 in June from 55.9 in May, while economists expected a reading of 56.5.

U.S. Economic Reports

With employment in the U.S. showing another notable increase in the month of June, the Labor Department released a report showing that the unemployment rate fell to a seven-year low. The Labor Department said non-farm payroll employment increased by 223,000 jobs, modestly below the addition of 230,000 jobs anticipated by economists. 

The report also showed downward revisions to the pace of job growth in April and May, with the revised data showing increases of 187,000 jobs and 254,000 jobs, respectively. 

With the revisions, Labor Department said employment gains in April and May combined were 60,000 lower than previously reported. Nonetheless, the unemployment rate still fell to 5.3 percent in June from 5.5 percent in May. Economists had expected the unemployment rate to dip to 5.4 percent.

The bigger than expected decrease pulled the unemployment rate down to its lowest level since hitting 5.0 percent in April of 2008.

Around the same time, the Labor Department is due to release its jobless claims report for the week ended June 27th. The consensus estimate calls for a decline in jobless claims to 270,000 from 271,000 in the previous week.

Jobless claims rose to a more than expected 281,000 in the week ended June 27th from 271,000 in the previous week. The four-week average rose to 274,750 from 273,750. Continuing claims calculated with a week’s lag rose by 15,000 to 2.264 million in the week ended June 20th.

The Commerce Department is set to release its factory orders report for May at 10 am ET. Economists expect factory orders to have declined by 0.3 percent month-over-month.

In April, factory declined for the eighth time in 9 months, dropping 0.4 percent compared to the previous month.

Durable goods orders, which account for the bulk of factory orders, fell 1.8 percent month-over-month in May, a bigger than expected drop. Excluding transportation, orders were up 0.5 percent, in line with expectations.

Core orders, which are measured as non-defense capital goods orders, excluding aircraft, were up 0.4 percent. Shipments of this category of goods, which are directly plugged into GDP calculations, were up 0.6 percent.

The Treasury Department is set to make announcements concerning next week’s auctions of 3-year and 10-year notes and 30-year bonds at 11 am ET.

Stocks in Focus

Family Dollar (FDO), which has agreed to be acquired by Dollar Tree (DLTR), reported third quarter adjusted earnings that missed estimates, while its revenues were in line.

PayPal, which is in the process of being separated from eBay (EBAY) on July 17th, 2015, has agreed to buy Xoom (XOOM), a company specializing in international remittances, for $25 per share in cash or an enterprise value of $890 million.

Integra LifeSciences (IART) announced it has completed the previously announced tax-free spin-off of its orthobiologics and spinal fusion hardware business, which will now be known as SeaSpine Holdings (SPNE). SeaSpine will begin trading on the Nasdaq on July 2nd.

Accenture (ACN) announced an agreement to sell its Navitaire subsidiary to Amadeus for $830 million. In a separate agreement, Accenture also agreed to provide Amadeus with infrastructure outsourcing, application and R&D services.

Scripps Networks (SNI) announced the closing of its acquisition of a 52.7 percent stake in Poland’s TVN from ITI and Canal + Group for 585 million euros in cash. Scripps will also assume 856 million euros of the target company’s debt.
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