Market Analysis

Beyond the Number

Risk Appetite Re-emerging on Earnings Hopes
4/11/2012 9:17 AM

The major U.S. index futures are pointing to a higher opening on Wednesday, with sentiment getting a lift from forecast-beating results reported by Alcoa (AA). The previous session’s declines should give some opportunity for traders to pick up stocks on bargain, as hopes concerning a healthy reporting season is gaining ground. The re-emergence of risk appetite is reflected in the firming up of oil prices and commodities. The Beige Book to be released shortly after the markets open may also provide some trading cues.

U.S. stocks succumbed to European debt fears and fell sharply on Tuesday, with the Dow Industrials and the S&P 500 Index declining for the fifth straight session. The major U.S. averages opened on a nervous note, as earnings optimism allayed economic fears. However, with Spanish bond yields surging in reaction to concerns about the nation’s fiscal situation, the averages declined steadily and sharply, in line with the negative mood in Europe.

The selling momentum slowed in the afternoon and the averages consolidated for the rest of the session, closing notably lower.

The Dow Industrials ended down 213.66 points or 1.65 percent at a 2-month closing low of 12,716 and the S&P 500 Index closed 23.61 points or 1.71 percent lower at 1,359. Meanwhile, the Nasdaq Composite closed at 2,991, down 55.86 points or 1.83 percent.

Nearly all thirty of the Dow components closed lower, with only Hewlett-Packard (HPQ) bucking the downtrend. Bank of America (BAC), Caterpillar (CAT), Alcoa (AA), Boeing (BA) and Disney (DIS) led the Dow’s decline.

Transportation, biotechnology, basic material, oil, oil service, financial, retail, housing and semiconductor stocks were among the worst decliners in the session.

The Commerce Department's wholesale inventories report showed that wholesale sales rose 1.2 percent month-over-month in February. At the same time, wholesale inventories climbed a more modest 0.9 percent, although the increase was better than expected. The inventories to sales ratio remained unchanged at 1.17 in February compared to the year-ago period.

Currency, Commodity Markets

Crude oil futures are trading up $0.29 to $101.31 a barrel after declining $1.44 to a 2-month low of $101.02 a barrel on Tuesday. An ounce of gold is currently trading at $1,658.80, down $1.90 from the previous session’s close of $1,660.70. In the previous session, the precious metal added $16.80.

Among currencies, the U.S. dollar is trading at 80.90 yen compared to the 80.67 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.3136 compared to yesterday’s $1.3082.


The major Asian markets extended their losses, as the steep sell-off on Wall Street and in Europe overnight impacted the mood of the markets.

Japanese stocks retreated for the seventh straight session, with the Nikkei 225 average languishing in red throughout the session. The index closed down 79.28 points or 0.83 percent at 9,459.

Apart from the global cues, sentiment was also hit by profit warnings issued by technology giants Sharp and Sony yesterday after the Japanese markets closed. The yen’s strength also weighed on export stocks.

Australia’s All Ordinaries closed down 46.40 points or 1.06 percent at 4,327 and Hong Kong’s Hang Seng Index ended at 20,141, down 215.57 points or 1.06 percent.


The major European markets are trading higher, rebounding from the previous session’s sell-off. The French CAC 40 Index and the German DAX Index are rising over 1 percent each, while the U.K.’s FTSE 100 Index is gaining about 0.70 percent.

A debt auction by Italy did not go very well, as the Italian Treasury sold 11 billion euros worth of 3-month and 12-month bills at yields notably higher than what it paid last month.

U.S. Economic Reports

Prices of goods imported to the U.S. surged higher in March, driven by higher prices in both the fuel and non-fuel sectors, according to figures released by the Department of Labor. March saw a 1.3 percent increase in overall import prices, the largest monthly increase since April of 2011, according to Labor Department figures. While most economists had predicted a large increase in import prices, few had expected it to be so large, with most expecting the increase to come in at 1 percent.

U.S. export prices also increased in March, rising by 0.8 percent, the largest increase since April of 2011. The export price growth exceeded the 0.3 percent increase predicted by most economists and builds on the 0.4 percent increase in February.

Kansas City Federal Reserve Bank President Esther George will speak to the 21st Annual Hyman P. Minsky Conference on Debt, Deficits and Financial Instability at 9:30 am ET.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended April 6th at 10:30 AM ET.

Crude oil stockpiles jumped by 9 million barrels to 362.4 million barrels in the week ended March 30th, climbing above the upper limit of the average range.

Distillate inventories were unchanged yet remained in the upper limit of the average range. Meanwhile, gasoline stockpiles fell by 1.5 million barrels, although remaining in the upper limit of the average range.

Boston Federal Reserve Bank President Eric Rosengren is scheduled to speak at the Atlanta Fed's Financial Markets Conference, chairing a discussion of Money Market Mutual Funds at 10:30 am ET.

The Federal Reserve is due to release its Beige Book, a compilation of anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts, at 2 pm ET. The report is normally released about two weeks before the monetary policy meeting is held.

The Treasury Budget, a monthly account of the surplus or deficit of the federal government, is due to be released at 2 pm ET. The budget is considered an indicator of budgetary trends and the thrust of fiscal policy. Economists expect a deficit of $188.7 billion for March compared to a deficit of $231.7 billion for February.

St. Louis Federal Reserve Bank President James Bullard is due to deliver opening remarks at the Homer Jones Memorial Lecture at the Federal Reserve in St. Louis at 4 pm ET. Meanwhile, Federal Reserve Vice Chair Janet Yellen will speak to the New York University Money Marketeers on "The Economic Outlook and Monetary Policy" at 7:30 pm ET.

Stocks in Focus

Alcoa (AA) reported first quarter adjusted income from continuing operations of 10 cents per share compared to analyst estimates for a loss of 4 cents per share. Revenues rose to $6 billion from the year-ago quarter’s $5.96 billion. Alcoa also raised its 2012 global growth forecast for the aerospace market by 3 percentage points, while it reaffirmed its aluminum demand growth projection of 7 percent. Additionally, the company sees a supply deficit in 2012.

Yahoo (YHOO), under its new CEO Scott Thompson, announced a reorganization, with the company striving to refocus on three growth areas, namely “consumer, regions and technology.” The consumer group would provide personalized content and services to consumers, the regions group would focus on local advertising sales and the technology group would focus on using the company’s massive data cache.

ADTRAN (ADTN) reported first quarter non-GAAP earnings of 25 cents per share compared to the 55 cents per share last year. Sales were $134.74 million, lower than $165.52 million in the year-ago quarter. The results were better than expected.

Schlumberger (SLB) said it has entered an agreement to sell its Wilson distribution business to National Oilwell Varco (NOV).

JDA Software (JDAS) said its board has determined that the company’s quarterly and annual results for the period between fiscal year 2008 and fiscal year 2011 should be restated following an ongoing review of its revenue recognition policies. The company clarified that the restatements will change the period of revenue recognition and the existence of the reported revenue.

Chevron (CVX) said in its interim update that earnings for the first quarter 2012 are expected to be higher than in the fourth quarter, benefiting from higher upstream and downstream results.

IDEX Corp. (IEX) said its board has approved an 18 percent increase in the company’s quarterly dividend to 20 cents per share.

Applied Micro (AMCC) lowered its guidance for the fourth quarter and now expects revenues to be 6 percent lower than $52 million, which is the mid-point of its previously issued guidance. On a preliminary basis, the company expects a loss of 10-12 cents per share.
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