Market Analysis

Beyond the Numbers

Some Consolidation Likely in Wake of Mixed Catalysts
4/12/2012 9:17 AM

The major U.S. index futures are pointing to a modestly higher opening on Thursday, with sentiment remaining cautiously optimistic despite the release of a report, which showed a bigger than expected increase in claims. Meanwhile, a separate report showed that wholesale price inflation remained benign but core reading rose more than expected. The much narrower than expected trade deficit reported by the Commerce Department gives scope for an upward revision to first quarter GDP report.

Overseas economic indicators were fairly encouraging, with Australia reporting strong job gains, while the eurozone posted an unexpected increase in industrial output. That said, a debt auction by Italy showed higher borrowing costs despite the nation being able to raise debt close to the higher end of its target. Amid these mixed developments, the markets may see some consolidation around current levels.

U.S. stocks got a reprieve on Wednesday, as Alcoa’s (AA) earnings removed some of the dark clouds surrounding the economic horizon. The major averages opened higher, as risk appetite returned. Thereafter, the averages moved broadly sideways before giving back some ground in the afternoon, yet they closed notably higher.

The Dow Industrials ended up 89.46 points or 0.70 percent at 12,806, the Nasdaq Composite Index added 25.24 points or 0.84 percent before closing at 3,016 and the S&P 500 Index closed at 1,369, up 10.12 points or 0.74 percent.

Twenty-four of the thirty Dow components closed higher, with Alcoa (up 6.22 percent), Bank of America (BAC) (up 3.75 percent), Cisco Systems (CSCO) (UP 2.38 percent) and JP Morgan Chase (JPM) (up 2.44 percent) among the biggest gainers.

Financial, semiconductor, retail, housing and transportation stocks advanced strongly in the session.

The Beige Book released by the Federal Reserve yesterday showed that the economy continued to expand at a modest to moderate pace from mid-February through late March. Manufacturing activity was termed as expanding and demand for professional business services showed modest to strong growth. The report noted that retail spending was positive. According to the Beige Book, hiring was steady or showed a modest increase across many districts.

Currency, Commodity Markets

Crude oil futures are receding $0.07 to $102.63 a barrel after advancing $1.68 to $102.70 a barrel on Wednesday.

The previous session’s advance came amid the release of the weekly inventory report, which showed that crude oil inventories rose by 2.8 million barrels to 365.2 million barrels in the week ended April 6th. Inventories were in the upper limit of the average range.

Gasoline stockpiles fell by 4.3 million barrels yet remained in the upper limit of the average range. Meanwhile distillate stockpiles fell by 4 million barrels, dropping to the middle of the average range. Refinery capacity utilization averaged 84 percent over the four weeks ended April 6th compared to 83.8 percent over the previous four weeks.

Gold futures, which fell $0.40 to $1,660.30 an ounce in the previous session, are currently gaining $5.60 to $1,659.70 an ounce.

Among currencies, the U.S. dollar is trading at 80.89 yen compared to the 80.86 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.3138 compared to yesterday’s $1.3109.


Asian stocks rebounded, as Wall Street’s optimism was passed on to the markets in the region.

Japan’s Nikkei 225 average showed some degree of nervousness in the morning, moving back and forth across the unchanged line. The index moved decisively above the unchanged line by the mid-session before advancing strongly in the afternoon. The Nikkei snapped its 7-session losses and ended up 66.05 points or 0.70 percent at 9,525.

The weakening of the yen in reaction to the rise in risk appetite supported export stocks. Hino Motors, Alps Electric, Hitachi Construction and Sumitomo Metal Industries all rose over 4 percent.

Australia’s All Ordinaries opened modestly higher and advanced steadily over the course of the session, ending up 34.40 points or 0.79 percent at 4,362. Energy stocks led the advance, while material and healthcare stocks also gained ground.

A report released by the Australian Bureau of Statistics showed that the Australian economy added 44,000 jobs in March compared to expectations for an addition of 6,500 jobs. The unemployment rate held steady at 5.6 percent.

Hong Kong’s Hang Seng Index closed at 20,327, up 186.65 points or 0.93 percent.


The major European markets are trading lower after yesterday’s recovery, with the French CAC 40 Index and the German DAX Index slipping 0.53 percent and 0.14 percent, respectively, while the U.K.’s FTSE 100 Index is receding 0.39 percent.

In corporate news, French retailer Carrefour said its first quarter sales rose 1.5 percent, while its same store sales after excluding currency impact and gasoline were down 0.1 percent.

Swiss drug giant Roche reported a 1 percent drop in first quarter sales to 11.03 billion Swiss Francs, as a strong organic performance was offset by the negative impact of a stronger currency.

Signaling its willingness to raise its already sweetened offer for Illumina (ILMN), Roche said its revised $6.7 billion bid is a more than reasonable starting point for negotiations.

U.S. Economic Reports

U.S. trade deficit shrank dramatically in February shrinking to the lowest level in several years, according to figures released by the Commerce Department. The report showed U.S. exports ticking up slightly with imports falling bringing the trade deficit to $46 billion, down notably from the $52.5 billion mark posted in January.

Most experts had expected the deficit to shrink somewhat from January levels, but the consensus of economists had the deficit much higher, around $51.7 billion. Commerce Department figures put net U.S. exports at $1.812 trillion, a 0.1 percent increase from the $1.809 trillion recorded in January, while February imports dropped 2.7 percent to $2.272 trillion from the $2.334 trillion recorded the previous month.

First-time claims for U.S. unemployment benefits showed a notable increase in the week ended April 7th, according to a report released by the Labor Department, with the data raising some concerns about the outlook for the jobs market.

The report showed that initial jobless claims rose to 380,000 from the previous week's revised figure of 367,000. Economists had expected jobless claims to edge up to 359,000 from the 357,000 originally reported for the previous week.

For the week ending March 31, the level of new claims for unemployment came in at a seasonally adjusted level of 357,000, a decline of 6,000 from the previous week's revised average of 363,000.

And while the previous figure was revised up somewhat from the 359,000 initially reported, this week's numbers come in lower than the 360,000 predicted by most economists.

With energy prices falling in the month of March, the Labor Department released a report on showing that producer prices for the month unexpectedly came in unchanged. The Labor Department said its producer price index was flat in March following a 0.4 percent increase in February. Economists had been expecting the index to increase by 0.3 percent.

Excluding food and energy prices, the core producer price index rose by 0.3 percent in March after edging up by 0.2 percent in February. The core index had been expected to increase by 0.2 percent.

Philadelphia Federal Reserve Bank President Charles Plosser is scheduled to speak to the National Economists Club in Washington on the "Economic Outlook" at 12:30 pm ET.

Minneapolis Federal Reserve Bank President Narayana Kocherlakota will speak to the White Bear Lake Area Chamber of Commerce in a suburb of St. Paul, Minnesota, at 1 pm ET.

Also, Federal Reserve Governor Sarah Bloom Raskin will speak to business and community leaders at a Fed conference on "The State of the Economy," in Los Angeles at 3 pm ET.

Stocks in Focus

Caterpillar (CAT) said it has reached an agreement with a subsidiary of Seven Group Holdings to sell its distribution and support business formerly operated by Bucyrus in Australia. The deal is valued at $400 million.

Oracle (ORCL) announced the completion of its acquisition of cloud-based talent management solutions company Taleo. IDEX Corp. (IEX) also completed the purchase of Precision Photonics Corp. for $20 million.

PC makers may be in focus after Gartner released its quarterly PC shipment estimates for 2012. The firm estimates that worldwide PC shipments rose 1.9 percent year-over-year in the first quarter compared to its earlier estimate for a 1.2 percent drop.

Hewlett-Packard (HPQ) increased its market share by 0.3 percentage points to 17.2 percent and increased its shipments by 3.5 percent. Lenovo took the second spot with a 13.1 percent share, up 2.7 percentage points. Its shipments rose 28.1 percent. Dell (DELL) saw a 0.4 percentage point drop in its market share to 11 percent and also saw a 1.6 percent drop in shipments. Acer followed closely behind Dell with a 10.9 percent market share.

Meanwhile, comScore (SCOR) released its monthly U.S. search market statistics. Google led the pack with a 66.4 percent share in the U.S. core search market in March, unchanged from the previous month. Microsoft’s (MSFT) search share also remained unchanged at 15.3 percent compared to a 13.7 percent share for Yahoo (YHOO), down 0.1 percentage points.

Apogee Enterprises (APOG) reported fourth quarter earnings from continuing operations of 17 cents per share compared to a loss of 51 cents per share last year. Revenues rose 14 percent to $662.5 million. The results were better than expected. For 2013, the company expects mid-single digit revenue growth and earnings of 40-50 cents per share. The earnings guidance was below estimates.

Lear Group (LEA) announced an agreement to buy privately held portfolio company Guilford Mills from Cerberus Capital. Guilford Mills supplies fabrics to automotive and specialty markets.

Avid (AVID) announced preliminary results for the first quarter, expecting revenues of $152 million. The company attributed the results to weaker demand in the creative enthusiast portion of the company’s business. Excluding charges, the company expects a non-GAAP operating loss of about $7 million.

Rite Aid’s (RAD) fourth quarter net loss narrowed from the previous year. Revenues increased 10.7 percent, and were also above consensus.

Fastenal’s Co. (FAST) first quarter profit increased 26 percent from the year-ago quarter, but earnings per share were below consensus. Sales rose 20 percent.

Google and JB Hunt Transportation (JBHT) are among the key companies due to release their quarterly results after the markets close.
Follow RTT
Todays Potential Movers