Market Analysis

Beyond the Numbers

Bargain Hunters May Step in as Concerns Fade
5/10/2012 9:30 AM

The major U.S. index futures are pointing to a higher opening on Thursday, with sentiment getting a lift from a report which showed that jobless claims came largely in line with expectations. The recent losses are likely to bring in some bargain hunters, who may be encouraged to pick up stocks at lower levels, as the European debt concerns fade and economic data turns promising. That said, caution is likely, as underlying problems are unresolved and Cisco (CSCO) gave a weak outlook.

U.S. stocks extended their slide on Wednesday, as traders continued to fret over the ramifications of a political crisis in Greece. However, the major averages opened lower and fell further in early trading. The averages gradually pared most of their losses by late afternoon before moving broadly sideways thereafter.

The Dow Industrials ended down 97.03 points or 0.75 percent at 12,835 and the S&P 500 Index slid 9.14 points or 0.67 percent before settling at 1,355. The Nasdaq Composite closed down a more modest 11.56 points or 0.39 percent at 2,935.

The Dow Industrials managed to hold support around its 100-day moving average yesterday, closing at 12,835, just above its 100-MA of 12,819. In the eventuality of the negativity continuing, the index could test the support and pull back to its next support around 12,683. On the upside, resistances lie around 12,911 and 13,040.

Twenty-four of the thirty Dow components closed lower, with United Technologies (UTX), McDonald’s (MCD), JP Morgan Chase (JPM) and General Electric (GE) leading the slide. On the other hand, Disney (DIS) rose 1.63 percent in reaction to its better than expected second quarter results.

Transportation, oil and financial stocks were among the worst performing stocks of the session, while housing stocks saw some buying interest.

On the economic front, the Commerce Department said wholesale sales rose 0.5 percent month-over-month in March. Annually, sales were up 6.5 percent. Meanwhile, wholesale inventories were up a less than expected 0.3 percent compared to the previous month. The inventories to sales ratio came in at 1.17 compared to 1.15 in the year-ago period.

Currency, Commodity Markets

Crude oil futures are gaining $0.72to $97.53 a barrel after declining $0.20 to $96.81 a barrel on Wednesday. The previous session’s retreat came amid the release of the weekly inventory report, which showed that crude oil stockpiles rose by 3.7 million barrels to 379.5 million barrels in the week ended May 4th, with inventories remaining above the upper limit of the average range.

Meanwhile, gasoline inventories fell by 2.6 million barrels and were in the middle of the average range. Distillate inventories also declined, dropping by 3.3 million barrels. Inventories of distillate fuel were now in the lower limit of the average range. Refinery capacity utilization averaged 85.4 percent over the four weeks ended May 4th compared to 84.8 percent in the previous week.

Gold futures are currently rising $0.50 to $1,594.20 an ounce. In the previous session, gold declined $10.30 to $1,594.20 an ounce.

Among currencies, the U.S. dollar is trading at 79.92 yen compared to the 79.64 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.2968 compared to yesterday’s $1.2930.


The major Asian markets closed on a mixed note in reaction to mixed catalysts. The positive sentiment generated by the decision of the European Financial Stability Facility board to release 5.2 billion euros in emergency assistance to Greece was nullified to some extent by sour Chinese trade data and the continuing political imbroglio in Greece.

Japan’s Nikkei 225 average closed down 35.41 points or 0.39 percent at 9,009 and Hong Kong’s Hang Seng Index retreated 103.36 points or 0.51 percent before closing at 20,227, while Australia’s All Ordinaries added 21.60 points or 0.50 percent to 4,354. Energy and material stocks rebounded following the previous session’s slide.

A report released by China’s Customs Office showed that Chinese exports grew 4.9 percent year-over-year in April, about half the pace expected by economists. Imports increased a mere 0.3 percent from last year. However, a report released by the Australian Bureau of Statistics showed that the seasonally adjusted unemployment rate for Australia fell to 4.9 percent in April from 5.2 percent in March.


After seeing lackluster sentiment, the major European markets have turned higher.

Earnings news from the region has largely been mixed. Deutsche Telekom (DT) reported first quarter EBITDA of 4.48 billion euros, almost flat with last year, while revenues dipped 1.1 percent to 14.4 billion. The company also confirmed its outlook for the full year. Its U.S. unit T-Mobile USA reported higher profits for the first quarter. Meanwhile, BT said its first quarter adjusted EBITDA rose to 1.61 billion pounds. The company also raised its dividend forecast.

German utility RWE’s first quarter earnings fell from a year-ago, primarily due to costs related to its exit from nuclear operations.

Steel giant Arcelor Mittal (MT) reported lower first quarter EBITDA of $1.97 billion, while sales were modestly higher at $22.70 billion. The company maintained its guidance that calls for higher EBITDA for the first half of the year.

On the economic front, the Bank of England’s policy setting arm kept interest rates at a record low of 0.50 percent and also maintained the size of its bond buying program unchanged despite the double-dip recession domestically.

A report released by the U.K. Office for National Statistics showed that manufacturing output rose a better than expected 0.5 percent month-over-month in March compared to expectations for 0.5 percent growth. French manufacturing output rose 1.4 percent in March, belying forecast for a 0.2 percent drop.

U.S. Economic Reports

Federal Reserve Chairman Ben Bernanke is scheduled to speak via satellite at the 48th Annual Conference on Bank Structure and Competition, sponsored by the Chicago Federal Reserve.

With the value of imports increasing at faster rate than the value of exports in the month of March, the Commerce Department released a report showing that the U.S. trade deficit for the month widened by more than anticipated.

The report showed that the trade deficit widened to $51.8 billion in March from a revised $45.4 billion in February. Economists had expected the deficit to widen to $49.5 billion from the $46.0 billion originally reported for the previous month.

The number of people filing first-time claims for unemployment benefits generally held steady last week, according to new government statistics. The measure dipped slightly, but remained generally in line with what economists had predicted.

The Department of Labor revealed that initial jobless claims came in at 367,000 for the week ended May 5. This was down 1,000 from the previous week's revised figure of 368,000. Economists had expected jobless claims to hold steady around the 365,000 level that was originally reported in last week's statistics.

Import prices in the U.S. fell by more than expected in the month of April, the Labor Department revealed in a report, with the drop largely due to lower fuel prices.

The Labor Department said import prices fell by 0.5 percent in April after surging up by 1.5 percent in March. Economists had expected prices to edge down by about 0.2 percent. At the same time, the report showed that export prices rose by 0.4 percent in April following a 0.8 percent increase in March. Export prices had been expected to increase by about 0.2 percent.

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.

Minneapolis Federal Reserve Bank President Narayana Kocherlakota will speak to the Business Law Institute in Minneapolis on "Toward a More Transparent FOMC,' at 10 am ET.

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 $30 billion for April compared to a deficit of $198.2 billion for March.

Stocks in Focus

Cisco’s (CSCO) third quarter non-GAAP earnings rose to 48 cents per share from 42 cents per share last year, while net sales rose to $34.4 billion from the year-ago quarter’s $32 billion. The results exceeded estimates, although the company issued a downbeat fourth quarter outlook.

News Corp. (NWSA) reported third quarter adjusted earnings of 37 cents per share, higher than 26 cents per share last year. Revenues were $8.40 billion compared to the year-ago quarter’s $8.26 billion. The results exceeded estimates. The company’s board also approved a $5 billion stock buyback plan.

Priceline.com (PCLN) said its first quarter non-GAAP net income rose to $4.28 per share from $2.66 per share last year, while revenues rose 28.2 percent to $1 billion. For the second quarter, the company expects 18-23 percent revenue growth and non-GAAP earnings of $7.20-$7.40 per share.

BMC Software (BMC) reported fourth quarter non-GAAP earnings of 74 cents per share on revenues of $564.7 million. The fourth quarter earnings missed estimates, while the revenues were above estimates. For 2013, the company expects non-GAAP earnings of $3.49 to $3.59 per share, while analysts estimate earnings of $3.50 per share.

CA Tech (CA), Career Education (CECO), DryShips (DRYS), Express Scripts (ESRX), Liberty Global (LBTYA), Nordstrom (JWN) and Sotheby’s (BID) are among the companies due to report their results after the markets close.

Avon Products (AVP) disclosed that it has received a letter from Coty Inc. about boosting its acquisition proposal to $24.75 per share from the previous $23.25 per share offer.

Kohl's (KSS) said its first quarter profit declined from the year-ago quarter, yet topped analysts' estimate. Meanwhile, net sales improved 1.9 percent, but were slightly below consensus. The company also said it expects its second quarter earnings to come in below Wall Street view.

GlaxoSmithKline (GSK) has initiated its previously announced tender offer to acquire all of Human Genome Sciences’ (HGSI) outstanding shares for $13.00 per share in cash. GSK went hostile after Human Genome rejected its offer last month.
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