Beyond the Numbers
Sentiment Subdued as European Union Meeting Looms
5/23/2012 9:31 AM
The major U.S. index futures are pointing to a lower opening on Wednesday, with sentiment cautiously pessimistic, as traders look ahead to a few key developments that could move markets. Dell’s (DELL) disappointing results could dent performance of tech stocks, although homebuilder Toll Brothers’ results could bring in some ray of hope concerning the housing market recovery underway. The spotlight is also likely to be on an informal meeting of European leaders at Brussels scheduled for later today and the U.S. new home sales report. Indications ahead of the European Union meeting suggest that the currency bloc may be preparing for a probable exit by Greece.
U.S. stocks meandered to a narrowly mixed close on Tuesday, as a mixed existing home sales report and underlying concerns surrounding Europe’s debt crisis kept sentiment subdued for much of the session.
The major averages opened little changed and showed a lack of direction in early trading before moving to the upside. The averages hovered above the unchanged line for much of the remainder of the session following the release of the existing home sales report. However, the averages retreated in late trading before closing on a mixed note.
The Dow Industrials ended down 1.67 points or 0.01 percent at 12,503 and the Nasdaq Composite closed 8.13 points or 0.29 percent lower at 2,839, while the S&P 500 Index edged up 0.64 points or 0.05 percent before closing at 1,317.
Fifteen of the thirty Dow components closed lower and one ended unchanged, while the remaining fourteen stocks advanced. Alcoa (AA) was down over 1 percent, while J.P. Morgan Chase (JPM) rallied 4.61 percent and Bank of America (BAC) added 2.20 percent. Home Depot (HD) and Wal-Mart (WMT) rose over 1 percent each.
Airline, basic material, gold and computer hardware stocks retreated, while banking stocks advanced.
A report released by the National Association of Realtors’ showed that existing home sales rose 3.4 percent month-over-month to a seasonally adjusted annual rate of 4.62 million units in April compared to expectations of 4.66 million units.
Inventories of existing homes rose 10 percent month-over-month, while inventories measured in terms of months of supply also rose to 6.6 months from 6.2 months. Nevertheless, the median house price rose 10 percent from last year. Currency, Commodity Markets
In the first day of trading as the front-month contract, crude oil futures for July delivery are trading down $0.38 at $91.47 a barrel. The June futures expired at $91.66 a barrel on Tuesday, down $0.91.
The inventory report released by the American Petroleum Institute late Tuesday showed that crude oil inventories rose by 1.5 million barrels in the week ended May 18th.
An ounce of gold is fetching $1,563.20, down $13.40 from the previous session’s close of $1,576.60. On Tuesday, gold fell $12.10.
Among currencies, the U.S. dollar is trading at 79.49 yen compared to the 79.96 yen it fetched at the close of trading on Tuesday. Against the euro, the dollar is valued at $1.2675 compared to yesterday’s $1.2684.Asia
Sentiment in Asia has soured, towing in line with Wall Street, as traders wait for more trading cues. The markets traded in anticipation of the release of the minutes of the Bank of England’s May monetary policy meeting, an informal meeting of European leaders and the U.S. new home sales report to be released later in the global trading day.
Japan’s Nikkei 225 average opened lower and fell sharply in early trading and moved broadly sideways in the morning. The index came under further selling pressure in the afternoon before closing down 172.69 points or 1.98 percent at 8,557, representing a 4-month low.
Along with the global economic scenario, the yen’s strength also served as a deterrent to export stocks. Financial and tech stocks were among the worst performers.
The yen extended its strength amid the Bank of Japan’s decision to hold its overnight uncollateralized rate at 0-0.1 percent. Belying expectations from some quarters, the central bank did not expand its bond buying program.
The bank termed the domestic growth as shifting toward a pick-up phase despite the flat growth, and it expects the economy to return to a moderate recovery path.
The All Ordinaries of Australia closed 54.70 points or 1.31 percent lower at 4,119, with material and energy stocks leading the slide.
On the economic front, a report released by Conference Board showed that its index measuring economic activity in Australia rose 0.2 percent in March compared to the previous month after a flat performance in February.
Meanwhile, Westpac’s leading economic activity indicator index rose 2.2 percent in March, although it remained below its long-term trend of 2.9 percent.
Hong Kong’s Hang Seng Index closed at 18,786, down 252.96 points or 1.33 percent and South Korea’s Kospi ended down 1.10 percent, while China’s Shanghai Composite saw some early strength but closed with a modest loss of 9.87 points or 0.42 percent at 2,363. Europe
The major European markets have given up the previous session’s gains and are trading with steep losses ahead of the European summit. The European leaders are expected to discuss the issuance of Eurobonds despite opposition from German Chancellor Angela Merkel.
On the economic front, the minutes of the Bank of England’s monetary policy meeting showed that the Monetary Policy Committee adopted the decision to maintain the size of the bond buying program at the May meeting by a vote of 8-1. Committee member David Miles sought a 25 billion pound increase in the program.
A report released by the U.K. Office for National Statistics showed that the U.K. retail sales fell 2.3 percent month-over-month in April compared to the 0.8 percent drop expected by economists. Belying expectations for an annual increase of 1 percent, retail sales fell 1.1 percent. U.S. Economic Reports
The Commerce Department is due to release its new home sales report for April at 10 am ET. The consensus estimate calls for new homes sales of 335,000.
New home sales for March came in at a seasonally adjusted annual rate of 328,000 compared to an upwardly revised reading of 353,000 for February. New home inventories measured in terms of months of supply rose to 5.3 months in March from 5 months in the previous month. The median price of a new home fell 1 percent from the previous month but was up 6.3 percent year-over-year at $234,500.
The Federal House Finance Agency, or FHFA, is also set to release its house price index for March at 10 am ET. The index is a weighted, repeat-sales index that measures average price changes of single-family houses in repeat sales or refinancings on the same properties. Economists expect a 0.3 percent month-over-month increase by the house price index, the same pace as in the previous month.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended May 18th at 10:30 am ET.
Crude oil stockpiles rose by 2.1 million barrels to 381.6 million barrels in the week ended May 11th. Inventories were above the upper limit of the average range.
Meanwhile, gasoline inventories fell by 2.8 million barrels and dropped to the lower limit of the average range. Distillate inventories dipped 1 million barrels, remaining in the lower limit of the average range.
Refinery capacity utilization averaged 86.3 percent over the four weeks ended May 11th compared to 85.4 percent over the previous four weeks.Stocks in Focus
Toll Brothers (TOL) reported second quarter net income of 10 cents per share compared to a loss of 12 cents per share last year. Revenues rose to $373.68 million from the year-ago quarter’s $319.68 million. The results exceeded estimates.
Big Lots (BIG) reported first quarter adjusted income from continuing operations of 68 cents per share compared to 70 cents per share last year. Net sales rose to $1.29 billion, up from $1.23 billion last year. The results trailed estimates. For the second quarter, the company expects income from continuing operations of 37-42 cents per share, and for 2012, the company expects adjusted income from continuing operations of $3.25-$3.40 per share. The second quarter guidance was downbeat, while the full year guidance surrounded the consensus estimate.
BlackRock (BLK) announced that its secondary offering of 26.21 million shares has been priced at $160 per share, a discount to its closing price of $163.37 on Tuesday. The company also agreed to buy 6.4 million shares from Barclays (BCS) at the net price Barclays receives in the offering for an aggregate purchase price of $1 billion.
Ralcorp (RAH) reported second quarter adjusted earnings from continuing operations of 72 cents per share, lower than 75 cents per share last year, despite net sales rising 16 percent to $1.06 billion. The revenues exceeded estimates.
Compuware (CPWR) reported fourth quarter earnings of 12 cents per share on revenues of $266 million. Software license fees were up 22 percent at $67.9 million. For 2013, the company expects earnings of 45-49 cents per share on revenues of $1.07 billion to $1.08 billion. The fourth quarter earnings met estimates, while revenues exceeded expectations. The company’s full year earnings were below expectations, while revenues were in line with estimates.
Guess, Inc. (GES) reported first quarter earnings that fell to 30 cents per share from 46 cents per share last year. Net revenues fell 2.2 percent to $579.3 million. For the full year, the company expects earnings of $2.50-$2.65 per share on revenues of $2.70 billion to $2.74 billion. The company also said it expects second quarter earnings of 48-52 cents per share on revenues of $625 million to $635 million. The results exceeded estimates, while the guidance was weak.
Take-two Interactive (TTWO) reported a fourth quarter non-GAAP loss of 60 cents per share on revenues of $148.1 million. The loss was wider than analysts expected, while revenues exceeded estimates. The company expects a first quarter loss of 60-75 cents per share on a non-GAAP basis on revenues of $225 million to $275 million, while for the full year, the company expects non-GAAP earnings of $2-$2.25 per share on revenues of $1.75 billion to $1.85 billion. The guidance was lackluster.
Principal Financial Group (PFG) said its board has approved an authorization of the repurchase of up to $200 million worth of its outstanding stock.
Altria (MO) announced that it has resolved its tax dispute with the IRS regarding Philip Morris Capital Corp. leases. Altria expects to pay about $500 million in federal and state income taxes and related estimated interest. The company raised its 2012 earnings per share guidance to $2.25-$2.31 to account for a 3 cent per share one-time benefit it expects to record in the second quarter. The company reaffirmed its 2012 adjusted earnings per share guidance of $2.17-$2.23 per share.
Dell (DELL) reported first quarter non-GAAP earnings of 43 cents per share on revenues of $14.4 billion. The results trailed expectations. The company also said it expects second quarter revenue to be in line with historical seasonal trends and to be up 2-4 percent from the first quarter. Analysts had expected about 7 percent revenue growth.
Analog Devices (ADI) reported better than expected second quarter results, while its third quarter guidance was about in line with estimates.
Collective Brands (PSS) reported better than expected first quarter results.
Hewlett-Packard (HPQ), NetApp (NTAP), Pandora Media (P), Semtech (SMTC) and Synopsys (SNPS) are among the companies due to report their quarterly results after the markets close.