Beyond the Numbers
Sentiment Guarded Amid Worrisome Eurozone Developments
6/14/2012 9:20 AM
The major U.S. index futures are pointing to a higher opening on Thursday, with sentiment holding up despite the developments in the eurozone. Causing alarm in the overseas markets are the surging European bond yields, especially those of peripheral nations. Meanwhile, the upcoming Greek election is also serving to keep sentiment subdued. Domestically, the U.S. jobless claims report revealed a bigger than expected increase in claims. A separate report showed that headline consumer price inflation fell by more than expected, while the core inflation rate was in line with estimates. The euro is seeing a small bounce despite the eurozone uncertainties.
U.S. stocks ended Wednesday’s session firmly in the red, as domestic economic concerns and the eurozone debt worries increased risk aversion in the markets. The major averages opened lower following the release of a report showing a decline in U.S. retail sales. Although the averages cut their losses in late morning trading, they continued to show volatility till late afternoon trading.
Subsequently, the averages retreated sharply in late trading before closing moderately lower. The Dow Industrials ended down 77.42 points or 0.62 percent at 12,496 and the S&P 500 Index closed 9.30 points or 0.70 percent lower at 1,315, while the Nasdaq Composite ended at 2,819, down 24.46 points or 0.86 percent.
Twenty-one of the thirty Dow components closed lower and three stocks ended unchanged, while the remaining 6 stocks advanced. American Express (AXP), Caterpillar (CAT), Home Depot (HD), Hewlett-Packard (HPQ) and United Technologies (UTX) were among the biggest decliners in the session. Meanwhile, Johnson & Johnson (JNJ) and J.P. Morgan Chase (JPM) saw notable gains.
Basic material, oil service, retail, housing, financial and semiconductor stocks were among the worst performers of the session.
On the economic front, U.S. retail sales edged down 0.2 percent month-over-month in May, marking the second straight month of declines. Sales by building/garden equipment stores, gasoline stations and food stores declined, while auto sales continued to be healthy. Excluding autos, sales were down 0.4 percent, the steepest drop since May 2010. Core sales, excluding autos, gasoline and building materials, rose only 0.1 percent.
Meanwhile, the producer price inflation report released by the Labor Department showed that producer prices fell by 1 percent month-over-month in May, the steepest drop since July 2009. The decline was due to a 4.3 percent plunge in energy prices and a 0.6 percent drop in food prices. Excluding food and energy, core producer price growth was in line with expectations at 0.2 percent.
The Commerce Department also reported that business inventories rose 0.4 percent month-over-month in April, with inventories up 6 percent year-over-year. Meanwhile, business sales rose 0.2 percent from the previous month and were up 5.4 percent from the year-ago period. The business inventories to sales ratio was at 1.26 in April compared to 1.25 in the year-ago period.Currency, Commodity Markets
Crude oil futures are adding $0.33 to $82.95 a barrel after slipping $0.70 to $82.62 a barrel on Wednesday.
The previous session’s retreat came amid the release of the disappointing retail sales report, a bearish crude oil demand forecast issued by the International Energy Agency and the release of the EIA’s weekly oil inventory report.
According to the inventory report, crude oil stockpiles edged down by 0.2 million barrels to 384.4 million barrels in the week ended June 8th. Inventories of crude oil were above the upper limit of the average range. Gasoline and distillate inventories declined by 1.7 million barrels and 0.1 million barrels, respectively.
While gasoline inventories fell below the lower limit of the average range, distillate inventories were in the lower limit of the average range. Refinery capacity utilization averaged 90 percent over the four-weeks ended June 8th compared to 89.1 percent over the previous four weeks.
OPEC is set to meet in Vienna later today, with most analysts expecting the oil cartel to take no action despite oil trading at 8-month lows.
Gold futures, which climbed $5.60 to $1,619.40 an ounce in the previous session, are currently gaining $8.20 to $1,627.60 an ounce.
On the currency front, the U.S. dollar is trading at 79.27 yen compared to the 79.49 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.2583 compared to yesterday’s $1.2557.Asia
The major Asian markets ended mostly lower, as traders reacted negatively to the softness relayed by recent U.S. retail sales data released overnight. The downgrade of Spain’s sovereign debt rating to ‘Baa3’ from ‘A3’ also created some anxiety among traders.
Japan’s Nikkei 225 average opened sharply lower and moved sideways in the morning. The index cut most of its losses in the afternoon yet ended the session down 18.95 points or 0.22 percent at 8,569.
A majority of stocks, with the exception of financial, pharma, chemical, utility and some technology stocks, retreated.
Australia’s All Ordinaries also closed lower but off its lows at 4,090, down 21.70 points or 0.53 percent. The market witnessed an across the board sell-off, although the declines were concentrated more in the energy space.
Hong Kong’s Hang Seng Index ended 218.12 points or 1.15 percent lower at 18,808.
In a central bank decision, the Reserve Bank of New Zealand announced an unchanged decision, keeping its official cash rate at 2.5 percent, which represents a record low level. The central bank also suggested that a weak economy and an uncertain global environment meant interest rates will stay at record lows until the June quarter of 2013.
Meanwhile, the Bank of Japan’s monetary policy board commenced a 2-day monetary policy meeting ending Friday.
A revised report released by Japan’s Ministry of Economy, Trade and Industry showed that industrial output fell 0.2 percent month-over-month in April, in contrast to the 0.2 percent increase estimated earlier. Europe
The major European markets are retreating, as yields on 10-year Spanish bonds rose to new record highs. Italian bond yields also remained elevated.
A revised report released by Eurostat showed that eurozone annual inflation came in at an unrevised rate of 2.4 percent in May, representing the lowest rate in more than a year, compared to 2.6 percent in April. A separate report showed that labor costs in the euro area rose 2 percent year-over-year in the first quarter.
“eurozone’s” should be “eurozone”.
Following a rate-setting meeting, the Swiss National Bank decided to retain the exchange rate cap and the near-zero interest rate but said it "will not tolerate" further gains in the currency and is prepared to take necessary measures at any time.
Italy raised the maximum targeted amount of 4.5 billion euros in a series of debt auctions, although yields were notably higher than at earlier auctions.
In corporate news, Nokia (NOK) announced some measures, including job cuts, to improve its operating model and return to profitable growth. The company also announced some executive changes. As part of its cost cutting plan, Nokia expects to eliminate 10,000 jobs globally by the end of 2013. Separately, the company said it has agreed to sell its luxury handset unit Vertu to private equity group EQT VI.
Frankfurt airport operator Fraport reported a 0.4 percent increase in its passenger traffic to 8.96 million in May. U.S. Economic Reports
Falling energy prices drove a larger than expected drop in consumer prices in May, according to figures released by the Labor Department. The consumer price index, a measure of inflationary pressure on the economy, fell by 0.3 percent in May after remaining relatively unchanged, a 0.0 percent change, in April.
Most economists had expected to see consumer prices decline, but by a somewhat smaller 0.2 percent level. Compared to May 2011 levels, however, consumer prices were up 1.7 percent for the year. Excluding the volatile food and energy sectors, "core" consumer prices rose by 0.2 percent in May, matching similar increases in both April and March.
New claims for unemployment insurance in the U.S. came in higher than expected for the week ending June 9, according to figures released by the Labor Department.The Department estimated new claims at a seasonally adjusted level of 386,000, an increase of 6,000 from the previous week's revised level of 380,000.
Additionally the larger than expected increase comes atop revised figures that put the level of initial claims for the week ending June 2 at 377,000. Most economists had predicted a continuing drop in new claims for the week to 375,000.Stocks in Focus
PDL BioPharma (PDLI) said it expects royalty revenues of about $125 million for its second quarter, up 2 percent. This is ahead of the $122.11 million consensus estimate.
AutoZone (AZO) announced the appointment of former Hewlett-Packard executive Ron Griffin as its Senior VP and Chief Information Officer, Customer Satisfaction.
C.R. Bard (BCR) announced a 5 percent increase in its quarterly dividend to 20 cents per share. The company also said its board has authorized the buyback of up to $500 million worth of shares.
Pier 1 Imports (PIR) reported higher profits and revenues for its first quarter, while it also raised its full year earnings guidance.
Kroger (KR) also reported higher revenues and profits for its first quarter, while it also raised its earnings per share for the full year. The company also said its board authorized a new $1 billion stock buyback program.
Smithfield Foods’ (SFD) fourth quarter profit declined from the year-ago period. Though sales improved from the year-ago period, they missed the consensus estimate. The company also announced a new share repurchase program to buy up to an additional $250 million of its common stock.
Costco (COST) announced an agreement to buy the stake it does not already own in its Mexican joint venture for $760.4 million.
Korn/Ferry (KFY) reported fourth quarter adjusted earnings of 28 cents per share on revenues of $207.6 million. For the first quarter, the company expects fee revenues of $172 million to $188 million and earnings of 14-22 cents per share. The fourth quarter results were better than expected, while the guidance was downbeat.
Additionally, the board of United Technologies (UTX) announced an 11.5 percent increase in its third quarter dividend to 53.5 cents per share.
Salesforce.com (CRM) and Twitter announced an alliance to provide Twitter’s Firehose of public Tweets to Salesforce Radian6 customers.
Edward Lifesciences (EW) said a FDA advisory panel has voted in favor of recommending approval of the company’s SAPIEN transcatheter heart valve via transfemoral and transapical in high risk patients with server aortic stenosis.