Beyond the Numbers
Traders Look to the Fed For Stimulus Support
6/20/2012 9:21 AM
The major U.S. index futures are pointing to a modestly higher opening on Wednesday, with sentiment guarded, as traders await the outcome of the FOMC meeting. Asian stocks closed mostly higher on stimulus hopes, while European averages are seeing mixed sentiment. Though the Fed is unlikely to tamper with interest rates, some economists believe that the timeframe for maintaining accommodative stance could be extended. The Operation Twist, which is set to expire this month, could be revived in some form. With so much economic uncertainties remaining as overhangs, a sustainable uptick is unlikely even if the Fed acts benevolently.
U.S. stocks rallied on Tuesday, benefiting from hopes that the U.S. Federal Reserve will announce stimulatory support in the wake of weakening global economic fundamentals. The major averages opened higher and advanced steadily till the afternoon. Thereafter, the averages consolidated before closing notably higher.
The Dow Industrials added 95.51 points or 0.75 percent before closing at 12,837 and the S&P 500 Index ended up 13.20 points or 0.98 percent at 1,358, while the Nasdaq Composite Index closed at 2,930, up 34,43 points or 1.19 percent.
Twenty-three of the thirty Dow components closed higher, with Bank of America (BAC), Alcoa (AA), Microsoft (MSFT), JP Morgan Chase (JPM), Caterpillar (CAT) and American Express (AXP) advancing strongly. On the other hand, Hewlett-Packard (HPQ) fell over 1 percent.
Basic material, energy, financial, transportation, semiconductor and housing stocks were among the best performing sectors of the session.
On the economic front, the Commerce Department reported that housing starts came in at a seasonally adjusted annual rate of 708,000 in May, while April’s starts were upwardly revised by 27,000 to 744,000, the best reading since October 2008. Single family starts rose to a 5-month high of 516,000, while the volatile multi-family starts fell by 52,000. Building permits rose to 780,000, the highest level since September 2008. Currency, Commodity Markets
Crude oil futures for July delivery are trading up $0.02 at $84.05 a barrel. The July futures settled Tuesday’s session at $84.03 a barrel, up $0.76.
A report released by the American Petroleum Institute showed that crude oil stockpiles fell by 550,000 barrels to 385.1 million barrels in the week ended June 15th. While distillate inventories fell by 269,000 barrels, gasoline inventories increased by 1.07 million barrels.
An ounce of gold is currently valued at $1,606, down $17.20 from the previous session’s close of $1,623.20 an ounce. In the previous session, gold fell $3.80.
On the currency front, the U.S. dollar is trading at 79.11 yen compared to the 78.95 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.2703 compared to yesterday’s $1.2685.Asia
Most major Asian markets, with the exception of the New Zealand and Chinese markets, closed higher, thanks to the positive lead from Wall Street and Europe overnight. Speculation of a stimulus announcement from the U.S. central bank also helped to keep sentiment positive.
Japan’s Nikkei opened higher and moved sideways in the morning. The average rose steadily in the afternoon before closing up 96.44 points or 1.11 percent at 8,752. A majority of the stocks advanced in the session.
After spiking sharply higher in early trading, Australia’s All Ordinaries retreated steadily over the course of the session but still closed up 9.40 points or 0.23 percent higher at 4,177. Energy, material and financial stocks saw modest buying, while defensive stocks came under selling pressure.
Hong Kong’s Hang Seng Index ended at 19,519, up 102.18 points or 0.53 percent.
The New Zealand NZ50 Average was weighed down by negative domestic current account data for the first quarter. The report showed that the nation recorded its first trade deficit since the 2008 December quarter.
Meanwhile, a report released by Japan’s Ministry of Finance showed that the nation recorded a trade deficit of 907.25 billion yen in May compared to the deficit of 583 billion yen expected by economists. Annually, exports and imports rose by 10 percent and 9.3 percent, respectively.
The Conference Board reported that its leading index for Australia declined 1.4 percent in April, with the decline attributed to a large drop in building approvals. Europe
The European markets are seeing lackluster sentiment after ending the previous session sharply higher.
In corporate news, Swedish retailer H&M reported strong profit and sales growth for the second quarter, helped by strong performances in the U.S. and China.
Irish carrier Ryanair made a 694 million pound bid to buy shares it doesn’t already own in Aer Lingus. Ryanair holds a 29 percent stake in Air Lingus.
A report released by the German Federal Statistical Office showed that producer prices rose 2.1 percent year-over-year in May compared to expectations for a 2.2 percent increase.
The minutes of the June monetary policy meeting of the Bank of England showed that the decision to maintain the size of its bond-buying program intact was taken by a 5-4 vote. The minutes also showed that some members were favorably disposed towards additional stimulus, as there was already a sufficiently compelling case for further easing.
U.K. jobless claims rose by 8,100 in May, confounding economists, who were looking for a decline of 4,000. That said, the unemployment rate for the three months ended April remained unchanged at 8.2 percent, while average weekly earnings, including bonuses were up 1.4 percent. U.S. Economic Reports
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended June 15th at 10:30 am ET.
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.
The Federal Open Market Committee, the monetary policy-setting arm of the Federal Reserve, is due to release the post-meeting policy statement at 12:30 am ET, followed by the release of the FOMC forecasts at 2 pm ET. Chairman Ben Bernanke will hold a press briefing at 2:15 pm ET.
At its April meeting, the Fed maintained its economic assessment, repeating its view that the economy has been expanding moderately. The Fed termed inflation as having picked up somewhat compared to its earlier view of a subdued inflationary environment. The central bank also repeated its pledge to keep interest rates at exceptionally low levels at least through late 2014.
In the updated economic forecasts released by the Fed, the central tendency GDP growth forecast for 2012 was upwardly revised to 2.4-2.9 percent from the previously estimated 2.2-2.7 percent. Meanwhile, estimates for 2013 and 2014 were trimmed slightly.
The unemployment rate forecast for 2012 was also reduced to 7.8-8.0 percent from 8.2-8.5 percent, while the core PCE inflation forecast was upwardly revised to 1.8-2 percent from 1.5-1.8 percent.Stocks in Focus
Procter & Gamble (PG) lowered its June quarter guidance, citing slower than expected market growth rates and market softness in developed regions along with unfavorable currency translation effects. The company now expects core earnings of 75-79 cents per share and expects sales to decline 1-2 percent. Previously, the company estimated core earnings of 79-85 cents per share on 1-2 percent net sales growth. For 2013, the company expects 2-4 percent organic sales growth and core earnings to be in line to up mid-single digits percentage from 2012 results.
Jabil Circuit (JBL) reported third quarter core earnings of 64 cents per share on net revenues of $4.3 billion. In the year-ago period, the company reported core earnings of 58 cents per share on revenues of $4.2 billion. The earnings were in line, while the revenues were shy of estimates. For the fourth quarter, the company expects core earnings of 54-66 cents per share on net revenues of $4.1 billion to $4.35 billion. The guidance was soft.
Adobe Systems (ADBE) reported second quarter non-GAAP earnings of 60 cents per share on revenues of $1.124 billion. The results exceeded estimates. The company forecast third quarter non-GAAP earnings of 56-61 cents per share on revenues of $1.075 billion to $1.125 billion. The guidance was soft. The company also narrowed its full year revenue growth guidance to 6-7 percent from 6-8 percent and its non-GAAP earnings guidance to $2.40-$2.46 per share from $2.38-$2.48 per share.
Ditech Networks (DITC) reported a fourth quarter loss of 7 cents per share on a non-GAAP basis on revenues of $5.6 million.
La-Z-Boy’s (LZB) fourth quarter earnings rose to 37 cents per share, including 19 cents per share in anti-dumping duties, compared to 19 cents per share in the year-ago period, which included a 5 cents per share impairment charge. Sales fell 3.4 percent to $327.39 million, below the consensus expectations.
Arthur J. Gallagher (AJG) announced the acquisition of Whitehaven Insurance Group in Alabama. The company did not reveal the terms of the transaction.
RPM International (RPM) said it has acquired Brazilian building material manufacturer Viapol, which raked in annual sales of $85 million. RPM expects the deal to be accretive after a year, although it did not disclose the terms of the transaction.
Apogee (APOG), Bed Bath & Beyond (BBBY), CLARCOR (CLC), Micron (MU), Red Hat (RHT), Sonic (SONC) and Steelcase (SCS) are among the companies due to release their quarterly results after the markets close.