Market Analysis

The major U.S. index futures are pointing to a lower opening on Monday, with sentiment held down by apprehensions about the viability of various policy measures adopted by global central banks and governments in stemming the economic slackness. Commodities are firmer, while the dollar is seeing mixed sentiment. A Eurogroup finance ministers meeting due today may keep traders on the sidelines.

Meanwhile, domestically, the unfolding reporting season, which is set to be kick started by Alcoa’s (AA) earnings release after the markets open, may introduce caution. A Federal Reserve report on outstanding consumer credit and a couple of Fed speeches may also impact sentiment.

U.S. stocks reversed course in the week ended July 6th, as some lackluster domestic economic reports dampened investor sentiment. In the process, traders largely ignored some global central bank stimulus announcements. The major averages closed the week mostly lower.

Last Monday, the major averages went about in a lackluster manner, as traders digested a slew of M&A announcements and a report showing an unexpected contraction by the nation’s manufacturing sector. Nevertheless, amid hopes of additional stimulus, the averages closed on a mixed note. Helped by some positive catalysts, including strong auto sales, better than expected factory goods orders and strength in the resource space, the major averages closed Tuesday’s truncated session on a moderately positive note. The markets remained closed on Wednesday for the Independence Day holiday.

Despite benevolent actions by the central banks of China, England and the European Union and the release of fairly positive jobs data, the major averages ended Thursday’s session mostly lower. The markets ended Friday’s session notably lower, as the monthly non-farm payrolls report disappointed to the downside.



For the week, the Dow Industrials ended down 0.84 percent and the S&P 500 Index slid 0.55 percent, while the Nasdaq Composite edged up 0.08 percent.

Among the sector indexes, the Philadelphia Semiconductor Index fell 2.44 percent for the week, while the NYSE Arca Securities Broker/Dealer Index and the KBW Bank Index declined over 1 percent each. On the other hand, the Philadelphia Housing Sector Index added 2.44 percent. Additionally, the NYSE Arca Biotechnology Index and the NYSE Arca Airline Index gained over 1 percent each.

Currency, Commodity Markets

Crude oil futures are advancing $0.46 to $84.91 a barrel after edging down $0.51 or 0.60 percent to $84.45 a barrel in the week ended July 6th. Last Monday, oil fell over $1 a barrel on the disappointing manufacturing data released by the Institute for Supply Management.

Crude oil prices skyrocketed on Tuesday, advancing close to $4 a barrel, as risk appetite was revived. The commodity retreated moderately on Thursday despite the release of positive U.S. jobs data. Oil fell further on Friday in reaction to the U.S. monthly jobs report.

Gold futures, which fell $25.30 or 1.58 percent to $1,578.90 an ounce in the previous week, are currently gaining $5.90 to $1,584.80 an ounce.

Among currencies, the U.S. dollar closed the week ended July 6th mostly higher, with the greenback adding 2.97 percent against the euro before ending the week at $1.2290.
Meanwhile, the dollar edged down 0.16 percent against its fellow safe haven, the yen, over the week, ending at 79.66 yen.

The dollar was the beneficiary of the risk aversion in play for much of last week after domestic economic data on activity in the manufacturing and service sectors and the job market pointed to a soft patch. A quarter basis point reduction in interest rates by the European Central Bank also dragged down the common currency.

The U.S. dollar is currently valued at 79.57 yen and is worth $1.2296 versus the euro.

Asia

The Asian markets fell across the board, led lower by China, where the Shanghai Composite Index declined 2.37 percent. The markets in the region retreated for the third straight session. With each piece of incoming economic evidence vouching for the global economic slowdown, risk aversion is intensifying, warding traders off risky bets.

Earlier in the global trading day, Japan’s Ministry of Finance reported a current account of surplus of 215.1 billion yen in May, down 62.6 percent year-over-year. Economists expected a surplus of 511 billion yen. The trade deficit widened to 848.2 billion yen from a deficit of 463.9 billion yen in April.

A separate government report showed that core machinery orders considered an indicator for capital spending declined by 14.8 percent month-over-month in May, while economists had expected a more modest 2.6 percent drop.

A National Bureau of Statistics report showed that Chinese annual consumer price inflation cooled off to 2.2 percent in June from 3 percent in May. Economists had expected an inflation rate of 2.3 percent. Additionally, producer prices fell for the fourth straight month, dropping 2.1 percent in June.

Japan’s Nikkei 225 average opened notably lower and moved sideways in the morning. The index declined steadily in the afternoon before closing down 123.87 points or 1.37 percent at 8,897.

Risk aversion sent traders to the safe haven yen and consequently, export stocks moved to the downside. Advantest, OKUMA and Tokyo Electron were among the worst decliners. On the other hand, utility, construction and pharma stocks gained some ground.

Australia’s All Ordinaries languished below the unchanged line throughout the session, ending down 39.20 points or 0.93 percent at 4,160. Energy and material stocks slumped sharply, dragging the market lower.

Meanwhile, Hong Kong’s Hang Seng Index closed at 19,428, down 372.55 points or 1.88 percent.

Europe

European stocks are trading moderately mixed ahead of a Eurogroup meeting scheduled in Brussels later today. Bailout financing to Spanish banks, terms of a second bailout plan for Greece and the feasibility of creating a common regulator for European banks are among the issues likely to be discussed in the meeting.

On the economic front, German exports defied the global economic gloom and rose by more than expected in May. Exports climbed 3.9 percent month-over-month, while economists expected a mere 0.2 percent increase. Imports were up a steeper 6.3 percent. The trade surplus increased to 15.3 billion euros in May from 14.5 billion euros surplus in April.

A survey by Sentix showed that an index measuring investor sentiment in the eurozone unexpectedly fell to a 3-year low of –29.6 in July from –28.9 in June.

Meanwhile, French business confidence deteriorated in June, according to data released by the Bank of France. The business confidence index fell 1 point to 91 in June, while economists had expected an unchanged reading.

In corporate news, Remy Cointreau said it was in talks to buy Scottish distillery Bruichladdich. British sports retailer JJB Sports reported like-for-like sales fell 8 percent for the 22 weeks ended June, hurt by weak sales of replica football kits during the European championship and poor early summer weather.

U.K. homebuilder Bovis Homes said it has performed strongly, in line with expectations in the first half of 2012.

U.S. Economic Reports

The onus of offering clarity on the economic outlook now falls on the unfolding week, as the past week’s economic data left traders increasingly apprehensive. The focus is likely to be on the weekly jobless claims data, Reuters and the University of Michigan’s consumer sentiment survey and the minutes of the June FOMC meeting.

Traders may also closely watch the Commerce Department’s trade balance report for May, the Labor Department’s produce prices report for June, the Federal Reserve’s consumer credit report for May and some Fed speeches scheduled for the week. Treasury auctions of 3-year and 10-year notes and 30-year bonds, the Commerce Department’s wholesale inventories report for May, the Labor Department’s import and export price indexes for June and the Treasury Budget for June round up the economic events of the week.

The trade balance report is expected to show a narrowing of the deficit in May, given the increases by the new export order components of the Institute for Supply Management’s manufacturing and non-manufacturing surveys. At the same time, lower oil prices and slacker consumer spending may have impacted imports. However, the export strength may be tested in the near future due to the uncertainties surrounding the global economic outlook.

The FOMC minutes may also draw some attention, as traders could show interest in the options the monetary policy committee of the Federal Reserve could may discussed before deciding on extending ‘Operating Twist.’

San Francisco Federal Reserve Bank President John Williams is scheduled to speak to the Oregon, Idaho and Nevada Bankers annual joint convention at 11:55 am ET.

The U.S. Federal Reserve is scheduled to release its monthly consumer credit report at 3 pm ET. Consumer credit for May is expected to show an increase of $8.5 billion.



U.S. consumer credit rose by $6.52 billion or 3 percent in April, with a $10 billion increase in non-revolving credit helping to offset a $3.4 billion drop in revolving credit.

Stocks in Focus

Eli Lilly & Co. (LLY) and Bristol-Myers Squibb (BMY) announced that the FDA approved their ERBITUX as first-line treatment for KRAS mutation negative epidermal growth factor receptor expressing colorectal cancer in combination with FOLFIRI.

WellPoint Inc (WLP) has agreed to acquire Amerigroup (AGP) at $92.00 per share in cash, aggregating to a total transaction value of approximately $4.90 billion. WLP is up over 3 percent to $62.18.

Raytheon (RTN) said it has secured a $4.7 million contract from the U.S. Army for Engineering and Manufacturing Development of the six components in the suite of integrated personal electronics for the Air Soldier System.

Boeing (BA) and rival EADS-owned Airbus are in focus in the wake of the Farnborough Air Show. Reports suggest that Boeing will announce orders from at least 2 leasing companies, helping it to maintain its lead over Airbus.

A. Schulman (SHLM), Alcoa (AA), PriceSmart (PSMT) and WD-40 (WDFC) are among the companies due to release their quarterly results after the markets close.