Beyond the Numbers
Stimulus Hopes Gain Ground Ahead of Bernanke’s Testimony
7/17/2012 9:16 AM
The major U.S. index futures are pointing to a higher opening on Tuesday, with sentiment getting a lift from expectations that the Federal Reserve will act benevolently to kick start the sagging economic growth. Expectations of policy measures from overseas governments and central banks are also gaining ground. Earnings from blue chips such as Coca Cola (KO) and Goldman Sachs (GS) were encouraging, quelling some apprehensions concerning corporate profit growth.
Traders may now look ahead to Federal Reserve Chairman Ben Bernanke’s Congressional testimony, the U.S. industrial output report for June and the results of a homebuilder confidence survey for July. Reflecting the rise in risk appetite, risky bets such as oil and the euro are seeing strength. A Spanish bond auction passed off successfully, while a survey showed that economic sentiment in Germany continued to be bleak.
U.S. stocks retreated on Monday in the face of mixed economic data and toned down expectations concerning global growth. The major averages opened lower following the release of separate reports showing an unexpected decline in retail sales and a faster than expected expansion by the manufacturing sector in the New York region.
Traders also digested the news that the IMF lowered its global growth forecast for 2012 to 3.5 percent from 3.6 percent, with the downward revision premised on lower than expected growth in emerging economies. The averages remained mostly below the unchanged line for much of the session before closing lower.
The Dow Industrials ended down 49.88 points or 0.39 percent at 12,727 and the Nasdaq Composite Index closed 11.52 points or 0.40 percent lower at 2,897, while the S&P 500 Index ended 3.14 points or 0.23 percent lower at 1,354.
Twenty-three of the thirty Dow components closed lower, with Alcoa (AA), Caterpillar (CAT), Home Depot (HD), JP Morgan Chase (JPM) and Coca-Cola (KO) leading the declines. On the other hand, American Express (AXP) and Pfizer (PFE) added over 1 percent each.
On the economic front, the Commerce Department reported that retail sales fell 0.5 percent month-over-month in June, marking the third straight month of declines. April’s decline was downwardly revised to 0.5 percent. The declines witnessed in June were broad based. Excluding autos, sales were down 0.4percent and sales, excluding autos, gasoline and building materials, used in the GDP calculation edged down 0.1 percent.
Auto sales fell 0.6 percent, building material & garden equipment store sales were down 1.6 percent and gas station sales dipped 1.8 percent. Sales at sporting goods, hobby and music stores were also down 1.6 percent.
The Commerce Department’s business inventories report showed a 0.3 percent month-over-month increase in business inventories for May. Annually, inventories were up 5.2 percent. At the same time, business sales edged down 0.1 percent month-over-month, but rose 5.1 percent annually. The inventories to sales ratio came in at 1.27, flat with the year-ago period.Currency, Commodity Markets
Crude oil futures are rising $0.25 to $88.68 a barrel after climbing $1.33 to $88.43 a barrel on Monday. Gold futures are currently valued at $1,589.20 an ounce, down $2.40. In the previous session, the precious metal edged down $0.40 to $1,591.60 an ounce.
Among currencies, the U.S. dollar is trading at 79.13 yen compared to the 78.86 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.2279 compared to yesterday’s $1.2271.Asia
The major Asian markets closed higher despite the negative lead from Wall Street overnight. The negative catalysts apparently strengthened hopes of stimulus measures from the Federal Reserve and led to some buying.
After showing some indecision in early trading, Japan’s Nikkei 225 average moved decisively into positive territory in late morning trading. The index closed up 30.88 points or 0.35 percent at 8,755. The Japanese market was closed yesterday on account of a public holiday.
Financial, pharma, real estate, retail and telecom stocks advanced, while most export stocks declined.
Australia’s All Ordinaries advanced steadily in the morning and saw some consolidation in the afternoon session before closing up 32.10 points or 0.77 percent at 4,175. Most sectors saw modest to moderate buying interest, with energy stocks leading from the front. Miner Rio Tinto slid after it reported almost flat iron ore output for the June quarter. Despite warning of deteriorating economic conditions, the company maintained its production estimate for the year.
Hong Kong’s Hang Seng Index ended 333.99 points or 1.75 percent higher at 19,455.
The minutes of the Reserve Bank of Australia’s July monetary policy meeting showed that the monetary policy board did not feel the necessity to change its official cash rate , as the domestic economy continued to gather momentum. Europe
European stocks are also pushing higher amid some volatility ahead of Bernanke’s sem-annual Congressional testimony. Spain auctioned 3.562 billion euros worth of 12-month and 18-month treasury bills at benign yields.
In corporate news, Alcatel-Lucent (ALU) warned that it will not meet its full year adjusted operating profit margin guidance, given the tough macroeconomic environment. The company expects an operating loss of 40 million euros for its second quarter due to a slower than expected business mix environment, while it expects revenues of 3.5 billion euros.
U.K. luxury retailer Burberry said it intends to end its fragrance and beauty products license agreement with IterParfums.
On the economic front, the U.K. Office for National Statistics reported that U.K. annual inflation eased to 2.4 percent in June from 2.8 percent in May. Economists expected the inflation rate to have remained unchanged at 2.8 percent.
A survey by Zew Institute showed that German economic confidence deteriorated in July. The economic confidence index fell by 2.7 points to –19.6, marking the third straight month of declines. The index remained notably below its long-term average of 24. The current conditions index fell by 12.1 points to 21.1. U.S. Economic Reports
With a steep drop in energy prices offset by higher prices for food, medical care, and apparel, the Labor Department released a report showing that overall U.S. consumer prices were unchanged in the month of June.
The Labor Department said its consumer price index came in unchanged in June following a 0.3 percent drop in May. The flat reading on consumer prices came in line with economist estimates. Excluding food and energy prices, the core consumer price index rose by 0.2 percent in June. The modest increase matched the core price growth seen in the three previous months and came in line with expectations.
The Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. for April at 9 am ET.
The Federal Reserve's industrial production report is due out at 9:15 am ET. Economists estimate a 0.3 percent increase in industrial production for June, while manufacturing output growth is estimated to have increased by 0.2 percent. Capacity utilization may have edged up by 0.2 percentage points to 79.2 percent.
U.S. industrial output fell 0.1 percent month-over-month in May, with manufacturing output declining by 0.4 percent, while mining and utility output rose 0.9 percent and 0.8 percent, respectively. Motor vehicles and parts production declined 1.4 percent, marking the first drop since November. Excluding motor vehicles and parts, manufacturing output was flat. Output of business equipment rose 0.3 percent, the thirteenth straight month of growth. Capacity utilization edged down 0.1 percentage points to 79 percent.
The National Association of Home Builders is scheduled to release the results of its July survey on homebuilders' confidence at 10 am ET. The consensus estimates call for the index to increase to 30.
The housing market index rose to a 5-year high of 29 in June from a downwardly revised reading of 28 in May. The present sales conditions index rose 2 points to 32, but the sales expectations index and the index measuring prospective buyer traffic remained unchanged.
Federal Reserve Chairman Ben Bernanke is scheduled to deliver his testimony before the Senate Banking Committee beginning at 10 am ET.Stocks in Focus
Goldman Sachs (GS) second quarter earnings and revenues beat expectations and so did the results of Coca-Cola (KO).
Despite Johnson & Johnson’s (JNJ) second quarter adjusted earnings were above estimates, its revenues trailed expectations. The company also lowered its full year guidance.
Hologic (HOLX) and Gen-Probe (GPRO) announced that the German Federal Cartel Office has cleared the proposed acquisition of Gen-Probe by Hologix.
Mattel (MAT) reported second quarter earnings of 28 cents per share, higher than 23 cents per share last year. Net sales remained flat at $1.16 billion. The results exceeded estimates.
Host Hotels (HST) said its adjusted funds from operations rose to 34 cents per share from 31 cents per share last year. Total revenues rose 6.5 percent to $1.37 billion. For 2012, the company expects adjusted funds from operations of $1.04-$1.09 per share. The results exceeded estimates, while the guidance surrounded the consensus estimates.
Yahoo (YHOO) announced the appointment of former Google executive Marissa Mayer as its president and CEO, effective July 17th, 2012.
AstraZeneca (AZN) announced that a combined panel of experts from the American College of Cardiology Foundation and American Heart Association has updated their guidelines to include a Class I recommendation for the use of oral anti-platelet medicine BRILLINTA tablets in patients with unstable angina or non-ST-elevation myocardial infraction.
Packaging Corp. of America (PKG) reported second quarter adjusted earnings of 49 cents per share compared to 39 cents per share last year, as net sales rose 7 percent to $712 million. For the third quarter, the company expects adjusted earnings of 54 cents per share. The results exceeded estimates, while the guidance was also above the consensus estimate.
Brown & Brown (BRO) reported preliminary second quarter results, forecasting earnings of 29 cents per share on revenues of $290.92 million. The results trailed estimates.
ICU Medical (ICUI) reported second quarter earnings of 63 cents per share compared to 67 cents per share in the year-ago period. Revenues remained almost flat at $77.3 million. The earnings were above estimates, while the revenue trailed expectations. The company lowered the upper end of its previous 2012 revenue guidance by $5 million to $325 million, while it raised the lower end of its previous 2012 earnings forecast by 10 cents to $2.55 per share. The new guidance range surrounded the consensus estimate.
FLIR Systems (FLIR) announced preliminary second quarter earnings and revenues, forecasting adjusted earnings of 30 cents per share on revenues of $338 million. The results were below the consensus estimates, which called for earnings of 36 cents per share on revenues of $380.39 million. The company attributed the predicament to weakness in several markets. The company also lowered its 2012 outlook below the consensus estimates.
Cintas (CTAS) said its fourth quarter revenues rose to 60 cents per share from 49 cents per share last year, as revenues rose 4.1 percent to $1.05 billion. The earnings were in line, while the revenues came in below estimates. Assuming further deterioration in economic conditions, the company said it estimates 2013 earnings of $2.47 to $2.55 per share on revenues of $4.25 billion to $4.35 billion.
J. B. Hunt (JBHT) reported second quarter earnings of 67 cents per share on revenues of $1.26 billion. The earnings were in line, while the revenues were below expectations.
Lincare Holdings (LNCR) said its second quarter net income rose to 56 cents per share, higher than 35 cents per share last year, as revenues rose 10.5 percent to $496.2 million. The earnings were a penny ahead of estimates, while the revenues were below expectations. The company has agreed to be acquired by German industrial gas company Linde.
Hartford (HIG) said it expects to report current accident year catastrophe losses of $180 million to $195 million after-tax in the second quarter compared to $290 million after-tax in the year-ago period.
Barnes Group (B) said it has agreed to acquire privately held Synventive Molding Solutions, a manufacturer of hot runner systems, for $35 million in cash. Agilent Technologies (A) announced a definitive agreement to buy the wireless assets of AT4 wireless’ Test Systems business. The company did not reveal the terms of the deal but said it expects the deal to close by early August.
AAR Corp. (AIR), CSX (CSX), Fidelity National Information (FIS), Fulton Financial (FULT), Intel (INTC), Stanley Furniture (STLY), United Rentals (URI), Wynn Resorts (WYNN) and Yahoo! (YHOO) are among the companies due to report their results after the markets close.