Beyond the Numbers
Policy Hopes Keeps Optimism Alive Despite Lackluster Catalysts
7/27/2012 9:19 AM
The major U.S. index futures are pointing to a higher opening on Friday, with sentiment holding up amid the release of the second quarter GDP report. Earnings news has been mixed and might have a neutral impact on the markets. Traders may now turn their attention to a consumer sentiment survey due to be released shortly after the markets open. Commodities are seeing modest gains, while risk currencies are seeing some strength. The optimism reflects hopes that the eurozone union will be salvaged at any cost.
The region’s central bank is set to meet next week and hopes that the European Central Bank will ease monetary policy easing and resort to additional bond buying have strengthened, giving reasons for traders to stay invested in stocks.
U.S. stocks advanced solidly on Thursday after European Central Bank President Mario Draghi expressed firm commitment that the central bank will support the euro to the hilt. Encouraging domestic economic data also supported sentiment.
The major averages opened sharply higher and moved roughly sideways for the rest of the session. The Dow Industrials ended up 211.88 points or 1.67 percent at 12,888 and the S&P 500 Index closed 22.13 points or 1.65 percent higher at 1,360, while the Nasdaq Composite added 39.01 points or 1.37 percent before closing at 2,893.
Twenty-nine of the thirty Dow components closed higher, with American Express (AXP), Home Depot (HD), Alcoa (AA), Chevron (CVX), Disney (DIS), General Electric (GE), AT&T (T), Coca-Cola (KO), 3M Co. (MMM) and Wal-Mart Stores (WMT) among the biggest gainers of the session.
Energy, gold, housing, semiconductor, transportation, biotechnology, utility, financial and retail stocks advanced strongly in the session.
On the economic front, U.S. durable goods orders rose 1.6 percent month-over-month in June, while on a more positive note, the previous month’s increase was upwardly revised to 1.6 percent. However, excluding transportation orders, orders fell 1.1 percent. Non-defense capital goods orders, excluding aircraft orders, considered a proxy for capital spending declined 1.4 percent. Motor vehicle and parts orders declined 0.6 percent, while orders for most categories, including computer products, machinery and electrical equipment, remained weak.
U.S. jobless claims fell to 353,000 in the week ended July 21st from an upwardly revised 388,000 in the previous week. The four-week average also slipped to 367,000 from 376,000. Continuing claims fell 30,000 to 3.29 million in the week ended July 7th.
Meanwhile, the National Association of Realtors reported that its pending home sales index fell 1.4 percent month-over-month in June, while the previous month’s increase was downwardly revised by 0.5 percentage points to 5.4 percent. Pending home sales declined in the North, the Midwest and the South, while sales rose in the West.Currency, Commodity Markets
Crude oil futures are gaining $0.10 to $89.49 a barrel after moving up $0.42 to $89.39 a barrel on Thursday. Gold futures are currently adding $4.90 to $1,620 an ounce. In the previous session, the precious metal rose $7 to $1,615.10 an ounce.
Among currencies, the U.S. dollar is trading at 78.36 yen compared to the 78.22 yen it fetched at the close of trading on Thursday. Against the euro, the dollar is valued at $1.2296 compared to yesterday’s $1.2283.Asia
The major Asian markets rose along with the increase in risk appetite set in motion by the soothing comments from Draghi. South Korea’s Kospi, Taiwan’s Weighted Average and Hong Kong’s Hang Seng Index all rose over 2 percent.
Japan’s Nikkei 225 average opened higher and moved sideways before closing up 123.54 points or 1.46 percent at 8,567. Most stocks, barring some defensive sectors, ended higher. JFE Holding, Nippon Steel, Fuji Electric, Mazda Motor and Panasonic were among the biggest gainers. On the other hand, Advantest retreated over 9 percent.
Australia’s All Ordinaries opened higher and rose sharply in early trading before beginning to move steadily higher for the rest of the session. The index closed 60.60 points or 1.45 percent higher at 4,234. Energy, material and healthcare stocks led the advance.
Hong Kong’s Hang Seng Index closed at 19,275, up 382.17 points or 2.02 percent.
On the economic front, Japan’s June retail sales rose 0.2 percent from a year earlier, the Ministry of Economy, Trade and Industry said. That was well short of forecasts for a 1.1 percent increase. A separate report showed that the country's deflation accelerated in June, with consumer prices falling 0.2 percent year-over-year compared to a 0.1 percent drop in May. Europe
The major European markets are trading higher amid the release of mixed earnings and the advance U.S. second quarter GDP estimate. The French CAC 40 Index is notably higher, while the German DAX Index and the U.K.’s FTSE 100 Index are seeing much more modest gains.
In corporate news, Airbus parent EADS reported higher first half profits and also raised its full year outlook. French oil giant Total reported a decline in its adjusted earnings for the June quarter, hurt by lower oil prices and a gas leak in the North Sea. British financial giant Barclays (BCS), which has been plagued by the LIBOR scandal, reported better than expected second quarter results.
On the economic front, the results from a survey by statistical office INSEE showed that French consumer sentiment deteriorated for the second straight month in July, as households turned more skeptical about future economic and labor market conditions. The consumer confidence index unexpectedly slid to 87 in July from 89 in June.
A report released by Spain’s National Statistics Institute showed that Spain’s jobless rate climbed to a new record in the second quarter. The unemployment rate rose to 24.63 percent in the second quarter from 24.44 percent in the first quarter. This was almost in line with economists' forecast of 24.65 percent.U.S. Economic Reports
U.S. economic growth slowed in the second quarter of 2012, but still grew by more than most economists had predicted. According to figures released Friday by the Commerce Department, the U.S. gross domestic product grew at 1.5 percent in the second quarter.
That marks a slowdown from the 2 percent growth posted for the first quarter, but a smaller contraction than most economists, who predicted just 1.2 percent growth for Q2, had expected. The first quarter data, furthermore, was revised up from 1.9 percent growth previously reported.
Reuters and the University of Michigan are due to release the final report on their consumer sentiment index for July is scheduled at 9:55 am ET. The consumer sentiment index is expected to be left unrevised at 72.Stocks in Focus
Starbucks (SBUX) reported third quarter earnings of 43 cents per share on revenues of $3.30 billion. The results missed estimates. The company currently expects fourth quarter revenue growth of 10-12 percent and earnings of 44-45 cents per share. For 2013, the company expects revenues of 10-12 percent and earnings of $2.04-$2.14 per share. The earnings guidance for the quarter and the year were below estimates.
Expedia (EXPE) reported better than expected second quarter results. The company also raised its 2012 outlook and also increased the size of its dividend.
Amazon (AMZN) reported second quarter profit and sales that missed estimates. The company said it expects an operating loss for its third quarter and issued below-consensus revenue guidance.
Facebook (FB) reported second quarter adjusted earnings of 12 cents per share on revenues of $1.18 billion. The results were ahead of estimates.
Weyerhaeuser (WY) reported second quarter adjusted earnings of 9 cents per share on net sales of $1.8 billion. The earnings missed estimated, while the revenues exceeded expectations. The company said it expects lower earnings from its woods products segment in the third quarter.
Tellabs (TLAB) said its second quarter non-GAAP earnings came in at 2 cents per share compared to a net loss of 4 cents per share in the year-ago period. Revenues fell to $288 million from the year-ago quarter’s $317 million. The results exceeded estimates.
Newmont Mining (NEM) reported second quarter adjusted net income from continuing operations of 59 cents per share, down from 90 cents per share last year. Sales fell 6 percent to $2.2 billion. The results trailed expectations.
Buckeye Technologies (BKI) announced the resignation of its president and COO Kristopher Matula, effective August 31, 2012. Matua is leaving the company to focus on other interests.
Reinsurance Group of America (RGA) reported second quarter operating income of $1.65 per share compared to $1.60 per share last year. The results missed expectations.
Choice Hotels (CHH) said its second quarter earnings climbed to 55 cents per share from 46 cents per share last year. Revenues rose to $173.62 million from $165.30 million last year. For the third quarter, the company expects third quarter earnings of 61 cents per share and full year earnings of $1.91-$1.94 per share. The results exceeded estimates, while the outlook was bleak. The company also announced a special cash dividend of $10.41 per share.
Netgear (NTGR) reported second quarter non-GAAP earnings of 64 cents per share on revenues of $320.7 million. The company expects third quarter net revenues of $310 million to $325 million. The results missed expectation and the guidance also trailed estimates.
KLA-Tencor (KLAC) reported fourth quarter non-GAAP earnings of $1.49 per share compared to $1.50 per share last year. Revenues rose to $892 million from $841 million in the year-ago quarter. The results exceeded estimates. However, the stock retreated after the company provided disappointing first quarter guidance during its conference call.
Qlogic (QLGC) reported first quarter non-GAAP earnings from continuing operations of 26 cents per share on revenues of $130.4 million. The results trailed estimates.
Callaway Golf (ELY) reported second quarter pro forma earnings of 5 cents per share on net sales of $281 million. The earnings were in line, while the revenues trailed estimates. For 2012, the company expects a net loss of 55-75 cents per share on a pro forma basis on revenues of $835 million to $865 million. The guidance was lackluster.
Ingram Micro (IM) reported better than expected second quarter results, while it issued cautious third quarter guidance.
CA Technologies (CA) reported first quarter non-GAAP earnings from continuing operations of 63 cents per share, higher than 55 cents per share last year. Revenues fell 2 percent to $1.15 billion. The earnings beat estimates, while the revenues were shy of estimates. For 2013, the company expects non-GAAP earnings from continuing operations of $2.45-$2.50 per share on revenues of $4.74 billion to $4.80 billion. The company’s guidance was lackluster.
Amgen’s (AMGN) second quarter adjusted earnings rose 34 percent to $1.83 per share and revenues climbed 13 percent to $4.48 billion. The company raised its full year adjusted earnings per share guidance to $6.20-$6.35 per share on revenues of $16.9 billion to $17.2 billion. The results as well as the guidance were upbeat.