Market Analysis

The major U.S. index futures are pointing to a mixed opening on Monday, with sentiment cautious following the recent strong advances by the markets. Although stimulus hopes boosted markets in Asia and Europe, recent strong gains are making traders wary, especially ahead of central bank decisions from Europe, the U.K. and U.S., all scheduled for this week. Risk appetite has also waned, as reflected by the strength in safer bets such as the dollar and the yen. Traders are likely to wait and watch before making decisive moves in either direction.

U.S. stocks advanced notably in the week ended July 27th, as rhetoric of central bank officials and political leaders allayed worries that the global economy is crumbling under the pressure of the eurozone crisis.

Last Monday, the major averages retreated moderately, as the situation in Spain and mixed earnings led to the fleeing of traders from risky bets. Insipid earnings and eurozone concerns once again sapped investor risk appetite on Tuesday, sending the major averages lower once again.

Some positive earnings helped to neutralize the negative sentiment generated by a weak U.S. new home sales and the eurozone worries. Consequently, the averages ended on a mixed note. The major averages rallied strongly on Thursday after the European Central Bank president Mario Draghi came out strongly in support of the euro and also strongly reaffirmed the central bank’s commitment to stand by the euro.

Stocks advanced solidly on Friday on hopes that central banks meeting the next week will announce strong policy measures to counter the weakness stemming from the eurozone crisis.



For the week ended July 27th, the Dow Industrials added 1.97 percent and the S&P 500 Index climbed 1.71 percent, while the Nasdaq Composite rose 1.12 percent.

Among the sector indexes, the Philadelphia Semiconductor Index climbed 5.27 percent for the week and the Philadelphia Oil Sector Index moved up 4.02 percent. The NYSE Arca Gold Bugs Index firmed up by 3.27 percent, while the S&P Retail Index, the NYSE Arca Securities Broker/Dealer Index and the KBW Bank Index all added over 2 percent.

Currency, Commodity Markets

Crude oil futures are slipping $0.57 to $89.85 a barrel after declining $1.70 or 1.85 percent to $90.13 a barrel in the week ended July 27th.

Oil tumbled by more than $3.50 a barrel last Monday, as eurozone concerns continued to weigh down heavily on sentiment. The commodity rebounded modestly on Tuesday despite the equity market retreat. Oil rose moderately on Wednesday amid mixed earnings and the ongoing anxieties about the situation in the eurozone.

Oil rose yet again on Thursday and climbed by over $1-a-barrel on Friday, as hopes concerning stimulus measures from the European Central Bank and the Federal Reserve strengthened. Nevertheless, the commodity ended the week on a down note.

The most actively traded gold futures for December delivery, which climbed $39.90 or 2.52 percent to $1,622.70 an ounce in the previous week, are currently trading down $3.80 to $1,618.90 an ounce.

Among currencies, the euro rebounded in the week ended July 27th from a fresh 2-year low in the previous week, primarily on the commitment shown by Draghi to preserve the euro. The common currency added 1.36 percent against the dollar before ending the week at $1.2323.

The Japanese yen edged down slightly against the dollar, ending the week at 78.46 yen versus the dollar, down 0.28 percent for the week.

The U.S. dollar is currently trading at 78.15 yen and is valued at $1.2238 versus the euro.

Asia

The major Asian markets advanced for the third straight session, taking comfort from hopes that the eurozone will stay intact following promises of support by central banks and political leaders. Meanwhile, the Chinese market bucked the uptrend, with the Shanghai Composite Index slipping 0.89 percent.

Japan’s Nikkei 225 average opened higher and remained above the unchanged line throughout the session, closing up 68.80 points or 0.80 percent at 8,635. Most export stocks advanced, while pharma, real estate, retail and financial stocks also firmed up.

Takara, Fujifilm, Konica Minolta, Nippon Paper and Mitsubishi were among the biggest gainers. On the other hand, Fujitsu slumped 12.46 percent and Kansai Electric fell 11.20 percent. The former reported a loss for its first quarter.

Australia’s All Ordinaries also hovered in positive territory throughout the session and ended up 32.50 points or 0.77 percent at 4,267. Healthcare stocks advanced strongly, while material stocks also found buying interest. Meanwhile, energy stocks came under selling pressure.

Hong Kong’s Hang Seng Index closed at 19,585, up 310.44 points or 1.61 percent.

On the economic front, a report released by Japan’s Ministry of Economy, Trade and Industry showed that Japan’s industrial output fell 0.1 percent month-over-month in June. Economists had expected a 1.5 percent increase for the month. The Ministry expects output to rebound by 4.5 percent in July but decline 0.6 percent in August.

Europe

European stocks are advancing moderately amid optimism that some decisive policy action could be expected out of the week’s monetary policy meetings. Sentiment also received a lift from some positive domestic earnings.
In corporate news, Air France-KLM reported an operating loss of 66 million euros for its second quarter, which was narrower than what most analysts had expected, while revenues rose 4.5 percent to 6.5 billion euros.

Irish low cost carrier Ryanair reported a decline in its first quarter profit to 98.8 million euros, but it affirmed its full year profit guidance.

French industrial gas maker Air Liquide reported a 5.3 percent increase in its profits for the first half. The company also maintained its outlook for an increase in its full year profits. U.K.’s Reckitt Benckiser reported a 2 percent increase in its first half profits.

U.S. Economic Reports

The FOMC meeting and the monthly non-farm payrolls report are the closely watched economic events of the unfolding week. Traders may also focus on the Commerce Department’s personal income and spending report for June, the results of the Institute for Supply Management’s manufacturing and service sector surveys, the ISM-Chicago’s manufacturing survey, the ADP’s private sector payrolls report, the Conference Board’s consumer confidence index for July and the weekly jobless claims report.

The Labor Department’s employment cost index for the second quarter, the S&P Case-Shiller house price index for May, monthly auto sales for July, the Commerce Department’s factory goods orders for June and announcements concerning the Treasury auctions of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.

The FOMC meeting is unlikely to result in any policy move, as the fed funds target rate is at extremely accommodative levels. That said, Chairman Ben Bernanke had suggested that the central bank will discuss all policy options before them at the August meeting. BMO Capital Markets is of the view that it is only a matter of time before the central bank acts again, as the unemployment rate continues to remain elevated.

The non-farm payrolls report is expected to suggest a lackluster hiring environment, weighed down by the toned down demand caused by the eurozone crisis and the fiscal cliff facing the U.S.

With most of the regional manufacturing surveys suggesting a modest improvement in manufacturing conditions in July, the ISM’s national survey may show that its manufacturing index moved back into expansion territory. The index slipped below the ‘50’ level in June.

The personal income and spending report may show that personal income grew modestly, as a modest pick up in average work hours and average hourly earnings offset the impact of the weak pace of hiring. Given the fact that retail sales for three straight months, personal spending may see some slackness.

The results of the manufacturing survey by the Dallas Federal Reserve are due at 10:30 am ET. Economists expect the index to drop to 2.5 in July from 5.8 in the previous month.

Stocks in Focus

The expiration of the tender offer to acquire Talbots (TLB) by Sycamore Partners for $2.75 per share in cash has been extended to August 2nd from the initial expiry date of July 27th.

Forest Labs (FRX) appealed to shareholders to support all 10 of its nominees to the board at its upcoming annual shareholders meeting on August 15th. This comes in the wake of billionaire investor Carl Icahn’s attempt to put up his candidates for 4 positions in the board.

AT&T (T) said its board has approved an increase in its stock buyback program by up to 300 million shares or 5 percent of its outstanding shares.

Anadarko Petroleum (APC), Cirrus Logic (CRUS), Cognex (CGNX), Eastman Chemicals (EMN), Fiserv (FISV), Forest Oil (FST), Hertz Global (HTZ), Hologic (HOLX), Jacobs (JEC), Partner Re (PRE), PMC-Sierra (PMCS), Post Properties (PPS) and Seagate Technology (STX) are among the companies due to release their quarterly results after the markets close.

Chicago Bridge & Iron Company (CBI) has agreed to acquire Shaw Group (SHAW) in a cash and stock transaction. Shaw's shareholders would receive $41.00 in cash and $5.00 in CB&I equity for each share of Shaw at closing. CBI is down 9 percent to $37.00.

Roper Industries’ (ROP) second quarter earnings increased from the same period last year and were in-line with Wall Street view. Net sales improved from the year-ago quarter, but missed the consensus estimate. The company also announced that it has agreed to buy Sunquest Information Systems, Inc., a provider of diagnostic and laboratory software solutions to healthcare providers, in an all cash transaction valued at $1.415 billion.

Trina Solar (TSL) lowered its second quarter solar module shipments and overall gross margin guidance. The company noted that an overcapacity-induced deflationary pricing environment caused the shortfall in gross margin.