Beyond the Numbers
Traders Optimistic About Stimulus Support
8/1/2012 9:21 AM
The major U.S. index futures are pointing to a higher opening on Wednesday, with sentiment remaining firm ahead of the release of the FOMC statement. A private sector payrolls report released earlier in the day showed that the sector saw a fairly healthy job growth for the month. Traders may now turn their attention to the Institute for Supply Management’s survey to see if manufacturing activity rebounded in July, in line with the regional surveys. The FOMC statement may also be closely watched to gauge the Fed’s commitment to support the economy ailing under the impact of the eurozone’s debt crisis and the upcoming fiscal cliff.
U.S. stocks moved about in a lackluster manner on Tuesday as traders showed nervousness ahead of some key economic events and apprehensions over whether the central banks will match up with their stimulus hopes.
The major U.S. averages opened on a down note and moved in a lackluster manner for much of the session. The Dow Industrials and the S&P 500 Index remained mostly below the unchanged line, while the Nasdaq Composite stayed afloat for the bulk of the session before retreating in late trading.
The Dow Industrials fell 64.33 points or 0.49 percent before closing at 13,009 and the S&P 500 Index ended down 5.98 points or 0.43 percent at 1,379, while the Nasdaq Composite closed at 2,940, down 6.32 points or 0.21 percent.
Biotechnology, energy, gold, retail, housing and brokerage stocks were among the worst performers of the session.
Twenty-one of the thirty Dow components closed lower, with Home Depot (HD), Caterpillar (CAT), Disney (DIS), Boeing (BA) and American Express (AXP) declining sharply in the session. On the other hand, Pfizer (PFE) rose 1.39 percent and AT&T (T) gained 1.31 percent.
On the economic front, a survey by S&P Case-Shiller showed that house prices rose a better than expected 0.91 percent month-over-month in May, while annually, prices were off 0.66 percent.
The personal income and spending report revealed that personal spending remained unchanged compared to the previous month in June. The previous month’s reading was downwardly revised to show 0.1 percent drop. Real spending was down 0.1 percent in June. With personal income increasing 0.5 percent, the savings rate rose to 4.4 percent.
Meanwhile, the Conference Board’s consumer confidence index rose to 65.9 in July from 62.7 in June. The consensus estimate had called for a small drop. The present situation index edged down 0.4 points to 46.2, while the expectations index rose 5.7 points to 79.1.
The ISM-Chicago’s business barometer unexpectedly rose to 53.7 in July from 52.9 in June. While the new orders index rose 1 point to 52.9 and the order backlogs index climbed 10.6 points, the production index fell by 2.5 points. The employment index declined by 7.1 points to 53.3. Currency, Commodity Markets
Crude oil futures are rising $0.29 to $89.96 a barrel after declining $1.72 to $88.06 a barrel on Tuesday. The private sector inventory report released by the American Petroleum Institute late Tuesday showed that crude oil stockpiles fell by 11.6 million in the week ended July 27, marking the biggest weekly drop since September 2008.
An ounce of gold is currently trading at $1,610, down $4.80 from the previous session’s close of $1,614.60. On Tuesday, gold fell $9.40.
On the currency front, the U.S. dollar is trading at 78.18 yen compared to the 78.12 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.2316 compared to yesterday’s $1.2304.Asia
The major Asian markets went about in a listless manner, as traders waited for clarity on monetary policy actions. Weak Chinese manufacturing data released during the day also hurt sentiment.
Japan’s Nikkei 225 average languished in negative territory throughout the session before closing down 53.21 points or 0.61 percent at 8,642. Australia’s All Ordinaries showed some degree of volatility, although staying mostly below the unchanged line. The index closed down 6.70 points or 0.16 percent at 4,283. Meanwhile, Hong Kong’s Hang Seng Index added 23.57 points or 0.12 percent before closing at 19,820.
A report released by the Chinese Federation of Logistics and Purchasing showed that its manufacturing index edged down 0.1 points to 50.1 in July, while economists expected the index to rise to 50.5. Revised estimated released by Markit Economics’ showed that its manufacturing index came in at 49.3 in July, suggesting a contraction by the sector. Europe
The major European markets are trading on a mixed note ahead of the FOMC announcement, with French CAC 40 Index and the U.K. FTSE 100 Index advancing sharply, while the German market is slipping on some lackluster earnings.
Final estimates released by Markit Economics showed that its manufacturing index for the eurozone slipped 1.1 points to a 37 month low of 44 in July, downwardly revised from the flash estimate of 44.1. The British manufacturing sector also contracted at the fastest pace in 38 months, with the Markit’s manufacturing purchasing managers’ index for the U.K. coming in at 45.4 for July.
In corporate news, French banking giant Societe Generale reported a 42 percent decline in its second quarter profits, partly hit by write-downs in its businesses. German healthcare company Fresenius reported a 20 percent increase in its first half profits and also confirmed its full year sales guidance. Germany’s Schneider Electric said its first half operating profits rose 9 percent and also maintained its full year earnings guidance. German luxury carmaker BMW reported a decline in its second quarter profits, although the drop was not as steep as analysts feared.U.S. Economic Reports
Individual automakers are scheduled to release their monthly U.S. sales results for June. The data will reveal the unit sales of domestically produced cars and light duty trucks, including sports utility vehicles and mini-vans, during the month. Economists expect domestic vehicle sales of 14 million for July, down from 14.1 million last month.
Employment in the U.S. private sector increased by much more than anticipated in the month of July, according to a report released by payroll processor Automatic Data Processing, with the increase marking two-and-half years of positive job growth.
The report showed that the private sector added 163,000 jobs in July following a downwardly revised increase of 172,000 jobs in June. Economists had expected an increase of about 120,000 jobs compared to the increase of 176,000 jobs originally reported for the previous month.
The results of the manufacturing survey of the Institute for Supply Management, which are based on data compiled from purchasing and supply executives nationwide, are due out at 10 am ET. Economists expect the index to show a reading of 50.1 for July.
Manufacturing activity contracted in June. The manufacturing purchasing managers' index slipped to 49.7 in June from 53.5 in May. The new orders index declined sharply to 47.8, marking the weakest level since April 2009, and the order backlogs index fell by 2.5 points to 44.5. The production index also slipped, dropping 4.6 points to 51, and the employment index edged down 0.3 points to 56.6. Of the 18 industries surveyed, 7 industries reported growth and 2 reported little change, while the rest contracted.
The Commerce Department's construction spending report to be released at 10 am ET is expected to show a 0.5 percent increase in spending in June.
Construction spending rose a better than expected 0.9 percent month-over-month in May, while annually, construction spending was up 7 percent. Private construction spending rose 1.6 percent month-over-month compared to a 0.4 percent drop in the spending on public construction. Among private construction, spending on residential construction climbed 3 percent and spending on non-residential construction improved a more modest 0.4 percent.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended July 27th at 10:30 am ET.
Crude oil inventories rose by 2.7 million barrels to 380.1 million barrels in the week ended July 20th. Inventories were above the upper limit of the average range.
Distillate inventories increased by 1.7 million barrels but remained below the lower limit of the average range. Gasoline stockpiles climbed by 4.1 million barrels and were in the lower half of the average range. Refinery capacity utilization averaged 92.4 percent over the four weeks ended July 20th compared to 92.3 percent over the previous four weeks.
The FOMC is scheduled to release its policy statement at 2:15 pm ET.
The FOMC statement released following the conclusion of the 2-day meeting in June showed that the central bank assesses the economy as having expanded moderately. The Fed acknowledged the slowing of employment compared to its view in April that labor market conditions have improved. The Fed also said household spending was rising at a somewhat slower pace than earlier this year.
The Committee decided to extend the Operation Twist program till the end of the year in a bid to put downward pressure on longer-term interest rates.
Updating its economic forecasts, the Fed lowered its GDP forecast and increased its unemployment rate forecast while also seeing slower inflation. The central tendency GDP forecast for 2012 was lowered to 1.9-2.4 percent from 2.4-2.9 percent and the unemployment rate forecast was upwardly revised to 8-8.2 percent from 7.8-8 percent. The inflation forecast was lowered to 1.2-1.7 percent. The growth estimates for 2013 and 2014 were also lowered. In the press briefing that followed, Fed Chairman Ben Bernanke persisted with his assurance of additional stimulus if conditions warranted.Stocks in Focus
Costco Wholesale (COST) reported net sales of $7.25 billion for July, up 9 percent year-over-year. Comparable store sales rose 5 percent.
Resource Global (RECN) announced a 20 percent increase in its quarterly cash dividend.
Regency Centers (REG) reported better than expected core funds from operations for its second quarter, while it lowered its 2012 core funds from operations guidance to below the consensus estimate. Meanwhile, DDR Corp. (DDR) reported second quarter funds from operations that met estimates, while its revenues exceeded estimates. The company’s 2012 operating funds from operations guidance was in line with estimates.
FMC Corp. (FMC) also reported better than expected second quarter results, while its 2012 earnings guidance surrounded the consensus estimate.
Career Education (CECO) reported a second quarter loss that was wider than estimates, while its revenues also trailed expectations.
Genworth (GNW) reported second quarter adjusted earnings of 16 cents per share, missing the 18 cents per share consensus estimate. Revenues were in line with estimates.
Digital River’s (DRIV) second quarter adjusted earnings missed estimates by a penny, while its revenues also trailed expectations. The company’s third quarter and full year guidance was also weak.
Papa John’s (PZZA) reported better than expected second quarter results. The company raised its full year earnings guidance.
DreamWorks (DWA) reported a second quarter profit that trailed estimates, while its revenues were also shy of estimates.
Take-two (TTWO) reported a wider than expected loss for its first quarter and it issued lackluster guidance for its second quarter and the full year. Meanwhile, Electronic Arts (EA) reported a loss on an adjusted basis for its first quarter, which however was narrower than what analysts had expected. At the same time, revenues trailed expectations
AIG (AIG) announced that its life and retirement business unit announced a deal to buy the broker-dealer business of Hartford Financial (HIG).
Amdocs (DOX), ArthoCare (ARTC), Avis Budget (CAR), DaVita (DVA), Equity One (EQY), First Solar (FLSR), FormFactor (FORM), FTI Consulting (FCN), Gen-Probe (GPRO), Hartford Financial (HIG), Kilroy Realty (KRC), Lincoln National (LNC), MetLife (MET), Tesoro (TSO), Transocean (RIG), Unum Group (UNM), William Companies (WMB) and Williams Partners (WPZ) are among the companies due to release their results after the markets open.