Beyond the Numbers
Lack of Pro-active ECB Measures May Renew Eurozone Worries
8/2/2012 9:16 AM
The major U.S. index futures are pointing to a lower opening on Thursday, with sentiment taking a turn for the worse after the much-awaited European Central Bank monetary policy meeting ending in a disappointment. European markets tumbled and the euro reversed course and along with them, all other risky bets have also taken a beating. There were more of future promises than current action and this uncertainty could lead to market turmoil. Even as the domestic jobless claims report came in better than expected, Friday’s non-farm payrolls report could lead to indecision.
U.S. stocks declined modestly on Wednesday, as the Fed decision did not serve to quell traders’ anxiety. The major averages opened higher following the release of a report showing strong job growth in the private sector. Although some weakness emerged after the Institute for Supply Management’s survey showed that the manufacturing sector continued to contract, the averages recovered and held above the unchanged line until the FOMC announcement.
Subsequently, the averages declined sharply and experienced some volatility before closing modestly lower. The Dow Industrials ended down 37.62 points or 0.29 percent at 12,971 and the S&P 500 Index slipped 4.18 points or 0.30 percent before closing at 1,375. Meanwhile, the Nasdaq Composite closed at 2,920, down 19.31 points or 0.66 percent.
Fifteen of the thirty Dow components closed lower and 2 stocks ended little changed, while the remaining thirteen stocks rose. Hewlett-Packard (HPQ), American Express (AXP), Boeing (BA), Bank of America (BAC), Caterpillar (CAT) and Wal-Mart Stores (WMT) declined sharply. On the other hand, Travelers Companies (TRV) posted a sharp gain.
Brokerage, transportation, biotechnology, gold, retail and housing stocks came under selling pressure, while energy stocks gained some ground.
On the economic front, the Institute for Supply Management’s survey showed that the manufacturing sector continued to contract in July. Of the 18 industries surveyed, only 7 saw growth, while the rest saw contraction. The purchasing managers’ index remained almost unchanged at 49.8 in July. The new orders index edged up 0.2 points to 48, while the order backlogs index slipped 1.5 points to 43. The employment index also declined, dropping 4.6 points to 52.
Meanwhile, the Commerce Department reported that construction spending rose 0.4 percent month-over-month in June, while the May reading was upwardly revised to 1.6 percent from the 0.9 percent growth reported initially. The June spending was aided by a 1.3 percent jump in residential construction but private non-residential construction edged up merely 0.1 percent. Public construction spending remained almost flat.
The FOMC did not announce any radical measures despite the economic struggles. The FOMC statement following the conclusion of the 2-day meeting showed that the Fed’s assessment of economic conditions worsened. The August statement acknowledged the deceleration in economic activity when compared to the first half of the year. The Fed’s commentary and outlook on other segments such as the job market, inflation and consumer spending were the same as at the previous meeting.
While maintaining interest rates at 0-0.25 percent and voicing its opinion of the need to maintain the extremely accommodative monetary policy environment at least through late 2014, the committee said it will closely watch incoming information on economic and financial developments. This in contrast to the June statement, which said the committee is prepared to take further action. Currency, Commodity Markets
Crude oil futures are slipping $0.17 to $89.08 a barrel after rising $0.85 to $88.91 a barrel on Wednesday. The previous session’s climb came amid the release of the Fed decision and the release of the weekly inventory report, which showed that crude oil stockpiles fell 6.5 million barrels to 373.6 million barrels in the week ended July 27th, 2012. Nevertheless, inventories remained above the upper limit of the average range.
Gasoline stockpiles fell by 2.2 million barrels, remaining in the lower half of the average range. Distillate inventories declined by 1 million barrels and were below the lower limit of the average range. Refinery capacity utilization averaged 92.5 percent over the four weeks ended July 27th compared to 92.4 percent over the previous four weeks.
Gold futures, which fell $7.30 to $1,607.30 an ounce in the previous session, are currently up $0.30 to $1,607.60 an ounce.
On the currency front, the U.S. dollar is trading at $1.2216 against the euro compared to yesterday’s $1.2231. The greenback is currently valued at yen compared to the 78.19 yen it fetched at the close of New York trading on Wednesday.Asia
The major Asian markets ended on a mixed note, following the uninspiring lead from Wall Street overnight. The Australian, Japanese, Malaysian and New Zealand markets closed higher, while the rest of the markets retreated.
Japan’s Nikkei 225 average opened higher and held mostly above the unchanged line before closing up 11.33 points or 0.13 percent at 8,653. Australia’s All Ordinaries, which showed some apprehension in early trading, advanced in the afternoon, closing up 7.40 points or 0.17 percent at 4,290. Meanwhile, Hong Kong’s Hang Seng closed 130.18 points or 0.66 percent lower at 19,690.
On the economic front, a report released by the Australian Bureau of Statistics showed that retail sales rose a seasonally adjusted 1 percent month-over-month in June compared to expectations for a 0.7 percent increase. A separate report showed that the nation’s trade balance showed a surplus of A$9 million in June compared to expectations for a deficit of A$375 million. Europe
European stocks have reversed their gains and are currently trading sharply lower following the announcement of monetary policy decisions by the European Central Bank and the Bank of England.
The Bank of England as well as its European counterpart maintained interested rates unchanged. With ECB president’s press conference delivering les than expected, risk appetite vanished.
A survey by Markit Economics showed that activity in the U.K. construction sector strengthened in July, with the corresponding purchasing managers’ index rising to 50.9 in July from 48.2 in June. Meanwhile, Eurostat reported that the eurozone’s producer prices fell 0.5 percent month-over-month in June, the same rate of decline as in the previous month. Economists had expected a more modest 0.4 percent drop.
In corporate news, Continental AG reported higher second quarter net income and sales, while it expects a 7 percent increase in its sales for the full year. Athletic footwear maker Adidas also reported strong second quarter sales and earnings growth. The company also said it continues to forecast to sales growth of about 10 percent on a currency neutral basis.
Utility GDS-Suez reported a decline in its first half profits, although it confirmed its annual targets. Deutsche Post reported adjusted second quarter profits of 258 million euros compared to 256 million euros last year, while sales rose 5.5 percent to 3.06 billion euros. The company confirmed its sales outlook for the full year. Airliner Lufthansa reported a net loss for the first half, although the loss was narrower than what analysts had expected. U.S. Economic Reports
While the Labor Department released a report showing a modest increase in first-time claims for U.S. unemployment benefits in the week ended July 28th, claims rose by less than economists had been anticipating.
The report showed that initial jobless claims crept up to 365,000 from the previous week's revised figure of 357,000. Economists had expected jobless claims to climb to 370,000 from the 353,000 originally reported for the previous week.
The Commerce Department is due to release its report on factory goods orders for June at 10 am ET. Economists estimate a 0.7 percent increase in orders for factory goods.
Factory goods orders rose 0.7 percent month-over-month in May. Meanwhile, durable goods orders, which make up the bulk of factory goods orders, rose 1.6 percent month-over-month in June. 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.Stocks in Focus
General Motors’ (GM) second quarter profit declined from the year-ago quarter, but topped Wall Street view. Net revenues declined from the year-ago quarter and were below the consensus estimate. The company attributed the lower revenues almost entirely to the strengthening of the U.S. dollar versus other major currencies.
Kilroy (KRC) reported second quarter funds from operations that came in below estimates, while its revenues were ahead of estimates.
SM Energy (SM) reported second quarter adjusted earnings of 9 cents per share, trailing the 23 cents per share consensus estimate. Operating revenues also missed estimates.
Sturm, Ruger & Company (RGR) reported higher second quarter earnings that were ahead of estimates. Revenues also rose year-over-year.
Robert Half International (RHI) announced that its board has authorized the repurchase of up to an additional 10 million shares of its common stock.
Murphy Oil (MUR) reported second quarter income from continuing operations of $1.52 per share, ahead of the $1.33 per share consensus estimate. Revenues fell from the year-ago period. The company’s third quarter earnings guidance was below estimates.
Avis Budget (CAR) said its adjusted second quarter earnings rose to 94 cents per share from the year-ago quarter’s 63 cents per share, coming in ahead of the 70 cents per share consensus estimate. Revenues were higher than a year-ago, but below estimates. The company lowered its full year revenue guidance.
Weight Watchers (WTW) reported second quarter earnings that came in line with estimates, while its revenues missed estimates. The company also lowered its 2012 earnings guidance.
Lincoln Financial (LNC) reported better than expected second quarter operating income and revenues, while Hartford Financial’s (HIG) second quarter core earnings trailed estimates. Prudential’s (PRU) second quarter earnings also missed expectations.
Activision Blizzard (ATVI), Blue Nile (NILE), CBS (CBS), Con Edison (ED), EOG Resources (EOG), Fluor (FLR), Kraft Foods (KFT), LinkedIn (LNKD), Microchip (MHCP), Republic Storage (PSA), Pitney Bowes (PBI), Sotheby’s (BID) and ValueClick (VCLK) are among the companies due to release their results after the markets close.