Beyond the Numbers
Stimulus Expectations Perk Up Risk Appetite
8/31/2012 8:58 AM
The major U.S. index futures are pointing to a notably higher opening on Friday, with sentiment getting a boost from stimulus cues expected from Federal Reserve Chairman Ben Bernanke at the Jackson Hole meeting later today. Reports suggesting that the European Commission is contemplating to vest upon the European Central Bank supervisory role for all eurozone banks have also created some optimism among traders. Stocks across the Atlantic are also notably higher. If Jackson Hole expectations are not met at least to some extent, traders are likely to show some discontentment.
U.S. stocks closed Thursday’s session notably lower amid the release of some lukewarm economic data. The negative sentiment was due to apprehension over whether the Federal Reserve and the European Central Bank will deliver in line with expectations.
The major averages opened lower and fell further in early trading. Thereafter, the averages moved roughly sideways for rest of the session before closing firmly negative. The Dow Industrials ended down 106.77 points or 0.81 percent at 13,001 and the S&P 500 Index closed 11.01 points or 0.78 percent lower at 1,400, while the Nasdaq Composite closed at 3,049, down 32.47 points or 1.05 percent.
Twenty-eight of the thirty Dow components closed lower, with Caterpillar (CAT), Cisco Systems (CSCO) and Intel (INTC) leading the declines.
Transportation, resource, biotechnology and semiconductor stocks were among the worst performers of the session.
On the economic front, jobless claims for the week ended August 25th remained unchanged compared to an upwardly revised reading of 374,000 for the previous week. The four-week average rose slightly to 370,000. Meanwhile, continuing claims for the week ended August 18th fell 5,000 to 3.316 million.
The Commerce Department said personal spending rose by 0.4 percent month-over-month in July, the biggest advance in five months. Real spending also rose 0.4 percent. At the same time, personal income rose 0.3 percent and the savings rate ticked down to 4.2 percent. The core price consumption expenditure index remained unchanged compared to the previous month. Annually, the index was up 1.6 percent, marking the slowest pace of growth since October.Jackson Hole Beckons
Precedence has heightened expectations concerning additional stimulus, as the 2010 Jackson Hole meeting was considered to have set the stage for QE II. Though the Fed Chairman had been a little assertive about the central bank’s preparedness to dole out support measures, it was not until the November 2010 FOMC meeting that the central bank actually got around to announcing an additional $600 billion in Treasury purchases due to the leeway allowed by falling inflation expectations.
Are the markets justified in the hype they are creating around the Jackson Hole meeting? Domestic economic data have largely been benign. ING is of the view that if the Fed lets the September meeting go by without any action, it would not deliver in the subsequent meeting scheduled for late October, given the fact that presidential elections would be around the corner by then. The earliest the Fed can move then will be December. Given the lags of monetary policy, ING said there are reasons to believe that the Fed may prefer a September move.
However, the move couldn’t necessarily mean monetary expansion. The firm sees altered communication strategies, including making explicit the economic conditions surrounding rate hikes and pushing back the earliest date for the first rate hike, cutting the interest rate on excess reserves, adopting a funding for lending scheme, nominal GDP targets, yield curve targets or bond yield targets as alternatives.Currency, Commodity Markets
Crude oil futures are rising $0.64 to $95.26 a barrel after declining $0.87 to $94.62 a barrel on Thursday. Gold futures are currently up $7.20 at $1,664.30 an ounce. In the previous session, gold fell $5.90 to $1,657.10 an ounce.
Among currencies, the U.S. dollar is currently trading at 78.41 yen compared to the 78.63 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.2619 compared to yesterday’s $1.2506.Asia
The major Asian markets traded in a lackluster manner as Bernanke’s address loomed. The Australian, Chinese, Hong Kong, South Korean Indian and Japanese markets closed lower, while the Indonesian, New Zealand, Singaporean and Taiwanese markets ended in positive territory.
Japan’s Nikkei 225 average opened lower and declined steadily before closing down 143.87 points or 1.60 percent at 8,840. The index eclining for the second straight day but still ended the month up 1.67 percent. Some lackluster economic data also served to accentuate global macroeconomic worries.
A majority of stocks declined, led lower by Sharp, which plunged close to 13 percent after Foxconn Chairman Terry Gou left Tokyo without finalizing the latter’s investment plan in Sharp. Nippon Steel, Nippon Electric Glass, Sumitomo Metal Industries and Sumco all lost over 5 percent. Nomura rose modestly after reports suggested that the brokerage may announce plans to cut an incremental $1 billion in costs by the end of March 2014. Some utility, bank and pharma stocks also bucked the downtrend.
Australia’s All Ordinaries moved back and forth across the unchanged line before closing down 1.20 points or 0.03 percent at 4,339. Material and industrial stocks came under selling pressure, offsetting the strength among energy stocks.
Hong Kong’s Hang Seng Index closed at 19,483, down 70.34 points or 0.36 percent.
On the economic front, a report released by Japan’s Ministry of Internal Affairs and Communications showed that Japan’s core consumer prices fell 0.3 percent year-over-year in July, in line with expectations. The ministry also released consumer spending data, which showed that average household spending rose 1.7 percent year-over-year in July. Economists had expected a more modest 1.2 percent increase.
Meanwhile, a separate report showed that the jobless rate in Japan held steady at 4.3 percent in July, in line with expectations.
A Ministry of Economy, Trade and Industry report showed that industrial output fell 1.2 percent month-over-month in July, confounding expectations for a 1.7 percent increase. Housing starts continued to fall in July, according to another government report. Housing starts fell 9.6 percent year-over-year compared to a 0.2 percent drop in June. Europe
European stocks are rebounding after a 3-session slide, with the French CAC 40 Index and the German DAX Index rising 1.34 percent and 1.38 percent, respectively, while the U.K.’s FTSE 100 Index is adding 0.64 percent.
In corporate news, French luxury retailer Hermes reported higher profits for the first half but sounded cautious about the full year, citing uncertainties surrounding economic conditions and foreign exchange fluctuations.
Lufthansa announced the cancellation of 64 flights as its cabin crew began a strike, protesting pay and cost cuts at the airline.
On the economic front, a GfK survey showed that U.K. consumer morale remained depressed in August. The consumer confidence index based on the survey remained unchanged at –29 in August compared to expectations of an improvement to –27. A report released by the Nationwide Building Society showed that U.K. house prices fell 0.7 percent year-over-year in August compared to a 2.6 percent drop in July. Economists expected a steeper 2.2 percent decline.
German retail sales fell 0.9 percent month-over-month in July, belying expectations for a 0.2 percent increase.
Flash estimates released by Eurostat showed that euro area inflation picked up to 2.6 percent in August from 2.4 percent in July. Economists expected a more modest increase to 2.5 percent. A separate report showed that the region’s jobless rate remained unchanged at 11.3 percent, although the number of unemployed individuals rose to a record 18 million, up 88,000 from the previous month.U.S. Economic Reports
The Kansas City Federal Reserve Bank begins its Jackson Hole symposium, with Federal Reserve Chairman Ben Bernanke and International Monetary Fund President Christine Lagarde expected to speak.
The results of the Institute for Supply Management-Chicago's business survey for August are scheduled to be released at 9:45 am ET. Economists expect the business barometer based on the survey to edge up to 53.8.
The 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.
Reuters and the University of Michigan are due to release the final report on their consumer sentiment index for August at 9:55 am ET. The consumer sentiment index is expected to be left unrevised at 73.6.
The Commerce Department is due to release its report on factory goods orders for July at 10 am ET. Economists estimate a 2 percent increase in orders for factory goods.
Factory goods orders fell 0.5 percent month-over-month in June following a 0.5 percent increase in June. Shipments fell 1.1 percent, unfilled orders edged up 0.3 percent and inventories were up 0.1 percent.
Meanwhile, durable goods orders, making up the bulk of factory goods, rose 4.2 percent month-over-month in July, with the bulk of the upside coming about due to a 53.9 percent jump in orders for non-defense aircrafts and parts. Excluding transportation, orders fell 0.4 percent following a downwardly revised 2.2 percent drop. Non-defense capital goods orders, excluding aircrafts and parts, considered an indicator of capital spending fell 3.4 percent. Stocks in Focus
In corporate news, Esterline Corp. (ESL) reported third quarter earnings from continuing operations of $1.12 per share on sales of $485.9 million. In the year-ago quarter, the company reported income from continuing operations of $1.21 per share on sales of $409.5 million. The results were below estimates. The company’s full year guidance surrounded the consensus estimate.
Zumiez (ZUMZ) said its second quarter earnings fell to 7 cents per share from 8 cents per share in the year-ago period. The recent quarter’s results included 10 cents per share in one-time costs. Analysts estimated earnings of 13 cents per share. Sales rose 20.4 percent to $135.1 million and were about in line with estimates. The company’s third quarter sales guidance surrounded the consensus estimate, while its earnings guidance missed estimates.
SAIC (SAI) reported second quarter earnings that declined to 32 cents per share from 50 cents per share last year. Revenues rose 10 percent and topped the consensus estimate. The company also raised its 2013 revenue guidance. Additionally, the company announced plans to separate into two independent, publicly traded companies.