Beyond the Numbers
Stimulus Optimism Wane as Manufacturing Data Looms
9/4/2012 9:02 AM
The major U.S. index futures are pointing to a narrowly mixed opening on Tuesday, with sentiment faltering ahead of the release of the results of a key national manufacturing survey by the Institute for Supply Management. Stimulus hopes are still wavering despite Federal Reserve Chairman Ben Bernanke’s assertion last week and reported comments by European Central Bank President Mario Draghi leaked to the press, which are suggesting that the bank may be inching closer to another round of bond buying. Reflecting the fluid sentiment, risk currencies are seen pulling back. The monthly sales of automakers may also create some ripple in the markets.
U.S. stocks retreated yet again in the week ended August 31st, as vacillating stimulus hopes kept sentiment subdued for much of the week.
Last Monday, amid wavering stimulus hopes, the major averages meandered around before closing modestly to moderately lower. The averages continued to show a lack of direction on Tuesday before closing mixed.
The release of better than expected pending home sales and GDP data offered support to the markets on Wednesday, although stimulus doubts remained an undercurrent. Stocks reversed course on Thursday amid the release of a lackluster jobless claims data and a mixed personal income and spending report. Traders exuded some degree of optimism on Friday in reaction to Federal Reserve Chairman Ben Bernanke’s Jackson Hole address.
For the week, the Dow Industrials fell 0.51 percent and the S&P 500 Index declined 0.32 percent, while the Nasdaq Composite Index eased 0.09 percent.
Among the sector indexes, the Dow Jones Transportation Average slid 2.17 percent and the NYSE Arca Airline Index lost 2.29 percent. Additionally, the Philadelphia Oil Service Index fell 1.19 percent.Currency, Commodity Markets
Crude oil futures are rising $0.60 to $97.07 a barrel after adding $0.32 or 0.33 percent to $96.47 a barrel in the week ended August 31st. Last Monday, oil began on a weak note due to an increase in risk aversion. The commodity rose moderately on Tuesday in reaction to supply threats posed by Tropical storm Isaac, which threatened installations in the Gulf of Mexico region.
The commodity fell again on Wednesday and Thursday amid doubts concerning stimulus measures. Oil rebounded on Friday following Bernanke’s Jackson Hole speech.
Gold futures, which rose $11.70 or 0.70 percent to $1,684.60 an ounce in the previous week, are currently gaining $8.70 to $1,696.30 an ounce.
The U.S. dollar ended weaker in the week ended August 31st, slipping 0.52 percent against the yen to 78.26 yen, while it declined 0.64% against the euro to $1.2593. Fed stimulus hopes and the release of some lukewarm domestic economic data kept sentiment towards the greenback subdued for much of the week.
The U.S. dollar is currently trading at 78.42 yen and is valued at $1.2568 versus the euro.Asia
The major Asian markets went about in a lackluster manner amid concerns about growth in the region. Stimulus hopes have also not firmed up, giving a strong reason to stay invested in stocks.
Japan’s Nikkei 225 average went about a volatile ride, staying mostly below the unchanged line before closing down 8.38 points or 0.10 percent at 8,776.
Australia’s All Ordinaries opened on a nervous note and fell steadily throughout the session, closing down 26 points or 0.60 percent at 4,326. Most stocks, barring real estate and IT stocks, came under selling pressure.
Hong Kong’s Hang Seng Index closed at 19,430, down 129.30 points or 0.66 percent.
In economic news, the Reserve Bank of Australia decided to leave its key rate unchanged at 3.50 percent, as expected by economists. The central bank said that as a result of the sequence of earlier decisions, interest rates for borrowers are a little below their medium-term averages.
Monetary base in Japan rose 6.5 percent year-over-year in August, according to a report released by the Bank of Japan. In July, the growth was 8.6 percent. Europe
The major European averages have also begun the week on a weak note despite the leaked report, suggesting that European Central Bank President Mario Draghi had said the central bank is not averse to buying government bonds of up to 3-year maturities on the secondary market. In a statement reportedly made before a closed door meeting of European lawmakers, Draghi seemed to have defended number of measures introduced by the ECB, including the controversial bond-purchase plan.U.S. Economic Reports
Labor worries come to the forefront in the unfolding week, as a trio of key labor market statistics is due in the unfolding week. Traders may keenly watch the Labor Department’s non-farm payrolls report due on Friday, the ADP’s private sector employment report and the weekly jobless claims report. The results of the Institute for Supply Management’s manufacturing and non-manufacturing surveys for August are also on the investors’ radar.
Auto sales for August, the revised second quarter productivity & costs report, the Commerce Department’s construction spending report for July 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.
Non-farm payrolls may have expanded at a slower pace in August and the unemployment rate is most likely to remain stuck at 8.3 percent. The retail and public sectors are expected to act as a drag on the labor market, even as healthcare, education, professional services and tourism sectors show job growth. Sub-par job numbers would support the case for a Fed easing.
Most regional manufacturing surveys have suggested soft manufacturing conditions in August. Therefore, the ISM’s manufacturing index may not have broken above the neutral “50’ level.’ According to BMO Capital Markets, manufacturing production has been weighed down in recent months by soft consumer demand and foreign demand.
Individual automakers are scheduled to release their monthly U.S. sales results for August. 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 14.3 million for August, up from 14.1 million last 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 for August.
The July 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.
The Commerce Department's construction spending report to be released at 10 am ET is expected to show a 0.4 percent increase in July.
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.Stocks in Focus
Campbell Soup’s (CPB) fourth quarter profit increased from the prior year period and its adjusted earnings per share topped analyst expectation. Campbell now expects to grow fiscal 2013 sales between 10 and 12 percent, adjusted EBIT between 4 and 6 percent and adjusted EPS between 3 and 5 percent.
Smithfield Foods (SFD) reported first quarter profit that declined from the year-ago period. Both earnings per share and sales were below Wall Street view. The company said it is disappointed with the poor performance of its fresh pork business, as the fresh pork complex remained under pressure due to higher supplies and weak domestic retail demand.
Novartis (NVS) announced that the FDA has approved a higher dose of its Exelon patch for patients with mild to moderate Alzheimer’s disease.
Valeant Pharma (VRX) announced a deal to buy all outstanding shares of Medicis Pharma (MRX) for $44 per share in cash. The transaction is valued at $2.6 billion in total. The deal is expected to close in the first half of 2013.
Bottomline Technologies (EPAY) announced that it has got regulatory clearance to buy U.K.’s Albany Software. The deal is expected to be accretive within the first year.
United Steel (X) said its U.S. Steel Tubular Products subsidiary reached a tentative agreement withy the United Steelworkers on a successor three-year collective bargaining agreement covering about 1,000 representative employees.
Finisar (FNSR) and Pep Boys (PBY) are due to report their quarterly results after the markets close.
Collective Brands (PSS) reported second quarter adjusted earnings of 34 cents per share compared to 16 cents per share last year. Net sales rose 0.4 percent to $886 million. The earnings beat estimates, while the revenues trailed expectations. The company said it still anticipates its previously announced sale to a consortium of private equity buyers and Wolverine World Wide (WWW) to close late in the third quarter or early in the fourth quarter.