Market Analysis

The major U.S. index futures are pointing to a lower opening on Monday, with sentiment showing a lack of confidence in economic revival. Last week, the markets received a lift from the European Central Bank’s decision to buy bonds. In the absence of any market moving economic and corporate catalysts and ahead of the FOMC meeting, traders may be unwilling to go long and may prefer to adopt a 'wait and watch' attitude. The week also has some other key events across the Atlantic that could clarify the outlook for the eurozone debt crisis.

U.S. stocks moved higher in the week ended September 7th, benefiting from European Central Bank action as well as hopes of Fed action.

Last Tuesday, when the markets opened after Monday’s Labor Day holiday, the major averages moved about in a lackluster fashion before closing on a mixed note, due to apprehensions concerning stimulus announcements and the release of some disappointing economic data. The averages closed mixed yet again on Wednesday in the absence of any strong trading cues.

Meanwhile, the release of a strong private sector payrolls report and a better than expected sector reading along with the European Central Bank’s decision to buy bonds triggered a strong upward move in the markets on Thursday, sending the averages to fresh multi-year highs. An uninspiring payrolls expansion in August kept sentiment subdued for much of the session on Friday before the averages ended modestly higher.

For the week, the Dow Industrials added 1.65 percent, while the S&P 500 Index gained 2.22 percent and the Nasdaq Composite moved up 2.27 percent.

Among the sector indexes, the NYSE Arca Gold Bugs Index and the NYSE Arca Securities Broker/Dealer Index both rallied over 5 percent for the week. The KBW Bank Index and the NYSE Arca Airlines Index advanced over 4 percent each, while the NYSE Arca Biotechnology Index and the Philadelphia Housing Sector Index rose more than 3 percent each.

Currency, Commodity Markets

Crude oil futures are gaining $0.02 to $96.44 a barrel after closing the week ended September 7th down $0.21 or 0.22 percent at $96.42 a barrel.

Last Tuesday, oil fell sharply by over $1-a-barrel amid dwindling risk appetite. The commodity rebounded marginally on Wednesday and by a modest margin on Thursday. Oil rose yet again on Friday but still ended the week lower.

Gold futures, which jumped $55.90 or 3.3 percent to $1,740.50 an ounce in the previous week, are currently receding $6.20 to $1,734.30 an ounce. Gold rallied last week due to the weakness of the dollar, which was reacting to the general increase in risk appetite and some weak U.S. economic data.

Among currencies, the U.S. dollar declined against most currencies in the week ended September 7th, as risk appetite was revived on the back of the ECB announcement. Getting a shot in the arm from the ECB president Mario Drahi’s statement asserting unstinted support, the euro gained 1.78 percent against the dollar before ending the week at $1.2817. At the same time, the dollar ended the week little changed against the yen at 78.25 yen.

The U.S. dollar is currently trading at 78.26 yen and is valued at $1.2790 versus the euro.

Asia

The major Asian markets showed lackluster sentiment amid caution ahead of the FOMC decision. Soft regional economic data also led to indecision among traders.

Japan’s Nikkei 225 average languished below the unchanged line for much of the session before closing down 2.28 points or 0.03 percent at 8,869.

Australia’s All Ordinaries opened higher, but it gave back all its gains by the mid-session following volatile trading. Thereafter, the index rebounded and rose through the rest of the session before closing up 9.20 points or 0.21 percent at 4,358.

“averages” should be “index”. “through” should be “throughout”.

Hong Kong’s Hang Seng closed at 19,827, up 25.01 points or 0.13 percent.

On the economic front, a slew of economic data released from China over the weekend showed that growth slowed along with a pick up in inflation in August. Annual consumer price inflation rose to 2 percent in August from 1.8 percent in July, although the increase was in line with expectations.

At the same time, industrial output rose 8.9 percent year-over-year in August, the smallest increase since May 2009 and lower than July’s 9.2 percent increase. Fixed asset investment for the first eight months of the year increased 20.2 percent, while retail sales were up 13.2 percent in August compared to the 13.1 percent growth in July.

A separate report released today showed that China’s trade surplus swelled to $26.66 billion in August compared to the $19.5 billion surplus expected by economists. Exports rose at slower than expected year-over-year rate of 2.7 percent.

Revised GDP estimates released by Japan’s Cabinet Office showed that Japan’s second quarter sequential growth was at 0.2 percent, slower than the 0.3 percent growth initially estimated. The year-over-year growth estimate was also trimmed to 0.7 percent from the preliminary reading of 1.4 percent.

A Ministry of Finance report showed that Japan reported a current account surplus of 625.4 billion yen in July, as the trade deficit came in at a smaller than expected 373.6 billion yen.

Europe

European stocks are showing a lack of direction and are currently trading on a mixed note. All eyes are on the German Federal constitutional court, which will vote on the decision to suspend the 500 billion euro-ESM on Wednesday. In Greece, the reform measures mandatory for securing continued financing from the Troika seem to have run into rough weather, as Greek Prime Minister Antonis Samaras hasn’t got the backing for budgetary cuts.
On the economic front, the Bank of France said it expects the French economy to contract 0.1 percent in the third quarter. The bank’s business sentiment index for France compiled based on a survey rose 3 points to 93 in July compared to expectations of 91.

An INSEE report showed that French industrial output rose 0.2 percent month-over-month in July, belying expectations for a 0.6 percent increase.

The Sentix index compiled based on an investor confidence survey by Sentix rose to -23.2 from August's -30.3, improving for the first time since March. Economists had forecast an improvement in the reading to -29.5.

U.S. Economic Reports

The FOMC meeting takes the center stage in the unfolding week, as traders look for Fed Chairman Ben Bernanke to emulate his counterpart at the European Central Bank. Traders may also watch the Commerce Department’s retail sales report for August, the Federal Reserve’s industrial production report for August, the weekly jobless claims report and the results of a consumer sentiment survey for September by Reuters and the University of Michigan.

The Federal Reserve’s consumer credit report for July, the Commerce Department’s trade balance report for July, the Labor Department’s import and export price indexes for August, the Labor Department’s producer and consumer price inflation reports for August and a couple of Fed speeches may also attract some attention. The Commerce Department’s wholesale and business inventories reports for July, the Treasury Budget for August and Treasury auctions of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.

Most economists do not expect the Fed to announce additional quantitative easing at the September meeting. Some like BMO Capital Markets expect the central bank to extend the period of policy rate guidance to at least well into 2015 from the current timeframe of at least through 2014. The belief is based on the argument that the “Operation Twist” program is set to continue until the end of the year.

Retail sales are expected to show a strong increase in August, helped by strong auto sales and a surge in gas prices. Even excluding autos and gasoline, retail sales may have remained healthy, given anecdotal evidence of decent back-to-school outlays.

Industrial production is expected to reveal weakness, as the soft patch stifles the factory sector. The Institute for Supply Management’s national manufacturing survey showed that the production index fell below the key ‘50’ level for the first time since May 2009 in August, suggesting that firms are cutting production rather than raising it.

The U.S. Federal Reserve is scheduled to release its monthly consumer credit report at 3 pm ET. Consumer credit for July is expected to show an increase of $9.8 billion.



Outstanding consumer credit rose by $6.5 billion or 3 percent on a seasonally adjusted annual basis in June. Revolving credit tied to credit cards slipped by $3.7 billion, while non-revolving credit associated with auto loans rose by $10.2 billion.

Stocks in Focus

NYSE Euronext (NYX) said trading volumes declined both year-over-year and month-over-month in August due to a decrease in volatility and the seasonally slower summer period.

Transocean (RIG) said it has reached definitive agreements to sell 38 shallow water drilling rigs to Shelf Drilling International Holdings for $1.05 billion. The company expects to record a non-cash charge in its third quarter related to the transaction. Separately, the company announced that Esa Ikaheimonen will succeed Gregory Cauthen as its CFO on November 15th, 2012.

Infosys (INFY) announced a deal to buy Swiss management consultancy firm Lodestone for 330 million francs in cash.

Scotts Miracle-Gro (SMG) announced that it has finalized settlement agreements with the U.S. Department of Justice and the U.S. Environmental Protection Agency related to some company products distributed and sold through 2009. The agreement includes a fine of $4 million, with $500,000 in community service.

BP (BP) announced a deal to sell some of its Gulf of Mexico to Plains Exploration & Production (PXP) for $5.55 billion.

Casey’s General (CASY) and Shuffle Master (SHFL) are among the companies due to report their quarterly results after the markets close.