Market Analysis

Beyond the Number

Economic Hopes Rekindled as Chinese Data Soothes
12/3/2012 9:15 AM

The major U.S. index futures are pointing to a higher opening on Monday, with sentiment getting a lift from hopes concerning global growth after China reported manufacturing data that showed that economic activity is gathering momentum in the world’s second largest economy. Meanwhile, Greek concerns may temporarily be put on the backburner, as Greece prepares to buy back bonds. The markets may also stay focused on the results of a national manufacturing survey due to be released shortly after the markets open.

U.S. stocks extended their gains in the week ended November 30th, although the degree of optimism waned from the previous week. The spark came from some comments by lawmakers and president Obama about the resolution of the fiscal cliff and some positive economic data.

Last Monday, the major averages moved about in a lackluster manner amid concerns about Greece and Spain before closing on a mixed note. Hurt by an OECD forecast for muted growth by the global economy, the major averages showed a lot of nervousness throughout the session on Tuesday before closing moderately lower.

Positive comments about avoidingcal cliff lifted the mood of the markets on Wednesday, sending stocks notably higher. Amid continuing hopes that the fiscal cliff stalemate will be resolved amicably and the release of some positive economic data, the major averages closed moderately higher on Thursday. The averages languished below the unchanged line for the better part of the session on Friday amid the release of a weak consumer spending report before closing narrowly mixed.

For the week, the Dow Industrials added 0.12 percent and the S&P 500 Index closed 0.50 percent higher, while the Nasdaq Composite climbed 1.46 percent.

Among the sector indexes, the Dow Jones Utilities Average and the NYSE Arca Securities Broker/Dealer Index rallied over 3 percent each. Additionally, the NYSE Arca Airline Index gained close to 2 percent, while the Dow Jones Transportation and the Philadelphia Semiconductor Index both added over 1 percent each. Meanwhile the NYSE Arca Gold Bugs Index slipped 2.74 percent and the KBW Bank Index dipped 1.24 percent.

Currency, Commodity Markets

Crude oil futures are rising $0.57 to $89.48 a barrel after advancing $0.63 or 0.71 percent to $88.91 a barrel in the week ended November 30th.

Last Monday, oil declined moderately amid lackluster equity market sentiment. Oil extended its losses on Tuesday and fell further on Wednesday.

However, the commodity reversed course on Thursday, advancing over $1.50-a-barrel amid fiscal optimism. Oil rose yet again, although moderately, on Friday despite the weak U.S. consumer spending reading. Consequently, the commodity closed the week with a modest gain.

Gold futures, which declined $38.70 or 2.21 percent to $1,712.70 an ounce last week, are currently adding $5.30 to $1,718 an ounce.

Reflecting a modest pick up in risk appetite concerning the U.S. fiscal cliff, risk currencies firmed up in the week ended November 30th. The dollar weakened slightly against the euro before ending the week at $1.2986 a euro, up 0.11 percent for the week. At the same time, the buck also added 0.11 percent against the yen for the week before ending at 82.48 yen. The Japanese unit also came under pressure last week due to the government announcing additional stimulus measures.

The U.S. dollar is currently trading at 82.29 yen and is valued at $1.3054 versus the euro.


The Asian markets closed on a mixed note, with the Japanese, Australian, South Korean and Taiwanese markets closing higher, while most of the other major markets ended in the red. A positive Chinese manufacturing reading served to dispel some of the lingering doubts regarding the global economic growth, which is being threatened by the fiscal crises on both sides of the Atlantic.

Japan’s Nikkei 225 average opened higher and moved sideways till late morning trading. After advancing further till the mid-session, the average pared back most of its gains by late trading yet closed up 12.17 points or 0.13 percent at 9,458, its highest closing level since April 27th.

Most export stocks advanced, while construction and real estate stocks also gained ground. On the other hand, electric utility, food, marine transportation, telecom, pharma and most auto stocks declined.

Australia’s All Ordinaries hovered in positive territory throughout the session before closing up 22 points or 0.49 percent at 4,540. Healthcare stocks advanced strongly, while consumer staple, energy and financial stocks also found notable buying interest.

After holding above the unchanged line till the mid-session, Hong Kong’s Hang Seng declined sharply in the afternoon before closing down 262.54 points or 1.19 percent at 21,768.

Meanwhile, China’s Shanghai Composite Index closed 20.35 points or 1.03 percent lower at 1,960. Last Friday, the index had snapped a 4-session losing streak, which took it below the psychological barrier of 2,000.

On the economic front, a report released by the China Federation of Logistics and Purchasing and the National Bureau of Statistics showed that non-manufacturing activity quickened in November. The purchasing managers’ index rose to 50.6 in November from 50.2 in October. Economists expected an improvement to 50.8.

Meanwhile, final estimates based on HSBC’s manufacturing survey showed that its manufacturing index was upwardly revised to 50.5 in November from the preliminary estimate of 50.4 and October’s reading of 49.5.

The retail sales report released by Australia’s Bureau of Statistics showed that retail sales remained unchanged in October compared to the previous month. Economists expected a 0.4 percent increase for the month. A separate report showed that inventories rose a seasonally adjusted 1.1 percent sequentially in the third quarter compared to expectations for a 0.4 percent increase.

Meanwhile, capital spending in Japan rose 2.2 percent year-over-year in the third quarter, according to a report released by the Ministry of Finance. Although spending rose for the fourth straight quarter, it represented a slowdown from the 7.7 percent increase in the second quarter and was also slower than the 4.4 percent growth expected by economists.


European stocks are advancing amid the release of the final reading of the manufacturing purchasing managers’ index for November. The Eurogroup finance ministers are scheduled to meet later today and Greek Finance minister Yannis Stournaras is expected to present the details of the buyback operation agreed to on 27 November.

On the economic front, Hometrack reported that its index measuring house prices in the U.K. edged down 0.1 percent month-over-month in November. Annually, prices declined 0.3 percent.

The results of the manufacturing survey by Markit Economics showed that the manufacturing purchasing managers’ index for the eurozone improved to 46.2 in November from 43.4 in October. The reading was unchanged from the flash estimate.

The manufacturing purchasing managing index for France was downwardly revised from the flash estimate to 44.5, although it was still higher than October’s reading of 43.7. The purchasing managers’ index for Germany was left unrevised at 46.8.

U.S. Economic Reports

The manufacturing sector and the jobs market take the center stage in the unfolding week after a week of mostly positive economic evidence. The focus of the week is likely to be on Friday’s non-farm payrolls data, the ADP’s private sector payroll numbers, the weekly jobless claims data and the results of the Institute for Supply Management’s manufacturing and non-manufacturing surveys for November.

Traders may also closely watch the final reading of the consumer sentiment survey done by Reuters and the University of Michigan and monthly auto sales. The Commerce Department’s construction spending and factory orders reports for October, the revised third quarter productivity and costs report, the Federal Reserve’s consumer credit report for October, some Fed speeches and announcements concerning Treasury auctions of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.

St. Louis Federal Reserve Bank President James Bullard is due to speak to the Little Rock Regional Chamber of Commerce on the "U.S. Economy and Monetary Policy" in Little Rock, Arkansas, at 1:40 pm ET.

The results of the Institute for Supply Management’s manufacturing survey, 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 51.7 for November.

In October, the manufacturing purchasing managers’ index rose to 51.7 from 51.5 in September. The new orders index rose about 2 points to 54.2 and the production index climbed 2.9 points to 52.4, while the order backlogs index fell by 2.5 points to 41.5. The employment index also declined, dropping 2.6 points to 52.1. Out of the eighteen industries surveyed, only 8 reported growth in October compared to 11 in September.

The Commerce Department's construction spending report to be released at 10 am ET is expected to show a 0.4 percent increase in spending in October.

Construction spending rose 0.6 percent month-over-month in September. The previous month’s spending was upwardly revised to show a 0.1 percent drop compared to the 0.6 percent decline estimated initially. Private construction spending was up 1.3 percent, with spending on residential construction increasing 2.8 percent, while public construction spending declined 0.8 percent.

Stocks in Focus

LDK Solar (LDK) reported a third quarter net loss of $1.08 per ADS compared to a loss of 87 cents per share in the year-ago period. Net sales fell to $291.5 million from the year-ago quarter’s $471.9 million. The results were better than expected. For the fourth quarter, the company expects revenues of $230 million to $290 million.

Synopsys (SNPS) announced the completion of its previously announced acquisition of specialized IC design software supplier SpringSoft for about $417 million.

Gannett (GCI) and DirecTV (DTV) said they have reached an agreement regarding DirecTV’s continued retransmission of Gannett stations.

Pfizer (PFE) said it has completed the sale of its Nutrition business to Nestle for $11.85 billion in cash.

Yahoo (YHOO) said a Federal court in Mexico has entered a non-final judgment of $2.7 billion against Yahoo and its Mexican unit in a lawsuit brought about by Plaintiffs Worldwide Directories and Ideas Interactivas. Yahoo said the claims leveled at the company are without merit and it would pursue all appeals.

FedEx (FDX) said it would increase the shipping rates for FedEx Ground and FedEx Home Delivery by a net average of 4.9 percent, effective January 7, 2013. The company also noted that FedEx SmartPost rates will also change.

Computer Sciences (CSC) announced a deal to sell its credit services unit to Equifax (EFX) for $1 billion in cash.
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