Market Analysis

Beyond the Numbers

Traders Could Be Pushed to Defensive For Want of Clarity
3/4/2013 9:06 AM

The major U.S. index futures are pointing to a lower opening on Monday, with sentiment seeing modest weakness following the failure of Congress to clinch a deal to avoid sequestration. With little economic and corporate news to guide the markets, growth concerns could preoccupy the minds of traders and push them to the sidelines until further clarity emerges in the form some evidence that could render additional clarity on the economic outlook.

U.S. stocks advanced in the week ended March 1st, with traders building on their positions, encouraged by a batch of positive domestic data and assurance from the Federal Reserve and the European Central Bank of continued stimulatory support.

Last Monday, the major averages declined sharply, hurt by concerns about Italy after the country’s electorate did not give a clear verdict in the elections. The averages rebounded on Tuesday, as housing and consumer confidence data along with Federal Reserve Chairman Ben Bernanke’s promise of a benign monetary policy environment brought equities back in favor.

The averages extended their gains on Wednesday, thanks to another set of positive economic data. Some insipid economic data and worries ahead of U.S. budgetary sequestration created indecision among traders and led to a lackluster performance on Thursday. Market mood continued to be lackluster on Friday, although some buying emerged in the afternoon, resulting in a modestly positive close.

For the week ended March 1st, the Dow Industrials added 0.64 percent and the S&P 500 Index rose 0.17 percent, while the Nasdaq Composite Index ended up 0.25 percent.

Among the sector indexes, the NYSE Arca Biotechnology Index climbed 3.52 percent for the week and the NYSE Arca Airline Index rose 1.31 percent, while the NYSE Arca Gold Bugs Index fell 2.18 percent. The NYSE Arca Securities Broker/Dealer Index and the Philadelphia Oil Service Index declined over 1 percent each.

The Dow Industrials showed a fair degree of resilience last Friday even after it became clear that there would be no deal, paving the way for spending cuts to kick in. With little economic catalysts to guide trading, the Dow could come under pressure amid apprehensions about domestic growth, which is expected to take a hit from sequestration. On the downside, the index has support around 14,004, its 21-day MA of 13,968 and 13,889.

Currency, Commodity Markets

Crude oil futures are trading up $0.04 at $90.72 a barrel after settling down $2.45 or 2.63 percent at $90.68 a barrel. Last Monday, oil edged down marginally amid an increase in risk aversion. However, the commodity rebounded on Tuesday along with the equity markets and ended moderately higher.

Oil built on a modest gain on Wednesday, helped by risk appetite, and amid the release of the weekly oil inventory report. However, the commodity retreated moderately on Thursday and fell further on Friday to end the week lower.

Gold futures, which edged down $0.50 to $1,572.30 an ounce in the previous session, are currently rising $4.70 to $1,577 an ounce.

On the currency front, the dollar strengthened against most currencies in the week ended March 1st, as risk aversion was in play for much of the week amid the fluid Italian election results and U.S. budgetary concerns. The dollar added 1.31 percent against the euro before ending the week at $1.3021. The greenback was also up against the yen, edging up 0.17 percent to 93.59 yen.

The U.S. dollar is currently trading at 93.45 yen and is valued at $1.3020 versus the euro.


Most major Asian markets retreated, with the materialization of the U.S. spending cuts casting a gloom on the markets. The Chinese market led the treat after property stocks tumbled dragging the Chinese Shanghai Composite Index down by 3.65 percent. The stocks reacted to governmental measures to cool the property market. Meanwhile, the Japanese market bucked the downtrend with a modest move to the upside.

Australia’s All Ordinaries opened lower and declined steadily throughout the session, with the selling accelerating by the mid-session before slowing in late trading. The index closed down 72.40 points or 1.42 percent at 5,029.

Material stocks fell the most, while energy, financial and consumer staple stocks also came under selling pressure. On the other hand, defensive utility and real estate stocks saw some strength.

Hong Kong’s Hang Seng closed at 22,538, down 342.41 points or 1.50 percent.

Meanwhile, the Japanese Nikkei 225 averages stayed afloat, as the yen weakened after Bank of Japan Governor-designate Haruhiko Kuroda said in his confirmation hearing that he would do all what it takes to end deflation. After opening higher, the index gave up some of its gains by the mid-session yet managed to remain above the unchanged line and ended up 45.91 points or 0.40 percent at 11,652.

Export stocks advanced, taking heart from the yen’s weakness, while resource and chemical stocks came under selling pressure.

On the economic front, South Korea’s annual consumer price inflation eased to 1.4 percent in February from 1.5 percent in January. Meanwhile, the Bank of Japan reported that monetary base jumped 15 percent year-over-year in February following a 10.9 percent increase in January.

Australia’s inflation expectations remained unchanged in February compared to the previous month, according to a gauge compiled by TD Securities. Separately, the Australian Bureau of Statistics reported that the total number of building approvals fell 2.4 percent month-over-month in January, contrasting expectations for a 2.8 percent drop. Annually, building approvals rose a better than expected 9.9 percent.


After trading uniformly lower in the morning amid fears over the fiscal development in the U.S. and very little catalysts, European stocks have currently turned mixed.

In corporate news, HSBC (HBC) reported 2012 adjusted profit of $20.6 billion, 6 percent lower than last year. Meanwhile, revenues rose 7 percent to $63.5 billion.

On the economic front, the results of a survey by Sentix showed that eurozone investor confidence receded in March, breaking the string of six months of gains. The sentix index declined to –10.6 in March from –3.9 in February. Economists expected a more modest drop to –4.6.

Markit Economics reported that the U.K.’s construction sector activity contracted at a steeper pace in February. The purchasing managers’ index declined about 2 points to 46.8.

U.S. Economic Reports

With sequestration kicking in, traders will be increasingly wary about each incoming economic evidence. The unfolding week’s economic calendar has some key economic data that could render some clarity to the economic outlook. Traders could closely watch the monthly non-farm payrolls report for March, the ADP’s private sector employment report for February, the results of the Institute for Supply Management’s non-manufacturing survey for February and the jobless claims report.

The Commerce Department’s trade balance report for January and the Beige Book report could also evince some interest among traders. The Commerce Department’s factory goods orders report for January, the final fourth quarter productivity and costs report, the Federal Reserve’s consumer credit report for January, the wholesale inventories report for January and announcements concerning the Treasury auction of 3-year and 10-year notes and 30-year bonds round up the economic calendar of the week.

Stocks in Focus

Following the announcement of pricing by Medicare administrative contractor Noridian Myriad Genetics (MYGN) announced that it expects 2013 revenues to come in at the high end of its previous guidance range of $575 million to $585 million and earnings to come in at the high end of its earlier guidance of $1.55-$1.58 per share. Analysts estimate earnings of $1.57 per share on revenues of $583.30 million.

Transocean (RIG) reported fourth quarter adjusted earnings from continuing operations of 91 cents per share on revenues of $2.326 billion. The earnings were ahead of estimates, while the revenues were in line.

MicroVision (MVIS) said it has received a notice from the Nasdaq on February 26th, regarding non-compliance with the minimum market cap listing standards. The company has until August 26th, 2013 for regaining compliance.

Hartford Financial (HIG) announced that it has filed an amended Form-10Q with the SEC to restate its results for the third quarter of 2012 to correct an error in its preliminary calculation of the gain or loss related to individual life business transaction under the GAAP principle. For 2012, the company estimates a loss of $38 million compared to the net profit of $350 million it reported earlier. However, the company’s core earnings of $1.4 billion are unchanged.

PDL BioPharma (PDLI) reported fourth quarter earnings of 34 cents per share compared to 24 cents per share last year, while revenues rose to $86 million from the year-ago quarter’s $72.8 million. The earnings beat estimates, while the revenues were about in line.

Praxair (PX) announced the completion of its previously announced acquisition of NuCO2 from Aurora Capital for $1.1 billion. Separately, the company said it expects the impact of the Venezuelan government’s devaluation of the Bolivar to 6.30 from 4.30 will lead to a charge of 8 cents per share in the first quarter. The company now expects earnings of $1.27-$1.32 per share, while excluding the charge, earnings are expected to remain in the range of $1.35-$1.40 per share.

ABM Industries (ABM), Casella Waster (CWST) and Shuffle Master (SHFL) are among the companies due to release their quarterly results after the close of trading.

Hess Corp. (HES) announced several initiatives, including its intention to exit its downstream businesses, including retail, energy marketing, and energy trading. The company also stated that it plans to raise its annual dividend to $1.00 per share and repurchase shares worth up to $4 billion.

Yahoo! Inc. (YHOO) is up 1 percent to $22.20. The company announced on Friday that it is shutting down seven unsuccessful products in a move to sharpen its focus on its more important assets.

A. Schulman, Inc. (SHLM) has offered to acquire Ferro (FOE) for $6.50 per share, representing an estimated total enterprise value of approximately $855 million including debt.
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