Market Analysis

Beyond the Numbers

Subdued Activity Likely as Markets Await Fresh Catalysts
7/2/2013 9:21 AM

The major U.S. index futures are pointing to a flat opening on Tuesday, with sentiment reflecting caution, as the markets await fresh catalysts. With little economic and corporate catalysts to drive trading, traders may prefer to stay on the sidelines until they see off some key labor market statistics due to be released on Wednesday and Friday. Trading activity may also be light due to the public holiday on Thursday in observance of Independence Day. European stocks are seeing weakness, while the Asian markets closed mixed earlier in the global trading day.

U.S. stocks latched onto a couple of upbeat economic reports on Monday and ended moderately higher. The major averages opened higher and saw a short spike immediately after the release of a national manufacturing survey. After moving roughly sideways from late morning till late trading, the indexes gave back some of their gains over the remainder of the session but still closed higher.

The Dow Industrials ended up 65.36 points or 0.44 percent at 14,975 and the S&P 500 Index closed 8.68 points or 0.54 percent higher at 1,615, while the Nasdaq Composite closed at 3,435, up 31.24 points or 0.92 percent.

Twenty-one of the thirty Dow components closed higher, with American Express (AXP), Disney (DIS), Procter & Gamble (PG), Travelers (TRV) and United Technologies (UTX) leading the gains. On the other hand, Intel (INTC) shed 1.42 percent.

Biotechnology, transportation, basic resource, oil service, gold, financial, retail and computer hardware stocks were among the best performers of the session.

On the economic front, the results of the Institute for Supply Management’s survey showed that its manufacturing purchasing managers’ index rose to 50.9 in June from 49 in May. The new orders index rose more than 3 points to 51.8 and the production index was up about 5 points to 53.4. On the other hand, the employment index fell 1.4 points to 48.7, dropping below the ‘50’ cut-off mark for the first time since September 2009. The order backlogs index sunk deeper into contraction territory, dropping to 46.5 from 48.

Meanwhile, the Commerce Department reported that construction spending rose by 0.5 percent in May following a 0.1 percent increase in April. Private construction spending remained flat, while public construction spending climbed 1.8 percent. In the private category, residential construction spending was up 1.2 percent.

The Dow Industrials closed Monday’s session around a resistance zone. The index’s 50-day MA (currently at 15,050) and 21-day MA (currently at 15,033) may serve as strong resistances, especially due to the fact that the shorter-term MA has moved below the longer-term MA. Further above these two moving averages, the index has resistances around 15,114 and 15,179. On the downside, the index has support around 14,906, 14,754 and its 100-day MA (currently at 14,702).

Currency, Commodity Markets

Crude oil futures are rising $0.65 to $98.64 a barrel after advancing $1.43 to $97.99 a barrel on Monday. Gold futures are currently slipping $2.70 to $1,253 an ounce. In the previous session, the precious metal rose $32 to $1,255.70 an ounce.

Among currencies, the U.S. dollar is trading at 100.30 yen compared to the 99.30 yen it fetched at the close of trading on Monday. Against the euro, the dollar is valued at $1.3001 compared to yesterday’s $1.3064.


The major Asian markets closed on a mixed note, as the positive lead from Wall Street on the back of strong U.S. economic data failed to set in motion across the board buying. The Australian market rebounded strongly amid a pause decision by the nation’s central bank, and the Japanese market also rallied strongly. Additionally, the New Zealand, Chinese and Singapore markets also advanced. Meanwhile, the Indian, Indonesian, Malaysian, South Korean and Taiwanese markets receded.

Japan’s Nikkei average took advantage of a weaker yen, which reacted to an increase in risk appetite, and opened higher. After moving sideways amid some volatility, the index climbed sharply in the afternoon before closing up 246.24 points or 1.78 percent at 14,099. A majority of the index components advanced, although some defensive stocks came under selling pressure.

Tokyo Electric Power rallied 19.12 percent in reaction to rumors concerning the restart of its atomic plant, and Sharp ended up 10.10 percent. The other prominent gainers included Mitsubishi Motors, Japan Steel Work, Hitachi, Olympus and NTN.

Australia’s All Ordinaries opened higher and rose sharply in early trading. After trading sideways for much of the session, the index advanced steadily in late trading, closing up 120.60 points or 2.57 percent at 4,810.

The market derived encouragement from the fact that Reserve Bank of Australia did not preclude the possibility of a rate cut at its next meeting. The central bank opted to keep its official cash rate unchanged at a record low 2.75 percent.

The market witnessed across-the-board buying, with consumer staple, energy, financial, healthcare, material and utility stocks rallying strongly.

Hong Kong’s Hang Seng Index closed at 20,741, down 62.21 points or 0.3 percent.

On the economic front, a report released by the Bank of Japan showed that the monetary base in Japan surged up 36 percent year-over-year in June following a 31.6 percent jump in May. Among the components, current account balances rose a notably strong 114.5 percent. Meanwhile, a Labor Ministry report showed that labor cash earnings were unchanged for a second consecutive month in May.


European stocks opened lower, as traders remained cautious, and have seen further downside since then.

In major political developments in the region, a coalition partner in the Italian government has threatened to withdraw support, attributing its decision to the slow pace of implementation of reforms.

Elsewhere, in the Afro-Asian nation of Egypt, the situation worsened further after the nation’s military issued President Mohamed Morsi a 48-hour ultimatum to resolve the brewing crisis. However, the president has rejected the call.

U.S. Economic Reports

U.S. automakers are scheduled to release their sales results for the month of June. Economists expect total vehicle sales to come in at a seasonally adjusted annual rate of 15.5 million compared to 15.3 million in May.

The Commerce Department is scheduled to release its factory orders report for May at 10 am ET. The consensus estimates call for a 2 percent increase in orders following a 1 percent increase in April.

The 1 percent increase in April represented a rebound from the 4.7 percent drop in April. The bulk of the increase was strong transportation equipment orders. Excluding transportation, new orders were down 0.1 percent. Unfilled orders and inventories rose 0.3 percent each, while shipments fell 0.4 percent.

Meanwhile, durable goods orders that make up the bulk of factory orders rose a better than expected 3.6 percent month-over-month in May, with the headline number getting a boost from transportation equipment orders, which surged up 10.2 percent. Excluding transportation, orders were up 0.7 percent, marking the second straight month of growth. Orders for non-defense capital goods excluding aircraft, considered an indicator of future capital spending, climbed 1.1 percent.

New York Federal Reserve Bank President William Dudley is scheduled to speak on economic conditions in Stamford, Connecticut at 12:30 pm ET. Federal Reserve Governor Jerome Powell will speak on international financial regulatory reform in New York at 5:45 pm ET.

Stocks in Focus

Zynga (ZNGA) announced the appointment of Don Mattrick as its CEO, effective July 8th, 2013, replacing Mark Pincus, the company’s founding CEO. The company said Pincus remains as the Chairman of its board and Chief Product Officer.

Disney (DIS) announced that it has extended the tenure of its CEO and Chairman Robert Iger through the expiration of his contract on June 30th, 2016 under his existing contractual terms as CEO.

A. Schulman (SHLM) reported third quarter adjusted net income from continuing operations of 50 cents per share on revenues of $548.6 million, down 3 percent year-over-year. The earnings missed estimates. Citing continued inconsistency in European markets and additional costs in Latin America, the company updated its adjusted earnings guidance to $1.70-$1.80 per share for the full year. The guidance trailed estimates.

Cisco (CSCO) said it has completed the acquisition of privately held enterprise IT energy management company JouleX.

Constellation Brands (STZ) reported worse than expected first quarter results.

Xyratex (XRTX) reported second quarter non-GAAP earnings of 10 cents per share, down from 32 cents per share last year. Revenues fell 33 percent to $216.2 million. For the third quarter, the company expects a loss of 4 cents per share to earnings of 20 cents per share on a non-GAAP basis, while revenues are estimated between $195 million and $225 million.

Crane (CR) said the European Commission has extended its initial review period to rule on the planned acquisition of MEI Conluz to July 19th from July 5th following the submission of proposals by the company to address anti-trust concerns. The company also clarified that the U.S. FTC has not indicated any significant concerns with the proposed deal.

MAXIMUS (MMS) released preliminary 2014 results, expecting revenues of $1.555 billion to $1.650 billion and adjusted earnings of $1.75-$1.85 per share.
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