Market Analysis

Beyond the Numbers

Sentiment May Be Hit By Weak Chinese Data, Greek Aid
3/12/2012 9:22 AM

The major U.S. index futures are pointing to a lower opening on Monday, with sentiment getting hurt by growth concerns yet again after China reported a huge trade deficit for February. The soft data released from China has led to selling in commodities and risk currencies. Additionally, traders may stay on the sidelines ahead of the Eurogroup meeting, which will give the final nod for the release of the second round of bailout package for Greece. Some of the key economic data due for release during the week may also create some uncertainty among traders.

U.S. stocks finished the week ended March 9th mostly higher, as apprehensions early in the week over Greece’s deal with private sector creditors and some disappointing global data points were offset by the materialization of the Greek deal and positive U.S. jobs reports released during the week.

Last Monday, the major averages closed moderately lower after China issued a soft GDP forecast for 2012 and after a survey showed that European service sector activity contracted. The sell-off continued into Tuesday’s session, with the major averages declining over 1 percent each, as global growth worries and doubts over whether the Greek debt swap deal with its private sector creditors would be completed generated negative sentiment.

The major averages advanced moderately on Wednesday after ADP’s survey revealed that the U.S. private sector added more jobs than had been expected. Amid news that Greece received the required commitment from its PSIs, stocks rose notably on Thursday. The major averages capitalized on the monthly U.S. non-farm payrolls report on Friday, maintaining the upward momentum and ending modestly to moderately higher.

For the week, the Dow Industrials lost 0.43 percent, while the broader S&P 500 Index and Nasdaq Composite Index gained 0.09 percent and 0.41 percent, respectively.

Among the sector indexes, the Philadelphia Housing Sector Index added 5.61 percent for the week and the NYSE Arca Gold Bugs Index and the S&P Retail Index rose over 2 percent each. Meanwhile, the NYSE Arca Airline Index slid 2.10 percent and the NYSE Arca Oil Index, the Dow Jones U.S. Basic Materials Average and the Philadelphia Oil Service Index ended down about 1 percent each.

Currency, Commodity Markets

Crude oil futures are receding $1.44 to $105.96 a barrel after rising $0.70 or 0.66 percent to $107.40 a barrel in the week ended March 9th.

Last Monday, oil reversed course, edging up slightly in the session. However, the commodity plunged sharply on Tuesday, declining over $2 amid the increase in risk aversion.

The commodity advanced solidly on Wednesday on the back of the ADP jobs report and rose further on Thursday. Oil advanced yet again on Friday, as the Labor Department’s non-farm payrolls report confirmed the turnaround in labor market conditions.

Gold futures, which rose $1.70 or 0.1 percent to $1,711.50 an ounce last week, are currently slipping $15 to $1,696.50 an ounce.

The U.S. dollar strengthened once again in the week ended March 9th, rising 0.77 percent against the yen before ending at 82.440 yen, while it added 0.57 percent against the euro, before settling the week at $1.3123.

The buck’s advance last week was mainly due to risk aversion that was set in motion early last week by the reduction in China’s growth forecast and worries over the Greek-PSI deal. Later in the week, the dollar received support from some solid domestic data points.

The U.S. dollar is currently trading at 82.161 yen and is valued at $1.311 versus the euro.


The major Asian markets ended mostly lower, as the major averages pulled back after last week’s Greek debt deal euphoria. Additionally, a report showing that the Chinese trade balance swung to a big deficit of $31.48 billion in February also brought growth concerns to the fore, sending stocks lower.

Japan’s Nikkei 225 average ended down 39.88 points or 0.40 percent at 9,890 and Australia’s All Ordinaries settled 12.30 points or 0.29 percent lower at 4,288. China’s Shanghai Composite Index retreated 4.60 points or 0.19 percent before closing down 2,435.

Meanwhile, Hong Kong’s Hang Seng Index ended up 48.18 points or 0.23 percent at 21,134. The Indian market also received support from solid industrial output data, ending up about 0.50 percent.


European stocks opened on a nervous note and saw some strength in early trading only to give back their gains by the mid-session. The French CAC 40 Index is trading down 0.13 percent and the German DAX Index is slipping 0.14 percent, while the U.K.’s FTSE 100 Index is declining 0.23 percent.

German automaker Volkswagen confirmed its operating profit figures for 2011 at 11.27 billion euros in 2011, up from 7.14 billion euros in 2010. The company also said it expects its operating profit to remain steady in 2012.

U.S. Economic Reports

Manufacturing and retail sales reports along with the FOMC meeting are likely to headline the economic events of the unfolding week. Traders may pay close attention to the Commerce Department’s retail sales report for February, the results of the New York and Philadelphia Federal Reserves’ March manufacturing surveys, the weekly jobless claims report and the Federal Reserve’s industrial production report for February.

The markets may also stay tuned to the FOMC meeting, the preliminary consumer sentiment report from Reuters and the University of Michigan and the producer and consumer price inflation reports for February. The Treasury Budget for February, the import and export price indexes for February and the results of the Treasury auction of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.

The FOMC meeting is expected to be a non-event, given the radical announcements made at the January meeting, where the central bank spelled out its interest rate and inflation targets. The Fed is expected to repeat its statement concerning economic conditions warranting exceptionally low interest rates at least until 2014. At the same time, the improvement seen in labor markets may prevent the central bank from making any commitment on further monetary policy easing.

Retail sales for February stand to benefit from a multiplicity of factors, including strong auto sales, higher gas station sales and healthy chain store sales. Even after excluding auto and gasoline, sales may have remained healthy in the month, as relatively warm weather pulls forward spring clothing and vehicle sales.

Industrial production is also expected to see some support from autos, while mining output may also have seen a rebound. The capacity utilization rate is expected to edge up slightly, in line with the recent trend, although it is expected to stay below levels that could pose inflation threats.

The Treasury Budget, a monthly account of the surplus or deficit of the federal government, is due to be released at 2 PM ET. The report is considered an indicator of budgetary trends and the thrust of fiscal policy. Economists expect a deficit of $229 billion for February compared to a deficit of $27.4 billion for January.

Stocks in Focus

Zoll Medical (ZOLL) announced an agreement to be acquired by Japan’s Asahi Kasei for about $2.21 billion or $93 per share. The deal is expected to close in the second quarter of calendar year 2012.

TETRA Technologies (TTI) announced that its U.K. subsidiary has acquired Optima Solutions Holdings for $62.7 million plus contingent consideration to be paid in the future depending on profitability.

Exelon (EXC) and Constellation Energy (CEG) said that the Federal Energy Regulatory Commission has approved the merger of the two companies. The companies plan to complete the merger on March 12th.

Standard & Poor’s announced that S&P 500 constituents Eli Lilly (LLY), Andarko Petroleum (APC), eBay (EBAY), Simon Property Group (SGP), Accenture (ACN) and Starbucks (SBUX) will replace S&P 500 constituents Entergy (ETR), Xerox (XRX), Weyerhaeuser (WY), Alcoa (AA), Avon Products (AVP) and SprintNextel (S) in the S&P 100 Index after the close of trading on March 16th.

Pacific Capital Bancorp (PCBC) announced that UnionBanCal Corp. has entered into a definitive agreement to acquire the company for $46 per share in cash.

PepsiCo. (PEP) is announced a new global structure, under which its global groups will work across the regions to fully leverage the power and scale of the company.
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