Market Analysis

Beyond the Number

Hopes of Eurozone Bailout Enhancement Perks Up Risk Appetite
3/26/2012 9:27 AM

The major U.S. index futures are pointing a higher opening on Monday, with hopes concerning a beefed up eurozone bailout fund offering support to all risk currencies. Earlier in the Asian session, sentiment took a beating after Italian Prime Minister Mario Monti said that Spain may be the next country to suffer from its fiscal profligacy. An business confidence reading from Germany also came in better than expected. Traders now shift their focus to the U.S. pending home sales data to be released shortly after the markets open.

U.S. stocks scrambled to a mixed close in the week ended March 23rd, with resource stocks under significant selling pressure. Some disappointing global data and mixed domestic economic reports created uneasiness among traders, even as the averages tenaciously held on to their recent gains.

Last Monday, the major averages closed higher despite traders showing apprehension about the overbought levels of the markets. Apple’s (AAPL) plan for its cash reserves cut the ice with investors and consequently, the markets sustained the upward momentum. Meanwhile, the averages retreated moderately on Tuesday, stung by worries over China raising retail fuel prices and the impact on domestic growth.

Stocks turned in a lackluster performance for much of Wednesday amid the release of mixed existing home sales data. The averages ended mixed in the session. Weighed down by weak Chinese manufacturing and eurozone private sector data, the major averages ended moderately lower on Thursday. Despite some early weakness on Friday on the back of insipid new home sales data, the major averages ended higher.

For the week ended March 23rd, the Dow Industrials ended fell 1.15 percent and the S&P 500 Index receded 0.50 percent, while the Nasdaq Composite Index gained 0.41 percent.

Among the sector indexes, the NYSE Arca Oil Index lost 3.07 percent for the week compared to a 5.1 percent drop by the Philadelphia Oil Service Index. Additionally, the Philadelphia Housing Sector Index receded 2.53 percent and the Dow Jones U.S. Basic Materials Average slid 1.11 percent.

Currency, Commodity Markets

Crude oil futures are gaining $0.36 to $107.23 a barrel after edging down $0.19 or 0.18 percent to $106.87 a barrel in the week ended March 23rd.

Last Monday, oil futures rose by over $1-a-barrel amid a general increase in risk appetite. However, oil tumbled close to $2.50-a-barrel on Tuesday on the Chinese fuel price hike.

A bullish weekly oil inventory report sent oil higher by over $1-a-barrel on Wednesday before it pulled back by close to $2-a-barrel on Thursday, reacting to weak Chinese and eurozone data. The commodity rebounded on Friday amid the news that Iranian oil exports fell significantly in March.

Gold futures are currently gaining $19.10 to $1,681.50 an ounce. In the previous week, the precious metal rose $6.60 or 0.40 percent to $1,662.40 an ounce.

Among currencies, the U.S. dollar weakened against the euro last week, dropping 0.72 percent to $1.3270. Additionally, the dollar retreated 1.30 percent against the yen to 82.35 yen after advancing for 6 straight weeks. Much of last week’s dollar weakness stemmed from lackluster U.S. economic data.

The U.S. dollar is currently trading at 82.69 yen and is valued at $1.3316 versus the euro.


The major Asian markets ended on a mixed note, as traders remained concerned over a few weak U.S. housing data released over the last week. Additionally, a statement from Monti that Spain could re-ignite euro zone debt worries shook their conviction that all is well on the eurozone debt front.

Despite showing some degree of volatility, Japan’s Nikkei 225 average held above the unchanged line throughout the session before closing up 6.77 points or 0.07 percent at 10,018.

Although remaining mostly above the unchanged line, Australia’s All Ordinaries retreated in late trading, ending down 5.50 points or 0.13 percent at 4,355. Hong Kong’s Hang Seng Index closed almost unchanged at 20,669.


After advancing last Friday, European stocks are trading higher, although amid volatility. Fears concerning Spain following Monti’s statement were offset by some positive developments.

German officials seem to have suggested that Germany may give its acquiescence for a temporary increase in the firewall for the eurozone nations. The eurozone finance ministers are meeting in Copenhagen this Friday to decide on the enhancement of the eurozone bailout fund from its current size of 500 billion euros.

Meanwhile, a report released by the Ifo Institute showed that German business confidence unexpectedly improved in March. The business confidence index edged up 0.1 points to 109.8 in March, while economists had expected a reading of 109.5.

U.S. Economic Reports

Several key economic reports are due in the unfolding week, as traders seek clarity, especially after last week’s lackluster housing reports. Traders may closely watch the National Association of Realtors’ pending home sales report for February, the Conference Board’s consumer confidence report for March, the Commerce Department’s durable goods orders report for February, the weekly jobless claims report, the final reading of Reuters and the University of Michigan’s consumer sentiment survey and the personal income and spending report for February.

A host of Fed speeches, including 3 public appearances by Federal Reserve Chairman Ben Bernanke, are also due for the week. Also scheduled for the week are some regional manufacturing surveys, with the ISM-Chicago’s business barometer being the notable among them. The results of the Treasury auctions of 2-year, 5-year and 7-year notes, the S&P Case-Shiller house price index for January and the final fourth quarter GDP report round up the economic events of the week.

Consumer sentiment is expected to get a shot in the arm from the equity market’s resilience. That said, the recent rise in gasoline prices may mitigate some of the optimism.

Durable goods orders are likely to have seen a rebound, thanks to a solid increase in aircraft orders secured by Boeing. However, economists expect business machinery and equipment demand to remain soft, as the year-end tax incentives would have pushed back some of the year’s purchases.

An increase in the number of hours worked points towards employment growth and in turn a decent increase in personal income. At the same time, personal spending may have received support from higher gasoline prices. Nevertheless, real personal spending is also expected to see a healthy gain.

Data on Pending Home Sales, which is a leading indicator of housing market activity released by the National Association of Realtors, is due out at 10 AM ET. A pending sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale. The index is expected to have risen 1 percent in February.

The pending home sales index rose by a better than expected 2 percent month-over-month in January. The previous month's reading was upwardly revised to show a 1.9 percent decline rather than the 3.5 percent drop estimated initially. Pending home sales rose in the Northeast and the South, while pending sales fell in the West and the Mid-west.

The results of a regional manufacturing survey carried out by the Dallas Federal Reserve are due to be released at 10:30 am ET. The business activity index based on the survey is expected to slip to 15.5 in March from 17.8 in February.

Stocks in Focus

Illumina (ILMN) reiterated that Roche’s offer is grossly inadequate after Roche decided to extend for the second time its unsolicited tender offer to acquire all outstanding shares for Illumina for $44.50 per share in cash.

AstraZeneca (AZN) announced that a U.S. district court has denied its request for a preliminary injunction and dismissed the lawsuit against the U.S. FDA regarding final marketing approval of generic quetiapine.

AMD (AMD) announced the completion of its acquisition of SeaMicro, a provider of energy efficient microservers, for about $334 million, net of cash assumed.

Associated Banc-Corp. (ASBC) announced that Christopher Del Moral-Niles has been named CFO after the current incumbent Joe Selner retires in the summer of 2012.

Weatherford (WFT) announced the appointment of its Chief Accounting Officer John Briscoe as its senior VP and CFO.
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