Market Analysis

Beyond the Numbers

Mixed Durable Goods Orders Data May Confound Economic Outlook
3/28/2012 9:27 AM

The major U.S. index futures are pointing to a modestly higher opening on Wednesday, with sentiment reflecting jitteriness of traders against the backdrop of overbought markets. A report released earlier in the day showed that durables goods orders rose by less than expected in January. That said, orders, excluding transportation, came in above estimates. Additionally, shipments and orders for non-defense capital goods orders, excluding aircrafts - considered a proxy for capital spending increased from the previous month. Another lackluster session may be in the offing as traders digest this mixed report.

U.S. stocks showed nervousness for the better part of Tuesday’s session before closing modestly lower, as traders digested a weak housing report and another report that showed that consumer confidence unexpectedly fell.

The major averages opened on a nervous note and moved back and forth across the unchanged line in a narrow range before pulling back modestly in late trading. The Dow Industrials ended down 43.90 points or 0.33 percent at 13,198 and the S&P 500 Index receded 3.99 points or 0.28 percent before closing at 1,413. Meanwhile, the Nasdaq Composite Index retreated 2.22 points or 0.07 percent to 3,120.

Twenty-two of the Dow components ended lower, with Bank of America (BAC) (down 3.32 percent), Verizon (VZ) (down 1.70 percent), Alcoa (AA) (down 1.57 percent) and Hewlett-Packard (HPQ) (down 1.13 percent) among the biggest decliners of the session. On the other hand, Pfizer (PFE) rose 1.53 percent.

Airline, oil, oil service, gold and financial stocks were among the worst performing stocks of the session.

On the economic front, the Conference Board reported that its consumer confidence index declined 1.4 points to 70.2 in March from an upwardly revised reading for February. The expectations index slipped 4.6 points to 83, while the present situation index rose 4.6 points to 51.

The S&P Case-Shiller house price index fell a seasonally unadjusted 0.8 percent in January. However, after adjustments, house prices were flat. On a year-over-year basis, house prices were down 3.8 percent.

Currency, Commodity Markets

Crude oil futures are receding $1.22 to $106.11 a barrel after advancing $0.30 to $107.33 a barrel on Tuesday.

The inventory report released by the American Petroleum Institute late Tuesday showed that crude oil stockpiles rose by 3.6 million barrels to 351.5 million in the week ended March 23rd. Gasoline inventories also increased, while distillate inventories declined from the week ago levels.

An ounce of gold is currently valued at $1,676.70, down $8.20 from the previous session’s close of $1,684.90. On Tuesday, gold edged down $0.70.

Among currencies, the U.S. dollar is trading at 83.02 yen compared to the 83.18 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.3320 compared to yesterday’s $1.3316.


The major Asian markets closed mostly lower, with sentiment clearly remaining bearish. The Chinese Shanghai Composite Index led the region’s retreat with a 2.65 percent slump, weighed down by some lackluster earnings reports.

Japan’s Nikkei 225 average languished below the unchanged line throughout the session before closing down 72.58 points or 0.71 percent at 10,183. Utility and pharma stocks suffered a setback along with export stocks.

Sky Perfect JSAT, Takeda Pharma, Sumitomo, Resona Holdings, Mizuho Financial, Kansai Electric, Fukuoka Financial and Eisai served as the biggest drags on the index. Meanwhile, Sharp rose over 15 percent on news that Foxconn will make a 133 billion yen investment in the company.

After a tentative start, Australia’s All Ordinaries recovered in late morning and rose steadily thereafter, closing up 39.90 points or 0.91 percent at 4,432. Consumer staple, energy, healthcare and material stocks posted strong advances.

Hong Kong’s Hang Seng Index ended down 161.49 points or 0.77 percent at 20,885. Retailer Li & Fung tumbled over 5 percent after it announced a stock offering.


European stocks are trading lower despite Italian Prime Minister Mario Monti’s assurance that the eurozone debt threat has largely been defused.

The French CAC 40 Index and the German DAX Index are receding 0.25 percent and 0.56 percent, respectively, while the U.K.’s FTSE 100 Index is slipping 0.34 percent.

Italy today auctioned 8.5 billion worth of 6-month bills at benign yields. Meanwhile, revised estimates released by the U.K. Office for National Statistics showed that the U.K. economy contracted at a steeper than initially estimated rate in the fourth quarter. GDP fell by 3 percent sequentially compared to the 2 percent drop estimated initially. Earlier in the day, INSEE confirmed the French economy’s fourth quarter expansion at 0.2 percent.

In corporate news, Italian defense contraction Finmeccanica reported a 2.3 billion euro loss for 2011. U.K. travel and leisure company Thomas Cook said in its trading update that it expects a challenging year, given the economic backdrop and difficult trading environment, particularly for winter.

In a trading update ahead the end of its fiscal year in March, ICAP said its full year expectations remain in line.

U.S. Economic Reports

Orders for U.S. manufactured durable goods rebounded in February after showing a notable drop in January, according to a report released by the Commerce Department, although orders rose by somewhat less than anticipated.

The report showed that durable goods orders rose by 2.2 percent in February following a revised 3.6 percent decrease in January. Economists had expected orders to increase by 2.9 percent compared to the 3.7 percent drop that had been reported for the previous month.

Excluding a 3.9 percent increase in orders for transportation equipment, durable goods orders increased by a more modest 1.6 percent in February compared to a 3.0 percent decrease in January. The increase in ex-transportation orders came in slightly above economist estimates for a 1.5 percent increase.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended March 23rd at 10:30 am ET.

Crude oil inventories fell by 1.2 million barrel to 346.3 million barrels in the week ended March 16th. Stockpiles remained in the upper limit of the average range.

Gasoline inventories fell by 1.2 million barrels but remained in the upper limit of the average range. On the other hand, distillate inventories rose by 1.8 million barrels, remaining in the upper limit of the average range.

Refinery capacity utilization averaged 83.1 percent over the four weeks ended March 16th compared to 83.9 percent in the previous week.

St. Louis Federal Reserve Bank President James Bullard is scheduled to speak to a monetary policy conference at Tsinghua University in Beijing at 9 pm ET.

Stocks in Focus

PVH (PVH) reported fourth quarter non-GAAP earnings of $1.18 per share compared to 93 cents per share last year. Revenues were 10 percent higher at $1.53 billion. The results were better than expected. For 2012, the company expects non-GAAP earnings of $6.10-$6.20 per share and flat to 2 percent growth in revenues. The company also said it expects first quarter revenue growth of 1-2 percent and non-GAAP earnings of $1.23-$1.25 per share. The first quarter guidance was below consensus estimates.

Dollar General (DG) said it has priced its underwritten secondary public offering of 25 million common shares at $45.25 per share, a slight discount to its closing price of $45.75 on Wednesday.

Tyco (TYC) and Pentair (PNR) announced a deal to merge the former's flow control business with Pentair in a tax-free all stock merger. The Tyco unit is valued at about $4.9 billion, including assumed debt and minority interest.

Robbins & Myers (RBN) reported second quarter earnings of 84 cents per share compared to adjusted earnings from continuing operations of 58 cents per share last year. Sales rose to $256 million from $184 million in the year-ago period. The company raised its 2012 adjusted earnings guidance to $3.40 to $3.60 per share from $3-$3.20 per share. The results and the guidance were better than expected.

Oxford Industries (OXM) said its fourth quarter adjusted earnings from continuing operations increased to 61 cents per share from 32 cents per share last year. Net sales rose 27 percent to $199.7 million. For 2012, the company expects adjusted earnings of $2.70-$2.80 per share on revenues of $840 million to $855 million. The results exceeded estimates and the guidance was also upbeat.

Christopher & Banks (CBK) reported a net loss of 89 cents per share for the nine weeks ended January 28th, 2012, which included a restructuring charge of 25 cents per share. Net sales fell 14 percent to $68.8 million. The fourth quarter was cut short as the company shifted its reporting calendar.

Sealy Corp.'s (ZZ) first quarter net income from continuing operations improved to 1 cent per share from break-even results in the previous year. Net sales rose 2.2 percent to $312.3 million.

H.B. Fuller (FUL), Mosaic (MOS), Paychex (PAYX), Red Hat (RHT) and Resource Connection (RECN) are among the companies due to release their quarterly results after the markets close.
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