Market Analysis

Beyond the Numbers

Sentiment Muted as Markets Wait for Catalysts
4/3/2012 9:09 AM

The major U.S. index futures are pointing to a mostly lower opening on Tuesday, with sentiment remaining fragile given the apprehension concerning the economic recovery. This was evident from yesterday’s market reaction to an in line manufacturing reading. The markets now turn their focus to the minutes of the March FOMC meeting to glean clues on the Fed’s economic assessment and outlook and the likely course of monetary policy. Risk aversion is in play, as reflected by a pullback in prices of commodities and risky bets.

After a nervous start on Monday, U.S. stocks advanced solidly after the Institute for Supply Management’s national survey showed that manufacturing activity expanded faster than expected in March.

The major averages opened lower and remained below the unchanged line in early trading but began climbing after the release of the results of the ISM’s survey. After rallying till the afternoon, the indexes went about a consolidation move in the afternoon. The averages pared some of their gains in late trading yet closed notably higher.

The Dow Industrials added 52.45 points or 0.40 percent before closing at 13,265 and the S&P 500 Index closed at 1,419, up 10.57 points or 0.75 percent. The Nasdaq Composite ended up 28.13 points or 0.91 percent at 3,120.

Twenty-six of the thirty Dow components closed higher, with Alcoa (AA), Boeing (BA), Bank of America (BAC), Chevron (CVX), Intel (INTC) and Kraft Foods (KFT) advancing solidly in the session.

Transportation, oil, gold, basic material and financial stocks were among the best performers of the session.

On the economic front, the Institute for Supply Management’s manufacturing survey showed that its manufacturing purchasing managers’ index rose to 53.4 in March from 52.4 in February. Of the 18 industries surveyed, 15 reported growth and two contracted. The new orders index declined 0.4 points yet remained above ‘50’ at 54 and the production index rose 3 points to 58.3. The employment index also increased, rising 2.9 points to 56.1.

Meanwhile, the Commerce Department said U.S. construction spending unexpectedly fell 1.1 percent month-over-month in February. The previous month’s reading was downwardly revised to show a drop of 0.8 percent compared to 0.1 percent drop estimated initially. Spending on private and public construction declined 0.8 percent and 1.7 percent, respectively. Among private construction, spending on residential construction remained unchanged, while spending on lodging, commercial, office and transportation construction declined.

Currency, Commodity Markets

Crude oil futures are slipping $0.51 to $104.72 a barrel after advancing $2.21 to $105.23 a barrel on Monday. Gold futures are currently declining $3.60 to $1,676.10 an ounce. In the previous session, gold rose $7.80 to $1,679.70 an ounce.

Among currencies, the U.S. dollar is trading at 82.08 yen compared to the 82.17 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.3318 compared to yesterday’s $1.3320.


The major Asian markets ended mostly higher, with the exception of the Japanese, Taiwanese and New Zealand markets. The Chinese market remained closed for a public holiday. The optimism stemmed from the positive U.S. manufacturing reading released overnight.

Australia’s All Ordinaries hovered in positive territory for much of the session, barring a mid-session collapse. The index closed up 8 points or 0.18 percent at 4,424. Energy and material stocks saw modest buying interest.

Following a rate-setting meeting, the Reserve Bank of Australia retained the benchmark cash rate unchanged at 4.25 percent for a third consecutive time.The central bank hinted at further monetary policy easing at its next meeting after assessing the inflation outcome for the March quarter. Rates have been kept on hold since the central bank reduced rates by 25 basis points at its December meeting. The monetary policy setting arm does not meet in January.

Hong Kong’s Hang Seng Index closed up 268.72 points or 1.31 percent at 20,791 ahead of Wednesday’s public holiday.

Japan’s Nikkei 225 average languished in negative territory throughout the session before closing down 59.48 points or 0.59 percent at 10,050. An increase in risk appetite strengthened the yen, which exerted downward pressure on export stocks. Real estate stocks also came under significant selling pressure. Sumitomo Realty, Shionogi, Mitsubishi Estate, Heiwa Real Estate and Chugai Pharma were among the worst decliners of the session.


The major European markets are declining after yesterday’s solid advances. The French CAC 40 Index and the German DAX Index are receding 0.70 percent and 0.38 percent, respectively, while the U.K.’s FTSE 100 Index is slipping 0.26 percent.

On the economic front, the construction purchasing managers’ index for the U.K. rose to a nearly 2-year high of 56.7 in March from 54.3 in February, according to the results of a survey by Markit.

U.S. Economic Reports

Individual automakers are scheduled to release their monthly U.S. sales results for March. The data will reveal the unit sales of domestically produced cars and light duty trucks, including sports utility vehicles and mini-vans, during the month. Economists expect domestic vehicle sales of 14.7 million for March compared to 15.1 million in February.

The Commerce Department is due to release its report on factory goods orders for February at 10 am ET. Economists estimate a 1.5 percent increase in orders for factory goods.

Durable goods orders, which make up the bulk of factory goods, rose by a smaller than expected 2.2 percent in February compared to the previous month. That said, even after excluding transportation orders, which rose 3.9 percent, order growth came in at 1.6 percent. Non-defense capital goods orders, excluding aircraft, often considered a proxy for capital spending, rose 1.2 percent, and shipments of this category of goods edged up 0.5 percent.

Meanwhile, factory goods orders fell 1 percent month-over-month in January, while shipments, unfilled orders and inventories rose 0.9 percent, 0.6 percent and 0.6 percent, respectively. The soft headline reading reflected declines in transportation and machinery orders.

The Federal Reserve is due to release the minutes of its March 13th meeting at 2 pm ET.

The post-meeting policy statement released following the March meeting noted a moderate expansion in overall economic activity, further improvement in labor market conditions and a notable drop in the unemployment rate. The central bank also referenced rising crude prices while discussing inflation. The Fed's assessment of economic growth over the coming quarters was upgraded to 'moderate' from 'modest.'

As expected, the central bank maintained the fed funds target rate at 0-0.25 percent and repeated its intention to maintain rates at exceptionally low levels at least until 2014. The Fed also expressed its commitment to continue with its asset purchase program.

San Francisco Federal Reserve Bank President John Williams is due to participate in a San Francisco University Symposium simulating an FOMC meeting at 4:05 pm ET. He will take questions from local reporters.

Stocks in Focus

Fluor (FLR) said it has been awarded a contract by a PETRONAS subsidiary to provide front-end engineering and design services for a new LNG regasification terminal in Malaysia. The company said it has booked the undisclosed contract value in the first quarter of 2012.

Standard & Poor’s announced that 3D Systems (DDD) will replace Taleo Corp. (TLEO) in the S&P SmallCap 600 Index after the close of trading on April 5th. Oracle (ORCLE) is acquiring Taleo in a deal expected to be completed on or about that date.

Kraft Foods (KFT) announced that its North American grocery business has filed an initial Form 10 registration statement with the U.S. SEC relating to its previously announced plan to divide and create two public companies, namely a global snacks business and a North American grocery business, before the end of 2012.

Pep Boys (PBY) reported a fourth quarter loss of 8 cents per share compared to a profit of 16 cents per share in the year-ago period. Sales rose 5.9 percent to $505.3 million, exceeding the consensus estimate.

RealNetworks (RNWK) announced the appointment of Tim Wan as CFO and Treasurer, effective April 18th, 2012. Wan will replace Michael Eggers, who announced his retirement recently.

Molson Coors Brewing (TAP) signed an agreement with StarBev, owned by funds advised by CVC Capital Partners and StarBev Management, to buy the company for $3.54 billion.
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