Market Analysis

Beyond the Numbers

Skepticism Leads to Risk Aversion
4/4/2012 9:21 AM

The major U.S. index futures are pointing to a notably lower opening on Wednesday, with sentiment turning grossly negative despite the release of a fairly positive private payrolls data. The overbought levels are creating nervousness among traders about the fundamentals on which the gains are being built. Commodities and risky bets are seeing selling pressure, reflecting the risk aversion in play. Traders may now sift through the Institute for Supply Management’s service sector survey to latch on to any potential positive evidence that can dispel their doubts concerning the economic outlook.

U.S. stocks retreated moderately on Tuesday, as economic evidence and the Fed minutes suggested further quantitative easing is unlikely. The major averages opened lower and moved below the unchanged line with modest losses, as traders digested the factory orders report. Following the release of the FOMC minutes, stocks retreated sharply, before ending moderately lower.

The Dow Industrials ended down 64.94 points or 0.49 percent at 13,200 and the S&P 500 Index receded 5.66 points or 0.40 percent before closing at 1,413, while the Nasdaq Composite Index ended at 3,114, down 6.13 points or 0.20 percent.

Twenty-five of the thirty Dow components closed lower, with Bank of America (BAC), Hewlett-Packard (HPQ), Exxon Mobil (XOM) and Cisco Systems (CSCO) leading the slide. On the other hand, McDonald’s (MCD) and American Express (AXP) posted strong gains.

Basic material, oil, gold and semiconductor stocks retreated sharply, while airline stocks gained some ground.

The Commerce Department’s factory orders report showed that orders for manufactured goods were up 1.3 percent month-over-month in February compared to expectations for a 1.5 percent increase.

The minutes of the March FOMC meeting showed that only 2 members were interested in additional monetary policy easing, while at the January meeting ‘a few’ members were considering some additional actions. The stance precluded any easing move. At the same time, there were no indications that the central bank would begin to normalize interest rates earlier than its late 2014 itinerary.

Currency, Commodity Markets

Crude oil futures are slipping $1.32 to $102.69 a barrel after retreating $1.22 to $104.01 a barrel on Tuesday.

The American Petroleum Institute’s inventory report released late Tuesday showed that crude oil stockpiles rose by 7.8 million barrels in the week ended March 30th. Meanwhile, gasoline and distillate inventories fell by 4.5 million barrels and 1.4 million barrels, respectively.

An ounce of gold is currently fetching $1,624 an ounce, down $48 from the previous session’s close of $1,672. On Tuesday, gold retreated $7.70.

Among currencies, the U.S. dollar is trading at 82.36 yen compared to the 82.81 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.3125 compared to yesterday’s $1.3233.


The major Asian markets closed lower, dragged down by the negative lead from Wall Street overnight. Meanwhile, the Chinese, Hong Kong and Taiwanese markets remained closed for public holidays.

Japan’s Nikkei 225 average fell 230.40 points or 2.29 percent to 9,820, the lowest closing level since March 8th. Most sectors, barring a few defensive stocks, declined. Fast Retailing fell 5.72 percent, Japan Steel Works declined 4.27 percent, NGK Insulators ended down 4.40 percent, Oki Electric Industry receded 5.74 percent and Sumco moved down 5.06 percent.

Australia’s All Ordinaries languished below the unchanged line throughout the session, although it pared its losses over the course of the afternoon. The index closed down 5.50 points or 0.12 percent at 4,419. Energy and material stocks retreated strongly, while gains by financial and healthcare stocks provided some offsetting impact.

The Australian Bureau of Statistics reported today that the nation’s trade balance showed a seasonally adjusted deficit of A$480 million in February compared to expectations for a surplus of A$1.1 billion.


European stocks are trading notably lower amid the announcement of monetary policy decision by the European Central Bank. The French CAC 40 Index and the German DAX Index are receding 1.79 percent and 2.11 percent, respectively, while the U.K.’s FTSE 100 Index is declining 1.41 percent.

International Power (IPR) spurned a $9.5 billion take over bid by GDF Suez, which is seeking to buy the 30 percent stake it does not already own in International Power.

A revised report released by Eurostat showed that the region’s private sector contracted by less than initially estimated in March. The composite output index fell to 49.1 from 49.3 in February, although it was higher than the flash estimate of 48.7. The service sector index rose 0.4 points to 49.2. Meanwhile, a separate Markit survey showed that U.K. service sector activity grew at a faster rate in March.

Eurozone retail sales edged down 0.1 percent month-over-month in February, but the drop was in line with estimates. On an annual basis, the decline was 2.1 percent, steeper than the 1.1 percent drop expected by economists.

The European Central Bank kept eurozone interest rates unchanged at a record low for the fourth month in a row, as the region's economy is likely to have entered a recession in the first quarter amid lingering concerns over the sovereign debt crisis.

The Governing Council led by ECB President Mario Draghi decided to maintain the main refi rate at a record low 1 percent, following its meeting in Frankfurt. The rate on the marginal lending facility was held at 1.75 percent, while the deposit facility rate was kept at 0.25 percent.

U.S. Economic Reports

Employment in the U.S. private sector saw continued growth in the month of March, according to a report released by payroll processor Automatic Data Processing, with the job growth coming roughly in line with economist estimates.

ADP said employment increased by 209,000 jobs in March following an upwardly revised increase of 230,000 jobs in February. Economists had expected an increase of about 208,000 jobs compared to the addition of 216,000 jobs originally reported for the previous month.

The Institute for Supply Management is scheduled to release the results of its non-manufacturing survey at 10 am ET. The non-manufacturing index is likely to show a reading of 57 for March.

Activity in the sector expanded at a faster rate in February. The service sector index came in at 57.3 in February, up 0.5 points and also marking the highest reading in over a year. The business activity index climbed 3.1 points to 62.6, the new orders index was up 1.8 points to 61.2 and the order backlogs index rose 3.5 points to 53. Meanwhile, the employment index slid 1.7 points to 55.7.

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

Crude oil stockpiles rose by 7.1 million barrels to 353.4 million barrels in the week ended March 23rd. Inventories remained in the upper limit of the average range. Gasoline inventories fell by 3.5 million barrels but still remained in the upper limit of the average range.

Distillate stockpiles also fell, dropping by 0.7 million barrels, and remained in the middle the average range. Refinery capacity utilization averaged 83.3 percent over the four weeks ended March 23rd compared to 83.1 percent over the previous four weeks.

San Francisco Federal Reserve Bank President John Williams is scheduled to speak to the San Francisco Planning and Urban Research business breakfast at 11 am ET.

Stocks in Focus

Roche said it has sent a second letter to shareholders of Illumina (ILMN) urging them to tender their shares in response to its increased offer.

TIBCO Software (TIBX) announced that it has agreed to acquire LogLogic, which offers a scalable log and security management platform. The company did not reveal the financial terms of the deal.
SanDisk (SNDK) lowered its first quarter revenue guidance to about $1.2 billion from $1.30 billion to $1.35 billion, with the company attributing the weakness to weaker than expected pricing and demand. The company also lowered its total gross margin guidance.

MTS Systems (MTSC) announced the appointment of Jeffrey Graves as CEO and a member of board, effective May 7th, replacing its interim CEO William Murray.

Hovnanian Enterprises (HOV) announced the commencement of a registered underwritten public offering of 25 million of its Class A shares.

Zynga (ZNGA) said it has completed an underwritten public offering of 49.41 million of its Class A shares priced at $12 per share compared to the $ 12.29 per share value at which it closed on Tuesday.

Monsanto (MON) reported higher profits and sales for the second quarter and also raised its full year ongoing earnings per share guidance.

Schulman (SHLM), AngioDynamics (ANGO), Bed Bath & Beyond (BBBY) and Ruby Tuesday (RT) are among the companies due to release their quarterly results after the markets close.
Follow RTT
Tomorrows Potential Movers