Market Analysis

Beyond the Numbers

Sentiment Sours on More Negative Data
4/26/2012 9:18 AM

The major U.S. index futures are pointing to a lower opening on Thursday, with sentiment being weighed down by a report showing a smaller than expected drop in jobless claims in the recent reporting week. The attention now shifts to a housing report due for release after the markets open. If the housing data surprises to the upside, the markets could avert a pullback. Earnings news at best could be termed as mixed, with oil giant Exxon Mobil (XOM) reporting a dip in its first quarter profits. Against this backdrop, traders may adopt a cautious, especially so due to yesterday’s strong advance.

U.S. stocks advanced solidly on Thursday, as earnings optimism and the FOMC decision brought cheer back to the markets.

The major averages moved sharply higher at the open, then saw some further upside in early trading before consolidating for the rest of the session. The Dow Industrials added 89.16 points or 0.69 percent before closing at 13,091. While the S&P 500 Index ended up 18.72 points or 1.36 percent at 1,391, the Nasdaq Composite Index surged up 68.03 points or 2.30 percent, ending at 3,030.

Twenty-four of the thirty Dow components closed higher, with Boeing (BA) rising 5.29 percent in reaction to its quarterly results and leading the Dow’s gains. American Express (AXP), Intel (INTC), Alcoa (AA), Hewlett-Packard (HPQ) and IBM (IBM) also advanced notably. On the other hand, Caterpillar (CAT) slid over 4 percent despite reporting better than expected earnings.

Financial, semiconductor, gold, basic material, biotechnology, airline, oil service, retail and housing stocks were among the biggest advancers of the session.

On the economic front, the Commerce Department reported that durable goods orders fell 4.2 percent month-over-month in March, with transportation orders serving as a drag. Even after transportation orders were excluded, overall orders dipped 1.1 percent. Non-defense capital goods orders, excluding aircrafts, considered a proxy for capital spending, declined 0.8 percent, while shipments of this category rose 2 percent.

The Fed maintained its economic assessment in its post-meeting policy statement, repeating its view that the economy has been expanding moderately. The Fed termed inflation as having picked up somewhat compared to its earlier view of a subdued inflationary environment.

The central bank repeated its pledge to maintain a very accommodative monetary policy at least through late 2014.

In the updated economic forecasts released by the Fed, the central tendency GDP growth forecast for 2012 was upwardly revised to 2.4-2.9 percent from the previously estimated 2.2-2.7 percent. Meanwhile, estimates for 2013 and 2014 were trimmed slightly. The unemployment rate forecast for 2012 was also reduced to 7.8-8.0 percent from 8.2-8.5 percent, while the core PCE inflation forecast was upwardly revised to 1.8-2 percent from 1.5-1.8 percent.

Chairman Ben Bernanke said in the press briefing that the central bank is entirely prepared to take additional action, if needed, to accomplish its dual mandate. At the same time, he suggested that the Fed could advance the timing of rate hikes if the economic and inflation outlook are stronger than expected.

Currency, Commodity Markets

Crude oil futures are receding $0.16 to $103.96 a barrel after moving up $0.57 to $104.12 a barrel on Wednesday. The previous session’s gains came amid the release of the inventory report, which showed that crude oil stockpiles rose by 4 million barrels to 373 million barrels in the week ended April 20th but remained in the upper limit of the average range.

Gasoline inventories fell by 2.2 million barrels and remained in the upper limit of the average range. Distillate stockpiles also declined, dropping by 3.1 million barrels. Inventories of distillate stockpiles were in the middle of the average range. Refinery capacity utilization averaged 84.7 percent over the four weeks ended April 20th, flat with the previous four weeks.

Gold futures, which fell $1.50 to $1,642.30 an ounce in the previous session, are currently adding $11.80 to $1,654.10 an ounce.

Among currencies, the U.S. dollar is trading at 80.76 yen compared to the 81.34 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.3209 compared to yesterday’s $1.3217.


The major Asian markets, with the exception of the Indian, Chinese and Taiwanese markets, closed higher, as traders took cues from the strong finish on Wall Street overnight.

Japan’s Nikkei 225 closed up just 0.82 points or 0.01 percent at 9,562 after seeing some strength in the morning. Friday’s monetary policy decision from the Bank of Japan introduced caution among investors.

Australia’s All Ordinaries added 11.10 points or 0.25 percent before closing at 4,445, while Hong Kong’s Hang Seng Index closed at 20,810, up 163.42 points or 0.79 percent.

The Reserve Bank of New Zealand left its key official cash rate unchanged at a record low, with a stronger kiwi being cited as a concern by the central bank.


European stocks are seeing weakness following two sessions of strong gains, as traders reacted to mixed earnings.

In corporate news, Shell (RDS) reported first quarter earnings on a current cost of supplies basis, excluding items, of $2.34 per ADS compared with $2.04 per share last year. Revenues rose to $119.92 billion from the year-ago quarter’s $109.92 billion.

Unilever (UL) reported first quarter underlying sales growth of 8.4 percent, as total sales rose 11.9 percent to 12.1 billion euros. Brewer Pernod-Ricard reported third quarter sales growth of 5 percent.

Deutsche Bank (DB) said its first quarter earnings fell to 1.38 billion euros from 2.06 billion euros last year, weighed down by weak investment banking business and charges. Meanwhile, Barclays (BCS) reported a first quarter pre-tax profit, excluding losses that rose 22 percent from the year ago.

Alcatel-Lucent (ALU) reported a loss for its first quarter as revenues declined from the year-ago period. Fresenius announced a deal to buy Rhoen-Klinikum for 3.1 billion euros and also reported 18 percent growth in its first quarter earnings. The company also raised its guidance for the full year. Meanwhile, Fresenius unit Fresenius Medical Care also reported a strong increase in its first quarter profits.

AstraZeneca (AZN) reported a decline in its first quarter profit and also lowered its full year profit forecast. The company also said its CEO David Brennan is quitting the company.

U.S. Economic Reports

New unemployment claims dipped slightly for the third week in April, disappointing economists who had predicted a notable drop. According to the Department of Labor, new unemployment claims for the week ending April 21, came in at a seasonally adjusted level of 388,000.

That marks a marginal drop of 1,000 new claims from the previous week's revised level of 389,000, which itself was revised up from the 386,000 initially reported. Most economists had forecast a somewhat significant drop in the level of new claims, predicting the figure would fall to roughly 375,000.

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 by percent in March.

U.S. pending home sales fell 0.5 percent month-over-month in February, while economists had been expecting a 1 percent increase. Pending home sales were lower in all regions except the Mid-west. Meanwhile, pending home sales were about 9.2 percent higher than a year ago.

Stocks in Focus

MetroPCS (PCS) reported a decline in its first quarter earnings, while revenues exceeded estimates.

O’ Reilly Automotive (ORLY) reported better than expected first quarter results. The company’s full year guidance surrounded the consensus estimate.

Cabot Oil & Gas (COG) reported first quarter adjusted earnings that came in line with estimates, while revenues trailed expectations.

Rock-Tenn’s (RKT) first quarter results exceeded estimates. Meanwhile, Cliff Natural (CLF) said its first quarter earnings fell to $2.63 per share from $3.11 per share last year. Revenues rose from a year-ago and beat analysts’ estimates.

Oceaneering (OII) announced a 3 cent per share increase in its quarterly dividend after it reported first quarter earnings and revenues that exceeded expectations. The company maintained its full year earnings guidance.

Xilinx (XLNX) reported fourth quarter earnings of 49 cents per share, ahead of the 41 cents per share consensus estimate. Net revenues were also above expectations. The company’s first quarter revenue guidance also exceeded estimates.

Watson (WPI) announced a deal to acquire Actavis for an upfront payment of 4.25 billion euros.

Emulex (ELX) reported better than expected results for its third quarter and issued upbeat guidance for its fourth quarter.

H&R Block (HRB) announced some strategic initiatives, including the elimination of 350 positions and closing 200 underperforming company-owned offices. The company also issued 2012 earnings and revenue guidance that was below estimates. The company also said it has initiated a search for a new CFO.

Time Warner Cable’s (TWC) first quarter earnings beat estimates, while its revenues were in line. Starwood Hotels & Resorts (HOT) reported better than expected first quarter earnings, while it raised its full year earnings guidance above consensus estimates.

Amazon.com (AMZN), Applied Micro (AMCC), BJ Restaurants (BJRI), Callaway Golf (ELY), Choice Hotels (CHH), Clearwire (CLWR), Deckers Outdoor (DECK), Eastman Chemical (EMN), Expedia (EXPE), Gilead Sciences (GILD), Ingram Micro (IM), KLA-Tencor (KLAC), MetLife (MET), NetSuite (N), Starbucks (SBUX), Verisign (VRSN), Western Digital (WDC) and Wynn Resorts (WYNN) are among the important companies due to release their quarterly results after the markets close.
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