Beyond the Numbers
Stimulus Trimming Fears Keep Sentiment Wary
6/19/2013 9:22 AM
The major U.S. index futures are pointing to a narrowly mixed opening on Wednesday, with sentiment reflecting caution as the Fed decision is due. Markets are worried over what the central bank has to stay about trimming stimulus. Although the Fed is unlikely to make any radical announcement, its thinking on the need for maintaining the massive stimulus program it has infused into the market has the potential to move the markets. With the markets having pulled back from their recent highs, even with a positive reaction, the markets undergo some degree of consolidation.
Federal Reserve Chairman Ben Bernanke’s task is clear cut. Bernanke is expected to reassure the markets, which went about a wild swing in the aftermath of his May 22nd Congressional testimony. He could go at length explaining how tapering of bond purchases is different from monetary policy tightening. If he is successful in doing so, the markets may enjoy a phase of temporary calm.
U.S. stocks gained for the second straight day on Tuesday, as the housing starts data was fairly positive and traders took a positive stance regarding the FOMC decision. The major averages opened slightly higher and advanced steadily until late trading. Thereafter, the averages consolidated their gains before closing higher.
The Dow Industrials ended up 138.38 points or 0.91 percent at 15,318 and the S&P 500 Index closed 12.77 points or 0.78 percent higher at 1,652, while the Nasdaq Composite closed at 3,482, up 30.05 points or 0.87 percent.
Twenty-eight of the thirty Dow components closed higher, with General Electric (GE), UnitedHealth Group (UNH), Verizon (VZ), American Express (AXP) and Intel (INTC) leading the gains.
Transportation, biotechnology, retail, semiconductor, computer hardware and financial stocks gained ground, while gold stocks slumped.
On the economic front, the Commerce Department reported that housing starts rose 6.8 percent month-over-month to a seasonally adjusted annual rate of 914,000 in May. Single family starts edged up 0.3 percent, while multi-family starts climbed 21.6 percent. Building permits considered, an indicator for future housing activity, fell 3.1 percent, roughly in line with estimates, to 974,000, which could be qualified as still-high levels.
Meanwhile, consumer prices edged up a mere 0.1 percent month-over-month in May, according to a report released by the Labor Department. Annually, consumer prices were up 1.4 percent. Excluding food and energy, core consumer prices rose 0.2 percent, in line with estimates and keeping the annual rate at 1.7 percent. Thus, inflation remains tame.
The Dow Industrials broke above its 21-day MA yesterday and settled just above a resistance level we pointed out in Tuesday’s article. The index’s move from its current level depends primarily on what Bernanke has to say about the timetable for the trimming of the stimulus. The index has near term resistances around 15,336 and 15394, while the 15,251, the 21-day MA (currently at 15,217), 15,186 and 15,069 levels could serve as supports.Currency, Commodity Markets
Crude oil futures are rising $0.04 to $98.71 a barrel after advancing $0.67 to $98.44 a barrel on Tuesday. An ounce of gold is currently trading at $1,370.90, up $4 from the previous session’s close of $1,366.90. On Tuesday, gold fell $16.20.
Among currencies, the U.S. dollar is trading at 94.99 yen compared to the 95.33 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.3396 compared to yesterday’s $1.3392.Asia
Most Asian markets retreated as traders lightened holdings ahead of the Fed decision, although the Japanese and Australian markets advanced, the former taking cues from positive domestic data and the latter from the strength in commodity prices.
Japan’s Nikkei 225 average opened notably higher and moved sideways in the morning. After legging down by the mid-session, the index consolidated until late trading. Subsequently, the average rose again but closed off the highs of the session. At the close of trading, the index was up 237.94 points or 1.83 percent at 13,245.
A majority of stocks advanced in the session, with Kawasaki Kisen, JFE Holdings, KDDI, ITOCHU, Kobe Steel, Sumitomo, Sumitomo Heavy Industries, Sumitomo Mitsui Financial and Furukawa leading the gains. On the other hand, real estate stocks lost ground in the session.
Australia’s All Ordinaries opened higher and moved broadly sideways until the afternoon. The index rose for a while until late afternoon before consolidating yet again and closing up 47.20 points or 0.98 percent at 4,842. The market witnessed broad based strength, with energy, consumer staple and material stocks leading the advance following a rise in commodity prices.
Hong Kong’s Hang Seng Index languished below the unchanged line throughout the session before closing down 218.57 points or 1.03 percent at 21,007. China’s Shanghai Composite closed 0.73 percent lower.
On the economic front, Japan’s Ministry of Finance reported that Japan had a trade deficit of 933.92 billion yen in May, narrower than the 1.22 trillion yen shortfall expected by economists. Exports climbed a solid 10 percent year-over-year, beating expectations for a 6.4 percent increase, while imports also rose 10 percent.
A report released by the Conference Board showed that its leading indicators index for Australia rose 0.3 percent month-over-month in May, marking the fourth straight month of growth. The coincident index also rose 0.3 percent. Europe
European stocks opened slightly higher but fell sharply in early trading and all three of the averages are currently trading lower.
In corporate news, Alcatel-Lucent (ALU) announced that it plans to sell at least 1 billion euros worth of assets. The company also seeks to cut costs by an incremental 1 billion euros. As a strategic decision, the company said it intends to focus on profitable businesses, including ultra-high speed Internet.
Swedish retailer H&M reported a decline in its second quarter profits that trailed estimates by most analysts, hurt by the domestic currency’s appreciation and weak demand in Europe among other things. U.S. Economic Reports
The Energy Information Administration is scheduled to release its weekly oil inventory report for the week ended June 14th at 10:30 am ET.
Crude oil inventories rose by 2.5 million barrel to 393.8 million barrels in the week ended June 7th. Inventories were above the upper limit of the average range for this time of the year.
Gasoline stockpiles increased by 2.7 million barrels and were also above the upper limit of the average range. Meanwhile, distillate inventories fell by 1.2 million barrels and remained in the lower half of the average range.
Refinery capacity utilization averaged 87.4 percent over the four weeks ended June 7th compared to 87.5 percent over the four weeks ended May 31st.
The Federal Reserve is scheduled to release its post meeting policy statement at 2 pm ET. This will be followed by the release of the FOMC forecasts at 2 pm and Bernanke’s press conference at 2:30 pm ET. Stocks in Focus
La-Z-Boy (LZB) reported fourth quarter earnings of 33 cents per share on sales of $359.54 million, up 9.8 percent year-over-year. The results exceeded estimates.
Adobe Systems’ (ADBE) second quarter earnings declined from the prior year period, but its adjusted earnings per share were above analysts' estimate. Revenue for the quarter declined from the year-ago quarter, but was in-line with the consensus estimate.
FedEx’s (FDX) fourth quarter profit declined from the prior year period, while its non-GAAP earnings per share topped Wall Street view. For fiscal 2014, the company projects earnings per share growth of 7 percent to 13 percent from fiscal 2013 adjusted results.
Weyerhaeuser (WY) announced that it has priced the public offering of 29 million of its common shares at $27.75 per share, a discount to the $28.24 at which the company’s stock closed on Tuesday. The company said it raised gross proceeds of $805 million from the offering.
Valeant Pharma (VRX) announced that it would issue 23.53 million shares of its common stock at $85 per share, to raise gross proceeds of $2 billion. The company’s shares closed Tuesday’s session at $85.86. The company said it intends to use the proceeds mainly for its previously announced acquisition of Bausch & Lomb.
DISH (DISH) said it is impracticable for it to table a revised bid for Sprint (S) by the June 15th deadline, as the latter has decided to prematurely terminate the due diligence process and accept an offer from SoftBank.
Texas Industries (TXI) announced that its board named Tom Randsell as the Chairman of its board, effective June 18th, 2013. He would occupy the position left vacant due to the untimely death of Bob Rogers.
Symmetricom (SYMM) announced a restructuring plan, which included workforce reduction of about 12 percent, consolidation of several organizations and the elimination of certain activities. The company expects to incur charges of about $7.5 million to $8 million related to the actions. The company also updated its fourth quarter results, expecting non-GAAP earnings of 5-7 cents per share on net revenue of about $51 million, down from its previous guidance.
Dell (DELL) said a special committee of the board has determined that billionaire investor Carl Icahn’s proposal for the company to self tender its shares worth $16 billion is in deviation with his earlier proposal for a buyout at $15 per share. The company said it cannot endorse and execute the proposal in its current state.
Avid Technology (AVID), Clarcor (CLC), Finisar (FNSR), Jabil Circuit (JBL), Micron Technology (MU), Red Hat (RHT) and Steelcase (SCS) are among the companies due to release their quarterly results after the close of trading.