Market Analysis

Beyond the Number

Sentiment Fluid Amid In Line GDP Data as Yellen Comes Calling
8/26/2016 9:04 AM

The major U.S. index futures are pointing to a slightly lower opening on Friday, with sentiment reflecting apprehensions of traders, as Fed Chair Janet Yellen is set to speak at Jackson Hole a short while from now. The dollar is losing some ground despite hopes among some quarters that the Chair will signal additional rate hikes in the near future.

Among domestic data, second quarter GDP growth was revised down slightly in line with estimates. Advance estimate showed that the goods trade deficit for July was narrower than expected. With most recent data points reflecting strengthening economic momentum, Yellen may have to walk a tight rope in interpreting the course of monetary policy for the markets.
U.S. stocks fell again on Thursday, as traders preferred to wait for Yellen's speech amid the release of some strong domestic data and a rebound by oil. 
The major averages opened lower but recovered in early trading and hovered mostly above the unchanged line till late afternoon trading. The averages subsequently slipped back into the red and languished below the unchanged line thereafter, ending modestly lower for the session. 
The Dow Industrials fell 33.07 points or 0.18 percent before ending at 18,448, the S&P 500 Index ended down 2.97 points or 0.14 percent at 2,173 and the Nasdaq Composite closed at 5,212, down 5.49 points or 0.11 percent. 
Nineteen of the thirty Dow components ended lower, while eleven stocks advanced. UnitedHealth (UNH), Nike (NKE) and Wal-Mart (WMT) were among the worst decliners of the session. 
Among the sectors, biotechnology stocks came under selling pressure yet again, but gold stocks regained ground. 
On the economic front, durable goods orders climbed 4.4 percent month-over-month in July following a revised 4.2 percent drop in June. Annually, durable goods orders fell 3.3 percent. Excluding transportation, orders rose a better than expected 1.5 percent month-over-month. Core capital goods orders were up 1.6 percent. However, shipments of this category of goods, which are directly plugged into GDP calculations, were down 0.4 percent. 
The Labor Department reported that jobless claims edged down to 261,000 in the week ended August 20th from an unrevised 262,000 for the previous week. Economists expected a reading of 265,000 for the week. 
The four-week average slipped to 264,000 from 265,250. Continuing claims calculated with a week's lag fell by 30,000 to 2.145 million in the week ended August 13th. 
Currency, Commodity Markets
Crude oil futures for October delivery are slipping $0.03 to $47.30 a barrel after climbing $0.56 to $47.33 a barrel on Thursday. Gold futures are currently trading at $1,330.70 an ounce, up $6.10 from the previous session’s close of $1,324.60 an ounce. On Thursday, gold fell $5.10. 

On the currency front, the U.S. dollar is trading at 100.27 yen compared to the 100.53 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1301 compared to yesterday’s $1.1285.
The lackluster mood continued in Asia, as traders were biding their time ahead of Yellen's speech. The Australian, Indian, Indonesian, Japanese, New Zealand, Singaporean and South Korean markets retreated, while the Taiwanese, Malaysian, Chinese and Hong Kong markets ended higher. 
The Japanese market fell, as the yen firmed up in the Asian session. The Nikkei 225 Index opened lower and languished below the unchanged line throughout the session before ending down 195.24 points or 1.18 percent at 16,361, the lowest level since August 5, 2016. 
Export, housing, pharma, real estate, retail, financial, insurance and utility stocks all saw weakness. On the other hand, beverage, cement, steel and some mining and chemical stocks gained ground. 

Australia's All Ordinaries Index spent the better part of the session below the unchanged line, ending near the lows of the session. At the close of trading, the index was down 24 points or 0.43 percent at 5,607. 
Energy, financial, industrial and real estate stocks fell steeply, but consumer staple, telecom and utility stocks advanced in the session. 
Meanwhile, Hong Kong's Hang Seng Index ended at 22,910, up 94.59 points or 0.41 percent, and China's Shanghai Composite Index closed at 3,070, up 1.98 points or 0.06 percent. 
On the economic front, a report released by Japan's Ministry of Internal Affairs and Communications showed that annual consumer price inflation in Japan came in at -0.4 percent in July, in line with estimates and unchanged from the level in June. This marks the fifth straight month of declines. Core CPI inflation was at –0.5 percent compared to expectations of 0.4 percent.  

European stocks are trading mixed amid some volatility, as traders await Yellen's speech later in the day.  The U.K. Market is seeing a small bounce upward, with positive domestic GDP data supporting sentiment, while the rest of the major markets are modestly lower
On the economic front, the results of a survey by the GfK Institute showed that German consumer confidence is set to improve in September. The forward-looking consumer climate indicator rose to 10.2 from 10 in August. The indexes measuring income expectations and the propensity to buy, which pertain to August, firmed up, while the economic expectations index fell. 
The second estimate released by French statistical office INSEE showed that the French economy stagnated in the second quarter, as initially estimated. GDP remained unchanged following the 0.7 percent growth in the first quarter. Household consumption and investment were weak. 
U.S. Economic Reports
U.S. economic activity in the second quarter grew by slightly less than initially estimated, according to a report released by the Commerce Department.

The report said gross domestic product increased by 1.1 percent in the second quarter, reflecting a downward revision compared to the originally reported 1.2 percent growth. The revision matched economist estimates. The downwardly revised GDP growth in the second quarter still reflects an acceleration from the 0.8 percent increase seen in the first quarter.
The advance report on trade in goods showed narrowing of the trade deficit to $59.3 billion in July from $63.3 billion in June, while the consensus estimate called for a deficit of $63.2 billion. 
The University of Michigan is set to release the final estimate of its U.S. consumer sentiment for August at 10 am ET. Economists expect the index to be upwardly revised to 90.7 from 90.4 in July.  
Yellen is scheduled to deliver a speech entitled "Designing Resilient Monetary Policy Frameworks for the Future" at the Kansas City Fed's monetary policy symposium in Jackson Hole, Wyoming, at 10 am ET. 
Stocks in Focus
Autodesk (ADSK) reported better than expected second quarter results and raised its full year guidance. 
Brocade Communications (BRCD) also reported above-consensus third quarter adjusted earnings per share and revenues. 
GameStop (GME) reported in line second quarter adjusted earnings per share, while its revenue trailed estimates. The company's third quarter earnings per share guidance was positive. 
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