Market Analysis

Beyond the Numbers

Risk Appetite Sustained Post-Brexit Sell-Off
6/29/2016 9:07 AM

The major U.S. index futures are pointing to a higher opening on Wednesday, with sentiment reflecting the sustenance of risk appetite despite the Brexit vote. Risky bets such as commodities are higher. The currency space is showing strength for the euro and yen, but the U.S. dollar is higher against most other major currencies. Having digested the Brexit, European stocks are solidly higher for the second straight session. Domestically, personal income and spending data released a short while ago showed increases in both metrics. The momentum arising out of bargain hunting could help stocks further recover from their post-Brexit losses.

U.S. stocks advanced on Tuesday, rebounding from 2 days of steep losses amid an increase in risk appetite, which proved salubrious for risky bets.

The major averages opened higher and moved roughly sideways until late trading. The averages advanced further going into the close, ending notably higher for the session. The Dow Industrials added 269.48 points or 1.57 percent before ending at 17,410, the S&P 500 Index closed 35.55 points or 1.78 percent higher at 2,036 and the Nasdaq Composite ended at 4,692, up 97.42 points or 2.12 percent.

Twenty-nine of the thirty Dow components rose in the session, with General Electric (GE), Goldman Sachs (GS), Home Depot (HD), JP Morgan Chase (JPM), Microsoft (MSFT), Nike (NKE), Travelers (TRV) and Exxon Mobil (XOM) leading the gains. On the other hand, DuPont (DD) fell steeply.

Among the sectors, transportation, energy, biotechnology, retail, housing, semiconductor, computer hardware and brokerage stocks rallied, but gold stocks retreated.

On the economic front, revised estimates released by the Commerce Department showed that first quarter GDP rose 1.1 percent sequentially, upwardly revised from the 0.8 percent increase estimated initially. Investment in software was upwardly revised, trimming the negative contribution from non-residential investment. Net exports added more than 0.1 percentage points to GDP.

The S&P/Case-Shiller 20-city composite house price index rose 0.5 percent month-over-month in April, smaller than the 0.6 percent increase expected by economists. In March, prices were up 0.9 percent. Annually, house price growth slowed to 5.4 percent from 5.5 percent.

The Conference Board said its consumer confidence index rose to 98 in June from a downwardly revised reading of 92.4 for May. The present situation index rose 5.1 points to 118.3 and the expectations index was up 6 points at 84.5.

Currency, Commodity Markets

Crude oil futures for August delivery are rising $0.49 to $48.34 a barrel after jumping $1.52 to $47.85 a barrel in the previous session.?Meanwhile, an ounce of gold for August delivery is currently trading at $1,324.70, up $6.80 from the previous session’s close of $1,317.90. On Tuesday, gold fell $6.80.?

On the currency front, the U.S. dollar is trading at 102.76 yen compared to the 102.30 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1081 compared to yesterday’s $1.1065.?


The major Asian markets rose across the board, as risk appetite got further entrenched in the markets.

The Japanese market ended higher, as the yen’s rally stalled and the currency stabilized around the low-102 level mark against the dollar. Expectations of domestic policy support also generated buying interest.

The Nikkei 225 Index opened higher but lost part of its gains by late morning trading. After recovering and advancing till the mid-session, the index went about a consolidation move in the afternoon. At the close of trading, the index was up 243.69 points or 1.59 percent at 15,567.

Export, utility, telecom, marine transportation, construction, real estate, financial and resource stocks moved to the upside. On the other hand, retail and food stocks lost ground.

Australia’s All Ordinaries Index hovered above the unchanged line throughout the session before ending up 41.30 points or 0.80 percent at 5,221. IT, telecom, consumer, energy, material and financial stocks led the gains.

China’s Shanghai Composite Index closed at 2,932, up 19.03 points or 0.65 percent, and Hong Kong’s Hang Seng Index climbed 263.66 points or 1.31 percent to 20,436.

On the economic front, a report released by Japan’s Ministry of Economy, Trade and Industry showed that retail sales in Japan came in roughly unchanged in May compared to the previous month. This was in line with estimates and followed a 0.1 percent drop in April. Annually, retail sales fell 1.8 percent, steeper than the 1.6 percent drop forecast. Sales by large retailers fell 2.5 percent, exceeding the consensus estimate of a 1.6 percent decline.

New home sales in Australia decreased for the second consecutive month in May, the Housing Industry Association reported. Total home sales dropped a seasonally adjusted 4.4 percent sequentially in May, slower than the 4.7 percent decline in April.


European stocks opened higher, advancing for the second straight session.

In major corporate news, the U.K.’s HomeServe reported that it continues to trade in line with the guidance issued on May 24th. The company also sees a weaker pound boosting profits.

On the economic front, the results of the GfK Institute’s forward looking consumer confidence survey showed that consumer sentiment is set to improve in July despite the Brexit vote. The consumer confidence index for July is set to increase to 10.1 from 9.8 in June.

Among the sub-indexes for June, the economic expectations index and the income expectations index improved, while the index measuring the willingness to buy deteriorated.

The U.K. Nationwide Building Society reported that house prices in the U.K. grew at an accelerated pace in June. House prices rose 5.1 percent year-over-year in June following a 4.7 percent increase in May, reaching the fastest rate of growth in 3 months. Economists had forecast a 4.9 percent increase for the month.

Data released by the Bank of England showed that U.K. mortgage approvals increased in May, with the number of loans approved for house purchases rising to 67,042 from 66,205 in April. Economists expected a drop to 65,000. Total lending to individuals increased by 4.3 billion pounds in May, below the 5.1 billion pound-average over the previous 6 months.

Consumer credit rose by 1.5 billion pounds in May, in line with expectations. The M4 monetary aggregate climbed 1.2 percent in May from April, when it fell 0.1 percent. On a yearly basis, the growth in M4 improved to 1.8 percent from 1.1 percent.

U.S. Economic Reports

The Commerce Department released a report showing a slightly smaller than expected increase in U.S. personal income in the month of May, although the report also said personal spending climbed in line with economist estimates.

The report said personal income edged up by 0.2 percent in May after rising by an upwardly revised 0.5 percent in April. Economists had expected income to rise by 0.3 percent compared to the 0.4 percent increase originally reported for the previous month.

Meanwhile, the Commerce Department also said personal spending climbed by 0.4 percent in May after spiking by an upwardly revised 1.1 percent in April. Spending had been expected to increase by 0.4 percent compared to the 1.0 percent jump originally reported for the previous month.

The National Association of Realtors is due to release its pending home sales index for May at 10 am ET. The consensus estimate calls for a 1 percent drop by the index.

Pending home sales?surged up?5.1 percent month-over-month in April, much?stronger?than the 0.8 percent increase expected by economists. Among the?regions,?the?West saw an 11.4 percent jump in?pending?sales,?and pending sales increased 5.1 percent in the South.??

The Energy Information Administration is set to release its weekly petroleum status report for the week ended June 24th at 10:30 am ET.

Crude oil stockpiles fell by 0.9 million barrels to 530.60 million barrels in the week ended June 17th. Despite the drop, stockpiles were at historically high levels for this time of the year.?

Meanwhile, gasoline inventories rose by 0.6 million barrel and were well above the upper limit of the average range. Distillate inventories increased by 0.2 million barrels and were well above the upper limit of the average range for this time of the year.

Refinery capacity utilization averaged 90.5 percent over the four weeks ended June 17th compared to 90.1 percent for the four weeks ended June 10th.?

Stocks in Focus

Nike (NKE) reported better than expected fourth quarter profits but its revenues just missed estimates. The company also said futures orders for NIKE Brand athletic footwear and apparel rose 8 percent and 11 percent on a currency neutral basis, shy of estimates.

A. Schulman (SHLM) reported above-consensus adjusted earnings and consolidated net sales for its third quarter. The company also reaffirmed its 2016 adjusted earnings per share guidance.

First Midwest Bancorp (FMBI), the parent of First Midwest Bank, announced a deal to buy Standard Bancshares, the holding company of Standard Bank and Trust Company, for $365 million in stock.

FLIR Systems (FLIR) announced that it has acquired Armasight, a developer of sporting, hunting and military optics products, for about $41 million in cash.

Pier 1 Imports (PIR) and Progress Software (PRGS) are among the companies due to release their quarterly results after the close of trading.
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