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Beyond the Numbers

Sentiment May Remain Nervous Ahead of Week’s Key Events
1/26/2015 9:07 AM

The major U.S. index futures are pointing to a mixed opening on Monday with sentiment reflecting the nervous mood of the market participants ahead of some key events of the week. Earlier in the day, Greek elections results stirred anxiety in the global markets. After starting on a nervous note, stocks in Germany and France found some footing following the release of better than expected German business sentiment reading. With domestic earnings offering not much direction, the markets may focus on a service sector reading due shortly after the markets open.

U.S. stocks reversed course and advanced in the week ended January 23rd, as hopes of a benevolent stance by the European Central Bank helped sustain the markets for much of the week.

Last Tuesday, when the major averages opened after Monday’s public holiday in observance of ‘Martin Luther King Jr. Day,’ the major averages ended modestly higher after a volatile session, as traders harbored optimism concerning stimulus by the ECB. Stocks ended higher yet again on Wednesday amid the release of mixed earnings and economic news.

With the ECB delivering beyond what the Street expected, the major averages rallied strongly on Thursday, extending the gains for a fourth straight session. Profit taking kicked in on Friday, resulting in a mixed close on Wall Street. The Dow Industrials and the S&P 500 Index ended moderately lower, while the Nasdaq Composite rose for the fifth straight session.

For the week ended January 23rd, the Dow Industrials added 0.92 percent, the S&P 500 Index gained 1.60 percent and the Nasdaq Composite advanced 2.66 percent.



Among the sector indexes, the NYSE Arca Airline Index rallied 7.05 percent for the week and the Dow Jones Transportation Average, the NYSE Arca Oil & Gas Index and the Philadelphia Semiconductor Index rose more than 2 percent each. Additionally, the NYSE Arca Biotechnology Index and the KBW Bank Index gained close to 2 percent each. On the other hand, the NYSE Arca Gold Bugs Index slid 2.24 percent.

Currency, Commodity Markets

Crude oil futures are climbing $0.32 to $45.91 a barrel after declining $3.10 or 6.37 percent to $45.59 a barrel in the week ended January 23rd. Gold futures, which rose $15.70 or 1.23 percent to $1,292.60 an ounce last week, are currently sliding $6.70 to $1,285.90 an ounce.

Among currencies, the U.S. dollar moved mostly higher in the week ended January 23rd, with the buck adding 3.46 percent against the euro before ending the week at $1.1204. The dollar strength against the euro came in response to the ECB stimulus. At the same time, with the Bank of Japan opting not to tinker with rates at last week’s Monetary Policy Board meeting, the dollar rose a mere 0.18 percent against the yen last week.


The greenback is currently trading at 118.39 yen and is valued at $1.1257 versus the euro.

Asia

The major Asian markets ended mixed, with the Chinese, Hong Kong, New Zealand and Taiwanese markets ending higher, while the rest of the markets in the region closed in negative territory. A rise in risk aversion following the victory of the leftist Syriza party in Greece and the lackluster performance by Wall Street stocks on Friday rendered the mood cautious in Asia. The Australian and Indian markets remained closed on account of Australia Day and Republic Day, respectively.

The Nikkei 225 average opened sharply lower but cut some of its losses in early trading. Thereafter, the average moved sideways until late trading before recouping some more losses going into the close. The index ended down 43.23 points or 0.25 percent at 17,469.

The yen’s strength weighed on most export stocks, while resource, real estate, insurance, pharma, retail, electric utilities and telecom stocks also came under selling pressure.

Despite languishing below the unchanged line for the bulk of the session, China’s Shanghai Composite Index moved decisively above the unchanged line by late trading before ending up 31.42 points or 0.94 percent at 3,383.

Hong Kong’s Hang Seng Index ended at 24,910, up 59.45 points or 0.24 percent.

On the economic front, a report released by Japan’s Ministry of Finance showed that the Japanese trade deficit narrowed in December, with the deficit at 660.70 billion yen in December compared to 893.5 billion yen in November. Economists expected a deficit of 660.7 billion yen for the month. Exports rose year-over-year, while imports also rebounded.

The minutes of the Bank of Japan’s January Monetary Policy Board meeting showed that policymakers felt that the decline in oil prices will positively influence the economy and inflation in the longer run, although dragging inflation further in the short term. At the January meeting, the central bank left its monetary policy unchanged, although it trimmed its near-term inflation forecast.

Europe

European stocks opened lower, as the ECB optimism waned and profit taking finally caught up with the markets following seven straight sessions of gains. After some volatility in early trading, the averages are currently mixed.

In corporate news, Irish airline Air Lingus Group confirmed that it has received a revised proposal to be bought by IAG for 2.50 euros per share in cash and a cash dividend of 0.05 euros per share.

On the economic front, the results of a survey by the IfO Institute showed that business climate in Germany improved in January. The business climate index rose to 106.7 in January from 105.5 in December, exceeding the consensus estimate of 106.4. While the current conditions index was better than expected, the expectations index was soft.

U.S. Economic Reports

The year’s first FOMC meeting and some consumer and housing readings are expected to dominate proceedings in the unfolding week. With growth data in the U.S. turning more and more vibrant, traders fear that the Fed may be forced to begin normalizing rates even as uncertainties cloud the global economic outlook. Against this backdrop, the week’s FOMC meeting assumes a lot of importance to gauge the Fed’s pulse.

The most focused on events of the week are likely to be the 2-day FOMC meeting that gets underway on Tuesday, consumer sentiment readings for January by the Conference Board and the University of Michigan, the advance fourth quarter GDP estimate, the Commerce Department’s new home sales and durable goods orders reports for December, the National Association of Realtors’ pending home sales index for December and the weekly jobless claims report.

Markit’s preliminary U.S. service sector reading for January, the house price index for November based on the S&P/Case-Shiller survey and the results of MNI Indicators’ manufacturing survey for January are also some closely watched events of the week. The results of a couple of regional manufacturing surveys, the Labor Department’s employment cost index for the fourth quarter and the results of Treasury auctions of 2-year, 5-year and 7-year notes round up the economic events of the week.

Markit is scheduled to release the preliminary results of its service sector survey for January at 9:45 am ET. The service sector purchasing managers’ index is expected to rise to 53.8 from 53.6 in December.

The Dallas Federal Reserve is scheduled to release the results of its manufacturing survey for January at 10:30 am ET. The business activity index is expected to edge down to 4 in January from 4.1 in December.

Stocks in Focus

Seagate (STX) reported in line third quarter earnings, while its revenues were shy of estimates.

D.R. Horton’s (DHI) first quarter results were better than expected.

Norfolk Southern’s (NSC) fourth quarter earnings were ahead of estimates, while its revenues were below estimates.

Raytheon (RTN) has acquired privately-held Sensintel, a provider of unmanned aircraft systems or UAS solutions to the intelligence and special operations markets. Terms of the agreement were not disclosed.

Healthways (HWAY) announced that its board is exploring strategic alternatives to enhance shareholder value.

Axis Capital (AXS) and PartnerRe (PRE) announced an $11 billion merger agreement. The agreement provides for PartnerRe shareholders receiving 2.18 shares of the combined entity’s shares for each share they hold, while Axis Capital shareholders will receive 1 share of the combined company per Axis share.

Crane (CR), J&J Snack Foods (JJSF), Microsoft (MSFT), MicroStrategy (MSTR), Packaging Corp. (PKG), Plum Creek (PCL), Rambus (RMBS), RLI Corp. (RLI), Sanmina (SANM) and Texas Instruments (TXN) are among the companies due to release their quarterly results after the close of trading.
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