Market Analysis

Beyond the Number

Mixed Earnings Stifle Risk Appetite
7/28/2016 9:01 AM

The major U.S. index futures are pointing to a lower opening on Thursday, with  sentiment not getting a real lift in the wake of mixed earnings news flow. That said, a tech deal announced earlier in the day, involving Oracle, could support the space. Commodities are all higher and the dollar is weaker, except against the pound. The jobless claims report released a short while ago showed bigger than expected increase in claims for the recent reporting week. Stocks across the Atlantic are trading on a lackluster note, as earnings season picks up momentum in Europe. With the Bank of Japan expected to pronounce its monetary policy decision tomorrow, traders may prefer to stay on the sidelines.
U.S. stocks went about a lackluster run yet again on Wednesday and closed mixed following the FOMC announcement.  
The major averages opened higher but declined through the morning. After a volatile mid-session, when the Dow Industrials dipped briefly below the unchanged line a couple of times, the index recovered. The index moved higher in the afternoon but gave back its gains by late trading, ending down 1.58 points or 0.01 percent at 18,472. 
The S&P 500 Index languished mostly below the unchanged line before ending 2.60 points or 0.12 percent lower at 2,167. However, the Nasdaq Composite held mostly above the unchanged line, thanks to a boost from Apple (AAPL), and ended 29.76 points or 0.58 percent higher at 5,140. 
Twenty of the thirty Dow components declined in the session but 10 stocks advanced. Coca-Cola (KO), McDonald's (MCD), Travelers (TRV), Nike (NKE), Microsoft (MSFT) and Procter & Gamble (PG) were among the biggest decliners of the session, while Apple jumped 6.58 percent. Caterpillar (CAT) and Verizon (VZ) gained ground.  
Among the sectors, oil service, oil, utility and transportation stocks fell steeply even as gold and biotechnology stocks moved notably to the upside. 
On the economic front, the FOMC statement revealed that the Fed is of the view that economic activity is expanding at a moderate rate compared to its assessment in June that growth is picking up pace. The labor market was qualified as strengthening after opining that it slowed in June following the release of May payrolls data. The Fed also noted that labor utilization has increased in recent months.  
The assessment that business fixed investment has been soft was maintained, and the inflation commentary of the central bank was also retained. As an addition, the central bank noted that near term risks to the economic outlook have diminished. Kansas City Federal Reserve President Esther George was the sole dissenter, seeking a 25 basis points rate hike at the meeting. 
The Commerce Department reported that durable goods orders fell 4 percent month-over-month in June compared to the 1.3 percent drop expected by economists. Annually, durable goods orders were down 6.4 percent. Excluding transportation, orders were down 0.5 percent month-over-month, belying expectations for a 0.3 percent increase. The annual rate of change in ex-transportation orders was -3.6 percent. Non-defense capital goods orders, excluding aircraft and parts, a measure of capital spending, were up a mere 0.2 percent. 
The National Association of Realtors reported that pending home sales rose 0.2 percent month-over-month in June, much smaller than the 1.3 percent increase expected by economists. On a year-over-year basis, pending home sales were up 1 percent.  

Currency, Commodity Markets
Crude oil is currently rising $0.07 to $41.99 a barrel. The September futures ended the previous session down $1 at $41.92 a barrel.  
The decrease seen in the previous session came amid the release of the weekly petroleum status report for the week ended July 22nd, which showed that crude oil stockpiles increased by 1.7 million barrels to 521.10 million barrels. Stockpiles were at historically high levels for this time of year.
Gasoline inventories increased by 0.5 million barrels and were well above the upper limit of the average range. Meanwhile, distillate inventories decreased by 0.8 million barrels but were above the upper limit of the average range for this time of the year.
Refinery capacity utilization averaged 92.6 percent over the four weeks ended July 22nd compared to 92.7 percent for the four weeks ended July 15th.
Gold futures are currently trading at $1,342 an ounce, up $15.30 from the previous session’s close of $1,328.60 an ounce. On Wednesday, gold rose $7.80. 

On the currency front, the U.S. dollar is trading at 104.84 yen compared to the 105.40 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1095 compared to yesterday’s $1.1058.

The major Asian markets closed on a lackluster note, weighed down by the mixed close on Wall Street overnight. The Japanese, Hong Kong, Malaysian, Singaporean and South Korean markets retreated, while the rest of the major markets advanced. 
The Japanese market reversed course as the yen gained ground following yesterday's FOMC announcement. The Nikkei 225 Index opened notably lower and languished below the unchanged line throughout the session, ending down 187.98 points or 1.13 percent at 16,477. 
Construction, retail, real estate, chemical, pharma, financial, telecom, utility export and resource stocks all moved to the downside. Food stocks ended mixed. 
Australia's All Ordinaries Index held above the unchanged line throughout the session before closing up 21.70 points or 0.4 percent at 5,637. Most sectors gained ground, led by consumer and material stocks. However, energy stocks ended notably lower. 
Hong Kong's Hang Seng Index ended at 22,123, down 95.66 points or 0.43 percent, while China's Shanghai Composite Index lost 95.66 points or 0.43 percent before ending at 22,123. 
On the economic front, a report released by the Australian Bureau of Statistics showed that export prices rose 1.4 percent sequentially in the second quarter, slower than the 3 percent increase expected by economists. Imports prices fell 1 percent, belying expectations for an increase. On an annual basis, export and import prices fell 8.7 percent and 2.8 percent, respectively 

European stocks are also seeing volatility amid reaction to domestic economic and corporate news. Traders also remain guarded ahead of tomorrow's Bank of Japan rate decision. 

In major corporate news, Volkswagen reported that its second quarter net profit fell 57 percent, hit by rising financial costs and falling sales. Linde Group reported weaker second quarter revenue. Adidas raised its 2016 guidance for the fourth time this year after reporting a 77 percent jump in second quarter operating profit.
Deutsche Boerse reported a quarterly net profit that topped expectations due to enhanced derivatives trading around the date of the U.K. referendum. Credit Suisse (CS) reported an unexpected profit for its second quarter, as it reigned in costs. 
On the economic front, German unemployment fell more than expected in July, data from the country's labor agency showed. While the number of people out of work fell by an adjusted 7,000 in July from the previous month, the unemployment rate held steady at 6.1 percent, the lowest since German reunification. 
Separately, the results of a survey by the European Commission revealed that Eurozone economic confidence unexpectedly strengthened in July after the "Brexit" vote. The economic sentiment index rose to 104.6 from 104.4 in June.  

German consumer prices increased for a third straight month in July and at the fastest pace in six months, preliminary data from Destatis showed The flash consumer price index rose 0.4 percent year-over-year following a 0.3 percent increase in June. Economists had expected the inflation rate to remain unchanged. The EU measure of inflation, the harmonized index of consumer prices, also rose 0.4 percent year-on-year in July after a 0.2 percent climb in June. Economists had expected 0.3 percent increase. 
U.S. Economic Reports
The Commerce Department's goods trade balance report for June showed a deficit of $63.3 billion from an upwardly revised deficit of $61.1 billion for May. Economists expected the goods deficit to widen to $61.1 billion from the $60.6 billion deficit initially estimated for May. 

First-time claims for U.S. unemployment benefits rose by slightly more than expected in the week ended July 23rd, according to a report released by the Labor Department.

The report said initial jobless claims climbed to 266,000, an increase of 14,000 from the previous week's revised level of 252,000. Economists had expected jobless claims to rise to 264,000 from the 253,000 originally reported for the previous week.
The Kansas City Federal Reserve is set to release its regional manufacturing index for July at 11 am ET. In June, the index was at 2. 
The Treasury is due to announce the results of its auction of 7-year notes at 1 pm ET. 
Stocks in Focus
Facebook (FB) reported better than expected second quarter results, helped in part by higher ad revenues. 

Ford (F) reported below-consensus second quarter adjusted earnings per share but its revenues trailed estimates. The company expects lower full year pre-tax results.

Amgen (AMGN) raised its 2016 non-GAAP earnings per share guidance after reporting better than expected second quarter results. 

ConocoPhillips (COP) reported below-consensus earnings for its second quarter.

Boston Scientific (BSX) raised its full year guidance after reporting strong second quarter results.
Barrick Gold (ABX) reported an adjusted profit for the second quarter that was in line with estimates. 
Cheesecake Factory (CAKE) reported better than expected second quarter adjusted earnings per share but its revenues missed estimates. The company announced a 20 percent increase in its dividend and raised its share purchase authorization by 7.5 million shares. 
GoPro's (GPRO) second quarter results topped expectations. Groupon (GRPN) also reported better than expected second quarter results and raised its revenue forecast for the year. 

 Oracle (ORCL) announced a definitive agreement to acquire NetSuite (N) in a deal valued at $109.00 per share in cash, or approximately $9.3 billion.
InterActive's (IAC) second quarter adjusted earnings and revenues were above estimates. 
Marriott International (MAR) reported better than expected second quarter adjusted earnings per share and revenues. 
Knight Transportation (KNX) reported above-consensus earnings for its second quarter but its revenues were light.  
NETGEAR's (NTGR) second quarter results were ahead of estimates and its third quarter revenue guidance was in line. 
Whole Foods (WFM) reported better than expected bottom line results and its revenues rose modestly. The company's fourth quarter guidance was lackluster. 
Among insurers, Unum Group (UNM) and XL Group (XL) reported better than expected second quarter operating earnings per share. 
Alphabet (GOOG), Amazon (AMZN), Arthur J. Gallagher (AJG), Baidu.com (BIDU), CBS (CBS), Expedia (EXPE), Hanover Insurance (THG), Ingram Micro (IM), KLA-Tencor (KLAC), Live Nation (LYV), Netsuite (N), Verisign (VRSN), Western Digital (WDC) and Wynn Resorts (WYNN) are among the companies due to release their quarterly results after the close of trading.
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