Market Analysis

Beyond the Number

Rate Hopes, Deal News May Support Rebound
9/30/2014 9:21 AM

The major U.S. index futures are pointing to a higher opening on Tuesday, with sentiment suggesting optimism amid expectations that stimulatory environment is here to stay. Inflation data from the eurozone has given rise to expectations that more easing could be forthcoming from the European Central Bank. Additionally, a few deals announced earlier in the day could instill confidence in corporate profit growth. The markets could also closely track a consumer confidence and regional manufacturing data due to be released shortly after the markets open.

Rate fears and concerns over a global economic slowdown generated selling pressure in the U.S. markets on Monday, sending the major averages modestly lower. The major averages opened notably lower but trimmed their losses over the course of the morning, with the Nasdaq Composite Index even managing to sneak above the unchanged line on a couple of occasions. The averages were confined mostly below the unchanged line in the afternoon before closing lower for the session.

The Dow Industrials ended down 41.93 points or 0.25 percent at 17,071, the S&P 500 Index closed 5.05 points or 0.25 percent lower at 1,978 and the Nasdaq Composite Index ended at 4,506, down 6.34 points or 0.14 percent.

Twenty of the thirty Dow components closed lower, while the remaining ten stocks advanced. Exxon Mobil (XOM), General Electric (GE), Goldman Sachs (GS) and Chevron (CVX) were among the worst decliners of the session. On the other hand, Intel (INTC) and McDonald’s (MCD) rose notably.

Among the sectors, airline, gold and brokerage stocks moved notably to the downside.

On the economic front, the Commerce Department reported that personal income rose 0.3 percent month-over-month and personal spending was up 0.5 percent. The bulk of the increase in spending was due to spending on motor vehicles/parts. The savings rate eased to 5.4 percent from 5.6 percent. The price consumption expenditure index was unchanged compared to the previous month and was up 1.5 percent year-over-year. The core price consumption expenditure index edged up 0.1 percent from the previous month and climbed 1.5 percent from a year ago.

The National Association of Realtors reported that pending home sales declined 1 percent month-over-month in August. Annually, pending home sales fell 4.1 percent. Geographically, all regions, with the exception of the West, saw declines in pending home sales.

Currency, Commodity Markets

Crude oil futures are receding $0.06 to $94.51 a barrel after climbing $1.03 to $94.57 a barrel on Monday. Meanwhile, gold futures are slipping $11.50 to $1,207.30 an ounce. On Monday, gold rose $3.40 to $1,218.80 an ounce.

Among currencies, the U.S. dollar is trading at 109.74 yen compared to the 109.50 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is trading at $1.2595 compared to yesterday’s $1.2685.


The major Asian markets closed on a mixed note amid mixed economic data from the region and the continuing protests in Hong Kong. The negative cues from Wall Street overnight also hurt sentiment.

The Japanese market reacted to a slew domestic data, which painted a mixed picture of the economy and a small bounce back by the yen. Japan’s Nikkei opened lower and declined further in the morning before moving roughly sideways in the afternoon. The index ended down 137.12 points or 0.84 percent at 16,174. A majority of stocks declined in the session, led by Sumitomo, JX Holdings, Marubeni, Daikin Industries, Pacific Metals ITOCHU and Uny.

After seeing nervousness in early trading, Australia’s All Ordinaries advanced steadily before closing 27.20 points or 0.52 percent higher at 5,297. Financial, energy, healthcare, IT, material, telecom and utility stocks gained ground, while real estate and consumer staple stocks moved to the downside.

Hong Kong’s Hang Seng Index ended at 23,012, down 296.23 points or 1.28 percent, while China’s Shanghai Composite Index added 6.16 points or 0.26 percent higher at 2,364.

On the economic front, Japan’s Ministry of Internal Affairs and Communication reported that jobless rate in Japan came in at 3.5 percent in August, less than the 3.8 percent rate expected by economists. A separate report showed that average household spending in Japan fell 4.7 percent year-over-year in August, bigger drop than the 3.6 percent decline expected by economists.

The Ministry of Economy, Trade and Industry of Japan reported that retail sales rose a better than expected 1.2 percent year-over-year in August. A separate report released by the ministry showed that industrial production fell 1.5 percent month-over-month in August compared to expectations for a 0.2 percent increase. Another government report showed that housing starts fell at a slower than expected rate in August.

Revised estimate released by Markit and HSBC showed that manufacturing purchasing managers’ index for China came in at 50.2 in September, down from the flash estimate of 50.5.

The Reserve Bank of India left its key interest rates unchanged for the fourth straight meeting and said it sees upside risks to inflation.

Data released by the Reserve Bank of Australia showed that private sector credit in Australia rose 0.4 percent month-over-month in August, the same rate as in July. Economists had expected a 0.5 percent increase.


European stocks opened higher and but saw some volatility in early trading, as traders digested some overseas and domestic data. With the release of tamer eurozone inflation data, the French and the German markets built on their gains, while the U.K. market is lower. A preliminary report released by Eurostat showed that annual eurozone inflation slowed to 0.3 percent in September, marking the lowest since 2009.

In corporate news, U.K. plumbing supplies company Wolseley reported a strong increase in its full year profits and announced an increase in its dividend. The company also announced a 250 million pound stock buyback program. In its trading update, Royal Bank of Scotland (RBS) said its bad debts will be notably lower. Meanwhile, citing warm weather, fashion retailer Next warned that its annual profit forecast is now at risk.

On the economic front, a report released by the GfK/NOP showed that consumer confidence in the U.K. receded in September. The corresponding index slid to –1 in September from 1 in August. The Nationwide Building Society reported that house prices in the U.K. fell 0.2 percent month-over-month in August, snapping a 16-month run of rise in prices.

Revised estimates released by the U.K. Office for National Statistics showed that the U.K. economy grew by an upwardly revised 0.8 percent sequentially in the second quarter. The annual growth was left unrevised at 3.2 percent.

The German Federal Statistical Office reported that German retail sales climbed 2.5 percent month-over-month in August, reversing the 1.1 percent drop in July. Economists expected a 0.5 percent increase for the month. A separate report showed that jobless rate remained unchanged at 4.9 percent in August. Meanwhile, a report released by the German Federal Labor Agency showed that unemployment rate rose 6.7 percent in September.

U.S. Economic Reports

Standard & Poor’s released the S&P/Case-Shiller house price index for July, which fell a seasonally adjusted 0.5 percent month-over-month but rose an adjusted 0.6 percent year-over-year. Economists had expected the 20-city composite house price index to edge up 0.1 percent month-over-month.

Federal Reserve Governor Jerome Powell will participate on a panel discussing Treasury debt management in an era of quantitative easing in Washington at 9:30 am ET.

MNI Indicators is due to release the results of its manufacturing survey for the Chicago region at 9:45 am ET. The Chicago business barometer is expected to decline to 62 in September from 64.3 in August.

The business barometer jumped to 64.3 in August from 52.6 in July, with the barometer rising to the highest level since May 2014. The production index jumped more than 20 points while the news orders and order backlogs indexes also climbed sharply, while the employment index slid.

At 10 am ET, the Conference Board is scheduled to release the results of its consumer confidence survey for September. The consumer confidence index is expected to have remained little changed at 92.5 in September.

The consumer confidence index rose to a new 6-year high of 92.4 in August from 90.3 in July. The present situation index rose about 7 points to 94.6, while the expectations index slid 1 point to 90.9.

Stocks in Focus

eBay (EBAY) said its board has approved a plan to separate the company's eBay and PayPal businesses into independent publicly traded companies in 2015.

Walgreen (WAG) reported in line fourth quarter earnings and better than expected revenues.

Johnson & Johnson (JNJ) announced a deal to buy Alios BioPharma, a clinical stage biopharma company focusing on therapies for viral diseases, for $1.75 billion in cash.

News Corp (NWS, NWSA) announced that it has agreed to acquire online real estate business Move (MOVE) for $21 per share, or about $950 million through an all-cash tender offer.

Cintas (CTAS) reported first quarter adjusted earnings that beat estimates and its revenues were also above estimates. The company reduced its 2015 earnings and revenue guidance slightly, although the guidance is still in line with estimates.

Regeneron Pharma (REGN) and Sanofi (SNY) said a Phase II study of its investigational therapy for chronic sinusitis with nasal polyps, namely dupilumab, met all primary and secondary endpoints.

SM Energy (SM) announced that Anthony Best will retire from the company as its CEO, effective January 31, 2015. As previously announced, the company’s board appointed Javan Ottoson, its COO, to the board, effective September 26, 2014, and Ottoson will take over the CEO role upon Best’s retirement.

Cisco Systems (CSCO) announced the completion of its acquisition of privately held private cloud operator Metacloud.

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