Market Analysis

Beyond the Numbers

Momentum May Slow Amid Mixed Earnings, Weak Chinese Manufacturing Data
4/23/2014 9:24 AM

The major U.S. index futures are pointing to a modestly lower opening on Wednesday, with sentiment turning subdued following the recent run up. Also weighing on sentiment would be Markit’s Chinese manufacturing index for April, which suggested fourth straight month of contraction by the Chinese manufacturing sector. The ongoing standoff in Ukraine could also render the mood cautious. The domestic earnings news flow has been mixed and therefore, the markets are expected to tread cautiously, even as they look ahead to the news home sales data due shortly after the markets open.

U.S. stocks extended their gains on Tuesday, helped by some fairly robust earnings and M&A news. The major averages opened higher and advanced further amid the release of a report showing a smaller than expected drop in existing home sales. After climbing steadily till late trading, the averages gave back some of their gains before closing firmly positive for the session.

The Dow Industrials ended up 65.12 points or 0.40 percent at 16,514 and the S&P 500 Index closed 7.66 points or 0.41 percent higher at 1,880, while the Nasdaq Composite Index closed at 4,162, up 39.91 points or 0.97 percent.

Nineteen of the thirty Dow components closed higher, with UnitedHealth (UNH), Merck (MRK), Goldman Sachs (GS) and Caterpillar (CAT) leading the gains.

Biotechnology, gold and semiconductor stocks were among the best performers of the session.

On the economic front, the National Association of Realtors reported that existing home sales came in at a seasonally adjusted annual rate of 4.59 million units in March compared to a 4.6 million rate in February. Existing home sales are now at the lowest level since July 2012.

Sales were higher in the Northeast and Midwest, while sales fell in the South and West. Inventories measured in terms of months of supply rose to 5.2 months in March from 5 months in February. First time homebuyers accounted for 30 percent of the total sales.

Commodity, Currency Markets

Crude oil futures are slipping $0.14 to $101.61 a barrel after sliding $1.90 to $101.75 a barrel on Tuesday. An ounce of gold is currently fetching $1,285.70, up $4.60 from the previous session’s close of $1,281.10. On Tuesday, gold fell $7.40.

Among currencies, the U.S. dollar is trading at 102.30 yen compared to the 102.62 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.3830 compared to yesterday’s $1.3805.


The major Asian markets closed on a mixed note, with the Hong Kong, Chinese, South Korean and Taiwanese markets retreating, while most other major markets moved to the upside. The positive sentiment generated by Wall Street’s strong performance overnight was offset to some extent by weak Chinese manufacturing data.

Japan’s Nikkei 225 index rallied strongly, as the yen weakened amid an increase in risk appetite. The index opened sharply higher and moved roughly sideways throughout the remainder of the session before closing up 157.50 points or 1.09 percent at 14,546. A majority of stocks advanced, led by export stocks.

Australia’s All Ordinaries also hovered above the unchanged line throughout the session, ending 35.10 points or 0.64 percent higher at 5,502. The market witnessed broad based strength, with energy stocks among the standout performers.

Meanwhile, Hong Kong’s Hang Seng Index closed at 22,510, down 221.04 points or 0.97 percent, and China’s Shanghai Composite fell 5.45 points or 0.26 percent to 2,067.

On the economic front, a preliminary report released by HSBC and Markit Economics showed that manufacturing activity in China continued to contract in April. The manufacturing purchasing managers’ index rose to 48 in April from 47.2 in March but remained below the key 50 level.

The Australian Bureau of Statistics reported that consumer prices in Australia rose at a slower pace of 0.6 percent sequentially in the first quarter, while economists estimated a 0.8 percent rate. Meanwhile, the Reserve Bank of Australia’s trimmed mean quarterly consumer price inflation was also slower than expected at 0.5 percent.


European stocks are seeing weakness amid profit taking following the solid advances seen yesterday. Traders are also focusing on some domestic corporate and economic news and the Chinese manufacturing data.

In corporate news, British chipmaker Arm Holdings reported higher first quarter earnings and revenues. Meanwhile, Ericsson (ERIC) reported first quarter sales that missed expectations.

On the economic front, Markit’s survey showed that growth in eurozone private sector activity picked up the pace in March, expanding at the fastest rate in 35 months. The composite purchasing managers’ index unexpectedly rose 0.9 points to 54, with the manufacturing index edging up 0.3 points to 53.3 and the service sector index advancing 0.9 points to 53.1.

Meanwhile, the minutes of the Bank of England meeting held on April 9 showed that policymakers unanimously decided to maintain the key bank rate at a historic low of 0.50 percent and the central bank’s monetary stimulus at 375 billion pounds. The minutes also showed that the members did not feel the need for policy tightening or loosening, as the unemployment rate remained above the 7 percent threshold.

U.S. Economic Reports

Markit is scheduled to release its flash estimate for the U.S. manufacturing index for April at 9:45 am ET. The consensus estimate calls for an increase in the index to 56.3 from 55.5 in March.

The Commerce Department is scheduled to release its new home sales report for March at 10 am ET. Economists expect new home sales to come in at a seasonally adjusted annual rate of 455,000 in March compared to 440,000 in February.

New home sales came in at a seasonally adjusted annual rate of 440,000 in February, while the January reading was downwardly revised by 13,000. Inventories of new homes in terms of months of supply rose to 5.2 months from 5 months, while the median price of a new home fell 1.2 percent year-over-year, marking the first drop since June 2012.

The Energy Information Administration is due to release its weekly petroleum status report for the week ended April 18th at 10:30 am ET.

Crude oil stockpiles rose by 10 million barrels to 394.1 million barrels in the week ended April 11th. Inventories remained above the average range for this time of the year.

Meanwhile, gasoline inventories slipped by 0.2 million barrels and were near the lower limit of the average range. Distillate stockpiles declined by 1.3 million barrels and were below the lower limit of the average range. Refinery capacity utilization averaged 87.5 percent over the four weeks ended March 11th compared to 86.7 percent over the four weeks ended April 4th.

The Treasury Department will release the results of its auction of $35 billion worth of five-year notes at 1 pm ET.

Stocks in Focus

AT&T (T) reported first quarter earnings and revenues that beat estimates. The company also raised its revenue growth guidance for 2014 to 4 percent or greater but maintained its earnings guidance.

Boeing (BA) reported better than expected first quarter results and raised its earnings outlook for 2014. Procter & Gamble (PG) reported first quarter earnings beat estimates, while its revenues trailed expectations. The company reaffirmed its 2014 guidance.

Cree (CREE) reported third quarter earnings that were ahead of expectations, while its revenues were slightly shy of estimates. The company’s 2014 earnings guidance was in line but its revenue guidance was lukewarm.

Amgen (AMGN) reported first quarter results that trailed expectations, and the company’s 2014 guidance was lukewarm.

Juniper Networks (JNPR) reported first quarter non-GAAP net income of 29 cents per share on net revenues of $1.17 billion. The earnings were in line and the revenues were better than expected. For the second quarter, the company expects non-GAAP earnings of 36-39 cents per share on revenues of $1.20 billion to $1.23 billion. The guidance was positive.

Yum Brands (YUM) reported first quarter earnings that were ahead of expectations but its revenues were shy of estimates. The company reaffirmed its full year 2014 earnings per share growth guidance of 20 percent.

Packaging Corp. of America’s (PKG) first quarter results were better than expected but its second quarter earnings guidance was weak.

Sanmina (SANM) reported better than expected second quarter results and issued positive guidance for the second quarter.

Genworth (GNW) announced that its Australian unit has filed a prospectus with the Australian Securities and Investment Commission for an initial public offering of up to 40 percent of its ordinary shares. The company expects gross proceeds between $400 million and $700 million from the offering.

In response to Valeant Pharma’s (VRX) offer, Allergan (AGN) announced that it has adopted a 1-year stockholder rights plan, effective April 22, 2014.

Apple (AAPL), Callaway Golf (ELY), Cheesecake Factory (CAKE), Crocs (CROX), E*TRADE (ETFC), Everest Re (RE), F5 Networks (FFIV), Facebook (FB), Ingram Micro (IM), Lam Research (LRCX), Logitech (LOGI), O’Reilly Auto (ORLY), Qualcomm (QCOM), Safeway (SWY), Stryker (SYK), Texas Instruments (TXN) and Xilinx (XLNX) are among the companies due to release their quarterly results after the close of trading.

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