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Beyond the Numbers

Sentiment Mildly Positive Amid Mixed Earnings, Overseas Data
7/24/2014 9:21 AM

The major U.S. index futures are pointing to a higher opening on Thursday, with sentiment suggesting modest strength amid the release of mixed earnings news. The jobless claims data released earlier in the day showed that claims fell to the lowest level in over 8 years. The positive data could trigger anxiety concerning monetary policy normalization. That said, strong manufacturing data released by China and bigger than expected expansion by the eurozone private sector could offer some encouragement.

Reacting to a batch of mixed earnings reports, U.S. stocks turned in a mixed performance on Wednesday. The major averages opened mixed, with the S&P 500 Index and the Nasdaq Composite Index opening higher, while the Dow Industrials moved lower. Although the S&P 500 and the Nasdaq gave back their gains in early trading, with the former even falling below the unchanged line, they picked up momentum and stayed above the unchanged line for the rest of the session.

The S&P 500 ended up 3.48 points or 0.18 percent at 1,987, representing a fresh record closing high, and the Nasdaq closed at 4,474, up 17.68 points or 0.40 percent. Meanwhile, the Dow languished below the unchanged line throughout the session before closing down 26.91 points or 0.16 percent at 17,087.

Twenty of the thirty Dow components closed lower, while the remaining ten stocks advanced. Boeing (BA), Caterpillar (CAT), Cisco Systems (CSCO), Coca-Cola (KO), McDonald’s (MCD) and United Technologies (UTX) were among the biggest decliners of the session, while Chevron (CVX) and Goldman Sachs (GS) advanced notably.

Biotechnology, airline and housing stocks gained ground, while semiconductor and networking stocks came under selling pressure.

Commodity, Currency Markets

Crude oil futures are sliding $0.30 to $102.82 a barrel after climbing $0.73 to $103.12 a barrel on Wednesday.

The previous session’s increase came amid the release of the weekly petroleum status report, which showed that crude oil stockpiles fell by 4 million barrels to 371.1 million barrels in the week ended July 18th. Notwithstanding the decline, inventories were in the upper half of the average range for this time of the year.

Meanwhile, gasoline stockpiles increased by 3.4 million barrels and were in the upper half of the average range. Distillate inventories rose by 1.6 million barrels but were near the lower limit of the average range.

Refinery capacity utilization averaged 92.6 percent over the four weeks ended July 18th compared to 91.3 percent over the four weeks ended July 11th.

Gold futures, which dipped $1.60 to $1,304.70 an ounce in the previous session, are currently falling $7 to $1,298.20 an ounce.

Among currencies, the U.S. dollar is trading at 101.65 yen compared to the 101.48 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.3474 compared to yesterday’s $1.3464.

Asia

The Asian markets closed mixed, with the Japanese and South Korean markets declining, while most other major markets in the region advanced. Even as geopolitical worries remained, traders took heart from a Chinese manufacturing reading that came in above estimates.

After barely holding above the unchanged line until late afternoon trading, the Nikkei 225 average declined sharply before recouping some of its losses in late trading. The index ended down 44.14 points or 0.29 percent at 15,284. Export stocks continued to trade mixed.

Meanwhile, Australia’s All Ordinaries hovered mostly above the unchanged line before ending 9.80 points or 0.18 percent higher at 5,577. Most sectors saw modest strength, with the exception of material, real estate and industrial stocks.

Hong Kong’s Hang Seng Index added 169.63 points or 0.71 percent before closing at 24,142, and China’s Shanghai Composite Index closed at 2,105 following a 26.57 point or 1.28 percent rally.

On the economic front, the results of a survey by Markit and HSBC showed that Chinese manufacturing activity grew at a faster rate in July. The manufacturing purchasing managers’ index rose to 52 in July from 50.7 in June, ahead of the reading of 51 expected by economists.

The Japanese Ministry of Finance reported that Japan recorded a trade deficit of 822.2 billion yen in June, wider than the 642.9 billion yen deficit expected by economists. Exports fell 2 percent year-over-year, while imports jumped 8.4 percent.

Among other economic events from the region, South Korea reported stronger than expected year-over-year GDP growth of 3.6 percent for the second quarter.

The Reserve Bank of New Zealand also raised the official cash rate by 0.25 percentage points to 3.5 percent, although it suggested that more rate hikes might not be in the offing in the near term.

Europe

After seeing lackluster sentiment at the open amid profit taking following two sessions of advances, the major averages have turned higher. Traders digested some domestic corporate earnings and focused on the developments in the standoff between Russia and the rest of the world over Ukraine.

In corporate news, Swiss drug maker Roche reported a decline in its first half earnings, dragged down by adverse currency effects. BASF reported slightly soft second quarter results but maintained its outlook for the year. Unilever reported a slowdown in its sales and earnings growth, while it also warned of a slowdown in emerging markets. Nokia’s (NOK) second quarter earnings were better than expected.

On the economic front, the results of Markit’s private sector activity survey showed a pick up in the pace of expansion by the sector. The composite purchasing managers’ index for the eurozone rose to 54 in July from 52.8 in June, while economists expected a reading of 52.8. The service sector PMI was also better than expected at 54.4, while the manufacturing PMI edged up to 51.9.

A report released by the U.K. Office for National Statistics showed that retail sales in the U.K. rose 0.1 percent month-over-month in June compared to the 0.3 percent increase expected by economists. Annually, retail sales were up 3.6 percent.

U.S. Economic Reports

After reporting a modest drop in first-time claims for U.S. unemployment benefits in the previous week, the Labor Department released a report on Thursday showing that initial jobless claims unexpectedly fell to their lowest level in over eight years in the week ended July 19th.



The report said initial jobless claims slid to 284,000, a decrease of 19,000 from the previous week's revised level of 303,000. The drop surprised economists, who had expected jobless claims to climb to 308,000 from the 302,000 originally reported for the previous week.

With the unexpected decrease, jobless claims fell to their lowest level since hitting 283,000 in the week ended February 18, 2006.

Markit is due to release the results of its preliminary manufacturing survey for the U.S. at 9:45 am ET. The consensus estimate calls for a modest uptick by the index to 57.6 in July from 57.5 in June.

The Commerce Department is set to release its new home sales report for June at 10 am ET. Economists expect new home sales to come in at a seasonally adjusted annual rate of 475,000 units compared to 504,000 units in May.



New home sales jumped to a seasonally adjusted annual rare of 504,000 in May from 425,000 in April, hitting the highest level since May 2008. Inventories measured in terms of months of supply declined to 4.5 months from 5.3 months. The median price of a new home rose 6.9 percent year-over-year to $282,000.

The Kansas City Federal Reserve is due to release the results of its regional manufacturing survey at 11 am ET. Economists expect the manufacturing index to remain unchanged at 6 in July.

The Treasury Department is set to make announcements concerning next week’s auctions of 2-year, 5-year and 7-year notes at 11 am ET.

Stocks in Focus

Earnings

MMM, AAL, BSX, BMY, CAT, CHH, CMS, CCE, DHI,LLY,F, GM, HSY, NDAQ, PJC, POT, PHM, RTN, SCHL, HOT,SVU, UNP,

3M Co. (MMM) reported in line second quarter earnings. Bristol-Myers Squibb’s (BMY) second quarter earnings that beat estimates. The company also backed its adjusted earnings forecast for the full year.

General Motors (GM) reported below consensus earnings for its second quarter. Meanwhile, Ford’s (F) second quarter results were above estimates.

Qualcomm’s (QCOM) third quarter adjusted earnings and revenues beat estimates, but the company’s fourth quarter earnings guidance was weak. Facebook (FB) reported notable increases in its second quarter earnings and revenues on strong mobile ad growth.

Logitech (LOGI) reported better than expected first quarter results and raised its profitability guidance for 2015. Citrix Systems (CTXS) also reported second quarter earning and revenues that were ahead of estimates and raised its earnings guidance for 2014.

CA Technologies (CA) reported first quarter earnings that were ahead of estimates, while its revenues were shy of estimates. The company lowered its 2015 guidance.

F5 Networks (FFIV) reported third quarter earnings and revenues that exceeded estimates. The company also issued positive guidance for the fourth quarter.

AT&T’s (T) second quarter results were below estimates. The company maintained its 2014 revenue growth guidance in the 5 percent range and adjusted earnings growth at the low end of the mid-single digit range.

O’Reilly (ORLY) reported second quarter results that were ahead of estimates and raised its earnings guidance for 2014. Gilead Sciences (GILD) revealed strong second quarter results, while re-insurer Everest Re (RE) also reported better than expected second quarter results.

Sallie Mae (SLM) reported second quarter core earnings that declined year-over-year yet were ahead of expectations.

Cheesecake Factory’s (CAKE) second quarter results trailed estimates.

E*TRADE Financial (ETFC) reported better than expected second quarter earnings and revenues.

Altera (ALTR), Amazon (AMZN), Baidu.com (BIDU), BJ Restaurants (BJRI), Flextronics (FLEX), Ingram Micro (IM), KLA-Tencor (KLAC), Maxim Integrated (MXIM), NETGEAR (NTGR), NetSuite (N), Pandora Media (P), Qlogic (QLGC), RF Micro Devices (RFMD), Riverbed Technology (RVBD), Starbucks (SBUX), Swift Transportation (SWFT), Verisign (VRSN) and Visa (V) are among the companies due to release their quarterly results after the close of trading.

Other Corporate News

Fluor (FLR) announced that the U.S. Department of Energy has chosen the company as the prime contractor for the management of the post-GDP shutdown remediation activities at the Paducah site. The contract is valued at $420 million over 3 years.

ONEOK (OKE) announced a 1.5 cents per share increase in its quarterly cash dividend to 57.5 cents per share.




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