Market Analysis

Beyond the Number

Risk Aversion Getting Entrenched in Markets  
5/4/2016 9:02 AM

The major U.S. index futures are pointing to a lower opening on Wednesday, with sentiment hurt by the persistence of risk off sentiment.  The dollar has weakened amid the release of soft private payrolls data and a steeper than expected fall in first quarter non-farm productivity. The resource space is weaker, with the exception of oil. The mood across the Atlantic is downbeat despite the release of fairly positive domestic earnings results. Lackluster domestic economic data and commodity weakness may be weighing on the averages. A service sector reading based on the ISM's national survey could also render direction to the markets.
U.S. stocks came under pressure on Tuesday, as risk sentiment suffered from a few negative catalysts, including a commodity retreat, weak overseas bank earnings and mixed domestic earnings. The major averages opened lower and fell steadily till early afternoon trading. After paring some of the losses through the mid-session, the indexes retreated steadily yet again but ended off the lows of the session. 
The Dow Industrials ended down 140.25 points or 0.78 percent at a 2-week low of 17,751, the S&P 500 Index closed 18.06 points or 0.87 percent lower at 2,063 and the Nasdaq Composite ended at over a 1-month low of 4,763, down 54.37 points or 1.13 percent. 
Twenty-five of the thirty Dow components ended the session lower. United Technologies (UTX), Caterpillar (CAT), Chevron (CVX), Cisco Systems (CSCO), DuPont (DD) and Goldman Sachs (GS) led the Dow’s retreat. On the other hand, Apple (AAPL) rebounded after a 4-session slide. Pfizer (PFE), which reported solid financial results, rose 2.74 percent. 
Among the sectors, biotechnology, resource, transportation, housing, semiconductor, computer hardware and financial stocks lost ground. 
On the economic front, auto sales came in at a fairly robust seasonally adjusted annual pace of 17.4 million units in April, ahead of the consensus estimate of 17.3 million units. 
Currency, Commodity Markets 
Crude oil futures for June delivery are rising $0.48 to $44.13 a barrel after slumping $1.13 to $43.65 a barrel on Tuesday. Meanwhile, an ounce of gold for June delivery is currently trading at $1,290.20, down $1.60 from the previous session’s close of $1,291.80. On Tuesday, gold fell $4.

On the currency front, the U.S. dollar is trading at 106.39 yen compared to the 106.60 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1484 compared to yesterday’s $1.1509.

The major Asian markets sold off across the board, although the Japanese market remained shut for another public holiday. The Australian, Taiwanese and Singaporean markets were the worst hit. 
Australia’s All Ordinaries Index opened fell steeply in early trading and steadily thereafter. Subsequently, the index moved broadly sideways before ending down 79.40 points or 1.47 percent at 5,336. 
A majority of sectors saw weakness, led by energy, material and consumer staple stocks. On the other hand, defensive healthcare, utility and real estate stocks gained ground. 
Hong Kong’s Hang Seng Index ended down 151.11 points or 0.73 percent at 20,526, the lowest since April 12th. China’s Shanghai Composite closed at 2,991, down 1.37 points or 0.05 percent. 
On the economic front, the results of a survey by the Australian Industry Group showed that the service sector in Australia continued to contract in April. The corresponding index came in at 49.7, although up from 49.5 in March. 
European stocks opened on a lackluster note, with the French and German markets seeing some upside in early trading in reaction to mostly positive domestic earnings. However, with commodities retreating, these markets have turned lower. The U.K. market has continued to trade lower since the start of the session. 
In major corporate news, Siemens (SI) reported better than expected second quarter profits, helped by cost cuts and strong order growth at its power business. Societe Generale also reported second quarter results that beat estimates and announced further cost cuts. Deutsche Telekom reported strong first quarter results. 
Anheuser-Busch InBev reported a decline in first quarter profit. Air France-KLM reported a narrower loss for its first quarter on lower fuel costs. Adidas said it would seek a buyer for its ailing golf business. 
On the economic front, Markit’s revised service sector PMI for the eurozone came in unchanged at 53.1 in April but down from the flash estimate of 53.2. The service sector in Germany saw a slowdown in the pace of expansion, while the French service sector expanded for the first time in 3 months. The composite output index for the eurozone, which is a combined score for the manufacturing and the non-manufacturing sectors, fell to 53 in April from 53.1 in March, in line with the flash estimate. 
Meanwhile, the service sector in the U.K. saw a slowdown in the pace of expansion, according to data released by Markit and CIPS. The index fell to 52 in April from 54.2 in March, while economists expected a more modest slowdown to 54. 

A report released by Eurostat showed a steeper than expected decline in retail sales in March in the eurozone.
U.S. Economic Reports 
Private sector employment in the U.S. increased by less than expected in the month of April, according to a report released by payroll processor ADP.

ADP said the private sector added 156,000 jobs in April following an increase of 194,000 jobs in March. Economists had expected the addition of 193,000 jobs for the month.  
The Treasury is set to make announcements regarding the auctions of 3-year and 10-year notes and 30-year bonds at 8:30 am ET. 
Reflecting a steep drop in the value of imports, the Commerce Department released a report showing a notably narrower U.S. trade deficit in the month of March.

The report said the trade deficit narrowed to $40.4 billion in March from $47.0 billion in February. The deficit had been expected to narrow to $41.4 billion.
The Labor Department released its preliminary first quarter productivity and costs report, showing a 1 percent sequential drop in non-farm productivity in the first quarter. The consensus estimate called for a 1.2 percent sequential drop in non-farm productivity. 
Meanwhile, unit labor costs rose 4.1 percent, more than the 3.5 percent increase expected by economists. Hours worked increased 1.5 percent and real hourly compensation was up 3.4 percent. 
The Institute for Supply Management will release the results of its national non-manufacturing survey for April at 10 am ET. Economists expect a reading of 54.7 for the month. 
The non-manufacturing index climbed to 54.5 in March from 53.4 in February, with a reading above 50 indicating growth in the service sector. Economists had expected the index to inch up to 54.0. 
Markit’s final non-manufacturing PMI due to be released ahead of the ISM survey is expected to show a score of 52 for April. 
Also at 10 am ET, the Commerce Department is set to release its factory orders report for March. Economists expect a 0.6 percent month-over-month increase in factory orders. 
In February, factory orders were down 1.7 percent, dragged lower by a 3 percent drop in durable goods orders. Meanwhile, order growth statistics for durable goods, making up the bulk of factory orders revealed a 0.8 percent month-over-month increase in March, smaller than the 1.6 percent increase expected by economists. Annually, durable goods orders were down 2.5 percent. Excluding transportation, orders were down 0.2 percent compared to the previous month, belying expectations for a 0.5 percent increase.

The Energy Information Administration will release its petroleum status report for the week ended April 29th at 10:30 am ET.  


Crude oil stockpiles increased by 2 million barrels to 540.60 million barrels in the week ended April 22nd. Stockpiles were at historically high levels for this time of the year.
Gasoline inventories rose by 1.6 million barrels and were well above the upper limit of the average range. Meanwhile, distillate inventories declined by 1.7 million barrels yet remained well above the upper limit of the average range for this time of the year.
Refinery capacity utilization averaged 89.5 percent over the four weeks ended April 22nd compared to 90.1 percent for the four weeks ended April 15th.
Stocks in Focus 

Time Warner (TWX) reported better than expected first quarter adjusted earnings per share and reaffirmed its outlook for the year.
Avis Budget (CAR) reported a wider than expected loss for its first quarter, while its revenues exceeded estimates. The company’s 2016 guidance is positive. 

Priceline.com (PCLN) reported better than expected first quarter results but the outlook is weak.
Big 5 Sports (BGFV) reported an unexpected loss for its first quarter and a decline in net sales. The company’s second quarter earnings per share guidance is weak. 
CBS (CBS) reported higher profits and revenues for its first quarter, helped by strong performance by its television network segment. 
Cray (CRAY) reported a narrower than expected loss for its first quarter and revenues rose year-over-year. The company’s full year and second quarter revenue guidance is weak. 
Devon Energy (DVN) raised its full year production guidance after reporting a narrower than expected loss for its first quarter. 
Illumina’s (ILMN) first quarter results trailed estimates and issued downbeat guidance for the full year. 
Jack Henry (JKHY) reported better than expected third quarter net income per share and an 8 percent increase in revenues. 
Live Nation (LYV) reported a narrower than expected loss for its first quarter and its revenues were in line. 
 MDU Resources (MDU) reported in line consolidated adjusted earnings per share and reaffirmed its in line 2016 adjusted earnings per share guidance. 
 Nutrisystem (NTRI) reported above-consensus first quarter earnings and 18 percent revenue growth. The company’s second quarter and full year guidance is upbeat. 
Owens & Minor (OMI) reported better than expected first quarter non-GAAP earnings per share and revenues. The company reaffirmed its 2015 adjusted earnings per share guidance. 
Papa John’s (PZZA) reported first quarter earnings per share that beat estimates but its revenues edged down marginally. The company reaffirmed its 2016 guidance. 
Western Union (WU) reported below-consensus earnings per share and its revenues fell modestly. The company reaffirmed its full year earnings per share guidance. 
21st Century Fox (FOXA), Allstate (ALL), Exelixis (EXEL), Fitbit (FIT), Hanover Insurance (THG), InterActiveCorp (IAC), Kraft Heinz (KHC), Lincoln National (LNC), McKesson (MCK), MetLife (MET), Prudential (PRU), Tesla Motors (TSLA), Transocean (RIG), Whole Foods (WFM), William Companies (WMB) and Zynga (ZNGA) are among the companies due to release their quarter results after the close of trading. 
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