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Beyond the Numbers

Cautious Markets Look to Stall Losses
3/27/2015 9:07 AM

The major U.S. index futures are pointing to a modestly lower opening on Friday, with the mood continuing to be cautious notwithstanding the losses in each of the past four sessions. The initial jitters triggered by the crisis in Yemen have subsided as traders come to terms with the reality that it will not be allowed to boomerang into a region-wide crisis. With fourth quarter growth being left unrevised, fears concerning an imminent rate hike may be tempered. Traders may also stay glued to a consumer sentiment reading due shortly after the markets open and a speech by Federal Reserve Chair Janet Yellen.

U.S. stocks declined for the fourth straight session on Thursday, although the major averages closed well off their early lows. Geopolitical tensions surrounding the developments in the Middle East intensified the risk aversion in the markets.

The major averages opened lower and showed some volatility in early trading before recouping most their losses by the mid-session. More volatility ensued in the afternoon, with the averages bouncing back and forth across the unchanged line a few times. The averages settled the session modestly lower.

The Dow Industrials slipped 40.31 points or 0.23 percent before closing at 17,678, the S&P 500 Index closed 4.90 points or 0.24 percent lower at 2,056 and the Nasdaq Composite ended at 4,863, down 13.16 points or 0.27 percent.

Twenty-three of the thirty Dow components closed lower, while the remaining seven stocks advanced. American Express (AXP), Cisco Systems (CSCO), Home Depot (HD), Merck (MRK) and Procter & Gamble (PG) were among the worst decliners of the session.

Among the sectors, airline, utility, gold, semiconductor and retail stocks came under selling pressure.

On the economic front, the Labor Department reported that jobless claims fell to 282,000 in the week ended March 21st from 291,000 in the previous week. The four-week average declined to 297,000 from 204,750. Continuing claims calculated with a week’s lag eased 6,000 to 2.416 million in the week ended March 14th.

Markit’s preliminary U.S. service sector survey for March showed that the service sector expanded more than expected. The service sector PMI rose to 58.6 in March from 57 in February, while economists expected an unchanged reading.

The Kansas City Federal Reserve’s manufacturing survey showed that manufacturing activity entered into contraction territory in March. The manufacturing PMI slipped to -4 in March from 1 in February.

Currency, Commodity Markets

Crude oil futures for May delivery are sliding $0.57 to $50.86 a barrel after rallying $2.22 to $51.43 a barrel on Thursday. Gold futures, which rose $7.80 to $1,204.80 an ounce in the previous session, are currently slipping $4 to $1,200.80 an ounce.

Among currencies, the U.S. dollar is trading at 119.06 yen compared to the 119.19 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0893 compared to yesterday’s $1.0884.

Asia

The major Asian averages ended on a mixed note, with the Australian, Chinese, Indonesian, New Zealand and Singaporean markets advancing, while most other major markets ended lower. Even as the negative close on Wall Street overnight weighed on the averages, bargain hunting after yesterday’s retreat helped some markets.

The yen’s strength pressured the Japanese market. The Nikkei 225 average moved about in a lackadaisical manner till early afternoon trading. After seeing some strength till late trading, the index retreated sharply, closing down 185.49 points or 0.95 percent.

A majority of stocks retreated in the session, led by Advantest, Marubeni, Nippon Yusen and Resona Holdings. Some defensive stocks bucked the downtrend.

Hong Kong’s Hang Seng Index ended at 24,486, down 10.88 points or 0.04 percent, while China’s Shanghai Composite Index added 9 points or 0.24 percent before closing at 3,691.

Australia’s All Ordinaries hovered in positive territory for much of the session before ending up 39.20 points or 0.67 percent at 5,889.

Consumer, industrial, real estate, telecom and utility stocks advanced notably in the session, while oil’s retreat in the Asian session weighed on energy stocks.

On the economic front, a slew of data released from Japan showed a still struggling economy.

A report released by the Japanese Ministry of Internal Affairs and Communications showed that annual consumer price inflation slowed to 2.2 percent in February from 2.4 percent in January. Core consumer prices rose at a less than expected pace of 2 percent.

Core consumer prices in the Tokyo region, considered a precursor of the situation in whole of Japan, were up 2.2 percent in March, in line with estimates.

At the same time, annual core inflation was flat when the impact of the April 2014 sales tax hike was excluded.

A separate report showed that the Japanese jobless rate eased to 3.5 percent in February from 3.6 percent in January, matching estimates.

Another government report showed that average household spending in Japan was down 2.9 percent year-over-year in February, a smaller drop than the 3.2 percent decline expected by economists. Average income per household eased 0.7 percent year-over-year.

The Ministry of Economy, Trade and Industry reported that retail sales in Japan fell 1.8 percent year-over-year in February compared to expectations for a 1.5 percent drop.

A report released by the Chinese National Bureau of Statistics showed that industrial profits fell 4.2 percent year-over-year in the January to February period, slower than the 8 percent drop in December.

Europe

European stocks opened on a mixed note and saw some volatility in early trading. The averages are currently trading mixed.

On the economic front, U.K. house price growth softened for the seventh consecutive month in March, according to a report released by the Nationwide Building Society.

House prices advanced 5.1 percent year-over-year in March, slower than February's 5.7 percent increase. The annual growth was also slower than a 5.3 percent increase forecast by economists.

A report released by French statistical office INSEE showed that French consumer confidence rose to 93 in March from 92 in February, reaching the highest reading since November 2010. The increase was in line with estimates.

Data released by the German Federal Statistical Office showed that German import prices fell at a slower than expected rate in February. The import prices fell 3 percent year-over-year in February, while economists expected a 3.9 percent drop.

At the same time, export prices rose at a 0.7 percent rate, faster than the 0.4 percent increase in the previous month.

U.S. Economic Reports

Economic activity in the U.S. grew at an unrevised rate in the fourth quarter of 2014, according to the final estimate released by the Commerce Department on Friday.



The report said gross domestic product increased by 2.2 percent in the fourth quarter, unchanged from the growth estimated last month. Economists had been expecting the pace of GDP growth to be upwardly revised to 2.4 percent, which would still reflect a notable slowdown from the 5.0 percent growth seen in the third quarter.

The University of Michigan is set to release its final consumer sentiment index for March at 10 am ET. The consensus estimate calls for an upward revision to the index to 92.1 from the mid-month reading of 91.2.

Yellen is due to deliver a speech on monetary policy at a San Francisco Federal Reserve Conference at 3:45 pm ET.

Stocks in Focus

Oxford Industries (OXM) reported better than expected fourth quarter adjusted earnings, while its revenues were about in line. The company’s first quarter and full year earnings guidance was above estimates, while its revenue guidance was weak.

Dow Chemical (DOW) and Olin Corp. (OLN) said their boards of directors unanimously approved a definitive agreement for Dow to separate a significant portion of its chlorine value chain and merge that new entity with Olin in a transaction valued at $5 billion.

Finish Line (FINL) reported better than expected fourth quarter results, while its full year earnings guidance was weak.

GameStop (GME) reported fourth quarter results that trailed estimates and issued disappointing first quarter and full year guidance.

Chevron (CVX) announced a deal to sell its 50 percent stake in Caltex Australia.

RBC Bearings (ROLL) announced its intention to buy Dover’s (DOV) Sargent Aerospace and Defense business for $500 million. The transaction is expected to close in the second quarter of 2015.

UDR (UDR) announced a 7 percent increase in its annualized dividend to $0.2775 per share.
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