Market Analysis

Beyond the Numbers

Market Optimism Curtailed Amid Release of Text of Yellen's Speech
2/10/2016 8:59 AM

The major U.S. index futures are pointing to a higher opening on Wednesday, with futures plateauing out amid the release of the prepared text of Fed Chair Janet Yellen's testimony.  Earlier at the start of the European session, futures got a lift from a strong opening by stocks across the Atlantic, underpinned by a jump by financial stocks. Crude oil prices are also flat lining and most other commodities are lower. The markets may also stay tuned to the Q&A session by Yellen due after her semi-annual testimony before the House Financial Services Committee.
U.S. stocks were once again stung by risk aversion on Tuesday, although the negativity was not as bad as evidenced in the previous two sessions.  
The major averages opened lower, following the lead of the rest of the global markets. The averages moved about in a directionless manner throughout the rest of the session, trading mostly below the unchanged line before ending modestly lower. 
The Dow Industrials ended down 12.67 points or 0.08 percent at 16,014, the S&P 500 Index closed 1.23 points or 0.07 percent lower at 1,852 and the Nasdaq Composite ended at 4,269, down 14.99 points or 0.35 percent. 
Notwithstanding the Dow’s decline, the breadth was in favor of the gainers, with sixteen of the 30 index components advancing, while the remaining 14 stocks retreated. Chevron (CVX), IBM (IBM), Wal-Mart (WMT), Verizon (VZ), Caterpillar (CAT) and Cisco Systems (CSCO) were among the worst decliners of the session. On the other hand, DuPont (DD), Home Depot (HD), Coca-Cola (KO), Nike (NIKE) and UnitedHealth (UNH) rose notably. 
Among the sectors, energy and gold stocks tumbled, while transportation and housing stocks gained ground. 
On the economic front, the Commerce Department reported that wholesale inventories edged down 0.1 percent month-over-month in December, in line with estimates. Wholesale sales declined a steeper 0.3 percent. Annually, wholesale inventories rose 1.9 percent compared to a 4.5 percent drop in wholesale sales. The wholesale inventories to sales ratio came in at 1.32 compared to 1.24 in the year-ago period. 
Currency, Commodity Markets 
Crude oil futures for March delivery are slipping $0.08 to $27.86 a barrel after slumping $1.75 to $27.94 a barrel on Tuesday. Meanwhile, an ounce of gold is currently trading at $1,190.40, down $8 from the previous session’s close of $1,198.60. On Tuesday, gold edged up $0.70. 

On the currency front, the U.S. dollar is trading at 114.73 yen compared to the 115.11 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1292 compared to yesterday’s $1.1293.? 
The Asian markets continued to bleed on Wednesday, with no stopping the selling spree, as risk aversion hit left, right and center. Once again, Japan led the declining bunch with a steep move to the downside, as export stocks choked from the yen’s strength. The Chinese, Hong Kong, South Korean and Taiwanese markets remained closed. 
The Nikkei 225 Index opened modestly higher but reversed course immediately after. A steady retreat till the mid-session and some sideways movement till late afternoon trading was followed by another steady descent only for the average to make some amends and cut its losses in late trading. However, the index ended down a whopping 372.05 points or 2.31 percent at 15,713, the lowest level since October 30th, 2014. 
A majority of stocks declined in the session, as the yen firmed up below the 115 level against the dollar. Tokyo Electric Power, Mitsubishi UFJ Financial, Ebara, Mitsubishi Materials, Tokai Carbon, Taiheiyo Cement and Kuraray were among the worst decliners of the session. 
Australia’s All Ordinaries Index languished below the unchanged line for the bulk of the session before ending down 56.10 points or 1.15 percent at 4,827, the lowest level since July 8th, 2013. The market experienced another across-the-board sell-off. 
On the economic front, a report released by Westpac and the Melbourne Institute showed confidence among Australian consumers improved in February. The consumer confidence index rose 4.2 percent to 101.3 in February following a 3.5 percent drop in January. 
The Housing Industry Association of Australia reported that new home sales in Australia rose 6 percent month-over-month in December, rising for the first time in four months.  
Corporate goods prices in Japan fell 0.9 percent month-over-month in January, according to data released by the Bank of Japan. Economists expected a 0.7 percent drop for the month. Annually, the index fell 3.1 percent, steeper than the 2.8 percent decline expected by economists. 
After some volatility in early trading, European stocks have risen sharply in late morning trading, as oil’s rebound triggered some bargain hunting.  Beaten down financial stocks are leading the way higher, with Deutsche Bank (DB) rising close to 10 percent. Traders are also digesting a slew of mixed earnings reports from the region. 
In corporate news, Dutch paint maker Akzo Nobel reported fourth quarter EBITDA that missed estimates and also warned of a challenging year ahead. Hurt by weak oil prices and slackness in its container business, AP Moller Maersk reported a steep drop in its profit for 2015. Tullow Oil reported a pre-tax loss for the year and also suspended its dividend payout for 2015. 
ARM Holdings reported strong increases in its fourth quarter pre-tax profits and revenues. Luxury goods company Hermes reported soft revenues and profits and also warned of 2016 revenues missing targets. 
Brewer Heineken reported higher full year profit and sales and announced an increase in its dividend. Carlsberg reported a loss for the year, although it was narrower than analysts had forecast. 
A report released by the U.K. Office for National Statistics showed that industrial output fell 1.1 percent month-over-month in December, belying expectations for an unchanged reading. Annually, output fell 0.4 percent compared to expectations for a 1 percent increase. Manufacturing output was down 0.2 percent month-over-month, while economists expected a 0.1 percent increase. 
U.S. Economic Reports 
Yellen is scheduled to testify regarding the economic outlook and monetary policy before the House Financial Services Committee at 10 am ET. The prepared text delivered ahead of the speech highlighted the Fed's concerns about the global macroeconomic risks and the central bank's resolve to raise neutral Fed funds rate only gradually. Yellen will also take questions from the legislators after the speech.
The Energy Information Administration is due to release its weekly petroleum status report for the week ended February 5th at 10:30 am ET.  
Crude oil stockpiles rose by 7.8 million barrels to 502.70 million barrels in the week ended January 29th. Stockpiles are still near levels not seen for this time of year in at least the last 80 years. 
Gasoline inventories also jumped by 5.9 million barrels and were well above the upper limit of the average range. Meanwhile, distillate inventories fell by 0.8 million barrels but?remained?near the upper limit of the average range for this time of the year. 
Refinery capacity utilization averaged 88.9 percent over the four weeks ended January 29th compared to 90.4 percent over the four weeks ended January 22nd.? 
The Treasury Department is set to release the results of its auction of 10-year notes at 1 pm ET. 
San Francisco Fed President?John Williams?will speak on health and the economy in Los Angeles at 1:30 pm ET. 
The Treasury is scheduled to release its monthly budgetary statement for January at 2 pm ET. Economists expect a deficit of $14.4 billion for the month. 
Stocks in Focus 
Disney’s (DIS) first quarter adjusted earnings per share and revenues trumped estimates. 

Time Warner (TWX) reported above-consensus adjusted earnings per share but its revenues missed estimates. The company's 2016 earnings per share guidance is positive.
CSC (CSC), which recently spun-off its public sector business, reported better than expected third quarter non-GAAP earnings per share from continuing operations. Revenues fell 10.2 percent year-over-year. 

Humana (HUM) reported in line fourth quarter adjusted earnings per share, while its first quarter guidance is below estimates.
Akamai Technologies (AKAM) reported above-consensus non-GAAP earnings per share and revenues for its fourth quarter. The company also announced a re-alignment of its business into two divisions, focusing on its media and web customers and solutions. 
Western Union (WU) reported in line non-GAAP earnings per share and revenues for its fourth quarter but its full year 2016 earnings per share guidance was weak. 
Panera Bread (PNRA) reported fourth quarter adjusted earnings per share that exceeded estimates but its revenues trailed expectations. The company’s adjusted earnings per share growth guidance for 2016 was lukewarm. 
ViaSat (VSAT) reported in line adjusted earnings per share for its third quarter, although its revenues were below estimates. 
Scan Source (SCSC) reported better than expected second quarter results and issued in line revenue guidance for the third quarter. However, the company’s non-GAAP earnings per share guidance was weak. 
Forward Air (FWRD) reported above-consensus earnings per share for its fourth quarter but its revenues were light. The company’s first quarter earnings per share guidance was weak. 
A FDA panel recommended approval of Pfizer’s (PFE) investigational biosimilar product infliximab for rheumatoid arthritis.  
Norfolk Southern (NSC) announced that further discussions on Canadian Pacific’s (CP) pursuit of a business combination are not in the best interest of its shareholders unless Canadian Pacific offers its shareholders compelling value and addresses regulatory issues. 
Cisco Systems (CSCO), Cognex (CGNX), Expedia (EXPE), Fidelity Financial (FNF), FMC (FMC), Mylan Labs (MYL), O’Reilly Auto (ORLY), Pioneer Natural Resources (PXD), Prudential (PRU), Tesla (TSLA), Twitter (TWTR), Whole Foods (WFM) and Zynga (ZNGA) are among the companies due to release their quarterly results after the close of trading. 
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