Market Analysis

Beyond the Numbers

Sentiment Positive as Economic and Monetary Policy Fears Ease
9/19/2014 9:15 AM

The major U.S. index futures are pointing to a higher opening on Friday, with sentiment suggesting buoyancy, as monetary and economic fears recede. Although the September FOMC decision hinted at a potential rate hike in the near future, there wasn’t any definite itinerary given for monetary policy normalization. This along with Fed Chair Janet Yellen’s reassurance of keeping the accommodative monetary policy environment intact has served to temporarily allay monetary policy fears.

Meanwhile, anxiety concerning a setback to global growth stemming from a potential splintering of the U.K. is quelled as Scots voted to remain in the U.K. Alibaba’s IPO, which is touted to be the largest in the U.S., should generate some excitement in the markets. All said and done, the markets could be in for some volatility die to quadruple witching, which denotes to the simultaneous expiry of index futures, index options, stock options and stock futures.

U.S. stocks extended their gains on Thursday amid the optimism that pervaded across the global markets as the Fed overhang was removed. The major averages opened higher and advanced in early trading. Thereafter, the averages moved roughly sideways before legging up in the last hour.

The Dow Industrials ended up 109.14 points or 0.64 percent at 17,266, a fresh all-time closing high. The S&P 500 Index closed 9.79 points or 0.49 percent higher at a new record closing high of 2,011, and the Nasdaq Composite ended at 4,593, up 31.24 points or 0.68 percent.

Twenty-six of the thirty Dow components closed higher, with DuPont (DD), Travelers (TRV), 3M (MMM), American Express (AXP), Goldman Sachs (GS), Johnson & Johnson (JNJ) and JP Morgan Chase (JPM) leading the gains.

Airline, semiconductor, computer hardware and financial stocks advanced strongly, while gold stocks came under pressure.

On the economic front, the Labor Department reported that jobless claims declined to 280,000 in the week ended September 13th from 316,000 in the previous week, which was impacted by the Labor Day holiday. The four-week average eased to 299,500 from 304,250. Continuing claims calculated with a week’s lag fell by 63,000 to 2.429 million in the week ended September 6th, the lowest level since 2007.

A separate Commerce Department report showed that housing starts came in at a seasonally adjusted annual rate of 956,000 units in August compared to a 1.117 million unit rate in the previous month. Multi-family starts were down 145,000 and single-family starts fell by 16,000. Building permits, considered an indicator of future housing demand, declined to 998,000 units from 1.057 million units in July.

The results of a manufacturing survey by the Philadelphia Federal Reserve showed that its manufacturing index declined to 22.5 in September from 28 in August. The new orders index rose 0.8 points to 15.5, while the unfilled orders index jumped 9 points to 5. The employment index surged up to 21.2 from 9.1 in August, marking the highest reading since May 2011. Meanwhile, the 6-month outlook index slipped 10 points.

Commodity, Currency Markets

Crude oil futures are falling $0.37 to $92.70 a barrel after tumbling $1.35 to $93.07 a barrel on Thursday. Meanwhile, an ounce of gold is currently trading at $1,223, down $3.90 from the previous session’s close of $1,226.90. On Thursday, gold fell $9.

Among currencies, the U.S. dollar is trading at 108.81 yen compared to the 108.69 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.2857 compared to yesterday’s $1.2923.


The major Asian markets closed higher, with the positive close on Wall Street overnight, benign data from Europe and the results of the Scottish referendum generating strength in the markets.

The Japanese market led the gains in the region, with a weaker yen continuing to buoy sentiment in the domestic equity market. The Nikkei 225 average opened higher and advanced steadily in the morning before moving sideways in the afternoon. The index ended up 253.60 points or 1.58 percent at 16,321, its highest closing level since November 2, 2007. A majority of stocks advanced in the session.

Australia’s All Ordinaries also held above the unchanged line throughout the session before closing up 18.30 points or 0.34 percent at 5,437. Financial stocks led the gains, although material stocks came under selling pressure.

Hong Kong’s Hang Seng Index closed at 24,306, up 137.44 points or 0.57percent, and China’s Shanghai Composite added 13.52 points or 0.58 percent before closing at 2,330.

On the economic front, a report released by Japan’s Ministry of Economy, Trade and Industry showed that an index measuring all industry activity in Japan fell 0.2 percent month-over-month in July following a 0.3 percent drop in June. Economists expected the index to have remained unchanged.

The monthly economic report released by the Cabinet Office showed that the Japanese government downgraded its overall economic assessment for the first time in five months in September, citing stagnation in private consumption growth.

Revised estimates released by the Cabinet Office showed that a leading economic indicators index for Japan rose at a slower than initially estimated rate in July. The index rose to 105.4 in July from 104.7 in June but was below the 106.5 initially estimated.


European stocks opened higher and advanced steadily in early trading but have turned mixed since then. The U.K. market is rallying in the optimism that stems from Scotland voting to stay with the U.K. Meanwhile, the German DAX Index

On the economic front, the German Federal Statistical Office reported that German producer prices fell 0.8 percent year-over-year in August. The decline was in line with estimates and matched the drop seen in the previous month. On a monthly basis, producer prices eased 0.1 percent.

The Eurozone's current account surplus was largely unchanged from the previous month in July, data from the European Central Bank showed. The current account surplus rose slightly to 18.7 billion euros from 18.6 billion euros in June.

U.S. Economic Reports

The Conference Board is due to release its leading economic indicators index for August at 10 am ET. Economists expect the index to increase by 0.4 percent month-over-month.

In July, the index surged up 0.9 percent month-over-month following an upwardly revised 0.6 percent increase in June. The index was solidly supported by unemployment claims, yield spread and building permits.

Stocks in Focus

Oracle (ORCL) announced that it has elected CEO Larry Ellison to the position of executive Chairman of its board and also appointed him as its chief technology officer. The company also promoted company executives Mark Hurd and Safra Katz as co-CEOs. Separately, the company reported first quarter results that trailed estimates.

Red Hat’s (RHT) second quarter results were ahead of estimates, while Tibco Software (TIBX) reported third quarter earnings and revenues that trailed estimates.

Cerner (CERN) announced that the U.S. Federal Trade Commission has granted the company early termination of the waiting period under the Hart-Scott-Rodino anti-trust rule for its purchase of the assets of Siemens’ health information technology business unit for $1.3 billion in cash. The company now expects the deal to close in the first quarter of 2015.

Epiq Systems (EPIQ) said its board has commenced a process to explore a full range of strategic and financial alternatives, including acquisitions, divestitures and a going-private transaction. The company also said its board has adopted a short-term shareholder rights agreement to protect shareholder interest against any takeover attempts.

JetBlue (JBLU) announced that the company’s president Robin Hayes will take over the CEO role from current CEO Dave Berger, effective February 16, 2015.

McDonald’s (MCD) announced a 5 percent increase in its quarterly cash dividend to 85 cents per share. Texas Instruments (TXN) also announced a 13 percent increase in its quarterly dividend to 34 cents per share.

Clorox (CLX) announced the promotion of Donald Knauss to a newly created executive chairman role, effective November 20th, while also promoting Benno Dorer to the role of CEO.

Valmont (VMI) lowered its 2014 earnings guidance to $9-$9.20 per share from $9.35-$9.65 per share, citing delayed delivery of some projects at its utility support structures segment, weak performance by its irrigation segment and softness in the Australian industrial segment.

Sap (SAP) announced a deal to buy travel and expense software management company Concur Technologies (CNQR) for $129 per share, with the enterprise value of the deal at $8.3 billion. The deal is expected to close in the fourth quarter.

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