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Recent Sell-off Providing Opportunity To Pick Bargains

The major U.S. index futures are pointing to a higher opening on Monday, with sentiment likely to get a lift from bargain hunting after past week's steep declines. Encouragement for picking up bargains could also come from the results of a regional manufacturing survey, which showed that activity in the New York region expanded notably more than expected. Meanwhile, reflecting the prevalence of risk aversion, the dollar has gained some ground and consequently, commodities are seeing weakness. A housing reading due to be released shortly after the markets open may also provide some trading cues.

U.S. stocks reversed course in the week ended June 14th, as traders remain wary of how central banks are going to react to the fickle recovery that is underway. Economic data released during the week also did not offer much help in resolving the uncertainty.

Last Monday, the major averages moved about in a lackluster manner amid a lack of any major catalysts before closing narrowly mixed. While the Nasdaq Composite ended modestly higher, the Dow Industrials and the S&P 500 Index closed slightly lower. Amid an increase in risk aversion after the Bank of Japan maintained the status quo with respect to its monetary policy, the major averages retreated sharply on Tuesday. Monetary policy uncertainty continued to weigh on the markets on Wednesday, sending the averages notably lower in the session.

The major averages snapped a 3-session losing streak on Thursday, thanks to better than expected retail sales and jobless claims data. Consequently, the averages ended notably higher. Amid the release of some lukewarm data, the major averages declined moderately on Friday.

For the week ended June 14th, the Dow Industrials ended down 1.17 percent and the S&P 500 Index lost 1.01 percent, while the Nasdaq Composite closed 1.32 percent lower.

Among the sector indexes, the NYSE Arca Gold Bugs fell 3.07 percent for the week and the KBW Bank Index declined 2.31 percent. The NYSE Arca Oil Index, the Philadelphia Oil Service Index and the NYSE Arca Securities Broker/Dealer Index moved down over 1.50 percent each, while the Philadelphia Semiconductor Index lost 1.26 percent. Meanwhile, the Dow Jones Utility Average added 2.22 percent.

Currency, Commodity Markets

Crude oil futures are slipping $0.38 to $98.23 a barrel after rising $1.82 or 1.90 percent to $97.85 a barrel in the week ended June 14th. The rise of the commodity to a 9-month high came as the dollar declined for the week and amid geopolitical tensions triggered by the news that the U.S. had authorized sending weapons to Syria.

Last Monday, oil broke a 3-session winning streak and declined modestly. The commodity extended its slide by a modest margin on Tuesday. Oil rose moderately on Wednesday despite the risk aversion in play and amid the release of the weekly petroleum inventory report. Oil rose yet again on Thursday and added to its gain by about $1-a-barrel on Friday before ending the week higher.

Gold futures, which rose $4.60 or 0.33 percent to $1,387.60 an ounce in the previous week, are currently slipping $7.30 to $1,380.30 an ounce.

The U.S. dollar came under pressure for much of last week, ending the week down 0.97 percent against the euro at $1.3347. The dollar also slumped 3.35 percent against the yen before ending the week at 94.29 yen.

The yen's strength for much of last week reflected a move of investment money into less risky assets amid the increase in risk aversion, as the uncertainty concerning growth and monetary policy intensified. At the same time, the speculation of trimming of monetary policy stimulus by the Federal Reserve weighed on the dollar.

The U.S. dollar is currently trading at 94.84 yen and is valued at $1.3343 versus the euro.


The major Asian markets closed mostly higher, with the exception of China and South Korea. The Japanese market led the advance, with the Nikkei ending up close to 3 percent.

Japan's Nikkei 225 average opened lower but reversed course in early trading and advanced steadily through the rest of the session. The index closed up 346.60 points or 2.73 percent at 13,033. A majority of stocks advanced, with only real estate stocks coming under selling pressure. Chemicals company Tokuyama rallied 16.55 percent and led the gains among the index components. Advertising company Denso climbed 11.73 percent.

Australia's All Ordinaries opened unchanged and dipped sharply in early trading but consolidated until late morning trading after the initial retreat. Subsequently, the index advanced steadily, moving above the unchanged line by the mid-session. Thereafter, the index held above the unchanged line amid some volatility before closing up 29.50 points or 0.62 percent at 4,805.

Financial stocks advanced strongly, while utility, healthcare and consumer staple stocks also found buying interest. On the other hand, material stocks came under selling pressure.

Hong Kong's Hang Seng Index closed at 21,226, up 256.76 points or 1.22 percent. On the other hand, China's Shanghai Composite Index and South Korea's Kospi fell 0.27 percent and 0.32 percent, respectively.

On the economic front, a report released by Japan's Ministry of Economy, Trade and Industry showed that its tertiary index measuring activity of the service sector came in unchanged compared to the previous month in April, defying expectations for a 0.2 percent increase.

A report released by the Australian Bureau of Statistics showed that new vehicle sales remained almost unchanged compared to the previous month at 93,209 in May. Annually, sales were up 0.2 percent.

The Reserve Bank of India opted to hold key policy rates unchanged at the conclusion of its mid-quarter review. The central bank left the repo rate at 7.25 percent, the reverse repo rate at 6.25 percent and the cash reserve ratio at 4 percent. The no changed stance came after the Reserve Bank of India reduced these rates thrice this year to steady sagging growth.


European stocks opened higher and have advanced further. The French CAC 40 Index and the German DAX Index are rising over 1 percent each, while the U.K.'s FTSE 100 Index is gaining moderately.

In corporate news, Swedish engineering giant ABB (ABB) announced the appointment of Ulrich Spiesshofer as its CEO, effective September 15th. Spiesshofer will replace Joe Hogan, who announced his intention to resign earlier in May.

TeliaSonera named Johan Dennelind as its CEO, effective September, replacing Per-Arnet Blomquist, who held the position on an interim basis. Legal & General appointed Mark Gregory as its CFO, effective July 1st.

Royalty Pharma released a letter from its Chairman Rory Riggs, where he indicated that Elan's (ELN) shareholders are likely to reject both the Theravance and AOP deals at the EGM.

The asking price for a property in the U.K. rose to a fresh record high in June, lifted by a jump in prices in the South East and London, the latest survey by Rightmove showed. The average property asking price was 252,798 pounds in June compared with 249,841 pounds in May, up 1.2 percent and marking the sixth consecutive monthly increase.

U.S. Economic Reports

The 2-day FOMC meetings along with a few housing and manufacturing reports are likely to headline the economic events of the unfolding week. Traders are likely to closely watch the FOMC announcement on Wednesday, which will be followed by the release of the FOMC forecasts and the Chairman's press briefing.

The results of the New York Federal Reserve and the Philadelphia Federal Reserve's manufacturing surveys for June, the jobless claims report, the National Association of Home Builders' housing market index for June, the Commerce Department's housing starts report for May and the National Association of Realtors' existing home sales report for May are also likely to be in the spotlight. The Labor Department's consumer price report for May, the Conference Board's leading indicators index for May and announcements concerning Treasury auctions of 2-year, 5-year and 7-year notes round up the economic events of the week.

Conditions for New York manufacturers improved modestly in the month of June, according to a report released by the Federal Reserve Bank of New York on Monday, with the index of activity in the sector climbing into positive territory.

The New York Fed said its general business conditions index rose to a positive 7.8 in June from a negative 1.4 in May, with a positive reading indicating an increase in regional manufacturing activity. Economists had expected to climb to a positive 0.5.

At 10 am ET, the National Association of Home Builders is scheduled to release its housing market index for June. Economists expect the index to rise to 45 from 44 in May.

In May, confidence among builders improved. The housing market index rose 3 points to 44 in May. The current sales conditions index rose 4 points to a 3-month high of 48 and the futures sales expectations index climbed 1 point to a 6-year high of 53. Meanwhile, the index measuring prospective buyer traffic rose 3 points to a 2-month high of 33.

Stocks in Focus

Weyerhaeuser (WY) announced its decision to buy Longview Timber from Brookfield Asset Management for $2.65 billion, including the assumption of debt. The deal is expected to close in July 2013. As part of the deal, the company announced an increase in its quarterly dividend to 22 cents per share from 20 cents per share.

Separately, the company announced that its board has authorized the exploration of strategic alternatives with respect to its Weyerhaeuser Real Estate. The company also announced separately that its board has elected Doyle Simons to succeed Dan Fulton, who will retire as CEO, effective August 1st.

Meanwhile, Brookfield also signed a separate deal to sell its interest in its U.S. Pacific Northwest timberland operations for about $790 million, with the seller assuming proportionate debt of about $320 million, resulting in net proceeds of about $470 million.

Dean Foods (DF) announced that its WhiteWave Foods has filed a registration statement on Form S-1 with the SEC for a secondary offering of 29.9 million shares of WhiteWave's class A stock.

Rockwood Holdings (ROC) said that it has agreed to sell its German ceramic materials business CeramTec to European private equity firm Cinven Partners LLP for gross proceeds of 1.49 billion euros, or $1.98 billion.

Starboard Value LP, which beneficially owns approximately 5.7 percent of the outstanding common stock of Smithfield Foods (SFD), announced that it has delivered a letter to the company's board and said it believes that piece-by-piece sale of company's businesses could result in greater value to shareholders than the proposed merger.

Terex Corp. (TEX) lowered its full year 2013 earnings guidance stating that the level of sales growth has softened overall when compared with the increases it had originally anticipated for 2013.

by RTTNews Staff Writer

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