Market Analysis

The major U.S. index futures are pointing to a higher opening on Wednesday, with sentiment remaining upbeat concerning continued stimulatory support by the Federal Reserve. Earnings news of the day has largely been mixed, with homebuilder Toll Brothers reporting better than expected results, while home improvement retailer Lowe’s reported insipid results. The market attention now shifts to a testimony by Federal Reserve Chairman Ben Bernanke before a Congressional Committee, the FOCM minutes and the existing home sales data, which could set the tempo for the session.

U.S. stocks overcame late morning hiccups on Tuesday before staging a recovery and ending modestly higher, benefiting from positive earnings and indications from some Fed officials that the central bank stimulus may not be scaled back anytime soon. The major averages opened higher and moved sideways for a while. After declining and dropping below the unchanged line in late morning trading, the averages reversed course and moved higher, climbing above the unchanged line in early afternoon trading. Thereafter, the averages stayed above the unchanged line before closing higher.

The Dow Industrials ended up 52.30 points or 0.34 percent at 15,388, while the S&P 500 Index closed 2.87 points or 0.17 percent higher at 1,669 and the Nasdaq Composite closed at 3,502, up 5.69 points or 0.16 percent.

Eighteen of the thirty Dow components closed higher and one stocks ended unchanged, while the remaining stocks receded. Merck (MRK) rallied 4.69 percent and Home Depot (HD) advanced 2.54 percent. JP Morgan Chase (JPM), American Express (AXP) and Chevron (CVX) also rose notably. On the other hand, Travelers (TRV) and Verizon (VZ) declined sharply.

Truck and steel stocks advanced strongly in the session, while gold and airline stocks were among the biggest decliners of the session.



Currency, Commodity Markets

In the first day of trading as the front month contract, crude futures for July delivery are trading down $0.28 at $95.90 a barrel. The June futures expired at $96.16 a barrel on Tuesday, down $0.55.

An ounce of gold is trading at $1,389.80, up $12.40 from the previous session’s closing price of $1,377.60. On Tuesday, gold fell $6.50.

Among currencies, the U.S. dollar is trading at 103.05 yen compared to the 102.49 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.2931 compared to yesterday’s $1.2906.

Asia

The Asian markets closed mixed, as Wall Street’s resilience and the yen’s weakening in the wake of the Bank of Japan’s monetary policy announcement kept sentiment upbeat in some markets, while the Australian, Chinese and Hong Kong markets retreated.


Japan’s Nikkei opened higher and made a leg up in early trading before consolidating till late afternoon trading. After advancing in post-noon trading, the index gave back some of its gains in late trading and yet closed up 246.24 points or 1.60 percent at 15,627.

Export stocks led from the front, with Mitsumi Electric, Sharp, Casio Computer and Sony posting notable gains. Sony was reacting to reports that its board may discuss a potential spin-off of its entertainment business. Meanwhile, Tokyo Electric slid close to 10 percent. Mitsubishi Motors, Nisshin Steel, Nippon Electric Glass, Tokyo Electron and Mazda Motor were also among the worst performers of the session.

After holding above the unchanged line in the morning, Australia’s All Ordinaries trimmed its gains, dropping below the unchanged line in late morning trading, as a weak domestic consumer confidence reading and selling in financial stocks pressured the markets.

Thereafter, the index languished below the unchanged line before closing down 14.10 points or 0.27 percent at 5,142. Financial and real estate stocks declined sharply, helping to offset the modest strength seen in the material and energy spaces.

Hong Kong’s Hang Seng Index closed at 23,253, down 113.19 points or 0.48 percent. Meanwhile, China’s Shanghai Composite Index closed down 2.71 points or 0.12 percent at 2,302.

On the economic front, the Bank of Japan’s Monetary Policy Board concluded at the end of a 2-day monetary policy meeting that an unchanged policy stance is pertinent at this juncture. The bank reaffirmed its commitment to the easing measures it announced at its last meeting, which included conducting money market operations to increase the monetary base at an annual rate of 60 trillion yen to 70 trillion yen. The central bank also upgraded its assessment of domestic growth, stating that the economy has started to pick up, as exports have stabilized.

Earlier in the day, Japan’s Ministry of Finance reported that Japan’s trade deficit widened to 879.94 billion yen in April from a deficit of 364 billion yen in March. Economists had expected a more modest deficit of 620.6 billion yen.

The results of a survey by Westpac and the Melbourne Institute showed that their index measuring consumer confidence in Australia fell to its lowest level since August 2012. The consumer sentiment index fell to 97.6 in May from 104.9 in April.

Europe

European markets opened lower and showed volatility in early trading. The major averages in the region are currently mixed. The markets may focus on a meeting of EU leaders scheduled to be held in Brussels later today.

In corporate news, the U.K.’s Cable & Wireless reversed to a profit on a pre-tax basis in the fiscal year ended March 31st 2013 from a loss last year. The company’s adjusted pre-tax profit declined to $171 million from $193 million last year.

On the economic front, U.K. retail sales fell unexpectedly in April, according to a report released by the U.K. Office for National Statistics. Retail sales fell 1.4 percent month-over-month in April, contrasting expectations for a 0.1 percent increase. Annually, retail sales climbed 0.5 percent, slower than the 2 percent increase expected by economists.

The minutes of the Bank of England’s May monetary policy meeting showed that the policymakers unanimously voted to keep interest rates unchanged, while the committee was split 6 to 3 in their decision to retain the size of the quantitative easing at 375 billion pounds.

Current account data released by the European Central Bank showed that the euro area’s current account surplus rose to 25.9 billion euros in March from 14.6 billion euros in February, helped mainly by an increase in the trade surplus.

U.S. Economic Reports

The National Association of Realtors is scheduled to release its existing home sales report for April at 10 am ET. Economists expect existing home sales to come in at a seasonally adjusted annual rate of 5 million units compared to 4.920 million units in the previous month.



Existing home sales unexpectedly fell 0.6 percent month-over-month to a seasonally adjusted annual rate of 4.92 million units in March. February sales were downwardly revised to 4.95 million units. Single-family sales edged down 0.2 percent compared to a steeper 3.2 percent decline in condominium sales.

Inventories measured in absolute terms rose slightly to 1.930 million units from 1.900 million units, while inventories measured in terms of months of supply rose to 4.7 months from 4.6 months in February. The median price of an existing home fell 6.4 percent month-over-month to $184,300.

Federal Reserve Chairman Ben Bernanke will testify on the outlook for the U.S. economy before the Joint Economic Committee of Congress at 10 am ET. Dallas Federal Reserve Bank President Richard Fisher is due to speak on the economy and Fed operations in Nacogdoches, Texas at 1 pm ET.

The Energy Information Administration is scheduled to release its weekly oil inventory report for the week ended May 17th at 10:30 am ET.

Crude oil stockpiles edged down 0.6 million barrels to 394.9 million barrels in the week ended May 10th, with inventories continuing to remain above the upper limit of the average range.

Meanwhile, gasoline inventories increased by 2.6 million barrels and were in the upper half of the average range. Distillate stockpiles rose by 2.3 million barrels but remained in the lower half of the average range. Refinery capacity utilization averaged 85.7 percent over the four weeks ended May 10th compared to 85.3 percent over the four weeks ended May 3rd.

The Federal Reserve will release the minutes of the April 30th-May 1st FOMC meeting at 2 pm ET.

The FOMC statement released following the conclusion of the 2-day meeting said that economic activity has been expanding at a moderate pace. The commentary on the labor market, consumer spending, business fixed investment, the housing sector and inflation was left unchanged.

While repeating its plans to purchase agency mortgage-backed securities at a pace of $40 billion per month and longer term Treasury securities at the rate of $45 billion per month until labor market conditions improve, the FOMC said it stands prepared to reduce or increase the size of its asset purchase program until the labor market or inflation outlook changes.

Stocks in Focus

Target’s (TGT) first quarter earnings beat estimates, while the revenues missed expectations. The company lowered its 2013 guidance, which still surrounded the consensus estimate.

Lowe’s (LOW) reported first quarter earnings and revenues that missed expectations, while its 2013 earnings guidance trailed estimates.

Toll Brothers (TOL) reported better than expected second quarter results.

Intuit (INTU) reported third quarter non-GAAP earnings of $2.97 per share compared to $2.52 per share last year. Revenues rose 13 percent to $2.18 billion. The earnings exceeded estimates and the revenues were in line. The company reiterated its 2013 guidance that calls for non-GAAP earnings of $3.31 to $3.35 per share on revenues of $4.495 billion to $4.520 billion. The guidance was also in line with estimates.

NetApp (NTAP) reported fourth quarter non-GAAP earnings of 69 cents per share on revenues of $1.717 billion. The earnings were ahead of estimates, while the revenues were shy of estimates. The company also said it expects first quarter non-GAAP earnings of 45-50 cents per share on revenues of $1.475 billion to $1.575 billion. The guidance was weak.

Compuware (CPWR) reported fourth quarter non-GAAP earnings of 5 cents per share on revenues of $239.9 million. The results were in line with estimates. For 2014, the company expects GAAP earnings of 35-37 cents per share on revenues of $1 billion.

Analog Devices (ADI) reported second quarter earnings of 52 cents per share on revenues of $659 million. The earnings were in line, while the revenues were slightly shy of estimates. For the third quarter, the company expects earnings of 51-56 cents per share on revenues of $655 million to $685 million. The guidance was weak.

Dycom Industries (DY) reported third quarter net income of 21 cents per share, lower than 28 cents per share last year. Contract revenues rose to $437.37 million from $296.10 million last year. For the fourth quarter, the company expects earnings of 40-47 cents per share on revenues of $455 million to $475 million. The results beat estimates and the guidance was also positive.

Gilead Sciences (GILD) said the European Medicines Agency has validated its Marketing Authorization Application, or MAA, for its hepatitis C virus treatment sofosbuvir. The MAA is currently under assessment.

Merck (MRK) said it has entered into an accelerated repurchase agreement with Goldman Sachs (GS) to buy back $5 billion worth of shares.

Avid Technologies (AVID), DryShips (DRYS), Guess (GES), Hewlett-Packard (HPQ), Limited Brands (LTD), Pacific Sunwear (PSUN), PetSmart (PETM), Semtech (SMTC), Shanda Games (GAME) and Synopsys (SNPS) are among the companies due to release their financial results after the close of trading.