Traders May Relish Economic Evidence Pointing To Return To Strong Growth - RTTNews Daily Market Analysis
(RTTNews) - The major U.S. index futures are pointing to a higher opening on Monday, with the optimism emanating from a more upbeat forecast for growth and data supporting claims that the growth is holding up. A report released by the National Association of Business Economics and positive manufacturing and services sector readings from Europe have fortified hopes of seeing sustainable growth, sending commodity prices higher. The direction of the markets in today's session may also track the existing home sales report to be released shortly after the markets open.
On a positive note, the NABE released the results of its survey, showing that economic growth in 2010 is likely to be better than initially forecast, although the jobless rate is expected to remain stubbornly high. The firm now expects GDP growth to be 2.9% compared to its October forecast of 2.6% growth.
U.S. stocks meandered to a mixed close in the week ended November 20, as mixed economic reports clouded the economic outlook.
Last Monday, the major averages ended with gains of over 1% each, as traders took kindly to a report showing that retail sales rose yet again in October and were reassured by comments from Federal Reserve Chairman Ben Bernanke that the easy monetary policy regime will continue to be in effect for an extended period. On Tuesday, the major averages shrugged off some early weakness triggered by the release of a report that showed a considerable slowdown in industrial production growth, and the markets recovered in the afternoon to close modestly higher.
Weak economic readings, including a lackluster housing starts report, turned out to be the markets' nemesis on Wednesday, as the major averages languished in negative territory throughout the session to close modestly lower. Labor market data weighed on the major averages on Thursday, as traders expressed concerns over the weekly jobless claims data, which held above the 500,000 level and the data's implication for growth. The major averages closed notably lower on Thursday.
On Friday, amid a lack of any major catalysts on the economic front, stocks opened modestly lower and declined further over the course of morning trading, with the focus shifting to a dismal earnings report from computer and peripherals maker Dell (DELL | Quote | Chart | News | PowerRating). The major averages recouped some of their losses by the close of trading, ending with modest losses.
For the week, the Dow Industrials ended up 0.46% at 10,318, while the S&P 500 Index receded 0.19% to 1,091. The Nasdaq Composite Index underperformed the other two major averages, dropping 1.01% to 2,146.
Among the sector indexes, the Philadelphia Oil Service Index declined 4.17% and the Philadelphia Semiconductor Index fell 3%. The NYSE Arca Gold Bugs Index, the Philadelphia Housing Sector Index, the NYSE Arca Biotechnology Index all ended down over 2%. The NYSE Arca Airline Index, the NYSE Arca Oil Index, the S&P Retail Index and the NYSE Arca Securities Broker/Dealer Index ended down more than 1% each. On the other hand, the KBW Bank Index gained 1.23%.
Currency, Commodity Futures
Crude oil futures for January delivery, in their first day of trading as the front-month contract, are trading up $1.12 at $78.59 a barrel. The December futures expired on Friday at $76.72 a barrel, up merely $0.37 or 0.49% for the week.
Last Monday, oil rose strongly, advancing over $2.50-a-barrel, and the commodity advanced a much more modest $0.24-a-barrel on Tuesday. Amid the release of the weekly oil report, which showed a modest rise in crude oil stocks and declines in distillate fuel and gasoline inventories, crude oil declined modestly on Wednesday.
Oil fell sharply on Thursday, dropping over $2-a-barrel, after the U.S. dollar strengthened and the equity markets retreated in reaction to a lackluster economic report. The commodity declined yet again on Friday, stung by the greenback's continued upward momentum, although it closed the week slightly higher.
Gold futures are currently advancing $17.60 to $1,164.40 an ounce after strengthening $30.10 or 2.7%to $1,146.80 an ounce in the previous week.
Among currencies, the U.S. dollar closed the week ended November 20th mostly higher, although it moved lower against the yen. The greenback declined 0.86% against the yen to 88.885 yen, while it rose 0.4% against the euro to $1.4862.
Currently, the U.S. dollar is trading at 88.832 yen and is valued at $1.4975 versus the euro.
Asia
The major Asian markets ended Monday's session mostly higher, although the Japanese market remained closed on account of a public holiday. Sentiment was helped by the continued upside in commodity prices.
Australia's All Ordinaries opened on a nervous note, but it advanced in early trading before moving sideways in the afternoon. The index closed up 32.50 points or 0.69% at 4,739.
Material stocks led the way higher, with most other sectors, barring financial stocks, joining in the rally. Miners BHP Billiton, Newcrest Mining, Lihir Gold and Rio Tinto advanced in the session. On the other hand, Oil Search and Origin Energy receded. Among the four major banks, ANZ and Commonwealth Bank rose, while National Australia Bank and Westpac fell.
Hong Kong's Hang Seng Index opened modestly higher and moved sideways in the morning before buying interest picked up in late trading. Consequently, the index ended with a gain of 315.55 points or 1.41% at 22,771.
Thirty-five of the forty-two index components ended the session higher. Barring one of the index heavyweights China Mobile, which slid 0.07%, and some resource stocks, most others advanced. CCB, Ping An and ICBC were among the most significant gainers.
Europe
The major European averages are rallying on Monday, with the French CAC 40 and German DAX Indexes advancing 1.70% and 1.57%, respectively, while the U.K.'s FTSE 100 Index is up 1.25%.
On the economic front, preliminary data released by Markit Economics showed that business activity in the euro zone expanded for a fourth straight month in November. The Markit flash Eurozone composite output index, which includes both manufacturing and services, rose to a two-year high of 53.7 in November from 53 in October. It rose above the expected reading of 53.3. The flash manufacturing purchasing managers' index increased to a twenty-month high of 51 in November from 50.7 in October, while the expected reading was 51.4. Similarly, the services PMI climbed to a two-year high of 53.2 from October's 52.6.
Meanwhile, a separate survey done by Markit Economics showed that Germany's manufacturing purchasing managers' index rose to a 17-month high in November. Manufacturing output grew at the fastest pace in a year and half, led by improved global economic conditions and the fastest rise in new orders since March 2008. The manufacturing output index stood at 56.3, up from 54.4 in the previous month. Meanwhile, the services activity rose to a two-month high. The services activity index climbed to 51.5 from 50.7 in October.
U.S. Economic News
Although the unfolding week is shortened by the 'Thanksgiving Day' holiday on Thursday, the economic calendar for the week is pretty heavily loaded. Given the lackluster housing readings released in the previous week, traders may closely watch the existing and new home sales reports for October to gauge the strength of the housing market recovery. Additionally, the S&P Case-Shiller house price index and the Federal Housing Finance Agency house price index, which is compiled by the data provided by Fannie Mae and Freddie Mac and due to be released at 10 AM ET on Tuesday, may also be in the spotlight.
Other economic reports that could have a significant impact on the market include the Conference Board's consumer confidence report for November, the Commerce Department's durable goods orders report for October, the jobless claims report for the week ended November 21st and the personal income and outlays report for October. The week will also see the release of the preliminary third quarter GDP report.
The minutes of the November FOMC meeting and the results of the Treasury auctions of 2-year notes (due at 1 PM ET on Monday), 5-year notes (due at 1 PM ET on Tuesday) and 7-year notes (due at 1 PM ET on Wednesday) may also be important from the point of view of the market participants, as they attempt to piece together the jigsaw puzzle regarding the economic environment.
The durable goods orders for October is likely to show growth in orders, as inventory depletion continues to support order growth. Although the October industrial production data was a bit disappointing, regional manufacturing surveys point to continued expansion in the manufacturing sector, offering promise for durable goods order growth.
Going by the gains in the pending home sales index, existing home sales for October are likely to show an increase. Sales could receive a shot in the arm from very good affordability and the recent extension and expansion of the first-time homebuyer tax credit.
The FOMC minutes are unlikely to reveal any radical change in Fed policy, given the fact that all members of the committee seem to be reconciled to the idea that the outlook for growth and inflation remains subdued. Therefore, there is likely to be unanimous support from the committee members for holding rates at exceptionally low levels for an extended period. The minutes may reveal discussions about any future unwinding of alternative easing measures.
Gains in retail sales for October suggest an increase in personal spending, while at the same time personal income may also rise due to the support provided by wage growth arising out of strong productivity growth. According to BMO Capital Markets, the core price consumption expenditure deflator will increase modestly due to higher prescription drug costs, which could offset the impact of lower rents. Meanwhile, the second estimate of third quarter GDP is expected to be revised down due to a less positive impact from the change in inventories, foreign trade and consumer spending.
The National Association of Realtors is scheduled to release its report on existing home sales for October at 10 AM ET. Economists estimate existing home sales of 5.70 million for the month.
Existing home sales rose to a seasonally adjusted annual rate of 5.57 million in September, up 9.4% from the previous month. Single-family sales as well as condominiums/co-ops sales increased month-over-month, with the upside aided by the first time home buying tax credit.
Inventories of existing homes fell to 3.63 million units from 3.92 million units in the previous month, with the September reading marking the lowest since January. Meanwhile inventories, measured in terms of months of supply, fell to 7.8 in September from 9.3 in August. The median sale price of an existing house was $174,900, down 1.4% month-over-month and down 8.5% year-over-year.
Stocks in Focus
AstraZeneca (AZN | Quote | Chart | News | PowerRating) could be in focus after it announced that the U.S. Court of Appeals for the First Circuit approved a settlement in the long-running Average Wholesale Price pharmaceutical litigation against the company. The ruling affirms a $24 million settlement awarded to consumers who bought the company's prostrate cancer drug Zoladex on charges that the company manipulated the pricing of the drug.
Bristol-Myers Squibb (BMY | Quote | Chart | News | PowerRating) may react to its announcement that the U.S. FDA has approved the supplemental NDA for ABLIFY, a drug it co-develops with Otsuka Pharma to treat irritability associated with autistic disorder in pediatric patients aged 6-17 years.
AngloGold Ashanti (AU | Quote | Chart | News | PowerRating) is expected to see some activity after it announced that it has acquired 10 million units in Commander Resources through a non-brokered private placement. Each unit consists of a common share in the capital of Commander and one and a half of one common share purchase warrant, with each warrant entitling purchase of one additional common share at C$0.24 per share. Prior to the exercise of warrants, AngloGold now owns 11.1% of the total issued and outstanding shares of Commander.
Oshkosh Corp. (OSK | Quote | Chart | News | PowerRating) could also be in focus after it announced that it met the November MRAP All Terrain Vehicle production schedule ahead of schedule on November 19th. The company had received the award and its first delivery order on June 30 and has been stepping up production to meet an urgent need in Afghanistan.
UPS (UPS | Quote | Chart | News | PowerRating) may react to its announcement that it has decided to increase its UPS Ground packages rates by an average of 4.9%. All air express and U.S. origin international shipments rates were increased by 4.9% on an average. The company also noted that the rate increase for air express and international shipments is based on a 6.9% increase in the base rate, less a 2% reduction in the air and international fuel surcharge index.
Cadbury (CBY | Quote | Chart | News | PowerRating) and Kraft Foods (KFT | Quote | Chart | News | PowerRating) could see some activity after reports suggested that Swiss-based Nestle is contemplating a 9.9-pound bid for Cadbury. Separately, a Bloomberg report said that Hershey (HSY | Quote | Chart | News | PowerRating) along with Italy's Ferrero is also interested in bidding for the U.K.-based confectioner. Earlier, Kraft Foods had made an unsolicited $16.7 billion for Cadbury.
Tech Data (TECD | Quote | Chart | News | PowerRating) is likely to move in reaction to its announcement that its net sales for the third quarter fell to $5.64 billion from $6.1 billion last year. On an adjusted basis, the company reported earnings of 84 cents per share compared to 33 cents per share last year. Analysts estimated earnings of 71 cents per share on revenues of $5.33 billion.
Tyson Foods (TSN | Quote | Chart | News | PowerRating) is likely to move in reaction to its announcement that it reported a loss of $1.22 per share for its fourth quarter compared to earnings of 13 cents per share last year. On an adjusted basis, the company reported earnings of 28 cents per share, ahead of the 26 cents per share consensus estimate. Sales rose to $7.21 billion, also beating the mean analysts' estimate of $6.88 billion.
For comments and feedback: contact editorial@rttnews.com
Copyright(c) 2009 RTTNews.com, Inc. All Rights Reserved
On a positive note, the NABE released the results of its survey, showing that economic growth in 2010 is likely to be better than initially forecast, although the jobless rate is expected to remain stubbornly high. The firm now expects GDP growth to be 2.9% compared to its October forecast of 2.6% growth.
U.S. stocks meandered to a mixed close in the week ended November 20, as mixed economic reports clouded the economic outlook.
Last Monday, the major averages ended with gains of over 1% each, as traders took kindly to a report showing that retail sales rose yet again in October and were reassured by comments from Federal Reserve Chairman Ben Bernanke that the easy monetary policy regime will continue to be in effect for an extended period. On Tuesday, the major averages shrugged off some early weakness triggered by the release of a report that showed a considerable slowdown in industrial production growth, and the markets recovered in the afternoon to close modestly higher.
Weak economic readings, including a lackluster housing starts report, turned out to be the markets' nemesis on Wednesday, as the major averages languished in negative territory throughout the session to close modestly lower. Labor market data weighed on the major averages on Thursday, as traders expressed concerns over the weekly jobless claims data, which held above the 500,000 level and the data's implication for growth. The major averages closed notably lower on Thursday.
On Friday, amid a lack of any major catalysts on the economic front, stocks opened modestly lower and declined further over the course of morning trading, with the focus shifting to a dismal earnings report from computer and peripherals maker Dell (DELL | Quote | Chart | News | PowerRating). The major averages recouped some of their losses by the close of trading, ending with modest losses.
For the week, the Dow Industrials ended up 0.46% at 10,318, while the S&P 500 Index receded 0.19% to 1,091. The Nasdaq Composite Index underperformed the other two major averages, dropping 1.01% to 2,146.
Among the sector indexes, the Philadelphia Oil Service Index declined 4.17% and the Philadelphia Semiconductor Index fell 3%. The NYSE Arca Gold Bugs Index, the Philadelphia Housing Sector Index, the NYSE Arca Biotechnology Index all ended down over 2%. The NYSE Arca Airline Index, the NYSE Arca Oil Index, the S&P Retail Index and the NYSE Arca Securities Broker/Dealer Index ended down more than 1% each. On the other hand, the KBW Bank Index gained 1.23%.
Currency, Commodity Futures
Crude oil futures for January delivery, in their first day of trading as the front-month contract, are trading up $1.12 at $78.59 a barrel. The December futures expired on Friday at $76.72 a barrel, up merely $0.37 or 0.49% for the week.
Last Monday, oil rose strongly, advancing over $2.50-a-barrel, and the commodity advanced a much more modest $0.24-a-barrel on Tuesday. Amid the release of the weekly oil report, which showed a modest rise in crude oil stocks and declines in distillate fuel and gasoline inventories, crude oil declined modestly on Wednesday.
Oil fell sharply on Thursday, dropping over $2-a-barrel, after the U.S. dollar strengthened and the equity markets retreated in reaction to a lackluster economic report. The commodity declined yet again on Friday, stung by the greenback's continued upward momentum, although it closed the week slightly higher.
Gold futures are currently advancing $17.60 to $1,164.40 an ounce after strengthening $30.10 or 2.7%to $1,146.80 an ounce in the previous week.
Among currencies, the U.S. dollar closed the week ended November 20th mostly higher, although it moved lower against the yen. The greenback declined 0.86% against the yen to 88.885 yen, while it rose 0.4% against the euro to $1.4862.
Currently, the U.S. dollar is trading at 88.832 yen and is valued at $1.4975 versus the euro.
Asia
The major Asian markets ended Monday's session mostly higher, although the Japanese market remained closed on account of a public holiday. Sentiment was helped by the continued upside in commodity prices.
Australia's All Ordinaries opened on a nervous note, but it advanced in early trading before moving sideways in the afternoon. The index closed up 32.50 points or 0.69% at 4,739.
Material stocks led the way higher, with most other sectors, barring financial stocks, joining in the rally. Miners BHP Billiton, Newcrest Mining, Lihir Gold and Rio Tinto advanced in the session. On the other hand, Oil Search and Origin Energy receded. Among the four major banks, ANZ and Commonwealth Bank rose, while National Australia Bank and Westpac fell.
Hong Kong's Hang Seng Index opened modestly higher and moved sideways in the morning before buying interest picked up in late trading. Consequently, the index ended with a gain of 315.55 points or 1.41% at 22,771.
Thirty-five of the forty-two index components ended the session higher. Barring one of the index heavyweights China Mobile, which slid 0.07%, and some resource stocks, most others advanced. CCB, Ping An and ICBC were among the most significant gainers.
Europe
The major European averages are rallying on Monday, with the French CAC 40 and German DAX Indexes advancing 1.70% and 1.57%, respectively, while the U.K.'s FTSE 100 Index is up 1.25%.
On the economic front, preliminary data released by Markit Economics showed that business activity in the euro zone expanded for a fourth straight month in November. The Markit flash Eurozone composite output index, which includes both manufacturing and services, rose to a two-year high of 53.7 in November from 53 in October. It rose above the expected reading of 53.3. The flash manufacturing purchasing managers' index increased to a twenty-month high of 51 in November from 50.7 in October, while the expected reading was 51.4. Similarly, the services PMI climbed to a two-year high of 53.2 from October's 52.6.
Meanwhile, a separate survey done by Markit Economics showed that Germany's manufacturing purchasing managers' index rose to a 17-month high in November. Manufacturing output grew at the fastest pace in a year and half, led by improved global economic conditions and the fastest rise in new orders since March 2008. The manufacturing output index stood at 56.3, up from 54.4 in the previous month. Meanwhile, the services activity rose to a two-month high. The services activity index climbed to 51.5 from 50.7 in October.
U.S. Economic News
Although the unfolding week is shortened by the 'Thanksgiving Day' holiday on Thursday, the economic calendar for the week is pretty heavily loaded. Given the lackluster housing readings released in the previous week, traders may closely watch the existing and new home sales reports for October to gauge the strength of the housing market recovery. Additionally, the S&P Case-Shiller house price index and the Federal Housing Finance Agency house price index, which is compiled by the data provided by Fannie Mae and Freddie Mac and due to be released at 10 AM ET on Tuesday, may also be in the spotlight.
Other economic reports that could have a significant impact on the market include the Conference Board's consumer confidence report for November, the Commerce Department's durable goods orders report for October, the jobless claims report for the week ended November 21st and the personal income and outlays report for October. The week will also see the release of the preliminary third quarter GDP report.
The minutes of the November FOMC meeting and the results of the Treasury auctions of 2-year notes (due at 1 PM ET on Monday), 5-year notes (due at 1 PM ET on Tuesday) and 7-year notes (due at 1 PM ET on Wednesday) may also be important from the point of view of the market participants, as they attempt to piece together the jigsaw puzzle regarding the economic environment.
The durable goods orders for October is likely to show growth in orders, as inventory depletion continues to support order growth. Although the October industrial production data was a bit disappointing, regional manufacturing surveys point to continued expansion in the manufacturing sector, offering promise for durable goods order growth.
Going by the gains in the pending home sales index, existing home sales for October are likely to show an increase. Sales could receive a shot in the arm from very good affordability and the recent extension and expansion of the first-time homebuyer tax credit.
The FOMC minutes are unlikely to reveal any radical change in Fed policy, given the fact that all members of the committee seem to be reconciled to the idea that the outlook for growth and inflation remains subdued. Therefore, there is likely to be unanimous support from the committee members for holding rates at exceptionally low levels for an extended period. The minutes may reveal discussions about any future unwinding of alternative easing measures.
Gains in retail sales for October suggest an increase in personal spending, while at the same time personal income may also rise due to the support provided by wage growth arising out of strong productivity growth. According to BMO Capital Markets, the core price consumption expenditure deflator will increase modestly due to higher prescription drug costs, which could offset the impact of lower rents. Meanwhile, the second estimate of third quarter GDP is expected to be revised down due to a less positive impact from the change in inventories, foreign trade and consumer spending.
The National Association of Realtors is scheduled to release its report on existing home sales for October at 10 AM ET. Economists estimate existing home sales of 5.70 million for the month.
Existing home sales rose to a seasonally adjusted annual rate of 5.57 million in September, up 9.4% from the previous month. Single-family sales as well as condominiums/co-ops sales increased month-over-month, with the upside aided by the first time home buying tax credit.
Inventories of existing homes fell to 3.63 million units from 3.92 million units in the previous month, with the September reading marking the lowest since January. Meanwhile inventories, measured in terms of months of supply, fell to 7.8 in September from 9.3 in August. The median sale price of an existing house was $174,900, down 1.4% month-over-month and down 8.5% year-over-year.
Stocks in Focus
AstraZeneca (AZN | Quote | Chart | News | PowerRating) could be in focus after it announced that the U.S. Court of Appeals for the First Circuit approved a settlement in the long-running Average Wholesale Price pharmaceutical litigation against the company. The ruling affirms a $24 million settlement awarded to consumers who bought the company's prostrate cancer drug Zoladex on charges that the company manipulated the pricing of the drug.
Bristol-Myers Squibb (BMY | Quote | Chart | News | PowerRating) may react to its announcement that the U.S. FDA has approved the supplemental NDA for ABLIFY, a drug it co-develops with Otsuka Pharma to treat irritability associated with autistic disorder in pediatric patients aged 6-17 years.
AngloGold Ashanti (AU | Quote | Chart | News | PowerRating) is expected to see some activity after it announced that it has acquired 10 million units in Commander Resources through a non-brokered private placement. Each unit consists of a common share in the capital of Commander and one and a half of one common share purchase warrant, with each warrant entitling purchase of one additional common share at C$0.24 per share. Prior to the exercise of warrants, AngloGold now owns 11.1% of the total issued and outstanding shares of Commander.
Oshkosh Corp. (OSK | Quote | Chart | News | PowerRating) could also be in focus after it announced that it met the November MRAP All Terrain Vehicle production schedule ahead of schedule on November 19th. The company had received the award and its first delivery order on June 30 and has been stepping up production to meet an urgent need in Afghanistan.
UPS (UPS | Quote | Chart | News | PowerRating) may react to its announcement that it has decided to increase its UPS Ground packages rates by an average of 4.9%. All air express and U.S. origin international shipments rates were increased by 4.9% on an average. The company also noted that the rate increase for air express and international shipments is based on a 6.9% increase in the base rate, less a 2% reduction in the air and international fuel surcharge index.
Cadbury (CBY | Quote | Chart | News | PowerRating) and Kraft Foods (KFT | Quote | Chart | News | PowerRating) could see some activity after reports suggested that Swiss-based Nestle is contemplating a 9.9-pound bid for Cadbury. Separately, a Bloomberg report said that Hershey (HSY | Quote | Chart | News | PowerRating) along with Italy's Ferrero is also interested in bidding for the U.K.-based confectioner. Earlier, Kraft Foods had made an unsolicited $16.7 billion for Cadbury.
Tech Data (TECD | Quote | Chart | News | PowerRating) is likely to move in reaction to its announcement that its net sales for the third quarter fell to $5.64 billion from $6.1 billion last year. On an adjusted basis, the company reported earnings of 84 cents per share compared to 33 cents per share last year. Analysts estimated earnings of 71 cents per share on revenues of $5.33 billion.
Tyson Foods (TSN | Quote | Chart | News | PowerRating) is likely to move in reaction to its announcement that it reported a loss of $1.22 per share for its fourth quarter compared to earnings of 13 cents per share last year. On an adjusted basis, the company reported earnings of 28 cents per share, ahead of the 26 cents per share consensus estimate. Sales rose to $7.21 billion, also beating the mean analysts' estimate of $6.88 billion.
For comments and feedback: contact editorial@rttnews.com
Copyright(c) 2009 RTTNews.com, Inc. All Rights Reserved
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