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Chinese Inflation Data and Friday’s Retail Sales Data May Keep Traders on Sidelines
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The major U.S. index futures are pointing to a lower opening on Thursday, with sentiment reflecting caution after China reported inflation data that came in above expectations. However, domestically, there has been encouraging news, with the Labor Department reporting a decline in jobless claims in the recent reporting week and the Commerce Department saying that the trade deficit unexpectedly declined. Additionally, Friday’s retail sales data may also force traders to stay on the sidelines. The price of oil is moving lower after its recent strength.
Notwithstanding a uncertainty, stocks advanced on Wednesday, as optimism over the economic recovery firmed up, leading to buying in the financial and technology space. The rise in oil prices also helped to some extent. After a nervous start, the Nasdaq Composite and the S&P 500 Index remained mostly above the unchanged to close moderately higher. The technology-weighed Nasdaq has closed higher in each of the past five sessions. After trading higher in the morning, the Dow Industrials experienced volatility in the afternoon, closing barely above the unchanged line.
While the Dow Industrials ended up 2.95 points or 0.03% at 10,567, the Nasdaq Composite gained 18.27 points or 0.78% to close at 2,359 and the S&P 500 Index advanced 5.17 points or 0.45% to 1,146.
The breadth among the Dow components was even, with 15 stocks closing higher and the remaining 15 stocks ending in negative territory. Boeing (BA) rallied 3.27%, Bank of America (BAC) rose 1.85%, Intel (INTC) gained 1.19% and JP Morgan Chase advanced 1.20%. On the other hand, Merck (MRK) fell 1%, Travelers Co. (TRV) declined 1.27% and Cisco Systems (CSCO) retreated 0.99%.
Among the sector indexes, the NYSE Arca Airline Index climbed 2.67%, the NYSE Arca Biotechnology Index jumped 5.46% and the KBW Bank Index rose 2.16%. However, the NYSE Arca Gold Bugs Index slid 1.42%. In the technology space, the Philadelphia Semiconductor Index moved up 2.16%, the NYSE Networking Index rose 1.04% and the NYSE Arca Internet Index gained close to 1%.
On the economic front, the Commerce Department’s wholesale inventories report showed that wholesale sales rose 1.3% month-over-month in January. Annually, wholesale sales climbed 10.5%. At the same time, inventories held by wholesalers at the end of January were down 0.2% compared to the previous month and were 9.7% lower than in the year-ago period. The inventories to sales ratio fell to 1.10 from 1.35 in the year-ago period.
Commodity, Currency Markets
Crude oil futures are moving down $0.61 at $81.48 a barrel after surging up $0.60 to $82.09 a barrel in the previous session. Wednesday’s upward surge came in reaction to the weekly oil inventory report and OPEC’s monthly oil market report. The oil cartel upwardly revised its global oil demand forecast.
The EIA’s oil inventory report for the week ended March 5th showed that crude oil inventories rose by 1.4 million barrels to 343 million barrels. Inventories of crude oil were above the upper limit of the average range.
However, gasoline stockpiles and distillate stockpiles fell by 2.9 million barrels and 1.5 million barrels, respectively. Despite the decline, inventories of gasoline were above the upper limit of the average range and inventories of distillate were above the upper boundary of the average range. Refinery capacity utilization averaged 80.9% over the four weeks ended March 5th compared to 80.5% in the previous week.
Gold futures, which fell $14.20 to $1,108.10 an ounce on Wednesday, are currently slipping $7.10 to $1,101 an ounce.
On the currency front, the U.S. dollar is trading at 90.53 yen compared to the 90.5152 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.3648.
Asia
The major Asian markets ended another lackluster session on a mixed note on Thursday, as traders expressed some uneasiness over inflation data from China. A stronger dollar helped some export-dependent stocks in the region.
China released a slew of economic reports that highlighted the growth momentum in the communist nation. Consumer prices rose 2.7% year-over-year in February, faster than the 1.5% growth in the previous month and the 2.5% increase expected by economists. Meanwhile, retail sales jumped 22.1% in February, exceeding forecast for 18.7% growth. However, industrial production rose 12.8% year-over-year in February, much slower than the 19.5% increase expected by economists.
Two central bank from the region, namely the Reserve Bank of New Zealand and the Bank of Korea, announced their decision to hold interest rates unchanged. The Reserve Bank of New Zealand held its official cash rate unchanged at 2.5%. The monetary policy statement was dovish, with the central bank suggesting that the policy stimulus may be removed around the middle of 2010.
Meanwhile, the Bank of Korea also retained its 7-day repurchase agreement rate unchanged at 2%, maintaining the rate at this level for the 13th straight month. The central bank deemed it appropriate to adopt an unchanged policy stance, given the uncertainty surrounding the economic outlook.
Notwithstanding a downward revision to fourth quarter GDP data, Japan’s Nikkei 225 average held above the unchanged line for better part of the session before closing up 101.03 points or 0.96% at 10,665.
A majority of stocks advanced in the session, with export stocks deriving support from the yen’s weakness. Credit Saison, Hitachi Zosen, Nippon Light Metal, Sumitomo Heavy Industries, Mitsumi Electric and NEC Corp. were among the notable gainers in the session. On the other hand, Fuji Electric, JFE Holdings, Kobe Steel, Nitto Boseki, Showa Shell and Unitika declined.
The Japanese Cabinet Office today released its revised fourth quarter GDP report, showing that the Japanese economy grew at a downwardly revised annualized rate of 3.8% compared to the previous quarter. Earlier, fourth quarter growth was estimated at 4.6%. On a linked quarter basis, the economy grew 0.9%, downwardly revised from the 1.1% growth estimated initially.
The downward revision reflects weaker than estimated business and government spending and a decline in private sector inventory. On a more negative note, the Cabinet Office downwardly revised its third quarter GDP data to show a contraction of 0.6% compared to the 0.3% growth estimated earlier.
Australia’s All Ordinaries, which held mostly above the unchanged line until late afternoon trading, receded into negative territory thereafter. The index closed down 4.30 points or 0.09% at 4,826. Most sectors, barring defensive healthcare, telecommunication, consumer staple and utility stocks, showed weakness.
A report released by the Australian statistical bureau showed that employment growth slowed in February. The economy added 400 jobs compared to the 56,500 jobs added in January.
Hong Kong’s Hang Seng moved in a directionless manner before closing up 19.91 points or 0.09% at 21,228. Hong-Kong based bank stocks and resource stocks advanced, while property and mainland financial stocks showed mixed sentiment. Utility stocks came under selling pressure.
Europe
Despite a mid-session recovery on Thursday, the major European markets have dipped back into negative territory. Currently, the French CAC 40 Index and the German DAX Index are moving down 0.52% and 0.28%, respectively, while the U.K.’s FTSE Index is receding 0.60%.
The European Central Bank said in its monthly bulletin that the euro zone’s economic recovery is on track, with the region’s economy expected to grow at a moderate rate in 2010. The central bank said the outcome of the monetary policy analysis confirms the assessment of low inflationary pressures over the medium term. The ECB also said the decisions taken at the March 4 Governing Council meeting would help to avoid distortions associated with maintaining non-standard measures for longer than needed.
U.S. Economic Reports
The U.S. trade deficit unexpectedly narrowed in the month of January, with the narrower deficit coming as the value of imports declining at a faster pace than the value of exports.
The trade deficit narrowed to $39.9 billion in January from a downwardly revised deficit of $39.9 billion in December. The narrower deficit came as a surprise to economists, who had expected the deficit to widen to $41 billion.
While the Labor Department released a report showing a modest decrease in first-time claims for unemployment benefits in the week ended March 6th, the report also showed an increase in continuing claims.
The report showed that initial jobless claims edged down to 462,000 from the previous week's revised figure of 468,000. Economists had expected jobless claims to slip to 460,000 from the 469,000 originally reported for the previous week.
At the same time, the Labor Department said that continuing claims, a reading on the number of people receiving ongoing unemployment help, rose to 4.558 million in the week ended February 27th from the preceding week's revised level of 4.521 million.
Stocks in Focus
Gymboree (GYMB) is likely to see some buying interest after it said its fourth quarter net sales rose 4% to $299.6 million. The company reported earnings of $1.11 per share compared to $1 per share last year. The consensus estimates call for earnings of $1.10 per share on revenues of $299.91 million. For the first quarter, the company expects comparable store sales growth in the mid-single digits. Separately, the company said it has entered into a multi-year franchise agreement with Azadea Group to launch the Gymboree retail brand in the Middle East.
CA, Inc. (CA) could see some activity after it said it has entered into a definitive agreement to buy privately held Nimsoft for $350 million in cash. Nimsoft is a provider of monitoring solutions to emerging enterprises and managed service providers.
Hot Topic (HOTT) moved higher in Wednesday’s after hours session after it reported fourth quarter net income of 18 cents per share compared to 32 cents per share last year. Net sales fell 10% to $214.2 million. The consensus estimates called for earnings of 18 cents per share on revenues of $214.64 million. For the first quarter, the company estimates a loss of 2-5 cents per share despite expecting high-single digit comparable store sales growth, while analysts estimate a loss of 2 cents per share.
Jo-Ann Stores (JAS) receded in Wednesday’s after hour session after it reported that its fourth quarter earnings rose to $1.36 per share compared to 79 cents per share last year, which included a gain of 5 cents per share. Net sales rose 5.3% to $602.2 million. Analysts estimate earnings of $1.33 per share on revenues of $600.40 million. For 2011, the company expects earnings of $2.75-$2.90 per share and same store sales growth of 2.5%-3.5%. The Street estimates earnings of $2.85 per share for the year.
Men’s Wearhouse (MW) tumbled in Wednesday’s after hours session after the company said its sales fell 4% to $457.2 million, missing the consensus estimate of $465.9 million. The company reported a loss of 36 cents per share compared to a profit of 3 cents per share last year. On an adjusted basis, the company reported a loss of 11 cents per share. For the first quarter, the company expects earnings of 12-16 cents per share.
Motorola (MOT) and Microsoft (MSFT) could be in focus after the companies announced that Microsoft’s Bing search services would be used in Motorola’s devices running on Android. This service will be launched in China in the first quarter and allow users to customize their devices and select their own search provider.
EQT Corp. (EQT) may see some activity after it announced that it has priced its public offering of 12.50 million shares at $44 compared to the $44.68 at which it closed on Wednesday. The company expects the issuance and delivery of the shares to occur on March 16th, 2010.
FuelCell (FCEL) could gain ground after it announced that it has won $2.1 million in subcontracts from Air Products (APD). The company also reported first quarter revenues of $14.6 billion compared to $19 million in the year-ago period. The company’s net loss narrowed to 18 cents per share compared to a loss of 30 cents per share last year. Analysts estimated a loss of 18 cents per share on revenues of $26.34 million.
United Technologies (UTX) is also likely to move to the upside after its board authorized the repurchase of up to 60 million shares worth $4.3 million. The company noted that the new authorization replaces a previous program approved in June 2008, which was nearing completion.
Semtech (SMTC) may move in reaction to its announcement that its fourth quarter net revenues climbed 35.6% to $85 million. On a non-GAAP basis, the company reported a profit of 30 cents per share compared to 26 cents per share last year. Analysts estimated earnings of 22 cents per share on revenues of $76.93 million. For the first quarter, the company estimates sequential sales growth of 7%-13% and non-GAAP earnings per share of 27-30 cents. Analysts estimate a 6.4% sequential decline in revenues to $79.56 million and earnings of 21 cents per share.
Mannatech (MTEX) could also be in focus after it reported fourth quarter earnings of 8 cents per share compared to 2 cents per share last year. Net sales fell 8.4% to $70.1 million.
Hibbett Sports (HIBB) is likely to see some activity after it said its Chairman and CEO Mickey Newsome is being appointed as executive Chairman of the company. Simultaneously, the company announced the promotion of President and COO Jeffry Rosenthal as its President and CEO, effective March 15th, 2010.
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