RTTN: Markets May Ride Stimulus Hopes-Induced Optimism
The major U.S. index futures are pointing to a higher opening on Monday, with sentiment reflecting an increase in risk appetite following expectations that Chinese stimulus may be forthcoming in the wake of weak GDP data from China. Better than expected domestic financial earnings and oil's upturn could also offer encouragement. The dollar is firmer against most currencies, except commodity currencies. The rising risk appetite could keep sentiment upbeat, although the results of homebuilder confidence survey due shortly after the market open may also impact sentiment.
In an update to its bi-annual World Economic Outlook, the IMF lowered its global growth outlook for the current year and the next, citing softness in the emerging markets and developing economies and plateauing of growth in the U.S.
U.S. stocks continued to sell-off in the week ended January 15th, with oil and China remaining the major theme in the markets for much of the week. China continued to haunt investors, as it tinkered with the value of the yuan fix, triggering worries concerning growth, and oil continued to slide precipitously, ending the week below the $30-a-barrel mark.
Last Monday, the major U.S. averages saw volatility amid M&A announcements, sell-off in China and oil’s decline. The averages ended the session mixed. The major averages ended Tuesday’s session notably higher, as the Chinese yuan stabilized amid speculation of central bank intervention.
The averages returned to their losing ways on Wednesday, stung by lower oil prices and apprehension ahead of the earnings reporting season. With oil prices reversing course, the equity averages advanced notably on Thursday. Amid a host of negative catalysts, including the Chinese market entering bear territory, oil sliding to fresh multi-year lows and the release of lackluster U.S. economic data, the markets plunged on Friday.
For the week ended January 15th, the Dow Industrials fell 358.37 points or 2.19 percent to settle at 15,988, the lowest level since August 25th, 2015. The S&P 500 Index lost 41.70 points or 2.17 percent to nearly a 5-month low of 1,880. The Nasdaq Composite was down 155.21 points or 3.34 percent for the week, ending at 4,488, its lowest level since October 2014.
Crude oil futures are edging up $0.31 to $30.70 a barrel after slumping $3.74 or 11.28 percent before settling the week ended January 15th at $29.42, its lowest level since 2003.
Oil’s predicament was due to fears that demand growth for the commodity will be muted, given the worsening global growth outlook. Also, fears that Iran’s oil production, which is expected to come online soon following the lifting of nuclear sanctions, would lead to a supply glut also weighed on the commodity.
Gold futures, which fell $7.20 or 0.66 percent to $1,090.70 an ounce in the previous week, are currently sliding $4.30 to $1,086.40 an ounce. The precious metal was less hurt as it was protected by its safe haven appeal.
Among currencies, the U.S. dollar firmed up against most currencies in the week ended January 15th. The greenback rose 0.05 percent against the fellow safe haven, the yen before ending the week at 117.32 yen. The dollar also rose 0.27 percent against the euro to $1.0892 a euro.
The dollar is currently trading at 117.86 yen and is valued at $1.0872 versus the euro.
Asia
The major Asian markets advanced across the board, led by China, the perpetrator of the recent sell-off crime. This is despite China releasing a host of negative data, including the slowest growth in 25 years for 2015. The Hong Kong, Indian and Singaporean markets also rose notably.
The Japanese market went about a volatile ride, moving back and forth across a wide range, before settling up 92.80 points or 0.55 percent at 17,048. The yen relented and traded in the upper 117 level against the dollar, helping to generate some strength in the equity markets.
Export, resource, textile, real estate and telecom stocks gained ground. Meanwhile chemical, retail, financial and pharma stocks ended mixed.
Australia’s All Ordinaries saw some indecision in early trading but moved decisively higher in late morning trading. Thereafter, the index stayed afloat before ending up 43.30 points or 0.88 percent at 4,955. Consumer discretionary, financial, healthcare, industrial, IT, material, real estate and utility stocks found buying interest, which consumer staple and energy stocks came under selling pressure.
Hong Kong’s Hang Seng Index ended at 19,636, up 398.36 points or 2.07 percent, and China’s Shanghai Composite rallied 93.90 points or 3.22 percent to 3,008.
On the economic front, the Chinese National Bureau of Statistics reported that China’s GDP growth for 2015 was at 6.9 percent, the slowest pace of growth in 25 years and below the government’s target of 7 percent. Fourth quarter growth also slowed to 6.8 percent from 6.9 percent, below the 6.9 percent growth forecast by economist.
Separate reports showed that industrial production, retail sales and fixed asset investment all weakened. Industrial output increased 5.9 percent year-over-year in December compared to a 6.2 percent increase in November, while economists expected a 6 percent increase. Retail sales growth slowed to 11.1 percent from 11.2 percent in November, belying expectations for an increase in the growth rate to 11.3 percent. Fixed asset investment for the year rose 10 percent compared to expectations for 10.2 percent growth.
Europe
European stocks opened higher and are seen sustaining the gains, as the Asian markets rallied along with China.
In corporate news, Unilever (UL) reported better than expected fourth quarter sales amid strength in its Latin American business. The company’s spreads business CEO Sean Gogarty reportedly quit.
On the economic front, a report released by the German Federal Statistical Office showed that consumer price inflation slowed to 0.3 percent in 2015 from 0.9 percent in 2014, the lowest rate since 2009. The decline was led by energy prices. The agency also confirmed its flash estimates for consumer price inflation and the harmonized index of consumer price inflation for December. Annually, consumer prices were up 0.3 percent and HICP was up 0.2 percent.
U.K. annual consumer price inflation rose in line with expectations, according to a report released by the U.K. Office of National Statistics. Annual inflation was at 0.2 percent in December, in line with estimate and a pick up from the 0.1 percent rate in November. Core consumer price inflation rose to 1.4 percent compared to the consensus estimate of 1.2 percent.
The producer price inflation report showed that input prices declined 0.8 percent month-over-month and were 10.8 percent lower than a year ago in December. The declines were smaller than the 1.7 percent monthly drop and the 11.7 percent annual decline expected by economists. Out prices declined in line with expectations.
A separate report showed that house prices rose 7.7 percent year-over-year in November compared to a 7 percent increase in October. On a monthly basis, house prices rose 0.8 percent.
Meanwhile, Eurostat reported that final annual eurozone inflation came at 0.2 percent in December, in line with the flash estimate, but up from 0.1 percent in November.
The results of a survey by the Zew Institute showed that German economic sentiment weakened in January, although it was not as worse as expected. The economic expectations index for Germany fell to 10.2 in January from 16.1 in December, while economists expected a reading of 8.
The European Central Bank reported that Eurozone’s current account surplus came in at 26.4 billion euros for November compared to 25.6 billion euros in October.
U.S. Economic Reports
The holiday-shortened week has in its calendar a few housing market reports, consumer prices data and the results of a couple of manufacturing surveys. Traders may closely track the National Association of Home Builders’ housing market index for January, the Commerce Department’s housing starts report for December, the National Association of Realtors’ existing home sales report for December, the jobless claims report, the results of the manufacturing survey by the Philadelphia Federal Reserve and Markit’s flash U.S. manufacturing PMI data for January.
The Conference Board’s U.S. economic indicators index for December, the Chicago Federal Reserve’s national activity index for December and announcements concerning the treasury auctions of 2-year, 5-year and 7-year notes round up the economic events of the week.
The National Association of Home Builders is scheduled to release its housing market index for January at 10 am ET. Economists expect the index to rise to 62 in January from 61 in December.
The housing market index measuring confidence among homebuilders fell a point to 61 in December from 62 in November, while it was expected to improve to 63. The index measuring sales expectations declined 2 points to 67, the current sales conditions index was down a point to 66 and the index measuring prospective buyer traffic fell 2 points to 46.
Stocks in Focus
Brookfield Asset Management (BAM) announced that it has made a proposal to buy the common shares of Rouse Properties (RSE) for $17 in cash per share.
Delta Airlines (DAL) reported better than expected fourth quarter adjusted earnings per share, while its revenues were shy of estimates.
Morgan Stanley (MS) and Bank of America (BAC) reported better than expected fourth quarter earnings per share and net revenues.
UnitedHealth (UNH) also reported fourth quarter earnings per share and revenues. The company affirmed its 2016 outlook.
Suncor Energy (SU) announced that it has reached an agreement to acquire all shares of Canadian Oil Sands following an amendment of its offer, which provides for an increase in the original offer to 0.28 of a Suncor share for each of Canadian Oil Sands share. The aggregate deal value is C$6.6 billion, including $2.4 billion of the target company’s debt.
CSX (CSX) announced that it is consolidating its operations administration to 9 divisions from 10 divisions and closing administrative offices at Huntington, West Virginia.
Chevron (CVX) announced that its Australian subsidiaries have signed an agreement with ENN LNG Trading Company for the delivery of LNG to China from Chevron-operated Gorgon natural gas project in Australia. The deliveries are set to start in 2018 or the first half of 2019.
ADTRAN (ADTN), AMD (AMD), eBay (EBAY), Cree (CREE), IBM (IBM), Fulton Financial (FUL), IBM (IBM), Linear Technology (LLTC) and Netflix (NFLX) are among the notable companies due to release their quarterly results after the close of trading.
