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Retail Sales Generate Positive Sentiment, Bernanke in Focus
The major U.S. index futures are pointing to a higher opening on Monday, with traders reacting positively to the latest report on retail sales. While the report showed stronger than expected sales growth, however, the increase followed a significant decrease in the previous month and was largely due to a jump in auto sales. Later in the day, trading is likely to be impacted by reaction to remarks from Federal Reserve Chairman Ben Bernanke.
U.S. stocks advanced for the second straight week last week amid optimism that the nascent global economic recovery may continue to be supported by government and central bank actions. Additionally, positive economic data from Asia and Europe lent credence to the theory that the global economy is steadily limping back to normalcy, supporting the market upside.
Last Monday, the major averages jump-started the week with a strong move to the upside after the G-20 finance ministers’ meeting concluded over the weekend with assurances that government stimulus measures would remain in place until a recovery is firmly in place. Amid a lack of any major catalysts, the markets showed a lack of direction on Tuesday before closing on a mixed note. The Dow Industrials squeezed out a modest gain, while the other two major averages closed lower.
Positive data points from Asia saved the day for the U.S. markets on Wednesday despite the overbought levels threatening profit taking. On Thursday, stocks declined sharply, as traders stepped up profit taking amid concerns that recent gains may have been overdone. On Friday, helped by positive earnings from retailers and positive data from Europe, the major averages closed higher.
For the week, the Dow Industrials was up 2.47%, the S&P 500 Index was up 2.26% and the Nasdaq Composite Index gained 2.63%.
Among the sector indexes, the Philadelphia Semiconductor Index rallied 5.23%, the NYSE Arca Gold Bugs Index gained 4.15% and the Philadelphia Housing Sector Index advanced 3.29%. The Dow Jones Transportation Average, the NYSE Arca Airline Index, the S&P Retail Index and the NYSE Arca Securities/Broker/Dealer Index all ended the week with gains of over 2%. |
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Asian Markets End Higher, Led By Commodities
The markets open for trading across Asia-Pacific region ended in positive territory on Monday, led by commodity stocks on higher commodity prices in the international market. Comments from leaders at the APEC meeting over the weekend, who pledged to continue stimulus measures, and positive closing in Wall Street on Friday lifted market sentiment.
In Japan, the benchmark Nikkei 225 Index gained 20.87 points, or 0.21%, to close at 9,791, while the broader Topix index of all First Section issues fell 6.38 points, or 0.74%, to 860.42.
On the economic front, data released by the Cabinet Office revealed that the Japanese economy expanded 1.2% in the third quarter of 2009 compared to the previous three months, marking the fastest growth since the first quarter of 2007. Economists expected the economy to grow 0.7% for the quarter. The second quarter's GDP growth was revised to 0.7%. On an annualized basis, real gross domestic product surged 4.8% - shattering expectations for a 2.9% increase following the revised 2.7% gain in the second quarter. However, nominal GDP was down an annualized 0.3% in the third quarter, while the deflator was up 0.2% after adding 0.5% in the second quarter.
Banking stocks led the declines after Mitsubishi UFJ Financial announced plans to raise as much as one trillion yen from the market in an effort to boost its capital requirements through issue of fresh shares. Speculation that other major corporations also might follow suit also impacted sentiment, offsetting the positive economic data related to GDP numbers for the third quarter.
Among the banking stocks, Mitsubishi UFJ Financial slumped 5.51% on huge turnover; Sumitomo Mitsui Financial fell 5.86% after announcing that its profit missed analysts estimates; Mizuho Financial lost 3.91% and Resona Holdings fell 3.88%.
Energy related stocks also ended in negative territory despite rise in crude oil prices. Nippon Oil Corp. declined 2.73%, Nippon Mining Holdings fell 3.01% and Showa Shell lost 2.03%.
Trading companies also ended weaker. Mitsubishi Corp. declined 1.80%, Mitsui & Co., shed 1.60%, Sumitomo Corp. fell 2.03%, Itochu Corp. slipped 1.13% and Toyota Tsusho Corp. edged down 0.16%.
Automotive stocks also ended weaker on stronger local currency. Honda Motor slipped 0.69%, Suzuki Motor shed 0.46%, Nissan Motor fell 1.06%, Mazda Motor slumped 4.29% and Mitsubishi Motor lost 1.53%. However, Toyota Motor bucked the trend and ended in positive territory with a gain of 1.14%.
Traders preferred to move to defensive stocks such as electric power and gas. Among the gainers, Tokyo Gas gained 1.19%, Osaka Gas added 1.03%, Tokyo Electric Power Co., advanced 2.09%, Chibu Electric Power rose 1.23% and Kansai Electric Power increased 0.79%.
In Australia, the benchmark S&P/ASX200 Index advanced 48.80 points, or 1.04% to close at 4,755, while the All-Ordinaries Index ended at 4,774, representing a gain of 51.20 points, or 1.08%.
Metals and mining stocks led the gains in the market following rise in commodity prices in the international market.
BHP Billiton gained 2.79%, Rio Tinto surged up 4.83%, Fortescue Metals climbed 5.20%, Gindalbie Metals advanced 1.58%, Iluka Resources rose 3.30%, Minara Resources soared 7.83% and Oz Minerals increased 3.21%.
Oil stocks also ended in positive territory. Woodside Petroleum rose 2.33%, Santos advanced 1.38%, Oil Search added 0.69% and Origin Energy gained 2.65%.
Gold stocks advanced on higher bullion prices in the bullion market. Lihir Gold surged up 4.17%, Newcrest Mining rose 2.40% and Sino Gold Mining climbed 4.25%.
Retail stocks also gained on prospects of higher demand. David Jones gained 2.43%, Harvey Norman rose 2.76%, JB Hi-Fi climbed 2.91%, Wesfarmers advanced 2.33% and Woolworths added 1.11%.
Among other major stocks, Incitec Pivot, manufacturer of fertilizers and explosives, surged up 6.49% after the company stated that fiscal 2010 would be a challenging year and it is adequately prepared to face the challenges.
Banking stocks were the major losers, having ended in negative territory, as the traders preferred to churn their portfolio and replace banks with resource related stocks. ANZ Bank lost 1.33%, Commonwealth Bank of Australia slipped 0.68%, National Australia Bank fell 1.35% and Westpac Banking declined 2.05%.
In Hong Kong, the Hang Seng Index gained 1.73% or 390.35 points and ended at 22,944, taking cues from Wall Street, where the major averages ended in positive territory on Friday, other markets in the region and higher commodity prices. Positive comments from the APEC summit over the weekend, where the leaders pledged to continue stimulus measures and better-than-expected GDP data for the third quarter from Japan also lifted market sentiment. Banks, property stocks and resource stocks led the gains in the market, where 35 of the 42 components in the index ended in positive territory.
In South Korea, the KOSPI Index ended in positive territory with a gain of 20.48 points, or 1.30%, to 1,592, taking cues from Wall Street and other markets in the region. Higher commodity prices, better-than-expected GDP data in Japan and pledge from leaders in the APEC summit to maintain stimulus lifted market sentiment. Foreign and domestic institutional investors evinced fresh buying interest in technology and retail stocks that more than offset the weakness in pharmaceutical and telecommunication stocks. Volume was relatively mild as traders preferred to move to sidelines ahead of key economic data in the U.S later related to retail sales.
The Indian market advanced sharply on Monday to close at a three-week high, led by strong global cues. High-beta realty stocks outperformed followed by auto, metal and oil/gas stocks, while IT stocks closed on a subdued note, tracking an appreciating rupee. The BSE Sensex ended at 17,033, up 184 points or 1.09% and the S&P CNX Nifty rose 59 points or 1.18% to 5,058.
Among the other major markets in the region, China's Shanghai Composite Index surged up 87.40 points or 2.74% to close at 3,275, Indonesia's Jakarta Composite Index rose 41.87 points, or 1.73% to close at 2,469, Singapore's Strait Times Index gained 56.62 points, or 2.08% to close at 2,784, and Taiwan's Weighted Index advanced 127.05 points, or 1.66%, to close at 7,793. |
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The major European markets opened Monday’s session sharply higher and are trading in positive territory. The French CAC 40 Index and the German DAX Index are rising 1.2% and 5%, respectively, while the U.K.’s FTSE 100 Index is moving up 1.6%.
In corporate news, the Netherlands-based Oce announced that it has agreed to be acquired by Japan’s Canon in a 730 million euro transaction.
Meanwhile, EADS, the parent company of Airbus, reported a third quarter loss of 87 million euros, as revenue was trimmed by a depreciating dollar. The company also cautioned that its fourth quarter earnings would be impacted by problems confounding its A380 superjumbo program and its A400M military transport plane.
On the economic front, property website Rightmove reported that U.K. house prices slid 1.6% month-on-month in November, after rising 2.8% in October. The average asking house price of houses stood at 226,440 pounds in November, down from 230,184 pounds in the preceding month. Nevertheless, house prices climbed 1.6% on a yearly basis in November, which marked the largest annual increase in prices since May 2008.
U.S. Economic News
After a quiet week on the U.S. economic front, when the market relished several promising economic readings from Asia and Europe, attention now shifts to a busy week. A host of first-tier economic reports are slated for release, including reports on retail sales, housing starts, industrial production and regional manufacturing activity.
The Conference Board's leading indicators index for October and the National Association of Homebuilders' housing market index are also likely to help decipher if the economy is firmly on the recovery track. Traders may also closely watch the Labor Department's producer and consumer price inflation reports for October to identify any pick up in inflationary pressures.
Market focus is also likely to rest on the Fed speeches scheduled to be delivered during the week, including one from the Federal Reserve Chairman Ben Bernanke on Monday.
The improvement in industrial production is expected to continue in October, propped up by continuing strength in auto production. Most regional and the national surveys showed that the manufacturing sector is continuing to expand. Additionally, utility output may have received a boost from the excessively cold weather.
With consumers lagging behind in the current recovery, large increases in pricing at the consumer level are unlikely. The consumer price index for October is likely to be supported by higher gasoline and oil prices. However, the core rate should see a muted performance, in line with recent trend.
After showing a notable decrease in September, retail sales increased by more than expected in the month of October, according to a report released by the Commerce Department on Monday, with the growth largely due to a jump in auto sales.
The report showed that retail sales increased by 1.4 percent in October following a revised 2.3 percent decrease in September. Economists had expected sales to increase by 0.9 percent compared to the 1.5 percent decrease originally reported for the previous month.
Excluding a 7.4 percent increase in auto sales, retail sales increased by a much more modest 0.2 percent in October compared to a 0.4 percent increase in the previous month. The ex-auto sales growth came in below economist estimates of a 0.4 percent increase.
While the Federal Reserve Bank of New York released a separate report showing that conditions for New York manufacturers continued to improve in November, the pace of improvement slowed by more than economists had been expecting.
The New York Fed said its general business conditions index fell to 23.5 in November from 34.6 in October, with a positive reading indicating improvement in the sector. Economists had been expecting the index to edge down to 30.0.
The Commerce Department is scheduled to release its business inventories report for September at 10 AM ET. The report summarizes the results from the monthly retail trade, wholesale trade and factory goods orders surveys. The report is expected to show a 0.7% decline in business inventories for the month.
In August, business inventories fell 1.5% month-over-month compared to expectations for a 1% drop. Business sales rose 1% and consequently, the business inventories to sales ratio fell to 1.33 in August from 1.36 in the year-ago period.
Following the bigger than expected drop in inventories, third quarter GDP growth may be revised down slightly. However, this could be viewed in a positive light, as depleted inventory levels provide scope for increased economic activity when inventory rebuilding begins.
Bernanke is scheduled to speak to the Economic Club of New York at 12 PM ET. |