In commodities trading on Tuesday, crude oil prices declined. This came after data showed that activity in China’s factory sector fell to an 11-month low while Saudi Arabia said that its current production was close to an all-time high. The flash HSBC/Markit Purchasing Managers’ Index (PMI) dropped in March to 49.2. This missed expectations for a reading of 50.6. Since this number is below the 50-point level, this is an indication of a contraction on a monthly basis and not growth. As a result, investors’ concerns were prompted regarding the strength of the world’s No.2 economy. Added to this, a report overnight showed that Saudi Arabia, which is OPEC’s biggest producer, is now pumping around 10 million barrels of crude oil per day. This number is an all-time high and it is also almost 350,000 bpd above the figure Saudi Arabia gave to OPEC for its February output. As a result, Brent crude oil futures were trading at $55.58 a barrel at 0301 GMT, down 34 cents. Also on the downside was U.S. WTI crude oil which dropped 48 cents to trade at $46.97 a barrel.
USD Declines on Poor Housing Data
In currency trading on Monday, the U.S. dollar (USD) traded broadly lower against most major currencies. This came after data showed that existing home sales in the U.S. in February rose less-than-expected. Also weighing on the currency markets was the uncertainty as to when the U.S. Federal Reserve is likely to increase interest rates which continued to weigh on demand for the greenback. In their report, the National Association of Realtors showed that U.S. existing home sales increased 1.2% to 4.88 million units last month from 4.82 million in January. This missed analyst expectations for existing home sales to rise 1.7% to 4.90 million units in February. Meanwhile, the euro traded higher with EUR/USD up 1.04% to 1.0932. This came after the euro found some support after Greek authorities said on Friday that they were moving towards meeting the requirements of international creditors on a more detailed reform plan in order to secure the additional bailout funds required to prevent the country’s bankruptcy. Against the British pound the greenback managed to trade higher with GBP/USD down 0.22% to 1.4921. This came after the Confederation of British Industry reported earlier that its index of industrial order expectations fell to zero this month from a reading of 10 in February. Analysts had expected the index to slip to 9 in March. In other currency trading, the U.S. dollar traded lower against the Swiss franc and the Japanese yen with USD/CHF down 0.74% to 0.9675 and with USD/JPY down 0.32% to 119.65. Against the currencies in Australia, New Zealand and Canada the USD traded lower with AUD/USD up 0.91% to 0.7845, NZD/USD up 0.80% to 0.7626, while USD/CAD declined 0.21% to trade at 1.2526. Also, the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.58% to 97.49.
U.S. Stocks Lower At the Close
In stock trading on Monday, U.S. stocks erased modest gains in the last 15 minutes of trading. Many analysts have attributed the recent volatility in the stock markets to volatility in the currency markets. As a result, questions regarding the profitability of multinational corporations have now started to surface. At the close of trading, the Dow Jones Industrial Average (DJIA) declined 11.61 points, or 0.1%, at 18,116.04, with more than half of its 30 components ending with losses. Also on the downside was the S&P 500 index (SPX) which dropped 3.68 points, or 0.2%, 2,104.42, with four out of its main 10 sectors closing lower. Following the downward trend was the Nasdaq Composite index (COMP) which closed 15.44 points, or 0.3%, lower at 5,010.97. This decline came as biotechnology stocks led the losses with the iShares Nasdaq Biotechnology (ETF IBB, -0.20%) down 2.3 percent. Meanwhile, the monetary policy still was in the spotlight, with St. Louis Federal Reserve President James Bullard telling CNBC Monday that the dovish statement from last week may have misplaced investor expectations about the first rate hike. Bullard also said the market could throw another “tantrum” with the Fed possibly raising rates later this year. Also, Fed Vice Chair Stanley Fischer speaking at the Economic Club of New York, said rate hike is likely to be warranted this year.
In the Spotlight – Morgan Stanley’s Top 5 Stock List Does Not Include Apple
On Monday, Morgan Stanley named its top five favorite “megacap” stocks. Surprisingly, the most valuable public company in the world, Apple Inc. (AAPL, +0.06%), did not make it into the top five. In fact, Apple showed up at number 15 overall. The top 5 list was prepared by analyst Adam Parker and his team and they worked through 41 companies with market capitalizations of more than $100 billion. They also used different sets of criteria in order to ascertain the top 5 while the 41 companies were ranked them from best to worst.
International Business Machines Corp. (IBM, -0.06%) was the only tech company to make it into the top five while the other 4 companies included Bank of America Corp. (BAC, +0.25%), Gilead Sciences Inc. (GILD, -0.11%), J.P. Morgan Chase & Co. (JPM, -0.02%) and Citigroup Inc. (C, +0.02%). According to the Morgan Stanley list, some of the worst companies included Exxon Mobil Corp. (XOM, +0.02%), Walt Disney Co. (DIS, -0.02%) and UnitedHealth Group Inc. (UNH, +0.71%).
Morgan Stanley prepared their list based on five different categories which included (1) “What’s in the Price”, (2) Consensus estimate, (3) 36-month quantitative model, (4) total return over the next five years and the (5) “Quantamental” approach. For example, in order to obtain a score for the total return over the next 5 years, Morgan Stanley sorted the stocks using a formula based on price appreciation and dividend yield. Based on this, Facebook Inc. (FB, +0.14%) came out the big winner while Apple was near the bottom of the list. Also, for the ‘Quantamental’ approach, the analysts ranked the companies based on the results of their three-month alpha model, the 24-month relative-return model, and in-house bull/bear ratio. For this category, Apple came in 26th while Gilead, Bank of America, J.P. Morgan, Microsoft Corp. and Oracle Corp. were the leaders.