Daily Market Review - 23 April 2015

NYMEX Crude Oil Gains in Early Asian Trade

On Thursday, crude oil prices gained in early Asian trading. This came as investors kept a close eye on events in Yemen while investors also digested U.S. supply and production figures. On the New York Mercantile Exchange, WTI crude for delivery in June traded at $56.33 a barrel, up 0.29 percent. Overnight on Wednesday, crude oil futures were mixed. This came as a result of continued fighting in Yemen as well as increased stockpiles in the U.S. which caused the spread between international and U.S. domestic benchmarks of crude to widen. According to the weekly report by the U.S. Energy Information Administration (EIA), its inventory at the Cushing Oil Hub in Oklahoma grew by roughly 789,000 barrels last week to approximately 80% of capacity. The declining supply capacity has now exacerbated concerns of a slowdown in production. Meanwhile, EIA also reported that crude production dipped by 18,000 last week marking the second consecutive week of worse than expected output. According to forecasts by the EIA, production in the Bakken formation in North Dakota will decline by 23,000 barrels to 1.3 million barrels per day, while production at Eagle Ford in South Texas will fall by 33,000 to 1.69 million bpd. This will drop the overall production from 5.02 million barrels in April to 4.98 million bpd in May. Meanwhile on Wednesday, Brent crude oil for delivery in June traded at $62.77 a barrel, up 0.69, or 1.11%, on the Intercontinental Exchange (ICE).

USD Pares Losses After U.S. Home Sales Report

USD

In currency trading on Wednesday, the U.S. dollar (USD) pared losses against other major currencies. This came after the release of upbeat U.S. home sales data while uncertainty regarding the timing of interest rate hikes by the Federal Reserve continued to weigh. According to the U.S. National Association of Realtors, existing home sales rose in March 6.1% to 5.19 million units beating analyst expectations for existing home sales to rise 3.0% in March. Gains in the USD were capped however as investors pushed back expectations for higher U.S. interest rates after a recent streak of soft economic data which has now dampened optimism on the country’s economic recovery. The EUR/USD traded steady at 1.0742. The single currency remains under pressure as the Greek government is still no closer to reaching an agreement with its euro zone partners and the International Monetary Fund (IMF) over economic reforms required to access remaining bailout funds. Meanwhile, on Tuesday, Bloomberg reported that the European Central Bank (ECB) is considering tighter rules on Greek banks in return for emergency liquidity, adding to pressure on Athens. In other currency trading, the British pound traded higher with GBP/USD up 0.75% and trading at 1.5041. Against the currencies in Japan and Switzerland, the USD traded mixed with USD/JPY steady at 119.74 and with USD/CHF up 0.86% and trading at 0.9633. Against the currencies in Australia, New Zealand and Canada, the greenback traded mixed with AUD/USD up 0.74% at 0.7767, the NZD/USD steady at 0.7678 and USD/CAD down 0.40% and trading at 1.2233. Also, the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.10% to 98.11.

Nasdaq Hits 15-Year High

Nasdaq

In stocks trading on Wednesday, U.S. stocks closed higher. This came in response to a positive report on existing home sales and better-than-expected earnings which boosted investor confidence. This positive sentiment was evident in the tech-heavy Nasdaq Composite index (COMP) which rose for the 3rd-straight session. Added to this, this index now only stands 13 points below its record close which it reached on March 10, 2000. At the close of trading, the tech-heavy index added 21 points, or 0.4%, to 5,035.17. Also on the upside was the Dow Jones Industrial Average (DJIA) which gained 88.35 points, or 0.5%, to 18,038.07. Most of these gains came from the top four gainers on the blue chip index which included Apple Inc. (AAPL, +1.35%),  American Express Company (AXP, +1.50%), Visa Inc. (V, +4.07% and McDonald’s (MCD, +3.13%). Also, Coca Cola (KO, +1.30%), McDonald’s and Boeing all posted better-than-expected earnings. Despite this positive data, the shares of Boeing declined 2 percent after the aerospace company also reported an increase in expenses. Following the upward trend was the S&P 500 index (SPX) which closed up 10.66 points, or 0.5%, at 2,107.95. Broad based gains on the index were led by technology stocks. Also, the CBOE Volatility Index, which measures the implied volatility of S&P 500 options, was down 4.15% to 12.70.

markets

In the Spotlight – What Can We Expect From Starbucks Earnings?

After trading on Thursday, Starbucks Corp. (SBUX, -0.07%) is set to report its second-quarter earnings. As one of the most popular companies in the U.S., Seattle-based Starbucks recently shook things up with a new PR campaign which was aimed to prompt customers to engage in conversations about race by requiring baristas to write “Race Together” on cups. Despite this, the company is still a hot favorite among analysts for the long term.

In April this year, Starbucks carried out its first 2-for-1 stock split since 2005. In their second quarter earnings report, analysts expect the company to report earnings per share (EPS) of 33 cents after the company executed a 2-for-1 stock split on the 9th of April. Starbucks has set guidance at 32 cents to 33 cents. Meanwhile, adjusted for the split, the company’s first-quarter earnings per share were 40 cents.

In terms of sales, the coffee chain is expected to report $4.53 billion in sales which will be up from the $3.8 billion reported a year ago. This will however be approximately $272 million less than the previous quarter’s sales of $4.80 billion. In seven of the last 10 quarters, Starbucks has missed the consensus revenue estimate. Meanwhile, analysts are looking for a 5.1% increase in same-store sales as gains in same-store sales have been flat at 5% over the past two quarters.

According to analysts on FactSet, Starbucks has an average stock price target of $51.22. This is up compared with the company’s current stock price of $47.90. Over the past 3 months, the stock has risen 17% and has also gained 18% so far this calendar year. Meanwhile, the S&P 500 index has only gained about 2 percent.

Daily Market Review - 27 April 2015

Nasdaq & S&P 500 Close At Record Levels

On Friday, U.S. stocks gained pushing some of the main benchmark indices into new record closes. As a result of positive economic data as well as better-than-expected earnings, the Nasdaq and the S&P 500 finished at all-time highs. Friday marked the fifth straight gain for the Nasdaq Composite index (COMP) which pushed the tech heavy index into the biggest weekly gain since October last year. On Friday, this index ended the session up 36.02 points, or 0.7%, at 5,092.08, while also gaining 3.3% over the week. According to Nicholas Colas, chief market strategist at global brokerage Convergex, these gains seen on the Nasdaq on Friday are a positive sign. Colas said, “The new highs on Nasdaq are impressive because of how much conviction there is — it was not an accidental rally. Today’s follow-through suggests there is genuine confidence among investors, who are comfortable with current valuations.” Also on the upside was the S&P 500 index (SPX) which ended Friday’s session up 4.77 points, or 0.2%, at 2,117.70. This index recorded a weekly gain of 1.8 percent and also on Friday, it beat its last record close which it reached on the 2nd of March. Following the upward trend was the Dow Jones Industrial Average (DJIA) which advanced 21.45 points, or 0.1%, to 18,080.14. This blue chip index gained 1.4% over the week. The best performer of the session on the Dow Industrials was Microsoft Corporation (NASDAQ:MSFT), which rose 10.45% or 4.53 points to trade at 47.87 at the close. Also, the CBOE Volatility Index, which measures the implied volatility of S&P 500 options, was down 1.44% to 12.30 a new 3-months low.

USD Holds Steady

On Friday, the U.S. dollar (USD) held steady against most major currencies. This came in response to positive data released on U.S. durable goods orders which lent some support to the greenback, while investor uncertainty regarding the timing of interest rate hikes by the Federal Reserve limited gains. According to data released on Friday, U.S. durable goods orders rose 4.0% in March. This beat expectations for a 0.6% gain while February saw a decline of 1.4 percent. Meanwhile, core durable goods orders, which exclude transportation items, fell 0.2% in March. This misses expectations for a gain of 0.3 percent while the figure in February was revised to a 1.3% decline. In currency trading, the EUR/USD traded at 1.0832, up 0.08%. The single currency strengthened after the Ifo Institute of Economic Research reported that Germany’s business climate index rose to a 10-month high of 108.6 in April. This beat expectations for an uptick to 108.4 while March came in at 107.9. Also, the GBP/USD was up 0.55 percent to trade at 1.5138. Against the Japanese yen and the Swiss franc, the USD traded mixed with USD/JPY down 0.40% to 119.11 and with USD/CHF steady at 0.9548. Also, against the currencies in Australia, Canada and New Zealand, the U.S. dollar traded mixed with AUD/USD up 0.36% at 0.7806, USD/CAD up 0.12% to 1.2158 and with NZD/USD down 0.14% and trading at 0.7581. Meanwhile, the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.10% to 97.34.

Crude Oil Prices Advance in Early Asian Trading

On Monday, in early Asian trading, crude oil prices rose marginally. This came as investors turned their attention to tensions in Yemen while the demand-supply balance in the U.S. as well as the strength of the U.S. economy also impacted crude oil prices. On the New York Mercantile Exchange, crude oil for delivery in June traded at $57.18 a barrel, up 0.06%. On Friday last week, crude oil futures were mixed with London-traded Brent prices hitting the highest level of the year, while New York oil futures ended modestly lower. This came as investors cashed out of the market to lock in gains from a recent rally. On Friday, on the ICE Futures Exchange in London, Brent oil for delivery in June hit an intraday peak of $65.80 a barrel. This marked the highest rate since the 10th of December. Brent crude oil finally traded at $65.28 a barrel by close of trade on Friday, up 43 cents, or 0.66 percent. Meanwhile, concerns over the security of Middle East oil shipments was renewed as Saudi Arabia resumed its air strike campaign against Iran-backed Houthi rebels in Yemen on Friday. Added to this, U.S. oil futures have risen almost 16% in April. This advance has come due to increased expectations that shale oil production in the U.S. has peaked and may start falling in the coming months amid an ongoing collapse in rigs drilling for oil. On Friday, industry research group Baker Hughes (NYSE:NYSE:BHI) said that the number of rigs drilling for oil in the U.S. fell by 31 last week to 703. This marked the lowest number since October 2010 and it also marked the 20th straight week of declines.

In the Spotlight – What To Expect From Apple’s Earnings Report

On Monday, after the close of trade, Apple Inc. (AAPL, +0.47%) is expected to report second-quarter earnings. With the recent launch of the Apple Watch as well as increased sales of the iPhone 6 Plus models, sell-side analysts have grown increasingly bullish on this technology giant. According to a group of analysts polled by FactSet, the average stock rating on Apple is overweight while the average 12-month price target has been put in as $140.18. If these analysts are correct, this would then mean a market capitalization of $816 billion for Apple which is up from its current market cap of $749 billion.

Meanwhile, analysts expect Apple to report GAAP earnings per share of $2.14 as well as adjusted earnings, or non-GAAP, of $2.19. This would mark a year-over-year improvement of 24 percent from Apple’s actual results of $1.77 in the period a year-earlier. Also, Estimize forecasts Apple’s EPS at $2.26 a share. Interestingly, in the last 6 consecutive quarters, Apple has surpassed both Wall Street and Estimize non-GAAP EPS estimates. In terms of revenue, sell-side analysts expect Apple to report revenue of $55.75 billion. This would be up 22.1 percent from $45.5 billion in the same period last year while also marking Apple’s highest-ever quarterly revenue. Meanwhile, Estimize forecasts revenue of $57.18 billion. Interestingly, both the estimates provided on revenue for Apple are above the internal estimates provided by the company of between $52 billion and $55 billion. In 8 of the last 10 quarters, Apple has outperformed the sell-side consensus. Also, this week, Stifel analyst Aaron Rakers raised his quarterly iPhone estimate from 53.6 million units to 59.6 million units. He cited strong demand in China.

Over the last 12 months, the shares of Apple have increased by 73 percent. Since its last earnings report, Apple shares have advanced 14.5%. In March this year, Apple also become a member of the blue chip 30-member Dow Jones Industrial Average. This came a year after the technology giant announced a seven-for-one stock split which prepared the company’s stock price for the weight-adjusted index. On Thursday, Apple shares traded up 0.7% at $129.47 a share.

Meanwhile, in the week ahead, investors will turn their attention to the conclusion of the Federal Reserve’s two-day monetary policy meeting on Wednesday, which could provide indications on how soon it might raise interest rates. Also, investors will be looking ahead to preliminary data on first quarter U.S. growth figures for further indications on the strength of the economy. On Tuesday, the U.S. is to release private sector data on consumer confidence, while the American Petroleum Institute (API), an industry group, is to publish its weekly report on oil supplies for last week.

Daily Market Review - 24 April 2015

USD Declines On Poor U.S. Data

On Thursday, the U.S. dollar (USD) turned broadly lower. This came as a result of poor jobless claims data in the U.S. as well as disappointing new home sales which dropped far more than expected in March. According to the U.S. Department of Labor, the number of individuals filing for initial jobless benefits in the week ending April 18 increased to 295,000, up 1,000 from the previous week’s total of 294,000. This missed analysts’ expectations which forecast initial jobless claims to fall to 290,000 last week, down 4,000. Added to this, in a separate report, data also showed that new homes sales in the U.S. declined last month by 11.4 percent to 481,000 units. This came after February was revised by a 5.6% increase to 541,000. This missed analyst expectations for new home sales to fall to 513,000 units in March, down 5.3 percent. In currency trading, the EUR/USD traded at 1.0809, up 0.79 percent. The single currency showed little reaction to a report by market research group Markit which showed that the euro zone’s composite purchasing managers’ index (PMI), which includes manufacturing and services activity, fell to 53.5 in April from 54.0 in March. This was down compared to expectations for a rise to 54.4. Also, the British pound traded higher than the greenback with GBP/USD up 0.09% to 1.5048. Against the Japanese yen and the Swiss franc, the USD traded lower with USD/JPY down 0.12% to 119.77 and with USD/CHF down 1.66% and trading at 0.9552. Meanwhile, against the currencies in Australia, New Zealand and Canada, the U.S. dollar (USD) traded mixed with AUD/USD up 0.19% to 0.7766, NZD/USD down 1.12% to 0.7580 and with USD/CAD down 0.66% to trade at 1.2161. Also, the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.60% to 97.66.

USD

NYMEX Crude Declines in Asian Trade

On Friday, in early Asian trading, crude oil prices declined. This came as investors turned their attention to the supply/demand balance as a result of increased inventories amidst a global supply glut. On the New York Mercantile Exchange, crude oil for delivery in June traded at $57.58 a barrel, down 0.29%. Overnight on Thursday, crude oil prices declined further as a result of data released by the U.S. Energy Information Administration (EIA) which showed that crude inventories in the U.S. increased more than expected while investors also focused on events in Yemen. According to the EIA, last week, U.S. crude oil stockpiles rose by 5.3 million barrels. This was above expectations for an increase of 2.8 million. On the downside, gasoline stockpiles declined by 2.1 million barrels, which exceeded expectations for a decline of 0.7 million barrels. In recent sessions, U.S. oil futures have been well-supported. This is as a result of increased expectations that shale oil production in the U.S. has peaked and may start falling in the coming months in response to the ongoing collapse in rigs drilling for oil. According to Baker Hughes, an industry research group, the number of rigs drilling for oil in the U.S. fell by 26 last week to 734. This marked the lowest number since 2010 and it also marked the 19th straight week of declines. Meanwhile on Thursday, Brent crude oil for delivery in June traded at $62.70 a barrel on the ICE Futures Exchange in London, down 0.06% or 4 cents.

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S&P 500 and Nasdaq Hit Record Close

In stocks trading on Wednesday, U.S. stocks closed higher after erasing morning losses. As a result, both the S&P 500 and the Nasdaq recorded record levels. At the close of trading, the S&P 500 index (SPX) rose 9 points, or 0.4%, to 2,117.82. This index closed above the record closing level reached on the 2nd of March. Meanwhile, the Nasdaq Composite index (COMP) also closed above its record close reached on the 10th of March 2000. This tech-heavy index advanced 24 points, or 0.5%, at 5,059. Also, after the close, Nasdaq 100 e-mini futures jumped as Google, Microsoft and Amazon.com (O:AMZN) reported results. Google shares were up 3.7% after the bell, while Microsoft was up 3.1% and Amazon was up 7.4 percent. Also on the upside was the Dow Jones Industrial Average (DJIA) which added 73.40 points, or 0.4%, to 18,111. This top performance by stocks came as a result of mixed earnings reports and weaker-than-expected economic reports which investors did not react to immediately. According to Randy Frederick, Managing Director of Trading and Derivatives at the Schwab Center for Financial Research, the gains seen on Thursday came about as a result of “a combination of bullish factors: higher oil prices, weakening dollar and very low volatility.” Frederick added that, “There is also a seasonal bias, as second half of April tends to be bullish.”

markets

In the Spotlight – Facebook Reports Positive Results

After reporting first quarter earnings, analysts remain positive on Facebook (FB, +0.55%) for the long term despite increased spending by the social media giant as well as the impact of a strong U.S. dollar (USD) on revenue.

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In their earnings report, data showed that Facebook beat estimates on profit, with adjusted earnings per share of 42 cents. This beat expectations for EPS of 41 cents per share. Added to this, Facebook reported sales at $3.54 billion which missed expectations for sales of $3.56 billion.

The low sales numbers were attributed to currency headwinds by the social media giant who also stated that its revenues would have been about $190 million higher if not for the strength of the U.S. dollar (USD). Also, Facebook had high expenses. Their GAAP expenses, which were related to the WhatsApp acquisition, were up 83% to $2.6 billion for the first quarter. Meanwhile, non-GAAP expenses were also up 57 percent, to $1.7 billion, due to hiring, business costs and marketing expenses.

Analysts also focused on user numbers and Facebook reported 1.4 billion active users on Facebook itself while Instagram recorded more than 300 million monthly active users, WhatsApp had 800 million and Facebook Messenger had 600 million users.

While the social media company has said that they are gradually working on monetization, according to Raymond James analysts, it is evident that Facebook is “laying the foundation for long-term revenue growth.” Also, these analysts reiterated their outperform rating and $90 price target which is approximately 8% above where the stock is currently trading.

Daily Market Review - 22 April 2015

USD Holds Steady

In currency trading on Tuesday, the U.S. dollar (USD) held steady and remained little changed against most major currencies. The EUR/USD came off session lows of 1.0661 and then traded little changed at 1.0730. The single currency has remained under pressure after the ZEW Centre for Economic Research said that the German economic sentiment index declined from March’s reading of 54.8 to April’s reading of 53.3, down 1.5 points. This missed analysts’ expectations for the index to improve by 0.5 points to 55.3 in April. Meanwhile, the index of euro zone economic sentiment increased to a 14-month high of 64.8 in April from 62.4 in March. This was above forecasts for a gain to 63.7. In other forex news, the British pound edged higher, with GBP/USD up 0.11% and trading at 1.4922. Against the Japanese yen and the Swiss franc, the greenback traded mixed with USD/JPY up 0.31% to 119.55 and with USD/CHF steady at 0.9556. Meanwhile against the currencies in Australia, Canada and New Zealand, the U.S. dollar also traded mixed with AUD/USD up 0.26% at 0.7743, NZD/USD up 0.47% to 0.7697 and with USD/CAD up 0.27% and trading at 1.2258. Also, the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was steady at 98.16, down from highs of 98.69 hit earlier in the day.

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NYMEX Crude Oil Declines in Asia

In early Asian trading on Wednesday, crude oil prices eased. This came after industry data on U.S. stockpiles showed solid builds across all categories. In their weekly report, the American Petroleum Institute (API) said that crude oil stocks rose by 5.5 million barrels last week. Also on the upside were distillate inventories which gained by 1.7 million barrels while gasoline supplies increased by 1.1 million barrels. Investors have now turned their attention to the more closely watched figures from the U.S. Department of Energy due on Wednesday. Last Wednesday, WTI crude surged more than 6 percent after the EIA said that crude storage for the week that ended April 10 increased by 1.3 million barrels for the week. A week earlier, inventories skyrocketed by 10.95 million barrels – the highest weekly buildup in more than a dozen years. On the New York Mercantile Exchange, WTI crude for delivery in June fell 0.70% to trade at $56.32 a barrel. Meanwhile on Tuesday, on the Intercontinental Exchange (ICE), Brent crude for delivery in June dropped 1.40 or 2.20% to trade at $62.05 a barrel.

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U.S. Stocks Close Lower

In U.S. trading on Tuesday, stocks closed mostly lower. Added to this, the Dow industrials and the S&P 500 were unable to extend the previous session’s gains. Pushing the Nasdaq Composite index up was merger and acquisition activity in the biotechnology industry. On Monday, Teva Pharmaceutical Industries (ARCA:TEVA) Ltd. made an unsolicited bid to buy smaller rival Mylan (NASDAQ:MYL) NV, which sent the Nasdaq Biotechnology index up 1.8 percent. At the close of trading, the Nasdaq Composite index (COMP) advanced 19.50 points, or 0.4%, to 5,014.10. On the downside was the S&P 500 index (SPX) which declined 3.06 points, or 0.2%, at 2,097.34. Seven of the index’s 10 main sectors declined with energy and materials stocks leading the losses. Following the downward trend was the Dow Jones Industrial Average (DJIA) which lost 84.94 points, or 0.5%, to settle at 17,949.72. Almost two-thirds of the blue chip index’s 30 components ended lower with Travelers Companies Inc. and DuPont declining the most. The best performer of the session on the DJIA was Visa Inc. (NYSE:V), which rose 0.97% or 0.63 points to trade at 65.35 at the close. Also, the CBOE Volatility Index, which measures the implied volatility of S&P 500 options, was down 0.38% to 13.25.

markets

In the Spotlight – What Can We Expect From Facebook Earnings?

After the close of trading on Wednesday, Facebook (FB, +0.64%) is expected to report first-quarter earnings. According to analysts surveyed by FactSet, the social media giant is expected to report adjusted earnings per share (EPS) of 41 cents. This is up from 34 cents in the year-earlier period. Added to this, Facebook is also expected to report sales of $3.56 billion. This would be up from the year-earlier period where Facebook reported sales of $2.50 billion. It is important to note that the majority of Facebook’s revenue comes from mobile advertising while the balance is made up of desktop advertising and then payments and other fees.

facebook

Year-to-date, the shares of Facebook have gained 7.5 percent. This is above the 2% gain made by the S&P 500 index (SPX) over the same period. Added to this, during the past three months, Facebook has gained 9 percent while the S&P has gained 3.3 percent. As a result of growth in Facebook’s video and mobile advertising, analysts expect the company to post solid earnings for the first quarter.

In the last quarter, mobile ads were big for Facebook last quarter. The social media site beat earnings expectations, with mobile making up about 69% of fourth-quarter ad revenue, up from 53% in the previous year. According to Rob Sanderson, managing director of MGM Partners, the stronger U.S. dollar (USD) could have a a slight effect on earnings and he has predicted $60 million in revenue headwind.

Another focus for analysts is the user numbers which seem to be positive. Facebook-owned WhatsApp said it reached 800 million monthly users in April and may reach 1 billion by the end of the year. Instagram, also owned by Facebook, has more than 300 million users. According to Sterne Agnee analysts, WhatsApp has yet to figure out a model to make money, and they expect that to remain unchanged. Meanwhile according to these analysts, Instagram appears to be gaining some traction with monetization through ads. This is expected to accelerate during the second half of the year.

Daily Market Review - 21 April 2015

U.S. Stocks Post Biggest Gains in 3 Weeks

On Monday, U.S. stocks rallied and posted their biggest advance in three weeks. This climb came in response to better than expected earnings reports. At the close of U.S. trading, the Nasdaq Composite index (COMP) rose 1.3%, or 62.79 points, to 4,994.60. The top performer on the Nasdaq was Nymox Pharmaceutical Corporation (NASDAQ:NYMX) which rose 63.62% to 1.620. Also on the upside was the Dow Jones Industrial Average (DJIA) which advanced 1.2%, or 208.63 points, to 18,034.93. Twenty four of the blue chip index’s 30 components finished in positive territory and the top performer on the index was International Business Machines (NYSE:IBM), which rose 3.42% or 5.49 points to trade at 166.16 at the close. Also on the Dow, Microsoft Corporation (NASDAQ:MSFT) added 3.09% or 1.28 points to end at 42.90 while Apple Inc. (NASDAQ:AAPL) was also up 2.28% or 2.85 points, to trade at 127.60 in late trade. Following the upward trend was the S&P 500 index (SPX) which closed up 0.9%, or 19.22 points, at 2,100.40. The technology sector led the gains and the top performer on the index was Hasbro Inc. (NASDAQ:HAS) which rose 12.55% to 74.16. Interestingly, Colin Cieszynski, chief market strategist at CMC Markets, said that Monday’s action was likely an unwinding of the Friday selloff. He also said that stock markets are likely to trade sideways in a tight range for months, effectively correcting over a long time. Also, the CBOE Volatility Index, which measures the implied volatility of S&P 500 options, was down 4.46% to 13.27.

markets

U.S. Dollar Holds Gains

In currency trading on Monday, the U.S. dollar (USD) held gains against other major currencies. This came as the greenback recovered from the previous week’s disappointing U.S. data while trading volumes were light since no major U.S. data was to be released. In forex trading, the EUR/USD declined 0.48% to trade at 1.0756. The single currency remained under pressure amid concerns that Greece is no closer to reaching an agreement with its creditors on economic reforms for bailout funds. As a result of this, investor fears were fuelled regarding the future of Greece in the euro zone. Meanwhile, the British pound also traded lower than the greenback with GBP/USD down 0.31% to 1.4912. Against the Japanese yen and the Swiss franc, the U.S. dollar traded higher with USD/JPY up 0.3% to 119.30 and with USD/CHF up 0.20 percent and trading at 0.9536. Against the currencies in Australia, Canada and New Zealand, the USD traded mixed with AUD/USD down 0.71% to 0.7730, USD/CAD down 0.47% at 1.2190 and with NZD/USD shedding 0.26% to trade at 0.7667. Also, the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.39% to 98.00.

NYMEX Crude Dips in Asian Trade

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In early Asian trading on Tuesday, crude oil prices dropped. This comes ahead of U.S. industry data on petroleum stocks while tensions in Yemen are also in focus on supply concerns. On Tuesday, the American Petroleum Institute will release estimates of U.S. crude, distillate and gasoline stockpiles as of last week. This will then be followed on Wednesday by the more closely watched data from the U.S. Department of Energy. On the New York Mercantile exchange, WTI crude for delivery in June traded at $57.78 a barrel, down 0.18%. Overnight, crude futures rose modestly on Monday amid escalating tensions in Yemen and reduced supply concerns in the U.S. Elsewhere, on the Intercontinental Exchange (ICE), Brent crude futures for June delivery settled at 63.52 on Monday. Last week, both WTI and Brent crude futures reached a four-month high. Meanwhile, earlier on Monday, energy data provider Genscape, Inc. said that crude stockpiles at the Cushing Oil Hub in Oklahoma rose by 500,000 barrels last week. This increase was far below recent weekly buildups. This report also came after the oil services firm Baker Hughes (NYSE:NYSE:BHI) said in its weekly rig count report that the pace of decline among oil rigs nationwide appears to be slowing. Last week, the number of oil rigs in the U.S. fell by 26 to 734.

In the Spotlight – Google to Report Earnings on Thursday

Google

After the market closes on Thursday, Google Inc. (GOOGL, +2.21%) is expected to report first-quarter earnings. Interestingly, Google has been struggling to surpass revenue expectations as a result of increased competition from mobile advertising rivals such as Facebook Inc. (FB, +2.87%) which is also expected to report quarterly earnings this week.

According to Ross Sandler, Deutsche Bank analyst, investor sentiment around Google has declined as a result of concerns that the internet giant’s “paid clicks” will decelerate in the short term. In the January quarter, Google reported paid-clicks growth of 11 percent. This missed analyst expectations for a 17 percent increase. Meanwhile, Youssef Squali of Cantor Fitzgerald said he expects Google to report in-line first-quarter results on Thursday which will be driven by display and search gains in the U.S. On Monday, Squali reiterated a buy rating as well as a $635 target on the Google stock.

Analysts forecast that Google will report GAAP and adjusted earnings per share of $6.61. This would mark a 5.4% year-over-year improvement from Google’s actual results of $6.27 in the year-earlier period. Added to this, Estimize, which is a fast-growing software platform that uses crowdsourcing to garner earnings estimates from hedge fund executives, brokerages, sell-side and buy-side analysts, has Google earning $6.81. In the last 2 consecutive quarters, Google has fallen short of non-GAAP EPS estimates.

Also, analysts expect Google to report revenue minus traffic acquisition costs of $14 billion. This would mark a 15% improvement from $12.2 billion in the same period last year. Contributors on Estimize are forecasting revenue of $14.32 billion. It is important to note that Google underperformed last quarter on both the sell-side and Estimize estimates. In fact, Google has missed revenue targets in three of the last four quarters.

From a year ago, Google shares are about flat and trading at around $544.74. The internet giant’s share price has grown about 7% over the last three months since the company’s fourth-quarter earnings report.

According to Goldman Sachs, this week will represent the biggest earnings week of the first-quarter earnings season, with 147 firms due to report. This makes up 32% of the S&P 500 index (SPX). So far, only 3% of companies have missed earnings-per-share estimates versus 15% historically. This means that more companies reported results in line with expectations than normal.

Daily Market Review - 20 April 2015

USD Holds Steady

In currency trading on Friday, the U.S. dollar (USD) was little changed against most major currencies. This came in response to a positive U.S. consumer sentiment report which helped to ease investor concerns regarding the timing of interest rate hikes by the Federal Reserve. According to the University of Michigan, in their preliminary report, its consumer sentiment index rose from 93.0 in March to 95.9 in April. This beat expectations for a reading of 94.0. Also, the U.S. Bureau of Labor Statistics reported that consumer prices rose 0.2% in March. This missed expectations for an increase of 0.3 percent. Meanwhile, year-on-year, U.S. consumer prices fell 0.1% in March, compared to expectations for a 0.1% rise. In forex trading, the EUR/USD traded steady at 1.0761. Meanwhile, the British pound traded higher than the greenback with GBP/USD trading at 1.4981, up 0.31%. This increase came as the Office for National Statistics reported that the U.K. claimant count dropped 20,700 in March, compared to expectations for a 29,500 decline. In a separate report, data showed that the unemployment rate in the U.K. dropped to 5.6% in February from 5.7% in January. This was in line with expectations. Against the Japanese yen and the Swiss franc, the U.S. dollar traded mixed with USD/JPY at 119.09 and with USD/CHF down 0.14 percent to 0.9548. Also, against the currencies in Australia, Canada and New Zealand, the USD traded mixed with AUD/NZD down 0.43% to 0.7771, NZD/USD steady at 0.7671 and with USD/CAD also little changed at 1.2187. The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was also steady at 97.87.

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NYMEX Crude Rises In Asia

In Asian trading on Monday, crude oil prices gained. This increase came as China sharply cut the ratio of cash that banks need to set aside as reserves in order to accelerate economic growth. On Sunday, China’s central bank announced that it lowered the amount of deposits it requires banks to hold as reserves to 18.5% from 19.5%. This was a surprise decision which will become effective from the 20th of April. This move also came after official data showed that China’s economy grew 7.0% in the first quarter which marked the slowest pace of growth since the global financial crisis in 2008. In commodities trading, on the New York Mercantile Exchange, crude oil for delivery in May gained 0.86% to $57.82 a barrel. Despite declines on Friday, New York-traded oil prices increased $3.93, or 7.94%, on the week, which marked the 4th consecutive weekly gain. Also, on the ICE Futures Exchange in London, Brent for June delivery dropped 53 cents, or 0.83%, on Friday to settle at $63.45 a barrel. On Thursday last week, Brent crude oil traded at $64.95 a barrel which marked the highest level since the 11th of December.

U.S. Stocks End With Weekly Losses

On Friday, U.S. stocks sold off. This came in response to investor fears regarding Greece’s ability to pay back its debt as well as the country’s future in the euro zone. New stock-market regulations from China also prompted negativity among investors. On Friday, the S&P 500 index (SPX) and the Dow Jones Industrial Average (DJIA) suffered their worst one-day point decline in more than three weeks. As a result, both benchmark indices ended the week with losses after two consecutive weekly gains. At the close of U.S. trading, the DJIA dropped 279.67 points, or 1.5%, to 17,826.10. For the week, the blue chip index ended 1.3% lower while also turning negative for the year. Pushing the Dow lower was the shares of American Express Co. (AXP, -4.44%) which declined 4.4% on Friday. This came after the payment-card company reported poor results which they indicated were as a result of a stronger U.S. dollar (USD). Also on the downside was the Nasdaq Composite index (COMP) which declined 75.98 points, or 1.5%, to 4,931.81. For the week, the tech heavy index dropped 1.3 percent. Following the downward trend was the SPX which declined 23.83 points, or 1.1%, at 2,081.16, recording a 1% loss over the week. Also, the CBOE Volatility Index, or Vix (VIX, +10.24%), which measures implied volatility in the S&P 500 jumped 11 percent to above 14.

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In the Spotlight – Morgan Stanley to Report Earnings

On Monday, Morgan Stanley (MS, -1.63%) is expected to report first quarter earnings before the market opens. Analysts are expecting to see a slight improvement from a year earlier period. Also, recently, the U.S. Federal Reserve approved Morgan Stanley’s revised proposals to buy back as much as $3.1 billion in company stocks between the second quarter and the end of the same period a year later. This marks more than triple of the company’s $1 billion buyback of last year. Morgan Stanley will also boost its quarterly dividend from 10 cents a share to 15 cents a share.

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On Monday, according to analysts polled by Thomson Reuters, Morgan Stanley is expected to report profits of 78 cents a share; up compared to 74-cents a share profit a year ago. Also, analysts predict that Morgan Stanley will report revenue of $9.17 billion, up from the $8.93 billion the firm reported a year ago. Meanwhile, James Gorman, Morgan Stanley’s chairman and chief executive, has also pledged to lift the firm’s return on equity to at least 10 percent. This is a a key measure of banks’ profitability. While Gorman has been elusive about his plans, he must be doing something right since he produced a return of more than 8% in 2014. Investors are hoping he will reach his target in 2015. Finally, all eyes are on Jonathan Pruzan who will take Ruth Porat’s place. Porat is currently Morgan Stanley’s finance chief who is leaving the firm soon to take the same post at Google Inc. Pruzan is an investment banker who, as Ms. Porat once had, co-led the team that advises banks and other financial-services companies.

In the week ahead, investors will be looking ahead to reports on the U.S. housing sector and data on durable goods orders for further indications on the strength of recovery in the country. Then, on Tuesday, the American Petroleum Institute (API), an industry group, is to publish its weekly report on oil supplies and on Wednesday, the U.S. is to release data on existing home sales as well as a government report on oil inventories.

Daily Market Review - 17 April 2015

NYMEX Crude Weaker in Asian Trade

In Asian trading on Friday, crude oil prices declined in early trade. This came as a result of investor concerns regarding the global supply glut while efforts to curb production created a mixed outlook. On the New York Mercantile Exchange, WTI crude for delivery in May traded at $56.46 a barrel, down 0.45%. Overnight on Thursday, crude oil futures increased after OPEC forecasted a slowdown in U.S. production in the coming months. Meanwhile, on Thursday, on the Intercontinental Exchange, Brent crude for delivery in June traded at $63.86 a barrel, up $0.54 or 0.85 percent. According to the supply reports released this week, crude storage in the U.S. for the week ending April 10 reached 483.1 million barrels. This marked the highest level in at least 80 years. Also, in its monthly market watch released on Thursday, OPEC said that the oil supply in the U.S. would increase to 13.65 million barrels per day through the second quarter before flattening for the remainder of the year. Separately, OPEC also said that Saudi Arabia, its largest producer, increased output last month by 390,000 a day to 10.1 million bpd for the month. This spike in output pushed crude production to a near record-high and the highest by the oil-rich area since September, 2013. Added to this, the U.S. is now dangerously close to reaching full storage capacity for crude. This could now force producers to slow output.

U.S. Stocks Lower on Mixed Data

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On Thursday, U.S. stocks traded lower. This came as investors digested better than expected earnings reports as well as a mixed bag of economic reports and comments by Federal Reserve speakers. At the close of U.S. trading, the Dow Jones Industrial Average (DJIA), which advanced 57 points during the trading session, dropped 6.84 points to 18,105.77. Almost two thirds of the blue chip index’s 30 components ended lower and the top performer on the index was UnitedHealth Group Incorporated (NYSE:UNH), which rose 3.65% or 4.28 points to trade at 121.60 at the close. Also on the downside was the S&P 500 index (SPX) which declined 1.64 points to finish at 2,104.99. Seven out of the 10 major sectors on the index declined with telecom and utilities stocks leading the losses. The top performer on the S&P 500 was Netflix Inc. (NASDAQ:NFLX) which rose 18.21% to 562.05. This came after the video-streaming and DVD-rental company reported on Wednesday that they had added 4.88 million subscribers in the first quarter. Following the downward trend was the Nasdaq Composite index (COMP) which dropped 3.23 points to close at 5,007.79. As a result of an 18 percent rally in Netflix Inc., the tech heavy index was supported. Meanwhile, the Atlanta Fed President Dennis Lockhart said the central bank should wait on raising rates as a result of the poor first quarter economic data. Lockhart is a voting member of the policy-setting Federal Open Market Committee this year. Also, Stanley Fischer, the Fed’s Vice Chairman said the economy is already seeing a rebound yet the rate of the recovery remains to be seen. These comments from the Fed came after St. Louis Fed President James Bullard and Richmond Fed President Jeffrey Lacker both said on Wednesday that interest rates should be increased soon. Also, the CBOE Volatility Index, which measures the implied volatility of S&P 500 options, was down 1.95% to 12.59.

USD Lower on Mixed Data

In currency trading on Thursday, the U.S. dollar (USD) traded lower. This came in response to the release of mixed U.S. data which prompted investor uncertainty regarding the timing of interest rate hikes by the Federal Reserve as well as the strength of the economy. In their report, the U.S. Commerce Department said that the number of building permits issued in March declined by 5.7% last month to 1.039 million units from February’s total of 1.102 million. This missed analysts’ expectation for building permits to fall by 2.0% to 1.080 million units in March. Also, the report showed that U.S. housing starts rose by 2.0% in March to hit 926,000 units from February’s total of 908,000 units. This was below expectations for an increase of 15.9% to 1.040 million. Added to this, the Federal Reserve Bank of Philadelphia said that its manufacturing index improved to a 4-month high of 7.5 in April from March’s reading of 5.0. Analysts had expected the index to rise to 6.0 in April. Separately, in their report, the Department of Labor said the number of individuals filing for initial jobless benefits in the week ending April 11 increased to 294,000, up 12,000 from the previous week’s total of 282,000. This missed expectations for initial jobless claims to fall by 2,000 to 280,000 last week. In forex trading, the EUR/USD traded at 1.0699, up 0.18% while the British pound was also higher with GBP/USD gaining 0.32% to 1.4888. Against the Japanese yen and the Swiss franc the greenback traded mixed with USD/JPY up 0.10% at 119.26 and with USD/CHF down 0.14% to 0.9633. Meanwhile, against the currencies in Australia, New Zealand and Canada, the USD traded mixed with AUD/USD up 1.30% to 0.7778, NZD/USD up 0.68% to 0.7642, while USD/CAD dropped 0.38% to trade at 1.2244. Also, the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.21% to 98.34.

In the Spotlight – General Electric to Report Earnings

General Electric

On Friday, April 17, General Electric Co. (NYSE: GE) will announce its first quarter earnings for 2015. In the last quarter of 2014, this industrial conglomerate reported a modest overall performance as higher revenues in aviation and transportation offset the fall in revenues in both oil and gas and energy management segments. In the fourth quarter of 2014, General Electric also reported relatively flat healthcare revenues while power, water and appliances saw a revenue boost.

Based on this, for the first quarter, General Electric’s aviation, healthcare and transportation businesses are expected to drive growth in its results. Analysts however believe that this growth will be partially offset by the continually falling orders in the oil and gas segments. According to analysts at Thomson Reuters, GE is expected to report earnings per share of $0.30 on revenue of $34.23 billion. In the same period last year, General Electric posted earnings per share of $0.33 on $34.18 billion in revenue. Added to this, it is well known already that General Electric will spend up to $50 billion for buybacks.

Ahead of their earnings report, in late afternoon trading on Thursday, the shares of General Electric traded at $27.33 a share, down 0.5 percent. The stock has a consensus price target of $29.92 and a 52-week trading range of $23.41 to $28.68.

Daily Market Review - 16 April 2015

USD Trims Gains on Poor U.S. Data

In currency trading on Wednesday, the U.S. dollar (USD) trimmed gains against other major currencies. This came after data showed that U.S. industrial production fell more than expected last month while manufacturing conditions in the New York area also contracted unexpectedly in April. According to the report by the Federal Reserve Bank of New York, its general business conditions index decreased from a reading of 6.9 in March to -1.2 in April. This missed analyst expectations for an increase to 7.0 in April. Also, data showed that manufacturing production rose 0.1% in March which was in line with forecasts, while U.S. industrial production declined 0.6% in March. This decline missed expectations for only a 0.3% drop while in February, industrial production rose by 0.1 percent. The EUR/USD traded at 1.0633, down 0.22 percent. This came after European Central Bank (ECB) President Mario Draghi played down speculation that recent signs of a recovery in the eurozone economy could see the bank scale back its buying program. Against the Japanese yen and the Swiss franc the USD traded lower with USD/JPY down 0.08% to 119.30 while USD/CHF was little changed at 0.9721. Meanwhile, the British pound traded steady with GBP/USD at 1.4784. Against the currencies in Australia, New Zealand and Canada, the U.S. dollar traded mixed with AUD/USD steady at 0.7628, NZD/USD up 0.41% to 0.7553 and with USD/CAD down 0.17% and trading at 1.2465. Also, the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.20% to 99.21, after hitting 99.57 earlier in the session.

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NYMEX Crude Falls in Early Asian Trade

In Asian trading on Thursday, crude oil prices declined in early trade. This came after overnight profit taking as a result of a strong performance in the commodity which was prompted by positive U.S. supply data released on Wednesday. On the New York Mercantile Exchange, crude oil for May delivery traded at $56.05 a barrel, down 0.59%. Overnight, West Texas Intermediate crude oil futures rose to the highest levels of the session as a result of data that showed that oil supplies in the U.S. rose less than expected last week. In their weekly report, the U.S. Energy Information Administration (EIA) said that U.S. crude oil inventories rose by 1.3 million barrels in the week ended April 10. This was below expectations for an increase of 4.1 million barrels. As of last week, total U.S. crude oil inventories stood at 483.7 million barrels. This marked the highest level in at least 80 years which highlighted concerns regarding a global supply glut. In their report, the EIA also showed that the total motor gasoline inventories decreased by 2.1 million barrels while distillate stockpiles rose by 2.0 million barrels. Elsewhere, on Wednesday, on the ICE Futures Exchange in London, Brent oil for delivery in June traded at $61.07 a barrel, up $1.26, or 2.12%.

U.S. Stocks Higher on Positive Earnings

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On Wednesday, U.S. stocks traded higher which saw the main indices closing at record levels. This came in response to an increase in crude oil prices while better-than-expected earnings prompted positive investor sentiment. Meanwhile, the rally was led by small-cap stocks which pushed the Russell 2000 to a new record close. At the close of U.S. trading, the Nasdaq Composite index (COMP) ended 33.73 points, or 0.7%, higher at 5,011.02. Also on the upside was the S&P 500 index (SPX) which rose 10.78 points, or 0.5%, higher at 2,106.62. This benchmark index is now in striking distance from the record level reached in March. This advance came as a result of energy stocks which rallied more than 2 percent as a result of a 6 percent increase in crude oil futures, which settled at the highest level this year. Interestingly, of the 36 companies in the S&P 500 that have reported so far, 81% beat expectations which is better than the 63% of companies exceeding expectations in a typical quarter. Following the upward trend was the Dow Jones Industrial Average (DJIA) which added 75.71 points, or 0.4%, to 18,112.41. More than two thirds of the blue chip index’s components finished with gains.

In the Spotlight – Bank of America Reports Earnings

Bank of America

On Wednesday, the Bank of America Corp. reported first quarter earnings. The results showed that the second largest U.S. bank swung to first-quarter profit by assets which was an indication that the lender is now recovering after prior years of legal losses.

Based in Charlotte, N.C, the Bank of America reported a profit of $3.36 billion, or 27 cents a share. This was up compared to the same period in 2014 where the bank reported a loss of $276 million, or five cents a share. Analysts polled by Thomson Reuters had expected earnings of 29 cents a share. Meanwhile, the Bank of America also reported that revenue fell to $21.42 billion which missed analysts’ expectations for revenue of $21.51 billion.

Under Chairman and Chief Executive Brian Moynihan, Bank of America is currently trying to rebound from a down year in which profits plunged 58 percent. This decline came as a result of huge legal bills as well as the low-interest rate environment which has been holding back its lending income. The loss posted by the bank in the first quarter of 2014 was due to a $6 billion litigation charge for mortgage-related settlements with federal prosecutors and regulators.

Since the start of the year through to Tuesday’s close, the shares of Bank of America have declined 12 percent marking them as the worst performer in the KBW index of bank stocks.

Daily Market Review - 14 April 2015

NYMEX Crude Edges Higher

 

In Asian trading on Tuesday, crude oil prices gained. This comes ahead of industry data on U.S. crude stockpiles which is expected to set the tone. On Tuesday, the American Petroleum Institute will release data from last week’s estimated levels for distillates, crude and gasoline and then on Wednesday, the Department of Energy will release their data. On the New York Mercantile Exchange, WTI crude for delivery in May traded at $51.94 a barrel, up 0.06 percent. Meanwhile, on Monday, Brent crude for June delivery gained 0.28% or 0.17 to trade at $59.12 a barrel. The spread between the international and U.S. domestic benchmarks for crude stood at $7.64 a barrel. Energy prices were negatively impacted by poor trade data out of China. In March, China imported 6.3 million barrels per day.

NYMEX

This was down 5.2 percent from February. Also, Iran, which is primed to increase crude exports as economic and financial sanctions from Western powers ease, counts on China as one of its top energy partners. Added to this, the fighting in Yemen between Iranian-backed, Shiite-led Houthi rebels and Sunni-led troops from Saudi Arabia has continued to boost crude prices. On Sunday, Saudi Arabian foreign minister Prince Saud Al Faisal told reporters that his country is not at war with Iran in Yemen yet he also insisted that Iran withdraw its political and military support of the Houthis. This came as the U.S. has now expanded its role in the conflict by inspecting military targets in the area and searching nearby vessels for Iranian arms headed for Yemen. Yemen is strategically located on the Bab el-Mandeb strait, one of the world’s largest chokepoints for oil. If this narrow entrance is closed, it could limit outflows into the Gulf of Aden.

USD Steady & Supported in Thin Trade

USD Steady

In currency trading on Monday, the U.S. dollar (USD) held steady against most major currencies. This support came with expectations that the Federal Reserve is likely to increase interest rates in the near future. Meanwhile, the EUR/USD traded down 0.24% to trade at 1.0577. Sentiment for the euro has been very vulnerable as investors are concerned regarding the uncertainty over Greece’s bailout. Late on Monday, talks between Athens and its lenders on proposed economic reforms were expected to resume. This comes ahead of a meeting with euro area finance ministers on April 24. Also, the British pound pulled away from five-year lows of 1.4566 and the GBP/USD last traded at 1.4649, up 0.11 percent. Against the currencies in Japan and Switzerland, the greenback traded mixed with USD/JPY at 102.20 and with USD/CHF down 0.12% at 0.9779. Elsewhere, against the currencies in Australia, New Zealand and Canada, the USD traded higher with AUD/USD down 1.34% at 0.7579, NZD/USD down 1.25% at 0.7445, while USD/CAD gained 0.21% to trade at 1.2592. Also, the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.11% to 99.74.

U.S. Stocks Lower on Earnings Expectations

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In stocks trading on Monday, U.S. stocks traded lower. This comes in response to investor concern regarding potentially weak quarterly results as well as looming interest-rate hikes by the Federal Reserve. As an indication of investor sentiment, the CBOE Volatility Index (VIX, +10.81%) advanced 11% to settle at nearly 14. Meanwhile, the main benchmarks turned opening gains into losses and the S&P 500 index (SPX) closed down 9.62 points, or 0.5%, at 2,092.44. Nine of the benchmark index’s 10 main sectors finished with losses as industrials and utilities stocks sold off. The financial sector closed slightly higher as investors turn their attention to earnings from J.P. Morgan and Wells Fargo. Also on the downside was the Nasdaq Composite index (COMP) which ended the session down 7.7 points, or 0.2%, to 4,988.25. This tech heavy index was unable to stay above the 5,000 level. Following the downward trend was the Dow Jones Industrial Average (DJIA) which lost 80.61 points, or 0.5%, to 17,977.04. Meanwhile, a measure of smaller companies, known as the Russell 2000 (RUT, +0.06%) ended the session flat at 1,265.59. Interestingly, the index of small-capitalization companies outperformed the S&P 500 year-to-date, rising 5.2%, compared with 2.3% gain for the large-caps.

In the Spotlight – What to Expect From Wells Fargo Earnings

wells fargo

Before the market opens on Tuesday, Wells Fargo & Co. (WFC, +0.04%) is expected to announce its first-quarter earnings. According to analysts at Thomson Reuters, Wells Fargo is expected to report revenue of $21.24 billion which is up compared with $20.63 billion reported in the year-ago quarter. Also, analysts have forecast that the bank will report earnings of $0.98 a share. This will be down compared with $1.05 a share for the same period a year ago. To date, Wells Fargo has not provided any guidance for the first quarter.

Other issues to look out for are that for the past few quarters, Wells Fargo has carried itself on loan growth. Over the twelve months ended 31 December, total loans rose 4.9% to $862.55 billion. Also, auto loans, which are an increasingly important business for Wells Fargo, rose 9.7% from a year earlier to $55.74 billion. Meanwhile, the bank’s mortgage lending results are also closely watched because the bank is an especially large player in that business.

In the last quarter, San Francisco based Wells Fargo, was criticized for an increase in expenses. These expenses were largely as a result of risk management and compliance-related issues as well as cyber security. In the fourth quarter, noninterest expense rose 4.7% from a year earlier to $12.65 billion.

Finally, you will also need to look out for issues on the volatility of the oil market. In the last quarter, the bank faced questions on its exposure to the oil market and how it was handling price fluctuations. Prices have moved more than 2 percent both up or down on 42 trading days this year. This is more than the total number of such moves in any of the past three years. Wells Fargo has said its exposure is about 2 percent of its total loan portfolio.

Daily Market Review - 13 April 2015

USD Higher in Quiet Trading

In currency trading on Friday, the U.S. dollar (USD) traded higher against most major currencies. This came as investor expectations have now shifted to a rate increase by the Federal Reserve as early as June this year which supported the greenback. On Wednesday last week, the New York Federal Reserve President William Dudley said that the timing of a rate hike is dependent on economic data and he also stated that a rate hike in June could be a possibility if the labor market recovery remained strong. Adding to this, on Thursday last week, the U.S. Department of Labor reported that the number of individuals filing for initial jobless benefits last week rose less than expected. In trading, the EUR/USD declined 0.43 percent to trade at 1.0612. Earlier in the session, the currency pair hit a three-week low of 1.0569. Meanwhile, the British pound also traded lower with GBP/USD down 0.42% to 1.4646. Against the currencies in Switzerland and Japan, the greenback traded mixed with USD/CHF up 0.21% to 0.9796 and with USD/JPY down 0.31 percent to trade at 120.20. Meanwhile, against the currencies in Australia, New Zealand and Canada, the USD traded mixed with AUD/USD down 0.16% to 0.7680, NZD/USD down 0.32% to 0.7542 while the USD/CAD held steady at 1.2588. Also, the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.21% to 99.46.

NYMEX Crude Gains in Asia

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In commodities trading on Monday, crude oil price rose in Asian trading. This increase came despite disappointing trade data out of China which showed a sharp drop in exports and a narrower trade surplus than expected. In their report, China showed a 14.6% decline in March exports, compared to a 12.0% year-on-year expected gain. Also, imports fell 12.3%, compared to an expectation of an 11.7% decline while a trade balance surplus of $3.08 billion was also shown. Investors have now turned their attention to the Chinese economic data expected this week which includes reports on first quarter gross domestic product (GDP), as well as data on industrial production and the trade balance. Meanwhile, on the New York Mercantile Exchange, crude oil for May delivery rose 0.42 percent to trade at $51.86 a barrel. On Friday last week, industry research group Baker Hughes said that the number of rigs drilling for oil in the U.S. fell by 42 last week to 760. This marked the 18th straight week of declines as well as the largest drop in a month. Elsewhere, on the ICE Futures Exchange in London, Brent for delivery in May traded at $57.87 a barrel, up 2.3 percent or $1.30.

U.S. Stocks See Second Straight Week of Gains

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In trading on Friday, U.S. stocks traded higher marking the second straight week of gains for the main benchmark indices. This advance came in response to a surge in the share price of General Electric Co., up 11 percent, which came after their announcement of a comprehensive restructuring plan which includes the sale of over $30 billion in real estate. As a result, the Dow Industrials were pushed above the 18,000 level for the first time in nearly three weeks. At the close of trading, the Nasdaq Composite index (COMP) rose 21.41 points, or 0.4%, to 4,995.98. This tech heavy index recorded a 2.2% weekly gain and the index is also now less than a percentage point away from the 5,000 level. Also on the upside was the S&P 500 index (SPX) which gained 10.88 points, or 0.5%, at 2,102.05. This benchmark index recorded a 1.7% gain over the week with industrials and energy-sector stocks rising more than 3 percent. Following the upward trend was the Dow Jones Industrial Average (DJIA) which advanced 98.92 points, or 0.6%, to 18,057.65. For the week, this blue chip index gained 1.7 percent.

In the Spotlight – First Quarter Earnings Set For First Decline Since 2009

Until now, investors have had very little expectations for the first quarter earnings reports. With a strong U.S. dollar (USD) as well as declining oil prices, there is a strong expectation that we will see a drop in corporate earnings per share in the first quarter. This is something that the markets have not seen since 2009.

Despite this decline, analysts are reassuring investors that there is no reason to panic. According to analyst Savita Subramanian at Bank of America Merrill Lynch, “S&P 500 bottom-up EPS (earnings per share) has come down 8% over the last three months to $27.04—a bigger cut than in any other quarter in recent history.”

For the first quarter, analysts are projecting EPS to fall 4% to 6%, excluding the impact of stock buybacks. Interestingly, history has shown that a decline in earnings when it occurs outside of a recession, is not a reason to sell. As Subramanian explained, “We found that during prior non-recessionary quarters in which EPS growth was negative—this has happened 31 times since 1960—the S&P 500 was up during earnings season 60% of those times, with an average return of 2%.”

S&P 500 Chart - 13 April 2015

Based on this, analysts expect the decline in the EPS to be short lived and we can probably expect to see a recovery by the 2nd quarter. Also, with expectations for a weak earnings quarter, most companies are likely to beat expectations. Based on this, historic data has shown that sectors with a high number of upside surprises in one quarter tend to deliver similar results in the following quarter. With this in mind, analysts have stated that health-care stocks are the most attractive while energy stocks should be avoided.

The biggest culprit of the earnings decline in the first quarter is the energy sector with crude oil prices already down more than 50% over the past year. Also, the U.S. dollar (USD) has surged 25% over the same time. The stronger greenback is likely to have a significant impact on earnings as expectations for companies with sizable foreign sales revised down 13% year to date while those with sales concentrated in the U.S. witnessed an upward revision.

Also, in the week ahead and for further indications on the strength of the economy in the U.S., investors will be looking ahead to Tuesday’s report on U.S. retail sales, as well as Friday’s reports on inflation and consumer sentiment.