The major U.S. index futures are pointing to a higher opening on Monday, with sentiment looking up as traders harbor hopes that a last minute deal will be clinched to mitigate the impact of the fiscal cliff. That said, risk appetite is on the wane, as reflected by the weakness of risky bets such as crude oil and risk currencies. With time ticking away before the fiscally stringent measures come into effect in the eventuality of a no deal, market mood is likely to remain nervous.
U.S. stocks declined sharply in the week ended December 28th, as fiscal cliff concerns choked any remaining risk appetite in the market. The intransigence of lawmakers in striking a unified approach worried traders, sending them scurrying to take cover in safe havens.
Last Monday, ahead of the Christmas holiday, the major averages saw modest weakness, as traders reacted negatively to fiscal cliff concerns. After seeing an early boost from positive house price data on Wednesday, the major averages wilted under the pressure exerted by the lack of resolution for the fiscal cliff, ending the session moderately lower.
Although the averages saw notable weakness in the morning on Thursday, they pared much of their losses in the afternoon, as reports suggested that lawmakers would restart their budgetary negotiations. The averages closed modestly lower. Fiscal cliff worries continued to weigh on the markets on Friday, sending stocks notably lower, with the selling pressure intensifying in late trading.
For the week ended December 28th, the Dow Industrials ended down 1.92 percent and the S&P 500 Index lost 1.94 percent, while the Nasdaq Composite ended down 2.01 percent. Despite the end of the year travails, the major averages are all higher for the year. The Dow is up 5.89 percent for the year, the S&P 500 Index has gained about 11.52 percent and the Nasdaq Composite has risen about 13.63 percent.
Among the sector indexes, the Philadelphia Oil Service Index and the NYSE Arca Oil Index lost close to 3 percent each last week, while the Dow Jones Transportation Average, the Dow Jones Utility Average, the NYSE Arca Biotechnology Index and the Philadelphia Semiconductor Index all lost over 2 percent.
The market optimism seen for much of the year was primarily due to the positive turn of the economy. Most economic indicators, specially pertaining to the housing and the job markets, reflected some equilibrium following the ravages of the economic downturn.
The Dow Industrials traded in the 12,035-13,662 range over the past year and is currently at 12,938. In the eventuality of last ditch efforts to salvage a budget deal not coming to fruition, the index remains poised to test a downside support around 12,880, which would still leave it higher for the year.
Currency, Commodity Markets
Crude oil futures are trading down $0.45 to $90.35 after advancing $2.14 or 2.41 percent to $90.80 in the week ended December 28th. After edging down slightly last Monday, oil rose by over $2.25-a-barrel on Tuesday. The commodity fell slightly on both Thursday and Friday but still closed the week notably higher. For the year, oil is down about 8.41 percent.
Gold futures, which fell $4.20 or 0.25 percent to $1,655.90 an ounce last week, are currently rising $7.50 to $1,663.40 an ounce. The commodity has gained close to 7 percent for the year.
Among currencies, the U.S. dollar weakened against the euro during the week ended December 28th, as it fell 0.21 percent over the week to $1.3216. Meanwhile, the yen continued to be pounded hard on additional monetary policy easing expectations and lost 2.04 percent against the dollar before ending the week at 85.96.
The dollar is currently trading at 86.43 yen and is valued at $1.3188 versus the euro.
Asia
The Asian markets that remained open for trading closed on a mixed note. The Chinese market closed notably higher and the Malaysian market witnessed moderate buying interest. On the other hand, the Hong Kong, Australian and New Zealand markets, which traded for a half-day, closed lower.
Hong Kong’s Hang Seng Index opened lower but pared its losses by late morning trading. After moving back and forth across the unchanged line thereafter, the index dipped below the unchanged line in the afternoon, ending down 9.67 points or 0.04 percent at 22,657. The Hang Seng Index ended the year 22.91 percent higher.
Meanwhile, Japan’s Nikkei 225 average, which closed the year’s trading last Friday, was up about 22.94 percent for the year.
China’s Shanghai Composite opened higher and advanced steadily throughout the remainder of the session before closing up 35.88 points or 1.61 percent at 2,269. The index ended up 3.17 percent for the year and was among the worst performing averages of the region.
The Chinese market received a lift from manufacturing data released by Markit Economics. Final estimates showed that the index measuring manufacturing activity in China compiled by Markit Economics and HSBC rose to a 19 month high of 51.5 in December from 50.5 in November, representing an upward revision from the flash estimate of 50.9.
Australia’s All Ordinaries ended down 20.70 points or 0.44 percent at 4,665. The market witnessed broad based weakness, with material and healthcare stocks seeing marked weakness.
Europe
The European markets that were open for trading are showing mixed sentiment, while most markets in the region, including Germany, remained closed.
The U.K.’s FTSE 100 Index ended moderately lower, while the French market recovered after a weak start, with the key CAC 40 Index closing moderately higher in a truncated session.
For the year, the CAC 40 average is up 14.87 percent, the DAX is up 29.06 percent and the FTSE 100 Index is 6.34 percent higher.
U.S. Economic Reports
The holiday-shortened week has a few key economic reports that could clarify the economic outlook further. Although the markets are likely to be pre-occupied with the efforts on or the outcome of the fiscal cliff negotiations, traders may also focus on the monthly non-farm payrolls report for December, the weekly jobless claims report and ADP’s private sector employment report.
The results of the Institute for Supply Management’s manufacturing and service sector surveys for December and the FOMC minutes may also draw some attention. The results of a regional manufacturing survey, the Commerce Department’s construction spending report for November, auto sales for December, the factory orders data for November and announcements concerning the Treasury auctions of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.
The Dallas Federal Reserve is due to release its general business activity index based on its regional manufacturing survey at 10:30 am ET. The business activity index is expected to improve to 1 in December from –2.8 in November.
Stocks in Focus
Duff & Phelp (DUF) announced a deal to be acquired by a consortium controlled by Carlyle Group for $15.55 per share in cash or $665.5 million in total.
Bristol-Myers Squibb (BMY) announced that the FDA has approved its anti-clotting drug ELIQUIS.
Brady Corp. (BRC) said it has acquired Precision Dynamics from private equity firm Water Street Healthcare Partners for $300 million. The target company had annual sales of about $173 million.
Sunrise Senior Living’s (SRZ) board declared a conditional special cash dividend of $2.10 per share of Sunrise common stock in connection with its proposed merger with Health Care REIT (HCN) and the related proposed sale of its management business. Sunrise stockholders will receive $12.40 in cash per share as merger consideration and $2.10 in cash per share as a special dividend, maintaining the overall amount of consideration at $14.50 in cash per share.
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