Market Perspective for February 16, 2016

Positive consumer spending data and the U.S. labor market fueled a Friday rally that carried over into Asia and Europe. Those gains continued into the open of trading today. Energy rebounded on Friday as well, and the advance extended on Tuesday after Russia and Saudi Arabia agreed to freeze production at January levels. Although the deal is contingent on other producers agreeing to the freeze, and Iran has said it will not, markets are still taking it as a positive sign.

Earnings season continues this week, but with more than 75 percent of the S&P 500 reporting, there are fewer blue chips in the mix. Companies that will be watched closely by investors include Priceline (PCLN), Wal-Mart (WMT) and John Deere (DE). The state of the precious metals industry may be revealed when Newmont Mining Corporation reports Wednesday. Analysts expect EPS of $0.13 and revenues of $1.82 billion. That same day, T-Mobile (TMUS) is forecast to report EPS of $0.15 on revenues of $8.20 billion. On Wednesday, analysts are looking for Priceline to report earnings per share of $11.81 on revenues of $1.96 billion.

Wal-Mart is scheduled to report its latest quarterly earnings before trading begins on Thursday. Analysts predict a decline in revenues from a year ago as the company faces the negative effects of a rising dollar on overseas earnings. The consensus prediction is an EPS of $1.43 on revenues of $131 billion. Wal-Mart voluntarily increased wages last year to the detriment of earnings and has since strategically pulled away from areas that hiked minimum wages. Duke Energy (DUK), the largest U.S. utility company in terms of market capitalization, is expected to report a consensus EPS of $0.90 on revenue of $6.29 billion. John Deere will shed light on the condition of the capital goods export market when it reports earnings before the bell on Friday. Analysts are calling for EPS of $0.70 on revenues of $4.96 billion.

The market will receive the minutes from the most recent Fed meeting and data on U.S. inflation, as well as manufacturing in the Northeast and mid-Atlantic regions. The Empire State Manufacturing Survey and the home builders’ index, both for February, will be released Tuesday. Wednesday’s reports will include January U.S. housing starts, building permits, capacity utilization, the producer price index (PPI) as well as the FOMC minutes. Weekly unemployment claims, oil inventory levels and the Philadelphia Federal Reserve business outlook survey will be available on Thursday. The Consumer Price Index (CPI) for January, both headline and core, is due out Friday. While inflation is expected to remain in check due to a reduction on the price of oil, analysts expect the other data will reflect continued growth in the U.S. economy.

Over the weekend, Japan reported a 1.4-percent contraction in fourth-quarter gross domestic product (GDP). Chinese trade data was weaker than expected, with both imports and exports falling from year ago levels. News broke on Tuesday that China flooded the economy with credit in January by issuing nearly triple the number of new bank loans in a typical month and 30 percent higher than peak credit. Later this week, China will report its CPI and PPI.

Remarks on Monday by ECB President Mario Draghi, as part of his quarterly testimony to the European Parliament’s Economic and Monetary Affairs Committee, sent the euro lower as investors anticipate the ECB will do more to weaken the currency. This week several Federal Reserve officials are scheduled to speak. They include Philly Fed President Patrick Harker Tuesday, St. Louis Fed President James Bullard Wednesday, San Francisco Fed President John Williams Thursday and the Cleveland Fed’s Loretta Mester Friday. At the moment, investors do not expect rate hikes until sometime in 2017 and treasuries have rallied strongly as a result.

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