Market Update & Important Indicators
Commodity-sensitive stocks rose while health-care shares fell Tuesday, as major U.S. stock indexes were little changed. Investors were cautious ahead of monetary policy guidance from the U.S. Federal Reserve's meeting on Wednesday, analysts said. Most of the large moves on Tuesday were tied to mixed corporate earnings reports. A host of household names report quarterly results this week. Procter & Gamble fell 1.7% after the maker of Bounty paper towels reported higher profits but issued downbeat earnings guidance. Hershey shares fell 2.1% after the candy maker said its profit and revenue declined in the last quarter. Whirlpool fell 3.5% after the appliance-maker said its revenue and profits declined in the last quarter. Investors don't expect the Fed to raise interest rates this week, but they will look for hints about the strength of the U.S. economy and whether officials might act in June.
European stock markets finished higher Tuesday for the first time in four sessions, aided by a round of well-received earnings reports. The Stoxx Europe 600 index rose 0.2% to 347.31 after closing at the lowest level in a week on Monday. Banks and energy companies led gains in Europe.
Stock markets in Asia finished Tuesday's session mixed as investors remained cautious ahead of central-bank meetings this week in Japan and the U.S. Japan's Nikkei Stock Average ended down 0.5%, while South Korea's Kospi added 0.25%. In China, the Shanghai Composite Index finished up 0.6% and Hong Kong's Hang Seng Index gained 0.5%.
Resources companies weighed on Australia's stock market Tuesday as commodity prices that had rallied last week lost ground. After being closed Monday for the country's Veterans Day, the S&P/ASX 200 slipped 15.8 points, or 0.3%, to finish at 5220.6. The materials sector fared worst, losing 2.1%, while energy shares fell 1%. Gains by two of the country's largest banks helped the financials subindex eke out a modest 0.2% rise.
The London Metal Exchange's three-month copper contract was down 0.7% at $4,962 a metric ton at the PM kerb close, having hit a four-day low earlier in the session at $4,916.50 a ton. Among the other base metals, aluminum was down 0.2% at $1,642 a ton, zinc was up 0.9%at $1,888 a ton, nickel was up 0.7% at $9,156 a ton, lead was down 0.4% at $1,745 a ton and tin was down 0.2% at $17,478 a ton.
Thought of the Day
Global economic bellwether | Caterpillar’s 1Q16 results and outlook
CAT is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. It operates through three product segments – Construction Industries, Resource Industries and Energy & Transportation – and sells its products around the world. It is therefore considered a bellwether for global economic activity.
The Company’s 1Q16 results were released late last week and, as expected, these were well below 1Q15. The segment breakdown shows that while construction ticked up in the last quarter, CAT is still finding it hard work in resources, energy and transportation. Further, the weakness is global, with 1Q16 sales in North America down 26%, in EAME down 24%, in Asia Pacific down 23% and in Latin America down 43%. The global workforce has fallen by more than 15,000 people over the last year.
CAT key segment sales, quarterly from 1Q14
However, it is the outlook commentary that is more instructive. On a positive note CAT is beginning to see some encouraging signals – recent gains in commodity prices, signs of improvement in construction in China, and better order activity at recent trade events. However challenges remain, and recovery timing is difficult to predict – to the extent that CAT downgraded its sales guidance for the full year.
The results and outlook are consistent with our views. Commodity prices will remain volatile while supply rebalances in response to a weak global demand environment. This will do little for industry overcapacity in the near term, particularly in the mining and energy segments where the focus is still on productivity and capex reduction. While we believe that equipment providers and service companies are past the worst, they will remain subject to volume and pricing pressure in the near term.
(More charts included in pdf version.)
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