In the U.S.: U.S. Stock Futures Drop As China’s Export Growth Slows

10 August 2012


Not a pretty picture as ““China is slowing down, Europe is in a recession.”

U.S. stock futures declined, indicating the Standard & Poor’s 500 Index will trim its longest weekly advance since March, as worse-than-expected Chinese trade data intensified concern that the global economy is slowing.

Yahoo (YHOO)! Inc. slid 4.2 percent as Chief Executive Officer Marissa Mayer has embarked on a strategy that may end in a change in plans to return cash to shareholders. Monster Beverage Corp. (MNST) fell 4.5 percent as the energy drink maker disclosed a probe by an unspecified attorney general. Chesapeake Energy Corp. (CHK), the second-largest U.S. natural-gas producer, lost 3 percent as it received a Justice Department subpoena.

S&P 500 futures expiring in September lost 0.4 percent to 1,394.50 at 8:26 a.m. New York time. The index is still poised to complete its fifth straight weekly advance. Dow Jones Industrial Average futures slid 50 points, or 0.4 percent, to 13,088. The number of shares changing hands in Stoxx Europe 600 Index’s companies was 58 percent lower than the 30-day average at this time of day, according to data compiled by Bloomberg.

“The market is looking at the worldwide slowdown,” said Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, which oversees about $40 billion. “China is slowing down, Europe is in a recession. Everybody realizes that we’re on a tough situation. The question is — can it get weaker or not?”

Equity futures joined a global decline in stocks after data showed that China’s export growth collapsed and imports and new yuan loans trailed estimates in July. Concern about Europe’s debt crisis also grew as French industrial output stagnated in June, the latest sign that the euro area’s second-largest economy may be heading for its first recession in three years.

Policy Bets

Bets on global central bank action to stimulate the economy have driven the S&P 500 up about 10 percent since June 1. The index has risen for five straight days through yesterday amid better-than-estimated corporate profits and data on the jobs market. About 72 percent of the S&P 500 companies which reported second-quarter results so far have beaten earnings estimates, according to data compiled by Bloomberg.

Yahoo dropped 4.2 percent to $15.34. The review could mean that the company alters plans to return to shareholders the proceeds from the sale of Yahoo’s stake in Alibaba Group Holding Ltd., Sunnyvale, California-based Yahoo said.

Monster Beverage declined 4.5 percent to $58.46. The attorney general sent a subpoena in July, the Corona, California-based company said. The investigation, which is looking into the company’s flagship drink and ingredients as well as advertising, marketing and promotions, is in an early stage.

Chesapeake Energy

Chesapeake Energy slid 3 percent to $19.71. The subpoena from the antitrust division of the Justice Department’s Midwest Field Office comes amid an investigation into possible violations of antitrust laws related to the purchase of oil and gas rights, the Oklahoma City-based company said. The request calls for Chesapeake to provide certain documents to a grand jury in the Western District of Michigan, the company said.

Nvidia Corp. (NVDA) gained 4.4 percent to $15.35. The chipmaker predicted third-quarter sales that exceeded analysts’ estimates on robust demand for processors used in tablet devices coming to market in the current quarter.

Broadcom Corp. (BRCM) rallied 2.5 percent to $35.20. The maker of chips that help mobile devices connect to the Internet was raised to outperform at Sanford C Bernstein & Co.

Research In Motion Ltd. (RIM) climbed 7.1 percent to $8.35. The company’s enterprise-servicesunit has attracted the interest of International Business Machines Corp. (IBM), according to two people familiar with the situation.

Economic Indicators

Economic indicators may need to change for the better by October in order for U.S. stocks to sustain this year’s gains, according to Myles Zyblock, chief institutional strategist at RBC Capital Markets.

Shares of companies most affected by the pace of economic growth have been out of favor for months, according to data tracking the ratio of Morgan Stanley indexes for cyclical and consumer-product shares since March 2009, when a bull market began.

“We see one of two likely scenarios” unfolding for stocks, Zyblock wrote two days ago in a report. The first is that the economic gauges will rebound during the next month or two to confirm the gains in stocks. The second is that share prices will decline as the indicators fall further.

The cyclical-consumer ratio, cited in the Toronto-based strategist’s report, rose only 0.2 percent for the year through yesterday as the S&P 500 gained 12 percent. The contrast became more pronounced in the past two months as the S&P 500 rebounded from its second-quarter low.

Rather than tracking the S&P 500, the cyclical-consumer ratio tended to move in lockstep with the Institute for Supply Management’s factory index, as the report showed. ISM readings for June and July were less than 50, pointing to a contraction in manufacturing.

Based on the backdrop, Zyblock wrote, higher stock prices can be attributed to “fast money investors who’ve been caught short, corporations with excess cash, and international equity investors running away from their home markets.”

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