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US: improved GDP fails to give equities a boost

Dmitriy Simonyan, Analyst, Global Markets (Finam)

Heavyweight macro data (US GDP for the first quarter of 2013 (preliminary reading) and the University of Michigan Consumer Sentiment Index) were to be key drivers for US equities on Friday, April 26.

Quarterly US numbers looked far from impressive. For example, in line with initial estimates, US GDP grew 2.5% q-o-q (this metric was read as follows: if GDP growth achieved in the first quarter remains unchanged over the next three quarters, FY GDP will grow 2.5%). This number came in far better than the final Q4 figure (0.4%), but fell short of experts’ forecasts (3-3.2%). Coupled with the Fed’s latest comments these GDP numbers confirm that the US economy continues to gradually recover, but the pace has so far shown no tangible improvements on the labor market. Alongside this, some positive trends were recorded in consumer spending, which accounts for two thirds of US economic activity, as the metric jumped 3.2% in January - March 2013, the highest increase since October - December 2010, against expectations of a 2.8% increase.

Shortly after this the final reading of the University of Michigan Consumer Sentiment Index was released, showing a decline to 76.4 in April, the lowest reading since January, from 78.6% in March, although the gauge substantially improved versus the preliminary reading (72.3) and the forecast (73.5).

After the opening bell lackluster economic data stoked a downswing, but robust earnings reports were announced later, which broke the negative trend and helped pare losses. On the whole, since the beginning of the earnings season, which kicked off on April 8, 270 of S&P 500 companies have already released their quarterly numbers and 43% of them posted weaker-than-expected earnings figures, while 70% of them came out with higher profit than Wall Street had projected.

Under the influence of all the above factors US benchmarks finished Friday with varying success, but logged solid gains on the week.

More on the benchmarks, the Dow Jones Industrial Average advanced 0.08% to 14,712.55, up 1.1% on the week. The Standard & Poor's 500 Index eased 0.18%, ending at 1,582.24, up 1.7% on the week. The Nasdaq Composite Index shed 0.33% to 3,279.26, adding 2.3% during the week.

In the blue-chip camp, most names (17 of 30) ended the day in the red. The day’s standout loser was aluminum giant Alcoa (-1.43%) as international rating agency Standard & Poor's Ratings Services released a negative outlook for the corporation’s credit rating due to a steep decline in metal prices. Two other top decliners were industrial holding United Technologies (-1.04%) and innovative manufacturer 3M (-1.04%). On the other side of the spectrum, gainers, which helped the Dow close in positive territory, included the world’s leading personal-computer and printer maker Hewlett-Packard (+1.94%), No. 2 US energy company Chevron (+1.29%, quarterly profit surpassed the consensus) and also flagship aircraft producer Boeing (+1.29%).

The third largest US retail chain J.C. Penney Co. rallied 11.6% on news investment guru George Soros is the company’s fourth largest shareholder (7.9%).

Leading US home builder D.R. Horton spiked 8.7% on news its second-fiscal-quarter profit turned out to be twofold higher than the forecast following higher new home sales.

The globe’s number-one producer of postal equipment Pitney Bowes gained 5.5% ahead of its quarterly report due out next week as a pool of FactSet analysts forecast EPS of 44 cents.

No. 2 US search engine Yahoo retreated 2.1% on news the company’s board chairman Fred Amoroso, who took great pains to pull the web portal out of the crisis and boost its capitalization, resigned.

Shares of the world’s leading online travel agency Expedia plunged 9.9% on higher losses in Q1 and deterioration of guidance for 2013 due to tougher competition in this segment.

In commodities, gold futures for June delivery slid USD 8.40, or 0.6%, to USD 1,453.60/oz in the COMEX section of NYMEX.

Gold lost some of its luster as some investors opted to take hefty weekly profit ahead of the weekend as the metal posted sizeable gains in the past three of four sessions. Notwithstanding a retreat on Friday, gold jumped 4.2% on the week, capping a 4-week losing streak.

NYMEX light, sweet crude for June delivery dropped 64 cents, or 0.7%, to USD 93.00/bbl.

Oil contracts dropped as US Q1 GDP data fell short of the expectations, but losses were limited by the greenback’s retreat against all competitive reserve currencies. On the whole, during the week the price of oil in the mostly traded contracts, including the shift from May to June contracts, climbed 5.7%.