The Day Ahead: Down on China

 | Mar 05, 2012 | 8:32 AM EST  | Comments
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In the Headlines

Early Monday, it was China, rather than Europe, causing some selling pressure on U.S. equity futures. NYSE and Nasdaq stocks were positioned for a moderately lower open on the heels of a slower growth outlook from Beijing. U.S. futures, however, were trading above earlier lows.

European indices were trading to the downside before Wall Street's opening bell. Not only did the Chinese news send stocks lower, but a survey of eurozone purchasing managers came in with results inferior to the prior reading. The euro was trading just slightly lower than the dollar early Monday.

Asian stocks closed to the downside, with Hong Kong's Hang Seng showing a decline of 1.38%.

Economic Docket

In economic news, the Commerce Department releases its January factory orders data at 10 a.m. EST. Economists see a decline of 1.9%. This number increased by 1.1% in December.

Also at 10, the Institute for Supply Management issues its services, or non-manufacturing, survey for February. A reading of 56 is expected, down from the prior level of 56.8. These data are not scrutinized as closely as the manufacturing numbers, as the services sector tends to show fewer cyclical changes.

Commodities Corner

Crude oil was trading lower before Wall Street's open. Some analysts were attributing the decline, at least in part, to the Chinese economic forecast and the disappointing European PMI data. West Texas Intermediate crude was down $0.48 per barrel, to $106.22, in electronic trade.

Gold, which has been under selling pressure lately, shed $11.30 per ounce in Comex trade, to $1,698.50.

Earnings

Monday's earnings calendar is light. After the bell is a first-quarter report from electronic payment specialist VeriFone (PAY).  Analysts expect income of $0.52 per share and revenue of $417.5 million. Those would be significant year-over-year increases on the top and bottom lines. Shares have been consolidating below their all-time high of $58.88, reached a year ago.

Early Movers

Rochester, N.Y.-based payroll outsourcer Paychex (PAYX) advanced $0.19 to $31.49 in the premarket. Shares are still trading below last March's high of $33.91, but have been getting support at their 10-week average recently.

On the downside, recent initial public offering Zynga (ZNGA) fell $0.44, or 3%, to $14.25 following a downgrade by J.P. Morgan. Analysts cited valuation. Shares rallied to a new intraday high Friday, but retraced many of their gains, finishing at session lows at $14.69.

Another recent Internet IPO, Pandora Media (P), benefited from an analyst upgrade early Monday. Stifel Nicolaus promoted the stock to Buy from Hold, saying it sees earnings coming in above consensus estimates, due to growth in the company's services. Pandora shares bolted $0.60, or 4.3%, to $14.50 ahead of the bell.  The stock went public in June at $16.

Analyst Actions

Internet content companies were not the only stocks moving on analyst actions. Citigroup downgraded fertilizer maker CF Industries (CF) to Neutral from Buy, citing valuation. Shares rallied to a new high last week. Ahead of Monday's open, the stock fell $3.44, or 1.8%, to $184.81.

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