The major U.S. index futures are pointing to a lower opening on Wednesday, with sentiment weighed down by the disappointment that the much-anticipated stimulus may not materialize anytime soon. Weak forecast issued by Intel (INTC) and some high profile revenue misses should also stir anxiety concerning corporate profit growth. Meanwhile, a housing report released earlier in the day showed a notable increase in housing starts, although building permits, considered a measure of future starts, fell after rising sharply in the previous month. The focus shifts to the second day of Congressional testimony by Federal Reserve Chairman Ben Bernanke.
U.S. stocks rebounded on Tuesday, courtesy of some encouraging earnings reports and economic data. Although the markets moved higher after Bernanke's comments, his testimony did not offer anything news.
The major averages opened higher but slipped into negative territory in early trading. After declining till late morning trading, the averages reversed course as the markets began to digest Bernanke's comments. The averages moved decisively into positive territory by early afternoon trading and continued to hover in positive territory thereafter before closing moderately higher.
The Dow Industrials ended up 78.33 points or 0.62 percent at 12,806 and the S&P 500 Index added 10.03 points or 0.74 percent before closing at 1,364, while the Nasdaq Composite closed at 2,910, up 13.09 points or 0.45 percent.
Twenty-six of the Dow components closed higher, with Disney (DIS) leading the gain with a 3.11 percent rally. Bank of America (BAC), Coca-Cola (KO), Merck (MRK), 3M Co. (MMM), AT&T (T) and Travelers Companies (TRV) also rose sharply. Meanwhile, Home Depot (HD) slid 1.42 percent.
Basic material, energy, biotechnology and bank stocks saw some buying interest.
On the economic front, the Federal Reserve's industrial production report showed a 0.4 percent month-over-month increase in output for June following a 0.2 percent decline in May. Manufacturing output climbed 0.7 percent, with motor vehicle and parts production rising 1.9 percent and business equipment output improving by 1.6 percent. Mining output rose 0.7 percent, while utilities output declined by 1.9 percent.
Homebuilder sentiment improved to 35 in July from 29 in June, according to the results of a survey by the National Association of Home Builders. The reading represented the best level since March 2007. The present conditions index rose 6 points and the sales expectations index jumped 11 points, while the index measuring prospective buyer traffic was up 6 points.
Bernanke's testimony did not serve to improve visibility on additional QE and it was along the lines the Fed has been towing. While acknowledging on the slowing economic momentum, the chairman reiterated the Fed's preparedness to take further action as appropriate to promote a stronger economic recovery.
The Labor Department's consumer price inflation report showed flat headline numbers in June compared to the previous month. The core reading rose by 0.2 percent, in line with estimates. Energy prices slipped 1.4 percent compared to a 0.2 percent increase in food prices. Owners' equivalent rent, accounting for 24 percent of the index, rose just 0.1 percent. Capacity utilization edged up 0.2 percentage points to 78.9 percent.
Currency, Commodity Markets
Crude oil futures are slipping $0.38 to $88.84 a barrel after climbing $0.79 to $89.22 a barrel on Tuesday. The API inventory report showed that crude oil stockpiles fell by more than 2 million barrels in the week ended July 13th.
An ounce of gold is currently valued at $1,568.60, down $20.90 from the previous session's $1,589.50. On Tuesday, gold fell $2.10.
Among currencies, the U.S. dollar is trading at 78.96 yen compared to the 79.06 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.2226 compared to yesterday's $1.2294.
The major Asian markets closed on a mixed note despite the positive lead from Wall Street overnight. Traders were apparently unhappy over the lack of any concrete announcements from Bernanke in his Congressional testimony.
Japan's Nikkei 225 average remained above the unchanged line until late trading before pulling back into negative territory . The index closed down 28.26 points or 0.32 percent at 8,727.
Pharma, real estate, auto and some technology stocks advanced, while utility, retail, financial and resource stocks moved to the downside.
Australia's All Ordinaries languished below the unchanged for much of the session before closing at 4,156, down 18.90 points or 0.45 percent. Energy and material stocks declined sharply, dragging the index lower.
BHP fell despite reporting that its iron ore production rose 15 percent in the second quarter. Peer Rio Tinto and smaller rival Fortescue also declined.
Hong Kong's Hang Seng Index slid 215.45 points or 1.11 percent before closing at 19,240. South Korea's Kospi and the Taiwanese Weighted Average also ended down over 1 percent each, while the Singaporean Straits Times Index, New Zealand's NZ 50 Index, Malaysia's KLSE Composite Index, Indonesia's Jakarta Composite Index, China's Shanghai Composite Index and India's Sensex all ended modestly higher.
The minutes of the Bank of Japan's June monetary policy meeting showed that the monetary policy board feels that the domestic economy is picking up due to firmer domestic demand. The board also acknowledged the deflation risk the economy is facing. The members of the board also felt that the central bank will have to act if risks posed by the situation in Europe materialize.
Westpac and the Melbourne Institute reported that their leading index for economic activity in Australia rose at an annualized rate of 1.6 percent in May, although the growth was below its long-term trend of 2.6 percent.
The major European averages are trading modestly higher amid the release of mixed domestic earnings and Bernanke's testimony before the House Financial Services Committee.
In corporate news, ASML Holding NV (ASML) reported second quarter profits that were in line with its guidance and ahead of estimates by most analysts. Citing expectations for a sustained increase in NAND and DRAM chip sales, the company said it expects second half revenue to be steady with first half levels.
Swedish telecommunication company Ericsson (ERIC) reported second quarter net income that fell 64 percent to 1.11 billion Swedish Kronor, with the slowdown in spending by wireless carries responsible for the predicament.
Credit Suisse (CS) announced plans to increase its capital by 15.3 billion Swiss francs by the end of 2012, while it is also seeking to cut 1 billion francs in costs by the end of 2013. The company also reported a small increase in its second quarter profits.
The minutes of the Bank of England's June meeting showed that the decision to increase the size of the bank's bond buying program by 50 billion pounds was taken by a 7-2 split vote. That said, the decision to hold interest rates at 0.50 percent was unanimous.
A report released by the U.K. Office for National Statistics showed that the U.K. unemployment rate based on ILO standards fell to 8.1 percent in the three month ended May from 8.3 percent in the three months ended February. Meanwhile, jobless claims rose by 6,100 month-over-month in June. Economists had expected a more modest increase of 5,000.
Construction output in the euro area rose by 0.1 percent month-over-month In May, according to a report released by Eurostat. In April, output declined by 3.7 percent.
U.S. Economic Reports
Housing starts and construction permitting data for June painted a mixed picture for the future of the beleaguered U.S. housing market, according to figures released by the Commerce Department. Privately-owned housing starts for the month jumped a notable 6.9 percent to a seasonally adjusted annual rate of 760,000 above revised figures for May.
Furthermore, the May estimate was revised up to 711,000 from the 708,000 initially reported. Most economists had predicted a jump in new housing starts for June, though most had forecast the rate rising to the somewhat lower level of 745,000. However, new building permits for housing slipped somewhat, falling to a seasonally adjusted annual rate of 755,000 for June, a 3.7 percent decline from May levels
Bernanke will testify before the House Financial Services Committee beginning at about 10 am ET.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended July 13th at 10:30 AM ET.
Crude oil stockpiles fell by 4.7 million barrels to 378.2 million barrels in the week ended July 6th. Inventories were above the upper limit of the average limit.
Gasoline inventories rose by 2.8 million barrels and were in the lower limit of the average range. Distillate inventories also increased, rising by 3.1 million barrels. Inventories remained below the lower limit of the average range. Refinery capacity utilization averaged 92.3 percent over the four weeks ended July 6th compared to 92.1 percent over the four weeks ended July 92.1 percent.
The Federal Reserve is due to release its Beige Book, a compilation of anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts, at 2 PM ET. The report is normally released about two weeks before the monetary policy meeting is held.
Stocks in Focus
Intel (INTC) reported second quarter non-GAAP earnings of 57 cents per share on revenues of $13.5 billion. The earnings came in ahead of estimates, while the revenues missed forecasts. For the third quarter, the company expects revenues of $14.3 billion, plus or minus $500 million. The company lowered its full year revenue growth outlook to 3-5 percent from its previous forecast for growth in high single digits.
Yahoo! (YHOO) reported second quarter non-GAAP earnings of 27 cents per share, up 47 percent year-over-year. Revenues, excluding traffic acquisition costs, totaled $1.08 billion, flat with last year. The earnings were ahead of expectations, while the revenues were slightly shy of estimates.
Bank of America Corp. (BAC) swung to a profit in its second quarter and its earnings per share were above Wall Street view. Total revenue, net of interest expense, jumped from the year-ago quarter, but missed the consensus estimate.
VIVUS (VVUS) said the FDA has approved weight loss drug Qsymia.
St. Jude Medical's (STJ) second quarter adjusted earnings per share topped Wall Street view by a penny. However, net sales declined from the year-ago quarter and missed the consensus estimate. The company expects third quarter adjusted earnings per share below analysts' estimate and also lowered its adjusted net earnings forecast for the full-year 2012.
CSX (CSX) said its second quarter net earnings climbed 3 cents to 49 cents per share, while its revenues were almost flat at $3.012 billion. The earnings beat estimates, while the revenues missed expectations slightly.
Wynn Resorts (WYNN) reported second quarter adjusted net income of $1.38 per share, lower than $1.60 per share in the year-ago period. Net revenue fell to $1.25 billion from $1.37 billion last year. The results trailed estimates.
United Rentals (URI) reported adjusted second quarter earnings of 66 cents per share compared to 40 cents per share last year. Revenues climbed to $993 million from $629 million in the year-ago quarter. The earnings exceeded estimates, while the revenues trailed expectations.
FIS (FIS) said its second quarter non-GAAP net earnings from continuing operations rose to 66 cents per share from 54 cents per share last year, while revenue from continuing operations increased 3.1 percent to $1.46 billion. The earnings beat estimates, while the revenues were in line. While reiterating its 2012 organic revenue growth estimate of 3-5 percent, the company lowered its adjusted earnings from continuing operations guidance to $2.45-$2.55 per share from $2.47-$2.57 per share.
ST-Ericsson, a joint venture between STMicroelectronics (STM) and Ericsson (ERIC) reported a second quarter loss of $318 million compared to a loss of $221 million in the year-ago period, while revenues fell to $344 million from $385 million last year.
American Express (AXP), eBay (EBAY), F5 Networks (FFIV), IBM (IBM), Kinder Morgan Partners (KMP), Noble Corp. (NE), Qualcomm (QCOM), Skyworks (SWKS), SLM (SLM), Stryker (SYK), Xilinx (XLNX) and YUM! Brands (YUM) are among the companies due to release their quarterly results after the markets close.
by RTT Staff Writer
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