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Fiscal Cliff Fears Could Lead To Subdued Trading

12/4/2012 9:19 AM ET

The major U.S. index futures are pointing to a mixed opening on Wednesday, with the bickering going on in Congress regarding a fiscal cliff deal impacting sentiment of the markets. With little economic catalysts to drive trading in today's session, the market performance is likely to remain muted unless any positive development happens on the fiscal cliff front. For the Dow Industrials, 12,928 and 12,835 could serve as downside support, while upside resistance lies around the 13,096 level.

U.S. stocks squandered the early gains and ended lower on Monday, as the results of the Institute for Supply Management's manufacturing survey suggested a return to contraction.

The major averages opened higher but pulled back immediately after the open. Thereafter, the averages declined steadily throughout the remainder of the session before closing moderately lower.

The Dow Industrials lost 59.98 points or 0.46 percent before closing at 12,966 and the S&P 500 Index ended down 6.72 points or 0.47 percent at 1,410. Meanwhile, the Nasdaq Composite closed at 3,002, down 8.04 points or 0.27 percent.

Twenty-two of the Dow components closed lower and one stock ended unchanged, while the remaining seven stocks rose. DuPont (DD), General Electric (GE), Coca-Cola (KO), UnitedHealth (UNH), Wal-Mart Stores (WMT), Chevron (CVX) and Hewlett-Packard (HPQ) were among the biggest decliners of the session.

Transportation, basic material and gold were among the worst performers of the session.

On the economic front, the Institute for Supply Management reported that its manufacturing index fell to 49.5 in November from 51.7 in October, marking the lowest level since July 2009. The new orders index fell by about 4 points to 50.3 and the order backlogs index slipped 0.5 points to 41. The employment index declined 3.7 points to 48.4, while the production index rose 1.3 points to 53.7.

Construction spending rose a better than expected 1.4 percent month-over-month in October, while the previous month's increase was downwardly to 0.5 percent from 0.6 percent. Construction spending by the public sector was up 0.8 percent and spending on private construction increased 1.6 percent, with residential construction spending rising 3 percent, while non-residential construction increased by a more modest 0.3 percent.

Motor vehicle sales came in a seasonally adjusted annual rate of 12 million units in November compared to the 11.8 million unit rate expected by economists and the 11.1 million rate of October.

Currency, Commodity Markets

Crude oil futures are slipping $0.89 to $88.20 a barrel after advancing $0.18 to $89.09 a barrel on Monday. Gold futures are currently trading down $18.60 to $1,704.60 an ounce. In the previous session, the precious metal added $8.40 to $1,721.10 an ounce.

Among currencies, the dollar is trading at 81.83 yen compared to the 82.25 yen it fetched at the close of trading on Monday. Against the euro, the dollar is trading at $1.3098 compared to the $1.3054.

Asia

The major Asian markets ended mixed, as the negative close on Wall Street overnight amid the release of a lackluster manufacturing reading brought about some indecision among traders.

Japan's Nikkei 225 index languished below the unchanged line for the better part of the session before closing down 25.72 points or 0.27 percent at 9,432.

Export stocks moved to the downside, with Nippon Electric Glass, Dainippon Screen Manufacturing, Nissan Motor and Advantest leading the slide. Construction stocks also retreated on profit taking. On the other hand, financial, real estate and utilities moved to the upside.

A report released by the Bank of Japan showed that Japan's monetary base rose 5 percent year-over-year in November following a 10.8 percent increase in October. A separate report showed that total cash earnings in Japan rose 0.2 year-over-year in October, reversing some of the 1.5 percent decline in September.

Australia's All Ordinaries, which showed some volatility in early trading, declined steadily throughout the rest of the session. At the close of trading, the index was down 28.20 points or 0.62 percent at 4,512. The market witnessed a broad based sell-off, although healthcare stocks bucked the downtrend.

The Reserve Bank of Australia's Monetary Policy Board decided to take its interest rate to the lowest level since the 2009 global recession as it sees risks to the outlook emanating from slower than expected global growth and a peak in mining investment. The benchmark cash rate was lowered by 25 basis points to 3 percent effective December 5th. The decision was widely in line with expectations.

Hong Kong's Hang Seng moved about in a volatile manner throughout session before ending up 32.12 points or 0.15 percent at 21,800.

Europe

After opening lower, European stocks moved to the upside and moved sideways until the afternoon. Since then, the averages have given back some of their gains and are currently trading mixed.

In corporate news, ASML (ASML) said it has completed the Synthetic Buyback, which is part of ASML's customer co-investment program announced on 9th July 2012.

On the economic front, a survey by the British Retail Consortium revealed that U.K. retail sales rose 0.4 percent year-over-year on a like-for-like basis in November. Total sales were 1.8 percent higher.

The results of a survey by Markit Economics and the Chartered Institute for Purchasing & Supply showed that its purchasing managers' index for the construction sector fell to 49.3 in November from 50.9 in October.

The producer price inflation report released by Eurostat showed that eurozone producer price inflation came in at 0.1 percent in October compared to the previous month. The annual producer price inflation was at 2.6 percent. Economists expected producer prices to have remained unchanged compared to the previous month and to increase by 2.5 percent year-over-year.

U.S. Economic Reports

Federal Reserve Governor Daniel Tarullo is scheduled to speak to a Brookings Institution gathering on "Industry Structure and Systemic Risk Regulation" at 10:45 am ET.

Stocks in Focus

Toll Brothers' (TOL) fourth quarter profit surged from the year-ago period, boosted by a net tax benefit. Revenues improved from the same period a year earlier and were above the consensus estimate. New orders increased 70 percent.

Big Lots (BIG) is slipped to a loss in its third quarter, but was narrower than what analysts had estimated. The company forecast fourth quarter consolidated income per share from continuing operations in-line with Wall Street view. The company also raised its earnings outlook for the full-year 2012.

Pep Boys (PBY) reported a third quarter loss of 13 cents per share compared to a profit of 13 cents per share in the year-ago period. Sales fell 2.4 percent to $509.6 million, with revenues missing expectations.

Flextronics (FLEX) said it has acquired Saturn Electronics & Engineering. The target company reported annual revenues of more than $300 million recently. Flextronics did not disclose the terms of deal.

PDL Biopharma (PDLI) said its VP and CFO Bruce Tomlinson has resigned, effective November 30th, due to personal reasons.

NCI Building Systems (NCS), Oxford Industries (OXM), Pandora Media (P) and Photronics (PLAB) are among the companies due to report their quarterly results after the close of trading.

by RTT Staff Writer

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