The major U.S. index futures are pointing to a lower opening on Wednesday, with sentiment souring following a steep sell-off in the Chinese market. Subsequently, commodities are showing weakness, reflecting the risk aversion of traders, who have to contend with the uncertainty surrounding the economic outlook. The absence of any other major triggers could keep traders preoccupied with this worry, even as the outlook from a few technology companies suggests better times ahead.
After the previous session’s steep sell-off, U.S. stocks began Tuesday’s session on a positive note, as traders latched onto positive earnings reports from some retailers as a lifebuoy. Buying interest picked up over the course of the session, as Monday’s weakness bought bargain hunters into the markets. Consequently, the major averages all gained about 1%.
The Dow Industrials ended up 82.60 points or 0.90% at 9,218, the S&P 500 Index rose 9.94 points or 1.01% to 990 and the Nasdaq Composite closed at 1,956, representing a gain of 25.08 points or 1.30%.
Twenty-four of the thirty Dow components ended higher, with Alcoa (AA) (up 4.11%), American Express (AXP) (up 4.28%), Home Depot (HD) (up 3.14%), Bank of America (BAC) (up 2.05%) and Caterpillar (CAT) (up 2.64%) advancing strongly.
Among the sector indexes, the Dow Transportation Average confirmed the Dow’s upward move, gaining 1.68% and, the Dow Jones U.S. Basic Materials Index rose 1.79%. The S&P Retail Index gained 1.77% compared to a 1.96% advance by the Philadelphia Housing Sector Index. The NYSE Arca Securities Broker/Dealer Index and the KBW Bank Index moved up over 2% each. While the NYSE Arca Gold Bugs Index rose 1.88%, the Philadelphia Oil Service Index and the NYSE Arca Oil Index ended up 2.40% and 1.26%, respectively.
The Philadelphia Semiconductor Index rose 1.02%, the NYSE Arca Disk Drive Index surged up 3.09%, the NYSE Arca Networking Index advanced 3.05% and the NYSE Arca Computer Hardware Index moved up 2.08%.
The Philadelphia Semiconductor Index, which began an uptrend since late last year and has been one of the first sector indexes to turn around, may be on track for more gains. The idea gains strength following the bullish outlooks issued by Analog Devices (ADI) and Hewlett Packard (HPQ). According to FBR Research, chip companies shipments have been increasing to toe in line with end consumption levels. Additionally, the supply chain is exhibiting one of the leanest inventory levels ever. Therefore any uptick in seasonal demand will likely to lead to healthy chip pull through during the third quarter and the fourth quarter.
The index has been ably supported by its 50-day moving average for most of its current uptrend and the key average is currently around 281. Apart from this level, the index may also find support around the 255 level and its 200-day moving average of 238.
On the economic front, the Commerce Department said housing starts fell to 581,000 in July from 587,000 in June, with the decline centered on multi-family starts, which are mostly built by investors. Single-family starts in fact showed a modest increase, rising to their highest level since October 2008.
Meanwhile, the Labor Department’s producer price inflation report showed that the producer price index fell 0.9% month-over-month in July, while economists had expected a mere 0.3% decline. The core rate showed 0.1% decline as opposed to expectations for a 0.1% increase.
Currency, Commodity Futures
Crude oil futures are receding $0.29 to $68.90 a barrel after rising $2.44 to $69.19 a barrel in Wednesday’s session. The irrational strength in oil prices without adequate fundamental support is likely to continue in the near term due to the advent of the Atlantic hurricane season. Hurricane Bill is the first named hurricane of the current season and the latest update on the hurricane shows that it has strengthened to the status of a category 3 storm, although it is believed that it won’t pose a threat to Florida.
Gold futures are currently trading down $1.70 at $937.50 an ounce. In the previous session, the commodity gained $3.50 to close at $939.20 an ounce.
Among currencies, the U.S. dollar is trading at 93.84 yen compared to the 94.6872 yen it was worth at the close of New York trading on Tuesday. Against the euro, the dollar is currently valued at $1.4104.
According to PIMCO, the U.S. dollar is likely to see a loss in its status even if a single viable alternative currency is not available to replace it as the global reserve currency. Therefore, the firm expects the dollar to see a continuing devaluation versus the emerging market currencies.
Asia
A China-led retreat was witnessed in the Asian markets on Wednesday, with stocks in the region pulling back despite the positive lead from the U.S. The Chinese Shanghai Composite Index declined 4.30%.
Japan’s Nikkei 225 average moved back and forth across the unchanged line in a narrow range before decisively moving into negative territory in late trading. The index closed down 80.96 points or 0.79% at 10,204.
Financial, retail, shipbuilding, construction, steel and real estate came under selling pressure. However, auto stocks saw some strength. Casio Computer, JTEKT Corp. and Chugai Pharma also rallied.
Australia’s All Ordinaries, which opened unchanged and spiked sharply in early trading, moved steadily lower over the course of the session, cutting almost all its gains by late trading. The index ended up 1.60 points or 0.04% at 4,388. Energy stocks showed notable buying interest and some industrial stocks also advanced, while healthcare, financial and real estate stocks declined.
After showing indecision in the morning, Hong Kong’s Hang Seng Index fell sharply in afternoon trading and remained stuck in the red. At the close of trading, the index was down 352.04 points or 1.73% at 19,954. Forty of the forty-two index components ended the session lower, with Sinopec and Esprit Holdings alone bucking the downtrend.
Europe
The major European markets are moving to the downside on Wednesday after yesterday’s rebound following two sessions of steep losses. The French CAC 40 Index and the German DAX Index are receding 0.61% and 0.87%, respectively, while the U.K.’s FTSE 100 Index is moving down 0.70%.
On the economic front, the German Federal Statistical Office reported that the German producer price index fell 7.8% year-over-year in July compared to a 4.6% drop in the previous month. The July rate marked the lowest on record. On a monthly basis, producer prices fell 1.5% following a 0.1% dip in June. Economists had estimated a 6.5% annual decline and 0.2% monthly drop.
Eurostat said in a report released today that eurozone construction output dropped a seasonally adjusted 1.1% month-over-month in June after falling 2% in May. Annually, construction output fell 8.8% compared to a 7.6% drop in May.
The minutes of the latest Bank of England meeting showed that six members of the Monetary Policy Committee voted to raise the size of asset purchases by GBP 50 billion. Three other members sought a GBP 75 billion increase to GBP 200 billion. The MPC agreed to spread the additional purchases of GBP 50 billion evenly over three months so that their completion would coincide with the preparation of the November Inflation Report projections.
The minutes also revealed that assuming that the Bank Rate followed the path implied by prevailing market yields, a larger increase in the scale of the asset purchase program was likely to be necessary to counterbalance the risk that inflation would fall short of the target.
U.S. Economic Reports
A report released by the Mortgage Bankers Association showed the index of applications to purchase a home or refinance a loan rose 5.6% in the week ended August 14th. The index for refinancing existing homes rose 6.9%.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report at 10:30 AM ET.
The weekly oil inventory report showed a 2.5 million barrel-increase in crude oil stockpiles in the week ended August 7th. Inventories of crude oil were above the upper boundary of the average range for this time of the year.
Meanwhile, gasoline stockpiles fell by 1 million barrels, but were still in the upper half of the average range. At the same time, distillate inventories edged up by 0.8 million barrels, remaining above the upper boundary of the average range. Refinery capacity utilization averaged 84.6% over the four weeks ended August 7th compared to 85.7% in the previous week.
Earnings
BJ’s Wholesale (BJ) reported second quarter earnings of 64 cents per share compared with 61 cents per share in the year-ago period. Sales fell 5% to $2.51 billion. Analysts estimated earnings of 62 cents per share on revenues of $2.56 billion. The company raised its full year earnings estimate to $2.46-$2.56 per share from its earlier estimate of $2.44-$2.54 per share, while analysts expect earnings of $2.48 cents per share.
Deere & Co. (DE) said its third quarter earnings fell to 99 cents per share from $1.32 per share last year, as revenues declined 24% year-over-year to $5.89 billion. The consensus estimate had called for earnings of 57 cents per share on revenues of $5.25 billion.
Stocks in Focus
Hewlett-Packard (HPQ) declined in Tuesday’s after hours session after it reported third quarter earnings of 67 cents per share, lower than 80 cents per share in the year-ago period. On an adjusted basis, earnings were 91 cents per share compared to the 90 cents per share consensus estimate. Sales were down 2% at $27.45 billion, while analysts estimated sales of $27.26 billion. The company expects fourth quarter adjusted earnings of $1.12 per share, above the consensus estimate of $1.07 per share, while it reaffirmed its revenue outlook for the year.
Analog Devices (ADI) could recede after it reported that its third quarter earnings fell to 22 cents per share from 47 cents per share in the year-ago period, as revenues declined 25% year-over-year to $492 million. Analysts estimated earnings of 20 cents per share on revenues of $479.6 million. For the fourth quarter, the company expects earnings from continuing operations of 24-26 cents per share compared to the 24 cents per share consensus estimate.
Chevron (CVX) is likely to see some strength after it announced that it has made two natural gas discoveries in the Carnarvon Basin offshore Western Australia. The company noted that the discoveries are located in Australia’s premier hydrocarbon basin, where it is the leading leaseholder.
Par Pharmaceutical (PRX) may gain ground after it announced that its licensing partner Aveva Drug Delivery Systems has received final approval from the FDA for its ANDA for a clonidine transdermal system, which is a seven-day patch for treating hypertension. The company said it would begin shipping the product in the near future.
Sigma Designs (SIGM) could also move to the upside after Standard & Poor’s announced that it would replace Noven Pharma (NOVN) in the S&P SmallCap 600 Index.
Jack Henry & Associates (JKHY) is likely to react to its announcement that its fourth quarter revenues rose to $191.9 million from $188.7 million in the year-ago quarter. The company’s net income rose to 33 cents per share from 28 cents per share in the same period last year. Analysts estimated earnings of 30 cents per share on revenues of $184.66 million.
Watson Pharma (WPI) may also move in reaction to its announcement that it has priced a debt offering of $450 million of 5% senior notes due 2014 and $400 million of 6.125% senior notes due 2019 for a total offering of $850 million in aggregate principal amount. The company expects the offering to close on August 24, 2009 and it intends to use the net proceeds to fund a portion of the cash consideration of its previously announced purchase of Arrow Group and to retire and redeem some of its debts.
Resource Connection (RECN) could be in focus after it announced the appointment of Anthony Cherbak as its new COO and President. Cherbak will replace Karen Ferguson, who quit as executive vice president and chief strategy officer, on the board.
BB&T Corp. (BBT) is likely to react to its announcement that it has priced its public offering of 33.45 million shares at $26 per share. The company expects to garner net proceeds of $837.1 million from the offering.
Photronics (PLAB) could trade higher after it reported a loss of 55 cents per share for its third quarter compared to a loss of $4.93 per share last year. On an adjusted basis, the company reported a loss of 13 cents per share. Revenues declined 10% to $95.4 million. The consensus estimates called for a loss of 19 cents per share on revenues of $88.2 million.
Eli Lilly (LLY) may see some weakness after it said the initial results from its five-year Phase III trials of its osteoporosis treatment arzoxifene did not meet its secondary efficacy endpoints and also exhibited some adverse effects. Consequently, the company said it has decided not to submit the treatment for regulatory review. Due to the decision, the company expects to record a charge of 3-4 cents per share in its third quarter results, although it confirmed its 2009 adjusted as well as reported earnings guidance.
Immucor (BLUD) may see strength after it announced that its board has authorized a 2 million share increase to its current stock repurchase program. Including the authorization, the company has a total of 2.6 million shares available for repurchase.
La-Z-Boy (LZB) is likely to react to its announcement that it reported a first quarter net income of 4 cents per share compared to a loss of 17 cents per share. Sales fell 18.3% to $262.7 million, exceeding the $255.14 million consensus estimate. |