The major U.S. index futures are pointing to a higher opening on Wednesday. Although apprehension is expressed about the sustainability of the recovery, positive data points received now and then are spreading optimism concerning a turnaround in economic conditions for good. Earlier in the day, economic reports released from China and Japan showed that resuscitation measures have positioned these economies on a path of sustainable recovery.
Commodities are advancing, as additional confirmation on an improvement in global economic conditions is stimulating buying interest on hopes that demand for resources will perk up. In the absence of any other major catalysts, traders may tread a path of cautious optimism, although substantial optimism ruled out, given the recent heady gains.
U.S. stocks showed considerable degree of uncertainty throughout Tuesday’s session amid a lack of any major catalysts and closed in a mixed fashion. The Dow Industrials was found moving back and forth across the unchanged line before closing at a fresh high for the year, gaining 20.03 points or 0.20% to 10,247.
The Nasdaq Composite, which traded in a 2,141-2,161 range, closed the session down 2.98 points or 0.14% at 2,151. Meanwhile, the S&P 500 Index ended at 1,093, down merely 0.07 points or 0.01%.
Twenty of the thirty Dow components ended the session higher, with American Express (AXP), Bank of America (BAC), Kraft Foods (KFT) and 3M Co. (MMM) showing notable gains. On the other hand, Boeing lost 2.01%, while DuPont (DD) and Cisco Systems (CSCO) slid 1.29% and 1.42%, respectively.
Among the sector indexes, the NYSE Arca Airline Index fell 1.07%, the KBW Bank Index declined 1.42% and the Philadelphia Housing Sector Index lost 1.01%. In the technology space, the NYSE Arca Disk Drive Index moved down close to 1% and the NYSE Arca Networking Index fell 2%, while the NYSE Arca Internet Index rose 1.90%.
Technology stocks, which were one of the sectors instrumental in lifting the markets from the bear market lows, seem to be showing lethargy now. Although earnings from technology companies have largely been better than expected and their outlooks have been rosy, the buoyancy is failing to get reflected in stock prices. The Philadelphia Semiconductor Index has been consolidating since mid-September and in late October, the index fell below its 50-day moving average, which is currently at 316.89.
Given that global supply chain inventories are at or near all time lows and global demand trends should continue to recover in 2010, there could be a possible run up in the sector going into the end of the year, as the recent weakness has rendered valuations attractive.
Among the Fed speakers, Atlanta Federal Reserve President Dennis Lockhart said he expects weakness in the commercial real estate market to limit the pace of the economic recovery. Lockhart sees sobering aspects of the economic picture and expects the pace of growth to be subdued in the medium term. He also said slow net job gains are likely to materialize in 2010.
U.S. consumers remain very cautious in response to the recession, according to San Francisco Federal Reserve President Janet Yellen, who spoke in Phoenix, Arizona. Yellen also highlighted the risk that the commercial real estate market poses to a recovery.
Meanwhile, Dallas Fed President Richard Fisher said economic growth and inflation are likely to remain below ideal levels into 2011, which vindicates the Fed’s stance on interest rates. While speaking to the Austin Headliners Club, Fisher suggested that it may take some time before significant job growth occurs and even longer before we begin to see any meaningful declines in the unemployment rate.
Currency, Commodity Futures
Crude oil futures are edging up $0.40 to $79.09 a barrel after receding $0.38 to $79.05 a barrel on Tuesday. The price of oil moderated yesterday following a reduction in the threat from tropical storm Ida and the strengthening of the dollar. After the settlement at NYMEX, the American Petroleum Institute reported that crude oil stockpiles rose by 1.2 million barrels last week. Distillate and gasoline inventories also increased by 640,000 barrels and 1.4 million barrels, respectively.
Gold futures are moving up $12.10 to $1,114.60 an ounce. In the previous session, gold rose $1.10 to $1,102.50 an ounce. According to Commerzbank, downside risk for the precious metal is limited, as financial investors rediscover gold as a hedge against the weak U.S. currency and an instrument for capital preservation. Gold is also likely to derive support from speculation that central banks will step up their gold purchases.
On the currency front, the U.S. dollar is trading at 89.87 yen compared to the 89.81 yen it fetched at the close of New York trading on Tuesday. Currently, the greenback is valued at $1.5014 versus the euro.
Asia
Asian stocks advanced for the fourth straight session, with the traders in the region overlooking the uneasy performance by Wall Street shares overnight, as they focused on the upbeat data released from the region.
Japan’s Nikkei 225 average opened higher and managed to hold above the unchanged line in the morning. The index pared back its gains by the afternoon and showed some indecision before closing slightly higher. At the close of trading, the index was up 0.95 points or 0.01% at 9,872.
Airlines advanced, with Japan Airlines rallying 4.76% and All Nippon Airways rising 1.29%. Electric machinery makers and shipping stocks also saw some degree of buying interest. Auto, financial and steel stocks closed on a mixed note, while resource stocks saw notable weakness. Aeon, Dowa Holdings, PAC Metals and Isuzu Motors were among the most prominent losers in the session.
On the economic front, Japan’s Cabinet Office released a report that showed that core machinery orders rose 10.5% month-over-month in September, as orders from non-manufacturers and overseas firms rose sharply. In August, core machinery orders had risen 0.5%. Annually, core machinery orders, excluding the volatile shipping orders, fell 22%.
The Cabinet Office also said it expects core machinery orders to rise 1% in the December quarter. That said, analysts believe that the robust recovery seen in September is unlikely to be sustained, as demand is largely rebounding on the back of the fiscal stimulus adopted by many nations and most producers are still more interested in reducing excessive capacity than in undertaking new investment.
Australia’s All Ordinaries opened unchanged and rose sharply in early trading and subsequently began moving sideways in a range to close up 21.90 points or 0.46% at 4,766. Most sector stocks advanced, with the exception of some real estate and industrial stocks. Material stocks saw significant buying interest.
Westpac Bank and Melbourne Institute released the results of its consumer confidence survey, which showed that Australia’s consumer confidence index fell 2.5% to 118.3 in November from 121.4 in the previous month. That said, the index remained well above last year’s levels.
Hong Kong’s Hang Seng Index opened higher and moved sideways for the rest of the session to close up 359.05 points or 1.61% at 22,627. Financial and utility stocks advanced in the session, while property and resource stocks came under selling pressure.
Meanwhile, China’s Shanghai Composite Index ended a volatile session modestly lower, with the index closing down 3.42 points or 0.11% at 3,175. A slew of reports released from China showed that the economic momentum is accelerating.
Retail sales rose 16.2% year-over-year in October, faster than the 15.5% growth in September, according to a report released by the National Bureau of Statistics. The agency also reported that industrial production surged up 16.1% in October compared to the previous year. In September, output rose 15.5%.
Meanwhile, urban investments in fixed assets for the period of January to October increased 33.1% compared to the corresponding period of the previous year, modestly below expectations for 33.5% growth.
Europe
The major European averages are advancing on Wednesday, with the French CAC 40 Index, the German DAX Index and the U.K.’s FTSE 100 Index rising 1.09%, 1.28% and 1.08%, respectively.
On the economic front, the U.K.’s Office of National Statistics reported that the number of people claiming jobseeker’s allowance in the U.K. rose by 12,900 to 1.64 million in October. The increase marked the smallest increase since April 2008. The claimant count rate was almost unchanged at 5.1% compared to the previous month, although it increased 1.9 percentage points from the year-ago period. The unemployment rate measured based on ILO standards rose 0.1 percentage points to 7.8% in the three months ended September, with the number of unemployed increasing by 30,000 to 2.46 million.
The quarterly inflation report released by the Bank of England showed that the central bank expects consumer prices to rise above the 2% target in the near term. The central bank said the risks of inflation remaining above or below target are broadly balanced by the end of the forecast period, while cautioning that there are significant risks to the inflation outlook in each direction.
Stocks in Focus
Bob Evans Farms (BOBE) is likely to react to its announcement that it reported a second quarter profit of 50 cents per share, higher than 37 cents per share last year. However, revenues fell to $424.8 million from the year-ago’s $435.5 million. Analysts estimated earnings of 48 cents per share on revenues of $428.6 million.
Clearwire (CLWR) could see weakness after it announced that it would raise $1.564 billion in additional equity funding for its planned network expansion. The company reported third quarter revenues of $68.81 million compared to pro forma revenues of $60.84 million last year, while analysts estimated revenues of $66.62 million.
Weight Watchers (WTW) could be in focus after it reported that its third quarter net revenues declined to $324.5 million from the year-ago’s $352.6 million. However, the company’s earnings rose by a penny to 68 cents per share. Analysts estimated earnings of 64 cents per share on revenues of $318.17 million. The company narrowed its 2009 adjusted earnings per share guidance to $2.58-$2.63 per share from its previous estimate of $2.52-$2.70. The consensus estimates had call for earnings of $2.62 per share on revenues of $1.41 billion.
Triad Guaranty (TGIC) fell sharply in Tuesday’s after hours session after it reported a net loss of $6.78 per share for the third quarter compared to a loss of $10.69 per share for the year-ago period.
Progressive Corp. (PGR) receded in Tuesday’s after hours session after it reported net earned premiums of $1.3 billion for October, up 3% year-over-year. The company reported net earnings of 16 cents per share for the month, down 26% from the year-ago revenues of 22 cents per share.
PepsiCo. (PEP) is likely to see some activity after it said it has withdrawn its notification filed with the FTC to provide the commission with more time to review its impending acquisition of its bottlers Pepsi Bottling Group (PBG) and PepsiAmericas (PAS). The company said it would refile at the appropriate time.
Stryker (SYK) may react to its announcement that it has acquired privately held software technology firm OtisMed Corp. Stryker also announced definitive agreements with Japanese firms Mutoh and some of its affiliates to acquire assets used to produce Sonopet Ultrasonic Aspirator control consoles.
Sanofi-Aventis (SNY) could be in focus after it said it has entered into agreements with Regeneron (REGN) to expand and extend their existing global collaboration to discover, develop and commercialize fully-human therapeutic monoclonal antibodies. Sanofi said it would increase its annual funding commitment to $160 million from $100 million, beginning in 2010, and the research funding will extend through 2017.
Werner Enterprises (WERN) may be in focus after it announced that its board has declared a special quarterly cash dividend of 5 cents per share payable on January 26th, 2010 to shareholders of record at the close of business on January 11th, 2010.
Cliffs Natural Resources (CLF) is likely to move to the upside after it reported that its board has announced an increase in its quarterly cash dividend to $0.0875 per share from $0.04 per share.
Toll Brothers (TOL) could gain ground after it reported preliminary fourth quarter results, expecting fourth quarter home building revenues to fall 30% year-over-year to $486.6 million and home building deliveries to decline 20%. Analysts estimate revenues of $386.18 million. For fiscal year 2009, net contract signings are likely to drop 16% in unit terms and 19% in value terms, while at the same time home building revenues are expected to fall 44%. The company also noted that unit deliveries for the fourth quarter exceeded the high-end of its guidance range due to the delivery of a higher percentage of backlog, fewer cancellations and the sale of quick delivery homes.
Vertex Pharma (VRTX) may see activity after it announced that holders of its 4.75% convertible senior subordinated notes due 2013 have agreed to swap about $190 million worth of notes with about 4.8 million shares of the company. The company noted that the number of shares determined is about 140,000 shares more than what would have been issued under the original terms. Pursuant to the transaction, Vertex will be left with about 186 million shares and about $35 million worth of the notes due 2013. |