The major U.S. index futures are pointing to a mixed opening on Tuesday, with some early squandered after a report showed that the U.S. economy rose by slightly less than expected in the third quarter. At the same time, data from elsewhere showed that growth is gaining momentum in Europe, which briefly led to some upside in commodity prices. Currently, oil is seeing some weakness, while gold is continuing to move higher.
The dollar is strengthening against the euro, while it is weakening against the yen. The direction of market may also hinge on the consumer confidence reading and the message conveyed by the FOMC minutes to be released when the markets are trading. Volume of trading is likely to be light due to the upcoming ‘Thanksgiving holiday.’
U.S. stocks opened sharply higher on Monday the impetus provided by the positive data including, the results of the NABE survey, which estimated GDP growth in 2010 to be stronger than initially thought, and encouraging manufacturing and services sector readings from Europe. The major averages advanced further in early trading, catalyzed by a stronger than expected increase in existing home sales, but buying momentum waned shortly afterward and stocks gave back some ground over the course of the remainder of the session.
The Dow Industrials ended the session up 132.79 points or 1.29% at 10,451, the Nasdaq Composite Index rose 29.97 points or 1.40% to end at 2,176 and the S&P 500 Index advanced 14.86 points or 1.36% to 1,106.
Twenty-eight of the thirty Dow components ended the session higher, with only Alcoa (AA) and Merck (MRK) ending the red. Telecom stocks Verizon (VZ) and AT&T (T) rose close to 3%, while Chevron (CVX), Exxon Mobil (XOM), Hewlett-Packard (HPQ), American Express (AXP), Boeing (BA), Cisco Systems (CSCO), General Electric (GE) and JP Morgan Chase (JPM) were also among the notable gainers in the session.
Among the sector indexes, the Dow Jones Utility Average rose 1.32% and the NYSE Arca Airline Index advanced 2.15%. The KBW Bank Index moved up 2.11% and the Philadelphia Housing Sector Index rose 1.53%, while the S&P Retail Index and the Dow Jones Transportation Average gained close to 1% each. In the resource space, the NYSE Arca Oil Index and the Philadelphia Oil Service Index climbed about 1.50% each, while the NYSE Arca Gold Bugs Index rallied 1.84%.
Among the technology indexes, the Philadelphia Semiconductor Index ended up 1.15% compared to a 1.63% advance by the NYSE Arca Disk Drive Index and a 1.67% gain by the NYSE Arca Computer Hardware Index. The NYSE Arca Software Index rose 1.54%, while the NYSE Arca Internet Index rallied about 2%.
The S&P 500 Index has held above the 1,100 level and the upward trend seen since late March is firmly in place, although the slope of the rally is flattening out. Since its March lows, the index has gained about 64%. The broad average has key support levels around 1,100 and 1,071. On the upside, the index has resistance around the 1,156 and 1,211 levels.
On the economic front, the National Association of Realtors reported that existing home sales rose to a seasonally adjusted annual rate of 6.1 million units in October, up 10% from the previous month and marking their highest level since February 2007. The bulk of the increase was in single-family home sales. Home inventories, as measured by the months of supply fell to 7 months from 8 months in September. The median sales price of an existing home declined 7.1% year-over-year and fell 1.6% month-over-month to $173,100.
Currency, Commodity Futures
Crude oil futures are edging down $0.27 to $77.29 a barrel after rising $0.09 to $77.56 a barrel in Monday’s session.
Gold futures, which rose $17.90 to $1,164.70 an ounce in the previous session, are currently gaining $4.10 to $1,168.80 an ounce. The continuing run up in the price of the precious metal makes us wary of an overdue correction, especially because the upside is defying logic and fundamentals. Nevertheless, ING Asia economist Tim Condon expects the precious metal to see further gains.
On the currency front, the U.S. dollar is trading at 88.405 yen compared to the 88.967 yen it fetched at the close of New York trading on Monday. Against the euro, the greenback is valued at $1.4979. Westpac said in its daily commentary that it expects most currencies to track a fairly tight range against the U.S. dollar through the European and U.S. session unless we get an unexpected surprise from the data.
Asia
Ignoring the positive lead from Wall Street overnight, the major Asian markets declined on Tuesday, as traders took profits ahead of the release of a slew of economic reports from the U.S.
Japan’s Nikkei 225 average opened slightly higher, but it receded in early trading and began a steady decline to close down 96.10 points or 1.01% at 9,402, declining for the fifth straight session. The decline came despite the Cabinet Office giving a positive assessment of the economy.
A majority of stocks declined in the session, with financial and electronics and electric machinery makers leading the slide. On the other hand, most telecom stocks, utilities and glassmakers advanced.
In its monthly economic report, the Cabinet Office said Japan’s economy is picking up mainly due to various policy measures taken at home and abroad, although it pointed out that the self-sustaining recovery in domestic private demand remains weak. The bank expects the year-over-year decline in core consumer prices to moderate towards the year end, as the effects of the sharp increase in gasoline and heating oil prices fade away.
Australia’s All Ordinaries saw some strength in the morning session, only to retreat into negative territory in early afternoon trading. Thereafter, the index languished in negative territory to close down 31 points or 0.65% at 4,708.
Most sector stocks traded lower, with material, consumer staple and energy stocks leading the decline. Miners BHP Billiton, Rio Tinto and Lihir Gold fell, while Newcrest Mining advanced. The four major bank stocks also declined.
In economic news, the Conference Board reported that Australia’s leading economic indicators index rose for the fourth straight month, rising 0.3% to 115.6 in September. Meanwhile, the coincident index rose 0.1% to 113.5.
Hong Kong’s Hang Seng Index, which held slightly above the unchanged line throughout the morning session, fell sharply in the afternoon to close down 348.25 points or 1.53% at 22,423.
Thirty-seven of the forty-two index components closed the session lower, with Henderson Land, New World Development, Hang Lung Property, Tencent, CCB and Bank of China leading the slide. However, Hong Kong & China Gas and Esprit Holdings rose more than 2% each.
The Chinese Shanghai Composite Index fell sharply, dropping 3.45%, as traders sold stocks in panic after reports suggested that the Chinese central bank has asked banks to improve their reserves meant to absorb loan losses and restrain from reckless lending.
Europe
The major European averages are trading mixed on Tuesday after rallying sharply in the previous session. Currently, the French CAC 40 Index and the German DAX Index are down 0.27% and 0.30%, respectively, while the U.K.’s FTSE 100 Index is gaining 0.09%.
On the economic front, Germany confirmed its preliminary third quarter GDP growth estimate of 0.7% compared to the 0.4% growth in the second quarter. The data fortifies views that the economy is well positioned on the growth track. The improvement came about due to upside in investment, while consumer spending acted as a drag.
The Ifo Institute reported that its business climate index for Germany rose to 93.9 in November from 91.9 in October. Economists had expected a more modest increase to 92.5. The current conditions index rose 1.7 points to 89.1, while the expectations index climbed to 09.9 from the month-ago’s 96.8.
A report released by the U.K.’s Office for National Statistics showed that total business investment in the United Kingdom dropped 3% sequentially in the third quarter. On a yearly basis, total business investment plunged 21.7% in the third quarter, against expectations for a 22.9% slump.
At the same time, Eurostat reported that industrial new orders in the euro zone dipped 16.5% year-over-year in September, slower than the 23.2% decline in the previous month. The drop was slower than the 17.3% decline predicted by economists. On a monthly basis, industrial new orders climbed 1.5% in September, faster than the 0.6% growth in the previous month.
U.S. Economic News
Gross domestic product data released continued to show growth in the economy following four consecutive quarters of contraction, the pace of growth was downwardly revised from the advance estimate.
The report showed that GDP increased by an annual rate of 2.8 percent in the third quarter compared to the 3.5 percent growth that had been reported last month. Economists had been expecting the pace of GDP growth to be revised down to about 2.9 percent.
The S&P/Case-Shiller home price index, which tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S., is scheduled to be released at 9 AM. Economists expect a 9.10% year-over-year decline in the 20-city composite house price index for September.
The Conference Board is scheduled to release its consumer confidence report for November at about 10 am ET. The report, which is based on a survey of 5,000 U.S. households, is expected to show that the consumer confidence index edged down to 47.5 in November.
The consumer confidence index fell to 47.7 in October from 53.4 in September. The present situation index fell to its lowest level since February 1983 and the expectations index declined 8 points to 65.7. Weak labor market conditions are apparently behind the sinking confidence, as reflected by a 0.2 percentage point dip in people who said jobs were plentiful and a 2.6 percentage point increase in people who said jobs were hard to get.
The Federal Reserve is scheduled to release the minutes of its November 3rd-4th meeting at 2 PM ET.
At its November meeting, the FOMC decided to hold the key fed funds rate unchanged at its historically low levels, a decision that was widely expected. Contrary to the expectations of some analysts, the central bank retained the phrase 'extended period' while referencing its views on maintaining the fed rate at exceptionally low levels, given the current economic conditions.
Stocks in Focus
Hewlett-Packard, which rose sharply in regular trading on Monday, receded modestly in the after hours session. The company reported earnings of 99 cents per share for its fourth quarter compared to 84 cents per share in the year-ago period. On an adjusted basis, the company reported earnings of $1.14 per share. Sales fell 8% year-over-year to $30.8 billion. Analysts estimated earnings of $1.13 per share on revenues of $30.36 billion.
Meanwhile, Brocade Communications (BRCD) may also be in focus after it announced that its fourth quarter revenues rose 31% to $521.8 million. On a non-GAAP basis, the company’s net income fell to 15 cents per share from 20 cents per share in the year-ago period. Analysts estimated earnings of 13 cents per share on revenues of $521.09 million.
Analog Devices (ADI) is likely to see some strength after it said its fourth quarter revenues fell to 36 cents per share from 49 cents per share last year, as revenues declined 13% to $571.6 million. Analysts, on average, estimated earnings of 26 cents per share on revenues of $524 million. The company forecast first quarter adjusted earnings of 36-37 cents per share, ahead of the 28 cents per share consensus estimate.
Advanced Micro Devices (AMD) may see some weakness after it announced that it would sell $500 million in aggregate principal amount of its 8.125% senior notes due 2017 in a private offering. The company expects net proceeds of $439 million from the offering, while it intends to use the net proceeds along with existing cash to purchase its 5.75% convertible senior notes due 2012. Separately, Fitch Ratings reaffirmed its long-term issuer default rating for the company at “B-‘, while the senior unsecured debt rating was upgraded to ‘B-/RR4’ from ‘CC/RR6.’ The rating agency also revised its rating outlook on the company to ‘Positive’ from ‘Negative.’
Merck (MRK) could be in focus after it said U.S. District Court judge John Keenan granted summary judgment in the company’s favor in Flemings Vs. Merck, which is the second of the three cases involving FOSAMAX. The judge ruled that the Flemings’ doctor was unqualified to render an opinion and the plaintiff failed to present adequate evidence to support claims that the drug caused her to sustain osteonecrosis of the jaw.
International Game Technology (IGT) is likely to see some activity after it said its EVP, general counsel and secretary David Johnson has resigned, effective January 4th, 2010. The company said it expects to name a new General Counsel by the end of 2009.
Dycom (DY) could see weakness after it guided second quarter revenues to decline sequentially, reflecting seasonal patterns and slowing capital expenditures by a key customer. The company expects a modest loss for the quarter. The consensus estimates call for earnings of 5 cents per share on revenues of $269.29 million. The company also reported first quarter contract revenues of $259.1 million, down 22.4% year-over-year. On a non-GAAP basis, income from continuing operations were 15 cents per share, lower than 28 cents per share last year. Analysts estimated earnings of 17 cents per share on revenues of $269.29 million.
Rambus (RMBS) traded higher in Monday’s after hours session after it announced that the San Francisco Superior Court has issued recommendations that the company’s anti-trust case against certain memory manufacturers and the Tessera Technologies anti-trust case against Hynix be assigned to the San Francisco Superior Court. Consistent with the recommendations, the company expects the trial to start in January. |