Market Analysis

The major U.S. index futures are pointing to a higher opening on Wednesday, with the German constitutional court’s ruling perking up risk appetite on the relief that the efforts aimed at resolving the eurozone’s debt crisis will not be derailed. The FOMC meeting that gets underway today should keep traders on the edge, as they have heightened expectations out of the meeting. That said, the Fed in all its prudence may not respond with an outright QE III program and may just tweak around its policy tools. Risk appetite has set in motion strong buying in commodities and other risky bets.

U.S. stocks stayed afloat on Tuesday, as stimulus hopes lent support to the markets. The major averages opened slightly higher and advanced until early afternoon trading. After moving roughly sideways, the averages gave back some ground in late trading but still closed higher for the session.”

The Dow Industrials ended up 69.07 points or 0.52 percent at 13,323 and the S&P 500 Index closed at 1,434, up 4.48 points or 0.31 percent. Meanwhile, the Nasdaq Composite Index closed 0.51 points or 0.02 percent higher at 3,105.

Twenty-four of the thirty Dow components closed higher, with Bank of America (BAC) (up 5.24 percent), JP Morgan Chase (JPM) (up 2.17 percent), Hewlett-Packard (HPQ) (up 2.98 percent) and Alcoa (AA) (up 3.09 percent) leading the Dow’s advance. On the other hand, General Electric (GE) and Kraft Foods (KFT) declined over 1 percent each.

On the economic front, the U.S. trade deficit widened to $42 billion in July, although the deficit was narrower than economists had expected. Exports fell 1 percent month-over-month, while imports were down 0.8 percent, marking the fourth straight month of declines. In real terms, the trade deficit widened to $46.5 billion from $44 billion in June.

Energy, housing and brokerage stocks advanced.

Currency, Commodity Markets

Crude oil futures are adding $0.06to $97.23 a barrel after adding $0.63 to $97.17 a barrel on Tuesday.

The API inventory report released late Tuesday showed that crude oil stockpiles rose by 221,000 to 359 million in the week ended September 7th. Gasoline inventories fell by 4.16 million barrels, while distillate stockpiles rose by 2.55 million barrels.

An ounce of gold is currently valued at $1,741.20, up $6.30 from the previous session’s close of $1,734.90. On Tuesday, gold rose $3.10.

Among currencies, the U.S. dollar is currently valued at 77.92 yen compared to the 77.77 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.2903 compared to yesterday’s $1.2855.

Asia

Most Asian markets closed higher, as positive domestic data and optimism ahead of the FOMC meeting provided reasons for traders to stay invested in stocks.

Japan’s Nikkei 225 average opened slightly higher and advanced strongly in early trading. Thereafter, the average moved sideways until the mid-session before rising steadily in the afternoon and closing up 152.58 points or 1.73 percent at 8,960.

The yen’s retreat amid the rise in risk aversion supported export dependent stocks. TDK rallied 6.62 percent, while Dentsu, Shinsei Bank, MEIJI Holdings, Kyowa Hokka, Kirin, JFE Holdings and Taiheiyo Cement also rose notably.

At the same time, Oki Electric slumped 11 percent and Unitika ended down 5 percent. Electric utilities also experienced weakness.

Australia’s All Ordinaries hovered in positive territory throughout the session before closing up 34.80 points or 0.80 percent at 4,383. A majority of stocks advanced, with energy and material stocks leading the rally. Meanwhile, defensive IT, consumer staple and utility stocks came under selling pressure.

Hong Kong’s Hang Seng Index closed at 20,075, up 217.51 points or 1.10 percent.

On the economic front, a report released by Japan’s Cabinet Office showed that core machinery orders rose 4.6 percent month-over-month in July compared to expectations for a 2 percent increase. On a year-over-year basis, core machinery orders climbed 1.7 percent, belying expectations for a 3.6 percent drop.

An index measuring activity in the tertiary industry in Japan fell 0.8 percent month-over-month in July, according to Japan’s Ministry of Economy, Trade and Industry. Economists expected a more modest 0.5 percent drop.

Meanwhile, a Bank of Japan report showed that corporate goods prices rose 0.3 percent month-over-month in August, steeper than the 0.1 percent increase expected by economists. Annually, prices were down 1.8 percent.

A survey by Westpac and the Melbourne Institute showed that Australia’s consumer sentiment improved in September. The consumer sentiment index rose 1.6 points to 98.2, although it remained below the 100 mark for the seventh consecutive month.

Europe

The major European markets are seeing mixed sentiment amid the German constitutional court ruling, which approved the ESM with conditions. The court limited Germany’s participation in the ESM to 190 billion euros.

A consumer price inflation report released by INSEE showed that the French EU harmonized consumer price index rose 2.4 percent year-over-year, ahead of the 2.2 percent rate in July and the 2.3 percent rate forecast by economists.

Meanwhile, German annual inflation measured in harmonized terms came in at an unrevised 2.2 percent in August, according to revised estimates released by the Federal Statistical Office. Economists expected a 2 percent increase.

According to a report released by the U.K. Office for National Statistics, claimant count fell by 15,000 in August compared to expectations for an unchanged reading. The unemployment rate based on the ILO standards for the 3 months ended July came in at 8.1 percent, slightly above expectations for 8 percent.

U.S. Economic Reports

A 2-day FOMC meeting is scheduled to begin on Wednesday.
The Labor Department reported that import prices rose by 0.7 percent in August following a revised 0.7 percent drop in July. Economists had expected import prices to surge up by 1.5 percent compared to the 0.6 percent decrease originally reported for the previous month.

On the other hand, U.S. export prices increased by more than expected during the month amid another notable increase in prices for agricultural exports.



The report showed that export prices increased by 0.9 percent in August after rising by a revised 0.4 percent in the previous month. Export prices had been expected to rise by 0.5 percent, matching the increase originally reported for July.

The Commerce Department is due to release its wholesale inventories report at 10 am ET. Economists expect wholesale inventories at the end of July to show a 0.4 percent increase.



Wholesale inventories fell 0.2 percent month-over-month in June, while inventories were up 5.3 percent year-over-year. Wholesale sales fell 1.4 percent month-over-month but were up 3.1 percent from last year. Accordingly, the inventories to sales ratio was at 1.20 compared to 1.17 in the year-ago period.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended September 7th at 10:30 AM ET.



Crude oil stockpiles fell by 7.4 million barrels to 357.1 million barrels for the week ended August 31st. Crude oil stockpiles dropped to near the upper limit of the average range.

Gasoline stockpiles declined by 2.3 million barrels and were in the lower half of the average range. Meanwhile, distillate inventories rose by 1 million barrels but were below the lower limit of the average range.

Refinery capacity utilization averaged 90.3 percent over the four weeks ended August 31st compared to 91.9 percent over the previous four weeks.

Stocks in Focus

Apple (AAPL) is likely to be in the spotlight as the company is expected to unveil its latest version of the iPhone, which is widely believed to be named the iPhone 5.

Steel Dynamics (STLD) said it expects third quarter earnings of 1-5 cents per share, reflecting charges related to its recent financing and impairment. Before these charges, the company expects earnings of 9-14 cents per share, down both sequentially and year-over-year, as global and political uncertainty impact consumer confidence and inventory destocking impacts shipment.

In its mid-quarter update, Texas Instruments (TXN) said it expects third quarter earnings of 38-42 cents per share compared to its earlier estimate of 34-42 cents per share. The company narrowed its revenue guidance to $3.27 billion to $3.41 billion from $3.21 billion to $3.47 billion. Analysts estimate earnings of 45 cents per share on revenues of $3.34 billion.

Diodes (DIOD) said it maintains its third quarter revenue guidance of $162 million to $170 million and gross margin of 28 percent, plus or minus 2 percent. Analysts estimate revenues of $166.51 million.

Casey’s (CASY) said it has signed an agreement to buy 22 convenience stores from Kum & Go.

PepsiCo. (PEP) announced the resignation of President John Compton and the appointment of Zein Abdalla, currently CEO, PepsiCo Europe, to the post of president. Abdalla will be replaced by PepsiCo executive Enderson Guimaraes.

Eaton (ETN) said its previously announced pending acquisition of Cooper Industries has received clearance from the Competition Bureau of Canada. The closing is now subject to customary closing conditions, including regulatory clearances and approval by shareholders of both companies.