Market Analysis

The major U.S. index futures are pointing to a sharply lower opening on Thursday, with the negativity triggered by concerns about the health of the European financial institutions accentuated by a domestic report that showed a bigger than expected increase in claims. The markets now turn their attention to the housing and manufacturing reports to be released shortly after the markets open. Even if the data come in better than expected, it looks unlikely that traders turn optimistic and indulge in buying.

U.S. stocks closed Wednesday’s session on a mixed note, as optimism about retail earnings that in turn have ramification for consumer spending served to allay fundamental economic concerns and the negativity generated by bleak revenue guidance issued by Dell (DELL). After opening higher and remaining afloat in the morning, the major averages gave back their gains, falling into negative territory by the mid-session.

Thereafter, the Dow and the S&P 500 Index moved back and forth across the unchanged line in a narrow range before closing modestly higher. Meanwhile, the Nasdaq Composite Index languished below the unchanged line before closing moderately lower.

The Dow Industrials ended up 4.28 points or 0.04 percent at 11,410 and the S&P 500 Index ended 1.13 points or 0.09 percent higher at 1,194, while the Nasdaq Composite Index closed at 2,512, down 11.97 points or 0.47 percent.

Eighteen of the thirty Dow components closed higher, with Verizon (VZ) and American Express (AXP) advancing strongly. JP Morgan Chase (JPM), Coca-Cola (KO) and AT&T (T) also saw notable buying interest. On the other hand, Hewlett-Packard (HPQ) slid 3.74 percent and Caterpillar (CAT) ended down 1.91 percent.

Among the sector indexes, the NYSE Arca Computer Hardware Index fell 2.94 percent, the NYSE Arca Software Index moved down 1.03 percent, the NYSE Arca Networking Index declined 1.50 percent and the Philadelphia Housing Sector Index lost 1.07 percent.

After spiking to its highest closing level since early 2009 in early August, the CBOE volatility index has pulled back, suggesting an improvement in implied volatility. A break below its 21-day moving average of 28.52 could suggest further downside. However, with the intensification of debt worries, further upside is the most likely course for the index and increased volatility for the broader averages.



On the economic front, the Labor Department’s producer price inflation report showed a 0.2 month-over-month increase in e producer prices for July. The year-over-year producer price inflation rate was 7.2 percent. The core producer price index rose by 0.4 percent month-over-month, the fastest rate of growth since January, and its annual rate came in at 2.5 percent, the biggest increase since July 2009. A 0.6 percent month-over-month increase in food prices offset a 0.6 percent drop in energy prices. Pipeline inflation also prevailed, with the headline and core inflation rates at 0.2 percent each.

Commodity, Currency Markets

Crude oil futures are currently moving down $2.33 to $85.25 a barrel after advancing $0.93 to $87.58 a barrel on Wednesday. The previous session’s advance came amid the release of the weekly oil inventory report, which showed a 4.2 million barrel increase in crude oil stockpiles to 354 million barrels in the week ended August 12th. Inventories were in above the upper limit of the average range.

Distillate inventories increased by 2.4 million barrels, remaining in the upper limit of the average range. Meanwhile, gasoline stockpiles fell by 2.4 million barrels yet remained in the upper limit of the average range. Refinery capacity utilization averaged 89.1 percent over the four weeks ended August 12th compared to 89.4 percent in the previous four weeks.

Gold futures, which climbed $8.80 to $1,793.80 an ounce in the previous session, are currently advancing $22.50 to $1,816.30 an ounce.

Among currencies, the U.S. dollar is trading at 76.5815 yen compared to the 76.6025 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.4384 compared to yesterday’s $1.4427.

Asia

The Asian markets closed Thursday’s session on a downbeat note after a report by the Wall Street Journal that suggested that U.S. federal and state authorities are seeking to intensify their scrutiny of the U.S. arms of European financial institutions intensified risk aversion. Additionally, the strength of domestic currencies hurt sentiment.

Japan’s Nikkei 225 average opened lower and declined steadily throughout the session before closing down 113.50 points or 1.25 percent at 8,944. A majority of stocks, with the exception of pharma, retail, paper and utility stocks, declined.

Asahi Group rose over 1 percent after it announced its intention to buy New Zealand brewer Independent Liquor in a deal valued at about $1.3 billion. Meanwhile, Australia’s Foster’s Group once again rejected an offer from SABMiller.

A report released by the Japanese Ministry of Finance showed that the nation recorded a trade surplus of 72.5 billion yen in July compared to a surplus of 68.6 billion yen in June. Exports fell 3.3 percent year-over-year compared to a 9.9 percent increase in imports.

Australia’s All Ordinaries ended down 52.40 points or 1.20 percent at 4,319, reversing yesterday’s gains.

Hong Kong’s Hang Seng Index, which held close to the unchanged line with a negative bias in the morning, declined sharply in the afternoon. The index closed down 300.89 points or 1.48 percent at 19,988.

Europe

The major European markets are also witnessing weakness, with the major averages in the region declining close to 3 percent each.

Swiss cement maker Holcim reported a decline in its June quarter profits, with high raw material costs, a stronger franc and lukewarm demand in the U.S. and Europe hurting results. Nevertheless, the company said it is on track to meet its operating profit goals for the full year.

A U.K. government report showed that U.K. retail sales rose a less than expected 0.2 percent in July compared to June. Economists had expected a 0.3 percent increase for the month.

U.S. Economic News

With energy prices showing a significant rebound in the month of July, the Labor Department released a report showing that consumer prices increased by much more than expected for the month.



The Labor Department said it consumer price index rose by 0.5 percent in July following a 0.2 percent decrease in June. Economists had been expecting prices to edge up by 0.2 percent.

Excluding the jump in energy prices as well as a modest increase in food prices, the core consumer price index rose by 0.2 percent in July after climbing by 0.3 percent in June.

The modest increase in core prices came in line with economist estimates.

First-time claims for unemployment benefits showed a bigger than expected increase in the week ended August 13th, according to a report released by the Labor Department, with claims climbing back above the key 400,000 level.



The report showed that initial jobless claims rose to 408,000 from the previous week's revised figure of 399,000. Economists had been expecting jobless claims to increase to 400,000 from the 395,000 originally reported for the previous week.

New York Federal Reserve President William Dudley will speak on the regional and national economic outlook in Newark at 8:35 am ET.

The National Association of Realtors is scheduled to release its report on existing home sales for July at 10 am ET. Economists estimate existing home sales of 4.92 million for the month.



In June, existing home sales unexpectedly fell 0.8 percent month-over-month to an annualized rate of 4.77 million units, marking the third straight month of declines and representing a 7-month low. Condominium sales slipped 7 percent, while single-family home sales remained flat.

Inventories measured in months of supply rose to a 7-month high of 9.5 months from 9.1 months in May. Distressed home sales accounted for 30 percent of the total sales. The median price of an existing home rose 0.8 percent year-over-year to $184,300.

The results of the Philadelphia Federal Reserve's manufacturing survey are due out at 10 am ET. Economists expect the diffusion index of current activity to show a reading of 4 for August.



The manufacturing index based on the survey rose to 3.2 in July from -7.7 in June. However, the index is still way off its recent high of 43.4 clocked in March. The new orders index rose to 0.1 from -7.6, but the order backlogs index remained negative at -16.3. The employment index rose 4.7 points to 8.9 in July, although the average workweek index fell 7.3 points to -5.4. Suggesting some optimism going forward, the 6-month outlook index rose to 23.7 from 2.5 in June.

The Conference Board is scheduled to release a report on its U.S. leading index for July at 10 am ET. The consensus estimate calls for a 0.2 percent increase by the leading indicators index for the month.



In June, the leading index rose 0.3 percent month-over-month compared to expectations for an increase of 0.2 percent. In May, the index was up 0.8 percent. The biggest positive contributions came from money supply, the interest rate spread and building permits. The coincident index edged up 0.1 percent and the lagging indicators index was up 0.3 percent.

Stocks in Focus

Earnings

Hot Topic (HOTT) reported a second quarter loss of 8 cents per share on a non-GAAP basis, while sales edged up 0.7 percent to $150.9 million. The loss was in line with estimates, while revenues exceeded expectations. The company updated its earnings guidance for 2011, forecasting adjusted earnings of 17-23 cents, while for the third quarter, the company expects earnings of 7-9 cents per share. Analysts estimate earnings of 17 cents per share for the full year and 8 cents per share for the quarter.

CACI International (CACI) reported fourth quarter earnings of $1.44 per share on revenues of $963.2 million. The company raised its 2012 earnings guidance to $4.70-$4.90 per share from $4.60-$4.80 per share, while it maintained its revenues guidance at $3.75 billion to $3.95 billion. The results exceeded estimates, while the guidance was in line.

International Rectifier (IRF) reported fourth quarter net income of 69 cents per share compared to 41 cents per share last year. Revenues rose 6.9 percent to $317.2 million. The results were ahead of estimates. For the September quarter, the company expects revenues of $290 million to $310 million, trailing the consensus estimate of $321.37 million.

NetApp’s (NTAP) first quarter non-GAAP earnings rose by 4 cents to 55 cents per share, as revenues rose to $1.46 billion from the year-ago quarter’s $1.15 billion. Analysts estimated earnings of 55 cents per share on revenues of $1.51 billion. For the second quarter, the company expects non-GAAP earnings of 58-62 cents per share on revenues of $1.50 billion to $1.60 billion. The consensus estimates call for earnings of 60 cents per share on revenues of $1.62 billion. Separately, the company announced the retirement of its CFO Steve Gome, effective December 31st, 2011.

PetSmart (PETM) reported second quarter earnings of 54 cents per share on revenues of $1.5 billion. The company raised its 2011 earnings guidance to $2.40-$2.48 per share, while it expects sales growth in the mid-single digit range. The results were ahead of estimates, while the guidance was in line.

JDSU (JDSU) reported fourth quarter non-GAAP earnings of 23 cents per share on revenues of $472.3 million. The earnings came in line with estimates, while revenues exceeded expectations. The company also said it expects first quarter non-GAAP revenues of $400 million to $425 million, sharply below the consensus estimate.

Limited Brands (LTD) said its second quarter adjusted earnings rose to 48 cents per share from 36 cents per share, while sales rose to $2.46 billion from $2.24 billion last year. The results were ahead of estimates. The company raised its third quarter comparable store sales guidance, while it expects earnings of 17-22 cents per share for the quarter. The company also raised its 2011 earnings per share guidance to $2.35-$2.50 per share. Analysts estimate earnings of 22 cents per share for the third quarter and $2.46 per share for the year.

SINA (SINA) reported second quarter non-GAAP earnings of 20 cents per ADS on revenues of $119 million. For the third quarter, the company expects non-GAAP revenues of $123 million to $126 million. The results and the guidance were above estimates.

NetEase.com (NTES) reported second quarter earnings of 91 cents per ADS on revenues of $275.1 million. The results beat expectations.

The prominent companies due to release their results after the markets close include Autodesk (ADSK), Brocade Communications (BRCD), Marvell Technology (MRVL), Gap (GPS), Hewlett-Packard (HPQ), Intuit (INTU), J M Smucker (SJM), Mentor Graphics (MENT), Nordson (NDSN) and Salesforce.com (CRM).

Other Corporate News

AvalonBay Communities (AVB) may see some weakness after it announced its intention to offer 4.75 million shares of its common stock. Separately, the company announced that it has priced the offering at $128.25 per share, which is at a discount to Wednesday’s closing price of $133.50.

Vishay Intertechnology (VSH) could see some activity after it announced the resignation of its CFO Lior Yahalomi, effective August 31, 2011. The company also said its chief accounting officer Lori Lipcaman will now assume the office of CFO.

Group 1 Automotive (GPI) may gain ground after it announced an 18.2 percent increase in its regular quarterly dividend to 13 cents per share as well as the doubling of its share repurchase authorization to $50 million.

Cree (CREE) is expected to be in focus after it lowered its first quarter non-GAAP earnings guidance towards the low-end of its previous guidance of 25-28 cents per share, while it expects revenues of $265 million to $275 million. The revision is to account for CREE’s acquisition of Ruud Lighting and the resultant consolidation of the results. Analysts estimate earnings of 27 cents per share on revenues of $252.82 million.

Marsh & McLennan (MMC) could move in reaction to its announcement that its board has authorized the repurchase of an additional $500 million worth of shares.

Progressive Corp. (PGR) may retreat following the announcement of a debt offering.