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Traders On The Defensive As Rally's Momentum Fades

3/20/2012 9:16 AM ET

The major U.S. index futures are pointing a moderately lower opening on Tuesday, with sentiment turning skeptical about the sustainability of recent gains. A report released earlier in the day showed that housing starts declined. Nevertheless, building permits-an indicator of future housing activity rose close to a 3-1/2 year high. The scope for sustenance of recent gains is limited, given the extended rally we have been witnessing since the middle of 2011. The resource space is also experiencing weakness on a Chinese move to raise retail fuel prices and a muted Chinese iron ore demand forecast issued by given by BHP Billiton (BHP).

The resource space is also experiencing weakness on a Chinese move to raise retail fuel prices and a muted Chinese iron ore demand forecast issued by given by BHP Billiton (BHP).

U.S. stocks overcame initial weakness and advanced on Monday, encouraged by Apple's (AAPL) plan for its mammoth cash reserves. Additionally, the housing data released yesterday did not suggest pessimism.

The major averages showed apprehension in early trading but began advancing in early afternoon trading. Thereafter, the averages moved sideways for much of the session before giving back some of their gains but still closed higher.

The Dow Industrials added 6.51 points or 0.05 percent before closing at 13,239 and the S&P 500 Index closed 5.58 points or 0.40 percent higher at 1,410, while the Nasdaq Composite Index ended up 23.06 points or 0.75 percent at 3,078.

Seventeen of the thirty Dow components closed higher, with American Express (AXP) and JP Morgan Chase (JPM) leading the gains with advances of over 1 percent each. On the other hand, United Technologies (UTX), Microsoft (MSFT) and Bank of America (BAC) receded sharply.

Airline, computer hardware and financial stocks saw some strength.

On the economic front, the National Association of Home Builders reported that its housing market index remained flat at 28 in March following 5 straight months of gains. The index is still at its highest level since June 2007. The present conditions index fell 1 point, while the sales expectations index rose 2 points and the index measuring prospective buyer traffic remained unchanged at 22.

Currency, Commodity Markets

Crude oil futures are trading down $0.97 at $107.12 a barrel after climbing $1.03 to $108.09 a barrel on Monday. Gold futures are currently slipping $21.60 to $1,645.70 an ounce. In the previous session, the precious metal added $11.50 to $1,667.30 an ounce.

Among currencies, the U.S. dollar is trading at 83.715 yen compared to the 83.3475 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.3189 compared to yesterday's $1.3238.

Asia

The major Asian markets ended mostly lower, although the Japanese market remained closed on account of a public holiday. The negativity came despite the positive lead from Wall Street, as traders remained wary of recent gains.

Australia's All Ordinaries opened higher but went about a steady decline. The index cut back some of its losses in late afternoon trading before consolidating and closing up 15.60 points or 0.36 percent at 4,366.

Hong Kong's Hang Seng languished below the unchanged line for the better part of the session before closing down points or percent at 20,888. China's Shanghai Composite Index ended down 1.38 percent and India's Sensex also closed down more than 1 percent.

The minutes of the Reserve Bank of Australia's monetary policy board showed that the central bank is of the view that current inflation is consistent with targets and the unemployment rate is also acceptably low. That said, the central bank productivity growth is required to keep down domestic cost pressures.

Europe

The major European markets are also moving to the downside, with the French CAC 40 and the German DAX Index receding 1.29 percent and 1.31 percent, respectively, while the U.K.'s FTSE 100 Index is declining 1.14 percent.

In corporate news, Metro AG reported its full year adjusted earnings before interest and taxes fell to 2.37 billion euros from 2.42 billion euros last year. While the company expects higher sales for 2012, it cautioned that earnings will be flat.

U.K.'s Cairn Energy reported a wider pre-tax loss from continuing operations due to higher impairment costs and unsuccessful exploration costs.

In economic news, Germany reported producer price inflation rate came in at 3.2 percent year-over-year in February compared with the 3.4 percent increase in January. The inflation rate was in line with expectations and represented the lowest rate since June 2010.

Consumer price inflation report from the U.K. showed that the nation's annual consumer price index rose 3.4 percent year-over-year in February, slower than the 3.6 percent in January. However, the rate was above the 3.3 percent expected by economists and higher the 2 percent target of the central bank.

U.S. Economic Reports

New residential construction in the U.S. showed an unexpected decrease in the month of February, according to a report released by the Commerce Department, although housing starts came in nearly in line with estimates due to an upward revision to the data for January.

The report showed that housing starts fell 1.1 percent to an annual rate of 698,000 in February from the revised January estimate of 706,000. Economists had expected starts to edge up to 700,000 from the 699,000 that had been reported for the previous month.

Federal Reserve Chairman Ben Bernanke is scheduled to deliver his first of four lectures at the George Washington School of Business at 12:45 pm ET. The second one is scheduled for Thursday.

Minneapolis Federal Reserve Bank President Naryana Kocherlakota will speak to the Hyman P. Minsky Lecture Series at Washington University, in St. Louis at 5:30 pm ET. He will also take questions from the audience and then the media.

Stocks in Focus

Safeway (SWY) said its board has increased the level of stock repurchase program by $1 billion. The company also announced a regular quarterly cash dividend of $0.145 per share.

Focus Media (FMCN) reported fourth quarter non-GAAP earnings of 70 cents per ADS compared to 41 cents per ADS in the year-ago period. The company reported net revenues of $256.4 million. The results were better than expected.

Apple (AAPLE) said it has sold 3 million of its new iPad since its launch on March 16th.

Adobe Systems (ADBE) reported first quarter earnings of 57 cents per share on revenues of $1.045 billion. The results were in line with estimates. For the first quarter, the company is targeting non-GAAP earnings of 57-61 cents per share on revenues of $1.09 billion to $1.14 billion. The first quarter guidance surrounds the consensus estimate. The company lowered its 2012 non-GAAP earnings guidance to $2.38-$2.48 per share, while it increased its annual revenue growth target to 6-8 percent.

Amazon (AMZN) announced an agreement to acquire Kiva Systems for about $775 million in cash, as adjusted for the assumption of options and other items. The company expects the deal to close in the second quarter of 2012.

AAR Corp. (AIR), Cintas (CTAS), Jabil Circuit (JBL), Krispy Kreme (KKD), Oracle (ORCL) and SAIC (SAI) are among the companies due to report their quarterly results after the markets close.

by RTT Staff Writer

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