Wednesday has quite a few economic reports scheduled. They are:-
7:00… MBA Mortgage Applications
8:30 … Trade Balance
10:00… Job Openings and Labor Turnover
10:30… EIA Petroleum Inventories
1:00 PM… Results of $24B, 10-Year Note Auction
2:00 PM … Treasury Budget
Also the following companies are reporting their quarterly earnings:-
• Computer Sciences Corp. (CSC),
• IAMGOLD Corp. (IAG),
• Cisco Systems Inc. (CSCO),
• Pan Am Silver Corp. (PAAS), and
• Silver Wheaton Corp. (SLW).
Wednesday sees U.S. stocks looking to open sharply lower, following a slump in world markets, as investors digested the Federal Reserve's gloomy assessment of the economy, which has rattled investors, and the central bank's measures to support the fragile recovery failed to reassure world markets.
Stock futures and interest rates tumbled Wednesday as investors worldwide grew concerned about the health of the U.S. economy after the Federal Reserve said the recovery was slowing down.
Overseas markets all fell sharply. Japan's Nikkei stock average was hit especially hard by the rising value of the yen, which hurts exports. The yen is at a 15-year low against the dollar.
The Fed said Tuesday it will start buying government bonds with money it receives from maturing mortgage-backed bonds it bought during the recession. The goal is to try to cut interest rates on mortgages and corporate loans, which in turn would increase borrowing and help the economy grow faster.
On Wednesday, a report on the trade balance comes out at 8:30 a.m. ET.
Economists surveyed by Briefing.com expect the balance to have narrowed $42.2 billion in June, from $42.3 billion in May.
Investors will also be watching the Treasury budget, which is due out at 2 p.m. ET.
Notes of Importance
There are a few further points to the mornings trading which need to be considered:-
• The Dow Jones Industrial Average (DJIA): If the major market indexes hold their pre-market course, we could see the DJIA break out of its recent trading range to the downside.
• The S&P 500 Index (SPX): Also the SPX would end its seven-day stint above its widely watched 200-day moving average.
• Gold futures: Despite the resurgent greenback, gold is edging higher, as traders diversify their safe-haven holdings. In London, gold futures have added 70 cent to trade at $1,198.70 an ounce.
• The U.S. Dollar Index: Safe-haven buying lifted the U.S. dollar and the Japanese yen in Asian trading, as investors fled equities in the wake of another round of poor Chinese economic data. As a result, the U.S. Dollar Index has jumped 1.11% in pre-market trading, as the index rebounds from multi-month lows set late last week.
• Benchmark crude futures have taken a nose dive, with the lead contract dropping below the round-number $80 region. At last check, crude futures were off 77 cents at $79.48 per barrel.
• Bonds: Prices for Treasurys were higher. The yield on the 10-year note was 2.72% from 2.77% late Tuesday. The U.S. will offer $24 billion in 10-year notes later in the day.
• Equity option activity on the Chicago Board Options Exchange (CBOE) saw 932,585 call contracts traded on Tuesday, compared to 587,596 put contracts.
• The CBOE Market Volatility Index (VIX) could be headed toward its first daily close above both its 10-day and 20-day moving average since July 2, not to mention the potential for a move above its 200-day trendline.
The Bank of England lowered its forecast U.K. economic growth, and said inflation is likely to be below the 2% target in 2012.
The economic figures out of Asia overnight did nothing to soothe investors concerns. A weak Japanese machinery orders report sent the Nikkei falling nearly 3%.
Inflation accelerated to 3.3% in July in China, from a 2.9% rise the previous, but that missed economists' expectations for a 3.4% rise. Meanwhile, industrial production in China continued to ease to the lowest level this year, rising 13.4% from a year earlier, and retail sales also slowed.
Chinese stocks did close up however, partially, because the Shanghai Composite lost 3% the day prior.
European share markets tumbled in the early going. Britain's FTSE 100, France's CAC 40 and Germany's DAX all fell almost 2%.
• In Europe at midday, London -1.6%. Paris -1.6%. Frankfurt -1.6%.
The dollar gained against the euro and U.K. pound, but was down versus the Japanese yen.
Earlier in Asia, Japan's benchmark Nikkei plunged 2.7%. The Hang Seng in Hong Kong fell 0.8%, while the Shanghai Composite rose 0.5%.
• In Asia, Japan -2.7% to 9293. Hong Kong -0.8% to 21295. China +0.5% to 2608. India -0.8% to 18070.
As of 6:15 a.m. in New York, the Dow Jones Industrial Average futures were down 140 points, or 1.34%, to 10478, the S&P 500 index futures lost 16.6 points to 1103.10 and the Nasdaq 100 futures lost 1866.50.
• Futures: Dow -1.2%. S&P -1.5%. Nasdaq -1.5%. Crude -0.9% to $79.51. Gold +0.1% to $1198.90.
Walt Disney (DIS) posted a 40% rise in quarterly profit after U.S. markets closed Tuesday. The results easily topped Wall Street's expectations.
LDK Solar Co. Ltd. (LDK) swung to a second-quarter profit of $45 million, or 36 cents per American Depositary share, from a loss of $216.9 million, or $2.03 per ADS, in the same quarter last year. Revenue increased to $565.3 million from $228.3 million a year earlier. Analysts had forecast earnings of 22 cents per share on revenue of $461.8 million.
Aflac Inc.'s (AFL) board lifted its quarterly dividend 7.1% to 30 cents per share and resumed a suspended share buy-back program. The dividend is payable on Dec. 1 to shareholders of record as of Nov.
Banking stocks will be in the spotlight after a source told Reuters Barclays Capital (BARC.L) will cut about 400 jobs in back office functions in the United States, Europe and Asia.
Swiss food giant Nestle (NESN.VX) raised its full-year outlook, striking a more optimistic note than its peers after buoyant demand for its strong brands in emerging markets boosted sales in the first half.
Genzyme Corp (GENZ.O), the target of a takeover bid by France's Sanofi Aventis (SASY.PA), said its newly disclosed disposal of batches of drugs stemmed from one-time quality control issues, and was not related to deeper manufacturing problems weighing on the biotech company since last summer.
Some Interesting News
• P-E firms target Morgan Stanley fund. Various private equity firms have expressed interest in buying a stake in Morgan Stanley's (MS) real estate funds management business. Sources said KKR (KKR) and TPG Capital, both of which have limited exposure to the property market, have expressed tentative interest. Colony Capital is also said to be interested. The potential suitors are proposing relatively low valuations because the unit's recent $8.8B fund is unlikely to return fees or profits. Premarket: MS -1% (7:00 ET).
• Wells Fargo pays out on overdraft fees. A California judge ordered Wells Fargo (WFC) to pay more than $200M in compensation to customers who were improperly charged millions of dollars in overdraft fees. The class-action ruling found that Wells Fargo generated extra overdraft fees by manipulating the order in which transactions were posted, a practice that many big banks have employed for years.
• Fed to keep securities holdings stable. There were no major surprises from the FOMC, though the Fed did make its first attempt to bolster the economy in more than a year, saying it would reinvest principal payments from mortgage assets into longer-term Treasurys. The committee maintained its "extended period" language on rates, with Kansas City Fed's Hoenig remaining the lone dissenter. The pace of the recovery is "more modest" than anticipated and spending, which is up slightly at households and businesses, is being constrained by tight credit, continuing unemployment and related factors. Underlying inflation measures have trended lower and inflation should be "subdued for some time."
• CVB slides on SEC subpoena news. CVB Financial (CVBF) saw its shares plummet 22% yesterday after disclosing it had received an SEC subpoena for information about its accounting of troubled loans. The parent company of Citizens Business Bank said it will also need to provide information on how it graded loans and the process for making provisions for loan and credit losses. The company subsequently decided to use yesterday's "extraordinary market activity" as an opportunity to repurchase common stock, and is authorized to buy back up to 10M shares.
• Florida sues LCD makers. Following New York's lead, Florida Attorney General Bill McCollum is suing major LCD screen manufacturers over allegations of price-fixing. McCollum said records subpoenaed by his office indicate the defendants organized the conspiracy "at the highest level of their organizations in various secret meetings and telephone conversations over a period of years." Defendants include Samsung (SSNLF.PK), Hitachi (HIT), Sharp (SHCAY.PK) and Toshiba (TOSBF.PK).
• Toyota investigation finds no new flaws, driver error. Five months into a government investigation of Toyota (TM) vehicles' safety issues, officials haven't found any new defects aside from the ones the company already reported. In more than half of the crashes blamed on sudden vehicle acceleration, data shows the drivers weren't stepping on the brakes, suggesting driver error was at fault. Officials stress the probe is ongoing, but the results thus far support Toyota's claim that electronic defects in its cars aren't to blame.
• States get $26B in aid. Obama signed into law a $26B plan that Democrats said will help cash-strapped state governments preserve the jobs of thousands of teachers, police and firefighters; states are facing an $84B budget shortfall. Obama signed the bill just hours after the House approved the measure in a 247-161 vote.
• Blackstone doubles as sale adviser and suitor. Blackstone (BX) is said to be in early talks to buy Polymer Group (POLGA.OB), a non-woven materials maker, from majority owner MatlinPatterson, a private equity firm. The situation is unusual because Blackstone was reportedly hired in April to advise on the sale, and is acting as both adviser and potential acquirer. Premarket: BX -2.5% (7:00 ET).
• Dell hopes for winning streak with tablet. Dell (DELL) has joined the tablet craze, announcing plans to begin selling its own tablet computer to U.S. customers later this week. The Streak will be available for $299 with a new two-year AT&T (T) service contract and for $549 without one. Dell is the first major competitor to get a product to market against Apple's (AAPL) successful iPad.
• ING beats profit forecasts. ING (ING) reported a better-than-expected Q2 profit of €1.1B ($1.4B), up from a €71M profit in the year-earlier period. A decline in loan-loss provisions helped the banking division swing back to a profit, but the insurance arm reported a €16M loss after last year's €191M gain because of the "sharp decline in equity markets." Premarket: ING -2.6% (7:00 ET).
• Disney delivers quarterly profit. Disney (DIS) beat expectations for its FQ3 earnings (see details below) with net income of $1.3B. The results were helped by an improvement in the advertising climate and by a series of hit movies and sports events. Theme parks continued to struggle as the broader economy remained weak. Disney acknowledged that, like all other studios, demand for DVDs, its most profitable product, is waning; as a result, the company is shifting to a movie strategy that lends itself to sequels and tie-ins like toys, clothes and theme-park attractions. Shares gained 0.9% in after-hours trading.
• U.K. growth moderating. The U.K.'s economic recovery is likely to continue at a slower pace than previously expected, said the Bank of England in its quarterly Inflation Report, peaking at a 3% annual pace instead of at 3.6%. Inflation will be somewhat higher than previously forecast, and will likely remain above the 2% target through the end of 2011 before dropping below the target in 2012. The pound is -1.1% against the dollar (7:00 ET).
U.S. stocks fell on Tuesday but closed off their lows after the Federal Reserve said it would take new steps to counter a weak recovery. The Dow, which was down about 100 points before the Fed's announcement, briefly turned positive, though buying interest waned on the Fed's more pessimistic assessment of the economy.
Investors haven't been able to shake fears about the economic recovery, and concerns were exacerbated when the Fed issued its most downbeat outlook of the year.
In its policy statement, the central bank said the pace of recovery has slowed and that it expects economic growth to be "more modest in the near term than had been anticipated." And while the Fed announced it was taking some additional stimulus measures by purchasing treasuries to keep yields low, the fear among investors remains the possibility of a double-dip recession.
It could also drive the prices of Treasurys so high and their yields so low that they no longer become attractive investments, forcing traders to move into riskier assets that have the potential for bigger profits, like corporate debt and stocks.
Economic reports in recent months, including key measures on gross domestic product and employment, have pointed to a slowing recovery in the U.S. Analysts' opinions have been mixed about whether the economy could slow down to the point of falling back into recession. That uncertainty has added volatility to the market and kept many investors out of stocks completely.
"It has been a classic case of the U.S. sneezing and the rest of the world catching a cold, with many believing that the Fed might not be doing enough to get the recovery back on track," said Nick Serff, market analyst at City Index, in a note.
Investors are awaiting data on the U.S. trade balance for June, which will be followed by the release of the federal budget balance.
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