Wednesday presents several economic reports. The schedule for today is:-
7:00 … MBA Mortgage Applications
8:30 … Housing Starts
8:30 … Producer Price Index
9:15 … Industrial Production
10:30 … EIA Petroleum Inventories
2:15 PM … Fed's Plosser: 'Improved Resolution of Financial Firms'
5:45 PM … Bernanke: 'Financial Reform'
Also the following companies are reporting their quarterly earnings:-
• Canadian Solar Inc. (CSIQ) and
• FedEx Corp. (FDX)
Wednesday saw U.S. stock futures weaker this morning, with President Barack Obama's nationally televised address on cleaning up the Gulf of Mexico oil spill and results from bellwether FedEx in the spotlight.
U.S. stocks ended Tuesday with strong gains, with improving New York-area manufacturing data and stabilizing sentiment toward Europe helping the S&P 500 break through its 200-day moving average. The Dow Jones Industrial Average surged 213 points.
"We'll take the gains, but as is our custom of late, leave the party hats in the box and recall that it looks like a workout period with significant systemic and structural challenges still in place -- where two steps forward is often followed by one step back," said John Stoltzfus, a strategist for Ticonderoga Securities.
Traders are also cautious ahead of economic numbers. Economists forecast that housing construction slowed in May after a homebuyer's tax credit expired at the end of April. Analysts are also looking for wholesale prices to have fallen in May following a drop in gasoline and food costs.
Wall Street's economic outlook could be impacted by a new housing report set for release at 8:30 a.m. ET. The Commerce Department is expected to say housing starts fell to a rate of 655,000 units in May, while building permits rose to a rate of 631,000 units.
The Labor Department's latest read on inflation at the wholesale level was also on the agenda. The markets expect the government to say produce prices fell by 0.5% in May, giving the Federal Reserve further ammo to keep interest rates ultra low.
The Federal Reserve's report on industrial production is expected to say production rose by 0.8% last month.
The Energy Sector
The energy sector also will be in the spotlight as President Barack Obama gave a nationally televised address blasting BP (BP) , calling for the oil giant to set up an independently administered escrow account to pay claims from the Gulf of Mexico oil spill. Obama also talked of the need for more renewable energy.
Obama is meeting with BP chairman Carl-Henric Svanberg this morning with the escrow account and the company's dividend payments the focus of attention. While BP's London-listed shares edged higher, its credit-default swaps widened noticeably, indicating the market is increasingly betting the firm will default on bond payments.
This is the first time Obama has met with the energy group's executives since the crisis began nearly two months ago.
Fitch Ratings on Tuesday changed its outlook on Anadarko Petroleum Corp (APC) to negative, from stable, citing increasing estimates of damages the company is likely to need to pay as a result of the oil spill in the Gulf of Mexico.
Bank of America Merrill Lynch (BAC) has ordered its traders not to enter into oil trades with BP Plc (BP) that extend beyond June 2011, a market source familiar with the directive told Reuters.
There are a few further points to the mornings trading which need to be considered:-
• The Dow Jones Industrial Average (DJIA) vaulted above the 200-day moving averages yesterday and could find short-term support near 10,300, or 10,200 on a steeper sell-off if it occurs today.
• The S&P 500 Index (SPX) vaulted above the 200-day moving averages yesterday, as well, and could find a floor near 1,110, or 1,090 should the decline gain momentum.
• Gold futures are tentatively higher, gaining $1.50 to trade at $1,235.90 an ounce in London.
• The U.S. Dollar Index has risen 0.3% to 86.24 in pre-market trading.
• Benchmark crude futures are retreating this morning, dropping 0.37% to $77.62 per barrel on European economic concerns ahead of today's report on U.S. petroleum supplies.
• Bond prices rose, pushing down interest rates.
• The yield on the benchmark 10-year Treasury note fell to 3.29 percent from 3.31 percent late Tuesday.
• The CBOE Market Volatility Index (VIX) has plunged more than 30% since setting a near-term peak of 37.38 on Tuesday last week. The so-called fear index has pulled back to within striking distance of support in the 25 region, a level the VIX has not closed below since May 5.
• Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,234,698 call contracts traded on Tuesday, compared to 690,993 put contracts.
As International Monetary Fund head Dominique Strauss-Kahn heads to Spain, a newspaper report said the E.U., IMF and the U.S. Treasury are talking about a 250 billion euro credit line for the euro-zone country beset by unemployment over 20%. Spain and the IMF denied the report.
The Stoxx Europe 600 wavered between gains and losses in Europe, with Spanish funding woes and France's decision to hike its retirement age in the spotlight.
* The premium that investors demand to hold 10-year Spanish government bonds, rather than euro zone benchmark German Bunds, hit a euro lifetime high as investors' concerns about Spain's debt mounted.
European shares edged up, rising for the sixth straight session, as energy stocks rallied, but the gains were capped by renewed euro zone worries.
The U.K.'s FTSE 100 rose 0.39% to 5238.39, Germany's DAX advanced 0.16% to 6185.11 and France's CAC 40 advanced 0.33% to 3673.43.
• In Europe, at midday, London +0.3%. Paris +0.2%. Frankfurt +0.3%.
The euro was trading slightly below $1.23
The stronger euro has helped stabilize U.S. markets and given a boost to dollar-traded commodities. However, the euro took a bit of a hit this morning, sinking 0.30% to $1.2295.
Earlier in Asia, though several major markets were shut for holidays, Asian stocks finished higher, with the mining sector in focus amid talks on the 40% "super-tax" Australia is planning. The Nikkei 225 rose 1.8% to close about the 10,000 mark for the first time since May 20.
Markets in Hong Kong, Taiwan and China were closed for a holiday.
• In Asia, Japan +1.8% to 10067. Hong Kong +0.1% to 20062. China +0.3% to 2570. India +0.3% to 17463.
Dow Jones Industrial Average futures fell 25, or 0.3 percent, to 10,307. Standard & Poor's 500 Index futures fell 4.00, or 0.4 percent, to 1,105.20, while Nasdaq 100 Index futures dropped 5.00, or 0.3 percent, to 1,888.25.
Futures: Dow -0.2%. S&P -0.3%. Nasdaq -0.2%. Crude -0.4% to $76.66. Gold +0.2% to $1236.60.
FedEx Corp. (FDX) reported fourth-quarter earnings of $1.33 per share on revenue of $9.43 billion. Analysts were looking for earnings of $1.32 per share on sales of $9.04 billion.
Looking ahead, the company said it sees first-quarter earnings of 85 cents to $1.05 per share, and fiscal 2011 earnings of $4.40 to $5 per share.
Investors are not happy with the report, however, and FDX shares have dipped more than 3% in pre-market trading.
Picture: FedEx trucks are seen parked in New York March 18, 2010. Credit: Reuters/Shannon Stapleton
Some Interesting News-
• Covidien Plc (COV) Merger and acquisition activity from Covidien Plc (COV) stole early headlines. Specifically, the medical equipment firm said that it is buying Somanetics Corp. (SMTS) for $250 million, or $25 per share. Covidien said the acquisition would broaden its product offerings and create earnings growth. The deal values Somanetics at a premium of $6.10, or 32%, over its closing price of $18.90 per share on Tuesday.
• Coca-Cola Enterprises Inc (CCE) predicted 2010 earnings growth on Tuesday that was slightly better than its prior forecast, citing positive second-quarter trends.
• Customers trying to reserve the latest version of the iPhone were thwarted by technical glitches that hindered sales on Tuesday, the first day of pre-orders before the device hits stores on June 24.
• Lightning-struck BP faces higher spill estimate. BP (BP) restarted its oil-capture system yesterday after lightning struck a crude-collecting ship earlier in the morning, causing a small fire. In more bad news for the company, scientists once again raised their estimate of how much oil is flowing into the Gulf of Mexico, this time forecasting 35,000-60,000 barrels per day, up from last week's revision of 20,000-40,000 bpd. BP Chairman Carl-Henric Svanberg and CEO Tony Hayward will meet with Obama at the White House today, following a speech by Obama last night in which he said BP will be forced to pay for its "recklessness." Meanwhile, sources say discussions on an escrow account to cover spill-related costs have stalled following disagreements on the size of the fund and how it would be administered. Premarket: BP -2.5% (7:00 ET).
• BP's Devon deal under regulatory review. In light of the Gulf of Mexico spill, Brazilian regulators are taking another look at BP's (BP) $7B deal with Devon Energy (DVN) to buy Brazilian assets. Officials from Brazil's oil industry regulator plan to fly to BP's Houston headquarters next week to discuss the April 20 explosion and the subsequent spill. A BP spokeswoman dismissed concerns, saying "as far as we're concerned the deal is going ahead."
• Mylan probed over earnings disclosures. The SEC is reportedly investigating whether generic-drug maker Mylan (MYL) improperly disclosed confidential earnings data to select investors. Last September, Mylan hosted a meeting with several investment bank analysts and investors, and reportedly shared information about its upcoming earnings release. Shares of Mylan rose 7% the next day on three times as much volume as usual. Mylan said it's "confident the communications made during the conference were entirely appropriate."
• Rumored EU/IMF credit line for Spain. Rumors continue about a possible rescue package for Spain, with a Spanish newspaper reporting that the EU, IMF and U.S. Treasury are drawing up a liquidity plan involving a €250B ($335B) credit line. The IMF and the Spanish government both deny that any rescue package is in the offing. The persistent rumors are further hurting Spanish banks, which are borrowing record amounts from the ECB as they find themselves increasingly shut out of international capital markets.
• Russia to diversify reserves. Russia is considering diversifying its international reserves, following fluctuations in the U.S. dollar and the euro, which represent 47% and 41% respectively of Russia's holdings. Alexei Ulyukayev, first deputy chairman of Russia's central bank, said the addition of the Australian dollar is being discussed, and suggested the Canadian dollar has already been added to the list of approved currencies. Russia has the world's third largest stockpile of international reserves at $458.2B.
• EU debt crisis may dent U.S. growth. Federal Reserve officials may trim their growth forecasts next week as Europe's developing debt crisis lowers demand for U.S. goods and keeps financial markets uneasy. The Fed could potentially lower its 2011 growth forecast by as much as 0.75%, while the debt crisis will likely reinforce the Fed's decision to keep interest rates very low for an "extended period."
• Wal-Mart extends financial links. Wal-Mart (WMT) bought a small minority stake in Green Dot, a prepaid debit card seller, giving the retail giant indirect access to the U.S. financial market. Wal-Mart had previously tried to open its own bank but abandoned the attempt in 2007 following intense lobbying pressure from the banking sector.
• Credit raters get a break on reform. Lawmakers crafting a combined House and Senate version of the financial reform bill scrapped a controversial measure to have the government match rating agencies with debt issuers. The move was designed to reduce the conflict of interest created when debt issuers pay their raters. Instead, lawmakers want the SEC to further study the issue. Rating agencies rose in yesterday's trading: MCO +6.6%, MHP +5.7%.
• New protection for credit card holders. The Federal Reserve unveiled new credit card rules that cap most late fines at $25; ban inactivity fees; prevent cascading penalties; and require issuers to consider a roll back of recent rate hikes. Analysts suggested that issuers, in classic form, may boost minimum payments in order to capture more penalties and make up for the loss of the typical $39 late fee.
• Corporate defaults may start to climb. In a newly released report, S&P expressed growing concern that many U.S. companies may find it difficult to refinance their heavy debt loads in coming years, leading to a possible surge in corporate bankruptcies. Around $300B of debt comes due in 2011, of which 41% is considered speculative; by 2014, the debt will climb to $550B, of which 72% is speculative.
• Lehman to expedite return of assets. Lehman Brothers' (LEHMQ.PK) European administrators plan to unveil a proposal today for the expedited return of $22B in assets to the failed bank's unsecured creditors. The "consensual approach" being taken would see most claims agreed by the end of the year and cash distributed in 2011, shaving years off the timeline of a traditional bilateral approach.
• AT&T privacy blunder, part II. In AT&T's (T) second privacy lapse in the space of a week, several customers logged into AT&T's website as themselves ended up in other users' accounts yesterday, as the site struggled to keep up with heavy demand for Apple's (AAPL) new iPhone. The website also had difficulty processing orders, with AT&T calling it the busiest day for online sales in the company's history.
Some pause in the market is to be expected after stocks have risen three of the past four days.
The cautious action in futures comes after the Dow soared 214 points and the S&P 500 broke through its 200-day moving average on Tuesday amid easing fears about Europe. The blue chips have soared nearly 6% since tumbling to 2010 lows just over a week ago.
The markets were under some pressure from a modestly weaker euro, which gave back a slice of its big gains in recent days.
While the premarkets were indicating a modest decline for U.S. stocks that could all change as a slew of reports on inflation, housing and industrial production are slated for release before the opening bell. Wall Street was also keeping an eye on BP (BP), which saw its shares decline following President Barack Obama's prime-time speech on the giant oil disaster in the Gulf.
To conclude, the SPX’s 200-day trend line is often considered a demarcation point between bull and bear markets. As such, continued strength above this trend line by the SPX could be a sign that we are nearing the end of a bull market correction. Such strength remains to be seen, however, as early trading is hinting that yesterday's rally may have been a bit overdone.
As I have mentioned on numerous occasions this is the time to be making the most of the volatility and trade options.
Success is simple. Do what's right, the right way, at the right time.
Success is simple. Do what's right, the right way, at the right time.
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