Some Consolidation May Follow Last Week's Gains - RTTNews Daily Market Analysis

(RTTNews) - The major U.S. index futures are pointing to a higher opening on Monday. Stocks may derive comfort from better-than-expected earnings from Bank of America (BAC | Quote | Chart | News | PowerRating) and Hasbro (HAS | Quote | Chart | News | PowerRating). Nevertheless, resumption in the climb of oil prices and apprehensions ahead of a deluge of earnings may keep buying interest subdued. Traders may also focus on the leading economic indicators index to gauge the health of the economy.

U.S. stocks began the week ended July 18th on a weak note despite the government and the Fed announcing concerted efforts to support Freddie Mac (FRE | Quote | Chart | News | PowerRating) and Fannie Mae (FNM | Quote | Chart | News | PowerRating), the two Government-sponsored mortgage companies. Weaker sentiment lingered on Wall Street on Tuesday amid continuing worries over the credit crisis and its impact on financial firms. Nevertheless, tech stocks received support from Intel's (INTC | Quote | Chart | News | PowerRating) strong results.

Thereafter, in the subsequent two sessions on Wednesday and Thursday, the markets advanced solidly on the back of better-than-expected results from financial companies such as Wells Fargo (WFC | Quote | Chart | News | PowerRating) and JP Morgan Chase (JPM | Quote | Chart | News | PowerRating). On Friday, dismal tech earnings weighed on the technology space, while the broader market continued to receive support from the relatively strong earnings results from other firms. All through the week, stocks benefited from a decline in oil prices, which relieved some anxiety over inflationary pressures overshadowing growth.

The major averages snapped a 6-week losing streak and advanced during the week. The Dow Industrials and S&P 500 Index gained 3.57% and 1.71%, respectively for the week, while the Nasdaq Composite posted a weekly gain of 1.95%.

Among the sub-indexes, the Amex Securities Broker/Dealer Index and the KBW Bank Index advanced about 14% each for the week, while the Philadelphia Housing Sector Index rallied 13.54%. Airline stocks capitalized on the retreat in the price of oil and jumped 27.33% for the week. While the S&P Retail Index gained 6.86%, the Dow Jones Transportation Average and the Amex Biotechnology Index posted gains in excess of 4% each.

On the other hand, the Amex Oil Index and the Philadelphia Oil Service Sector Index were down 5.99% and 1.38%, respectively for the week. The Amex Gold Bugs Index declined 3.78% compared to a 4.73% drop by the Dow Jones Utility Index.

Currency, Commodity Markets

Crude oil futures are rebounding and are trading up $2.38 at $131.26 a barrel after seeing significant weakness in the previous week. In the week ended July 18th, oil slid $16.20 or 11.17% to $128.88 a barrel. The weakness witnessed last week was primarily due to expectations that slowing global growth will tame the demand for oil, an increase in oil and gas inventories, milder weather and tough talk on a clamp down on some types of futures trading. Wachovia believes that the downside risks to the economy may be mitigated if oil prices remain below the $130-a-barrel level.

Meanwhile, gold futures are also rising $7.90 to $965.90 an ounce after the precious metal witnesses some degree of selling pressure last week. Gold futures declined $2.60 or 0.27% to $958 an ounce.

Among the currencies, the dollar ended the week at $1.5848 versus the euro, modestly stronger than the $1.5875 it fetched at the close of the previous week. The dollar firmed up 0.47% against the yen in the week ended July18th to 106.965 yen.

Currently, a dollar is valued at 107.01 yen and is trading at $1.5847 versus the euro.

Asia

Stock markets across the Asia-Pacific region closed sharply higher on Monday, as financials posted strong gains after Citigroup reported a smaller-than-expected loss. Crude oil's decline for a fourth day on Friday also added to the positive sentiment. However, oil has gained as much as $1.61 to $130.49 a barrel in late Asian deals Monday following inconclusive talks between Tehran and world powers. The Japanese market was closed for a public holiday.

The South Korean market closed sharply higher, posting the largest percentage gain in more than five months, as oil prices and U.S. credit market concerns eased. The benchmark Korea Composite Stock Price Index , or KOSPI, rose 52.93 points or 3.51% to end at 1,563. In the financial sector, Samsung Securities jumped 8.5%, second-ranked Mirae Asset Securities surged 12.4% and Kookmin Bank gained 7.2%. Builder Daewoo Engineering & Construction surged 10.9%.

Steel maker POSCO rose 3.3% and market heavyweight Samsung Electronics advanced 2.9%. Korean Air Lines climbed 3.7% and Asiana Airlines rose 2.8%. Shipper Hanjin Shipping advanced 2.1%.

Among the losers, non-life insurer Samsung Fire & Marine Insurance fell 3.9% after the company announced that it would lower its auto insurance premiums starting next month.

The Chinese market closed sharply higher for a second day, led by property developers and brokerages. The benchmark Shanghai Composite Index closed up 83.05 points or 2.99% at 2,861 after gaining about 3.5% on Friday.

The Hong Kong market also closed closed sharply higher, led by banks and property developers. The benchmark Hang Seng index closed up 658.71 points or 3.01% at 22,533.

HSBC jumped more than 4%, while mainland banks gained on news of a drop in the sector's non-performing loans ratio and hopes that China might hold back further monetary tightening for now.

Property firms outperformed after figures showed new home supply in Hong Kong fell to a record low in the first half of 2008, bolstering prospects for strong property prices in the near term. China Mobile rose over 2% on news that it added more subscribers in June compared to May. China Petroleum and Chemical Corp or Sinopec, jumped over 3% after crude oil extended its decline for a fourth day on Friday. Airlines also extended their rebound.

The Australian stock market closed sharply higher, led by financial stocks. The All Ordinaries index advanced 160.1 points or 3.3% to finish at 5,075.

On the economic front, Australian producer prices grew at a slower pace in the second quarter on a drop in costs for agriculture, fishing and electronics manufacturing. The producer price index advanced 1.0% following a 1.9% increase in the first quarter.

Financial and property trusts advanced strongly, while the mining stocks ended mixed. Energy stocks saw some buying interest. In the retail sector, David Jones climbed 5.3%, while Coles owner Wesfarmer rose 4.6% and Woolworths added 4.4%.

Europe

After seeing some weakness in early trading, the European averages are trading higher on Monday. The French CAC 40 Index and the German DAX Index are rising 1.13% and 1.39%, respectively, while the U.K.'s FTSE 100 Index is gaining 0.92%. UK mortgage lender HBOS declined sharply after it announced that it could only get about 8% of its rights issue subscribed. The

On the economic front, U.K. Rightmove reported that the average asking price of a home declined 1.8% in July to 235,219 pounds from the previous month's 239,564 pounds. Year-over-year, asking price slid 2% in July compared to a 0.1% annual gain in June.

U.S. Economic Reports

The upcoming week's economic calendar is fairly light, with only a few second-tier economic reports due to be released. Much of the focus is likely to shift to the two housing market reports of the week, namely the existing and new home sales reports for June. Additionally, traders may also pay heed to the Commerce Department's durable goods orders report for June, the final reading of the University of Michigan's consumer sentiment index for July and the Conference Board's leading economic index for June.

The Beige Book is also likely to attract attention, as investors look to gain an understanding of the Fed's assessment of how economic conditions are panning out in the different Federal Reserve districts. Additionally, the markets may react to the regularly scheduled weekly oil inventory and jobless claims reports.

Economists have muted expectations regarding the leading economic indicators for June due to a decline in the manufacturing workweek, a decline in stock prices and an increase in initial jobless claims for unemployment benefits. However, the declines are likely to be mitigated due to increases in money supply and building permits, and the positive slope between the 10-year Treasury yield and the Fed finds rate.

Soft aircraft orders are likely to exert downward pressure on durable goods orders for June. Nevertheless, orders could receive some support from a modest gain in autos. Machinery orders are also expected to show some strength.

Meanwhile, new home sales are expected to show another month of declines in June, reflecting the continued weakness in the housing sector. Going by the weak pending home sales index for May, which is considered a leading indicator of existing home sales, one can also expect a decline in sales of already constructed houses.

The Conference Board is scheduled to release a report on the U.S. leading index for June at 10 AM ET on Monday. The consensus estimate calls for a decline of 0.1% for the month.

The leading indicators index edged up 0.1% in May, benefiting from a positive performance by stock prices. The indexes of coincident indicators and lagging indicators also rose by 0.1% and 0.2%, respectively.

Earnings

Hasbro reported that its second quarter net revenues rose 13% to $784.3 million. Net earnings came in at 25 cents per share, higher than 3 cents per share in the year-ago period, which included a final mark to market expenses of 21 cents per share. Analysts, on average, estimated earnings of 22 cents per share on revenues of $675.40 million.

Bank of America announced that its second quarter net income declined to 72 cents per share from $1.28 per share in the year-ago period, as revenues climbed to $20.32 billion. The consensus estimates called for earnings of 53 cents per share on revenues of $18.37 billion.

Stocks in Focus

Genentech (DNA | Quote | Chart | News | PowerRating) could see buying interest after Swiss pharma company Roche, which already owns a 55.9% stake in Genentech, offered to acquire the reminder of the shares it doesn't own already for a price of $43.7 billion or $89 per share.

Yahoo (YHOO | Quote | Chart | News | PowerRating) is likely to be in focus after it announced the appointment of billionaire investor Carl Icahn to its board. The reconciliatory stance is seen as a move to avert a proxy battle. The agreement reached between the two parties also calls for re-election of 8 of the current members of the board and the filling of two other seats based on a list of nine candidates recommended by Icahn.

Aon (AOC | Quote | Chart | News | PowerRating) may react to its announcement that it has appointed Lester Knight as its non-Executive Chairman of its Board. Knight is scheduled to take the reins from Patrick Ryan, Aon's executive Chairman and founder, who is due to retire on August 1st, 2008.

IAC (IACI | Quote | Chart | News | PowerRating) is expected to be in focus after it announced that it has reached a series of agreements for placing $840 million in bonds and $1.5 billion in senior credit facilities for Interval Leisure Group, Ticketmaster and HSN. The company noted that the development is a significant milestone in its planned spin-off, which is expected to close in the third quarter of 2008.

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