Bargain Hunting May Offer Some Support to the Markets - RTTNews Daily Market Analysis

Wed. August 20, 2008; Posted: 09:34 AM

(RTTNews) - The major U.S. index futures are pointing to a higher opening on Wednesday. Odds favor a rebound in today's session, given the sharp losses in the past two sessions. Positive earnings from hardware giant Hewlett-Packard (HPQ | Quote | Chart | News | PowerRating) could lift sentiment in the markets. However, fundamentally, nothing has changed, and there is no solid reason for the market to change tracks and move to top gear. The price of oil may come under volatility, given the fact that prices may react to the weekly inventory data to be released later in the day.

U.S. stocks extended their losses on Tuesday, as the markets crumbled on lingering crises on the financial and inflation fronts. A bigger-than-expected increase in wholesale price inflation and analysts' opinion of further damage to financial firms from the credit crisis sent the major averages lower. The Dow Industrials ended the session down 130.84 points or 1.14% at 11,349 and the S&P 500 Index receded 11.91 points or 0.93% to 1,267. Meanwhile, the Nasdaq Composite fell 32.62 points or 1.35% to 2,384.

After hitting the year's low of 10,830 in mid-July, the Dow Industrials has regained some ground. However, the index has thus far been unable to sustain the recovery attempt. The negative sentiment signaled by a bearish crossover that occurred at the start of the year has not reversed, with the 50-day day moving average trading below the 200-day moving average. On a downbeat note, both the moving averages are trending lower. Immediate support is found near the 11,230 level, while on the upside, the index could face resistance around the 11,628, 12,100 and 13,957 levels.

Among the sectors, the Amex Securities Broker/Dealer Index and the KBW Bank Index fell 2.97% and 3.40%, respectively. While the Dow Jones Transportation Average fell 2.17%, the Amex Airline Index receded 7.76%. Biotechnology, retail, housing, semiconductor, networking, software, hardware and Internet stocks also came under selling pressure. However, the Amex Oil Index gained 1.95% and the Philadelphia Oil Service Sector Index rose 3.08%. The Amex Gold Bugs Index advanced 2.48%.

On the economic front, a Commerce Department report showed that housing starts came in weaker-than-expected at 965,000, representing a 11% monthly decline. Single-family starts were down 2.9% and fell to its lowest level since January 1991. Building permits, a leading indicator of housing activity, also tumbled 17.7%. Meanwhile, the Labor Department's producer price inflation report showed a 1.2% monthly gain, taking the annual inflation rate to 9.8%. The core producer price growth accelerated to a 0.7% rate. Lehman Brothers' commented that continued signs of pass-through from past increases in commodity prices add upside risk to its CPI forecasts for the remainder of 2008. The firm is of the view that further upside surprises on the core CPI could spark a return of hawkish rhetoric from the monetary policymakers.

Currency, Commodity Markets

Crude oil futures, which rose $1.46 to $115.99 a barrel on Tuesday, are currently rising $0.37 to $114.90 a barrel. Meanwhile, gold futures are receding $1.20 to $815.60 an ounce after the commodity rose $11.10 to $816.80 an ounce in the previous session.

Among the currencies, the U.S. dollar is firming up against the 110.40 yen and is currently trading at 109.8650 yen compared to the 109.7215 yen at the close of New York trading on Tuesday. Against the euro, the dollar is at $1.4729.

Asia

Stock markets across the Asia-Pacific region rebounded from their early lows and closed mostly higher Wednesday. The Chinese stock market surged on expectations that the Chinese government will soon introduce a stimulus package to boost the slowing economy. Financials in Asia were mixed, while resources rose on firmer commodity prices.

After a weak opening, the Japanese market traded briefly in positive territory in the afternoon session as sentiment improved following a rally in the Chinese market. However, the benchmark Nikkei 225 index fell 13.36 points or 0.1% to finish at 12,852.

On the economic front, Japan's all-industry activity index dropped 0.9% in June over the previous month, the Ministry of Economy, Trade and Industry reported Wednesday. The decline matched the estimates of most analysts. Meanwhile, the Bank of Japan said in its Monthly Report of Recent Economic and Financial Developments for August that Japanese economic growth has been sluggish. According to the central bank, high energy and material prices and weak exports growth contributed to the sluggishness.

The financial sector recouped some of its early losses and closed mixed. Among auto stocks, Toyota Motor lost 1.8% following a report that the automaker will hike the price of some domestically sold hybrids and commercial vehicles by around 1-3% in September. Among other exporters, Sony plunged 2.8%, Canon fell 2.0%, Nissan Motor declined 0.9% and Honda Motor dropped 1.7%. The South Korean market opened weak, but recovered its lost ground and moved into positive territory by the afternoon and finished the session slightly below the flat line. Investors sold tech and shipyard shares, but they bought steel and chemical stocks. The benchmark KOSPI declined 0.7 point or 0.05% to finish at 1,541.

Tech stocks and shipbuilders lost ground on concerns that a global economic downturn will hurt demand. Among tech stocks, market leader Samsung Electronics dropped 0.7%, Hynix Semiconductor lost 1.3% and LG Display fell 1.2%. Hyundai Heavy Industries, the world's largest shipbuilder, shed 2.1%. Meanwhile, steel makers advanced.

The Chinese market closed sharply higher on expectation that the government will soon undertake measures to boost the economy and the stock market. Investment bank JPMorgan said in a note that the Chinese government is considering a stimulus package of 200-400 billion yuan. Brokerages, property developers and banks surged higher. The benchmark Shanghai Composite Index closed up 178.81 points or 7.63% at 2,523.

The Hong Kong market closed higher on the back of the rally in the Chinese market. Financials and property stocks outperformed on hopes of policy support, while oil and metals firms were boosted by a rise in commodity prices. The benchmark Hang Seng index closed up 446.89 points or 2.18% at 20,931. Hong Kong Exchanges and Clearing surged up 5.2% on hopes that a possible upturn on mainland bourses will boost trading activity on the local bourse.

The Australian stock market also advanced on Wednesday on the support provided by the resource space. The All Ordinaries index advanced 67.1 points or 1.4% to finish at 4,998.

Europe

The major European markets are trading higher on Wednesday. The French CAC 40 Index and the German DAX Index are rising 0.58% and 0.02%, respectively, while the U.K.'s FTSE 100 Index is advancing 0.42%.

The minutes of the Bank of England's September meeting showed that the Monetary Policy Committee was split three ways when they decided to hold interest rates unchanged at its August meeting. While one member argued for a 25 basis point-rate hike, another clamored for a 25 basis point cut in rates and the rest agreed on the 'hold' decision. The message conveyed by the minutes was markedly dovish, suggesting that the next movement in rates is likely to be on the downside rather than on the upside.

Meanwhile, Eurostat, the European Union's statistical body released its report on construction output, which showed a 0.6% drop in the construction output of the euro area in June compared to the previous month. On a year-over-year basis, construction output declined 2.4%.

U.S. Economic Reports

The Energy Information Administration is scheduled to release its weekly petroleum inventory report at 10:30 AM ET on Wednesday. While the report is expected to show increases in crude oil and distillate fuel inventories, gasoline stockpiles are expected to fall by about 3 million barrels.

The weekly petroleum inventory report for the week ended August 8th showed a 0.4 million barrel drop in crude oil inventories to 296.5 million barrels. Crude oil stockpiles are now in the lower half of the average range for this time of the year. Gasoline inventories and distillate inventories also declined by 6.4 million barrels and 1.7 million barrels, respectively. Refinery capacity utilization averaged 86.8% over the four weeks ended August 8th compared to 87.7% in the previous week.

Stocks in Focus

Hewlett-Packard (HPQ | Quote | Chart | News | PowerRating) may see some buying interest after it reported that its third quarter earnings rose to 80 cents per share from 66 cents per share last year. On an adjusted basis, the company reported earnings of 86 cents per share. Sales rose 10% to $28 billion. For the fourth quarter, the company expects to report earnings of $1.01-$1.03 per share, ahead of the $1 per share estimate of analysts. The company's revenue guidance of $30.2-$30.3 billion was also in-line with the consensus estimate of $30.2 billion.

eBay (EBAY | Quote | Chart | News | PowerRating) could be in focus after it announced a significant reduction in its listing fees for its Buy It Now fixed price format.

Analog Devices (ADI | Quote | Chart | News | PowerRating) came under selling pressure in Tuesday's after hours session after reporting third quarter revenues growth of 7% to $659 million, slightly below the analysts' estimate of $660 million. The company reported income from continuing operations of 44 cents per share.. Meanwhile, the company said it expects fourth quarter income from continuing operations of 44-46 cents per share.

Google (GOOG | Quote | Chart | News | PowerRating) could be in focus after study results released by Nielsen showed that Google's searches increased 16% year-over-year in July, which gave the company a market share of 60.2% compared to Yahoo's 17.4% and MSN's 11.9%. Both Yahoo and MSN showed year-over-year declines in searches.

VeriFone (PAY | Quote | Chart | News | PowerRating) could be in the spotlight over the appointment of Clinton Knowles as its interim CFO. Separately, the company also announced a restatement of its prior year results that reduced the previously reported profits for 2007 by $70 million. Additionally, the company said it expects profits for its first half to exceed consensus estimates.

TJX Companies (TJX | Quote | Chart | News | PowerRating) could be in focus after it revealed its intention to sell its Bob's Stores chain to private equity firms Versa Capital Management and Crystal Capital. The company did not divulge the financial terms of the deal. Additionally, the company said it would incur a charge of 3 cents per share towards the transaction in the third quarter.

BJ's Wholesale Club (BJ | Quote | Chart | News | PowerRating) is also likely to be in focus after it reported that its second quarter net income was almost flat at $36.5 million. On a per share basis, earnings increased to 61 cents per share from 55 cents per share in the year-ago period. The recent quarter's earnings included a gain of 3 cents per share. Sales rose 18% to $2.65 billion. The company also raised its full year earnings estimate.

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