Return of Investor Confidence in Financial Space Could Boost Market Sentiment - RTTNews Daily Market Analysis

Wed. September 24, 2008; Posted: 09:31 AM

(RTTNews) - The major U.S. index futures are pointing to a higher opening on Wednesday. Warren Buffett's proposed investment in Goldman Sachs (GS | Quote | Chart | News | PowerRating) could come as a whiff of fresh among the stench of negative news that has been coming out from the financial sector. The investment should lift sentiment towards financial stocks. However, the rally among commodities should heighten inflationary concerns. Markets could also stay tuned to comments from Federal Reserve Chairman Bernanke and U.S. Treasury Secretary Henry Paulson on their second day of testimony to Congress and the housing market report to be released shortly after the markets open.

U.S. stocks, which saw some strength in morning trading on Tuesday, came under selling pressure in the afternoon. Although buying interest lifted the major averages back into positive territory in late afternoon trading, they receded going into the close.

The Dow Industrials declined 161.52 points or 1.47% to 10.854 and the Nasdaq Composite receded 25.65 points or 1.18% to 2,153, while the S&P 500 Index fell 18.87 points or 1.56% to 1,188.

Among the sector indexes, the KBW Bank Index ended down 3.10%, while the Amex Securities Broker/Dealer Index ended flat. The Dow Jones Transportation Average lost close to a percentage point compared to a near 1 percentage point-gain by the Amex Airline Index. The Dow Jones Utility Average ended the session down 1.30%.

While the Amex Oil Index slipped 2.56%, the Philadelphia Oil Service Sector Index slumped 4.58%. Gold stocks also showed weakness, with the Amex Gold Bugs Index slipping 2.73%. Retail, housing and technology stocks also showed marked weakness.

Testifying before the Senate Banking Committee, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson explained the recent actions taken by the Fed and the Treasury in response to the financial crisis. Additionally, they provided arguments for moving from a case-by-case approach to a more comprehensive and fundamental approach.

The $700 billion in funding being debated is meant to be used to set up a new federal agency that could essentially buy discounted and distressed assets from the banking system. Such an arrangement will create liquidity and at the same time alleviate investor anxiety about the balance sheet condition. It will also help financial firms raise capital and expand credit to support growth.

Global Insight expects provisions to ensure that there is thorough and independent oversight of the operations of the new agency, with periodic reports to Congress and stipulations over operations to ensure full arm's length transactions. Additionally, there may be provisions that entitle the federal agency to receive rights to equity ownership in the financial institutions that sell distressed assets as well as enact limits on executive compensation for the financial institutions that benefit.

Currency, Commodity Markets

Crude oil futures are trading up $2.51 at $109.12 a barrel after the commodity declined $2.76 to $106.61 a barrel in Tuesday's session. Meanwhile, gold futures are currently trading down $11.70 at $902.90 an ounce. On Tuesday, the precious metal fell $17.80 to $891.20 an ounce.

On the currency front, the U.S. dollar is trading at 105.8410 yen, weaker than the 105.5595 yen it was worth at the close of New York trading yesterday. The dollar is currently valued at $1.4731 versus the euro.

Asia

Stock markets across the Asia-Pacific region closed in positive territory on news that billionaire investor Warren Buffett will invest $5 billion in Goldman Sachs. Additionally, Mitsubishi UFJ financial Group said that it would buy as much as 20% of Morgan Stanley, and Kyodo news reported that Sumitomo Mitsui Financial Group might also invest in Goldman Sachs. Crude oil prices jumped by $1.17 in late Asian trading to $107.78 a barrel.

Japanese Nikkei 225 average, which traded below the unchanged line for most of Wednesday's session, recovered in late trading to close up 24.44 points, or 0.2%, at 12115.

On the economic front, data from a joint survey released by the Ministry of Finance and the Cabinet Office showed that large Japanese companies are less pessimistic about the economy in the third quarter than they were in the preceding quarter. The index that measures Japanese all-industry business conditions in the third quarter was at minus 10.2, showing an improvement from minus 15.2 in the second quarter.

In the financial sector, Sumitomo Mitsui Financial Group gained 1.2%, Mitsubishi UFJ Financial Group jumped 4.2%, and top brokerage Nomura Holdings surged up 5.2%. Mizuho Financial Group lost 0.9% and Shinsei Bank plunged 5.4% after it cut its profit outlook for the full-year by 81% on Monday due to its exposure to collapsed U.S. investment bank Lehman Brothers and write-downs on asset-backed securities. Technology and other export stocks were mostly lower. Among oil-related stocks, Inpex Holdings declined 2.5%, Nippon Oil declined 1.0% and Nippon Mining Holding shed 2.1%.

South Korea's Kospi had a shaky start, but it recovered and traded above the unchanged line for most of the remainder of the session. The index closed up 14.6 points, or 1.0%, at 1,496.

Among machinery and tech stocks, top generator maker Doosan Heavy Industries surged up 4.8% and market heavyweight Samsung Electronics advanced 0.7%.

In the financial sector, brokerage house Mirae Asset & Securities jumped 5.0% and smaller Daishin Securities rose 4.2%. Meanwhile, banks and steel makers lost ground, with top lender Kookmin Bank tumbling 5.6% on its last trading day before being suspended for its move to turn into a holding company and steel maker POSCO falling 1.3%.

The Chinese market closed higher, rebounding in late trade on the back of gains in market heavyweight Unicom. Brokerages also posted sharp gains amid hopes that margin trading would be launched soon, but banks showed weakness despite share purchases in the three top institutions by a unit of sovereign wealth fund China Investment Corp. The benchmark Shanghai Composite Index closed up 15.30 points or 0.70% at 2,217.

Hong Kong's Hang Seng Index hovered in positive territory for the bulk of the session before closing up 89.14 points or 0.47% at 18,962. Many investors moved to the sidelines in late trade after Bank of East Asia fell sharply despite refuting rumors about its financial health.

China Life Insurance gained more than 3% after a broker named the stock as its top pick in the sector for short-term trading, while oil refiners China Petroleum & Chemical Corp and PetroChina rose 2.8% and 2.5%, respectively, following a drop in crude oil prices overnight.

Bank of East Asia plunged 6.9%. Among other banks, HSBC edged up 0.3%, Bank of China advanced 1.3% and ICBC rose 0.9%. Hang Seng Bank closed unchanged and China Construction Bank fell 1.0%. China Mobile jumped 2.0% and China Life surged 3.1%.

Australia's All Ordinaries opened unchanged, but it saw some weakness in early trading. However, the index recovered and moved steadily higher to close up 50.5 points or 1.0% to 5,008.

Financial stocks advanced strongly, while the diversified miners fell in early trading following a drop in metals prices, though they trimmed their losses by the end of the session. BHP Billiton dropped 0.1%, while Rio Tinto closed down 2.5%.

Europe

The European markets are trading on a mixed note on Wednesday, with the French CAC 40 Index is easing 0.04% compared to a 0.16% gain by the German DAX Index, while the U.K.'s FTSE 100 Index is gaining 0.04%.

On the economic front, the French National Institute of Statistics and Economic Studies revealed that the synthetic indicator of the industrial economic climate fell to 92 in September from 97 in July. Economists had expected the index to come in at 97.

Meanwhile, the Ifo Institute's business climate index for Germany fell to 92.9 in September from 94.8 in July. The September reading came in lower than what the economists had expected. The current assessment index fell 3.4 points to 99.8 compared to the consensus estimate of 101.9. The expectations index unexpectedly fell to 86.5.

U.S. Economic Reports

The National Association of Realtors is scheduled to release its report on existing home sales for August at 10 AM ET on Wednesday. Economists estimate existing home sales of 4.93 million for the month.

Existing home sales showed a 3.1% monthly increase in July to a seasonally adjusted 5 million annualized unit rate. Meanwhile, the previous month's sales were revised down an additional 0.2% to represent a decline of 2.8% in June. On the other hand, existing home sales for July were down 13.2% year-over-year. Inventories at the end of July rose 3.9% to an all time record high of 4.67 million homes, representing an 11.2-month supply at the current sales pace.

The national median price of existing homes fell 7.1% to $212,400 from a year-ago. Regionally, sales increased in the West (up 9.7%), Northeast (up 5.9%) and Midwest (up 0.9%), while sales edged down 0.5% in the South.

Bernanke is scheduled to testify once again on the 'Economic Outlook" before the Joint Economic Committee at 10 AM and thereafter on "U.S. Financial Markets" before the House Financial Services Committee at 2:30 PM ET. Paulson is also scheduled to testify before the House Financial Services Committee.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report at 10:30 AM ET on Wednesday.

Crude oil inventories dropped by 6.3 million barrels in the week ended September 12th to 291.7 million barrels. Crude oil stockpiles are now in the lower half of the average range for this time of the year.

Gasoline stockpiles fell by 3.3 million barrels, dropping below the average range for this time of the year, while distillate inventories edged down by 0.9 million barrels. Refinery capacity utilization averaged 82.9% over the four-weeks ended September 12th compared to 85% in the previous week. Meanwhile, demand also dropped, with the demand for gasoline and distillate fuels falling 2.6% and 2.7%, respectively over the four weeks ended September 12th compared to the same period last year.

Stocks in Focus

Lowes Companies (LOW | Quote | Chart | News | PowerRating) may be in focus after it said it continues to expect earnings of $1.48-$1.56 per share for 2008, while it expects to open 120 stories in 2009. Sales for the year are expected to be up about 1% amid a back of a 6%-7% decline in comparable stores sales. Meanwhile, the company expects to open 75-85 new stores in 2008.

Goldman Sachs (GS | Quote | Chart | News | PowerRating) and Berkshire Hathaway (BRKA, BRKB) are likely to react to an announcement from Berkshire that it will invest at least $5 billion in Goldman. Additionally, Berkshire also gets warrants to buy another $5 billion in the company's stock. Meanwhile, Goldman said on Tuesday that it would raise about $2.5 billion in a separate public offering.

Bank of America (BAC | Quote | Chart | News | PowerRating) could be in focus after a Wall Street Journal report said it replaced Andrew Gissinger, with a top Countrywide Financial executive, Craig Buffie. Buffie is a long-serving in-house executive. The report also said that three other Countrywide executives also left the combined mortgage operations of the bank this week.

Capital One Financial (COF | Quote | Chart | News | PowerRating) is likely to move in reaction to the news that it will add $200 million to its reserve to cover bad loans in the third quarter. The company attributed the move to the continuing weakness in the U.S. economy. The company also said it expects an increase in the charge-off rates for its U.S. credit card business. Meanwhile, the company clarified that it expects to maintain its current dividend.

More News: Market Updates | Stock Alerts | All Trading News | Stock Index

Archives

Feedback

Email Article Link

Close X

RELATED SITES

Please call 1-213-955-5858 ext. 1

Tax Relief Bank Levy Wage Garnishment

Disclaimer:

The Connors Group, Inc. ("Company") is not an investment advisory service, nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities or currencies customers should buy or sell for themselves. The analysts and employees or affiliates of Company may hold positions in the stocks, currencies or industries discussed here. You understand and acknowledge that there is a very high degree of risk involved in trading securities and/or currencies. The Company, the authors, the publisher, and all affiliates of Company assume no responsibility or liability for your trading and investment results. Factual statements on the Company's website, or in its publications, are made as of the date stated and are subject to change without notice.

It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results of any individual trader or trading system published by Company are not indicative of future returns by that trader or system, and are not indicative of future returns which be realized by you. In addition, the indicators, strategies, columns, articles and all other features of Company's products (collectively, the "Information") are provided for informational and educational purposes only and should not be construed as investment advice. Examples presented on Company's website are for educational purposes only. Such set-ups are not solicitations of any order to buy or sell. Accordingly, you should not rely solely on the Information in making any investment. Rather, you should use the Information only as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any investment.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING AND MAY NOT BE IMPACTED BY BROKERAGE AND OTHER SLIPPAGE FEES. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.

The Connors Group, Inc.
15260 Ventura Blvd., Ste. 2200
Sherman Oaks, CA 91403

All analyst commentary provided on TradingMarkets.com is provided for educational purposes only. The analysts and employees or affiliates of TradingMarkets.com may hold positions in the stocks or industries discussed here. This information is NOT a recommendation or solicitation to buy or sell any securities. Your use of this and all information contained on TradingMarkets.com is governed by the Terms and Conditions of Use. Please click the link to view those terms. Follow this link to read our Editorial Policy.