Traders in for disappointment as Govt. delays Rescue Package - RTTNews Daily Market Analysis

Fri. September 26, 2008; Posted: 09:22 AM

(RTTNews) - The major U.S. index futures are pointing to a notably lower opening on Friday. Hopes of seeing the speedy implementation of the rescue package deal seems to be evaporating into the air, as the bickering in Congress over the intricacies involved continues. Washington Mutual's (WM | Quote | Chart | News | PowerRating) collapse is expected to continue to serve as a reminder of the continuing turmoil in the financial sector, belying any hopes of a bottom in the credit crisis. Traders, who bid up stocks on Thursday on hopes of the package being expeditiously passed, may move to the sidelines or sell-off their holdings. Additionally, economic reports released recently point to a further deteriorating in economic fundamentals and could compound the worries of traders.

U.S. stocks opened Thursday's session modestly higher, but the buying interest accelerated over the course of trading, as market participants fervently hoped that the government will expedite the passing of the bill approving the rescue package. The gains came despite the release of some disappointing economic readings and a sharp climb in oil prices. The Dow Industrials ended up 196.89 points or 1.82% to 11,022 and the S&P 500 Index gained 23.31 points or 1.97% to 1,209, while the Nasdaq Composite Index advanced 30.89 points or 1.43% to 2,187.

Among the sectors, the KBW Bank Index rose 2.17% and the Dow Jones Utility Index gained 2.90%. The S&P Retail Index gained 2.04% compared to a 2.90% advance by the Philadelphia Housing Sector Index. The Amex Oil Index and the Philadelphia Oil Service Sector Index moved up 3.03% and 1.09%, respectively. The Dow Jones Transportation Index, the Amex Biotechnology Index, the Philadelphia Semiconductor Index and the Amex Securities Broker/Dealer Index gained about 1% each. On the other hand, the Amex Gold Bugs Index fell 2.86%.

On the economic front, August durable goods orders fell 4.5% on a monthly basis, while the order growth for July was revised down to 0.8% growth from 1.3% growth estimated initially. Even excluding the volatile transportation, orders fell 3% following the downwardly revised 0.1% growth in July. Non-defense capital goods orders, excluding aircrafts, fell 2%. Meanwhile, new home sales for August came in at a seasonally adjusted annual rate of 460,000 units, down 11.5% from July.

Wachovia Securities now believes that the probability of recession as high. The firm noted that the leading indicator index dropped into negative territory in a pattern that reminds us of the 1990/91 and 2001 recession periods. The coincident index has declined at a 1.1% annual rate, with the drop mainly due to weakness in the underlying indicators of employment and industrial production. Additionally, consumer spending and residential investment is also seeing weakness.

Currency, Commodity Markets

Crude oil futures are currently trading down $2.04 at $105.98 a barrel. On Thursday, the commodity climbed $2.29 to $108.02 a barrel. Gold futures are advancing $5.60 to $887.60 an ounce after the precious metal slid $13 to $882 an ounce in the previous session.

Among currencies, the dollar is trading at 105.17 yen compared to 106.56 yen at the close of New York trading on Thursday. Against the euro, the dollar is currently valued at $1.4640.

Asia

Stock markets across the Asia-Pacific region closed lower on Friday, as political wrangling continued to stall the approval of the U.S. government's rescue plan for the financial sector. A late Thursday meeting at the White House between President Bush, congressional leaders, and the presidential candidates ended without an agreement. Additionally, the U.S. authorities closed Washington Mutual and sold its assets in America's biggest ever bank failure.

Japan's Nikkei 225 average opened higher, however, it surrendered its early gains and dipped into negative territory in the first hour of trading. Thereafter, the index languished below the unchanged line to close down 113.37 points or 0.94% at 11,893.

Sea transporters, nonferrous metals, and iron and steel stocks led the decliners, while major gainers included pharmaceutical and insurance companies. The falling Baltic Dry Index hit shippers hard. Kawasaki Kisen plunged 7.2% and Mitsui O.S.K. Lines plummeted 6.3%. Among commodity-linked stocks, Mitsui & Co. shed 5.0% and Itochu fell 3.8%. Oil & gas miner edged up 0.3%, but Nippon Mining Holding dropped 2.1%, and Nippon Oil declined 2.9%.

Meanwhile, drug makers rallied as Takeda Pharmaceutical's share buyback plan lifted sentiment in the sector. Takeda jumped 4.2% and Eisai gained 2.6%. Takeda Pharmaceutical said Thursday that it would buy back up to 9 million, or 1.1% of its outstanding shares for 50 billion yen to increase shareholder returns. South Korea's Kospi traded below the unchanged line throughout the session before closing down 25.3 points, or 1.68%, to close at 1,476. With the decline, the index ended a five-day winning streak. Investors sold technology, financial and other large-cap stocks.

Samsung Electronics plunged 2.5% and LG Electronics plummeted 2.7%, while affiliate LG Display dropped 2.3%. Financial stocks also receded in the session. Bucking the trend, SK Telecom gained 1.0%.

The Chinese market closed flat, ahead of a weeklong holiday and on uncertainty surrounding the U.S. financial sector bailout. The Chinese market will remain shut next week for the National Day holidays. The benchmark Shanghai Composite Index closed down 3.72 points or 0.16% at 2,294. Hong Kong's Hang Seng Index opened marginally lower before declining sharply in morning trading. After hitting a bottom in the mid-session, the index recouped some of its losses and closed down 252.34 points or 1.33% at 18,682.

Chinese stocks underperformed as China Mobile and Ping An Insurance closed sharply lower. China Mobile fell 3.2%, Ping An slumped 9.7% on worries about potential losses on its investments in Belgian-Dutch financial group Fortis.

Despite seeing some strength in the morning session, Australia's All Ordinaries declined in the afternoon to close down 26.2 points or 0.5% to finish at 4,935.

Among banks, National Australia Bank surged up 3.2%, Commonwealth Bank gained 0.9%, ANZ rose 2.6% and Westpac Banking Corp. advanced 0.5%. Macquarie Group dropped 2.4% after Australia's biggest investment bank said that it would sell its investment lending business in Australia.

Europe

The major European are showing significant weakness on Friday, with the French CAC 40 Index and the German DAX Index receding 2.11% and 2.14%, respectively. Meanwhile, the U.K.'s FTSE 100 Index is declining 1.91%.

On the economic front, Germany's Federal Statistical Office said the import price index rose 9.3% year-over-year in August, marking the same pace of increase as in July. Meanwhile, the import price index, excluding crude oil and mineral oil products, grew 4.1% annually in August versus the 3.5% gain logged in July. On a monthly basis, import prices decreased 0.8% in August, reversing a 0.6% rise recorded in July. Economists' were looking for a monthly decline of 1%.

Meanwhile, the French economy contracted 0.3% quarter-over-quarter in the second quarter, confirming the initial estimate, a final report from the statistical office INSEE revealed on Friday. The economy had expanded 0.4% in the first quarter. Another report released by INSEE showed that the consumer confidence indicator improved to minus 44 in September from minus 47 in July and minus 46 in June. Economists had expected the index to fall further to minus 48 in September. There was no report for the holiday month of August.

U.S. Economic Reports

The Bureau of Economic Analysis released the final second quarter GDP report, showing that the U.S. economy grew at a downwardly revised 2.8% rate. Economists had expected the growth to be revised up to a 3.4%. On a year-over-year basis, second quarter GDP growth was 2.1% compared to 2.5% in the first quarter.

The increase in second quarter GDP compared to the previous quarter, which saw 0.9% growth, reflected positive contributions from exports, personal consumption expenditures, non-residential structures, federal government spending and state and local government spending. However, private inventory investment, residential fixed investment and investments on equipment and software deducted from growth. The GDP price index, excluding food and energy prices, rose at an unrevised annual rate of 2.2%, the same pace as in the previous quarter, while the GDP price index increased 4.2%.

St. Louis Federal Reserve President James Bullard is due to speak on the economic outlook at 10 AM ET on Friday.

The final reading of the University of Michigan's consumer sentiment index for September is due to be released at 10 AM ET on Friday. The report is likely to show a reading of 70.9, lower than the mid-month reading of 73.1.

Stocks in Focus

Research In Motion (RIMM | Quote | Chart | News | PowerRating) showed some weakness in Thursday's after hours session despite reporting that its second quarter earnings rose to 86 cents per share from 50 cents per share in the year-ago period. Revenues rose 15% to $2.58 billion. The consensus estimates had called for earnings of 87 cents per share on revenues of $2.16 billion.

Accenture (ACN | Quote | Chart | News | PowerRating) may be in focus after it said its fourth quarter rose to 67 cents per share from 50 cents per share last year. Net revenues also increased to $6 billion from $5.1 billion last year. The consensus estimates had called for earnings of 68 cents per share on revenues of $6.15 billion.

Diamond Foods (DMND | Quote | Chart | News | PowerRating) is likely to react to its announcement that its fourth quarter earnings climbed to 16 cents per share from 5 cents per share in the year-ago period, as revenues rose 1% to $113.15 billion. Analysts, on average, estimated earnings of 13 cents per share on revenues of $111.26 million. The company also said it expects first quarter earnings to be 60-63 cents per share on revenues of $190-$205 million for the first quarter.

JP Morgan Chase (JPM | Quote | Chart | News | PowerRating) may be in focus after it said it would buy the deposits, branches and a loan portfolio of Washington Mutual by paying the FDIC $1.9 billion. The announcement came after the FDIC took control of the troubled bank. JP Morgan said it would write down $30 billion on the loans.

Jabil Circuit (JBL | Quote | Chart | News | PowerRating) is likely to be in focus after it said its fourth quarter core earnings earnings per share rose 3% to 30 cents per share from 29 cents for the fourth quarter of fiscal 2007. Net revenue increased 4% to $3.3 billion from $3.1 billion for the same period of fiscal 2007. Analysts, on average, estimated earnings of 31 cents per share on revenues of $3.24 billion. Jabil also said it expects core earnings per share in the range of 30-38 cents per share for the first quarter.

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