Lingering Economic Fears Likely to Weigh on Markets - RTTNews Daily Market Analysis

Thu. October 02, 2008; Posted: 09:18 AM

(RTTNews) - The major U.S. index futures are pointing to a significantly lower opening on Thursday. The widening credit spreads in the inter-bank market are likely to cause anxiety over further deterioration in credit market conditions. Additionally, the continued increase in jobless claims should trigger some concerns over tomorrow's non-farm payrolls report. Although the Senate has approved the rescue plan, the market isn't too hopeful about the effectiveness of the plan in stemming the rot found among financial firms. Therefore, the development is unlikely to serve as much of a positive catalyst.

Economic worries and uncertainty over the rescue package continued to keep traders on tenterhooks on Wednesday, with the major U.S. averages opening significantly lower and finding further downside in the morning. Thereafter, the indexes recouped some of their losses to end modestly lower. The Dow Industrials declined 19.59 points or 0.18% to 10,831 and the S&P 500 Index lost 5.30 points or 0.45% to 1,161. Meanwhile, the technology-weighted Nasdaq Composite Index underperformed the other major averages, ending the day down 22.48 points or 1.07% at 2,069.

Among the sectors, the Amex Oil Index and the Philadelphia Oil Service Sector Index receded 1.41% and 4.37%, respectively. The S&P Retail Index slipped 1.67% compared to a 1% loss by the Amex Biotechnology Index. In the technology space, the Philadelphia Semiconductor Index fell 1.19%, while hardware, software and Internet stocks also came under significant selling pressure. However, the Amex Airline Index surged up 7.21%. The Amex Securities Broker/Dealer Index climbed 2.57% and the KBW Bank Index gained 6.93%.

On the economic front, the Institute for Supply Management's manufacturing index declined sharply to 43.5 in September from 49.9 in the previous month, marking the biggest monthly decline since 1984. The new orders index fell by about 10 points to 38.8, while the production index also plummeted to 40.8. However, BMO Capital Markets noted that the weakness may have been overstated due to the Boeing strike and the impact of the hurricanes, as the regional surveys did not point to a slowdown anywhere close to the national survey. On a positive note, the prices paid index slumped 23.5 points, representing the biggest drop on record. Although the export orders index slipped, it stayed above the '50' level at 52.

Meanwhile, the Commerce Department's construction spending report showed that construction spending was unchanged in August compared to expectations for a 0.5% decline. Residential construction spending, excluding improvements, which is used for calculating GDP, fell 4.1%, while private non-residential spending fell 0.8% following a 1.1% drop in July. On the other hand, public construction spending rose 0.8% in August, extending the 1.3% increase in July.

Currency, Commodity Markets

A barrel of oil is currently fetching $99.78 a barrel, representing a decline of $1.03. On Wednesday, the commodity declined $2.11 to $98.53. Wednesday's decline followed the release of EIA's weekly inventory report, which showed a 4.3 million increase in crude oil stockpiles for the week ended September 26th to 294.5 million barrels. Crude oil inventories are now in the lower half of the average range for this time of the year.

Gold futures are currently slipping $13.30 to $874 an ounce after they closed up $9.90 at $887.30 an ounce in the previous session.

Gasoline inventories rose by 0.9 million, while distillate stocks fell by 2.3 million barrels. Refinery capacity utilization averaged 73.7% in the four-weeks ended September 26th compared to 77.8% in the previous week.

On the currency front, the U.S. dollar is trading at 105.54 yen compared to the 105.715 yen it was worth at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.3804.

Asia

Stock markets across the Asia-Pacific region closed mixed on Thursday after the U.S. Senate approved a revised bailout package to rescue the U.S. financial system. Oil prices fell in late Asian trading after seeing some strength earlier in the day.

Japan's Nikkei 225 Index opened higher, but it receded into negative territory after the first hour of trading. Thereafter, the index languished below the unchanged line before closing down 213.5 points or 1.9% to close at 11,155.

On the economic front, the monetary base in Japan climbed 0.9% year-over-year in September to 88.37 trillion yen, the Bank of Japan said Thursday. That followed a 0.2% annual decline in August and a 0.7% decrease in July. On a seasonally adjusted basis, the monetary base soared 15.8% in September to 89.398 trillion yen.

Mining, iron and steel, and machinery stocks led the decliners. Machinery maker Komatsu plunged 10.7% to its lowest in three years and Hitachi Construction tumbled 14.7%. Steel makers also closed lower, with Nippon Steel plunging 8.5%. Oil and gas miner Inpex Holdings plummeted 8.5%, Nippon Oil fell 5.4% and Nippon Mining Holding lost 5.7%. Among other commodity-related stocks, Mitsui & Co shed 7.5% and Mitsubishi Corp plunged 8.7%.

Banks and export-oriented stocks also came under selling pressure. Auto stocks fell after major automakers reported lower U.S. sales for September. Honda Motor dropped 4.5%, Toyota declined 3.4%, Nissan plunged 4.0% and Mazda slumped 11.8%.

South Korea's Kospi also surrendered its early gains and declined steadily through the rest of the session. The index fell 20.02 points or 1.39% to 1,420. The financial markets in South Korea will remain closed on Friday on account of the National Foundation Day holiday.

Tech bellwether Samsung Electronics fell 0.9% and top steel maker POSCO plunged 4.8%. Financial shares were also weak, with financial services company Shinhan Financial Group falling 1.2%. Daewoo Shipbuilding & Marine Engineering tumbled 7.1% after South Korea's pension fund said that it has decided to scrap its plan to bid for the shipyard.

Hong Kong's Hang Seng Index, which traded below the unchanged line for most of the session, recovered in late trading. The index closed up 194.90 points or 1.08% at 18,211.

Ping An surged over 13% after confirming that it terminated a deal to buy a 50% stake in an asset management arm of Fortis, index heavyweight China Mobile gained more than 3.6%, and blue chip mainland property developer China Overseas jumped nearly 9.0%.

HSBC rose 1.5%, while contract handset maker Foxconn soared over 16%. Foxconn's Taiwan-based parent Hon Hai said a Foxconn unit filed a lawsuit against U.S. firm Molex for anti-competitive behavior.

Australia's All Ordinaries showed some degree of volatility before closing down 40.4 points or 0.8% to finish at 4,774.

In the banking space, Commonwealth Bank closed up 1.2% after it denied a report in the Australian Financial Review that it had offered up to A$3 billion for the HBOS-owned BankWest. National Australia Bank closed unchanged, while ANZ Banking Group dropped 1.2%. Westpac and St. George Bank advanced 1.1% each and investment bank Macquarie Group edged up 0.5%. The resource space showed mixed sentiment.

Europe

The major European markets are trading on a mixed note on Thursday. The French CAC 40 Index is gaining 0.21% compared to a 0.16% drop by the German DAX Index, while the U.K.'s FTSE 100 Index is rising 0.77%.

The ECB held interest rates steady at 4.25% at its October meeting after maintaining rates at that level at the previous meeting. The last revision in rates was in July, when the central bank raised them by 25 basis points. The interest rate on the marginal lending facility was held at 5.25%, while the interest rate on the deposit facility was retained at 3.25%. The inflation rate in the euro zone region remains well above the central bank target of 2%, and the decision may have been prompted by the desire to contain inflation despite flailing growth.

The U.K. Nationwide's house price survey showed that U.K. house prices fell 12.4% in September from the previous year, marking the biggest drop since the survey began. On a monthly basis, house prices declined 1.7%.

A report released by Eurostat showed that the euro zone's producer prices rose declined by 0.5% in August from the previous month, when it rose 1.3%. On a year-over-year basis, prices climbed 8.5%.

U.S. Economic Reports

A report released by the U.S. Labor Department showed that jobless claims rose 1,000 to 497,000 in the week ended September 27th from the previous week's revised figure of 493,000. The increase came as a surprise to economists, who had been expecting jobless claims to edge down to 475,000 from the originally reported reading of 493,000.

The Labor Department also said that the less volatile four-week moving average rose to 474,000 from the previous week's revised average of 462,500. At the same time, the report showed that continuing claims in the week ended September 20th increased to 3.4591 million from the preceding week's revised level of 3.543 million.

The Commerce Department is due to release its report on factory goods orders for August at 10 AM ET on Wednesday. Orders for manufactured goods are likely to have decreased 2.9% in the month.

In July, factory goods orders rose 1.3% to $465.4 billion, with the orders for durable goods rising 1.3%. The increase was aided by a 3.2% increase in transportation equipment orders. Shipments of factory goods rose 2.1% compared to a 0.7% increase in unfilled orders. Meanwhile, inventories edged up 0.5% during the month.

The durable goods orders report for August released last week showed that orders for items that are designed to last for more than 3 years fell 4.5% on a monthly basis. Durable goods orders form the bulk of the orders for factory goods. Excluding the volatile transportation orders, orders fell 3% following a downwardly revised 0.1% increase in July. Non-defense capital goods orders, excluding aircrafts, fell 2%.

Stocks in Focus

Con-Way (CNW | Quote | Chart | News | PowerRating) may come under selling pressure after it lowered its earnings estimate for 2008 to $2.60-$2.80 per share from its earlier estimate of $3-$3.40 per share. The company attributed the reduction to the challenging business environment. Analysts, on average, estimate earnings of $3.22 per share for the quarter.

Continental Airlines (CAL | Quote | Chart | News | PowerRating) is likely to react to its September traffic results, which showed that its September consolidated load factor fell 2.5 points year-over-year to 76.5%. Traffic during the month fell 10.9%, while capacity declined 8.1%.

Immucor (BLUD | Quote | Chart | News | PowerRating) could gain ground after it reported that its first quarter earnings rose to 28 cents per share from 25 cents per share last year, as revenues climbed 15% to $73.2 million. The upside was primarily due to higher prices in the U.S., favorable foreign exchange gains and higher sales of instruments abroad. The consensus estimates had called for earnings of 23 cents per share on revenues of $71.1 million.

International Paper (IP | Quote | Chart | News | PowerRating) edged down modestly in Wednesday's after hours session after it announced plans to close a paper machine at its Albany Mill. Accordingly, the company plans to cut about 40 jobs.

Micro Technology (MU | Quote | Chart | News | PowerRating) is likely to see some weakness after it reported a fourth quarter loss of 45 cents per share, wider than the loss of 21 cents reported for the year-ago period. On an adjusted basis, the company's loss was 27 cents per share. Revenues were up nearly 1% to $1.45 billion. Analysts expected a loss of 24 cents per share on sales of $1.54 billion.

Shares of Mosaic (MOS | Quote | Chart | News | PowerRating) tumbled in Wednesday's after hours session after the company reported first quarter earnings of $2.65 per share, lower than the $2.94 per share estimate of analysts. However, profits nearly quadrupled from 69 cents per share last year. Revenues increased to $4.32 billion and also exceeded the consensus estimate of $4.11 billion.

Nabors Industries (NBR | Quote | Chart | News | PowerRating) could react to its announcement that its third quarter earnings are likely to be 65-68 cents per share. The Street expects earnings of 80 cents per share for the quarter. The company also said it expects charges to hurt earnings by about 18 cents per share.

RenaissanceRe Holdings (RNR | Quote | Chart | News | PowerRating) may be in focus after it said it expects a charge of $275 million in its third quarter, mainly due to the losses attributed to hurricanes Ike and Gustav. The company said its holdings of fixed maturity securities issued by Lehman and its unit is currently valued at $8.7 million.

Marriott International (MAR | Quote | Chart | News | PowerRating) is likely to react to its announcement that its third quarter adjusted earnings from continuing operations rose to 34 cents per share, 10% growth from the year-ago period. Revenues were up a mere 1% to $3 billion. The consensus estimates had called for earnings of 32 cents per share on revenues of $2.95 billion. For 2009, the company estimates earnings of $1.48-$1.60 per share, while analysts expect earnings of $1.78 per share.

Constellation Brands (STZ | Quote | Chart | News | PowerRating) is likely to react to its announcement that its second quarter adjusted net income was 45 cents per share compared to 35 cents per share last year. Net sales rose to $956.5 million from $892.6 million in the year-ago period. Analysts expected earnings of 44 cents per share on revenues of $964.52 million. The company expects adjusted earnings of $1.68-$1.76 per share for fiscal year 2009 compared to the $1.72 per share consensus estimate.

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