Broadening Scope of Financial Crisis May Continue to Plague Markets - RTTNews Daily Market Analysis

(RTTNews) - The major U.S. index futures are pointing to a lower opening on Tuesday. Trading volumes could be light, given the fact that banks and bond markets are closed on account of 'Veterans Day.' The pull back in commodity prices should lead to selling in the commodity space. Negative tidings from corporations, including job cuts, capital raising, curtailment of capital expenditure and external support only serve to increase anxiety of traders. Until the fears psychosis over a very severe downturn give way to some hopes of an improvement in economic condition, the lackluster phase is likely to continue.

U.S. stocks opened Monday's session notably higher on the encouragement provided by the stimulus plan announced by China and other resuscitating measures announced by governments around the world. However, negative tidings from corporations, including the bankruptcy filing by consumer electronics retailer Circuit City (CC | Quote | Chart | News | PowerRating) reminded traders of the stark reality that it may be long time before sanity returns to Main Street. The three major averages, which were up solidly in early trading, surrendered all their gains by the mid-session and dipped in negative territory, ending the session with solid losses.

The Dow Industrials ended down 73.27 points or 0.82% at 8,871 and the Nasdaq Composite declined 30.66 points or 1.86% to 1,617, while the S&P 500 Index receded 1.78 points or 1.27% to 919.

Twenty of the thirty Dow components ended the session lower, with the index dragged lower by General Motors (GM | Quote | Chart | News | PowerRating) and financial stocks. General Motors tumbled 22.94%, while American Express (AXP | Quote | Chart | News | PowerRating) (down 5.25%), Citigroup (C) (down 5.16%) and Bank of America (BAC | Quote | Chart | News | PowerRating) (down 4.93%) also posted notable losses. On the other hand, Alcoa (AA | Quote | Chart | News | PowerRating) rose 5.27% and Chevron (CVX | Quote | Chart | News | PowerRating) gained 1.20%. AT&T (T | Quote | Chart | News | PowerRating), Verizon (VZ | Quote | Chart | News | PowerRating), Wal-Mart Stores (WMT | Quote | Chart | News | PowerRating) and McDonald's (MCD | Quote | Chart | News | PowerRating) rose by more than a percentage each.

Among the sectors, the Dow Jones Utility Average fell 3.19% and the Amex Airline Index receded 4.63%. The Amex Securities Broker/Dealer Index and the KBW Bank Index moved down 7.02% and 2.90%, respectively. While the S&P Retail Index lost 2.04%, the Philadelphia Housing Sector Index declined 4%. Semiconductor stocks also showed weakness, with the Philadelphia Semiconductor Index declining 3.90%. Hardware, networking and Internet stocks also declined sharply. However, the Amex Gold Bugs Index gained 4.68%.

The bottoming process is likely to extend over the next few months, with all likelihood of the major averages testing the lows again amid a volatile trend. According to Marco Pado from Cantor Fitzgerald, the market is looking for something to turn the economy around. General Motors is one stock that was battered hard by the current crisis and has lost much of its value. The company, which once epitomized the U.S.' industrial might, is now a mere shadow of its former self. The stock has been in freefall since late 2007.

General Motors has shed a whopping 92% from the $42.64 it hit in mid-October 2007. The stock has been mostly trading below its 50-day moving average since early November 2007. The weakness stems from fundamental company-specific problems as well as the broader economic downturn. Debilitated consumers are very wary of spending on the company's fuel-guzzling vehicles, while internally the company is fighting a losing battle to keep costs in check. And the problems don't seem to be GM-specific, as its Detroit neighbors Ford (F | Quote | Chart | News | PowerRating) and privately-owned Chrysler are also facing rough weather.

Interestingly, the media had speculated a couple of weeks back that GM and Chrysler were negotiating over a potential combination. Unlike in Arithmetic, two negatives are unlikely to make a positive in this case. The government, which was quick to respond to the woes of financial firms, probably due to their importance in keeping money flowing through the economy, seems to be cold-shouldered to the sufferings of the automakers. Will the lawmakers act swiftly before we begin to hear more bankruptcy news? All hopes now hinge on the lame duck session, when the automakers are fervently hoping for a piece of cake from a potential second stimulus package Congress is expected to pass.

Currency, cmmodity Markets

Crude oil futures are declining $1.71 to $60.70 a barrel after the commodity rose $1.37 to $62.41 a barrel on Monday. Gold futures, which advanced $12.30 to $746.50 an ounce in the previous session, are currently moving down $7.30 to $739.20 an ounce.

On the currency front, the U.S. dollar is trading at 98.04 yen compared to the 98.0095 yen it was worth at the close of New York trading on Monday. The greenback is currently worth $1.2736 a euro compared to yesterday's $1.2748.

Asia

Stock markets across the Asia-Pacific region closed sharply lower on Tuesday amid worries that China's $586 billion economic stimulus package may not avert a global slowdown. A huge loss at U.S. insurer AIG and a plea by General Motors for urgent financial assistance by the government also dented investor sentiment. Additionally, economic data released today showed that the Chinese economy is cooling, corporate bankruptcies rose by 13.4% in Japan, and Australian business confidence fell to its lowest level on record. Oil prices fell in Asia Tuesday as renewed worries about the global economy raised fears that energy demand will fall.

Japan's Nikkei 225 average opened lower and declined sharply in early trading. Although the index attempted to pare back most of its losses by the afternoon, selling pressure intensified in late trading. The index closed down 272.1 points at 8,809.

On the economic front, Japan's unadjusted current account balance showed a smaller surplus in September, according to data released by the Ministry of Finance on Tuesday. The balance showed a surplus of 1.4979 trillion yen in September, a decrease of 48.8% from a year ago. The September figure was slightly better than the 51.5% decline forecast by most economists.

Financial, export and commodity-based stocks showed significant weakness. Mitsubishi Rayon slumped 10.2% after the Nikkei daily reported that the company is in the final stage of talks to acquire unlisted U.K.-based chemical producer Lucite International for an estimated 150 billion yen.

South Korea's Kospi, which showed significant weakness in the morning, recovered over the course of late morning and early afternoon trading, only to give back its gains by the end of the day. The benchmark Kospi closed down 23.7 points or 2.1% at 1,129, led by tech stocks and automakers.

Tech blue chips lost ground mainly due to Circuit City's bankruptcy filing. Market leader Samsung Electronics shed 0.8% and consumer electronics giant LG Electronics plunged 7.0%. Among automakers, top carmaker Hyundai Motor fell 3.4% and its affiliate Kia Motors shed 2.6%. The Chinese stock market closed lower as investors locked in profits following Monday's 7.3% surge on the back of an economic stimulus packaged announced by the government on Sunday. The benchmark Shanghai Composite Index slid 1.7% or 31.2 points to 1,844.

Hong Kong's Hang Seng languished below the unchanged line for the bulk of the session. The index closed down 703.7 points or 4.8% at 14,041. Among market heavyweights, HSBC Holdings tumbled 4.7% after it said Monday that it took a US$4.3 billion hit for bad debts in the United States and China Mobile shed 5.2%.

Meanwhile, Semiconductor Manufacturing International Corp soared 29.0% after it said that it planned to sell a US$172 million stake to Beijing-based Datang Telecom Technology & Industry Holdings. Offshore oil producer CNOOC shed 5.4%, Sinopec dropped 4.1%, and PetroChina lost 4.0%.

Australia's All Ordinaries opened unchanged, but it receded sharply in early trading before moving sideways to close down 146.9 points or 3.6% at 3,961. A monthly survey report from National Australian Bank showed that business confidence in Australia collapsed to a record low in October as fears of a global economic slowdown crushed optimism at home.

Among big miners, index leader BHP Billiton fell 3.7%, Rio Tinto shed 1.9%, and Fortescue Metals plunged 6.9%. The energy sector finished mixed, with Oil Search adding 1.2%, Woodside falling 2.9%, and Santos plunging 5.0%. In the gold sector, Newcrest Mining shed 4.6% and Lihir retreating slid 4.7% on lower gold prices in Sydney.

In the banking space, Commonwealth Bank plunged 6.3%, National Australia Bank tumbled 9.0% after the trading halt was lifted following its A$3 billion capital raising at A$20 per share, ANZ lost 1.4%, and Westpac gave away 3.1%. Elsewhere in the financial sector, Insurance Australia Group dropped 1.0%.

Europe

The major European averages are trading lower on Tuesday. The French CAC 40 Index is slipping 3.29% and the German DAX Index is declining 2.66%, while the U.K.'s FTSE 100 Index is moving down 2.45%.

In corporate news, Vodafone (VOD | Quote | Chart | News | PowerRating) said its pre-tax earnings for the first-half fell 27% to 3.3 billion pounds. However, revenues climbed 17.1% to 19.9 billion pounds. The company said it intends to cut costs by 1 billion pounds a year.

The U.K. National Statistical Office reported that the U.K.'s trade deficit for September narrowed to 3.86 billion pounds from 4.43 billion pounds in the previous year. Exports rose by 3% compared to a 0.5% decline in imports. A survey done by the Zew Institute showed that German investor sentiment rose to -53.5 in November from -63 in October. Economists had expected a reading of -60.

Stocks in Focus

American Express (AXP | Quote | Chart | News | PowerRating) could be in focus after it said it said the Federal Reserve granted bank holding company status to the company. Starbucks (SBUX | Quote | Chart | News | PowerRating) is likely to come under selling pressure after it reported that its fourth earnings declined to 1 cent per share from 21 cents per share last year. On an adjusted basis, the company reported a profit of 10 cents per share, trailing the consensus estimate of analysts. Revenues were up 3% to $2.52 billion, also shy of the consensus estimate of $2.58 billion. For 2009, the company expects adjusted earnings of 71-90 cents per share compared to the mean analysts' estimate of 87 cents per share. The company lowered its net new store openings for the year.

Las Vegas Sands (LVS | Quote | Chart | News | PowerRating) may also see weakness after it reported that its third quarter adjusted earnings fell to 2 cents per share from 12 cent per share last year. The decrease was due to higher net interest expenses and amortization and depreciation. However, net revenues climbed 67.2% to $1.11 billion. The consensus estimates had called for earnings of 11 cents per share on revenues of $1.16 billion. In the conference call, the company said it is seeking to raise $2.14 billion in new financing, while it also said it would stall construction work at its Macau property due to a lack of financing options.

Lions Gate (LGF | Quote | Chart | News | PowerRating) is expected to be in focus after it reported a second quarter loss of 41 cents per share compared to a loss of 49 cents per share last year, as revenues grew 8.2% to $380.7 million. Analysts expected the company to report a loss of 15 cents per share on revenues of $383.5 million.

Liz Clairborne (LIZ | Quote | Chart | News | PowerRating) is likely to react to its to its third quarter adjusted earnings from continuing operations of 39 cents per share. Revenues declined 16% to $1.01 billion. The Street had estimated earnings of 37 cents per share on revenues of $1.10 billion. The company narrowed its full year adjusted earnings estimate to $1.02-$1.07 per share from its earlier estimate of $1-$1.10 per share.

Rockwell (ROK | Quote | Chart | News | PowerRating) may also be in focus after it said its fourth quarter net income declined to 87 cents per share from $1.08 per share last year. Sales were up 8.3% at $1.5 billion, in-line with the consensus estimate.

Sirius XM Radio (SIRI | Quote | Chart | News | PowerRating) could move in reaction to the news that its third quarter pro forma revenues climbed 16% to $613 million, exceeding the $587.41 million consensus estimate. The company's pro forma net loss was 9 cents per share, narrower than the pro forma loss of 18 cents per share last year. Adjusted loss from operations also narrowed to $38.85 million from $103.57 million last year.

Tyco International (TYC | Quote | Chart | News | PowerRating) is likely to be in focus after it said its adjusted fourth quarter earnings from continuing operations were 81 cents per share, ahead of the consensus estimate of 73 cents per share. Revenues climbed 7% to $5.28 billion compared to the mean analysts' estimate of $5.32 billion.

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