Disappointing Guidance May Generate Additional Selling Pressure - RTTNews Daily Market Analysis

Thu. November 13, 2008; Posted: 09:32 AM

(RTTNews) - The major U.S. index futures are pointing to a lower opening on Thursday, with stocks likely to see some further downside after closing lower in the three previous sessions. The downward momentum comes on the heels of disappointing guidance from Wal-Mart (WMT | Quote | Chart | News | PowerRating) and Intel (INTC | Quote | Chart | News | PowerRating), with a report showing that weekly jobless claims jumped to a seven-year high last week also generating some negative sentiment.

After opening Wednesday's session notably lower, U.S. stocks showed a steady decline over the course of trading to close lower for the third consecutive session. The negative sentiment that has been in the air intensified as consumer electronics retailer Best Buy (BBY | Quote | Chart | News | PowerRating) issued a profit warning close on the heels of the bankruptcy filing by its smaller rival Circuit City. Consumer spending, which many analysts had hoped would experience a turnaround by the end of the year, seems to being facing the grave threat of failing.

Additionally, traders were also perturbed by the news that the Treasury may not stick to its original proposal to buy tarnished debts from banks. Companies seeking assistance from the government may be asked to raise private capital in order for them to qualify for public assistance. Treasury Secretary Henry Paulson also suggested that under the Troubled Assets Relief Plan, the government would attempt to attract private capital, potentially through matching investments. The Treasury also said it would consider the needs of non-banking financial institutions not eligible for the current capital program.

The Dow Industrials ended down 411.30 points or 4.73% at 8,283 and the S&P 500 Index slumped 46.65 points or 5.19% to 852, while the Nasdaq Composite tumbled 81.69 points or 5.17% to 1,499.

The Amex Securities Broker/Dealer Index and the KBW Bank Index fell 7.74% and 6.33%, respectively. Also showing notable losses were commodity-related stocks, as reflected by the 7.51% drop by the Amex Oil Index and the 10.92% tumble by the Amex Gold Bugs Index. The Philadelphia Oil Service Sector Index ended down 8.03%.

While the Dow Jones Transportation Index was off 4.40%, the Amex Airline Index fell 12.86%. Bleak news from retailers pushed the S&P Retail Index down by 5.82%. Housing stocks also showed weakness, with the Philadelphia Housing Sector Index receding by 7.16%. Technology stocks also came under severe selling pressure.

Currency, Commodity Markets

Crude oil futures, which declined $3.17 to $ 56.16 a barrel on Wednesday, are currently trading up $0.31 at $56.47 a barrel. The price increase comes ahead of the release of the weekly oil inventory report.

An ounce of gold is currently trading at $713.60, representing a decline of $4.70. In the previous session, the price of gold fell $14.50 to $718.30 an ounce.

CommerzBank believes that gold is likely to form a bottom at $700-$720 an ounce, as physical demand for gold for ingots and jewelry is picking up in Asia.

On the currency front, the U.S. dollar is trading at 96.08 yen compared to the 95.0075 yen it fetched at the close of New York trading. Currently, the dollar is valued at $1.2514 versus the euro.

According to Wachovia, the dollar's recent strength against most other global currencies reflects the recent deterioration in foreign economic fortunes. The firm expects the dollar to continue to trend higher, as major central banks cut rates more than the Federal Reserve.

Asia

Stock markets across the Asia-Pacific region extended their losses Thursday amid fresh worries about the state of the U.S. and Chinese economies. Comments from Treasury Secretary Paulson that the U.S. government was no longer planning to buy troubled mortgage-backed assets with the rescue money also dented investor sentiment.

The Japanese stock market tumbled to a two-week low, extending its losses for the third straight trading session. The benchmark Nikkei 225 Stock Average closed down 456.9 points or 5.3% at 8,238.6, although it recovered from the day's low of 8,148.3.

On the economic front, the Bank of Japan said Thursday that the price of corporate goods in Japan rose at an annual rate of 4.8% in October. The increase came in below analyst expectations that called for a 5.5% annual increase following the 6.8% jump in September.

Meanwhile, Japan's industrial production growth for September was revised down to 1.1% month-on-month from 1.2%, a final report from the Ministry of Economy, Trade and Industry showed Thursday. On an annual basis, production rose 0.2%.

Nippon Steel slumped 6.1%, T&D Holding sank 7.8%, and Inpex Holdings tumbled 10.6%. Consumer electronics makers fell as U.S. chain Best Buy slashed its forecast and tech bellwether Intel issued a profit warning. Sony lost 8.7%, Canon shed 6.3%, and Panasonic dropped 7.4%.

Financials closed lower on renewed credit worries. Mizuho Financial Group plummeted 6.6% following media reports that the group plans to boost its capital base by the end of the year. Mitsubishi UFJ Financial Group lost 3.7% and Sumitomo Mitsui Financial Group tumbled 8.0%.

Bucking the trend, construction firms Shimizu, Obayashi and Kajima closed higher. Shimizu jumped 13.4%, Obayashi gained 10.0%, and Kajima advanced 8.0%.

The South Korean stock market closed sharply lower, extending its losses for the third consecutive trading session. The benchmark Korea Composite Stock Price Index closed down 35.4 points or 3.2% at 1,088.4 after falling as low as 1,040.0 in afternoon trading.

Among major losers, top steelmaker POSCO plunged 6.8% and Woori Finance Holdings plummeted 15.0%. Market heavyweight Samsung Electronics dropped 1.4% and LG Display tumbled 11.12% after it was fined $400 million by the U.S. government for colluding with rivals on prices. Leading builder Daewoo Engineering & Construction nose-dived 11.0%.

Meanwhile, the Shanghai Composite Index bucked the regional trend, jumping 3.7% as the Chinese government's $586 billion economic stimulus package announced Sunday continued to underpin sentiment.

On the economic front, industrial production in China rose 8.2% on year in October, the National Bureau of Statistics said Thursday, slowing from the 11.4% annual expansion in September. The data came in well below analysts' expectation for an increase of between 10.1% and 10.9% on year. For the period of January through October, industrial production climbed 14.2% on year.

The Hong Kong stock market plunged on Thursday, with the benchmark Hang Seng Index closing down 717.7 points or 5.2% at 13,221.4. Among market heavyweights, HSBC Holdings tumbled 6.3%, China Mobile slid 4.6%, and Hong Kong Exchanges and Clearing plummeted 7.9% after it announced a 43% decline in net profit for the third quarter.

Among banks, China Construction Bank declined 4.7%, Industrial & Commercial Bank of China lost 3.9%, Bank of China slid 4.6%, Bank of Communications dipped 5.4% and China Merchants Bank dropped 4.4%.

The Australian stock market plunged nearly 6% to its weakest close in a little over four years on Thursday, extending its losses for the third straight trading session. The benchmark S&P/ASX 200 index fell 230 points or 5.9% to its lowest close since October 25, 2004 of 3,697.3. The broader All Ordinaries index fell 211.2 points or 5.4% to 3,672.4.

In the resources sector, index leader BHP Billiton slumped 11.7% and Rio Tinto sank 8.2%. The energy sector was also weak, with oil and gas producer Woodside Petroleum shedding 7.7% on a drop in oil prices, even though it said that it would achieve record production, revenue and profit in calendar 2008.

Europe

The major European markets are currently turning in a mixed performance. While the French CAC Index and the German DAX Index are currently up 1 percent and 0.6 percent, respectively, the U.K.'s FTSE 100 Index is down 0.6 percent.

In corporate news, UBS (UBS | Quote | Chart | News | PowerRating) said Raoul Weil, CEO of a division handling cross-border business and private banking, has been indicted by the U.S. Internal Revenue Service for conspiring to help U.S. clients evade income tax payments by concealing assets in offshore accounts.

On the economic front, the German Federal Statistical Office released preliminary estimates of third quarter GDP, which showed a 0.5% sequential decline compared a 0.4% contraction in the second quarter. Economists were bracing for a more modest 0.2% decline for the third quarter. Annually, third quarter price adjusted GDP grew 1.3%.

A separate report released by the French statistical office INSEE showed that annual consumer price inflation stood at 2.7% in October. Economists had expected the annual inflation rate to slow to 2.6% from 3% reported in the prior month. On a monthly basis, consumer prices were down 0.1%, in line with economists' expectations.

U.S. Economic Reports

Thursday morning, the Commerce Department released its report on U.S. international trade in goods and services in the month of September, showing that the U.S. trade deficit narrowed by a little more than economists had been expecting.

The report showed that the trade deficit narrowed to $56.5 billion in September from $59.1 billion in August. Economists had been expecting the trade deficit to narrow to $57.0 billion.

A 15.7 percent decrease in the value of petroleum imports contributed to the narrower trade deficit, reflecting the recent decrease in the price of oil.

The drop in the value of petroleum imports also contributed to a 5.6 percent decrease in the total value of imports, which fell to $211.9 billion in September from $224.4 billion in August.

At the same time, the total value of exports also showed a notable decrease, falling by 6 percent to $155.4 billion in September from $165.3 billion in the previous month.

In other economic news, the Labor Department released its report on initial jobless claims in the week ended November 8th, showing that jobless claims rose to a new seven-year high.

The report showed that jobless claims rose to 516,000 from the previous week's revised figure of 484,000. Economists had expected jobless claims to come in nearly unchanged compared to the 481,000 originally reported for the previous week.

With the increase, jobless claims rose to their highest level since the weeks following the September 11th attacks. In the week ended September 29, 2001 jobless claims totaled 517,000.

The Labor Department also said that the less volatile four-week moving average rose to 491,000 from the previous week's revised average of 477,750. The increase lifted the four-week moving average to its highest level in over seventeen years.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report at 10:30 AM ET on Thursday, a delay later than its normal release schedule due to the government holiday on Tuesday on account of Veteran's Day.

The oil inventory report for the week ended October 31st showed that crude oil stockpiles remained unchanged at 311.9 million barrels and are still in the upper half of the average range for this time of the year.

Gasoline inventories rose by 1.1 million barrels but remain near the lower boundary of the average range, while distillate fuel inventories climbed by 1.2 million barrels. Refinery capacity utilization averaged 84.4% over the four-weeks ended October 31st compared to 83.3% in the previous week.

The Treasury Budget, a monthly account of the surplus or deficit of the federal government is scheduled to be released at 2 PM ET. Economists expect the budget for October to show a deficit of $134 billion.

Stocks in Focus

Intel (INTC | Quote | Chart | News | PowerRating) may come under selling pressure after it lowered its fourth quarter revenues estimate to $9 billion, plus or minus $300 million, which is lower than its earlier estimate of $10.1-$10.9 billion. The company also lowered its gross margin estimate to 55%, plus or minus a couple of points, lower than its previous estimate of 59%, plus or minus a couple of points. The company blamed the muted outlook on weaker-than-expected demand in all geographies and segments.

National Semiconductor (NSM | Quote | Chart | News | PowerRating) could also move to the downside after it lowered its revenue guidance for the second quarter to $420-$425 million from its earlier estimate of $470-$480 million. The Street had estimated revenues of $461 million for the quarter. The company also said it will eliminate about 5% of its workforce, which is expected to help the company save $11-$13 million per quarter.

Netease.Com, Inc. (NTES | Quote | Chart | News | PowerRating) is also expected to see weakness after it reported third quarter earnings of 36 cents per ADS, missing the consensus estimate of 38 cents per ADS. However, revenues climbed to $118.8 million from $84.1 million in the year-ago period. Analysts had estimated revenues of $108.82 million.

On the other hand, NetApp, Inc. (NTAP | Quote | Chart | News | PowerRating) may gain ground after it reported second quarter adjusted earnings of 28 cents per share, a penny above analyst estimates. Revenues rose 15% to $911.6 million, higher than the consensus estimate of $792.2 million.

Computer Sciences (CSC | Quote | Chart | News | PowerRating) is likely to be in focus after it reported that its second quarter earnings, including a $2.43 per share gain, were $2.95 per share, sharply higher than 43 cents per share last year. Revenues were up 5.5% at $4.24 billion. The consensus estimate had called for revenues of $4.27 billion.

Crocs (CROX | Quote | Chart | News | PowerRating) tumbled in Wednesday's after hours session after it reported a fourth quarter loss of $1.79 per share compared to a profit of 66 cents per share last year, as revenues dipped 32% to $174.2 million, lower than the mean analysts' estimate of $201.72 million. The company expects a loss of 50-65 cents per share for its fourth quarter on revenues of $100-$120 million. Analysts, on average, expect a loss of 6 cents per share on revenues of $185.7 million.

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