Optimistic Earnings Expectations To Keep Mood Upbeat - RTTNews Daily Market Analysis

(RTTNews) - The major index futures are pointing to a higher opening on Monday, with sentiment improving after earnings optimism catalyzed a strong upward move in the European markets. In reaction to the optimism generated by earnings, commodity prices are moving higher, sending commodity-related stocks higher. The dollar, a risk haven, is losing its appeal and is moving to the downside. Given the fact that there isn't any major economic report and earnings to digest in today's session, it is likely that the markets attempt to hold on to their gains, although meaningful upside is unlikely due to the oversold levels of the markets.

U.S. stocks rebounded from two straight weeks of declines in the week ended October 9th, as earnings optimism and a few positive economic data points led to an increase in the risk appetite of traders, sending stocks higher throughout the markets.

Last Monday, a favorable service sector reading led to a sharp rally on Wall Street, helping the major averages to end with gains of 1% each. The buying momentum continued into Tuesday, as the Australian central bank's decision to raise interest rates, the first among the developed nations to do so since the eruption of the recent crisis, lent hopes that a turnaround in global economic conditions may be around the corner.

A consolidation move was witnessed on Wednesday, as apprehensions about earnings led to some indecision. The major averages ended on a mixed note, with the Dow declining, while the Nasdaq Composite and S&P 500 Index closed higher. Stocks resumed the upward move and closed higher on Thursday, with Alcoa's (AA | Quote | Chart | News | PowerRating) earnings and a positive weekly jobless claims report serving as positive catalysts. Although the major averages showed some indecision in early trading, they advanced over the course of Friday's session to close higher.

During the week ended October 9th, the Dow Industrials rose 3.98%, advancing to its best level since October 6th, 2008, while the S&P 500 Index and the Nasdaq Composite Index gained 4.51% and 4.45%, respectively.

Among the sector indexes, the NYSE Arca Gold Bugs Index jumped 12.99%, the Philadelphia Oil Service Index climbed 9.14%, the Philadelphia Semiconductor Index gained 6.47% and the NYSE Arca Oil Index advanced 6.51%. The KBW Bank Index and the NYSE Arca Securities Broker Dealer Index rose 5.82% and 6.58%, respectively, while the Philadelphia Housing Sector Index moved up 5.46% and the S&P Retail Index ended up 5.90%. The Dow Jones Transportation Average gained close to a percentage point.

Currency, Commodity Futures

Crude oil futures are rising $1.37 to $73.12 a barrel after the commodity rose for the second straight week in the week ended October 9th. Oil rose $1.82 or 2.6% to $71.77 a barrel in the previous week, as the equity market rally and the weakness of the dollar supported the commodity.

Crude oil futures for November delivery rose moderately last Monday and continued to rise modestly on Tuesday. However, the commodity fell sharply by over $1.30-a-barrel on Wednesday despite a bullish oil inventory report from the EIA, which showed a draw down in crude oil stockpiles.

Oil rebounded on Thursday, rising more than $2-a-barrel in the session and advanced further, albeit modestly on Friday to close the week higher.

Gold futures, which rose $44.30 or 4.4% to $1,048.60 an ounce in the previous week, are currently gaining $7.20 to $1,055.80 an ounce.

On the currency front, the U.S. dollar weakened against the euro in the week ended October 9th, dropping 0.9% against the euro to settle the week at $1.4712. Although the dollar received a pounding earlier in the week after a report suggested that OPEC nations are evaluating the use of a basket of currencies for oil trading, it strengthened in late week trading after Federal Reserve Chairman Ben Bernanke signaled that the central bank is contemplating an interest rate hike as soon as the economy shows improvement.

However, the dollar advanced slightly against the yen, as traders began reconciling themselves to the idea that the Bank of Japan may not raise interest rates any time soon. The greenback rose slightly against the yen to 89.82 yen from 89.73 yen in the previous week.

Currently, the U.S. dollar is trading at 90.06 yen and is valued at $1.4765 versus the euro.

Asia

Most major Asian markets closed lower on Monday, although the Japanese market was closed for a public holiday. Notwithstanding a positive lead from the U.S. market on Friday, some of the markets in the region succumbed to fears ahead of a slew of earnings and economic reports to be released from the U.S.

Australia's All Ordinaries opened higher and moved up further in early trading before surrendering all its gains by the mid-session and trading modestly lower for the rest of the session. The index ended down 9 points or 0.19% at 4,746.

Financial and real estate stocks closed lower in the session, while the rest of the sector stocks closed modestly higher. The four major banks ended the session lower and oil stocks Santos and Oil Search also receded. In the mining space, Rio Tinto and Newcrest Mining declined, while BHP Billiton and Lihir Gold rose.

Hong Kong's Hang Seng Index traded close to the unchanged line in the morning, but declined sharply in the afternoon. At the close of trading, the index was down 200.09 points or 0.93% at 21,299. Forty of the forty-two index components ended the session lower, with the weakness more pronounced among retail and China-related bank stocks.

However, the Indian market ended higher, aided by double-digit growth in industrial output for August, the strong response to Indiabulls' IPO and firm overseas cues. India's industrial production rose 10.4% year-over-year in August, faster than the 7.2% growth in the previous month. The Sensex ended up 384 points or 2.31% at 17,027.

Europe

The major European markets are advancing, encouraged by the upside in commodity prices and positive earnings from consumer electronics giant Royal Philips Electronics. The French CAC 40 Index and the German DAX Index is rising 1.55% and 1.76%, respectively, while the U.K.'s FTSE 100 Index is moving 1.30%.

In corporate news, Royal Philip Electronics reported a profit of 174 million euros for its third quarter compared to a profit of 57 million euros in the year-ago period. Sales fell 11%, smaller than the 15% sales decline expected by some analysts.

On the economic front, the German Federal Statistical Office reported that its wholesale price index decreased 8.1% year-over-year in September, compared to the 8.3% drop in the previous month. A year ago, wholesale prices were up 5.1%. On a monthly basis, wholesale prices edged down 0.2%, smaller than the 0.7% decline in the previous month.

U.S. Economic News

The unfolding week's economic calendar has its fair share of market moving first-tier economic reports, with the Commerce Department's retail sales report for September, the Federal Reserve's industrial production report for September, the Reuters/University of Michigan's preliminary consumer sentiment index for October and the results of the Philadelphia Fed's and the New York Fed's manufacturing surveys for October among the most import ones.

Traders may also keep an eye on the minutes of the September FOMC meeting, as they attempt to glean clues on the Fed's interest rate and economic outlook, given the fact that the Fed Chair has recently commented on the possibility of an upward adjustment to interest rates. Other reports that are scheduled to be released during the week include the Labor Department's report on import and export prices for September, the consumer price inflation report for September, the regularly scheduled weekly jobless claims and oil inventory reports, the Treasury Budget for September and the Commerce Department's business inventories report for August.

As consumers were weaned off the cash for clunkers program, they may have remained reluctant to spend. Therefore, retail sales for September may have seen a decline. However, benefiting from an extended back-to-school shopping season and strength among stray retail categories such as drug stores, warehouse clubs and department stores, retail sales, excluding autos, should show strength. That said, sustainable strength may still prove elusive for consumer spending, as the employment market is teetering.

Industrial production is likely to have increased again in September notwithstanding the reduction in auto sales due to the pay back phenomena brought about by the cash for clunkers program-induced sales. Production is likely to be hurt to a lesser extent than sales, as automakers rebuild their anemic inventory levels. That said, caution is likely to limit the gain in production.

The consumer sentiment index of Reuters/University of Michigan is most likely to remain flat or see downside, as weak job market conditions and a falling U.S. dollar dampen some of the recent enthusiasm generated by positive economic data.

Both consumer prices and core consumer prices are expected to see small upticks. However, the October manufacturing surveys are likely to show that both the Empire state manufacturing index as well as the Philadelphia Fed's manufacturing index retreated slightly following sharp advances in the previous month.

Stocks in Focus

National Semiconductor (NSM | Quote | Chart | News | PowerRating) may react to its announcement that its CEO Brian Halla will retire, effective November 30th. The company also announced the appointment of COO Donald Macleod as its President and CEO.

Pfizer (PFE | Quote | Chart | News | PowerRating) may see some weakness after reports said the company has stopped enrolling patients for the Phase III trials of its cancer drug candidate figitumumab. The halting was done based on recommendations by independent safety monitors, who found that the drug produced serious adverse events.

Perot Systems (PER | Quote | Chart | News | PowerRating) is also likely to be in focus after it said it would acquire BearingPoint Management Consulting Ltd. Earlier in late September, Perot Systems revealed an agreement to be acquired by Dell (DELL | Quote | Chart | News | PowerRating).

Lazard (LAZ | Quote | Chart | News | PowerRating) may see some activity after it announced that its Chairman and CEO Bruce Wasserstein has been hospitalized with an irregular heartbeat. The company stated that Wasserstein's condition is serious, but he is stable and recovering.

General Dynamics (GD | Quote | Chart | News | PowerRating) may see some strength after it said the U.S. Army TACOM Lifecycle Management Command has awarded the company a $647 million contract to supply 352 Stryker vehicles. The contract is an extension of one that was initially awarded to the company in 2000.

Arcelor Mittal (MT | Quote | Chart | News | PowerRating) is likely to react to its announcement that it has signed an agreement to divest its 28.6% minority interest in Wabush Mines, Canada in favor of Consolidated Thompson Iron Mines Ltd. (CLM.TO). Arcelor Mittal received a consideration of $34.28 million. At the same time, U.S. Steel (X | Quote | Chart | News | PowerRating) also announced that its subsidiary U.S. Steel Canada has agreed to sell its 44.6% stake in Wabush Mines to Consolidated Thompson.

Sun Bancorp. (SNBC | Quote | Chart | News | PowerRating) could be in focus after it said it expects to record a provision for loan losses of $16.2 million, increasing its allowance for loan losses to about 1.7% of its outstanding loans as of September 30th, 2009 from 1.62% at the end of June. The company expects to record net charge offs of $14.5 million and non-performing assets of $94 million. Additionally, the company also said it would record write downs of $800,000 towards a real estate property and an impairment charge of $1.9 million.

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