Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:55 AM ET
S&P 500: -8.75; 1,425.50
NASDAQ 100: -12.25; 1,902.50
Dow: -73.00; 13,016.00
NIKKEI 225: -2.19%; 16,475.61 (-369.00)
HANG SENG: -2.87%; 21,375.72 (-631.60)
SHANGHAI SE COMPOSITE: -0.34%; 4,856.11 (-16.68)
BSE SENSEX 30: 15,000.91; 8/14
FTSE 100: -1.44%; 6,055.30 (-88.20)
CAC 40: -1.40%; 5,401.97 (-76.69)
XETRA-DAX: -0.71%; 7,372.49 (-52.58)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +0.68%; $72.87 (+$0.49)
Gold: -0.63%; $675.40 (-$4.30)
Natural Gas: +1.59%; $7.05 (+$0.11)
Silver: -1.55%; $12.55 (-$0.198)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
CPI Barely Rises, As Expected
The Consumer Price Index [CPI] was virtually unchanged in July, up just 0.1% from a year ago -- its slowest growth rate in eight months -- the Labor Department reported Wednesday. Core inflation, which measures CPI net of volatile food and energy prices, was up a slightly higher 0.2%, emphasizing the effect a drop in energy prices had on the headline rate. Both figures were in line with economist expectations. In June, both headline and core CPI rose 0.2%. Analysts say the mild data should be enough to allow the Fed to shift its focus from inflationary concerns to growing worries over a lack of credit and a weak housing marked when it meets next month. Over the past 12 months, CPI is up 2.4% while core CPI is up 2.2% for the third straight month. Energy prices fell 1% in July. Food was up 0.3%, medical care 0.6% and clothing 0.4%. Clothing prices had dropped in each of the previous four months. Housing, which makes up 40% of the index, was up 0.2%. "Price pressures are declining because of a slowing economy and higher interest rates," FTN Financial analyst Lindsey Piegza told Bloomberg. "Inflation is still at the top of the Fed's [unofficial 1-2% core] range, so the Fed continues to downplay the declines because it wants to make sure." Separately, the Labor Department said average weekly earnings, adjusted for inflation fell 0.1% in July; average hourly earnings increased 0.3%; and average weekly hours fell 0.3%. S&P 500 September futures are down 8.5 points from yesterday's close at 1426.
Sources: Press release I, II, Wall Street Journal, Bloomberg
Commentary: Higher Than Expected CPI Will Kick the Market When It's Down • State Of The Markets • U.S. Trade Deficit Shrinks; GDP Outlook Bright
Stocks/ETFs to watch: DIA, SPY, AGG
Deere Q3 Net Up 23%, Easily Beats Street, Sales Mostly In-line
Deere & Co. reported a 23% increase in Q3 net income to a record $537.2 million, or $2.37/share, on a 5.9% rise in revenues to $6.63B. Analysts were expecting $1.99/share on sales of $6.65B. A 30% jump in overseas equipment sales helped offset a 5% decline in North America. A weak dollar contributed 6% of the increase in overseas sales growth. Deere forecast full-year net income of about $1.7B (approx. $7.56/share based on 224.98M shares outstanding, compared to analysts' average estimate of $6.98). Equipment sales are expected to increase around 16% in Q4. In a press release, CEO Robert Lane commented, "... the company is well-positioned to benefit from secular economic trends taking shape throughout the world such as growing affluence and increasing demand for food, feed and biofuels." The U.S. markets for construction and forestry equipment are said to be "remaining under pressure" hurt by a "significant downturn" in housing construction. Shares of Deere were last up 2.1% to $119.51 in thin pre-market trading, after losing 1.3% to $117.09 on Tuesday.
Sources: Press release, MarketWatch
Commentary: Earnings Preview: Retailers Will Be Prominent • 100 Stocks to Offset Rising Food Prices • Taking Eric Bolling’s Agriculture Stock Play, Making it My Own
Stocks/ETFs to watch: DE. Competitors: CAT, CNH, KUB, TEX, JOYG. ETFs: VIS, PRFN, DBA
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
It was another day of bad news, even before the stock market traded a single share: Retail giant and Dow Jones Industrials member Wal-Mart (WMT) cut its earnings estimates for the year and missed analysts' forecasts, and Home Depot (HD) beat quarterly estimates but said that the second half of the year would be difficult. Home Depot went on to say that it reduced its share buyback program and that its sale of HD Supply might be threatened.
After opening, the market was off by almost 100 points at the end of the first hour. After a brief rally, more sellers appeared following a report by Thornburg Mortgage (TMA) that it was facing margin calls and liquidity pressures, and Sentinel Management Group said that it may halt redemptions. Financial stocks took the worst of the beating with broker/dealers down sharply. Goldman Sachs (GS) was off 4.4%, Morgan Stanley (MS) was down 3.5%, and Lehman Brothers (LEH) lost 6.3%.
Finally, the Labor Department reported a larger-than-expected 0.6% increase in wholesale prices in July, and the U.S. trade deficit narrowed unexpectedly by 1.7% in June.
At the close the Dow Industrials were off 208 points at 13,028. The S&P 500 lost 26 points at 1,427, and the Nasdaq fell 43 closing at 2,499. The New York Stock Exchange traded 1.79 billion shares and the Nasdaq 2.0 billion and decliners exceeded advancers by 7/1 on the NYSE and 3/1 on the Nasdaq.
Crude oil (September contract) rose 76 cents over concerns of an approaching storm and closed at $72.38 a barrel. The Amex Energy SPDR (XLE) dropped 65 cents to $67.10. Gold (December contract) fell $1.20 per troy ounce to $679.70 and the Philadelphia Gold/Silver Index [XAU] lost $4.72 to close at $138.34. That puts the XAU below its 200-day moving average and headed for a test of the old support at just above $130.
What the Markets Are Saying
Selling drove the stock market down sharply yesterday, plunging it through the S&P support at 1,430 and setting it up for a test of the major support for the market at 1,374-1,409. The Dow Industrials, however, are still holding above the broader band of support at 12,800 to 12,400 and are about 1000 points from the March lows. Volume on both Monday and yesterday contracted with the selling and that's a positive.
But it is time to look for a key reversal day to change the intermediate trend, or we will most likely head for a test of the March lows. Short-term market indicators are almost all in oversold territory, but they can remain there with volatility picking up to just below those registered last July. For now, new money should remain on the sidelines until a bottom is indicated.
There are a lot of economic reports due today: The Consumer Price Index (the consensus expects 0.1% month over month, 2.4% year over year; core 0.2% month over month, 2.2% year over year), industrial production (the consensus expects 0.3%), capacity utilization (the consensus expects 81.7, flat month over month), empire manufacturing (the consensus expects 18.0 versus 26.5 in July), and NAHB Housing Market Index (the consensus expects 23 versus 24 in July).
The economic reports may provide some boost to stocks today, but most traders will be focusing on the technical picture and whether the Dow Industrials and the S&P 500 can hold above their support levels. A boost will come from the earnings of Deere (DE) (read above), which handily topped expectations of $1.99 by reporting $2.37 a share for its full year Q3.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Hit Three-Month Low on Credit Concern; Japan's Banks Drop Asian stocks slumped to a three-month low, led by Mitsubishi UFJ Financial Group Inc. (MTU) and Sumitomo Mitsui Financial Group Inc., after the banks reported losses on investments related to U.S. subprime loans.
• Yen Strengthens to 4-Month High Versus Euro Over Subprime Mortgage Losses The yen rose to a four-month high against the dollar and the euro as widening credit-market losses prompted investors to cut higher-yielding assets funded by loans in Japan.
• Emerging-Market Stocks, Currencies Tumble, Led by Indonesia, on Debt Rout Emerging-market shares and currencies slumped, with Indonesian stocks tumbling the most in three years, after widening losses linked to U.S. subprime loans prompted investors to shun riskier assets.
• Basis Capital Yield Fund May Lose More Than 80 Percent on Subprime Rout Basis Capital Fund Management Ltd. told investors losses at one of its hedge funds may exceed 80 percent as the U.S. subprime mortgage rout prompted creditors to force the Sydney-based company to sell assets.
• Hong Kong Exchanges Profit More Than Doubles to Record After Trading Boom Hong Kong Exchanges & Clearing Ltd., operator of Asia's third-biggest stock market, said second- quarter profit more than doubled to a record as it benefited from global appetite for Chinese stocks.
European Headlines (via Bloomberg.com)
• European Stocks Decline, Paced by Deutsche Bank, UBS, Axa After Downgrades European and Asian stocks declined and U.S. index futures fell on concern the fallout from the subprime-mortgage rout is spreading.
• Kaupthing to Purchase Dutch Bank NIBC for $4 Billion After Subprime Losses Kaupthing Bank hf, Iceland's biggest bank, agreed to buy NIBC Holding NV for 3 billion euros ($4 billion), less than a week after the Dutch investment bank disclosed losses on U.S. subprime-mortgage bets.
• Pound Drops to Two-Month Low; BOE Minutes Show Unanimous Decision on Rates The pound dropped to a two-month low against the dollar after the minutes of the Bank of England's Aug. 2 meeting showed policy makers voted unanimously to leave interest rates unchanged.
• Balfour Beatty Earnings More Than Double on U.K. Demand, U.S. Acquisition Balfour Beatty Plc, the U.K.'s biggest construction company, said first-half profit more than doubled on the acquisition of the U.S. contractor Centex and demand for new schools and hospitals in Britain.