Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:17 AM ET
S&P 500: +6.50; 1,461.80
NASDAQ 100: +12.25; 1,980.50
Dow: +42.00; 13,200.00
NIKKEI 225: +0.71%; 15,877.67 (+112.70)
HANG SENG: -0.20%; 23,952.24 (-47.46)
SHANGHAI SE COMPOSITE: -4.51%; 5,113.97 (-241.32)
BSE SENSEX 30: -0.35%; 15,542.77 (-54.06)
FTSE 100: +1.63%; 6,234.20 (+100.10)
CAC 40: +1.60%; 5,472.70 (+86.27)
XETRA-DAX: +1.21%; 7,464.63 (+89.19)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +0.08%; $77.55 (+$0.06)
Gold: +0.21%; $713.70 (+$1.50)
Natural Gas: +1.00%; $5.95 (+$0.06)
Silver: +0.35%; $12.745 (+$0.045)
U.S. Breaking Newssee today's Wall Street Breakfast for earlier news
European Inflation Prospects Raised, Growth Forecast Cut
For the first time since the U.S. subprime mortgage crisis set off a global liquidity crisis earlier this year, the European Commission raised its forecast for inflation in 2007 while cutting its growth forecast for the EU. The Commission now expects headline inflation of 2.0% for 2007, right on the border of the European Central Bank's safety zone of maximum inflation of 2%. Meanwhile, the liquidity crunch that has caused banks to cease lending is expected to pull overall growth in the 13 countries that make up the EU to just 2.5%. Both revisions are down one tenth of a percent, from previous forecasts of 1.9% and 2.6% respectively.
Sources: Bloomberg, Reuters, AP
Commentary: Fed's Yellen: Economic Downside Has Increased Appreciably • Payrolls Drop for First Time in Four Years
Stocks/ETFs to watch: FXE, IEV
China's August CPI Hits Decade High, Surplus Widens; Stocks Drop
A jump in inflation to its highest level in more than a decade and an ever-widening trade surplus pushed Chinese stocks broadly lower Tuesday, on concerns the People's Bank of China will be forced to further tighten monetary policy. China's August CPI reading of +6.5% exceeded economists' average estimate of 6.0% and was once again food-driven with prices up 18.2% y/y and 2.8% m/m (due primarily to pork shortages from a disease outbreak and vegetable shortages from flooding). Year-to-date CPI (through August) of +3.9% is nearly a full percentage point above the central bank's target. Analysts at Goldman Sachs told clients they "expect the central bank to respond to higher inflationary pressures with decisive tightening measures, including two interest-rate hikes to the benchmark lending and deposit rates by the end of this year." China's August trade surplus climbed 33% to $24.97 billion, as exports increased 22.7% to $111.36B and imports expanded 20.1% to $86.38B, but both were sequential declines of 11.5% and 6.8%, respectively. The Shanghai Composite dropped 4.5% to 5,113.97. A-shares fell 4.5% in Shanghai and 5.3% in Shenzhen, while B-shares were off 3.4% in the former and 3.6% in the latter. H-shares fared better, losing only 0.5%. The yuan was mostly unchanged from Monday's record close (post July 2005 peg removal) of 7.5214 against the US dollar.
Sources: Bloomberg, Wall Street Journal
Commentary: China Raises Its Reserve Requirements — So What? • People's Bank of China Hikes Again on Inflation Concerns • The 'Made in China' Sale is Over: Ways To Profit
Stocks/ETFs to watch: CAF, FXI, PGJ
OPEC Members at Odds Over Output Hike
OPEC members including Venezuela, Algeria and Libya disagree with Saudi Arabia over a proposed raising of oil production, despite a 27% year-to-date increase in the price of oil, as the 12-member cartel meets Tuesday at its Vienna headquarters. Saudi Oil Minister Ali al-Naimi and OPEC President Mohamed al-Hamli (also oil minister for the United Arab Emirates) both declined to comment on the proposal with reporters. Algerian Oil Minister Chakib Khelil said his nation at present doesn't "see sufficient evidence" to support an increase. Venezuelan Oil Minister Rafael Ramirez commented that there is no need to change production quotas. Libya's state-owned National Oil Corp. chief said his nation will support increased production later this year if energy demand remains high. OPEC meets again in Riyadh in November and Abu Dhabi in December. A press conference is scheduled for Tuesday's meeting at 10 a.m. New York time.
Commentary: Most OPEC Ministers Say No Increase Needed; Saudi Minister Stays Mum • A 'Total' Shift in the Oil Industry • Oil Market: The Good, The Bad and The Ugly
Stocks/ETFs to watch: BP, XOM, TOT, CVX, RDS. ETFs: USO, OIL, DBO, DCR
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Today's Market (via Sam Collins, ChangeWave.com)
Daily Market Outlook
With the Federal Open Market Committee [FOMC] meeting a week from today and little news to drive stocks one way or the other, the markets closed on a mixed note yesterday. There was another moderating factor -- today's anniversary of the attack on the World Trade Center and fears of a follow-up strike.
But on the positive side, Intel (INTC) raised its earnings forecast for Q3, Bear Stearns (BSC) rallied after disclosing that a major investor bought a big chunk of its stock, Advanced Micro Devices (AMD) announced its newest microchip, and Apple Inc. (AAPL) moved higher on an announcement that it sold its one millionth iPhone, putting the company ahead of its sales schedule.
However, all of the good news from Tech Land did little to bring in buyers, and several Federal Reserve governors sent a mixed message about the need to lower interest rates. As a result, stocks closed mixed.
The Dow Industrials were up 14, closing at 13,128. The S&P 500 fell just under two points to close at 1,452, and the Nasdaq lost seven points and closed at 2,559. The NYSE traded just 1.3 billion shares and 1.7 billion crossed the Nasdaq. Breadth was negative on both exchanges -- the New York by 5-to-3 and the Nasdaq by 2-to-1.
The October crude oil contract gained $1.39 a barrel and closed at $78.07, while the Amex Energy SPDR (XLE) was off 4 cents at $70.22 after trading as low as $68.78. The recovery from an intraday low on the XLE almost resulted in a strong upside reversal.
Meanwhile, the December gold contract continued its move higher, gaining $2.50 and closing at $712.20 per troy ounce. The Philadelphia Gold/Silver Index [XAU] fell by 26 cents to $151.28 and now appears to be losing momentum after the recent drive up from under $125 in just three weeks. Support for the XAU is at the 50-day moving average at $145.
What the Markets Are Saying
Last week, the Dow was ahead until Friday when it lost 250 points, resulting in a net loss of 244 points for the week. The sell-off was, of course, due to the disappointing jobs numbers -- but that report may turn out to be a friend to investors since it almost cements the Fed's next move.
On Tuesday of next week, the Fed will almost certainly announce either a 25- or 50-basis point cut in the Fed funds rate. Debate will no doubt occupy the next eight days, focusing on whether it will be 25 or 50 basis points, then attention will turn to the next meeting on Oct. 31 and so on.
In other words, until the Q3 earnings season is upon us, the focus will be on interest rates and the Fed's intention to become the stock market's friend. In such a swirl of opinion, it is unlikely that stocks will break out of the current trading range of Dow 13,000 to 13,650, despite a minor reversal up yesterday. But the trend is still up, so savvy investors should take every opportunity to pick up quality stocks on dips.
Today's Trading Landscape
The only earnings of note today will come from Majesco Entertainment (COOL), Provident Financial (PFS) and Syntax-Brillian (BRLC). The July trade balance (the consensus expects negative $59 billion) will be reported this morning.
More than $120 billion of commercial paper is due to roll over this week outside of the United States, including $56.5 billion of asset-backed paper which has proven the most problematic. Bank of America (BAC) said about 59% of Europe's $260 billion asset-backed paper comes due this month. These are big numbers, so if the rollovers go through without a hitch, it could do much to stabilize world credit markets. If not, watch out.
Federal Reserve Chairman Ben Bernanke's speech in Germany this morning at 10 a.m. [EDT] will be closely watched and could have an impact on trading today.
Asian Headlines (via Bloomberg.com)
• Asian Shares Gain, Led by Steelmakers; Mitsubishi UFJ, Japan Banks Advance Asian stocks rose, paced by Posco (PKX) and JFE Holdings Inc. on higher steel prices. Mitsubishi UFJ Financial Group Inc. (MTU) and Mitsui Fudosan Co. led Japanese banks and developers from their lowest levels more than in a year.
• Recalls of China Goods in U.S. Almost Triple Since June, Hurt Export Sales Recalls of Chinese goods by U.S. companies almost tripled in the past three months, threatening to cut overseas revenue for the world's biggest consumer- products exporter.
• Japan's July Machinery Orders Surge 17 Percent, Rebounding From Decline Japan's machinery orders surged in July at three times the pace forecast by economists, easing concern the economy will contract for a second quarter.
European Headlines (via Bloomberg.com)
• Merck Rises Most in Eight Months as Erbitux Drug Helps Patient Survival Merck KGaA rose the most in eight months after a study showed its Erbitux anti-tumor drug helped lung cancer patients live longer. The data contradicts an earlier test by ImClone Systems Inc.
• Ericsson Growth to Be `Strong' This Quarter as Customers Upgrade Networks Ericsson AB (ERIC), the world's largest maker of wireless network equipment, said growth will remain ``strong'' in the third quarter as more clients upgrade their networks to accommodate increased data traffic.
• Volkswagen to Introduce 12 Models Over Three Years to Challenge Toyota Volkswagen AG (OTCQX:VLKAY) plans to introduce 12 new models over the next three years as Europe's largest carmaker seeks to boost sales 33 percent and challenge Japan's Toyota Motor Corp. (TM).