Wednesday Preview: EU Demand Scare Matches Against FOMC Release

Includes: EPV, EWJ, OIL, SPY, USO
by: Markos Kaminis

Wednesday's biggest driver through early morning trade will undoubtedly be the bad news reported by Japan, with exports to Europe down by a quarter in July. That has international markets in turmoil this morning and U.S. index futures indicating lower. However, by 10:00 AM we'll hear from housing, and at 2:00 PM the FOMC minutes are due, so there could be catalyst for a cure. The SPDR S&P 500 (NYSEARCA:SPY) is indicating down 0.1% at the hour of scribbling here, after a 0.3% slide yesterday.

Overseas Drivers

Global shares stumbled Wednesday on bad news from Japan and ongoing uncertainty about the direction of the ECB. Japan said a collapse in exports into Europe drove its widest ever trade deficit for the month of July. Japan reported its shipments into Europe dropped by a quarter compared to last year's exports. Its deficit, twice as wide as was expected by economists, was also the result of the significant change in the nation's energy resources since its nuclear disaster, with imports of petroleum fuels up significantly. Exports of autos into Europe were hard hit, portending trouble for Toyota (NYSE:TM) and Honda Motor (NYSE:HMC) at their next reporting. However, the Japanese saw increased demand for autos and other goods from its U.S. market. Still, the iShares MSCI Japan Index (NYSEARCA:EWJ) was down yesterday and should head lower again this morning as a result of this report. The news has hit European shares even harder. As a result, a counter play, the ProShares UltraShort MSCI Europe (NYSEARCA:EPV), should do well today.

International Markets



EURO STOXX 50: -1.0%

S&P/ASX 200: -0.2%

FTSE 100: -1.1%

Nikkei 225: -0.3%

DAX: -0.9%

Hang Seng: -1.1%

CAC 40: -0.9%

Shanghai Shenzhen CSI 300: -0.8%

FTSE MIB: -0.7%

BSE Sensex 30: -0.2%

U.S. Economic Drivers

New housing data reaches the wire today at 10:00 AM EDT, when the National Association of Realtors (NAR) reports on Existing Home Sales for the month of July. In June, the annual pace of sales fell by 5.4%, extending across building sizes and regions. For July, the consensus of economist views pegs the pace of sales at 4.5 million, which would represent a gain from June's 4.37 million pace. The SPDR S&P Homebuilders ETF (NYSEARCA:XHB) has surged again over the past month, but data has been less than enthusiastic of late; all except pricing information, which shows a rising trend.

A rise in mortgage rates hobbled mortgage activity in the week ending August 17. The Mortgage Bankers Association's (MBA) Market Composite Index fell 7.4% as a result, with its Refinance Index sliding 9.0%. Still, the increase in rates may have scared buyers on the sidelines into action, with the Purchase Index (tied to home purchases) up 0.9% last week. Toll Brothers (NYSE:TOL) will give some indication of high-end new home sales today with its EPS release.

The EIA Petroleum Status Report will show the weekly change in petroleum and distillate inventories at 10:30 AM EDT this morning. Last week's report covering the period ending August 10 showed crude oil stores decreased by 3.7 million barrels, though inventory remained above the upper limit of the average range for this time of year. Total motor gasoline stocks fell by 2.4 million barrels and are in the lower half of the average range for this time of year. Nearest expiration oil futures quotes this morning showed Brent Crude down 0.7% to $113.87 per bbl. WTI Crude was down 0.2% to $96.63 per bbl. The iPath S&P GSCI Crude Oil TR Index (NYSEARCA:OIL) was up 0.5% yesterday while the United States Oil (NYSEARCA:USO) was up 0.4% on the day.

The Federal Reserve will offer up the latest meeting minutes of the Federal Open Market Committee (FOMC) today at 2:00 PM EDT. Strategists will be sifting through the minutes for indication of voting member support for a potential new stimulant in September. Given that markets have been moving higher mostly on this hope and against generally poor economic data flow, the market may hinge on any relevant information found here today.

U.S. Corporate Drivers

Dell (DELL) disappointed last evening, and its shares were down more than 5% in very early trading today. Excluding items, the company earned $0.50 a share for its fiscal second quarter, which was better than analysts' estimates for $0.45. However, the company said purchases of PCs were likely to slip in the second half as consumers and enterprises awaited Microsoft's (NASDAQ:MSFT) Windows 8 release. The company now sees FY 13 EPS of "at least" $1.70, versus its previous forecast for more than $2.13 per share. Hewlett-Packard's (NYSE:HPQ) report follows today.

The day's EPS schedule highlights reports from Hewlett-Packard , American Eagle Outfitters (NYSE:AEO), Chico's FAS (NYSE:CHS), China Cord Blood (NYSE:CO), China Zenix Auto Int'l (NYSE:ZX), Express (NYSE:EXPR), DFC Global (NASDAQ:DLLR), Eaton Vance (NYSE:EV), FNB United (FNBN), Focus Media (NASDAQ:FMCN), Guess (NYSE:GES), Hain Celestial Group (NASDAQ:HAIN), International Rectifier (NYSE:IRF), Kayak Software (NASDAQ:KYAK), Krispy Kreme Doughnuts (KKD), Pacific Sunwear (NASDAQ:PSUN), Prospect Capital (NASDAQ:PSEC), Semtech (NASDAQ:SMTC), Synopsis (NASDAQ:SNPS), Tilly's (NYSE:TLYS), Toll Brothers , Vanguard Health Systems (NYSE:VHS) and more.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.