Intraday Market Update
Equity futures overcame weakness in the pre-market and are oscillating near the flat line, despite the lowest consumer sentiment reading in nearly a year, a tepid Q3 reading on GDP, and very weak economic data out of Japan. In the end, the weak data reinforces perceptions of additional quantitative easing expected to be announced next week by the FOMC. Many analyst say $500 billion is already priced into US equity markets. A shortfall or excess announcement by the Fed could be the catalyst for the market's next move which will likely be a breakout of the trading range we've seen over the past couple of weeks. Commodities are all over the board as crude oil has lost -1.25% and is headed towards multi-week lows, while natural gas has gained +2.60% and is heading towards multi-month highs. Copper is down -1.5%, briefly dipping to multi-week lows but has recovered some of its losses. Gold is near its highs for the day, posting a +1% gain, while silver has tacked on +2.80% as it approaches multi-decade closing highs. Overseas, equities in the Asia-Pacific region posted solid losses led by a -1.75% drop in the Nikkei 225 Index after the country's industrial production declined -1.9%, compared to estimates for a -0.6% decline, and deflation worsened as their CPI fell -0.6% m/m and -1.1% y/y. European markets were modestly lower.
Here in the US third quarter GDP showed economic growth expanded at a rate of 2% which matched estimates. The pace of growth is tepid, but nonetheless, it is growth. The best news is that personal consumption and expenditures (PCE) posted a +2.6% increase, following a +2.2% increase in the prior period. This is the best reading since 2006, however, the core PCE index, which excludes volatile food and energy, increased only +0.8% which was below estimates of +1.0% and decelerated on an annual basis. This is the number the FOMC will most likely look to and it provides ammunition for the size of their QE2 announcement next week. Other gains were seen in inventory investment, consumer spending, equipment investment, and government purchases. On the negative side, housing investment fell back and net exports worsened on higher imports. Economy wide inflation as measured by the GDP price index rose +2.3%. This follows a +1.9% reading the prior period and was higher than consensus estimates.
In a bit of good economic data, the Chicago PMI report showed strong growth in October, rising to 60.6 which handily beat estimates and is well above the break-even level of 50. The best news out of this report is that new orders rose more than +3 points to 65. Employment also rose to 54.6, supporting a strong jump in production of more than +5 points to 69.8. Delivery times slowed, input prices rose, and businesses in the Chicago area added to inventories. This is a solid report and should point to strength in next week's ISM manufacturing and non-manufacturing reports on Monday and Wednesday, respectively.
Elsewhere, consumers appear to be in a bad mood as sentiment slipped to its lowest level since November 2009. The Thomson Reuters/University of Michigan's final October reading of consumer sentiment came in at 67.7, down from 68.2 in September and below estimates calling for reading of 68.0. The expectations component fell to 61.9 in the final October reading, down -2.7 points from mid-month which implies a weak 59.2 reading for the last two weeks of the month. However, the current conditions component gained +3.6 points to 76.6 which implies an 80.2 reading in the second half of the month, and that is near the best levels of the recovery. The report is sending mixed messages but when looking at the expectations component, a leading indicator, it may be signaling a more pessimistic view by consumers in the near future.
In equities, shares of Chevron (CVX) have lost nearly -2% after the company missed earnings and revenue targets. The company said that its US output fell -7% y/y but noted that they continue to "show gains in upstream production and progress on our downstream restructuring." The company blamed the sub-par report on negative impacts from foreign exchange rates. Dominion Resources is down -1.2% after the firm cut its 2010 earnings outlook. Sunoco (SUN) is down -6% after reporting earnings that missed estimates by about 50% (22 cents compared to 42e).
Dow component Merck (MRK) reported earnings that were mostly in-line with estimates, however, profit on a y/y basis fell about -50%. MRK is down better than -2%. Shares of health insurer Cigna (CI) are about breakeven, despite raising their 2010 outlook and reporting earnings in-line with estimates. Monster (MWW) has gained +27% to $18.00 per share after the company reported earnings of 5 cents per share, which beat estimates calling for earnings of 0 cents. MWW increased their Q4 guidance to 8 cents per share compared to estimates of 5 cents.
In tech land, Ingram Micro (IM) is near breakeven after the company missed on the bottom line but beat on the top line. The firm's CEO said that sales in the Asia-Pacific region hit a historic high while North American sales were at the highest Q3 level in 10 years. First Solar (FSLR) is down -8% after beating earnings and raising its full year guidance, however, investors are struggling with some cautious comments regarding their European business.
Core Sector List:
Overall reading: 8 sectors advancing, 12 sectors declining
Strongest Sectors: Gold Miners, Telecom, Nat Gas
Weakest Sectors: Coal Miners, Biotechnology, Insurance
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