Markets Still Unnerved By Crisis in Credit Markets

The major U.S. indexes are pointing to a lower opening on Thursday. Renewed credit concerns are engulfing the markets, as interventions by central banks are making traders nervous. Additionally, traders may also harp over a steeper than expected increase in producer prices. Lehman Brothers (LEH), which is the first investment bank to report its fourth quarter earnings score card, posted a decline in earnings but steel beat analyst estimates. Strong retail sales growth may mitigate some of the weakness.

After trading significantly higher for most of Wednesday’s session, the major U.S. averages receded into negative territory in the last hour of trading. Nonetheless, the markets recovered by the close. The early optimism was triggered by a plan unveiled by the major central banks of the world, including the U.S. Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada and the Swiss National Bank, to support the cash strapped credit market. The Fed has agreed to make available at least $40 billion to banks through short-term loans, and has also promised to provide at least $24 billion to central banks in Europe, which face a dollar shortage. According to Wachovia Securities, the action has the potential to end the crunch that has paralyzed the credit market for the past few months.



The Dow Industrials ended Wednesday’s session up 41.13 points or 0.31% at 13,474 and the Nasdaq Composite Index rose 18.79 points or 0.71% to 2,671. Meanwhile, the S&P 500 Index advanced 8.94 points or 0.61% at 1,487.

Among the Dow components, AT&T (T) rallied 5.70%, Alcoa (AA) gained 2.08% and 3M Co. (MMM) rose 2.37%. However, Citigroup (C), Boeing (BA) and McDonald’s (MCD) came under significant selling pressure. The Amex Oil Index advanced 2.62% and the Amex Biotechnology Index gained 1.16%, while the KBW Bank Index declined 1.78%.

On the economic front, a Labor Department report on import & export prices showed that import prices increased 2.7% in November, marking the fastest pace of growth since 1990. The increase was primarily due to a sharp spike in prices of petroleum, natural gas and industrial supplies. More importantly, prices of other imported goods like consumer products, capital goods and automobiles also increased, suggesting that the weak dollar is feeding into import prices. As expected, the trade gap for October widened to $57.8 billion, as imports rose 1% due to higher oil imports. Exports increased 0.9%. On an inflation-adjusted basis, the goods trade deficit narrowed in volume terms.

Based on survey results, AG Edwards predict that economic growth will slow down in major countries in 2008. While noting that a slowdown is currently underway in the U.S., the firm noted that most other countries are at an earlier stage in their economic cycles. The slowdown in these countries will become evident only well after the New Year begins. Slowing global growth may force other central banks to abandon their bias towards higher interest rates or even lead them to cut rates. This could help the undervalued dollar to stabilize or even rally. Additionally, the soft patch may also lead to weak final demand, thereby toning down demand for some commodities. AG Edwards expects commodity prices to remain negative throughout 2008.

Currency, Commodity Markets

Crude oil futures are currently trading down $0.53 at $93.86 a barrel. On Wednesday, the black gold jumped $4.37 to $94.39 a barrel. Unexpected declines in crude oil and distillate inventories and bullish comments on prices by investment bank Goldman Sachs (GS) supported prices. Goldman believes that the price of oil will average around $95 a barrel in 2008 and could reach $105 a barrel a year from now.

The Energy Information Administration’s weekly oil inventory data showed that crude stocks declined by 700,000 barrels to 304.5 million barrels in the week ended December 7th. Gasoline stocks increased by 1.6 million barrels to 202.2 million barrels, while distillate stocks slipped by 800,000 barrels to 131.5 million barrels. Refinery capacity averaged 88.8% in the four weeks ended December 7th, down 0.6 percentage points from the previous week.

Gold futures, which closed Wednesday’s session up $1.70 at $818.80 an ounce, are currently receding $7.20 to $811.60 an ounce.

The U.S. dollar is trading at 112.208 yen compared to the 111.938 yen it fetched at the close of New York trading on Wednesday. The dollar is currently at $1.4677 versus the euro.

Asia

Notwithstanding the positive close on Wall Street overnight, the major Asian markets declined in Thursday’s session.

Japan’s Nikkei 225 average opened lower and declined steadily over the course of trading to close down 395.74 points or 2.48% at 15,537. A majority of the stocks declined, as the yen’s strength generated some selling pressure in the export space.

Auto, mining, technology, finance and steel stocks came under selling pressure. Advantest, Bank of Yokohawa, Chu Mitsui Trust, Dowa Holdings, IHI, Mitsubishi Estate, Mitsubishi UFJ, Mitsumi Electric, Mizuho Financial, Sumitomo Mitsui, Softbank, T&D Holdings, Taiheiyo Cement and Taiyo Yuden were among the significant decliners.

However, Sumitomo Heavy, Sony, Sharp, NTT DoCoMo, Meiji Dairies, Kuraray, Konami, KDDI, Isuzu Motors, Inpex Holdings and Denso bucked the downtrend.

Japan’s Ministry of Economy, Trade and Industry released its revised industrial production report for October, which showed a 1.7% increase in industrial production. This represents an upward revision from the previously reported 1.6% growth. Shipments increased an upwardly revised 2.1%, while inventories grew at an unrevised pace of 0.6%.

Australia’s All Ordinaries traded close to the unchanged line for most of Thursday’s session before closing down 14.30 points or 0.21% at 6,661. All the sectors, with the exception of gold, energy, IT, telecom and healthcare stocks, ended higher.

In the mining space, Rio Tinto fell, while BHP Billiton advanced. Among the four major banks, Westpac, ANZ and Commonwealth fell, but National Australia Bank gained. Media stocks News Corp. and Seven Network came under selling pressure, while John Fairfax advanced.

Hong Kong’s Hang Seng Index, which traded with modest losses in the morning session, receded sharply in the afternoon to close down 776.61 points or 2.72% at 27,744. The market witnessed broad based selling pressure, with only New World Development and Yue Yuen Industries bucking the downtrend. Yuen Yuen Industries advanced after it revealed plans to spin off its retail business.

South Korea’s Kospi revealed some volatility before closing down 11.55 points or 0.60% at 1,916. Communication and machinery stocks receded in the session. Technology stocks Samsung Electronics and LG Electronics also posted modest losses.

India’s Sensex, which managed to hold above the unchanged line in early trading, lost ground and declined through the rest of the session. The index closed down 271.48 points or 1.33% at 20,104. Most sector stocks declined in the session, with only FMCG stocks bucking the downtrend.

Europe

The major European markets are also receding in Thursday’s session. The French CAC 40 Index is receding sharply, while the German DAX Index is receding 1.08%. Meanwhile, the U.K.’s FTSE 100 is declining about 2.07%.

In Paris, most stocks, with the exception of EDF, are declining. Bank, technology, telecom and resource stocks are leading the declines.

Among Frankfurt stocks, Daimler, Commerzbank, Infineon Technologies, Continental, Lufthansa, Linde, Metro and Thyssenkrupp have come under severe selling pressure. On the other hand, Merck KgaA, BASF, Fresenius Medical Care and Hypo Real Estate have gained ground in the session.

In the U.K., a majority of the stocks are receding. Rentokil Initial is slumping over 23.17% after it said its full-year pre-tax profit may be hurt by softness in its City Link parcel service business. Rexam is receding about 10% after it said full year profits would be hurt by weaker dollar. HBOS is slipping over 6.50% in reaction to its announcement that its earnings will be hurt by write downs. Mining and financial stocks are also seeing weakness. However, BG Group is rising over 5.50%. GlaxoSmithKline and Reckitt Benckiser are also gaining ground in the session.

U.S. Economic Reports

The markets are likely to sift through a slew of economic reports on a day, which is heavy on the economic calendar. A report released by the Labor Department showed that the producer price index rose 3.2% in November following a 0.1% increase in October. Excluding food and energy prices, producer prices rose 0.4% following unchanged prices in October. Economists had expected a 1.5% increase in the headline number and 0.2% growth in the core reading.



The price of food increased at monthly rates of 2%, while energy prices slid 17%. Annually, the price of intermediate goods increased 8.1% compared to a 22.4% increase in the price of crude goods.

Retail Sales, which measure the dollar receipts at the stores that sells durable as well as non-durable goods, are expected to be released at 8:30 AM ET on Thursday. Economists estimate that retail sales rose 0.5% in November, while retail sales growth excluding autos is expected to be 0.5%.

Retail sales increased by a better than expected 1.2% in November following an unrevised 0.2% increase in October. Economists had expected sales to increase by 0.5%. The annual rate of retail sales growth was 6.3%.



Excluding auto sales, retail sales rose 1.8% in November after a 0.4% increase in October. The annual rate of ex-auto sales 7.4%.

The Business Inventories report is scheduled for release at 10 AM ET on Thursday. The dollar value of inventories held by manufacturers, wholesalers and retailers is likely to have increased 0.3% in October.



The September business inventories report showed 0.4% growth in inventories and a 0.6% increase in business sales, confirming the fact that inventories added substantially to third quarter growth. Nevertheless, the inventories to sales ratio remained an anemic 1.27.

Stocks in Focus

Euronet (EEFT) may react to its announcement that it has offered to buy Moneygram (MGI) for $1.65 billion in stock. Pepsi Bottling Group (PBG) could come under selling pressure after it said it expects adjusted earnings FOR 2008 of $2.30-$2.38 per share, which is lower than the consensus estimate of $2.40 per share. For 2007, the company estimates adjusted earnings of $2.17-$2.20 per share, higher than its initial estimate of $2.15-$2.18 per share.

Honeywell (HON) is expected to be in focus after it reaffirmed its 2007 financial guidance. The company also said it expects 2008 earnings per share of $3.65-$3.80. The company expects sales growth of 5%-7% to $36.1-$36.7 billion. The consensus estimates call for earnings of $3.67 per share on sales of $34.35 billion.

Boeing (BA) could rebound after it said NASA has awarded the company an initial contract valued at about $265 million to produce the Ares I crew launch vehicle’s instrument unit avionics. Boeing is expected to produce three IUA flight test units and 6 production units, with an option to produce four additional units per year from 2014 to 2016. ADC Telecommunications (ADCT) traded higher in Wednesday’s after hours session despite reporting a loss of 5 cents per for the fourth quarter compared to a profit of 33 cents per share last year. The recent quarter’s results included items which lowered earnings by 36 cents per share. Analysts expected a profit of 22 cents per share for the quarter. Revenues rose 7% to $329.6 million, exceeding the consensus estimate of $318.4 million.

Assured Guaranty (AGO) is expected to be in focus after it said it would initiate a public offering of about $300 million shares, plus additional common shares of about $45 million towards covering overallotments.

Biogen Idec (BIIB) is expected to see significant weakness after it said it has received no acquisition offers following its attempts to sell itself. Consequently, the company said it chooses to remain independent.

Charles River Labs (CRL) is expected to react to its announcement that it is maintaining its previously issued earnings outlook of $2.22-$2.25 for 2008. The company expects adjusted earnings of $2.56-$2.59 per share and revenues of $1.21-$1.23 billion. The consensus estimates call for earnings of $2.60 per share on revenues growth of 14%-16%. The company forecast 2008 adjusted earnings from continuing operations of $2.87-$2.97 per share. Charles River estimates revenue growth of 11%-15% for 2008.

Children’s Place (PLCE) is expected to be in focus after it announced that Richard Paradide, its Senior VP of Finance, would be promoted to the role of CFO and Principal Accounting Officer.

CKE Restaurants (CKR) could come under pressure after it said its third quarter income from continuing operations declined to 13 cents per share from 16 cents per share last year. Consolidated revenues eased 0.8% to $351.6 million. The company also reported that its same store sales for November rose 2.8%. Cytec Industries (CYT) is likely to react to its announcement that its board has approved a $100 million share buyback plan.

Danaher (DHR) could be in focus after it reaffirmed its adjusted earnings from continuing operations guidance of $1.09-$1.14 per share for the fourth quarter. Analysts expect earnings of $1.11 per share for the quarter. For 2008, the company expects adjusted earnings from continuing operations of $4.30-$4.40 per share compared to the consensus estimate of $4.36 per share.

United Technologies (UTX) may react positively to the announcement that Sikorsy, a United Technologies company, has secured a 5-year, multi-service contract to supply 537 H-60 Hawk helicopters to the U.S. Army and U.S. Navy. The company noted that deliveries are scheduled to be made from 2007 to 2012.

Martek BioSciences (MATK) may rally after it said its fourth quarter earnings were 55 cents per share compared to break-even results in the year-ago period. The company’s adjusted earnings were 10 cents per share, as revenues rose 23.8% to $79 million.

Merck (MRK) is likely to see some weakness after it said it voluntarily recalled 11 lots of its Haemophilus influenzae type B vaccine. The recall was done suspecting potential contamination. However, Nokia (NOK) could see some strength after it said a U.S. International Trade Commission ruled in favor of the Finnish company in patent infringement litigation brought by Qualcomm (QCOM).