RTT : Traders May Go Bargain Hunting After Yesterday’s Sell-Off
The major U.S. index futures are pointing to a moderately higher opening on Tuesday, as traders are likely to go bargain hunting following the sell-off that was seen in the previous session. While strength in the global markets and an increase in commodities prices may also push stocks higher, buying interest may be somewhat subdued amid a light day on the corporate news front. A report on new home sales in the month of April could impact trading not long after the open.
Stocks moved sharply lower at the start of trading on Monday and saw continued weakness throughout the trading session, as investors expressed renewed concerns about the financial situation in Europe and its potential impact on the global economic recovery.
While the major averages did not see much follow-through on the initial downward move, they remained stuck firmly in the red. The Dow fell 130.78 points or 1.1 percent to 12,381.25, the Nasdaq dropped 44.42 points or 1.6 percent to 2,758.90 and the S&P 500 slid 15.90 points or 1.2 percent to 1,317.37.
The losses extended the downward trend seen over the past few weeks, dragging the major averages down to their lowest closing levels in over a month.
The sell-off seen at the open came as traders reacted to news that Standard & Poor’s downwardly revised its outlook for Italy’s credit ratings to negative from stable. S&P said that the move reflects its views of the heightened downside risks in the government's debt reduction plan.
The announcement from S&P came after Fitch Ratings lowered its credit ratings on Greece to B+ from BB+. Fitch said the downgrade was partly due to concerns that Greece will need to undertake further austerity measures to reach the goal of reducing the 2011 budget deficit to 7.5 percent of GDP.
Nearly all thirty of the Dow components ended the day in negative territory, contributing to the steep loss posted by the blue chip index. Fast food giant McDonald’s (MCD) was the only Dow component to end the day in positive territory, edging up by 0.2 percent.
Caterpillar (CAT) turned in one of the Dow’s worst performances, with the construction equipment maker falling by 2.3 percent. Shares of DuPont (DD) also showed a notable move to the downside, sliding by 2.2 percent. Alcoa (AA), United Technologies (UTX), and Boeing (BA) were among the other Dow components that posted significant losses on the day.
Commodity, Currency Markets
Crude oil futures are regaining some ground, rising by $1.32 to $99.02 a barrel after plunging $2.40 to $97.70 a barrel in the previous session. Gold futures are also climbing $5.50 to $1,520.90 an ounce after ending Monday’s trading up $6.50 at $1,515.40 an ounce.
Among currencies, the U.S. dollar is trading at 82.013 yen compared to the 82.005 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.4082 compared to yesterday’s $1.4048.
Asia
Stock markets across the Asia-Pacific region recovered from early weakness to end Tuesday’s trading mostly higher. The recovery came as a rebound in oil and copper prices following a sell-off overnight spurred bargain hunting.
Japanese stocks snapped a three-day losing streak, as a surprisingly strong performance by Sony amid relief that the worst is over for the company offset sentiment dampened by worries about slowing economic growth. The Nikkei 225 Index rose by 16.54 points or 0.2 percent to 9,477.17.
Sony closed up 2.7 percent after chief financial officer Masaru Kato said parts shortages in the aftermath of the Japanese earthquake have eased. Toshiba advanced 2.1 percent on its bullish earnings outlook.
Softbank climbed 3.1 percent on reports that the company is considering building roughly 10 large solar power facilities across Japan through partnerships with local governments. Meanwhile, Olympus lost 1.4 percent on a brokerage downgrade.
Hong Kong’s Hang Seng Index also edged up by 19.76 points 0.1 percent to 22,730.78, with bargain hunting following the sharp plunge seen yesterday offering support.
Additionally, South Korea's Kospi index rose by 6.05 points or 0.3 percent to 2,061.76, as automakers and oil refiners recovered from lower levels.
Memory chip maker Hynix Semiconductor gained 1.3 percent, while Samsung Electronics lost 0.9 percent. Korean Air Lines edged up by half a percent, reversing an early decline.
On the other hand, Australian stocks fell for the second consecutive session, bucking the uptrend in the region. The benchmark S&P-ASX 200 and the broader All Ordinaries index finished down about 0.3 percent each.
In the resources sector, BHP Billiton eased 0.1 percent, but rival Rio Tinto edged up marginally. Wesfarmers fell 1.2 percent after the industrial conglomerate downgraded its sales volume forecast for its Curragh mine in Queensland due to recent rainfall and a mechanical failure.
Europe
The major European markets have moved to the upside on the day, regaining some ground after falling sharply in the previous session. The French CAC 40 Index is up by 0.4 percent, while the U.K.’s FTSE 100 Index and the German DAX Index have risen by 0.6 percent and 0.8 percent, respectively.
In economic news, the German economy expanded by 1.5 percent in the first quarter, according to the Federal Statistical Office, with the growth in line with the initial estimate. The sequential growth rate accelerated sharply from the 0.4 percent expansion seen in the fourth quarter.
The Ifo institute also released a report showing that German business sentiment unexpectedly remained unchanged in May, with the reading on business sentiment coming in at 114.2. Economists had been expecting the index to fall to 113.7.
Meanwhile, data released by Eurostat showed that euro zone industrial new orders declined more than expected in March. Total industrial orders fell 1.8 percent month-on-month following a revised 0.5 percent increase in February. Economists had forecast 1.1 percent decline for March.
U.S. Economic News
Following Monday’s lack of major economic data, trading on Tuesday could be impacted by the release of the Commerce Department’s report on new home sales in the month of April.
The Commerce Department is due to release its new home sales report at 10 am ET, with economists expecting sales to come in unchanged compared to the annual rate of 300,000 reported for March.
New home sales rose 11.1 percent to an annual rate of 300,000 in March from the revised February rate of 270,000. Despite the rebound compared to the previous month, the March figure was 21.9 percent below the annual rate of 384,000 seen in March of 2010.
Additionally, Kansas City Federal Reserve Bank President Thomas Hoenig is due to deliver a speech to the 29th Annual Monetary and Trade Conference in Philadelphia at 9:50 am ET.
St. Louis Fed President James Bullard is also due to speak to the Cape Girardeau West Rotary Club in Cape Girardeau, Missouri, at 1:20 pm ET.
Stocks in Focus
Medtronic, Inc. (MDT) could be in focus after the medical device maker reported fourth quarter net income that fell to $0.72 per share from $0.86 per share in the same quarter last year. Excluding charges, the company earned $0.90 compared to analyst estimates for earnings of $0.93 per share. The company said its net sales rose 2 percent to $4.295 billion, while analysts had expected $4.29 billion.
Auto parts retailer AutoZone, Inc. (AZO) reported third quarter earnings that rose to $5.29 per share from $4.12 per share in the year-ago quarter, coming in above analyst estimates for earnings of $4.99 per share. The company said its net sales rose to $1.98 billion from $1.82 billion last year. Analysts had expected revenues of $1.92 billion.
Shares of Sify Technologies Ltd. (SIFY) are moving sharply higher in pre-market trading after the India-based internet service provider announced a partnership with the international wholesale arm of Deutsche Telekom to provide customers and partners with top-of-the-line IP and VPN services in India and Europe.
Meanwhile, Sanderson Farms Inc. (SAFM) reported a second quarter net loss of $0.74 per share compared to a year-ago profit of $1.62 per share. Excluding a charge, the company reported a loss of $0.56 per share. Sanderson said its net sales for the quarter fell to $479.3 million from $487.1 million in the same period a year ago.
J. M. Smucker Co. (SJM) also announced that it is increasing the list price for the majority of its coffee products sold in the United States. The company said prices will increase by an average of 11 percent. Smucker said the price increases are being driven by sustained increases in green coffee costs.
