It looks like some "not so bad" economic news was unable to
overcome the loss of appetite caused by McDonald's (MCD:
bitter earnings outlook. Retailer Target (TGT:
warned of softer than expected December
sales. That news weighed heavily on the S&P Retail Index (RLX –
273.06), which was one of the largest percentage losers yesterday
with a decline of 2.44 percent.
As far as the economic data goes, U.S. housing starts rose 2.4
percent in November to a seasonally adjusted annual rate of 1.697
million following a revised 8.4-percent decline in October to an
annual rate of 1.657 million. October housing starts were initially
reported as an 11.4-percent drop to an annual rate of 1.603 million.
On the downside, the November report showed that building permits
(an indicator of future building activity) fell by 2.7 percent to a
1.725 million annual rate following a 2.3-percent rise in October. A
decline in building permits could suggest the housing market is
poised to weaken, but one figure doesn't make a trend. This is worth
keeping an eye on going forward.
The Consumer Price Index rose 0.1 percent in November – the
smallest rise in four months. October's rate was booked at a plus
0.3 percent. The core index, which excludes food and energy, rose by
0.2 percent – matching October's 0.2-percent rise. The Street had
expected both the overall and core CPI to rise by 0.2 percent.
Energy prices declined by 0.2 percent while food prices jumped by
0.3 percent. That energy component may change a little going
forward. As a result of the CPI numbers, Real Average Weekly
Earnings rose by 0.2 percent in November.
Finally, U.S. industrial output edged up in November, as a surge
in automobile production led to the first monthly increase since
July. Industrial production rose 0.1 percent in November after
falling 0.6 percent in October. Capacity use rose 0.1 percent in
November to a level of 75.6 percent from October's revised 75.5
percent. October capacity use had previously been reported at 75.4
After the market close, Micron Technology (MU:
reported a first-quarter loss of $315.9
million, or 52 cents a share, on revenue of $685.1 million. Analysts
had expected a loss of 23 cents per share on revenue of $809.4
million. Disappointing on both fronts, MU gave up another 1.25
points (9.4 percent) beyond yesterday's regular close of 13.28. The
report will no doubt pressure some of the issues in the PHLX
Semiconductor Index (SOX – 320.63, minus 1.54 percent) today.
Equity option activity on the CBOE yesterday had 251,826 put
contracts trade compared to 504,142 call contracts. The resulting
0.500 put/call ratio has moved the 21-day moving average back down
to 0.593 as it persists in consolidating in the 0.59 area. The
21-day moving average has held in this range for the past eight
sessions. The CBOE Market Volatility Index (VIX – 30.16) added 0.60
percent and the Nasdaq-100 Trust Volatility Index (QQV – 41.80) fell
by 2.06 percent. The VIX is once again flirting with the 30 level
(it traded as low as 29.59 yesterday). With the index now failing at
both its 10-day and 20-day moving averages, you should be aware of
potential support at the 30 level. This area caught and reversed the
index back in August. Failure to hold support here would bode well
for the near-term performance of the market.
As for today, if the Dow Jones Industrial Average (INDU – 8535.4)
seems a little light, it's because Wal-Mart Stores (WMT:
goes ex-dividend before the open. The
company pays a quarterly dividend of 0.075 cents per share, which is
equivalent to 0.514 Dow points. Economic data is a little light
today, with the MBA Refinancing Index (last minus 8.6 percent) and
the October trade deficit (seen at $36.0 billion, last $38.03
billion) both coming out. The anticipated decline in the trade
deficit is more likely a function of the West Coast dock workers'
strike than a function of diminished demand. There are several
earnings reports scheduled for today (see below). Oracle (ORCL:
reports after the close.
In futures trading, the March 2003 contracts on the SPX (902.99,
minus 0.81 percent), INDU (8535.40, minus 1.07 percent) and the NDX
(1040.01, minus 0.23 percent) have been consolidating below their
respective fair value numbers. The ND contract is looking the
weakest. It looks like a negative open to today's session. At this
point in time, session lows and highs are: SP/H3 (895.60/903.50),
DJ/H3 (8462.00/8528.00), and ND/H3 (1030.50/1047.00).
Overseas markets are in worse shape today than they were
yesterday. Currently, none of the 15 that we track are positive and
the cumulative average return is a minus 0.923 percent. The Nikkei
failed to follow through on the prior session's gains and has hit
another multi-year low. The Nikkei is currently losing the parity
race with the INDU. You have to wonder when we'll be talking about
the break of another millenium level on the index! German business
sentiment fell for a seventh consecutive month in December. The
December Ifo survey came in at 87.1 – in-line with expectations and
lower than November's 87.3. The current conditions component fell to
76.8 from 79.0, but the expectations component came in at 97.9
versus 95.8. This is the first rise in expectations since May.
The U.S. Dollar Index (DX/Y – 103.63) shed 53 cents yesterday as
the U.S. dollar could only post a gain versus the Mexican peso. The
White House finally came out to emphasize its continued policy on a
strong U.S. dollar. Market participants had lost sight of that fact
due to the appointment of the new Treasury Secretary, John Snow.
Certain members of the trading audience felt that the stance might
fade during the cabinet transition. The statement was enough to
bring the index back from the brink of a new yearly low of 103.50
set earlier in the session. Early trading today has the U.S. dollar
gaining ground versus all but the pound and real:
Euro/ 1.0241/ -0.0035
British pound/ 1.5983/
Japanese yen/ 121.4182/ -0.0016
Brazilian real/ 3.5319/
Mexican peso/ 10.2596/ -0.0003
Canadian dollar/ 1.5506/
Swiss Franc/ 1.4308/ -0.0014
The February future contract on gold (GC/G3 – 338.00) settled
higher by 40 cents per ounce on the regular trading session
yesterday. The contract moved as high as 343.50 during the session,
but those gains faded on the White House's re-affirmation of its
strong dollar policy. Early trading today has the contract off by
$1.40 to $336.60. London spot was at 336.80/337.30.
The March future contract on the 30-year bond (US/H3 – 109'06)
could only manage a gain of 2/32 yesterday despite the malaise in
equities. The contract is barely clinging to its 10-week moving
average, which (as we mentioned yesterday) has bearishly crossed
below the 20-week moving average. You have to figure that those
fingernails are getting a little frayed by now. The yield on the
two-year note stood at 1.869 percent and the 10-year note was
sporting a 4.126 percent yield. The 2-30-year yield spread widened
to 315 basis points. Early trading in London this morning has the
group generally reclaiming some of yesterday's losses. Early
weakness in equities, as well the heightened potential for war, are
lending some bid:
2-year note was at 100-11/32 up 3/32 to
yield 1.81 percent
5-year note was at 99-28/32 up 7/32 to yield
10-year note was at 99-11/32 up 9/32 to yield 4.08
30-year bond was at 105-10/32 unchanged to yield 5.02
The yield curve, as measured by the 2-30-year yield
spread, has risen to 321 basis points.
The January contract on sweet crude oil (CL/F3 – 29.94) slipped
by 16 cents yesterday ahead of the weekly inventory data from the
American Petroleum Institute (API). With no additional news to
warrant a trading directive, traders thought it wise to consolidate
After the market closed last night, the API reported a 3.2
million-barrel decline in domestic crude inventories to a total of
283.9 million barrels. Supplies are nearly 28 million barrels below
the year-ago level. Most analysts had predicted the decline, so
there was no surprise here. The data hit the Street on Venezuela's
16th day of a general strike. Opposition leaders, calling for new
elections and the resignation of President Hugo Chavez, refuse to
end the strike that has severely incapacitated the Venezuelan oil
industry. Recent reports place Venezuela's oil output at just
400,000 barrels per day compared to the usual amount of nearly three
million barrels per day. The U.S. imports about 13 to 14 percent of
its crude oil from Venezuela. Needless to say, the longer this
stalemate continues the greater the impact will be on an already
anemic U.S. inventory.
U.S. gasoline inventories actually rose by 119,000 barrels in the
latest week. Total supplies of 205.5 million barrels, however, are
nearly five million barrels below the year-ago level. Analysts had
expected a sharp decline here, ranging from one to four million
barrels. The API also reported a 462,000-barrel decline in
distillate stocks, which includes fuel oil and heating oil. Early
trading today has the contract slipping by 30 cents.
Today's Economic Calendar:
7:00 a.m. MBA Refinancing
Index (last minus 8.6 percent).
8:30 a.m.: October Trade Deficit
(seen at $36.0 billion, last $38.03 billion).
Consumer Confidence (last minus 22).
TBA: Richmond Fed President
Broaddus speaks at Chamber of Commerce luncheon in North Carolina.