Hewlett-Packard Offers Favorable Outlook
Upbeat guidance from bellwether Hewlett-Packard is helping stocks cut losses in early action, overshadowing some of the gloom that has engulfed the market and providing traders with a much-needed dose of positive news. And shares are continuing to move toward the flatline after a record drop in the Producer Price Index. Elsewhere, Home Depot beat the Street's profit estimate, Medtronic and Saks missed, and Yahoo's CEO will resign. Treasuries are edging ahead and world markets are weaker.
As of 8:38 a.m. ET, the December S&P 500 Index Globex futures contract is 2 points below fair value, the Nasdaq 100 Index is 6 points above fair value, and the DJIA is 15 points below fair value. Crude oil is up $0.24 to $55.19 per barrel, and gold is down $7.60 per ounce at $734.40. The overnight LIBOR rate was unchanged at 0.40%, and the three-month LIBOR rate dipped 2 bp to 2.24%.
Plunging wholesale prices
Led by a 12.8% drop in energy prices, the Producer Price Index fell 2.8% in October, below the Bloomberg estimate of a 1.9% decline and the biggest drop since monthly records began in the late 1940s. The core rate, which excludes food and energy, remains sticky and jumped 0.4%, well above the consensus of a 0.1% rise. But intermediate goods fell a sharp 3.9% and crude goods plunged by 18.6%, signaling that inflation pressures are quickly subsiding in the earlier stages of production. Coupled with sagging aggregate demand, we should soon see pressures recede at the core level. Treasuries are higher.
Later this afternoon, the NAHB Housing Market Index will be released for November and an unchanged reading of 14 is anticipated.
Europe struggles
Weakness in Asia and deepening gloom are hurting European stocks in afternoon action as an unexpected drop in UK inflation raised fears the economy is quickly contracting while raising the specter that a mild bout of deflation is a possibility. The UK CPI fell 0.2% in October, below the estimate of a 0.1% increase. Year-over-year (y/y), inflation slowed at its fastest pace in 16 years, falling from 5.2% to 4.5%, the government said. Prices remain above the central bank's target of 2%. But the emphasis has already shifted to falling economic activity and monetary officials have hinted that more rate cuts are in the pipeline. Meanwhile, banking stocks are leading today's decline, while cyclicals such as machinery and mining issues are under heavy pressure. Lonmin (LNMIY $13), the world's third-largest platinum miner, reported higher profits for the full fiscal year but said it sees no material recovery in raw material prices until at least 2010.
Shanghai leads Asia lower
A four-day rally in China gave way to profit-taking after the late-day sell-off in the US on Monday undermined confidence and reignited fears that the economy of developed nations are contracting. There was some disappointment that new measures to boost the Chinese economy were not unveiled, and energy companies and financials lost ground and were among the weakest performers. Markets in Hong Kong were not far behind China, with the Hang Seng Index losing 4.5%. Investors continue to fret over prospects in the US and mainland China, and uncertainty as to when the People's Bank of China may relax monetary policy also pressured sentiment.
The steep decline in the last hour of trading on Wall Street yesterday kept Tokyo's Nikkei 225 Index on the defensive, pushing the key index down 2.3%. Poor economic news also weighed on shares. Nationwide department store sales fell 6.8% in October versus a year ago and remain in a downward trend. And the slide in Tokyo department store sales accelerated from -4.6% y/y in September to -8.4% y/y in October, the worst reading in over nine years as consumers react to the recession. Japan's economic minister said economic activity may not expand until 2010, suggesting the recession may be worse than the Bank of Japan is forecasting. A prolonged recession would raise the threat that the economy could slip back into deflation.
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