Morning rise on tap; auto hopes vs. profit warnings
U.S. stocks are expected to open higher Wednesday in anticipation of a bridge loan package for automakers and higher equities in Asia; but gains could be limited by worries about fresh profit warnings. The Dow is seen up about 80 points at the start, while the Russell 2000 (NYSE:IWM) should open up 0.7% near 469.00. Traders will be watching how debt markets trade after a stunning 0.000% yield on four-week bills Tuesday. So far today, things are a little better on that front, with Treasury yields on 10-year notes up about 2% to 2.70% overnight.
Hope on the automaker front appeared to provide a boost to Asian stocks. Japan was up 3.1%, Hong Kong jumped 5.5%, China rose 2.7%, Taiwan was up 4.1%, Singapore up 3.8%, South Korea up 3.8%, India up 5.3% and Australia up 1%. Honda shares were up 10.3%, Hyundai up 9.1%, Kia up 8.5% and Nissan up 5.2%.
The MBA Mortgage Application Index came out this morning, and showed a mild dip off last week’s record advance when the index doubled. Mortgage rates actually dipped a tad again last week, which should bolster activity, but tighter credit standards are making it more difficult to refinance and get new home loans.
On the company front, it will be interesting to see how other miners react to news that Rio Tinto (third-largest mining firm) will slash 13% of its workforce, reduce capital spending and sell assets to raise cash. In London, the market embraced Rio’s moves, sending the stock up some 14%.
As for U.S. companies, profit news and outlooks continue to be bleak. This morning saw Praxair Inc. (NYSE:PX), the nation’s largest industrial gases firm, lower earnings projections and announce 1,600 layoffs. Electronic Arts Inc. (Nasdaq:ERTS) lowered guidance in anticipation of weak holiday sales as the video games maker also said additional workforce reductions will be implemented on top of the 6% cut announced back in October. Soft holiday sales could reverberate throughout retailers, with Nike Inc. (NYSE:NKE) the world’s largest sports shoe and apparel company on the end of an analyst downgrade this morning.
From a technical analysis perspective, the Russell should open up within striking distance of 473, which marked the Black Friday peak and a “head fake” upside breakout Monday. If the market can stage another push through that point, it would help the bullish breakout argument. On Tuesday, the Russell failed a test of 491, which is the next key point above 473. If the market starts to wobble today, look for support along 461, then at 452.50 and 442.
