Morning Market Update: Monday, March 7, 2011
Opening View: DJIA Futures Creep Higher; Oil Tops $106 per Barrel
Crude futures continue to advance despite potential relief from Washington
by Joseph Hargett (jhargett@sir-inc.com) 3/7/2011 7:58 AM
The Dow Jones Industrial Average (DJIA) retreated roughly 88 points on Friday, as mixed jobs data wasn’t enough to offset soaring crude prices. Stocks appear to be headed higher in premarket activity, but even indications that the Obama administration may tap into U.S. strategic petroleum reserves hasn’t been enough to slow soaring oil. Futures on the DJIA and the S&P 500 Index (SPX) are trading roughly 23 points and 2.5 points above fair value, respectively. Meanwhile, the April crude contract has added $1.97 to trade at $106.39 per barrel.
Technically, the DJIA enters today trading above its 10-day and 10-week moving averages, with additional short-term support in the 12,150-12,100 region. Resistance looms just overhead in the 12,200-12,250 area. The SPX, meanwhile, is still staring up at 1,333.58, which, as you may remember from Monday Morning Outlook, marks a double of the index’s March 2009 low. Support remains in the 1,300-1,305 region.
In equity news, Western Digital (WDC) announced that it is buying Hitachi Global Storage from Hitachi Ltd. (HIT) for about $4.3 billion in cash and stock. According to the terms of the deal, Western Digital is shelling out $3.5 billion in cash and 25 million shares, leaving Hitachi with a 10% stake in WDC after the deal closes. “The proposed combination will result in a customer-focused storage company, with significant operating scale, strong global talent and the industry’s broadest product lineup backed by a rich technology portfolio,” Western Digital said.
Also, Ciena Corp. (CIEN) posted a first-quarter loss of $79.1 million, or 84 cents per share, compared to a loss of $53.3 million, or 58 cents per share, last year. Excluding $24 million in costs related to its purchase of Metro Ethernet Networks from Nortel, Ciena’s adjusted loss was 14 cents per share. Revenue rose to $433.3 million, from $175.9 million. Wall Street was expecting a loss of 14 cents per share on revenue of $422.5 million. Looking ahead, Ciena expects second-quarter revenue of $415 million to $435 million, versus the consensus estimate for revenue of $439 million.
Earnings Preview
On the earnings front, Urban Outfitters (URBN), Perfect World (PWRD), and Casey’s General Stores (CASY) are slated to release their quarterly earnings reports.
Economic Calendar
The economic calendar kicks off today with updates on consumer credit and employment trends, as well as comments from Fed Presidents Dennis Lockhart and Richard Fisher. Tomorrow, we’ll hear the latest report on chain-store sales from ICSC-Goldman Sachs, while Wednesday brings us word on wholesale inventories for January, the latest MBA mortgage applications survey, and the regularly scheduled update on domestic petroleum supplies from the Energy Information Administration (EIA). The weekly report on jobless claims hits the Street on Thursday, along with import/export data for January. We wrap up the week on Friday with the preliminary Thomson Reuters/University of Michigan consumer sentiment survey for March, along with comments from New York Fed President William Dudley.
Market Statistics
Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,366,175 call contracts traded on Friday, compared to 774,977 put contracts. The resultant single-session put/call ratio arrived at 0.57, while the 21-day moving average rose to 0.58.
Overseas trading is mixed this morning, with six of the 10 foreign indexes that we track in positive territory. The cumulative average return on the collective stands at a gain of 0.05%. Asian stocks ended broadly lower due to soaring oil prices, though Shanghai stocks bucked the downtrend after Beijing detailed several economic goals in the wake of the country’s annual legislative session. Meanwhile, Japanese stocks received additional pressure after Foreign Minister Seiji Maehara resigned due to the discovery of illegal political donations from a foreign national. In Europe, Moody’s Investor Services cut its rating on Greece, but commodities and technology stocks have picked up the slack and are pushing the region higher.
Currencies and Commodities
Indications that the Obama administration may tap into U.S. oil reserves have not been enough to offset renewed violence in Libya. In fact, news that Libyan president Muammar Gaddafi is retaliating against rebels, pushing the country closer to civil war, has sent oil futures to a new multi-year high of $106.39 per barrel in electronic trading this morning. Meanwhile, the U.S. Dollar Index is headed lower once again, providing additional upward pressure on commodities. At last check, the U.S. Dollar Index had slipped 0.33% to 76.16. Finally, gold futures have tagged another all-time high in London, hitting $1,443.30 an ounce before pulling back heading into the open on Wall Street. Currently, the April contract is up $12.70 at $1,441.30 an ounce.
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