Stocks are set to open lower despite news of coordinated rate cuts from central banks in Europe and North America. Less than an hour before the start of trading in New York, stock index futures indicate that both the Dow Jones Industrial Average and the NASDAQ might open the trading session with significant losses.
Stock index futures rallied early Wednesday after the US Federal Reserve, the Bank of Canada, the Bank of England, the European Central Bank, the Swedish Riksbank and the Swiss National Bank announced rate cuts of .50 percent.
Meanwhile, the British government announced plans to add up to $87 billion to help its banks.
Rate cuts and pledges of additional liquidity come as credit markets remain frozen, raising fears that the global economy will tip into a prolonged recession. Those worries have triggered two days of heavy selling on Wall Street this week. The Dow Jones Industrial Average is down 880 points since Friday.
Wednesday, the rate cut announcement helped lift many markets off their lows of the day, but many remained mired in the red. MSCI's main benchmark index was down 1.9 percent, compared with 2.9 percent loss as the cuts were announced.
In Japan, the Nikkei Average plunged 9.4 percent and to its biggest one-day loss since 1987. Hong Kong's Hang Seng fell 8.2 percent. Stocks were trading mixed across Europe, however, as news of the coordinated rate cuts helped keep a floor under the major averages. UK's FTSE was up .3 percent, France's CAC 40 down .3 percent, and Germany's DAX off 1 percent.
In the US, stock index futures rallied on the news, but gave back those gains and more, as the pattern of selling into any market strength continues. Dow futures were down 160 points at 8:45 Eastern Time.
Attention turns to pending home sales data at 10:00 a.m. Eastern Time. Economists expect the report to show sales falling 1.2 percent in August, which follows a 3.2 percent decline the month before.
Bonds are not much changed ahead of the news. After a quick sell-off on the rate cut announcement, the benchmark ten-year Treasury bond has battled back to unchanged. Its yield is now 3.49 percent.
The dollar took a hit, trading down 1.43 to 100 on the Japanese yen. The euro is up .00925 to 1.3677 on the buck.
In the commodities markets, crude oil is down 2.36 cents to $87.70 a barrel amid worries about the economy and ahead of weekly inventory data due out at 10:30.
The flight to safety continues to help gold. The yellow metal is up another $35.80 to $915.80 an ounce.
Among the stocks to watch, Dow component Alcoa (AA) fell 4 percent after the company posted quarterly earnings of 37 cents per share, which missed analyst estimates by four cents. AA also said it would halt its share buyback program.
The automakers might see early action after Citigroup downgraded Ford (F) and General Motors (GM) to Sell from Hold based on unappealing valuations and deteriorating global credit markets.
Costco (COST) is out with quarterly earnings of 97 cents a share, which topped analyst estimates by 4 cents.
Meanwhile, many of the retailers are reporting monthly sales results today. Wal-mart (WMT) said September same store sales rose 2.4 percent, which was in-line with analyst estimates. Target (TGT), however, said same store sales fell 3 percent and reports "challenges in the current environment, including weak top-line growth in our retail segment and higher net write-off rates in our credit card segment." Nordstrom (JWN) and JC Penney (JCP) also reported declines in September sales (9.6 percent and 12.4 percent, respectively.)
In the options market, trading was active Tuesday, with approximately 10 million puts and 8.9 million calls trading across the US options exchanges. Trading turned defensive when selling in the equity market intensified midday. The Dow Jones Industrials lost more than 500 points yesterday. The CBOE Volatility Index (.VIX), which fell to a low near 47, closed up 1.63 points to new record highs at 53.68.
Many of the financial names continue to see active trading amid ongoing concerns about the credit crisis and the outlook for the industry. Bank of America (BAC), Morgan Stanley (MS), and Citigroup (C) puts and calls saw heavy volume Tuesday.
Alcoa (AA) puts were active, with 105,000 contracts traded (compared to 24,000 calls) ahead of its earnings release. Bearish order flow was also seen in MGM Mirage (MGM) and Marvell Technology (MRVL).
At the same time, contrary to one might expect, some investors are beginning to look for some upside opportunities amid the wreckage. Bullish order flow is being seen in a number of individual names. For example, calls on Computer Associates (CA) have seen buying interest during the past two days. Bullish order flow was also seen in Symantec (SYMC), Autozone (AZO), Sprint Nextel (S), Dominion Resources (D), Brinks (BCO), Manitowac (MTW), and A Power Energy (APWR).
Frederic Ruffy
WhatsTrading.com
