US Stock Futures Remain Lower After Trade Deficit Soars

Wednesday, August 11, 2010

Market Summary:

US stock futures fell steeply Wednesday as the US trade deficit unexpectedly widened a day after the Federal Reserve's latest worries about the faltering economic recovery. Dow Jones Industrial Average futures fell 135 points at 10483.

On low volume, U.S. stocks reversed nearly all of Tuesday's losses after the Federal Reserve said it would tweak its portfolio strategy to help spur the U.S. economic recovery. Volume was under 1-billion shares traded at the NYSE.

U.S. productivity surprisingly fell in the second quarter amid slower output growth and higher labor costs, while wholesalers' inventories in June registered far below expectations, a further sign the recovery is slowing.

Nonfarm business productivity dropped at a 0.9% annual rate in the April to June period, the Labor Department said Tuesday. It was the first decline since the fourth quarter of 2008, when productivity fell by 0.1%.

In the first three months of the year, output per hours worked rose by an upwardly revised 3.9%. Economists polled by Dow Jones Newswires were expecting productivity to rise by
0.3% in the second quarter.

Unit labor costs -- a key gauge of where prices are heading -- increased at a 0.2% annual rate last quarter, compared to a 3.7% decline in the first quarter. Economist had forecast a 0.5% gain in April to June.

The Dow Jones Industrial Average was off 31 points, erasing most of its earlier triple-digit loss after the Federal Open Market Committee said in a statement it would reinvest the proceeds from expiring mortgage-backed securities into longer-term U.S. Treasurys. The move should help a weakening economy by keeping mortgage rates low. The central bank also acknowledged that the pace of the recovery had slowed in recent months, according to the closely watched
statement that followed the meeting.

U.S. bank regulators taking one of their first steps to implement sweeping financial overhaul legislation expressed concern Tuesday that some requirements could cause more harm than good.

The Federal Deposit Insurance Corp.'s five-member board approved an initial step to replace the use of private credit ratings when reviewing bank capital levels. But not before regulators suggested the move, which is required under the Dodd-Frank bill enacted last month, could have its pitfalls.

"I do worry there is a little bit of throwing out the baby with the bath water," said Comptroller of the Currency John Dugan, who is scheduled to step down from his post at the end of the week. FDIC Chairman Sheila Bair also signalled some reservations. "The task of replacing credit ratings with a better substitute will not be simple," Bair said.

A new Wall Street Journal survey found that by a two-to-one margin Wall Street economists see deflation as a bigger threat to the U.S. economy over the next three years than inflation.

"Deflation is dangerously close," said David Resler of Nomura Securities, one of 53 economists surveyed by the Wall Street Journal. Among economists who answered the question, nearly two-thirds said deflation poses the bigger risk to the U.S. economy over the next three years; the remainder said inflation is the bigger threat.

That compares to an April survey, when the economists were split 50/50 over whether inflation or disinflation posed the bigger risk over the next year. The survey, conducted earlier this week ahead of Tuesday's meeting of Federal Reserve officials, found that half of the economists expect the Fed to keep its target for short-term interest rates unchanged at least until the middle of
2011.


Stocks:


The Dow Jones Industrial Average was recently down 0.3% ao 10667. The Standard & Poor's 500-share index fell 0.4% to 1123, while the Nasdaq Composite fell 0.9% to 2284. U.S. stocks reversed nearly all of Tuesday's losses after the Federal Reserve said it would tweak its portfolio strategy to help spur the U.S. economic recovery. The Dow Jones Industrial Average erased most of its early triple-digit loss after the Federal Open Market Committee said in a statement
it would reinvest the proceeds from expiring mortgage-backed securities into longer-term U.S. Treasurys.

Treasurys:

Treasury prices rallied after the Federal Reserve delivered on more bond buying. Treasurys climbed after the Fed statement, with the 10-year note's yield falling to 2.77%, a level last seen in April 2009. Prices pushed up across the board, but gains were the most pronounced in Treasurys maturing in the next five to seven years, after the Fed said it will reinvest the proceeds from expiring mortgage-backed securities into Treasurys maturing in the next two to 10 years. The move "means the market is going to remain well-bid," said Sean Simko, head of SEI fixed income management. "We're going to see these low levels persist into 2011."

Linda Duessel, equity market strategist at Federated Investors said the Fed's decision to resume purchasing Treasurys appeared to be a well-calibrated approach to investors who felt the economy was not in danger of sliding into a second recession.


Forex:

The dollar was mixed against most major currencies Tuesday after the Federal Reserve announced plans to buy government debt on a small scale. The Federal Reserve acknowledged a slowdown in the pace of the U.S. recovery and moved to prevent the Fed's huge balance sheet from shrinking in an attempt to kick-start the economy. "There's a lot of nervousness around the dollar," said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York.


Dow Jones 10,644.25 -54.50 (-0.51%)
S&P 500 1,121.06 -6.73 (-0.60%)
Nasdaq 2,277.17 -28.52 (-1.24%)

Crude Oil 79.42 - 1.03%
Natural Gas 4.30 + 0.19%
Gasoline 2.07 - 0.52%
Heating Oil 2.11 - 0.91%
Gold 1205.58 + 0.16%
Silver 18.22 - 0.49%
Copper 3.30 - 0.33%


World markets:

Shanghai 2,607.50 +12.22 (0.47%)
Nikkei 225 9,292.85 -258.20 (-2.70%)
Hang Seng Index 21,294.54 -179.06 (-0.83%)
TSEC 7,895.03 -81.71 (-1.02%)
FTSE 100 5,293.04 -83.37 (-1.55%)
CAC 40 3,661.98 -68.60 (-1.84%)
S&P TSX 11,838.29 0.00 (0.00%)
S&P/ASX 200 4,455.50 -85.20 (-1.88%)
BSE Sensex 18,070.19 -149.80 (-0.82%)


Wednesday's Calendar:

7:00 a.m.
August 6 MBA Mortgage Applications Survey Market Composite Index (previous 730.2), Cur Chg (previous +1.3%), Purchase Index (S.A.) (previous 174.9), Cur Chg (previous +1.5%), Refinance Index (previous 3969), Cur Chg (previous +1.3%)

8:30 a.m.
June U.S. International Trade in Goods & Services Deficit (expected -42.7B), Exports (previous 152.25B), Exports Percent Change (previous +2.4%), Imports (previous 194.52B), Imports Percent Change (previous +2.9%)

10:30 a.m.
August 6 EIA Petroleum Status Report Crude Oil Stocks (previous 357.98M), Crude Oil Stocks (Net Change) (expected -1.8M), Gasoline Stocks (previous 222.97M), Gasoline Stocks (Net Change) (expected -300K), Distillate Stocks (previous 169.69M), (Net Change) (expected +1.3M), Refinery Usage (expected 90.7%)

2:00 p.m.
July Treasury Statement of Receipts & Outlays of the U.S. Govt (expected -169.5B)


Unusual Option Activity From Schaeffersresearch.com


==================== PUTS =======================
Ticker Today's Avg. Daily Vol Option Stock
Symbol Vol Vol. Ratio Month Strike Vol. Price Price
================================================


QQQQ 153771 70783 2.17 Aug 45.0 37080 0.60 45.37
XLF 65371 27772 2.35 Aug 14.0 43639 0.15 14.33
EEM 34134 15467 2.21 Aug 38.0 10824 0.15 40.56
CSCO 30341 10092 3.01 Aug 24.0 10721 0.80 23.66
XOM 24518 6473 3.79 Aug 60.0 11726 0.67 60.51
DIA 21428 10604 2.02 Aug 105.0 4787 1.87 104.48
XLE 20506 4315 4.75 Aug 52.0 3631 0.39 53.81
SMH 17054 6582 2.59 Aug 28.0 12916 1.65 26.41
CREE 13496 2255 5.98 Sept 60.0 3473 3.98 59.96
NFLX 13420 6454 2.08 Aug 125.0 3083 4.75 124.36
USO 13078 6132 2.13 Aug 35.0 3405 0.73 35.02
BRCM 12968 2767 4.69 Sept 37.0 2414 3.73 33.69
HPQ 11732 4252 2.76 Sept 40.0 2827 1.06 41.36
LDK 10222 678 15.08 Sept 5.0 9339 0.12 7.37
SSO 8654 3633 2.38 Aug 37.0 2547 1.51 36.25
CLF 6589 2603 2.53 Aug 55.0 2976 0.97 58.11
HAL 5964 2981 2.0 Aug 28.0 1840 0.66 28.37
TBT 5497 2512 2.19 Sept 35.0 2550 1.08 35.30
UPS 5325 1691 3.15 Aug 65.0 2651 1.20 65.17
JNJ 4945 2342 2.11 Oct 55.0 3293 0.79 58.60


==================== CALLS ======================
Ticker Today's Avg. Daily Vol Option Stock
Symbol Vol Vol. Ratio Month Strike Vol. Price Price
================================================


PFE 78809 21361 3.69 Sept 16.0 26983 0.66 16.16
CSCO 38937 18762 2.08 Aug 24.0 18315 0.47 23.66
NFLX 27974 8019 3.49 Aug 125.0 5314 4.10 124.36
LVS 25961 9731 2.67 Aug 28.0 13441 0.54 27.29
HPQ 23852 7785 3.06 Sept 42.0 10076 1.28 41.36
CREE 20951 2550 8.22 Aug 65.0 7991 0.56 59.96
EEM 19079 8714 2.19 Sept 43.0 7367 0.48 40.56
EFA 16026 8002 2.0 Oct 57.0 8369 0.24 51.13
USO 11398 5520 2.06 Aug 33.0 2123 2.21 35.02
XLE 11374 2864 3.97 Sept 56.0 3647 0.87 53.81
NDX 9864 3757 2.63 Aug 1950.0 3579 1.18 1844.90
DELL 9405 3543 2.65 Aug 13.0 2818 0.12 12.02
STX 8759 3199 2.74 Sept 11.0 7636 0.58 10.73
UUP 8601 1590 5.41 Aug 24.0 7167 0.12 23.90
NTRS 8186 1181 6.93 Sept 55.0 4659 0.60 49.72
NOK 7754 2429 3.19 Oct 10.0 7551 0.19 9.07
PTV 7034 832 8.45 Sept 30.0 10020 2.28 30.50
UPS 6881 3355 2.05 Aug 65.0 2870 0.90 65.17
VECO 6717 1853 3.62 Sept 40.0 3227 0.60 32.19
GMCR 6240 1685 3.7 Aug 33.0 3197 0.32 31.47
DIS 5784 1263 4.58 Aug 35.0 2361 0.40 34.46


Schaeffer's Investment Research, founded by Bernie Schaeffer in 1981, provides research, education, and recommendations for stock and options traders. The firm's offerings include Bernie Schaeffer's Option Advisor, an options newsletter, as well as online services, real-time alert services and educational courses on investing with options. Company Website: SchaeffersResearch.com.