Stock Market Update - Tuesday, October 19, 2010 Caution Stocks DeclineTrend - Dollar Rising

Latest US Economic News Headlines:

USA EQUITY INDEXES: (OCT. 19, 4:00 PM EDT)
Dow Jones 10,978.62 -165.07 (-1.48%)
S&P 500    1,165.90 -18.81  (-1.59%)
Nasdaq     2,436.95 -43.71  (-1.76%)

Dow Jones 3:00 PM Averages: DJIA 10,963.22 DN 180.47
  30 INDUS     10,963.22 DN  180.47 OR    1.62%
  20 TRANSP     4,641.75 DN   71.25 OR    1.51%
  15 UTILS        407.67 DN    2.70 OR    0.66%
  65 STOCKS     3,812.94 DN   54.51 OR    1.41%

US DOLLAR FUTURES INDEX DXY: 4:08PM EDT: 78.23   1.30 (1.69%) 

US COMMODITY PRICES: (OCT. 19, 4:00 PM EDT)
Crude Oil     79.43     - 0.07%
Natural Gas     3.52     + 0.26%
Gasoline     2.04     -
Heating Oil     2.19     -
Gold     1333.11     - 2.67%
Silver     23.39     - 4.02%
Copper     3.73     - 2.99%

US Dollar Rising - Stocks Fall

US Stocks Erase Gains on Rising Dollar  China Inflation/Rates Change News

U.S. stocks fell to fresh session lows Tuesday after a report that PIMCO, BlackRock and the Federal Reserve Bank of New York are attempting to force Bank of America to repurchase soured mortgages.The Dow Jones Industrial Average recently dropped 192 points to 10950, plunging through 11000. The Dollar Index, DXY, used by Intercontinental Exchange Inc. to measure the greenback against the pound, yen, euro, Swedish krona, Swiss franc and Canadian dollar, climbed for the second time in the past three days. 

The Wall Street Journal reported Tuesday that a group of institutional bond investors are stepping up efforts to recoup losses on soured mortgage portfolios at Bank of America. Bloomberg reported Tuesday afternoon the bondholders wrote a letter to Bank of America and Bank of New York Mellon Corp., the debt's trustee, citing alleged failures by Countrywide to service the loans properly.

U.S. stocks tumbled Tuesday morning after China suddenly hiked interest rates and as a slew of corporate earnings reports largely disappointed investors.

A heavy dose of corporate earnings also prompted a mixed reaction among investors. Financials were the S&P 500's only sector to register gains Tuesday morning.

Goldman Sachs 3Q Net Down 40%
Goldman Sachs Group Inc.'s (GS) third-quarter earnings declined.

Goldman Sachs Group's third-quarter earnings fell less than analysts expected, prompting shares to rise 2.5%. Investment-banking results helped make up for weaker trading, though trading still carried the quarter, contributing 71% of the firm's overall net revenue.

BANK OF AMERICA LOSS WIDENS -$10.4B WRITE-DOWNS
Bank of America's 3Q loss widens to $7.3 billion, or 77c a share, though adjusted results topped analysts' views, as the banking giant wrote off $10.4 billion related to its credit-card unit and sees improved credit quality.

Bank of America's third-quarter loss widened, though its adjusted results topped analysts' views, as the bank wrote off $10.4 billion related to its credit-card unit. Shares edged up 0.5%.

The Dow Jones Industrial Average recently fell 107 points to 11036. International Business Machines, Microsoft and Alcoa were the blue-chip index's biggest decliners.

The Standard & Poor's 500-stock index fell 9 points to 1174, with energy, materials and technology stocks fueling the fall. The technology-heavy Nasdaq Composite dropped 24 points to 2456, hurt by Apple's 1.9% drop. 

Late Monday, Apple posted a blowout fiscal fourth quarter. But shares fell after hitting an all-time high Monday as sales of the iPad fell short of expectations and the company offered a conservative forecast for the current quarter.

This morning's barrage of corporate earnings reports has overwhelmed Wall Street.This week, 11 of the 30 Dow components and more than a fifth of S&P 500 companies are due to report third-quarter results.

US SEPT. HOUSING CONSTRUCTION ROSE 

U.S. home construction unexpectedly rose in September, reaching its highest level since government home-buying incentives ended in April. Housing starts increased 0.3% to 610,000, the Commerce Department said Tuesday. But building permits, an indicator of future construction, fell 5.6% to 539,000.

U.S. Dollar Recovery To Gather Pace
Dollar May Extend Gains on Risk Aversion, Fed Chatter in Focus

The U.S. Dollar continued to bounce back against its major counterparts on Tuesday, with the EUR/USD slipping to a low of 1.3864, and the corrective retracement in the greenback.
The Dow Jones Industrial Average (DJIA) is headed for an opening plunge of about 145 points, while the S&P 500 Index (SPX) is trading more than 16 points below fair value. US Treasurys fell, with the yield on the benchmark 10-year note rising to 2.52% .

Over the past few days we have seen a very welcome resurrection of the US Dollar following a period of intense selling. The moves seem to have been inspired by more than just regular bout of profit taking and it looks as though there has been a coordinated effort on behalf of US officials to warn investors that they could be in for a QE let-down.

US CRUDE OIL DECLINED AS DOLLAR CLIMBS

Oil fell on the dollar's strength. U.S. light sweet crude oil CLc1 was off $3.58 to $79.50 a barrel.

OIL FUTURES: Nymex Crude Closes Down $3.58 At $79.50/Bbl

US Crude: $80.70

US Natural Gas Futures Close Up 2.3% At $3.510/MMBtu 

PRECIOUS METALS DECLINE - DOLLAR UP
Gold:  $1,332
Silver: $23.58 

Comex gold saw strong selling pressure Tuesday morning, as prices hit a fresh two-week low of $1,332.50 an ounce. Technical resistance for December gold is located at $1,350.00, at $1,360.00 and then at Tuesday's high of $1,371.70. It would take a close above Tuesday's high to provide the gold market bulls with some fresh upside near-term technical momentum.

Gold futures plumeted Tuesday as a surprise Chinese intest rate hike sent investors into the perceived safety of cash. The most actively traded gold contract, for December delivery, was recently down $36.70, or 2.7%, at $1,335.40 a troy ounce on the Comex division of the New York Mercantile Exchange.

The U.S. dollar gained as a perceived safe haven at the expense of gold as commodities-linked currencies took a hit after the People's Bank of China said in a statement it will raise the one-year yuan lending rate Wednesday.

Lockheed 3Q Profit Drops 28%

Lockheed Martin Corp.'s (LMT) third-quarter profit dropped 28% as a charge related to an executive buyout program weighed on the bottom line, masking a rise in revenue. Shares fell 3% in recent trading to $67.95. The stock is down 10% this year, nearly half of it coming in October.

It lowered its outlook for the year--incorporating items such as the lack of sales from a business it plans to divest and a pension contribution--cutting its adjusted earnings-per-share view by 40 cents a share to $6.75 to $6.95 and its net sales forecast by $600 million to $44.9 billion to $45.9 billion.



BEFORE THE BELL:
US Index Futures Drop

U.S. index futures and European stocks dropped while oil fell as China raised interest rates and Apple Inc. forecast profit that missed analysts’ estimates. The dollar rallied after Treasury Secretary Timothy F. Geithner said the nation will preserve confidence in a “strong” currency.

International Business Machines Corp. fell 3.4 percent in pre-market trading after posting its third quarterly drop in new contracts. Goldman Sachs Group Inc. gained 0.6 percent after reporting third-quarter earnings per share of $2.98, more than the average estimate of $2.29 in a Bloomberg survey. Coca-Cola Co. rose 1.5 percent on comparable profit of 92 cents a share, compared with an 89-cent forecast in a Bloomberg survey.

Bank of America Reports $7.3 Billion Loss, Citing Charges
Bank of America, the nation's biggest bank, announced a rebound in operating profit in the third quarter, even as revenue dropped slightly from last quarter.

Coca-Cola Earnings Increase 8.4%, Beating Analysts' Estimates
Coca-Cola's global sales by drink volume grew 5 percent, with a 2 percent

Coca-Cola Co., the world’s largest soft-drink maker, posted an 8.4 percent increase in third- quarter profit after winning more customers overseas.

The Net income advanced to $2.06 billion, or 88 cents a share, the Atlanta-based company said today in a statement. The shares advanced 6 cents to $60 yesterday in New York Stock Exchange composite trading. They had climbed 5.3 percent this year before today, while rival PepsiCo Inc. gained 9.4 percent and the Standard & Poor’s 500 Index rose 6.2 percent.

EUROPEAN AND U.S. MARKETS DECLINE AFTER CHINA RATE INCREASE

World stocks and commodity prices fell on Tuesday after China, the engine of growth in a still weak global recovery, raised interest rates for the first time since 2007 to rein in its booming economy. The China rate hike move came after Asian markets had closed.

The dollar gained and Wall Street fell more than 1 percent on China's unexpected 25 basis point rate rise.

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Canadian Market: 

Toronto Stocks Down On Weak Resources
Resources led the stock market lower at midday Tuesday after a surprise interest-rate hike in China triggered worries about slowing demand for raw materials.

The Bank of Canada left interest rates unchanged after three consecutive increases, saying any further tightening would be "carefully considered" in the face of tense currency markets. The Bank of Canada marked the first pause since the central bank began increasing borrowing costs in June. Subsequent to the release, the USDCAD resumed its intraday northern voyage, and now looks poised to test 1.04 in the near term, as the US Dollar benefits from China’s decision to hike interest rates for the first time in almost three years..

At 11:45 a.m. EDT (1545 GMT), the S&P/TSX Composite Index was down 54.43 points, or 0.43%, at 12613.58. Declines led advances 860 to 545. Trading volume was 237.9 million shares. The S&P/TSX 60 Index was down 2.56 points, or 0.35%, to 728.95.

Toronto Indexes, Volume; 2 PM EDT Composite Down 129.88

 S&P/TSX Composite   12539.16  off 129.88  or 1.0%
 S&P/TSX 60 Index      724.10  off   7.41  or 1.0%
 Financials            180.12  off   0.25  or 0.1%
 Materials             390.94  off  10.35  or 2.6%
 Energy                289.66  off   3.90  or 1.3%
 Industrials           107.00  off   0.73  or 0.7%
 IT                     27.96  off   0.39  or 1.4%

   Volume         Tuesday    Monday
   1-2                44.9M      38.6M
   9:30-2            338.1M     259.3M

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South American Markets:

BRAZIL:

Brazil Real Closes Weaker
The Brazilian real closed slightly more than 1% lower Tuesday due to effects of the Government tax hike and a Chinese government decision to raise interest rates in Asia's biggest country.

The Real closed at BRL1.6832 to the dollar, weaker against the Monday close of BRL1.6655.

Brazil stepped up efforts to curb gains in the real by raising inflow taxes and said it may be forced to take additional measures as Finance Minister Guido Mantega called for an end to the worldwide “currency war.” The nation, Latin America’s largest economy, raised the IOF tax on foreigner investments in fixed-income securities to 6 percent from 4 percent. It also boosted the levy on money brought into the country to make margin deposits for transactions in the futures market to 6 percent from 0.38 percent.


CHILE:

Chile Market and Peso Slip

The Chilean peso slipped 1% versus the dollar midday Tuesday, as China surprised investors by increasing key interest rates, international copper prices slipped and the nation's Finance Minister reiterated concern about the local currency's strength.

The peso, which was recently trading at 29-month highs, weakened to CLP485.80 to the dollar, versus Monday's close of CLP481.00 to the dollar, while trading in a range of CLP482.40 to CLP486.20.

After China hiked its rate by 25 basis points, raising the possibility of a global slowdown, the safe-harbor dollar rose rapidly against its major rivals, including the euro.

Copper futures in New York plunged 3% after China's rate hike, as short-term fears about demand from the world's biggest copper consumer overwhelmed a positive longer-term outlook.

PERU:

Peru's Stock Indexes Lower In Early Trade On Mining Losses

Peru's main stock indexes fell sharply in midday trade on losses in mining stocks following news that China was raising interest rates and tightening monetary policy, said analysts.

The Lima Stock Exchange's broad General index was down 2.4% at 18480, while the Selective blue-chip index was 2.3% lower at 27024. The key mining subindex was down 2.7%.

Copper miners losing ground included Southern Copper Corp. (SCCO) down 2.6% to $40.90, while Sociedad Minera Cerro Verde SAA (CVERDEC1.VL) was down 3.2% to $32.30.

Precious metals miner Compania de Minas Buenaventura SAA (BVN) also lost value, down 4% to $49.35, as gold prices dropped.
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European Markets:

European shares edge lower. Commodity, energy and technology stocks led declines in Europe’s Stoxx 600, with Rio Tinto Group and Total SA losing more than 1.5 percent. The gauge for banks rallied 1.1 percent, with Deutsche Bank AG and Banco Santander SA gaining at least 2 percent.

The Europe Stoxx 600 index fell 0.5% to end at 265.24. Losses picked up as U.S. stock markets opened in the red, dragged down by disappointment over earnings from Apple Inc. and International Business Machines.

The Basel Committee on Banking Supervision said it agreed on details of minimum liquidity requirements for banks in a report to the Group of 20 nations.

LONDON:

London Stocks End Lower

FTSE 100                     5702.63   -39.89   -0.69%
FTSE 250                    10822.63   -52.46   -0.48%
DJ UK Smaller Companies       917.64    +1.90   +0.21%

The FTSE 100 ends down, led lower by miners after the PBOC says it will raise its benchmark deposit and lending rates by 25 basis points, sparking fears over Chinese consumption. Fresnillo -5.3% and Xstrata -4.5%.

U.K. industrial output growth strengthened in October, a Confederation of British Industry survey showed Tuesday, but a drop in export orders and total orders raised concerns that manufacturing activity may falter.

Anglo-Swiss miner Xstrata PLC (XTA.LN) Tuesday reported a fall in third quarter copper cathode and consolidated coal output compared with the same period a year ago due to mine and smelter closures, planned maintenance and adverse weather conditions.

British Airways - New Union Proposal

Talks last week between British Airways PLC (BAY.LN) and union Unite have led to new proposals being tabled, raising hopes of a peace deal that could prevent further strikes.

Spending Review, BOE Minutes To Shape Gilt Outlook Near Term
In the U.K. gilt market, there will be just one focus on Wednesday after the government details its plans for spending cuts and the minutes of the Bank of England's latest monetary policy committee meeting are released: whether the U.K. authorities' hard-won credibility remains intact.

UK's Cameron To Hold Defense Summit With Sarkozy

U.K. Prime Minister David Cameron said Tuesday that he will hold a defense summit with French President Nicolas Sarkozy this year with the possibility of some "very exciting steps forward."

GERMANY:
German investor confidence fell to a 21-month low in October as weaker global growth and a stronger euro dimmed the export outlook, a report today showed. German bonds fell, with the yield on the 10-year bund rising four basis points to 2.42 percent. 


Porsche SE dropped 7.2 percent as Volkswagen AG Chief Executive Officer Martin Winterkorn said the merger of the two companies may have to put on hold until risks from U.S. lawsuits and German tax issues are resolved. 
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Asian Pacific Markets:

CHINA:

China Raises Lending, Deposit Rates as Inflation Accelerates
Surprise China Rate Increase Roils FX and Commodity Markets

China's central bank Tuesday raised interest rates for the first time in nearly three years, the strongest move yet by Beijing to withdraw stimulus that helped the economy weather the global slump but now threatens to fuel inflation.

News of the rate increase sent shock waves through the currency markets, with the U.S. dollar soaring, while others fell hard. Commodity prices declined across all sectors. Oil, gold, copper all declined as the US dollar gained support worldwide.


China raised its benchmark lending and deposit rates for the first time since 2007 after inflation accelerated to the fastest pace in 22 months. It's been nearly two years since the People's Bank of China moved interest rates.

The one-year deposit rate will increase to 2.5 percent from 2.25 percent, effective tomorrow, the People's Bank of China said on its website today. The lending rate will increase to 5.56 percent from 5.31 percent, it announced.

China's economy continues to expand at a strong clip, heightening the risk of inflation and suggesting credit conditions will have to be tightened. China's consumer price index has risen by more than 3% in three of the last four months, threatening the central bank's official target of 3% average inflation for the full year.

Effective Wednesday, the central bank will raise its benchmark 1-year lending and deposit rates by one quarter of a percentage point each.

China's inflation quickened to 3.5 percent in August, highlighting overheating risks that have prompted the government to curb credit and clamp down on the real-estate market this year. Higher interest rates may encourage inflows of speculative capital from abroad, complicating management of the fastest-growing major economy.

JAPAN:
Japan's Nikkei share average closed 0.4 percent higher .N225, extending a gain since September to 6.9 percent.

AUSTRALIA:
The Australian dollar and other commodity-linked currencies fell sharply after China's move, sparking a sell-off in perceived riskier currencies.


WORLD FOREX CURRENCIES SNAPSHOT:
(TUESDAY, OCT 19, 2010 4:00 PM EDT) 
EUR/USD     1.3742     -0.0192 (-1.38%)
USD/JPY     81.4700 +0.2400 (0.30%)
GBP/USD     1.5698     -0.0194 (-1.22%)
CAD/USD     0.9673     -0.0158 (-1.61%)
USD/HKD     7.7607     +0.0037 (0.05%)
USD/CNY     6.6444     +0.0004 (0.01%)
AUD/USD     0.9691     -0.0199 (-2.01%)

WORLD MARKETS SNAPSHOT:
(TUESDAY, OCT 19, 2010 1:15 PM EDT)

Shanghai     3,001.85     +46.63 (1.58%)
Nikkei 225     9,539.45     +40.96 (0.43%)
Hang Seng Index     23,763.73     +294.35 (1.25%)
TSEC     8,046.23     -14.31 (-0.18%)
FTSE 100     5,703.89     -38.63 (-0.67%)
DJ EURO STOXX 50     2,837.33     -13.39 (-0.47%)
CAC 40     3,807.17     -27.33 (-0.71%)
S&P TSX     12,609.46     -58.55 (-0.46%)
S&P/ASX 200     4,655.70     +3.80 (0.08%)
BSE Sensex     19,983.13     -185.76 (-0.92%)

TUESDAY'S U.S. ECONOMIC CALENDAR:
7:45 a.m.
Oct 16 ICSC-Goldman Sachs Chain Store Sales Index - WoW (previous +0.8%), YoY (previous +2.6%)

8:30 a.m.
Sep New Residential Construction - Housing Starts and Building Permits Total Starts (expected 579K), Starts Percent Change (expected -3.2%), Building Permits (expected 578K), Building Permits Percent Change (expected +1.2%)

8:55 a.m.
Oct 16 Johnson Redbook Retail Sales Index MoM % Change (previous +0.2%), 12MonChgPct (previous +2.5%), 52WkChgPct (previous +2.5%)

9:40 a.m.
Chicago Fed Pres Evans speaks on the econ outlook in Evanston, Ill.

10:00 a.m.
New York Fed Pres Dudley speaks in New York

11:30 a.m.
Atlanta Fed Pres Lockhart speaks on the economy in Nashville, Tenn.

12:50 p.m.
Dallas Fed Pres Fisher speaks in New York

1:20 p.m.
Minneapolis Fed Pres Kocherlakota speaks on 'Tools of the FOMC' in Fargo, North Dakota

4:00 p.m.
Federal Reserve Board - Federal Reserve Chairman Ben Bernanke at finance park opening

4:30 p.m.
Oct 15 API Weekly Statistical Bulletin Crude Stocks (Net Change) (previous -4.01M), Gasoline Stocks (Net Change) (previous -1.88M), Distillate Stocks (Net Change) (previous -0.25M), Refinery Runs (previous 80.1%

5:00 p.m.
Oct 17 ABC News Consumer Comfort Index (previous -45)

7:00 p.m.
Federal Reserve Board - Federal Reserve Governor Elizabeth Duke speech in New York

CONFERENCE REPORTS:
U.S. State Department - Hillary Clinton expected to hold summit in Washington on investing in Northern Ireland 


US STOCK MARKET SUMMARY, MONDAY, OCT. 19, 2010:

Stocks:
U.S. stocks climbed Monday, boosted by earnings from Citigroup and a measure of home-builder confidence that topped expectations. The gains were led by the financial sector. "There was this general sigh of relief for Citi in that they seem to be getting things on track," said Tim Evnin, partner and equity portfolio manager at Evercore Wealth Management. 

Treasurys:
Treasurys rallied as investors, convinced the Federal Reserve will launch another large-scale bond-buying program next month, took advantage of the previous week's price drop to load up on government debt. Treasurys maturing in the next five to 10 years led the charge, and were also buoyed by a Fed purchase Monday of $6.26 billion in Treasurys maturing in the next six to 10 years.

Forex:
The dollar surrendered most of its earlier gains against its major rivals as U.S. data painted a picture of an economy that continues to struggle, adding weight to the view the Federal Reserve may soon act to kickstart growth. Though the dollar kept a slight lead on the day against the euro, it languished near a 10-month low against the common currency.

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