Morning Watch, May 14
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May 14, 2008
Futures point to lower open, but this could change following the CPI report at 8:30 am EST. Fed leaders have been stating their concern about pricing pressures, putting a lot of attention on inflation data. Weekly data on crude inventory levels will also be released this morning and could impact oil prices. Earnings reports were also released by Freddie Mac (FRE), Sony (SNE) and John Deere (DE). Overall, stocks continue to trade in a range, but if the CPI is better than expected, maybe it can push the Dow ($INDU) above support at its 200-day moving average.
The consumer price index is expected to show a gain of 0.3 percent overall and 0.2 percent at the core. The Fed would like to see prices ease considering that the year on year rate in March sat at 4.0 percent. Of course, pricing gains in energy and food have been a major factor, but the core rate is even experiencing a fallout from these high prices. Oil prices are down slightly this morning, but remain above $125 a barrel for July delivery.
Shares of FRE are sharply higher in pre-market trading, gaining nearly seven percent. The home loan provider did announce a loss of $151 million in the quarter and continued weakening in the housing market. However, at a loss of 66-cents a share, FRE easily surpassed expectations for a loss of 92-cents. Though FRE is trading near $27 a share this morning, it still is well below its 52-week high at $68.12.
Speaking of the housing market, mortgage applications for refinancings rose for the second straight week. The overall index was slightly lower, but the refi index made gains on a drop in mortgage rates. The 30-year fixed rate fell 9 basis points to 5.82 percent. Former Fed Chairman Alan Greenspan also stated that he feels the housing market will bottom in the beginning of 2009.
Shares of DE are heading south Wednesday after the maker of construction and farm machinery missed earnings estimates by a penny a share. Revenues did increase 18 percent with income coming in at $1.74 a share, up from $1.36 a share in the year ago period. DE did confirm guidance for the year, yet the stock is down more than six percent.
It will be interesting to see how traders react to the CPI data. The Dow is about 200 points away from strong resistance at its 200-day moving average. Volumes have been light, so even a better than expected CPI might not be enough to push above resistance, but it could be the start of higher prices if future data points to improvement in the economy.
Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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