Posted on May - 12 - 2011

Commodity Rout May Pressure Markets Despite Neutral Data

- The major U.S. index futures are pointing to a lower opening on Thursday, although the futures have come off their lows following the release of a trio of economic reports. Commodities prices are extending their declines amid a lack of clarity on the economic outlook. Jobless claims declined just about in line with expectations and retail sales growth, though soft, suggested a strong consumer trend if we take into account the upward revision to the previous month’s figures.

Meanwhile, fuel prices are fueling inflationary pressures-a definite cause of concern at a time when the recovery has still not found a firmer footing. Earlier in the day, China announced further tightening measures, accentuating the nervousness about global growth. The tidings on the corporate front is mixed, with Cisco (CSCO) cautioning of a rough ride ahead, while retailers are reporting stronger results and issuing upbeat outlook.

U.S. stocks retreated on Wednesday after advancing in each of the previous three sessions, as a retreat in commodity prices and mixed corporate news weighed on the markets. The major averages opened modestly lower and moved sideways until early afternoon trading. After declining sharply in the mid-session, the indexes moved sideways once again before closing notably lower.

The Dow Industrials ended down 130.33 points or 1.02 percent at 12,630 and the Nasdaq Composite ended at 2,845, down 26.83 points or 0.93 percent. Meanwhile, the S&P 500 Index fell 15.08 points or 1.11 percent before closing at 1,342.

Twenty-five of the thirty Dow components ended the session lower, with Disney (DIS) leading the slide with a 5.44 percent decline. Alcoa (AA), Caterpillar (CAT), Chevron (CVX), DuPont (DD) and Exxon Mobil (XOM) also declined sharply. On the other hand, Intel (INTC) and Johnson & Johnson (JNJ) advanced strongly.

Among the sector indexes, the Dow Jones U.S. Basic Materials Average fell 2.92 percent, the NYSE Arca Oil Index slipped 2.89 percent, the Philadelphia Oil Service Index receded 3.24 percent and the NYSE Arca Gold Bugs Index lost 3.11 percent. Additionally, the NYSE Arca Disk Drive Index fell 3.44 percent.

On the economic front, the trade deficit widened to $48.2 billion in March, marking the biggest deficit since June 2010. The wider deficit reflected a spike in petroleum imports, which pushed up imports by 4.9 percent, although exports rose 4.6 percent month-over-month, the biggest increase since September 2008.

Currency, Commodity Markets

Crude oil futures are slipping $1.70 to $96.51 a barrel after declining $5.67 to $98.21 a barrel on Wednesday. The previous session’s pullback came amid the strengthening of the dollar due to waning risk appetite, and the release of the weekly oil inventory report. The report showed that crude oil stockpiles rose by 3.8 million barrels to 370.3 million barrels in the week ended May 6th. Inventories remained above the upper limit of the average range.

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