Market Insider: Wednesday Look Ahead
CNBC Executive News Editor
Consumer inflation data, more retailers' earnings, and another day of auto executives on Capitol Hill are on tap for Wednesday.
Stocks perked up ahead of Tuesday's close as buy programs swept the market after a volatile day. The Dow was up 151, or 1.8 percent, its third gain in 10 sessions, and the S&P 500 rose 8, nearly 1 percent to 859. But this was not without a roller coaster ride for the Dow which moved more than 300 points, and was deep in negative territory.
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"It's a tug of war with the awful economic news we're getting," said Robert Harrington, head of the block desk at UBS.
"We got a little reprieve with Hewlett Packard, and energy acted a little better," he said of Tuesday's market. Hewlett Packard gave a surprisingly bullish earnings preview before the opening bell. Its stock jumped 14.5 percent, and the information technology sector rose nearly 2 percent. Energy stocks were the best performers, gaining 3.3 percent.
Harrington said the stock market was rattled during the day Tuesday by dislocation in the commercial mortgage market. Treasury Secretary Hank Paulson's comments last week that the financial bailout no longer planned to buy troubled mortgage securities has caused investors to recalculate positions in that market. Also, Credit Suisse reportedly issued a report warning that two loans in a debt deal sold this year are at risk of default, adding to fears of weakness in the market.
For Wednesday, traders are watching the CPI, consumer level inflation data, reported at 8:30 a.m. The PPI, reported Tuesday, fell by a record 2.8 percent last month, exceeding expectations of a 1.8 percent decline. Consumer prices are expected to fall 0.8 percent in October. Other important economic news Wednesday includes housing starts and building permits, also at 8:30. The minutes of the last Fed meeting are released at 2 p.m.
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Executives of the Big Three auto makers, grilled by a Senate panel Tuesday, return to Congress to plead their case before the House Financial Services Committee at 10 a.m. Votes on a possible bailout for the automakers could come by Thursday.
Fed speakers include Fed Vice Chairman Donald Kohn who speaks on monetary policy and asset prices at the Cato institute's Monetary Policy conference in Washington at 9 a.m. Richmond Fed President Jeffrey Lacker speaks at 1:30 p.m. at the same conference on lessons from the subprime crisis.
Earnings expected Wednesday include B.J.'s Wholesale, LDK Solar and Ross Stores before the bell. Limited Brands and PetSmart report after the bell, as does Intuit.
What's At Stake
The auto industry bailout debate is emotional and difficult. Any outcome promises to be less than ideal, but the future of the auto industry has huge stakes for the economy. Deutsche Bank chief U.S. economist Joseph LaVorqna says if there's a bankruptcy in the auto industry, the ripple effect could take unemployment to 11 percent, a level last seen in the early 1980s.
In a report, he said 2.5 to 3 million workers are directly or indirectly tied to production and sales of the big three automakers. Displacing those workers would result in a quick rise in unemployment to 8 to 8.25 percent.
If there's a Q1 bankruptcy, he predicted the shutdown of production, damage to consumer confidence and other ripple effects would shrink GDP by at least 4 percent in addition to what should already be a down quarter.
Oil fell $0.56 per barrel, or 1 percent to $54.39. Gasoline futures fell $0.0378 per gallon or 3.22 percent to $1.1368 per gallon.
John Kilduff, senior vice president of M.F. Global, said he is again ratcheting down his forecast for crude. "With gasoline leading the way, at 2005 levels, we're looking for oil to break $50 and the low in 2005 was around $46 a barrel. We're looking at that as our new downside target," he said. He had held a target of $49.90 per barrel.
Kilduff, a CNBC contributor, says $46.60 is the next technical support level that has a chance of holding. He expects OPEC at its Nov. 29 meeting in Cairo to come up with a coordinated response to falling prices, but not an immediate production cut. He expects OPEC to seek to coordinate with non OPEC members Russia, Norway and Mexico. He expects it would then seek a production cut with its new alliance after the meeting.
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