The shrinking U.S. dollar, record oil prices and some major earnings reports will dominate Wednesday trading.
Oil edged past $98 moving deeper into record territory in overnight trade. Traders are betting crude has the legs to run through $100 in the next couple of days. They say a surprise in inventory data, due at 10:30a ET, or any geopolitical development could be a catalyst.
The dollar, meanwhile, crumbled against the euro, hitting another low Tuesday and slipping against a basket of currencies. The dollar slid to a rate of $1.4554 dollars per euro, a loss of 0.6%, but gained 0.2% against the yen.
Stocks Tuesday, after a few cranky sessions, were firing on all cylinders, with every S&P sector in the green. The best performer was energy, up 2.74%, followed by materials up 2.46%, and surprise, the faint-hearted financials, were higher, up 1.72%. The utilities, where lots of money has gone into hiding lately, were the weakest performer, with just a 0.09% gain.
The Dow closed up 117 or 0.9% at 13,660, after being down as much as 31 earlier in the day. the Nasdaq was up 30, or 1.1%, giving it a 17% gain year-to-date, while the S&P was up 18 points, or 1.2%, at 1520. Another day, another rumor about a writedown for Goldman Sachs. For the fourth time in a week, the firm knocked down the rumor just before midday and as a result, unleashed some buyers on the financial sector.
General Motors will be one of the first big drivers of earnings news Wednesday morning. Its stock was tumbling in the after hours Tuesday after it unveiled a big $39 billion non-cash charge due to an accounting adjustment. GM said the charge was related to establishing a valuation allowance against deferred tax assets. The company will release earnings before the bell, then hold a conference call at 9:30 am. EST.
AIG also reports earnings and it should show what type of exposure it could have to the subprime tsunami that's been swamping other financial firms.
Cisco , which has been on a tear, reports earnings after the bell. Its stock Tuesday rose three percent, its best performance since August. Other companies reporting Wednesday include News Corp, Time Warner, Polo Ralph Lauren, Fluor, Sara Lee, and Devon Energy.
Ambac, one of the beaten down mortgage insurers, holds a conference call Wednesday morning to discuss results of its analysis of its CDO portfolio, confirmation of its current ratings on the portfolio and its mark-to-market methodology. Ambac Tuesday rebutted a Morgan Stanley analyst report saying losses in the report did not accurately reflect the composition of its underlying mortgage portfolio and the structure of its deals. Ambac shares finished the day up more than 13%.
Data releases Wednesday include Q3 productivity and unit labor costs at 8:30 a.m., plus wholesale inventories at 10 a.m. Consumer credit is reported at 3 p.m. Federal Reserve Gov. Kevin Warsh speaks in New York at the New York Association for Business Economists at 1 p.m.
The Skinny on the Dollar
Super model Giselle has been in the the headlines and in a Wall Street Journal editorial this week for her currency prowess. She reportedly was negotiating to be paid in euros instead of dollars, but her New York manager later said the story was totally wrong. Still, her alleged attitude toward the weakening green back stirred debate on the shrinking dollar and its impact on world trade and scantily clad models.
"She's done more to get dollar awareness out there than anyone has done in the last three months," said CNBC's Rick Santelli. "I would give her a trophy for model behavior."
Brian Dolan, chief currency strategist at Gain Capital, told us Tuesday's trading was very much part of a pattern since the credit crunch began.
"I'm looking at the stock market as the leader. While they're stable and moving higher, you basically have risky trades get put on. People buy oil, commodities," said Brian Dolan. That they did today. Gold finished at a 27-1/2 year high of $820.80, up 1.6%.
"It's quite exasperating if you're trying to trade off the fundamentals, but if you're in it for the first five points or five minutes, it's a great way to trade," said Brian Dolan, chief currency strategist at Gain Capital. "We've seen this the last couple of weeks virtually tic for tic. If equities go up, yen crosses go up," he said.
Dolan said the dollar is heading toward a bottom but it's not there yet. "We've got to come down to some more significant levels. Until I see a price reversal on the charts, I'm not going to stick my hand out and grab this knife."
Events currency markets will be watching this week include the reaction from the quarter point rate hike to 6.75 percent by Australia's central bank Wednesday, he said. The European Central Bank and Bank of England also both hold rate meetings on Thursday. Neither is expected to move on rates this week. The Bank of England also has an inflation report on Nov. 14
Is this a change?
CNBC's senior economic correspondent Steve Liesman attended the White House summit on trade where he spoke with President Bush, met with Administration officials and business leaders.
We thought a comment he got from Caterpillar's CEO was interesting, as we view Caterpillar as one company positioned to benefit from the weak dollar. Apparently, this CEO thinks the dollar might be too weak versus the euro.
"I think the euro's becoming somewhat overvalued vis a vis the dollar in my personal corporate opinion --- nothing to do with the White House," said James Owens, Caterpillar Chairman and CEO. "But I think the dollar's somewhat depressed in value, relative to the euro at the moment, and probably somewhat overvalued compared to some of the Asian currencies, as I would look at it in a purchasing power parity basis."
We will keep an eye on whether other companies show any signs of thinking the dollar may have moved too far.
"Green" vs Black Gold
It's Green week at NBC Universal in case you hadn't noticed so we asked CNBC's chief number cruncher Ariel Nelson to see what the performance looks like if you compare some green energy to traditional energy ETFs. This is what he found:
"As we approach $100 oil and at the same time promote Green on CNBC, we wanted to look which was performing better in the markets. On a year to date basis, it looks like it’s a neck and neck race with leaders in Green Energy having a slight edge over their counterparts in Black Energy YTD. Here are the YTD Returns for some "Green" and "Black" ETFs:"
Powershares WilderHill Clean Energy (PBW) +46.71%
Market Vectors Global Alt Egy (GEX) +43.36%
PowerShares WilderHill Progressive Energy (PUW) +20.92%
Claymore / LGA Green (GRN) +5.74%
United States Oil Fund (USO) +45.70%
Oil Service HOLDRs (OIH) +41.90%
Energy Select Sector (XLE) +32.35%
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