Stock set to rise at opening as investors await housing, inflation, manufacturing data

By Stephen Bernard, AP
Tuesday, August 17, 2010

Stock futures rise ahead of batch of economic data

NEW YORK — Stocks were set for a rebound Tuesday as investors prepare for a handful of economic and earnings reports that are expected to show some modest improvement.

Investors are waiting for reports on housing starts, industrial production and inflation at the retail level that are all expected to show the economy continues to grow at a measured pace. Retailer Home Depot Inc. and Wal-Mart Stores Inc. reported better-than-expected quarterly results.

Economic reports in recent months have almost wholly pointed to slowing growth. That data has led some investors to worry that the country could fall back into recession, so reports indicating even modest improvement could provide reassurances that the economy is still expanding and give investors a reason to buy.

Ahead of the opening bell, Dow Jones industrial average futures rose 55, or 0.5 percent, to 10,328. Standard & Poor’s 500 index futures rose 7.60, or 0.7 percent, to 1,084.70, while Nasdaq 100 index futures rose 10.50, or 0.6 percent, to 1,830.50.

The Dow is trying to snap a five-day losing streak, which has largely been driven by worries about second-half economic growth and the Federal Reserve’s more cautious tone about the pace of the recovery. The index has dropped 3.7 percent during that stretch.

Economists polled by Thomson Reuters forecast construction of new homes and apartments climbed to a seasonally adjusted annual rate of 560,000 in July from 549,000 in June. Home sales have struggled to regain momentum after a home buyer tax credit expired at the end of April. Any signs of stabilization or small growth would be considered positive because the sector might be starting to improve.

The Commerce Department’s report, due out at 8:30 a.m. EDT, is also expected to show building permits fell 0.5 percent in July to 580,000.

A separate report is expected to show industrial production grew at a faster pace in July than the previous month. Economists forecast production rose 0.5 percent after rising 0.1 percent in June. Multiple manufacturing reports had shown a pronounced slowdown in growth over the past couple of months.

The Federal Reserve’s industrial production report is due out at 9:15 a.m. EDT.

Investors will also be watching a report on retail inflation. With fears of another recession, investors and the Federal Reserve have also worried about deflation. Falling prices would hurt wages and earnings, making it less likely that companies would ramp up hiring. But investors will be looking for price increases, which are seen as normal during periods of economic growth.

The Producer Price Index likely rose 0.2 percent in July after falling 0.5 percent in June. Excluding volatile energy and food prices, economists predict core inflation rose 0.1 percent last month, similar to the growth reported in June.

The report is due out at 8:30 a.m. EDT.

Home Depot followed fellow home-improvement retailer Lowe’s in beating earnings expectations. Home Depot, like Lowe’s on Monday, also modestly cut its revenue forecast as shoppers remain cautious about spending amid high unemployment. The company also raised its earnings forecast because of share repurchases.

Aside from better-than-expected earnings, Wal-Mart raised its earnings outlook because of continued cost-cutting measures and strong global growth in China, Brazil and Mexico.

But shares of Wal-Mart fell in pre-opening trading after the retailer said sales at U.S. stores open at least one year fell slightly more than forecast. Shares dropped 11 cents to $50.30 in pre-opening trading.

Home Depot rose 32 cents to $27.70.

Potash Corp. of Saskatchewan Inc. rejected an unsolicited takeover bid from BHP Billiton Ltd. worth about $38.49 billion, or $130 per share. The fertilizer producer said the bid undervalued the company.

Shares of Potash surged in pre-opening trading after the company rejected the offer. They rose $31.54, or 28.1 percent, to $143.69.

With investors looking to buy stocks, bond prices fell. The yield on the 10-year Treasury note, which moves opposite its price, rose to 2.61 percent from 2.57 percent late Monday. Its yield is often used to set interest rates on mortgages and other consumer loans.

Overseas, Britain’s FTSE 100 rose 0.9 percent, Germany’s DAX index gained 1.2 percent, and France’s CAC-40 rose 1.2 percent. Japan’s Nikkei stock average fell 0.4 percent.

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