Solid rise on Libor dip despite sour manufacturing data

Kevin Pendley | Oct 16, 2008 10:16am EDT | Comment

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Small-cap stocks pushed higher on the opening, powered by a decent corrective bounce in the wake of Wednesday’s epic collapse. Bargain hunters were back nibbling in stocks after this morning’s initial batch of non-manufacturing economic indicators came in relatively mild and didn’t serve up any stunners like Wednesday’s huge drop in retail sales. In addition to the tame economic data, Libor inter-bank lending rates slipped in European trading, which bolsters confidence that frozen credit lines and lending mistrust is thawing as governments around the world push liquidity into the system and guarantee loans. At 10:02 a.m. ET, the Russell 2000 (NYSE:IWM) was up 11.18, or 2.23%, at 513.28.

After wholesale prices (PPI) came in near the forecast Wednesday, consumer prices (CPI) were slightly better than projected, but it’s really no surprise that inflation fears have receded — after all, crude oil prices are at 13-month lows and commodities in general are at the lowest level in three years. More importantly, the weekly unemployment claims release was better than feared, with 461,000 people filing for unemployment insurance in the latest week, down from the forecast of 470,000. Still, 461,000 is a very big number historically and the four-week moving average on claims is still at a seven-year peak. Analytically, there is a case to be made that jobs data will continue to look awful for some time, but will be a lagging element on the recovery story. That argument will gain favor from investors looking for last week’s lows to be a major turning point for the stock market.

However, stock index futures started to trim away gains after a horrendous industrial production report came out just ahead of the opening at 9:15 a.m. ET. Output tumbled 2.8%, much worse than the forecast for a decline of 0.8% and the slide represented the biggest decline in nearly 34 years. Hurricane Gustav and a strike at aircraft maker Boeing exaggerated the decline in output. Industrial production data seldom sparks a big move in the market nowadays, and clearly investors were looking at other factors this morning if they were able to shrug off this weak report in favor of the relatively painless inflation and jobs reports earlier this morning. The Dow and S&P 500 slipped back into the red briefly after the Philly Fed survey came out well below the forecast, mirroring sobering news on the manufacturing front that we’ve seen in recent weeks.

Looking at some of the individual stocks during earnings season, Citigroup Inc. (NYSE:C), the nation’s largest bank, posted a loss of $0.60 a share, which was better than the forecast for a loss of $0.70. C shares were down 3% shortly after the open. Also on the financial earnings front, Merrill Lynch & Co. Inc. reported a loss of $7.5 billion, or $5.58 a share, worse than the projection for a loss of $5.18 a share; MER shares were flat early. United Technologies Corp. (NYSE:UTX) beat the forecast by a tad and raised its full-year forecast; UTX shares were up 1.2%.

Individual small-cap stocks on the move early today were highlighted by Targanta Therapeutics Corp. (Nasdaq:TARG), which was up 49% on light volume, bouncing off a test of move lows. China Finance Inc. (OBB:CHFI) was up 22% and has been climbing steadily since August, but on very light volume. Molecular Insight Pharmaceuticals Inc. (Nasdaq:MIPI) was up 21%, basically trying to recover losses from Wednesday’s big decline. Deltek Inc. (Nasdaq:PROJ) announced preliminary results and was up 20%.

As the trading session progresses, look for resistance in the Russell 2000 in the area around 515 (which was under test shortly after the open), then at 525. Meanwhile, support should be seen at 500, 492 and then down at 484. Any decisive breach of 500 would certainly enhance the chances to retest last week’s lows.