Before the bell: Futures point to a sharply lower start

Posted Nov 3rd 2009 7:45AM by Melly Alazraki
Filed under: Before the Bell, International Markets, Market Matters, Economic Data, Lloyds TSB Group plc ADS (LYG), Federal Reserve, Financial Crisis

If on Monday investors were ready to bounce back from Friday's selloff, today stock futures are sharply lower, indicating U.S. stock markets are poised to slump at the open ahead of the Federal Reserve two-day policy meeting that begins today. Another rate hike from Australia, poor results from UBS and weak European markets weigh on sentiment.

Monday was a volatile session. Stocks rallied in the morning following a surprise profit from Ford (NYSE: S) and an upbeat home sales reading, but mostly due to October's manufacturing index that jumped to its highest level in three and a-half years. That didn't hold up, though and the Dow skidded to negative territory only to bounce back later in the afternoon as buyers came back in.

Today, Federal Reserve officials start their policy meeting where they will weigh improving economic data against the risk of inflation and the persistently weak job market. The Fed will have to decide how shaky or sustainable the recovery is and how dependent it is on stimulus money and in order to determine its course of action. Since inflationary pressures remain largely absent, it's likely the Fed will maintain, for now, it's loose monetary stance.

On the economic front, at 10 a.m. Eastern U.S. factory orders for September will be released. Throughout the day, car manufacturers will report October sales. With the exception of July and August, when car sales got a short-lived boost from the U.S. government's "Cash for Clunkers" program, October may be have strongest result of the year. With U.S. auto sales projected by industry analysts to have been above 10 million vehicles on an annualized basis, this could mean the end of the long slump in the auto industry.

Overseas, Asian markets closed with losses even as Australia repeated last month's action with yet another interest rate hike. This time, the market didn't react with the same joy. European markets were mostly fell Tuesday despite the European Commission hiking its growth prediction for the EU and eurozone in 2010 to 0.7 percent from 0.1 percent in May. But investors had renewed concerns about the banking sector after Britain's Royal Bank of Scotland PLC got more government help and Switzerland's UBS AG booked another massive charge.

Royal Bank (RBS) said that it was taking an additional 25 billion pounds from the government and joining the government's Asset Protection Scheme. Meanwhile, Lloyds (LYG) confirmed that instead, it was looking to raise at least 21 billion pounds ($34.2 billion) through a record share issue and debt swap.

UBS (UBS) reported a third-quarter net loss of 564 million Swiss francs ($542 million) - its fourth straight quarterly loss - after 2.15 billion francs in accounting charges.

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