Retailers' results may sway stocks

NEW YORK (Reuters) – U.S. stock investors will brace for further signs of weakness in the U.S. recovery next week as earnings from key retailers are expected.

Industrial production, housing and inflation data will come under scrutiny as well, just as stocks wrapped up their worst week in six. This week's sell-off also drove stocks back into negative territory for the year.

Technical charts show "sell" signals, indicating more weakness. At the same time, some analysts say the market may be due for a bounce.

Wal-Mart Stores (WMT.N) is expected to announce results along with top tech names such as Hewlett-Packard (HPQ.N), which came into the spotlight this week after its CEO's resignation late last Friday.

So far this earnings period, some 75 percent of results from Standard & Poor's 500 (.SPX) companies have beaten earnings estimates, according to Thomson Reuters estimates, offsetting a batch of economic reports that pointed to a slowdown in the recovery.

But for retailers, which typically round out the earnings period, results have been less optimistic. If forecasts from J.C. Penney Co Inc (JCP.N) and others are any indication, reports next week could confirm concern about a weaker outlook for the sector.

"The tone among retailers has changed somewhat, and the outlook now looks somewhat less upbeat than it did earlier this year in the retail space," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

"We're likely to hear more about somewhat sluggish consumer spending."

On Friday, J.C. Penney forecast a profit for the year below Wall Street's expectations and said its customers were vulnerable to weak economic conditions, a day after department stores Kohl's Corp (KSS.N) and Nordstrom's (JWN.N) gave conservative profit outlooks.

The Federal Reserve also gave a bleaker outlook on the economy this week.

BEWARE OF FALLING SOX

Technology shares led losses, with the Nasdaq ending the week down 5 percent, while the Dow was down 3.3 percent and the S&P 500 was down 3.8 percent.

An index of semiconductors (.SOX) fell more than 4 percent on Wednesday ahead of results from Cisco (CSCO.O), while the index broke through the lower end of its trading range on Thursday following Cisco's weak revenue forecast.

On Friday, the SOX ended down 0.9 percent.

The SOX will be watched closely next week when Dow component and technology bellwether Hewlett-Packard reports results.

Hewlett-Packard, whose chief executive resigned following an investigation into sexual harassment charges brought by a female contractor, is due to report earnings on Thursday.

READING THE TECHNICAL TEA LEAVES

Charts show short-term momentum turned negative this week. The S&P 500 closed below its 14-, 50- and 200-day moving averages and the moving average convergence-divergence generated a "sell" signal.

The negative slopes on the 14- and 50- day moving average also indicate weakness.

The Relative Strength Index, or RSI, and the Bollinger Bands show the S&P 500 has not reached oversold levels, and support for the index is seen around the 1,060-1,057 area, with 1,060 as the 23.6 percent retracement of the 2010 high-to-low slide between April and July, and 1,057 the low in a mid-July pullback.

Still, some analysts say stocks may be ripe for a bounce next week following the recent weakness.

"I think the tone is negative, but I think the market is trying to go higher," said Terry Morris, senior vice president and senior equity manager for National Penn Investors Trust Company in Reading, Pennsylvania.

"The (Federal Reserve) meeting is out of the way, and some disappointing economic numbers, and I think that all spells a higher market next week," he said.

The S&P 500 ended Friday's session down 0.4 percent, but traded near flat for much of the day.

The overall sentiment in the options market was slightly bearish but the CBOE Volatility index (.VIX), Wall Street's favorite barometer of fear, suggested investors shouldn't be too worried for now.

August VIX futures that expire next Wednesday were trading just a tick above the VIX, which rose 2 percent on Friday to close at 26.24.

"Considering that these are futures that expire in 3 1/2 trading days, the market is not bracing for anything too volatile for next week at least," said Randy Frederick, director of trading and derivatives at the Schwab Center for Financial Research in Austin, Texas.

Industrial production data is due on Tuesday, along with housing starts and the government's Producer Price Index report.

On Friday, data showed the overall U.S. Consumer Price Index rose 0.3 percent in July. It online business management degree some concern about deflation expressed by the Fed earlier this week.

"Given the sensitivity to the Fed statement earlier this week, all of those items (next week) will probably get a little more scrutiny than normal," said Fred Dickson, chief market strategist of The Davidson Cos. in Lake Oswego, Oregon.

EYES ON RETAILERS' REPORT CARDS

But the long list of retailers slated to report next week should attract plenty of attention as well, especially given that parents and students are preparing for the start of another school year in the next few weeks. School is already in session in some states, while it will resume in other states after the Labor Day weekend.

Besides Wal-Mart and HP, results are expected from Target Corp (TGT.N), Urban Outfitters (URBN.O), Abercrombie & Fitch Co (ANF.N), The TJX Co (TJX.N), Limited Brands (LTD.N), Gap (GPS.N), Sears Holdings Corp (SHLD.O) and Staples (SPLS.O).

Home improvement chains Home Depot (HD.N) and Lowe's Co (LOW.N) also are due to report, along with Intuit (INTU.O).

Obama signs $600M border security bill into law

WASHINGTON – President Barack Obama has signed into law a $600 million border security that will put more agents and equipment along the Mexican border.

Obama signed the bill in the Oval Office Friday alongside Homeland Security Secretary Janet Napolitano. The measure will fund the hiring of 1,000 new Border Patrol agents to be deployed at critical areas along the border, as well as more Immigration and Customs Enforcement online college courses. It also provides for new communications equipment and greater use of unmanned surveillance drones.

Some Republicans, including Arizona Sen. John McCain, say that while the legislation is a start, it falls short by not dramatically increasing the number of cutoms inspectors along the border and not funding a program that charges illegal immigrants with a low-level crime.

BP finishing up 'static kill' by pumping cement

NEW ORLEANS – BP began pumping cement into its blown-out oil well Thursday, hoping to seal for good the underground reservoir that blew its top months ago and spread crude around the Gulf of Mexico in one of the world's worst spills.

A day before, crews forced a slow torrent of heavy mud down the broken wellhead to push the crude back to its underground source. This next step in the so-called "static kill" is intended to keep the oil from finding its way back out.

"This is not the end, but it will virtually assure us that there will be no chance of oil leaking into the environment," retired Adm. Thad Allen, who oversees the spill response for the government, said in Washington.

The progress was another bright spot as the tide appeared to be turning in the months-long battle to contain the oil, with a federal report this week indicating that only about a quarter of the spilled crude remains in the Gulf and is degrading quickly.

Even so, Joey Yerkes, a 43-year-old fisherman in Destin, Fla., said he and other boaters, swimmers and scuba divers continue to find oil and tar balls in areas that have been declared clear.

"The end to the leak is good news, but the damage has been done," Yerkes said.

If the mud plug in the blown-out well is successfully augmented with the cement, the next step involves an 18,000-foot relief well that intersects with the old well just above the vast undersea reservoir that had been losing oil freely since the Deepwater Horizon rig exploded off Louisiana on April 20, killing 11 workers.

The hope has been to pump mud and possibly cement down the relief well after its completion later this month, supplementing the work in this week's static kill and stopping up the blown-out well from the bottom.

It could take at least a day for the cement pumped into the blown well to dry, and another five to seven days for crews to finish drilling the final 100 feet of the relief well. Then the pumping process in the relief well could last days or even weeks, depending on whether engineers find any oil leaks, Allen said.

Despite the progress on the static kill, BP executives and federal officials won't declare the threat dashed until they use the relief well — though lately they haven't been able to publicly agree on its role.

Click image to see photos of oil spill aftermath

AFP

Federal officials including Allen have insisted that crews will shove mud and cement through the 18,000-foot relief well, which should be completed within weeks. Crews can't be sure the area between the inner piping and outer casing has been plugged until the relief well is complete, he said.

But for reasons unclear, BP officials have in recent days refused to commit to pumping cement down the relief well, saying only that it will be used in some fashion. BP officials have not elaborated on other options, but those could include using the well simply to test whether the reservoir is plugged.

"We have always said that we will move forward with the relief well. That will be the ultimate solution," BP Senior Vice President Kent Wells said Wednesday afternoon. "We need to take each step at a time. Clearly we need to pump cement. If we do it from the top, we might alter what we do with the relief well, but the relief well is still a part of the solution. The ultimate objective is getting this well permanently sealed."

The game of semantics has gone back and forth this week, with neither yielding.

Allen clearly said again Thursday that to be safe, the gusher will have to be plugged up from two directions, with the relief well being used for the so-called "bottom kill."

"The well will not be killed until we do the bottom kill and do whatever needs to be done," he said, adding: "I am the national incident commander and I issue the orders. This will not be done until we do the bottom kill."

BP shares rose 2.7 percent to $40.46 in morning trading in New York. At one point they reached $40.75, their highest level since May 28.

Whether the well is considered sealed yet or not, there's still oil in the Gulf or on its shores — nearly 53 million gallons of it, according to the report released Wednesday by the Interior Department and the National Oceanic and Atmospheric Administration. That's still nearly five times the size of the Exxon Valdez spill, which wreaked environmental havoc in Alaska in 1989.

But almost laser eye surgery orange county of the nearly 207 million gallons of oil that leaked overall has been collected at the well by a temporary containment cap, been cleaned up or chemically dispersed, or naturally deteriorated, evaporated or dissolved, the report said.

The remaining oil, much of it below the surface, remains a threat to sea life and Gulf Coast marshes, NOAA Administrator Jane Lubchenco said. But the spill no longer threatens the Florida Keys or the East Coast, the report said.

Some outside experts have questioned the veracity of the report, with at least one top federal scientist warning that harmful effects could continue for years even with oil at the microscopic level.

An experimental cap has stopped the oil from flowing for the past three weeks, but it was not a permanent solution.

The static kill — also known as bullheading — probably would not have worked without that cap in place. It involves slowly pumping the mud and now the cement from a ship down lines running to the top of the ruptured well a mile below. A similar effort failed in May when the mud couldn't overcome the flow of oil.

US inaction on climate troubles global talks

AMSTERDAM – The failure of a climate bill in the U.S. Senate is likely to weigh heavily on international negotiations that begin Monday on a new agreement to control global warming.

The decision to strike the bill from the Senate's immediate agenda has deepened the distrust among poor countries about the intentions of United States and other industrial countries to cut greenhouse gas emissions that power their wealthy economies but risk causing the Earth to dangerously overheat, say climate activists.

A split between rich and poor nations has characterized the talks since they began 2 1/2 years ago, but it widened after the disappointment of the Copenhagen climate summit last December that fell short of any binding agreement and produced only a brief document of political intentions.

The withdrawal of the bill to cap U.S. emissions of carbon dioxide, the most prominent gas blamed for global warming, "plays into the same old fault lines," said Kelly Dent, of Oxfam International. It has let down developing countries that had looked to President Barack Obama's administration to seize the leadership in climate negotiations, she said Sunday from Bonn, Germany.

Delegations from most of the 194 participating nations begin a five-day negotiating session in Bonn on Monday that is one of the last meetings before another decisive conference convenes at the end of the year in Cancun, Mexico. One more weeklong round of talks is scheduled for October in China.

The two keys to any agreement are commitments by rich countries to cut emissions and their pledges to fund poor countries' actions to adapt to climate changes affecting agriculture and the frequency of extreme weather events like floods and drought.

So far, Washington has not backed away from its promise at Copenhagen to reduce emissions 17 percent below 2005 levels over the next 10 years. But even that pledge, made more doubtful now by legislative inertia, has been roundly criticized as inadequate.

Christiana Figueres, presiding over the talks for the first time since becoming executive secretary of the U.N. Framework Convention on Climate Change a month ago, says the industrial countries must lift their emissions reduction pledges if they hope to limit global warming to manageable levels this century.

Pledges given so far amount to reductions of 12 to 19 percent below 1990 levels, she told reporters last week. U.N. scientists have said the rich countries must slash emissions by 25 to 40 percent by 2020. Because carbon dioxide accumulates in the atmosphere, scientists say it is crucial to act quickly to reach a peak in global emissions.

The U.N. negotiations aim to reach a deal to succeed the 1997 Kyoto Protocol, which called on a list of industrial countries to cut emissions by a total 5 percent by 2012 as measured against 1990.

The United States rejected Kyoto, partly because it made no demands on rapidly developing countries like China, which now produces more much heat-trapping gases than any online college courses.

Developing countries now say they are willing to take steps to control emissions, but that they must be given space to build their economies. Although China is the largest carbon polluter and India is rapidly catching up, both countries lag far behind the industrial countries in emissions per person and still have huge populations mired in poverty.

Shifting to a lower gear, Figueres says it would be a mistake to seek an overarching package deal in Cancun, which she said would "ignore the need to continue innovating" to combat global warming.

Instead, delegates should focus on a few essentials they can build on later. One is a practical plan for raising and distributing $30 billion over the next three years to poor countries, as pledged at Copenhagen, she said.

After a meeting last week in Rio de Janeiro, the environment ministers of Brazil, China, India and South Africa — an increasingly important negotiating bloc known as the BASIC countries — said "fast-start finance will be the key for an effective result" in Cancun.

Financing must be new, rather than repackaged development aid, and should be given as grants, the four countries said in a joint statement.