September pending home sales jumped 6.1% as homebuyers rushed to take advantage of a government tax credit. The $8,000 credit for first-time homebuyers ends at the end of this month. The number of sales of previously owned homes are now at their highest level in more than two years, reports Alan Zibel for the Associated Press. (More stories on the real estate sector).

• iShares Dow Jones U.S. Home Construction (NYSEArca: ITB)

U.S. manufacturing activity grew at its fastest rate in more than three years in October. The surge was unexpected, although some noted that it’s still improving at a modest pace, reports The Wall Street Journal. Construction spending also rose by 0.8%, although Wall Street expected a decline.

• Industrial Select Sector SPDR (NYSEArca: XLI)

CIT filed for bankruptcy this weekend in a last-ditch effort to keep operating. CIT is a lender to nearly a million small- and mid-size businesses. The lender was also a recipient of $2.3 billion in taxpayer bailout money, which will be wiped out in the bankruptcy, The Wall Street Journal notes. (How to harness the financial sector’s recovery).

Ford surprised Wall Street by announcing $1 billion in net income in the third quarter. The automaker has also forecast a “solidly profitable” 2011. Ford hasn’t posted a full-year profit since 2005, report Tom Krisher and Dee-Ann Durbin for the Associated Press.

Investors this week will be looking at various economic indicators for clues to the strength of the U.S. economy. One of the most anticipated reports is the Labor Department’s October employment report, which is due on Friday. The Federal Reserve is also going to comment on Wednesday after a two-day meeting.

The ADP Employer Services Report indicated that the private sector shed 298,000 jobs in August, beating the 370,000 lost in July, but higher than the 250,000 anticipated by analysts.  Although it appears the numbers are trending in the right direction, the report also suggests that employment is likely to continue to decline for several months to come.

On the positive side, the Labor Department stated that productivity rose at an annual rate of 6.6% in the second quarter, marking the largest advance in six years.  This is of importance because worker productivity is the single biggest factor in determining living standards.  Higher productivity means that workers can increase or sustain their living standards, and it also illustrates that companies are able to boost wages financed by rising output, states Martin Crutsinger of the Associated Press.

Factory orders rose in July as companies tried to prevent stockpiles from declining further.  Bookings rose by 2.2%, the most since July 2007, fueled by stabilizing global markets and a rebound in the auto industry caused by the government’s “cash-for-clunkers” program.  In fact, automakers showed sales of cars and light cars at a rate of 14.1 million, the highest number since May 2008, states Courtney Schlisserman of Bloomberg.

In the pharmaceutical world, the world’s largest drug maker, Pfizer (PFE), indicated that it would pay a record $2.3 billion penalty over allegations that it had marketed the pain reliever Bextra and possibly other products for medical conditions different from their approved use.  This settlement is the largest ever paid by a drug company for alleged violations of federal drug rules.  The news sent the Pharmaceutical HOLDRs (PPH) down nearly 0.3% in morning trading. Pfizer is 14.3%.

BP PLC (BP), the biggest oil producer in the United States and biggest leaseholder in the Gulf of Mexico, found black gold.  BP said that it hit crude in its Tiber Prospect in the deepwater Gulf of Mexico and believes that it could be bigger than its Kaskida discovery, which has more than 3 billion barrels of oil in place.  The news sent the iShares S&P Global Energy (IXC) up nearly 1% in morning trading. BP PLC is 7.4%.

Crude oil has slipped for the third straight day to under $68/barrel. The decline in crude has been driven by cost-cutting measures by both corporations and individuals, as well as the greater than usual amount of oil in storage.  Despite the drop in oil, the United States Oil Fund (USO) is up 0.1% in morning trading.

Overall all three major U.S. indexes edged upward, with the Dow Jones Industrial Average adding 0.1%, the S&P 500 jumping 0.1% and the Nasdaq gaining 0.3%.

For more stories on energy, visit our energy category.

Kevin Grewal contributed to this article.

Much of the recent spike in commodity prices has been driven by a weaker greenback. But David Bogoslaw for BusinessWeek asks whether now is the time to bet on commodities. He notes that it’s going to take some examination of economic signals, both good and bad, to answer the question:

• China has been a big driver of global commodities demand for the last decade. China is said to be scaling back on its consumption of commodities as they rein in their stimulus, which has sparked fears that this could depress prices.
• Renewed demand for cars, thanks to the very successful “Cash for Clunkers” program, as well as a recovery in housing, may help sustain demand for certain commodities domestically.
• The direction of the dollar is a key driver. If the dollar continues to weaken, as some feel it might, this could make commodities more affordable for overseas buyers.
• Mining strikes could deplete inventories. One mine that accounts for a third of South Africa’s platinum production may go on strike this week; a strike in Canada is being blamed for the spike in nickel costs.

Agriculture is still a popular segment of the commodity market. Even if China backs off on spending, the country’s citizens could still demand food as much as they were before, one analyst notes. Meanwhile, soybeans are poised to hit a record $20 a bushel as stockpiles in the United States dwindle, report Claire Leow and Susan Li for Bloomberg.

The fracas over futures-based commodity ETFs continues as iShares S&P GSCI Commodity Index Trust (GSG) said it would stop issuing new shares once it hit 55.9 million. Currently, there are 52.5 million shares, reports Ian Salisbury for Dow Jones Newswires.

GSG joins a growing line of funds that have said they’ll stop issuing new shares until the CFTC officially rules on what kinds of caps it would impose on these funds.

Whether it’s time to get into commodities or not, watch the trend lines for signals. Our strategy utilizes the 200-day moving average when looking for opportunities and potential long-term uptrends. Read more on our strategy here.

The Labor Department reported that new claims for unemployment benefits jumped unexpectedly to 576,000 last week, a jump from the 561,000 witnessed last week and much higher than the 550,000 anticipated by economists.  Although the pace of layoffs has slowed, unemployment remains high and continues to hinder the economic recovery.

Transportation officials are getting ready to wind down the “Cash for Clunkers” program as the program is on pace to exhaust its $3 billion in funds by early September.  The announcement of when the program will end may be made as early as tomorrow as officials discuss how the program should end and how to deal with a backlog of rebate payments to dealers.

But to replace “Cash for Clunkers” could be another government program that would offer rebates to consumers who purchase new energy-efficient appliances. The program would give as much as $200 back to consumers, Marketplace reports.

On the earnings front:

• Sears Holding Corp. (SHLD), missed expectations and reported a loss of $0.17/share, excluding one-time costs, analysts expected a profit of $0.32/share.  Revenues at the company declined 10% on a stronger dollar and same-store declines.
• H J Heinz Co., the maker of ketchup and Ore-Ida French fries, reported earnings of $0.67/share topping Wall Street’s expectations of $0.62/share, despite witnessing a decline in revenues of 4% and a strong dollar.
• In metals and mining, Rio Tinto Group (RTP) announced a decline in profits of 65% as the prices of copper, iron ore and aluminum declined.  The world’s third-largest mining company is faced with mounting debt and is at a standstill in contract negotiations with some Chinese steelmakers.  SPDR S&P Metals & Mining (XME) is up 1.6% in intraday trading.

In the real estate world, mortgage delinquencies rose to a record seasonally adjusted 9.2% of all mortgages. Additionally, the inventory of homes in foreclosure increased to 4.3% and loans overdue by at least 90 days rose to 8%, the highest on record.  This worrisome data didn’t have much effect on iShares Dow Jones U.S. Real Estate Index (IYR), which is up 2.4% in intraday trading.

Overall all three U.S. indexes are moderately higher with the Dow Jones Industrial Average up 0.4% and the S&P 500 and Nasdaq each gaining 0.75%.

For more stories on metals and mining, visit our metals and mining category.

Germany and France each experienced 0.3% growth from the previous three-month period, Angela Charlton and Maria Danilova for Yahoo! News. In the previous quarter, Germany contracted 3.5% and France’s economy diminished 1.3%. The unexpected increase helped the eurozone to contract only 0.1% compared with the anticipated 0.5%.

The turnaround in the two countries is attributed to, among other things, government programs that supported the auto industries within the countries. The so-called “Cash for Clunkers” was one such program that helped economies by enticing consumers to buy again. The German government reported a rise of 7% in German exports during the month of June.

There are still some problems European countries need to grapple with, however. Europe still faces a rising unemployment rate and the expiration of the auto incentives could dampen consumer demand.

The better-than-expected performance of the region has helped strengthen the euro, which is around $1.40. But, a higher euro translates into more expensive eurozone products, which could hurt already beleaguered European manufacturers.

• iShares MSCI Germany Index (EWG): up 5.2% year-to-date

• iShares MSCI France Index (EWQ): up 10.6% year-to-date

For more information on European countries, visit our Europe category.

Max Chen contributed to this article.

Strong employment reports, renewed auto and housing demand and signs of a recovery in China have helped spur the base metals’ strong run, says Sara Jane Tasker for The Australian. The rebound has been so strong that analysts expect it to continue for the rest of 2009.

Some other points:

• According to Citigroup, copper has led the base metal recovery, up $600 in recent trading. So far this year, it has gained 100%.
• Aluminum has climbed around 30% despite its London Metal Exchange inventories remaining at record levels, says Michael Taylor for Reuters.
• Base metals should continue their upward journey as fundamentals in a global recovery strengthen and the demand from China remains healthy.
• China is expected to account for 38% of the world’s copper demand by 2014, up from 28% in 2008.

• SPDR Metals & Mining (XME): up 53.7% year-to-date; holds companies involved in the metals and mining industries

• iShares Dow Jones U.S. Basic Materials (IYM): up 40.7% year-to-date; composed of companies involved in the production of basic materials

• Market Vectors Steel (SLX): up 66.5% year-to-date; pure exposure to steel companies

• PowerShares DB Base Metals (DBB): up 55.4% year-to-date; holds futures contracts for aluminum, copper and zinc

For more stories about base metals, visit our base metals category.

In the absence of big news, all eyes are on the upcoming Federal Reserve meeting, which takes place tomorrow and Wednesday. The consensus is that they’ll leave the main target lending rate near zero, reports The Washington Post. The biggest question is whether the Fed will let a program to buy $300 billion in U.S. Treasury bonds expire. The program was created to lower long-term interest rates and generally make lending conditions more favorable.

McDonald’s (MCD) announced that its same-store sales rose 4.3% in July. The United States’ largest hamburger chain is apparently benefiting from price-conscious diners, as well as a huge promotion of its new line of coffee drinks, says Betsy Vereckey for the Associated Press. McDonald’s fared even better overseas: in Europe, their same-store sales jumped 7.2%.

• PowerShares Dynamic Food & Beverage (PBJ): up 5.6% year-to-date; McDonald’s is 4.9%

Options traders are keeping an eye on the rally seen in the S&P 500 and increasing their bets that it won’t last in September. That month historically has been the worst for U.S. equities, say Jeff Kearns and Michael Tsang for Bloomberg. Traders are now betting that the VIX, a measure of market fear, will gain 13% in the next five weeks.

• iPath S&P 500 VIX Short-Term Futures ETN (VXX): down 20% in the last month

General Motors will begin selling cars and trucks on eBay tomorrow in an effort to reach new customers and restore its lost market share. To start, the deal will involve 225 dealerships in California, but GM hopes it goes national by September, reports Nick Bunkley for The New York Times.

The Institute for Supply Chain Management reported that business at service companies was weaker than expected in June.  The index fell to 46.4 from 47, marking the tenth straight month of declines.  The disappointing news offset a more upbeat report from the Commerce Department, which said factory orders rose in June for the fourth time in five months. The 0.4% increase came after a 1.1% increase in May. Economists had been expecting a decline of 1%.

Unemployment numbers continued to increase, but at a slower rate as the U.S. private sector shed 371,000 jobs in July.  The number was higher than the 345,000 estimated by analysts, but much lower than the 463,000 drop in June.

In the earnings arena, conglomerate Procter & Gamble (PG) reported a quarterly decline in profits of 18% and expects more declines around the globe as consumers continue to keep a tight grip on their wallets. Despite revenue declines and a drop in demand, PG beat Wall Street’s expectations.  The news sent the Consumers Staples Select SPDR (XLP) down nearly 1% in morning trading; PG is 15.6%.

In the automotive industry, the “cash for clunkers” program received a little extra push and extended the program an extra month.

Overall, the Dow Jones Industrial Average was down 0.8%, the S&P 500 gave up 0.8% and the Nasdaq dropped 1.2%.

For more stories on consumer staples, visit our consumer staples category.

Kevin Grewal contributed to this article.

There are earnings galore this morning:

• Ford Motor Company (F) snapped its string of quarterly losses by posting earnings of $2.3 billion in the second quarter.  This surge was driven by a debt reduction program that the company put in place.
• In the industrial world, diversified U.S. manufacturer 3M (MMM) earned $1.20/share, smashing Wall Street’s expectations of $0.94/share.  This outperformance was driven by a surge in consumer demand for electronics and enabled the company to raise its revenue forecast. The news sent the Vanguard Industrials ETF (VIS) up 1.5% in morning trading.

• Illinois-based McDonalds (MCD) released earnings of $0.98/share for the quarter and barely beat analysts’ expectations of $0.97/share.  The company stated that the a rise in the strength of the dollar hurt their bottom line, but the success of their McCafe coffee drink line is increasing revenues.
• The world’s largest shipping carrier reported a drop in profits of 49%.  UPS Inc. (UPS) reported earnings of $0.44/share and fell short of Wall Street’s expectations of $0.49/share.  The company has lowered its projections as volumes continue to remain low.

On a separate note, the Labor Department stated that new jobless claims rose to 554,000 last week. This tally of initial claims for unemployment was a bit higher than the 550,000 anticipated, but many believe the number is distorted because of the timing of auto-plant shutdowns.  Total jobless benefit rolls fell more than expected, to 6.2 million.  When one considers the number of individuals receiving extended unemployment benefits, the total jobless number is closer to 9.1 million.

In the real estate world, the National Association of Realtors stated that existing home sales increased by 3.6% in June.  Purchases rose to an annual rate of 4.89 million, stronger than forecast and the highest level since October. Experts believe that this jump in resales was spurred by tax incentives, lower borrowing costs and foreclosure-driven prices.  Some believe that this upward trend may slow as mortgage rates rise to 5.2% from 5.14%.  The news sent the iShares Dow Jones U.S. Real Estate (IYR) up nearly 3% in intraday trading.

Overall, the Dow Jones Industrial Average and Nasdaq gained 1.7%, while the S&P 500 added 1.8% in morning trading.

For more stories on industrials, visit our industrials category.

Kevin Grewal contributed to this article.

Earnings reports will continue next week and many are worried that the recent rally in stock prices have been caused by pure speculation.  On a positive note, the Commerce Department said that the U.S. trade deficit narrowed to $26 billion in May, the lowest level in more than nine years.

Consumer sentiment fell to its weakest level since March.  The Reuters/University of Michigan Surveys of Consumer consumer sentiment index read a 64.6, down from a June reading of 70.8  and a forecast of 70.5.  Job security and erosion of wealth continue to plague the U.S. economy and its consumers believe that relief is not in the near future.

A bit of optimism has emerged in the auto industry as a new General Motors, which exited bankruptcy in record times and has plans to make money and build cars that people want to buy comes to the forefront.  CEO Fritz Henderson said that the company will be able to repay about $59 billion in government loans before the 2015 deadline and is exploring many “outside the box” ideas to revamp the business, such as partnering with eBay (EBAY) to establish an online auction of vehicles.

Prominent economists have stated that the U.S. economy will expand faster than previously expected in the second half of this year and through 2010 as signs of stability in the housing markets, improving consumer confidence and and declines in auto sales are reinforcing forecasts for gains in consumer purchases, state Shobhana Chandra and Alex Tanzi for Bloomberg.

Crude oil continued its volatility as prices fell below $60/barrel.  Investors don’t know where black gold is heading as global appetite remains and corporate earnings reports remain unclear.  The news sent the United States Oil Fund (USO) down 2.6% in morning trading.

Overall all three major U.S. indexes are in negative territory with the Dow Jones Industrial Average down nearly 1%, the S&P 500 down 1% and the Nasdaq down 0.8%.

For more stories on consumer sentiment, visit our retail category.

Kevin Grewal contributed to this article.