Market Outlook
Wednesday, December 01, 2010

Wednesday has quite a few economic reports scheduled. They are:-

  • Auto sales

  • 7:00 …MBA Mortgage Applications

  • 7:30 …Challenger Job-Cut Report

  • 8:15… ADP Jobs Report

  • 8:30 …Productivity and Costs

  • 9:30… Hearing: Mortgage Servicing Problems

  • 10:00 …ISM Manufacturing Index

  • 10:00… Construction Spending

  • 10:30… EIA Petroleum Inventories

  • 2:00 PM… Fed's Beige Book

  • 2:10 PM …Fed's Yellen: Fiscal Responsibility and Global Rebalancing

  • 5:00 PM …Fed's Fisher: Economic update

Also the following companies are reporting their quarterly earnings:-

• Charming Shoppes Inc. (CHRS), Aeropostale Inc. (ARO), Collective Brands Inc. (PSS), Jo-Ann Stores Inc. (JAS), Krispy Kreme Doughnuts (KKD) and Zumiez Inc. (ZUMZ).

wednesday outlook

Wednesday sees U.S stocks set to open higher, following a rally in both Asian and European markets on strong manufacturing data overseas.

U.S. stock futures welcomed December with strong gains, as robust manufacturing data from China to the U.K. Wednesday cheered investors and offset worries about the euro-zone debt crisis.

Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were all up almost 1% ahead of the opening bell. Asian and European stocks rose on Wednesday, buoyed by a string of strong economic data.

Wednesday’s gains come “after a few days of being obsessed with the all-consuming euro-zone crisis,” said Mike Lenhoff, chief strategist at Brewin Dolphin in London.

“There is a global economy that is still delivering some good news flow and this morning we had it,” he said. “Despite worries about the euro zone, business sentiment is still pretty buoyant. That is partly why the markets are performing the way they are.”

Economic Concerns

Investors will start December with several economic reports on tap, including fresh readings on the U.S. job market, a key index of manufacturing activity and monthly sales figures from automakers.

The Federal Reserve is scheduled to release a trove of data on its dealings related to the financial crisis later Wednesday. The data includes transactions with Bear Stearns and AIG (AIG), as well as purchases of mortgage-backed securities and other assets.

Challenger Job-Cut Report

A report on planned job cuts in November from outplacement firm Challenger, Gray & Christmas.

ADP Jobs Report

Monthly data from payroll processing firm ADP comes out before the market opens.

The ADP private sector jobs report - out at 8:15 a.m. ET - is expected to show the nation created 58,000 private-sector jobs in November.

ISM Manufacturing Index

After the opening bell, the Institute of Supply Management will release its manufacturing index for November. Economists expect the index to edge down slightly to 56.5, from 56.9 the month before, according to consensus estimates from

Construction Spending

A government report on November construction spending is also scheduled for release shortly after trading starts.

Fed's Beige Book

At 2 p.m., the Federal Reserve will release its "Beige Book" which is the central bank's anecdotal observations of economic activity across the country. The book is typically used by policy makers to set interest rates and determine what other monetary policies to use.

Notes of Importance

There are a few further points to the mornings trading which need to be considered:-

The Dow Jones Industrial Average (DJIA) once again staged an afternoon rebound Tuesday to reclaim support at the 11,000 level by the close.

Technically, the DJIA could be set to blow past short-term resistance at the 11,100 level, an area that is also home to the Dow's 10-day moving average.

However, the blue chip barometer is still staring up at potentially staunch resistance at the 11,200 level, where the DJIA's 20-day trendline resides.

The S&P 500 (SPX) should be able to put some space between it and support at the 1,175 level.

The index could find some turbulence near the 1,190 level, with the 1,200 possibly capping the day's advance.

• The U.S. Dollar Index: The dollar index (DXY) , which tracks the performance of the greenback against a basket of other major currencies, dropped 0.5% to 80.809.

Gold futures for December delivery rose $6.50 to $1,391.5 an ounce.

Oil futures for January delivery jumped $1.32 to $85.43 a barrel.

Bonds: The price on the benchmark 10-year U.S. Treasury fell, pushing the yield up to 2.87% from 2.81% late Tuesday.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,068,602 call contracts traded on Tuesday, compared to 624,305 put contracts. The resultant single-session put/call ratio arrived at 0.58, while the 21-day moving average held at 0.58.

Overseas Concerns

China posted better-than-expected factory production data in November, with the official Chinese purchasing managers' index (PMI) rising to a seven-month high of 55.2.

Adding to the upbeat view on the recovery, factory production in India also expanded in November at its fastest pace in six months, while euro zone manufacturing grew by its quickest rate in four months.

Standard & Poor's warned it could cut Portugal's credit ratings within the next three months if the country's growth prospects weaken further or if private creditors become subordinated to public creditors in a possible financial aid program.

In Great Britain, manufacturing activity accelerated sharply in November, sending the Markit/CIPS purchasing managers index for the sector to its highest level since September 1994.

And in Germany, data showed that retail sales increased 2.3% in October from the previous month, exceeding market expectations.

“We’re getting a very consistent message from these PMIs, whether it’s the U.K., Europe, America or Asia,” said Mike Lenhoff, chief strategist at Brewin Dolphin in London.

Currencies: The dollar fell against the euro and the British pound, but gained against the Japanese yen.

The euro gained 0.8% to $1.3098, recouping some of its recent heavy losses.

European Markets

European share markets followed Asian market's rally. Britain's FTSE 100 rose 1.3%, the DAX in Germany added 1.6% and France's CAC 40 ticked up 0.9%.

In Europe at midday, London +1.6%. Paris +0.4%. Frankfurt +1.8%.

Asian Markets

Earlier in Asia, markets all ended the session higher after a couple of reports showed strength in China's economy. The Shanghai Composite added 0.1%, the Hang Seng in Hong Kong gained 1% and Japan's Nikkei rose 0.5%.

In Asia, Japan +0.5% to 9988. Hong Kong +1.1% to 23250. China +0.1% to 2823. India +1.7% to 19850.

Futures Trading

As of 6:45 a.m. in New York, the Dow Jones Industrial Average futures were up 117 points to 11113, the S&P 500 futures were up 13.9 points to 1193.50 and the Nasdaq 100 futures rose 21 points to 2138.00.

Futures at 7:00am: Dow +1.1%. S&P +1.2%. Nasdaq +1%. Crude +1.55% to $85.41. Gold +0.6% to $1393.90.



Company News

Brown-Forman Corp. (BF) announced a special dividend of $1 per share for its Class A and Class B common stock. Shareholders of record as of Dec. 10 will receive the payout on Dec. 28. "This special dividend underscores the strength of our company's balance sheet and cash flows, and it reinforces our belief that returning cash to shareholders plays an important role in producing superior long-term total shareholder returns," the Louisville, Ky, spirits maker said.

JPMorgan initiated coverage on several financial services companies. Specifically, the brokerage firm started American Express Co. (AXP) at "overweight," while initiating coverage on Capital One Financial Corp. (COF) and Discovery Financial Services (DFS) with a "neutral" rating.

Some Interesting News

Fed to disclose emergency aid recipients. Under orders from Congress, the Federal Reserve will disclose today the names of the institutions which received a total of $3.3T worth of emergency aid during the financial crisis. The information, which will be posted on the Fed website at midday, covers six loan programs, currency swaps with other central banks, purchases of mortgage-backed securities and the rescues of Bear Stearns and AIG (AIG). The disclosures are expected to heighten scrutiny of both the Fed and the aid recipients.

WikiLeaks worries drag on BofA shares. Shares of Bank of America (BAC) closed down 3.2% yesterday, after WikiLeaks' founder Julian Assange said his website will release tens of thousands of documents from a major U.S. bank in early 2011. He wouldn't say which bank, but Assange had previously mentioned that his group was sitting on 5GB of data from a BofA executive's hard drive. Assange said the documents will expose an "ecosystem of corruption... that turns a blind eye to and supports unethical practices: the oversight that’s not done, the priorities of executives, how they think they’re fulfilling their own self-interest.” Premarket: BAC +0.7% (7:00 ET).

SEC wanted quick end to BofA/Merrill probe. In a report by the SEC Inspector General, SEC attorneys are described as having 'felt pressure' to bring a swift resolution over Bank of America's (BAC) buyout of Merrill Lynch "because of the internal interest in the case and its high-profile nature." The report also stated that the SEC gave BofA favorable treatment because it was a bailout recipient, and that NY Attorney General Andrew Cuomo was not fully forthcoming with information he had at his disposal. This is the first analysis by the SEC's own watchdog over the agency's performance during its investigation of BofA's disclosure violations related to the Merrill purchase.

NYT looks to sell Red Sox stake. The New York Times Co. (NYT) is in active discussions with several potential buyers to sell its stake in the Red Sox, said CEO Janet Robinson, and the company expects to turn a profit on the baseball team. In April, NYT had sold a small piece of its stake in New England Sports Ventures, the parent company of the Red Sox, and was left with a 16.6% stake which it said it would look to sell whole or in parts. At one point, speculation over the price of the stake had gone as high as $200M, but that was before the economic downturn and analysts now expect a price tag closer to $100M. The Times paid $75M for its 17.75% stake in 2002.

Wellstream in talks with GE, Nat'l Oilwell. British oilfield services firm Wellstream has reportedly entered into formal talks with GE (GE) and National Oilwell Varco (NOV) over a potential deal that will likely be worth more than £755M ($1.2B). Sources said Wellstream has allowed both GE and National Oilwell to look at its books as it tries to negotiate a higher offer price; GE had disclosed in October that Wellstream had rejected its 750 pence/share, or £755M, bid. Analysts suspect a successful deal will take place between 775 and 800 pence per share, and probably closer to the 800 pence mark.

State Street to cut 1,400 jobs. State Street (STT) announced it will cut 1,400 jobs, or 5% of its workforce, as part of a massive restructuring designed to save $575M-$625M by the end of the 2014. This is the second major round of cuts for the company, after laying off around 1,700 employees early last year.

Corinthian falls after CEO switch. Shares of Corinthian Colleges (COCO) fell 5% in after-hours trading following the announcement that the company had asked CEO Peter Waller to leave the top slot, and planned to replace him with chairman Jack Massimino. The company said it had no disagreement with Waller but was forced to take action as it restructures its business in the face of an uncertain regulatory environment. Massimino will assume his new role immediately.

Bernanke concerned about jobless rate. Speaking to business leaders yesterday, Bernanke said job creation is the most important issue facing the U.S., and the pace of growth has not been fast enough to bring down the high unemployment rate. He said he's especially worried that more than 40% of those currently unemployed have been out of work for six months or more, and "this is very unusual and very worrisome because people who are out of work for an extended period, their skills tend to erode." Bernanke asked the business leaders in attendance what policymakers could do to help them create jobs, and IBM's (IBM) Sam Palmasino provided an answer many present seemed to agree with: "Clarity. Regulation is fine, just tell me what they are."

States to face tighter finances. States may have to make additional spending cuts over the next couple of years or else face the possibility of deteriorating financial health as tax revenues recover at a slow pace and support from the federal government dwindles. A new report from the National Governors Association and the National Association of State Budget Officers warned of "extremely tight fiscal conditions for states," and at least 23 states are already anticipating budget deficits totaling $40.5B in 2012.

Airbus taps engine upgrades as competition heats up. Airbus (EADSY.PK) plans to invest just over €1B ($1.3B) to upgrade the engines on its A320 passenger jets in order to offer clients greater fuel savings. The new engines, part of the improved 'A320neo' family, are slated for delivery in spring 2016 and will save 15% in fuel costs and cut harmful emissions and noise. The move comes as Airbus faces increased pressure to grab marketshare from Canada's Bombardier, China, Russia, and, of course, arch-rival Boeing (BA).

More suits from Madoff trustee. Madoff trustee Irving Picard filed more than 100 lawsuits yesterday as he tries to claw back money for Madoff victims. Picard, who faces a legal deadline of Dec. 11 to file such clawback lawsuits, has gotten more aggressive with his targets; he previously focused mostly on feeder funds but has now turned to 'net winners' as well, or individual investors who withdrew more from their accounts with Madoff than they had initially put in.

Revolving door continues. Citigroup (C) is rumored to be in advanced talks to hire Peter Orszag, who served as budget director for the Obama administration until he stepped down in July 2010. Sources said Orszag might take a job in Citi's I-banking division and an announcement could come as soon as today. Citigroup, which is still recovering from its $45B bailout, would be only the latest in a long string of companies that have poached workers from the political sector, and of employees who have bounced back and forth between regulating (directly or indirectly) financial firms and then working for them.


Stocks fell Tuesday, as weak housing data and worries about the debt crisis in Europe overshadowed a better-than-expected report on consumer confidence.

Despite a strong start to November, all three major indexes ended the month lower -- with the Dow holding just above the 11,000 point level.


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