Market Outlook
Thursday, December 02, 2010

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

  • Monthly retail same-store sales

  • 6:00… Monster Employment Index

  • 8:30… Initial Jobless Claims

  • 9:20 … Treasury's Barr: Reforming the Global Financial System

  • 10:00… Pending Home Sales

  • 10:30 …EIA Natural Gas Inventory

  • 12:00 PM… St. Louis Fed's Bullard: The Economy and Monetary Policy

  • 12:20 PM … Philly Fed's Plosser: Economic Outlook

  • 2:00 PM … Fed's Duke: Consumer Credit

  • 4:30 PM… Money Supply

  • 4:30 PM …Fed Balance Sheet

  • 8:00 PM … Cleveland Fed's Pianalto: Economic and Monetary Policy

Also the following companies are reporting their quarterly earnings:-

• Del Monte Foods Company (DLM), The Kroger Co. (KR) Toll Brothers Inc. (TOL), Coldwater Creek Inc. (CWTR), Novell Inc. (NOVL) and VeriFone Systems Inc. (PAY)

thursday outlook

Thursday sees U.S. stocks set to open higher, following a global rally in European and Asian markets and ahead of a couple of key reports on the U.S. labor market due out in the next couple days.

Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were poised to rally about 0.3% each ahead of the opening bell.

U.S. stock index futures pointed to a higher open on Wall Street, with futures for the S&P 500 SPc1 up 0.46 percent, Dow Jones DJc1 futures up 0.47 percent and Nasdaq 100 NDc1 futures up 0.51 percent at 1000 GMT.

Economic Concerns

Weekly jobs data and a housing report are in the spotlight Thursday, but investors will also be looking ahead to the government's reading on November employment due Friday.

Initial Jobless Claims

The government's weekly jobless claims report comes out before the start of trade. Economists polled by expect 422,000 Americans filed new claims for unemployment last week, after 407,000 filed in the previous week.

November Jobs Report

Employers are expected to have added 130,000 jobs in November after adding 151,000 jobs in October. The unemployment rate is expected to remain unchanged at 9.6%.

Pending Home Sales

After the opening bell, the National Association of Realtors releases its pending home sales index, which is a measure of sales contracts for existing homes. The index is expected to be unchanged in October after slipping by 1.8% in September.

Same-Store Sales

The major retailers will release their November same-store sales figures throughout the day, the first glimpse Wall Street will get into how this holiday season is proceeding.

Of the names to report so far, Costco (COST), the giant warehouse retailer, posted a better-than-expected 9% rise in November sales from a year ago.

Fed's Disclosures

The Federal Reserve released yesterday details on the $3.3T it extended via more than 21,000 transactions during the financial crisis. The extent of the Fed's aid, including to foreign firms, suggests the level of financial distress may have been more severe than previously thought. Among the highlights:

• The Fed's Primary Dealer Credit Facility was tapped 84 times by Goldman Sachs (GS), 212 times by Morgan Stanley (MS) and almost daily by Citigroup (C) through April 2009, as well as by countless others including Bear Stearns and Lehman Brothers.

• Deutsche Bank (DB) and Credit Suisse (CS) were the largest counterparties to the Fed's program of buying and selling MBS, trading nearly $800B with the Fed.

• The Fed lent cash to more than a thousand companies, including McDonald's (MCD), GE (GE) and Harley-Davidson (HOG), and said all the loans were repaid.

• Among the foreign firms that tapped the Fed's various programs, UBS (UBS) borrowed a total of $74.5B and Barclays (BCS) borrowed $47.9B.

• Nine of the ten largest money-market fund companies, including BlackRock (BLK), turned to the Fed for support.

• Foreign central banks received nearly $600B of credit.

Despite the disclosures, shares of financial firms rose yesterday.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) leapt more than 2% higher yesterday, breaking back above former resistance at the 11,250 level.

Technically, the DJIA could find support at the 11,250 level today, while resistance could emerge near 11,300-11,350.

The S&P 500 Index (SPX) has a short-term floor near 1,205, with resistance just overhead at the 1,215 level.

• The U.S. Dollar Index: The euro has extended its rebound from a two-month low versus the U.S. dollar this morning, as currency traders look to the European Central Bank to address the region's sovereign debt crisis. At last check, the U.S. Dollar Index was off 0.17% at 80.58.

Gold futures, for February delivery rose $2.50 to $1,390.80 an ounce.

Benchmark crude futures for January delivery shaved 9 cents to $86.66 a barrel.

Bonds: The price on the benchmark 10-year U.S. Treasury dipped, pushing the yield to 2.98% from 2.96% late Wednesday.

Equity options activity on the Chicago Board Options Exchange (CBOE) saw 1,368,010 call contracts traded on Wednesday, compared to 620,540 put contracts. The resultant single-session put/call ratio arrived at 0.45, while the 21-day moving average slipped to 0.57.

Overseas Concerns

The European Central Bank is scheduled to hold a meeting Thursday amid some speculation that officials will take steps to contain the continent's debt crisis following the news of Portugal's potential debt downgrade.

Currencies: The dollar slipped against the euro and the British pound and was flat against the Japanese yen.

European Markets were all higher. Britain's FTSE 100 was up 0.8%, the DAX in Germany edged up 0.3% and France's CAC 40 gained 0.9%.

In Europe, at midday, London +0.5%. Paris +0.7%. Frankfurt flat.

Asian Markets

Earlier, Asian markets ended mostly higher. The Hang Seng in Hong Kong added 0.9% and Japan's Nikkei jumped 1.8%.

In Asia, Japan +1.8% to 10169. Hong Kong +0.9% to 23449. China +0.7% to 2844. India +0.7% to 19993.

Futures Trading

As of 6:55 a.m. in New York, the Dow Jones Industrial Average futures were up 31 points to 11264, the S&P 500 futures were up 3.7 points to 1208.20 and the Nasdaq 100 futures were up 7.5 points to 2166.00.

Futures at 7:00: Dow +0.2%. S&P +0.3%. Nasdaq +0.4%. Crude -0.05% to $86.71. Gold +0.2% to $1391.

Futures Trading



Company News

PepsiCo Inc. (PEP) announced that it will acquire 66% of Wimm-Bill-Dann Foods OJSC (WBD) for $3.8 billion, pending the required government approvals. Additionally, PepsiCo said that it will offer to acquire the remaining shares "at such time and on terms as are mandated by Russian law." The deal will raise the company's annual global revenue to nearly $13 billion, the company said.

Aeropostale (ARO)reported third-quarter profit of $58.5 million, or 63 cents per share, compared to earnings of $62.6 million, or 61 cents per share, in the same quarter last year. Revenue rose 6% to $602.8 million. Analysts expected the company to earn 66 cents per share on revenue of $605 million.

Krispy Kreme Doughnuts (KKD) said it swung to a third-quarter profit of $2.4 million, or 3 cents per share, from a net loss of $2.4 million, or 4 cents per share, in the same quarter last year. Revenue rose 7.9% to $90.2 million. Analysts expected the company's earnings to break even on revenue of $87.8 million.

Some Interesting News

Pepsi to buy Russia's Wimm-Bill-Dann. PepsiCo (PEP) said it will buy Russia's OAO Wimm-Bill-Dann (WBD) for $5.4B, paying $3.8B for a 66% stake with plans to acquire the remaining shares after the initial acquisition is complete. Wimm-Bill-Dann, which dominates Russia's baby food and dairy markets, and which is No. 3 in Russia's juice market, has long been seen as an acquisition target. The deal marks one of Pepsi's largest acquisitions to date, as well as one of the largest ever foreign investments in Russia outside of the energy sector.

SEC, banks talk CDO settlement. The SEC is said to be in preliminary talks with several major banks over a possible settlement that would end a broad investigation into the banks' sale of mortgage-backed securities and CDOs. Sources caution the discussions are still in a preliminary phase and could fall apart, but the fact that any discussion at all is underway is a sign all sides want to avoid a repeat of this year's showdown between SEC and Goldman Sachs (GS). Among the firms likely involved in the talks: Citigroup (C), Deutsche Bank (DB), JPMorgan (JPM) and Morgan Stanley (MS).

Merck expected to buy diabetes firm. Merck (MRK) is poised to buy SmartCells, a privately-held biotech firm in the early stages of developing a promising diabetes treatment. The deal, expected to be announced later today, could be worth over $500M if various sales and development milestones are met. Merck, like many other major pharmaceutical firms, is facing looming patent expiries and aging blockbuster drugs, and is looking to secure future revenue streams through acquisitions.

U.K. ends RBS probe without charges. U.K. regulators closed their eighteen-month probe of the circumstances which led to RBS' (RBS) bailout and said they won't take any enforcement action against the bank or its executives. Regulators said RBS made "a series of bad decisions in the years immediately before the financial crisis, most significantly the acquisition of ABN Amro and the decision to aggressively expand its investment banking business." However, no evidence of wrongdoing was found.

Offshore drilling banned, again. Citing safety concerns, the Obama administration reversed an earlier decision and said it wouldn't allow drilling off the Atlantic coast and in the eastern Gulf of Mexico. Government officials said other areas of the Gulf would be opened up by late 2011, but the practical ramification for oil companies is that they'll have to go almost two years without access to new offshore drilling leases, and the industry already faces a virtual freeze on permits to drill new wells on existing leases. As recently as last week, President Obama has proposed expanding oil and gas exploration in these now-banned regions.

Deficit panel attacks muni bonds' tax status. Among several other initial proposals to rein in a ballooning deficit, the White House-appointed deficit reduction committee called for an end to tax-free status for new municipal bonds. The individual investors who make up two-thirds of the $2.8T muni bond market are less than pleased, and debt-laden states like California, Illinois and Pennsylvania would face significantly higher borrowing costs if the measure is approved.

Beige Book sees modest improvements. The Federal Reserve released its Beige Book yesterday, showing modest improvement in all segments, with stronger results in New York, Richmond, Chicago, Minneapolis and Kansas City. Consumer spending reports were positive and lending was stable. The service sector seemed to be key in recovery activity. Manufacturing continued to expand and hiring improved in most areas. The bad news: Housing remained depressed and weakened further in several districts.

FDA panel rejects prostate cancer drug. The FDA's advisory panel rejected the use of two drugs from Merck (MRK) and GlaxoSmithKline (GSK) to prevent prostate cancer, raising concerns that the drugs might actually increase the risk of the most serious kinds of tumors. The panel voted 17-0 that the risks of Merck's Proscar outweighed its benefits, and 14-2 on Glaxo's Avodart. Currently there are no drugs approved to prevent prostate cancer. Premarket: GSK -0.4% (7:00 ET).

Higher sales lift automakers' hopes. U.S. auto sales rose 17% in November from the previous year, and suggested the sector is finally starting to find its way back to health. Total light vehicle sales came in at 12.26M annualized, slightly higher than October and ahead of consensus of 12M. However, sales are still far short of the annualized 16M seen earlier this decade. Ford (F) saw the biggest percentage increase in sales of the U.S.' Big Three, with sales up 24.3% to 147,338 vehicles. Chrysler's sales rose 17% to 74,152 and newly-relisted GM (GM) saw sales rise 11.4% to 168,739, in-line with expectations.

25% of homes sold last quarter were foreclosures. The July-September quarter was the worst summer for home sales in decades, reported RealtyTrac. Of the homes that did get sold, 188,748 were in some stage of the foreclosure process, accounting for 25% of the quarter's sales, and foreclosed properties sold for an average of 32% less than non-distressed properties. Foreclosure sales as a percentage of total sales have ranged between 25-30% this year, after peaking at 37% in Q1 2009. In 2005, foreclosure sales accounted for just 1% of sales.


Stocks had a banner day Wednesday, with all three major indexes surging more than 2% as signs of economic strength in the United States and China tempered worries about the European debt crisis. The blue-chip Dow index added 249 points, logging its biggest one-day gain since early September.

The Dow Jones industrial average .DJI gained 249.76 points, or 2.27 percent, to 11,255.78. The Standard & Poor's 500 Index .SPX rose 25.52 points, or 2.16 percent, to 1,206.07. The Nasdaq Composite Index .IXIC added 51.20 points, or 2.05 percent, to 2,549.43.


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