Market Outlook
Friday, December 03, 2010

Friday has some important economic reports scheduled. The following is what is happening:-

  • 8:30 … Nonfarm payrolls

  • 10:00 … Factory Orders

  • 10:00 … ISM Non-Manufacturing Index

Also the following company is reporting its quarterly earnings:-

• Big Lots Inc. (BIG).

friday outlook

Friday sees U.S. stock little changed, as investors await the government's all-important jobs report following two straight days of gains.

The Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were all slightly higher ahead of the opening bell.

"We're on hold until we get unemployment numbers," said Peter Cardillo, chief market economist at Avalon Partners. "That will direct the market's movement today."

Economic Concerns

Nonfarm Payrolls

Investors awaited non-farm payrolls figures, due at 1330 GMT. Economists polled by Reuters estimated that U.S. employers added 140,000 jobs in November after adding 151,000 jobs in October.

The unemployment rate is expected to remain unchanged from October at 9.6 percent.

Cardillo said a number above market expectations will "help confirm that the economic activity is turning up," and could drive stocks higher in the coming weeks.

Factory Orders

A separate government report is expected to show that factory orders fell 1.3% in October, after a 2.1% gain in September.

ISM Non-Manufacturing Index

The Institute for Supply Management's November index on manufacturing activity is forecast to edge up to 54.5, from 54.3.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) After rallying more than 350 points in two days, the Dow Jones Industrial Average (DJIA) is on pace to end the first week of December with a gain of roughly 2.5%.

Technically, the DJIA has reclaimed former support at the 11,350 level and could easily challenge its 2010 highs near 11,450 following better-than-expected jobs data.

Look for support to hold near 11,250 on a pullback, with the 11,200 area providing a backstop if the situation turns sour.

The S&P 500 Index (SPX) has resistance near 1,230, while short-term support rests at 1,210, while the 1,200 should contain any sharp sell-off.

The U.S. Dollar Index: The euro is continuing to gain ground on the U.S. dollar this morning, with traders bidding the currency higher after the European Central Bank reassured investors that it would work to contain the region's debt crisis. At last check, the U.S. Dollar Index was off 0.35% at 80.03.

Benchmark crude futures for January delivery eased 10 cents to $87.90 a barrel.

Gold futures for December delivery rose $3.50 to $1,392 an ounce.

Bond: The price on the benchmark 10-year U.S. Treasury held steady, with the yield unchanged from Thursday at 3%.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,561,657 call contracts traded on Thursday, compared to 714,729 put contracts. The resultant single-session put/call ratio arrived at 0.46, while the 21-day moving average held at 0.57.

Overseas Concerns

As part of its battle with inflation, China will move to a more "prudent" monetary policy stance next year, the nation's Political Bureau said. The announcement was made Thursday morning in a report by Xinhua -- the government's official news agency.

The report stated that the move away from a "relatively loose" policy, put in place during the global recession in 2009, is aimed at curbing rising prices in China. The People's Bank of China hiked its benchmark interest rate in October, and raised the reserve requirement ratio for banks twice within one month, according to the report.

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

European Markets

European share markets were mixed in a narrow range. Britain's FTSE 100 was up 0.1% and France's CAC 40 added 0.5%, while the DAX in Germany edged slightly lower.

In Europe, at midday, London -0.1%. Paris +0.4%. Frankfurt -0.1%.

Asian Markets

Earlier in Asia, markets ended the session mixed. The Shanghai Composite was flat, the Hang Seng in Hong Kong slipped 0.5% and Japan's Nikkei rose 0.1%.

In Asia, Japan +0.1% to 10178. Hong Kong -0.6% to 23321. China flat. India -0.1% to 19967.

Futures Trading

Futures at 7:00: Dow flat. S&P flat. Nasdaq +0.1%. Crude +0.1% to $88.12. Gold +0.1% to $1391.


Company News

• Shares of Ford (F) were higher in premarket trading, after the automaker reported a 20% increase in November sales on Thursday.

• Retailer, Big Lots Inc. (BIG), on Friday reported a 42% drop in net profit for its fiscal third quarter as it also cut its earnings outlook for the year.

The group said profit for the quarter ended Oct. 30 fell to $17.7 million, or 23 cents a share, from $30.3 million, or 37 cents a share, a year earlier, when the company's earnings included a 10-cents-a-share benefit from real estate transactions.

Net sales in the latest quarter rose 2% to $1.06 billion as same-store sales rose 0.7%. Analysts polled by FactSet Research had been expecting earnings of 24 cents a share in the latest quarter. The company said it now expects earnings from continuing operations for the fiscal year to be between $2.75 and $2.81 a share. In August it had forecast earnings of between $2.82 and $2.90 a share.

Novell Inc. (NOVL) said that it swung to a fourth-quarter profit of $322.2 million, or 91 cents per share, from a loss of $255.7 million, or 74 cents per share, in the same period last year. Revenue fell to $206.5 million, from $215.6 million. Excluding one-time items, Novell said earnings for the quarter were 7 cents per share. Analysts had expected Novell to report earnings excluding items of 7 cents per share, and $203.5 million in revenue.

Verifone Systems (PAY) also swung to a fourth-quarter profit of $49.4 million, or 55 cents per share, from a loss of $2.2 million, or 3 cents per share, in the year-ago period. Excluding one-time items, the company would have reported a profit of 40 cents per share in the latest quarter. Revenue rose to $228.3 million from $186 million last year. Analysts estimated a quarterly profit of 36 cents per share on revenue of $262.7 million. The company forecast first-quarter adjusted earnings of 38 cents to 39 cents on revenue of $265 million to $270 million, compared with an analyst consensus of 35 cents per share on revenue of $260.4 million.

Some Interesting News

Walter Energy to merge with Western Coal. Walter Energy (WLT) agreed to a C$3.3B ($3.2B) merger with Western Coal (WTNCF.PK). The C$11.50/share offer is a 56% premium to Western Coal's Canadian close the day before deal talks were first announced last month. The combined firm will be one of the world's biggest providers of metallurgical coal.

Insider-trading probe expands to healthcare deals. Officials have reportedly expanded their insider-trading probe to include trading activity surrounding a number of healthcare deals, including AstraZeneca's (AZN) purchase of MedImmune, Merck's (MRK) purchase of Schering-Plough and Pfizer's (PFE) purchase of Wyeth. The focus isn't on the firms involved in the deals, but rather on hedge funds which made big bets on the health firms' stocks. Authorities are looking into share price spikes and heavy volume prior to the deal announcements, though some traders and hedge funds say consolidation in the healthcare industry was a common subject of speculation at the time, and increased volume should therefore be unsurprising.

Madoff trustee sues JPMorgan. Madoff trustee Irving Picard sued JPMorgan (JPM) for $6.4B yesterday, as he comes up against a Dec. 11 deadline to file clawback lawsuits related to the Ponzi scheme. The lawsuit was filed under seal so specific allegations weren't released, but a lawyer for Picard said JPMorgan, the primary bank for Madoff's firm, was "willfully blind to the fraud, even after learning about numerous red flags surrounding Madoff. [The bank] was at the very center of that fraud, and thoroughly complicit in it." JPMorgan called the accusations "utterly baseless and demonstrably false."

Nicor seeks a buyer. Natural gas utility company Nicor (GAS) is looking to sell itself and has hired JPMorgan (JPM) to advise on the sale, said a source close to the matter. JPMorgan has apparently been contacting other utility companies and infrastructure funds, but many have balked at Nicor's high price; the company has a $2B market value. Speculation about a possible sale sent shares of the company +7.15% in yesterday's trading.

Rio, Chinalco form China JV. Rio Tinto (RIO) and Chinalco (ACH) signed a non-binding memorandum of understanding to form a joint venture that will explore mainland China to find and develop coking coal and copper deposits. The JV, which will come into operation in the first half of next year, will start with three to five large area exploration projects. Premarket: RIO +1.45% (7:00 ET).

Macau rejects Sands request. Las Vegas Sands (LVS) disclosed the Macau government rejected its request to acquire exclusive rights to development sites in the lucrative Cotai area, a major setback for the company's development plans. Sands has already spent at least $100M in pre-construction costs and is expected to ask for a review or appeal the decision in court. Analysts said the announcement is "another reminder of the unpredictable nature of policy decisions in Macau," but shouldn't affect Sands' valuation given that the project wasn't likely to open until 2018 at the earliest. In yesterday's trading, shares closed -4.2%.

China to use 'prudent' monetary policy. China's top leaders decided today that the country is ready to switch to a prudent monetary policy from a moderately loose one, according to a report in the state Xinhua news agency. The possible change in description of monetary policy had been discussed internally for weeks, but endorsement by the Politburo marks a turning point in Chinese policy, allowing a new assortment of monetary policy tools to be used to control liquidity and inflation. Some economists now expect as many as five rate increases by the end of next year, a significant jump from China's sole rate hike this year.

Tech firms go local. Amazon (AMZN) and eBay (EBAY) both announced deals yesterday for online local services, as tech firms increasingly view 'local' as a lucrative market. Amazon will invest $175M in online coupon company LivingSocial, and eBay purchased, which lets users see if items they're looking for are available on local store shelves, for an undisclosed price. The moves come amid chatter that Google (GOOG) is working on a deal to buy Groupon, a local coupon site, for as much as $6B. In yesterday's trading, shares of eBay closed +2.2%, and shares of smaller local-services site (LOCM) closed +28%.

Goldman considers mortgage servicing exit. Goldman Sachs (GS) is reportedly considering the sale of Litton Loan Servicing, the bank's mortgage servicing unit. Goldman bought Litton in 2007 but its foray into collecting on home loans and initiating foreclosures was poorly timed, and the unit is still feeling the repercussions from the financial crisis and the continuing foreclosure crisis. At least one potential buyer has already approached Goldman about the unit, but talks broke down over price.

Underwriters face conflict of interest lawsuits. A federal appeals court revived 24 lawsuits against a group of underwriters accused of conflicts of interest in initial public offerings. The plaintiffs accused investment banks including JPMorgan (JPM) and Morgan Stanley (MS) of engaging in prohibited 'short-swing' transactions related to IPOs in 1999 and 2000, and said the underwriters coordinated their activities with insiders at issuing companies in order to gain from post-IPO increases in the stock price.

Google buys Manhattan office building. Google (GOOG) has reportedly signed a deal to buy one of the largest office buildings in Manhattan for more than $1.8B, and has put down a 'substantial deposit' on the 15-story building. This would be the largest real estate deal this year, and a sign of Google's confidence in its own future. Sources expect the deal to close by the end of the year.

Treasury gets more money from GM IPO. The Treasury announced yesterday that it received another $1.8B from GM's (GM) IPO, bringing its total take from the offering to $13.5B. This second payment was the result of an overallotment option that had been exercised by the IPO's underwriters.


Wall Street rallied for a second day on Thursday as concerns about Europe's sovereign debt crisis waned, prompting investors to reverse bearish bets on the market.

Thursday's gains, coming on top of Wednesday's powerful rebound, have pushed the Dow near its highs for the year.

Investors have been buying up stocks and other risky assets this week, following a batch of improved economic indicators. The bullish tone has also been fueled by signs that officials in Europe will act aggressively to prevent a broader debt crisis.

But the tone was more cautious Friday as investors await the government's latest reading on hiring and unemployment.

The Dow Jones industrial average .DJI gained 106.63 points, or 0.95 percent, to 11,362.41. The Standard & Poor's 500 Index .SPX rose 15.46 points, or 1.28 percent, to 1,221.53. The Nasdaq Composite Index .IXIC added 29.92 points, or 1.17 percent, to 2,579.35.


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