Market Outlook
Thursday, December 09, 2010

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

  • 8:30… Initial Jobless Claims

  • 10:00… Wholesale Trade

  • 10:30… EIA Natural Gas Inventory

  • 1:00 PM… Results of $13B, 30-Year Bond Auction

  • 4:30 PM … Fed Balance Sheet

  • 4:30 PM… Money Supply

Also the following companies are reporting their quarterly earnings:-

• Brown-Forman Corp (BF.B), Ciena Corp. (CIEN), Costco Wholesale Corp. (COST), lululemon athletic inc. (LULU), Smithfield Foods Inc. (SFD), Learning Tree International Inc. (LTRE), National Semiconductor Corp. (NSM), and Pall Corporation (PLL).

thirsday outlook

Thursday sees U.S. stocks poised to open higher as investors cautiously take a bullish stance while awaiting the government's weekly jobs report showing the number of Americans filing for first-time unemployment benefits and is a key report which should show the slow-recovering labor markets.

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

If the premarket gains hold, the S&P 500 and Nasdaq 100 will open at fresh 2010 highs. After surging last week, Wall Street has largely treaded water this week as the bears have failed to make anyway headway.

Economic Concerns

Initial Jobless Claims

Before the bell, the Department of Labor will release its weekly jobs report. The data is expected to show that the number of Americans filing initial jobless claims decreased to 429,000, from 436,000 the previous week.

The number of people continuing to file unemployment claims for a second week or more is also expected to decrease slightly.

Wholesale Inventories

After the opening bell, the Commerce Department will release a report that shows wholesale inventories fell to 0.7%, from 1.5% in October.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) added a mere 13 points on Wednesday, as the blue chip barometer continues to consolidate into support at the 11,350 level.

Technically, support is solidifying in the 11,350 region for the DJIA, while resistance at the 11,400 level remains firm. That said, that very narrow 50-point trading range may not hold much longer; the Dow has tended to break sharply whenever it has approached an annual peak this year.

The S&P 500 Index (SPX) resistance at the 1,228 level, which represents the 61.8 percent Fibonacci retracement of the 2007-2009 bear market slide, a key technical indicator.

• The U.S. Dollar Index: The U.S. dollar remains strong against its foreign competitors this morning, with the greenback gaining notable ground versus the euro. At last check, the U.S. Dollar Index was up 0.28% at 80.22.

Gold futures, for February delivery edged up $1.30 to $1,384.50 an ounce.

Benchmark crude futures for January delivery gained 30 cents to $88.58 a barrel.

Bonds: The price on the benchmark 10-year U.S. Treasury note rose slightly, pushing the yield down to 3.24% from 3.25% late Wednesday.

Equity options activity on the Chicago Board Options Exchange (CBOE) saw 1,379,230 call contracts traded on Wednesday, compared to 681,958 put contracts. The resultant single-session put/call ratio arrived at 0.49 while the 21-day moving average held at 0.57.

Overseas Concerns

• European stocks gained ground in morning trade, extending a week-long rally and hitting a two-year high led by shares of financial institutions such as Societe Generale (SOGN.PA) and ING (ING.AS), while U.S. Treasuries steadied following their recent sharp selloff.

• On the global front, Japan's economy grew a revised 1.1 percent in July-September from the previous quarter, exceeding an initial government estimate, but that offered little comfort to policymakers wary of slowing growth in the current quarter.

• Australian employment blew away forecasts by surging 54,600 in November as firms took on many more full-time workers, fuelling expectations that interest rates may not stay on hold for too long.

• China and North Korea reached consensus on the Korean peninsula crisis after "candid" talks, Chinese state media reported, which analysts said suggested Pyongyang likely agreed not to inflame the situation.

Currencies: Wall Street managed to post gains despite weakness in the closely-watched euro, which sank 0.29% to $1.3220.

The dollar rallied against the euro and the British pound, but fell slightly against the Japanese yen.

European Markets

European Markets were mixed in morning trading. Britain's FTSE 100 rose 0.2%, the DAX in Germany dipped 0.2% and France's CAC 40 ticked up 0.3%.

In Europe, at midday, London +0.3%. Paris +0.6%. Frankfurt -0.1%.

Asian Markets

Earlier, Asian markets ended the session mixed. The Shanghai Composite shaved 1.3%, the Hang Seng in Hong Kong added 0.3% and Japan's Nikkei gained 0.5%.

In Asia, Japan +0.5% to 10286. Hong Kong +0.3% to 23172. China -1.3% to 2811. India -2.3% to 19242.

Futures Trading

As of 6:22 a.m. ET, the Dow Jones Industrial Average futures rose 31 points to 11399, the Standard & Poor's 500 futures added 4.20 points to 1232.90 and the Nasdaq 100 futures icked u 5 points to 2205.50.

Futures at 7:00: Dow +0.3%. S&P +0.3%. Nasdaq +0.2%. Crude +0.5% to $88.71. Gold +0.15% to $1385.30.


Company News

• After the market close, Green Mountain Coffee (GMCR)is expected to report an earnings per share of 20 cents, down from the 34 cents per share it reported a year ago.

• On Wednesday, the corporate websites of Visa and MasterCard appeared to be under cyberattack by purported Wikileaks backers.

United Parcel Service (UPS) plans to woo shareholders with a higher dividend and more share buybacks rather than use strong cashflow for large acquisitions, chief financial officer Kurt Kuehn told a German newspaper.

lululemon athletica Inc. (LULU) reported a third-quarter profit of $25.7 million, or 36 cents per share, as revenue rose to $175.8 million. Wall Street analysts were expecting earnings of 25 cents per share on revenue of $159.6 million. Looking ahead, LULU anticipates fourth-quarter earnings of 46 cents per share to 48 cents per share, above the current consensus estimate for a profit of 41 cents per share.

• In mergers and acquisitions, Helen of Troy Ltd. (HELE) is buying Kaz Inc. for $260 million in cash, with the deal expected to close by the end of 2010. Kaz owns the rights to market products under the brand names Vicks and Braun through a license from Procter & Gamble Co. (PG). Also, MasterCard Inc. (MA) purchased Travelex's prepaid card program management business for $458 million. The companies expect the deal to close in the first half of 2011.

Smithfield Foods Inc. (SFD) banked a second-quarter profit of $143.7 million, or 86 cents per share, as sales rose 11% to $3 billion. Analysts were expecting earnings of 56 cents per share on sales of $3.1 billion.

Some Interesting News

Ivanhoe likely to sell itself. Ivanhoe Mines (IVN) is expected to try to sell itself, sources said, and will likely employ a two-step process in which the company first sells or spins off all its assets except its stake in the Oyu Tolgoi copper-gold mine. After disposing of its other assets, Ivanhoe would then seek a buyer for the part of the company not owned by Rio Tinto (RIO), its largest shareholder. Rio would have the opportunity to make an offer if Ivanhoe moves forward on selling itself, and BHP Billiton (BHP), Xstrata (XSRAF.PK) and Anglo American (AAUKY.PK) might also be interested in the copper mine stake. Earlier yesterday, Ivanhoe and Rio set aside their ongoing disagreement yesterday and announced a new financing plan that would bring the Oyu Tolgoi mine one step closer to being built. Shares of Ivanhoe dropped 14% in yesterday's trading. Premarket: RIO -0.7% (7:00 ET).

Gov't, AIG make plans to part ways. AIG (AIG) entered into an agreement with the government yesterday that details, among other things, the rights the Treasury will have as it begins an accelerated sale of its controlling stake in the insurer. Sources said the Treasury hopes to sell at least $15B of its AIG shares starting in Q1 2011, with the total sales expected to be worth more than $60B over two years. AIG is also likely to sell $2B-3B in new shares alongside Treasury's initial offering to raise money to replace a liquidity facility from the Treasury. AIG also said it will repay in cash all amounts owed under the credit facility with the Federal Reserve Bank of New York; as of last week, that was around $21B.

Madoff trustee continues pursuit of banks. Up against a Dec. 11 deadline to file clawback suits, Madoff trustee Irving Picard continued his quest to retrieve funds from major banks connected to Bernie Madoff's Ponzi scheme. In a statement made late yesterday, Picard said he had filed a suit seeking around $1.4B from seven major financial-services firms, including Citibank (C), Merrill Lynch (BAC) and Natixis (NTXFF.PK), for accepting transfers from Madoff's firm "at times when they either knew or should have known of Madoff's fraud." The largest claim in the suit is against Citi for $425M, followed by Natixis for $400M. The other four banks listed as defendants are ABN Amro, BBVA (BBVA), Fortis and Nomura.

Fed to unveil debit fee limits. The Federal Reserve is reportedly planning to unveil next week a proposed rule to cap the transaction fees that banks can charge merchants when a customer uses a debit card. A debit-card fee limit is mandated by the new financial reform law, but the Fed had declined to specify when the rule would be ready. Banks are waiting anxiously to find out the details of the controversial provision in order to get a better estimate of how much it will eat into their profits; BofA (BAC) had estimated the rule could cost it as much as $2.3B annually.

Smartphone demand lifts ASML. ASML (ASML) said this morning that is now expects Q4 orders to top €2B ($2.65B), as the growing popularity of smartphones and tablets has lifted demand for its lithography equipment. ASML's NAND flash memory chips are found in devices like Apple's (AAPL) iPad and iPhone, while demand for DRAM memory cards, which are found in desktop computers, cellphones and games consoles, has been weakening less than expected. The €2B-plus sales forecast is a significant jump from ASML's forecast in October that sales would exceed €1.3B. Premarket: ASML +4.9% (7:00 ET).

Hackers take action in defense of WikiLeaks. Hackers brought down the websites of Visa (V) and MasterCard (MA) yesterday, in protest of the fact that the two firms had cut off WikiLeaks for violating their “terms of service” agreements. The outages were organized by the group Anonymous under the banner “Operation Payback,” and the group plans to target PayPal (EBAY) as well for similarly breaking ties with WikiLeaks following the publication of thousands of classified diplomatic cables.


On Wednesday, stocks drifted higher as a rebound in bank shares offset weakness in commodities, and concerns about rising interest rates in the Treasury market.

The Dow Jones industrial average .DJI gained 13.32 points, or 0.12 percent, to 11,372.48. The Standard & Poor's 500 Index .SPX gained 4.53 points, or 0.37 percent, to 1,228.28. The Nasdaq Composite Index .IXIC gained 10.67 points, or 0.41 percent, to 2,609.16.


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