Market Outlook
Friday, June 11, 2010



Friday presents several economic reports. The schedule for today is:-

8:20 … Fed's Plosser: Economic Outlook

8:30 … Retail Sales

9:55 … Reuters/UofM Consumer Sentiment

10:00 … Business Inventories

10:30 … ECRI Leading Index

12:55 PM … Fed's Kocherlakota: 'Entrepreneurship and The Economy'

Also, once again, there are several companies reporting their quarterly earnings:-

• There are no major earnings scheduled for release.

futures2

Friday saw the U.S. stock market futures trading higher as traders are hoping to finish the week on the right foot this morning and keep up Thursday's positive momentum, which saw the Dow Jones Industrial Average log its third strongest session of 2010.

U.S. stocks were set for a moderately higher open Friday, ahead of reports on retail sales and consumer confidence. Dow Jones industrial average, Nasdaq and S&P 500 futures were all higher.

U.S. stocks closed with a pop Thursday as euro-zone concerns eased. The Dow (INDU), the S&P 500 (SPX) and the Nasdaq (COMP) all added about 3%.

"We've certainly got a follow-through in global markets this morning, following yesterday's U.S. jump," said Art Hogan, chief market strategist at Jefferies & Co.

Futures will likely stay closer to flat ahead of the report slated for release at 8:30 a.m. ET, Hogan said.

"If we do get nice readings, especially on retail sales, we could continue higher," Hogan said.

Investors will also keep a close eye on the euro and on commodities, he added.

Economic Reports

Friday's session will feature retail sales data, the first reading of June consumer confidence as well as inventories data that could show the sixth gain in seven months.

Economists expect these reports will show retail sales rose modestly in May while business inventories climbed in April. A third report is expected to show consumer sentiment is improving as Americans gain confidence that the economy is strengthening.

Economists at Barclays Capital expect the May sales to be driven by autos, offsetting declining gasoline prices.

The Commerce Department is expected to report retail sales rose 0.2 percent in May, according to economists polled by Thomson Reuters. While it would be another slow month of growth, it still shows sales are climbing. A jump in sales is vital to a sustained recovery because consumer spending is a primary driver of economic growth. The report is due out at 8:30 a.m. EDT.

Sales excluding autos, which add volatility, are expected to have risen 0.1% after rising 0.4% the previous month.

As sales continue to rise, retailers have to buy more goods to restock shelves. Businesses also add to inventories as they gain confidence about the economy and when they expect sales to pick up.

Indeed, the Commerce Department is also expected to say business inventories rose in April. Economists predict inventories on store shelves rose 0.5 percent in April after climbing 0.4 percent in March. The report is due out at 10 a.m. EDT.

Economists also predict sentiment among consumers is growing, even though unemployment remains high. A preliminary reading of the Reuters/University of Michigan consumer sentiment index for May likely rose to 74.5 from 73.6.

The Energy Sector

BP sign

A report in the Wall Street Journal said BP (BP) is considering suspending or cutting its second-quarter dividend amid political pressure over the Gulf oil spill.

Chief executive Tony Hayward told the Journal that BP is "considering all options on the dividend," which is slated to be announced July 27.

BP shares were up 5% in premarket trading.

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

• The Dow Jones Industrial Average (DJIA) has reclaimed both its 20-day moving average and the 10,000 level.

• The S&P 500 Index (SPX) is still looking up at potentially stiff resistance at the 1,100 leve1.

gold

• Gold has retreated this morning, losing 40 cents to rest at $1,221.80 an ounce in London.

• The dollar was flat against the euro. The greenback was up 0.4% on the British pound, and it rose 0.5% against the Japanese yen.

• The U.S. Dollar Index is down 0.05% in pre-market trading.

• Benchmark crude futures are down in electronic trading; with the most active contract was losing 58 cents to sit at $74.90 per barrel.

• Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,221,362 call contracts traded on Thursday, compared to 809.936 put contracts.

• Treasury prices were higher, pushing the benchmark 10-year note's yield down to 3.29%. Bond prices and yields move in opposite directions.

• The CBOE Market Volatility Index is sitting right at the round-number 30 level following Thursday's nearly 10% decline.

Overseas Markets

European Concerns

European share markets headed higher in early trading. France's CAC 40, the DAX in Germany and Britain's FTSE 100 posted modest gains. The Stoxx Europe 600 rose 0.8%.

In Europe, at midday, London +0.8%. Paris +1.0%. Frankfurt +0.2%.

euro

The euro was steady at $1.2123 after its big advance Thursday.

The euro was supported today on the back of higher stocks, but the single currency struggled to extend its short-covering rally versus the dollar ahead of technical resistance, while options barriers also capped gains.

Asian Concerns

In China, consumer-level inflation grew at a stronger-than-forecast 3.1% clip in May.

Earlier in Asia, stocks mostly gained. Japan's benchmark Nikkei index rose 1.7% and the Hang Seng in Hong Kong finished the session up 1.2%.

In Asia, Japan +1.7% to 9705. Hong Kong +1.2% to 19872. China +0.3% to 2570. India +0.8% to 17065.

Futures Trading

Ahead of the opening bell, Dow Jones industrial average futures rose 4, or less than 0.1 percent, to 10,091. Standard & Poor's 500 index futures rose 0.30, or less than 0.1 percent, to 1,079.80, while Nasdaq 100 index futures rose 2.75, or 0.2 percent, to 1,823.75.

Futures: Dow +0.2%. S&P +0.1%. Nasdaq +0.1%. Crude -0.7% to $74.93. Gold -0.1% to $1221.50.

us futures-june-11,2010



Company News

Wendy's Arby's Group Inc (WEN) shares jumped 10.8 percent to $4.81 in extended trading on Thursday after investor Nelson Peltz said he received an oral inquiry from a third party expressing interest on a preliminary basis in a potential acquisition involving the company. Shares of the company traded in Frankfurt (TQK.) were up 13 percent.

National Semiconductor Corp (NSM) reported fiscal fourth-quarter income of $79.2 million, or 33 cents a share, compared with a loss of $63.7 million, or 28 cents a share, in the year-earlier period. Revenue was $398.5 million, up from $280.8 million. Analysts had expected the chip company to report earnings of 28 cents a share, on revenue of $384.4 million.

Some Interesting News-

Novartis (NVS) may be active after an advisory committee recommended approval of a multiple sclerosis drug designed to compete with Biogen Idec's (BIIB) Avonex.

Dell, SEC in settlement talks. Dell (DELL) is in talks to settle a long-running SEC investigation into the company's accounting and other issues, and has set aside a $100M reserve to cover a potential settlement. Dell founder and CEO Michael Dell has also become a probe target, likely in connection to misleading statements, and the investigation has broadened to include the company's dealings with Intel (INTC).

The potential settlement prompted Dell to restate its quarterly results, with net income reduced to $341M, and EPS lowered by $0.05/share to $0.17. In after hours trading, shares -2%.

BP dividend could take a spill. BP (BP) continues to siphon off more of the oil gushing into the Gulf of Mexico, raising its capture rate to 15,800 barrels on Wednesday, but the company seems to be fighting a losing battle as government officials have since doubled their estimate of the spill's size to potentially as high as 40,000 barrels per day. British Prime Minister David Cameron came out in support of the firm, emphasizing the "economic value" the company brings to the U.S. and U.K., including to the many British income funds that rely on BP's dividend payments. But CEO Tony Hayward, under heavy political pressure, said the company is considering either delaying or reducing the upcoming Q2 dividend. Premarket: BP +5.4% (7:00 ET).

UBS faces Luxembourg probe. UBS (UBS) is the target of a preliminary forgery investigation by Luxembourg prosecutors, in connection to how UBS oversaw funds connected to Bernie Madoff. UBS was the custodian for the LuxAlpha and the Luxembourg Investment Fund, both of which had to suspend customer redemptions after Madoff's Ponzi scheme was discovered. LuxAlpha was dissolved four months after Madoff's arrest, after having lost 95% of its approximately $1.4B in assets. Following news of the Luxembourg probe, European shareholder rights group Deminor said it may file a criminal complaint against UBS. Premarket: UBS +2.6% (7:00 ET).

Japan at risk of Greek tragedy. Japan's new prime minister, Naoto Kan, warned his country could face a debt crisis similar to Greece's unless it urgently deals with its growing national debt. "Our finances could collapse if trust in national bonds is lost and growing national debt is left alone," he said. The unusually blunt talk is likely meant to help push forward his agenda, which may involve raising taxes.

Spain denies aid request. Spanish officials strongly denied a media report that the country had made a request for economic aid from the EU, or was planning to make such a request. ""This is lie. There's no rescue. There's nothing asked for, nor will there be, nothing, but nothing. I don't know where they got this from," said an economy ministry spokesperson.

Mortgage fraud crackdown. The FBI is reportedly planning a nationwide crackdown on mortgage fraud, with hundreds of people likely to be arrested as soon as next week for such offenses as inflating home appraisals and encouraging borrowers to submit falsified mortgage documents. The crackdown comes as the FBI prepares to release its 2009 mortgage report on June 17.

SEC sets circuit breaker. The SEC approved new rules requiring a pause in trading in any S&P 500 stock that moves 10% or more in a five-minute span. The circuit breaker will begin going into effect today, and "will provide time for buyers and sellers to trade at rational prices," said SEC Chairman Mary Schapiro. The new rules will be on a pilot basis for six months.

Geithner grows impatient on China. Testifying before lawmakers yesterday, Geithner signaled that the U.S. was running out of patience with China's currency policy. "The distortions caused by China's exchange rate spread far beyond China's borders," said Geithner, "and are an impediment to the global rebalancing we need." Sen. Charles Grassley was far blunter: "The time is long past for any Treasury Department to admit publicly what everyone else already knows, that China is manipulating the value of its currency in order to gain an unfair advantage in international trade." Lawmakers plan to move forward soon with anti-dumping penalties on goods from China.

FBI launches iProbe into data breach. The FBI opened an investigation into the data breach on AT&T's (T) website that exposed 114,000 email addresses of iPad owners (AAPL). The probe is just beginning, and FBI officials wouldn't comment on the focus of the investigation. AT&T and Apple declined to comment as well.

FDA panel backs Novartis MS drug. Novartis (NVS) won key support for its one-of-a-kind multiple sclerosis pill, Gilenia, as an FDA panel voted 25-0 that the drug is both effective and safe. Though the FDA is not required to follow the panel's recommendation, it usually does, and a decision is expected by late September. Premarket: NVS +2.7% (7:00 ET).

GM in the driver's seat for IPO. General Motors will have to lay the groundwork for its IPO on its own, said the Treasury, with a public offering coming in October at the earliest. "GM must determine that it is, in all relevant respects, ready to become a public company. It is critical that the process of preparing for a potential IPO be managed by GM." The Treasury will be in charge of setting the fees paid to underwriters.

Conclusion

U.S. stocks posted their best day in the last nine on Thursday in response to signs of health in the euro debt market and as investors snapped up energy shares crushed in the previous day's sell-off.

However, movements could be tempered because stocks surged a day earlier. Stocks have been unable to muster a prolonged run of gains in recent weeks as volatility has returned to the market. The Dow has had only one two-day winning streak since late April, and that included a day where it rose just 6 points. That's a sign of uncertainty among investors.

As I have mentioned on numerous occasions this is the time to be making the most of the volatility and trade options.

Success is simple. Do what's right, the right way, at the right time.



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