Market Outlook
Friday, September 03, 2010

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

8:30... Nonfarm Payrolls

9:45... Fed's Evans: 'OTC Derivatives Clearing'

10:00... Fed's Lockhart: Economic Outlook

10:00... ISM Non-Manufacturing Index

Also the following company is reporting its quarterly earnings:-

  • Campbell Soup Co. (CPB)

    friday outlook

    Friday saw U.S. stock futures edged higher as investors await the government's August employment report, which is expected to show the economy lost jobs for a third straight month.

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

    Economic Concerns

    Nonfarm Payrolls

    The government's widely anticipated jobs report, due before the opening bell, is forecast to show the U.S. economy lost jobs for a third straight month in August.

    Economists surveyed by predict a decline of 120,000 jobs in August after employers cut payrolls by 131,000 in July.

    The unemployment rate is expected to tick up to 9.6% from 9.5%.

    ISM Non-Manufacturing Index

    Economists forecast the Institute for Supply Management's (ISM) services index to have slipped to 53 in August from 54.3 in July.

    Notes of Importance

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

    The Dow Jones Industrial Average (DJIA) is trading above its’ 50-day moving average. Additionally, the Dow is facing support at 10,150 and resistance at 10,450.

    The S&P 500 Index (SPX): is also trading above its’ 50-day moving average. The SPX should find a floor near 1,080 and a ceiling near 1,100.

    Gold futures: Gold has benefited from the decline in the greenback, with the malleable metal breaking out to a three-month high. This morning, gold futures are up $1.10 at $1,254.50 an ounce in London.

    • The U.S. Dollar Index has slipped 0.11% to 82.38, extending a pullback that began on Wednesday when traders returned to the equities market.

    Benchmark crude futures are headed lower ahead of the jobs data, with the most active contract down 33 cents at $74.69 per barrel.

    Bond: The yield on the 10-year Treasury note rose to 2.64% from 2.61% late Thursday.

    Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,026,434 call contracts traded on Thursday, compared to 580,990 put contracts.

    Wheat futures also pushed higher to $7.23 a bushel after Russia extended its ban on grain exports into late 2011. Last month, wheat prices hit a a high above $8 a bushel when Russia announced an initial ban on exports until Dec. 1 due to a drought that has destroyed more than 20% of its wheat crop.

    The CBOE Market Volatility Index (VIX) closed below its 200-day moving average on Thursday. VIX watchers should keep an eye on this trendline, as well as resistance near the 28-29 level, should today's economic data disappoint.

    Overseas Markets

    European Concerns

    European share markets rose in early trading. The CAC 40 in France was up 0.7%, the DAX in Germany edged up 0.4%, and Britain's FTSE 100 gained 0.5%.

    In Europe, at midday, London +0.5%. Paris +0.7%. Frankfurt +0.4%.

    The dollar fell against the euro and the British pound, but was higher versus the Japanese yen.

    Asian Concerns

    Earlier in Asia, markets ended mostly higher. Japan's benchmark Nikkei index rose 0.6% and the Hang Seng in Hong Kong added 0.5%. The Shanghai Composite ended unchanged.

    In Asia, Japan +0.6% to 9114. Hong Kong +0.5% to 20972. China flat at 2655. India -0.1% to 18221.

    Futures Trading

    As of 6:20 a.m. ET, the Dow Jones Industrial Average futures were up 4 points, or 0.04%, to 10313, the S&P 500 index futures rose 2 points to 1091.60 and the Nasdaq 100 futures were up 5.25 points to 1842.50.

    Futures: Dow +0.1%. S&P +0.1%. Nasdaq +0.2%. Crude -0.35% to $74.76. Gold +0.1% to $1254.90.


    Company News

    H&R Block Inc. (HRB) reported a first-quarter net loss from continuing operations of $114.8 million, or 36 cents per share, on revenue of $274.5 million. Analysts were expecting a loss of 41 cents per share on sales of $268.5 million.

    Take-Two Interactive Software Inc. (TTWO) reported a surprise profit for the July quarter thanks to strong demand for "Red Dead Redemption" and other video game titles. For the third quarter, TTWO reported non-GAAP third-quarter earnings of $26 million, or 28 cents per share, as sales jumped more than 273% to $354.1 million. Analysts were expecting a loss of 9 cents per share on a non-GAAP basis on sales of $294.7 million.

    In premarket trading, shares of Take-Two Interactive Software Inc. (TTWO) rallied 13% after the firm reported an unexpected quarterly profit and said it expects an annual profit for the fiscal year.

    Some Interesting News

    New Gulf rig fire, oil leak raises questions. After a fire broke out early yesterday on a Mariner Energy (ME) offshore platform in the Gulf of Mexico, the Coast Guard initially reported that a mile-long oil sheen was visible, but subsequently recanted. The rig has been shut down and its 13 workers were evacuated, and the accident ultimately may not do much harm to the Gulf, but it's prompting some lawmakers to call for an extended ban on offshore drilling because it's an "inherently dangerous practice." Mariner's platform, operating in just 340 feet of water, wasn't covered by the existing moratorium. Meanwhile, BP (BP), which said this morning that its costs relating to the Deepwater Horizon spill have risen to $8B, warned it may not have the money to pay for the $20B compensation fund if Congress passes legislation barring the company from getting new offshore drilling permits. Premarket: BP -0.6% (7:00 ET).

    H-P bags 3Par, Dell to look elsewhere. H-P (HPQ) won the heated bidding war for 3Par (PAR) with an offer of $2.4B, or $33/share, that 3Par's board approved yesterday evening. Dell (DELL) had said earlier in the day it wouldn't increase its most recent proposal to match H-P's, and as a result would receive a $72M break-up fee from 3Par. Analysts expect Dell to spend the $2B it didn't deploy on 3Par to build out its storage portfolio, and several potential acquisition targets closed higher yesterday on rumors, including CommVault Systems (CVLT +5.2%), Isilon Systems (ISLN +3.5%), Compellent Tech (CML +18.6%) and Netezza (NZ +3.4%). Shares of Dell could get a boost as well as the company puts the failed acquisition behind it.

    Goldcorp bags Andean Resources. Goldcorp (GG) agreed to pay C$3.6B ($3.4B) for all the outstanding shares of Australia's Andean Resources (ANDPF.PK), representing a 35% premium to Andean's closing price yesterday in Toronto. The boards of both companies have approved the deal, which now must be approved by 75% of Andean's shareholders. The deal is a blow to Eldorado Gold (EGO), which had offered C$3.4B to buy Andean, and adds to this year's record pace of gold mining takeovers as producers discover less of the metal while prices keep advancing. Shares of Andean, which is listed in both Canada and Australia, soared 31% in Sydney trading.

    Abbott calls off vaccine unit's auction. Abbott Laboratories (ABT) has called off the sale of its European flu-vaccine business after initial bids came in below its expectations. Four or five bidders had expressed interest but the offers in the range of €500M ($640M) were deemed too low. Though the identity of the bidders couldn't be ascertained, the unit was expected to draw interest from drug giants including GlaxoSmithKline (GSK) and AstraZeneca (AZN).

    Burger King sells itself for $4B. Burger King (BKC) agreed to sell itself for $4B, including the assumption of debt, to 3G Capital. The $24/share deal represents a 46% premium to the company's share price before acquisition rumors began. It's the largest leveraged buyout of a fast-food chain ever, and Burger King's second in the last eight years, leaving frustrated franchisees and investors wondering whether the burger chain needs a new strategy rather than yet another new owner. Shares of Burger King closed up 25% to $23.59 in yesterday's trading.

    Blockbuster misses another bond payment. Struggling Blockbuster (BLOKA.PK, BLOKB.PK) said it missed another interest payment on its bonds, disclosing in a regulatory filing that it was unable to make a semiannual payment to junior noteholders because it still hadn't made a payment to senior bondholders that was due in July. The company has already said it may have to liquidate if it can't restructure its $1B-plus of debt.

    HSBC warns it may relocate HQ from the U.K. HSBC (HBC) made its clearest warning yet that it may move its headquarters abroad if U.K. regulators ultimately decide that banks need to split their high street banking from their riskier investment banking activities. Stuart Gulliver, HSBC's investment banking head and a likely successor to CEO Michael Geoghegan, said he was "genuinely concerned" regulators might opt to break up big banks, and "[that] has significant implications clearly for where we may choose to headquarter our institution." Barclays (BCS) and Standard Chartered (SCBFF.PK) have made similar, though more veiled, comments.

    AIG pushes ahead on AIA IPO. As expected, AIG (AIG) filed to list its AIA life insurance unit on the Hong Kong exchange, reportedly with a record 11 bookrunners, highlighting the insurer's determination to raise as much money as possible. The listing is likely to bring in around $15B, which would be used to repay part of the funds owed to the New York Fed. The banks chosen to help sell AIA stock include Barclays (BCS), JPMorgan (JPM), Citigroup (C), Goldman Sachs (GS), Morgan Stanley (MS), Deutsche Bank (DB), Bank of America (BAC), Credit Suisse (CS) and UBS (UBS).

    Rare glimpse into China's forex reserves. China offered a rare glimpse today into its foreign exchange reserves, the largest stockpile in the world at $2.45T. A report in the China Securities Journal, an official newspaper, cited unnamed reserve managers who said the holdings are roughly in line with global averages, with 65% allocated to dollars, 26% to euros, 5% to pounds and 3% to yen. China also reiterated its discomfort at a global financial system dominated by the dollar, warning that "once a reserve currency's value becomes unstable, there will be quite large depreciation risks for assets."

    China, local gov't jittery over Potash bid. Chinese investors have approached at least one major Canadian pension manager about putting together a bid for Potash (POT) to rival BHP Billiton's (BHP) $39B hostile offer. The disclosure by Alberta Investment Management Corp., which said it wasn't interested in making a bid, is one of the first concrete signs backing up speculation that China is trying to derail the deal so that its future supplies of fertilizer won't be jeopardized. Meanwhile, the Saskatchewan government is concerned that either a BHP buyout or a Chinese takeover of the Canadian firm could affect jobs and government revenue, and has suggested it may consider changes to its potash royalty system to limit risks associated with any eventual deal.

    Wheat ban extended, fears of a global food crisis. Russian Prime Minister Putin extended his country's grain-export ban through at least Nov. 2011, after announcing last month that Russia would suspend grain exports until the end of this year. Wheat prices rose only slightly, as some had already anticipated a prolonged export freeze from the world's former no. 3 wheat exporter, but the announcement added to growing fears about the possibility of a global food crisis. Wheat futures +1.05% (7:00 ET).


    Stock futures inched higher Friday, continuing a rally ahead of the government's monthly employment report.

    Moves were modest because traders don't typically make big bets before such an important reading on the nation's economy. Stocks were pummeled throughout August as data piled up that showed economic growth is slowing down, which could eventually be a drag on corporate earnings. But stocks have rallied during the first two days of September after some more encouraging reports on manufacturing and housing.

    Continuing that rally into the long holiday weekend hinges on whether there are signs of improvement in the jobs market. Unemployment remains high and people are cutting back on spending because of job worries.

    Beating, or even meeting, those modest expectations might be enough to allay investor concerns that the economy is falling back into recession and keep the market moving higher. "It seems that every fresh U.S. data point is eagerly awaited at the moment," said Jim Reid, strategist at Deutsche Bank, in a note to clients. "This sharper focus will likely be a regular feature of the post-crisis world due to the likely lower trend rate of growth."


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