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Market Outlook
Monday, August 02, 2010



Monday has very little in the way of economic reports scheduled. The following is all that is happening:-

10:00… ISM Manufacturing Index

10:00… Construction Spending

10:15… Fed's Bernanke: 'Challenges for the Economy and State Governments'

Also the following companies are reporting their quarterly earnings:-

• Humana Inc. (HUM),

• Loews Corp. (L),

• MannKind Corp. (MNKD),

• Aflac Inc. (AFL),

• Evergreen Solar Inc. (ESLR),

• General Cable Corp. (BGC),

• SBA Communications Corp. (SBAC), and

• Verisign Inc. (VRSN).

Monday Outllook

Monday sees the U.S. stocks set to start August with gains, with futures moving sharply higher on the back of an overseas rally.

European and Asian economic data have provided the spark for Wall Street bulls, with stronger-than-expected manufacturing data out of the euro-zone lifting sentiment, while a contraction in manufacturing in China has sparked rumors that Beijing will hold off on tightening measures.

In the U.S. though, signs continue to point to a slowdown in growth. Investors will closely watch a key reading on the manufacturing sector due out later Monday.

Economic Concerns

Two reports on tap Monday are the Institute for Supply Management's survey on nationwide manufacturing activity and a report on construction spending.

Economists expect that construction spending fell 0.8% in June, following a 0.2% dip in May, according to a consensus estimate by Briefing.com.

The Institute for Supply Management's manufacturing survey is the first major economic report from July and will be closely watched to see if the recent trend of slowing growth continues. During the spring, traders sold shares because of signs the recovery was weakening and fears the economy would fall back into recession. But strong earnings in July helped drive stocks to their best month in a year.

The ISM's manufacturing index likely fell to 54.1 in July from 56.2 in June, according to economists polled by Thomson Reuters. Any number above 50 indicates the sector is growing, so even with a slowdown, manufacturing keeps expanding. That should help reduce fears about a so-called double-dip recession, even if the economy isn't robust. The report is due out at 10 a.m. EDT. Economists expect that construction spending fell 0.8% in June, following a 0.2% dip in May, according to a consensus estimate by Briefing.com.

"Markets will be highly attuned to any further hints of quantitative easing following his dovish semi-annual testimony," said analysts at Action Economics.

Bernanke: Federal Reserve Chairman Ben Bernanke is due to speak about the challenges for the economy and state governments. Bernanke rattled investors last month when he said there was an "unusually uncertain" future for the economy.

Financial reform: Treasury Secretary Tim Geithner will be in New York to discuss financial reform. He is due to give a speech at New York University.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) comes into August hovering above support at the 10,450 level, with a rally today potentially carrying the venerable average into resistance near the 10,550-10,600 area.

The S&P 500 Index (SPX) is riding into August with support in the 1,100 area, but the broad-market index must still contend with resistance in the 1,115 region, which is home to its 200-day moving average.

Gold futures have dropped $3.20 to trade at $1,180.70 an ounce in London. The malleable metal is trading above its 10-day moving average, but the contract is meeting with resistance in the $1,185 area.

The U.S. Dollar Index has broken yet another potential support level in Asian trading this morning, with the index dipping below the 81.50 level for the first time since April 27. At last check, the index was off 0.20% at 81.38 in pre-market trading.

Benchmark crude futures have rebounded from a low near $77 per barrel in overnight trading, with the front-month contract up 74 cents at $79.69 per barrel. Keep in mind that the $79-$80 region has provided a stiff ceiling for crude futures since May 5.

Bonds: Treasury prices fell, pushing the yield on the 10-year note up to 2.94% from 2.90% late Friday.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 853,188 call contracts traded on Friday, compared to 535,429 put contracts.

The CBOE Market Volatility Index (VIX) is once again poised for a showdown with its 200-day trendline.

Overseas Markets

*Traders were particularly encouraged Monday about strength overseas. A similar manufacturing report for the 16 countries that use the euro was revised higher for July, showing the continent's economy continues to recover faster than expected.

Manufacturing growth accelerated in July largely thanks to strongly performing German factories, according to a survey on Monday that showed diverging fortunes across the bloc's economies.

*European markets also jumped after big profit reports from banking giants HSBC and BNP Paribas. Worries about Europe's banks in the face of mounting government debt had spooked investors worldwide for much of the spring, so healthy earnings from them have provided relief that the financial sector is stable.

*Asian markets gained after Chinese manufacturing data showed growth at a pace where the government isn't likely to take steps to slow the country's economy. The HSBC China Manufacturing Purchasing Managers Index, compiled by Markit, dropped to 49.4 in July from 50.4 in June -- falling below the all-important 50-point level that separates expansion from contraction. The PMI survey last showed a contraction in March 2009.

* Strong earnings in Japan also helped Monday's global rally.

* China's Geely will complete its $1.8 billion purchase of Ford Motor Co's (F.N) Volvo unit on Monday, a source with direct knowledge of the matter said, capping China's biggest purchase of a foreign car maker.

European Concerns

European share markets Britain's FTSE 100 and the CAC 40 in France were narrowly higher in the early going while Germany's DAX posted slim losses.

In Europe at midday, London +2.0%. Paris +2.0%. Frankfurt +1.6%.

In currencies: The dollar was lower versus the euro and the British pound, but up against the Japanese yen.

Asian Concerns

Earlier, Asian markets

In Asia, Japan +0.3% to 9570. Hong Kong +1.8% to 21413. China +1.3% to 2673. India +1.2% to 18081.

Futures Trading

As of 7 a.m. in New York, the Dow Jones Industrial Average futures were up 101 points, or 0.96%, to 10518, the S&P 500 index futures rose 12.7 points to 1111.00 and the Nasdaq 100 index futures climbed 19.75 points to 1882.00.

Futures: Dow +1%. S&P +1.1%. Nasdaq +1%. Crude +1.2% to $79.88. Gold -0.3% to $1180.20.

us futures-aug02,2010



Company News

Earnings:

Humana Inc. (HUM) reported second-quarter net income of $340.1 million, or $2.00 per share, as revenue rose to $8.38 billion. Analysts were expecting a profit of $1.60 per share, on revenue of $8.54 billion. The company also boosted its full-year profit outlook to a range of $5.65 to $5.75 per share, up from prior guidance for earnings of $5.55 to $5.65 per share.

HSBC Holdings PLC (HBC) posted a first-half net profit of $6.76 billion as loan impairments and other provisions fell to their lowest level since the start of the financial crisis. Excluding one-time gains, underlying pretax profit rose 30% to $9.6 billion. Analysts had been expecting pretax profit of $9.3 billion. The bank said loan impairments and other charges fell to $7.52 billion. What's more, HBC declared a dividend of 16 cents per share for the period.

Some Interesting News

French financial holding firm Eurazeo (EURA.PA) said on Saturday it is in exclusive talks to sell its B&B Hotels chain to U.S. private equity firm the Carlyle Group [CYL.UL].

Shares of Coca-Cola Co (KO.N) could rise 10 percent or more in the next year after the company pinpointed North America as a growth market, Barron's business weekly reported on Sunday.

The business weekly said Ford Motor Co (F.N) shares are poised to rise in the next year, despite weak auto industry sales and uncertainty over the global economy.

UAE, Saudi Arabia to block BlackBerry. The United Arab Emirates outlined plans to block key BlackBerry (RIMM) services, including email and web browsing, beginning in October. The Gulf nation said the devices pose a potential security threat because encrypted data sent via BlackBerry is moved abroad and can't be monitored for illegal activity. Saudi Arabia said yesterday it plans to block BlackBerry messaging services later this month, and India has recently suggested a BlackBerry ban may be coming. The decisions from the UAE and Saudi Arabia will impact hundreds of thousands of BlackBerry users; smartphones from Nokia (NOK) and Apple (AAPL) will continue operating normally. Premarket: RIMM -0.7%, NOK +0.6%, AAPL +1% (7:00 ET).

AT&T, Verizon take on Visa, MasterCard. AT&T (T) and Verizon Wireless (VZ) are declaring battle with Visa (V) and MasterCard (MA), as sources say the two mobile carriers have plans for a venture to get consumers to use smartphones as a mobile payment system instead of relying on debit and credit cards. T-Mobile USA (DTEGY.PK) is also part of the venture, and the trio may work with Discover Financial Services (DFS) and Barclays (BCS) to test out a system in four U.S. cities that allows consumers to pay for purchases with the contactless wave of a smartphone. Premarket: VZ +1.5%, DFS +3.9%, BCS +3.9%, V -3.2% (7:00 ET).

Signs of slowdown in China. Chinese manufacturing slowed in July, with the official purchasing managers’ index sinking to its lowest level since February 2009. Chinese growth is being restrained partly by government curbs on lending and property speculation but, taken together with disappointing growth in the U.S. and elsewhere, the slowdown in Chinese manufacturing will likely add to global recovery fears.

BP asks Kuwaiti SWF to raise stake. BP (BP) has reportedly asked Kuwait's sovereign wealth fund to raise its stake in the company to 3% from 1.75%. According to the al-Anba newspaper, outgoing CEO Tony Hayward made the offer himself, saying it was part of an effort to fend off potential takeover bids by other oil companies. Shares of BP are inching up this morning as the company moves ahead with plans to start a static kill of the Gulf well later today. Premarket: BP +0.9% (7:00 ET).

HSBC doubles profit. HSBC's (HBC) H1 net income doubled as the bank's North American unit returned to profitability for the first time in three years and loan loss provisions dropped 46%. Profit rose to $6.76B from $3.35B in the year-earlier period; pretax profit of $11.1B beat analysts' expectations of $8.8B, as the company's investment bank delivered its second-best results ever. HSBC, the first of the U.K. banks to report earnings for H1, is leading the rest of the sector up in premarket trading: HBC +5.3%, BCS +3.9%, RBS 1.5%, LYG +5.3% (7:00 ET).

BNP Paribas boosts profits. BNP Paribas' (BNPQY.PK) Q2 profit rose 31% to €2.11B ($2.76B), beating estimates of a €1.61B gain. Loan loss provisions dropped to the lowest level since before Lehman Brothers' bankruptcy in 2008. Profit gains at its branch networks in France, Belgium and the U.S. more than offset the drop in trading revenue prompted by eurozone debt concerns that dragged down the bonds of Greece, Spain and Portugal. In Paris trading, BNP +4.9% (7:00 ET).

Friday's failures. Five more banks were closed on Friday, bringing this year's failures to 108 so far. The closures in Georgia, Washington, Oregon and Florida (I & II) will cost the FDIC's deposit insurance fund an estimated $335M.

Conclusion

Despite a mixed performance Friday, stocks posted their best monthly gain in a year in July on the back of solid second-quarter results from several U.S. companies.

But with several key reports due out this week, including the government's jobs report, investors are likely to shift their attention from corporate earnings to the economy.

"Markets have discounted the earnings season, which was better than expected, and this week the attention will turn to the economy, particularly the July jobs report due Friday," said Peter Cardillo, chief market economist at Avalon Partners.

"If economic numbers stabilize, improve and come in line with expectations this month, that will alleviate fears of a double-dip recession and we'll be able to focus on the economy's slow growth," he added.

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