Monday has very little in the way of economic reports scheduled. The following is all that is happening:-
10:00… Employment Trends Index
Also the following companies are reporting their quarterly earnings:-
• DISH Network Corp. (DISH),
• King Pharmaceuticals Inc. (KG),
• ReneSola Ltd. (SOL),
• Tyson Foods Inc. (TSN),
• WellCare Health Plans Inc. (WCG),
• MBIA Inc. (MBI), and
• THQ Inc. (THQI).
Monday sees the U.S. stocks set to open higher as investors remained focused on the economic outlook ahead of a highly anticipated statement from the Federal Reserve later this week.
Also the strong start to the week’s trading is bolstered as the commodity markets led to strong gains in Asia and Europe overnight.
The gains in overseas markets offset the trader reaction to the news out of Dow component Hewlett-Packard (HPQ), which announced its CEO Mark Hurd would leave the company immediately amid an ethics scandal, sending shares plunging nearly 10%.
This week's main event will be Tuesday's policy statement from the Federal Reserve. The central bank is widely expected to hold interest rates at historic lows near zero percent, a policy that has been in place since December 2008.
However, investors are eager to see what additional steps the Fed is willing to take to help support the economic recovery, which is turning out to be weaker than many analysts had expected earlier this year.
David Jones, chief market strategist at IG Markets in London, said stocks were supported by expectations the Fed will strike a more dovish tone. "Following the payrolls report on Friday, we may see a softer approach from the Fed," he said.
“The big talking point will be the possible added [quantitative easing] by the Fed rather than a movement in the base rate,” said James Hughes with CMC Markets in London. “It seems the heat wave in the US is taking its toll on the economic recovery as it starts to feel the heat and run out of steam.”
The Fed has to "balance admitting the recovery is not as strong as they'd like (which would be a big move) and implementing fresh QE [quantitative easing], against not announcing fresh action, which may disappoint a liquidity-hungry market," said strategists at Deutsche Bank.
It's "a delicate balancing act," and the result of the meeting is a close call, they said.
Notes of Importance
There are a few further points to the mornings trading which need to be considered:-
• The Dow Jones Industrial Average (DJIA) (DJIA) rebounded from a loss of 160 points on Friday to close down a mere 22 points. The DJIA enters the second week of August trading between support in the 10,600 regions and resistance near 10,700. What's more, this trading range could remain in effect through tomorrow afternoon, when the Federal Open Market Committee (FOMC) releases its decision on U.S. monetary policy.
• The S&P 500 Index (SPX) continues to trade in a range between its 200-day moving average and resistance near the 1,130 region.
• Gold futures are holding firm above the $1,200 level, which the malleable metal overcame on Friday in the wake of weaker-than-expected July jobs data. In London, gold futures are up $3.60 at $1,208.38 an ounce.
• The U.S. Dollar Index is bouncing between support at the 80 level and short-term resistance in the 80.50 region this morning. Currency traders are likely to remain cautious ahead of tomorrow's monetary policy statement from the Fed. A continued rise in the euro is also limiting the dollar's headway, as traders realize that the gap between the U.S. and euro zone economies is not as wide as was once believed. At last check, the index was up 0.07% at 80.47.
• Benchmark crude futures: Gains in the euro are spurring gains in crude futures, which gained ground in Asian trading. Heading into the open in New York, the front-month crude contract is up 88 cents at $81.58 per barrel.
• Bonds: Prices for U.S. Treasurys were little changed. The yield on the 10-year note was 2.82%. The government is scheduled to auction $74 billion worth of 3-, 10- and 30-year debt this week.
• Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,002,835 call contracts traded on Friday, compared to 569,790 put contracts.
• The CBOE Market Volatility Index (VIX) plummeted roughly 7.5% last week, placing the "fear" index below former short-term support in the 22-23 region, as well as its 200-day moving average.
• At the Chicago Board of Trade, wheat futures fell for a second session after rallying last week on concerns over supplies from Russia.
European markets climbed after German exports reached their highest levels since late 2008, indicating the country's economy is recovering much faster than previously thought. There were concerns this spring that mounting government debt in countries like Greece, Spain and Portugal would stagnate Europe's economy. The German exports report was the latest data from the continent that showed the pace of growth is speeding up rather than slowing down.
European and Asian markets were bolstered by the energy and mining sectors, which in turn were helped by early gains in commodities. Shares of BP (BP) were up nearly 2% after the company said that the oil well in the Gulf of Mexico had been permanently sealed.
European share markets rallied in morning trading, with Britain's FTSE 100, France's CAC 40 and Germany's DAX all gaining at least 1%. • In Europe at midday, London +1.4%. Paris +1.5%. Frankfurt +1.2%. In currencies: The dollar gained slightly against the U.K. pound, but weakened against the euro and Japanese yen.
Earlier, Asian markets: Japan's Nikkei finished the session 0.7% lower. The Shanghai Composite and Hang Seng both gained about 0.5%.
• In Asia, Japan -0.7% to 9572. Hong Kong +0.6% to 21802. China +0.5% to 2673. India +0.8% to 18288.
As of 5 a.m. in New York, the Dow Jones Industrial Average futures were up 36 points, or 0.34%, to 10649, the S&P 500 index futures climbed 4.4 points to 1123.90 and the Nasdaq 100 futures were up 7.25 points to 1909.75.
• Futures: Dow +0.3%. S&P +0.4%. Nasdaq +0.3%. Crude +1.1% to $81.60. Gold +0.2% to $1208.20.
WellCare Health Plans Inc. (WCG) posted a second-quarter net loss of $128.9 million, or $3.05 per share. Excluding charges, the company reported adjusted net income of $38.6 million, or 90 cents per share. Analysts were looking for earnings of 53 cents per share. WellCare said that it has reached an agreement on a $200 million settlement to resolve claims against it in a securities class-action suit. Another second-quarter charge resulted from a June agreement with the Justice Department and other agencies to settle for $137.5 million an investigation into alleged fraud by former executives.
DISH Network Corp. (DISH) said that second-quarter net income jumped to $257 million, or 57 cents per share, as revenue rose 9.1% to $3.17 billion. DISH said that it lost about 19,000 net subscribers during the quarter, leaving the company with approximately 14.32 million subscribers. Analysts were expecting earnings of 53 cents per share.
Apple (AAPL) confirmed over the weekend that Mark Papermaster, the former IBM executive in charge of the iPhone division, has been replaced by Bob Mansfield.
Shares of Hewlett-Packard were down 9% in pre-market trading as investors cast doubt on what the departure of H-P’s CEO Hurd means for the future prospects are for the technology giant. While Hurd leaves the company in a scandal, the executive was widely lauded for successfully leading the company for years. Shares of H-P more then doubled under Hurd’s 5-year watch.
Shares of mining giant Rio Tinto (RTP) rose 1.5% following early gains in copper, which was up 1% on Monday after the commodity had fallen for three straight days.
Constellation Energy Group Inc. (CEG) said it offered to buy Boston Generating's 2,950-megawatt fleet, the third-largest power-generating portfolio in New England, for about $1.1 billion.
Tyson Foods Inc. (TSN) is scheduled to release quarterly results before the market opens.
Some Interesting News
• RIM races to head off BlackBerry bans. Research In Motion (RIMM) reached a deal to delay the BlackBerry ban in Saudi Arabia while it installs and tests three servers in the country that will let authorities check BlackBerry users’ data. The company is now rushing to head off potential BlackBerry bans elsewhere. Lebanese officials reportedly want access to BlackBerry user data as well, while India could take action as soon as this week after the company's offer to provide metadata failed to allay officials' security concerns. RIM officials denied last week that certain countries were allowed special access to the BlackBerry system and promised not to compromise the system's security.
• GDF Suez nears takeover of International Power. GDF Suez (GDFZY.PK) and International Power (IPRPY.PK) are reportedly on the verge of a deal that would see France's No. 2 utility take control of the British company. The deal could be worth 400 pence per share, equivalent to an enterprise value of £11.2B ($17.9B), and GDF Suez would pay International Power shareholders a special £1.3B dividend. The firms are pushing to reach a deal before they report earnings tomorrow.
• U.S. firms zero in on Australia's Whitehaven. Alpha Natural Resources (ANR) and private equity firm First Reserve are considering a $2.75B buyout of Australia's Whitehaven Coal. The two firms are seeking support from the AMCI group, which holds a 15% stake in Whitehaven, and First Reserve already owns a 27% stake. Whitehaven confirmed it's in talks with third parties about potential deals, but wouldn't provide further details.
• AstraZeneca agrees to Seroquel payout. AstraZeneca (AZN) announced an agreement in principle to settle U.S. product liability litigation over its Seroquel antipsychotic drug for around $198M. The agreement's terms are confidential but are not expected to affect expected 2010 earnings of $6.35-6.65 per share. Premarket: AZN +0.4% (7:00 ET).
• Sara Lee CEO steps down. Sara Lee (SLE) Chairman and CEO Brenda Barnes will step down permanently to focus on improving her health; she has been on medical leave since May 2010 after suffering a stroke. Marcel Smits will continue as interim CEO while the company looks for a replacement, who will be tasked with completing a sweeping restructuring launched by Barnes.
• BP's well, but not its costs, are successfully capped. Following continued testing, BP (BP) believes the static kill and cementing procedures on the Gulf well have been successful, and expects the first relief well to be completed by August 15. The company's cleanup and containment costs to date have risen to $6.1B. In a development that could be potentially significant in the blame game between BP (BP) and Transocean (RIG), the Sunday Times said it had gained access to an internal BP audit, conducted seven months before the Deepwater Horizon disaster, which detailed the rig's severe safety shortcomings and a lengthy maintenance backlog. Half of the audit's 60 pages contain a detailed list of items that "do not comply with BP policies and standards." Premarket: BP +0.2%, RIG +1.3% (7:00 ET).
• U.S. investors boost Treasurys holdings. For the first time since the financial crisis began in 2007, U.S. investors own more Treasurys than foreign holders. According to the most recent data available from the Treasury, U.S. investors held 50.2% of the $8.18T market in May. The climb in U.S. demand for Treasurys reflects the current stagnation in consumer spending and income and the increasing savings rate.
• Universal Corp., Alliance One settle bribery charges. Tobacco companies Universal Corp. (UVV) and Alliance One International (AOI) agreed to pay millions of dollars to settle bribery charges from the Justice Department and SEC. According to the allegations, the two firms had paid more than $5M in bribes to government officials in Thailand and other countries in order to illegally obtain sales contracts. The firms will pay a combined $28.35M in disgorgement and fines.
• Higher pay-outs to lure more whistleblowers. Wall Street firms are bracing for a surge in whistleblower allegations, as new incentives in the financial reform law could net informants multi-million dollar payouts. The SEC explained that "the scale of the awards reflects the high quality of whistleblower we hope to get," but companies are concerned the potential seven-figure rewards will cause a jump in rogue tip-offs.
• Friday's failure. Regulators closed just one bank on Friday, bringing this year's bank failures to 109 so far. The closure of Ravenswood Bank of Chicago is expected to cost the FDIC's insurance fund $68.1M.
Wall Street ended last week on a negative note, with stocks falling after the government said the economy lost 131,000 jobs last month. For the full week, however, stocks ended with gains.
The larger-than-expected drop in July payrolls added to concerns about the slowing pace of the economic recovery. It came after a recent spate of disappointing reports on housing, retail sales and consumer confidence.
While there were no major economic reports on the agenda Monday, investors will take in a number of top-tier indicators later this week. Among them are reports on consumer prices and retail sales.
Meanwhile, domestic economic data continues to point toward a slowdown in growth. That has added to the importance of the Fed's meeting Tuesday.
Momentum has slowed as companies remain skittish about hiring a significant amount of workers and people worried about their jobs cut back on spending. Analysts have said strong economic growth will not occur until there are consistent signs that private employers are ramping up hiring.
Stocks have gained relatively little ground so far in August, historically a down month for the market, as trading volumes have been low and many market participants remain on the sidelines, he added.
"We've seen some moves up and down but very little in the way of direction," said David Jones, chief market strategist at IG Markets in London.
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