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Market Outlook
Monday, August 16, 2010

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

8:30… Empire State Mfg Survey

9:00… International Capital Flow

1:00 PM… NAHB Housing Market Index

Also the following companies are reporting their quarterly earnings:-

• Agilent Technologies Inc. (A),

• Lowe's Companies Inc. (LOW),

• Sysco Corp. (SYY), and

• Urban Outfitters Inc. (URBN).

monday outlook

Monday sees the U.S. stocks poised for a slightly weaker start, as investors digested data that showed Japan's economy slowed sharply last quarter. Investors are also awaiting U.S. manufacturing and housing reports.

Economic Concerns

The Empire Manufacturing survey is due before the start of trading. The regional reading on manufacturing is expected to have jumped to 7.50 in August from 5.08 in July, according to a consensus of analysts polled by Briefing.com.

Economists polled by Thomson Reuters predict the Empire State Manufacturing index rose to 8 from 5.08 in July.

The National Association of Home Builders releases its August index of builder confidence in the market for new single-family homes today. The Housing Market Index is expected to hold steady at July's 14 points, the lowest level since April 2009.

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) held support near 10,300 for the past week, but that support level will be tested once again this morning, as futures on the DJIA are pointing toward an opening loss of about 30 points.

The S&P 500 Index (SPX) futures are trading roughly 4.5 points below fair value, placing the broad-market index on a collision course with last week's low near 1,076.

Gold futures continue to benefit from safe-haven buying, with the precious metal gaining $7.90 to trade at $1,224.50 in London.

The U.S. Dollar Index is pulling back from resistance near the 83 level in Asian trading, as the euro and the yen rebounded from near-term lows. Currently, the index is hovering above support in the 82.50 region, after falling 0.51% to 82.53.

Benchmark crude futures: have rebounded from support, and are up 34 cents at $76.11 per barrel.

Bonds: Prices for Treasurys were higher. The yield on the 10-year note fell to 2.65% from 2.68% late Friday. Bond prices and yields move in opposite directions.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 775,613 call contracts traded on Friday, compared to 518,793 put contracts.

The CBOE Market Volatility Index (VIX) closed above its 10-week moving average for the first time since June 11 on Friday. Last week's heavy losses on Wall Street drove volatility higher once again, but the VIX still remains capped by resistance in the 27 area, above which the index has not closed a session since July 6.

Overseas Markets

Japan reported its economy grew just 0.1 percent in the second quarter, well below the 1.2 percent growth in the first quarter and short of expectations. The report follows signs last week that both the U.S. and Chinese economies are not growing as quickly as earlier in the year.

European Concerns

European share markets were down in late morning trade. The CAC 40 in France dropped 0.6%, while the FTSE 100 in Britain slipped 0.2%. Germany's DAX also edged lower.

In Europe at midday, London -0.3%. Paris -0.6%. Frankfurt -0.2%.

In currencies: The dollar fell against the euro and the Japanese yen, but edged higher versus the U.K. pound.

Asian Concerns

Earlier, Asian markets: ended mostly higher, but Japan's benchmark Nikkei index slipped 0.6% following reports that Japan's economic growth slowed sharply to 0.4% in the second quarter, showing that China is another step closer to becoming the world's third-largest economy.

Japan's gross domestic product totaled $1.29 trillion for the three months ending in June, while China's official figure for the same period was $1.34 trillion.

China is forecast to overtake Japan by the end of the year -- making China the world's No. 2 economy. However, official annual figures won't come until early 2011.

Meanwhile, the Shanghai Composite rallied 2.11%, while the Hang Seng in Hong Kong ended the day up 0.2%.

In Asia, Japan -0.6% to 9197. Hong Kong +0.2% to 21112. China +2.1% to 2662. India -0.6% to 18051.

Futures Trading

Futures: Dow -0.1%. S&P -0.1%. Nasdaq flat. Crude +0.3% to $75.65. Gold +0.7% to $1225.

us futures-aug16,2010



Company News

Lowe's Companies Inc. (LOW) reported second-quarter earnings of $832 million, or 58 cents per share, as sales grew to $14.4 billion. Analysts were expecting a profit of 59 cents per share. Looking ahead, the company sees third-quarter earnings of 28 cents to 32 cents per share, with fiscal 2010 earnings coming in the range of $1.38 to $1.45 per share.

General Motors Co GM.UL has added Bank of America Merrill Lynch (BAC) and Citigroup Inc (C) to the slate of its lead underwriters for its initial public offering, two sources familiar with the situation said late on Friday.

A group of investors including companies from the United States, Europe and the United Arab Emirates has formed in a bid to disrupt one of Intel Corp's (INTC) most lucrative franchises, according to the New York Times.

The companies have put $48 million into Smooth-Stone, a startup based in Austin, Texas, betting that it can modify low-power smartphone chips to run servers, the computers in corporate data centers.

Hulu is planning an initial public offering which could value the U.S. video viewing site at more than $2 billion, the New York Times said.

The organization of state insurance regulators has issued a consumer alert about retained assets accounts (RAAs), days after the Federal Deposit Insurance Corp (FDIC) said life insurers using the product should reveal more information.

The Wall Street Journal reported that Todd Katz, executive vice president for insurance products at MetLife Inc (MET.N), defended the practice of placing policyholder benefits into the so-called retained-asset accounts as being worthwhile to consumers who can put off making an immediate decision about what to do with a death-benefit payment.

Some Interesting News

Agrium courts Australia's AWB. In a surprise bid, Canadian fertilizer maker Agrium (AGU) offered $1.1B in cash to buy AWB, Australia's largest wheat exporter, edging out an offer from local player GrainCorp (GRCLF.PK). A deal would add to recent consolidation in Australia's grain industry as foreign firms try to grow their stake in the world's fourth-largest wheat exporting nation. Agrium's offer is a 37% premium to AWB's closing price on Friday, but analysts believe GrainCorp could come back with a higher bid and that there may be interest from other Canadian firms, possibly including Viterra (VTRAF.PK). Shares of AWB +30% in Australian trading.

Dell buys 3Par. Dell (DELL) announced it will acquire storage technology firm 3Par (PAR) in a deal valued at approximately $1.15B. Dell will commence a tender offer to acquire all the outstanding shares of 3Par for $18/share in cash. The transaction is expected to be accretive to Dell's earnings in FY 2012. Premarket: DELL -0.3%, PAR +83.4% to $17.70 (7:00 ET).

Aspen buys Sigma's drug unit. South Africa's Aspen Pharmacare (APNHF.PK) agreed to buy the drugmaking arm of Australia's Sigma Pharmaceuticals for $804M in cash, gaining control of around 25% of Australia's generic drugs market. Aspen had previously offered A$648M ($578M) for all of Sigma after its shares had slumped, but this recrafted offer gives Aspen the asset it wants most while leaving Sigma with a drug distribution and pharmacy business. Sigma hopes to put the deal to a shareholder vote at the end of October.

Chinese groups eye partial AIA bid. AIG (AIG) is reportedly seeking pre-IPO investments from Chinese investors for its AIA life insurance business, and a consortium of Chinese companies is expected to bid for a 30% stake in AIA. The consortium, which includes Industrial and Commercial Bank of China (IDCBF.PK) and China Life Insurance (LFC), would probably invest around $10B.

• BofA mulls BlackRock divestiture. Bank of America (BAC) may reduce its 34% stake in BlackRock (BLK), sources said, as the bank works to shed non-core investments. BofA hasn't reached a final decision yet and a deal is not imminent, but BlackRock executives expect the sale to go through eventually.

Chinese economy on track to overtake Japan's. China is expected to surpass Japan this year as the world's second-largest economy, an unprecedented move for a still-developing country that was in seventh place just over a decade ago. Japan reported its Q2 GDP figures this morning, showing its economic output of $1.288T fell short of the $1.339T reported by China for the same period; though China's output has topped Japan's before, the fact that it's happening in an early quarter is indicative of the countries' respective momentums.

Conclusion

After slight gains early in the week, stocks closed lower for four straight sessions last week beginning Tuesday after the Federal Reserve gave a bearish outlook and said the economic recovery is weakening. A raft of downbeat economic reports and some tepid earnings results added pressure.

The Dow Jones industrial average fell nearly 400 points over the past four trading days after the Federal Reserve took a more cautious tone about the pace of recovery and said it would start buying Treasury bonds to try and stimulate growth. Major retailers like J.C. Penney Co. also warned that profits the rest of the year would not be as big as previously estimated because shoppers are cutting back on spending.

Investors continued to snap up Treasurys Monday, driving interest rates lower. The drop came because of continued concerns that the global economy will slow and strong corporate earnings reported in the second quarter will not be able to hold up.

 

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