Market Outlook
Monday, August 30, 2010

• 8:30 … Personal Income and Outlays

• 10:30… Dallas Fed Mfg. Outlook

• 11:30… Fed's Bullard: Financial Regulatory Reform

Also the following company is reporting its quarterly earnings:-

• Origin Agritech Ltd. (SEED) and

• Winn-Dixie Stores Inc. (WINN)

M&A activity will be in focus on Monday, after France's Sanofi-Aventis (SASY.PA) publicly disclosed its proposed $18.5 billion, $69 per share cash indicated offer for Genzyme Corp (GENZ.O) in a bid to rouse shareholders after failing to engage the U.S. biotechnology company in merger talks. Sanofi said it is considering all options to complete the transaction, hinting it would consider a hostile takeover bid.

Traders should expect quite a bit of volatility, though any actual directional movement may be limited, as three days of U.S. jobs data will kick off on Wednesday, with the ADP's private sector jobs report, and end on Friday with Augusts’ nonfarm payrolls report.

Employment data has become the most important information for traders recently because jobs growth is considered the best way the recovery can get back on track. Signs of a slowdown in growth have plagued the market for more than a month. Investors are unsure if companies will be able to keep up strong earnings growth if the recovery runs out of steam or falls back into recession.

Waning confidence in the economy and about employment have kept shoppers out of stores, which further adds to a slowdown in the recovery.

Personal Income and Spending during July

Government data on personal income and spending during July come out before the market opens.

Economists surveyed by Briefing.com expect personal income to have risen 0.2% last month after a flat reading in June. Personal spending is expected to have edged up 0.3% in July after a 0.1% rise the month before.

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

• The Dow Jones Industrial Average (DJIA) soared more than 165 points on Friday, as Fed chair Ben Bernanke reassured Wall Street that the nation's central bank is far from impotent and, in fact, is ready to step in where needed to support the economy. The reassurance wasn't enough to push the Dow positive for the week, but it did push the blue-chip barometer back above support in the 10,100 region.

• The S&P 500 Index (SPX) failed to retake the 1,065 region, which could provide a bit of resistance early this week.

• Gold futures are up 30 cents at $1,238.20 an ounce in London.

• The U.S. Dollar Index: The Japanese yen remains front and center in currencies trading, as the Bank of Japan failed to stem the currency's advanced against the U.S. dollar, despite a round of emergency easing. While the yen initially moved lower following news that the Bank of Japan expanded its quantitative-easing program by ¥10 trillion and six months, the Japanese currency has since resumed its trek higher. The U.S. Dollar Index is only fractionally lower in pre-market trading, slipping 0.10% to 82.84 at last check.

• Benchmark crude futures are also lower this morning, despite a weaker dollar. In electronic trading, the lead contract is down 26 cents at $74.91 per barrel.

• Bonds: The yield on the 10-year Treasury note fell to 2.61% from 2.64% late Friday.

• Equity option activity on the Chicago Board Options Exchange (CBOE) saw 998,262 call contracts traded on Friday, compared to 571,444 put contracts.

At an unscheduled meeting on Monday, the Bank of Japan extended its emergency-lending program in an effort to stem the rise of the yen and support the sluggish economic recovery.

European Concerns

European share markets were mixed in early trading. The CAC 40 in France fell to 0.21%, Britain's FTSE 100 hit 0.89% and the DAX in Germany added 0.11%.

• • In Europe at midday, London closed. Paris -0.5%. Frankfurt flat.

In currencies: The dollar fell against the euro, the British pound, and the Japanese yen.

Asian Concerns

Earlier, Asian markets: ended higher, following the Bank of Japan's announcement to ease monetary pressure. Japan's benchmark Nikkei index jumped up 1.76%, and the Shanghai Composite rose 1.61%. The Hang Seng in Hong Kong added 0.68%.

• In Asia, Japan +1.8% to 9149. Hong Kong +0.7% to 20737. China +1.6% to 2653. India +0.2% to 18032.

Futures Trading

As of 6:36 a.m. ET, the Dow Jones Industrial Average futures rose 2 points to 10143, the Standard & Poor's 500 futures gained 1.50 points to 1065.20 and the Nasdaq 100 futures jumped 4.25 points to 1793.50.

• • Futures: Dow flat. S&P +0.1%. Nasdaq +0.2%. Crude -0.4% to $74.88. Gold -0.05% to $1237.30.

• Giant chipmaker Intel (INTC) inked a deal to aquire the wireless unit of German chipmaker Infineon Technoloiges in an all-cash deal valued at $1.4 billion. Intel recently purchased security technology firm McAfee Inc. (MFE) for $7.7 billion in cash on Aug. 19. On Friday, Intel warned its third-quarter sales would fall short of its previous forecast.

• 3M Company (MMM) said that it is buying Cognent Inc. (COGT) for $10.50 per share. The deal values COGT at $943 million. The offer represents a premium of about 15% to COGT's close at $8.92 per share on Friday. Cogent is a biometric identification firm, whose products capture fingerprint and palm print images electronically, encode prints into searchable files, and compare a set of prints to a database.

• Intel buys Infineon unit. Intel (INTC) agreed to buy Infineon's (IFNNY.PK) wireless unit for $1.4B in cash. The deal will significantly strengthen Intel in cellphone chips, an area in which it has met with limited success in the past, and marks the company's second acquisition in as many weeks. Intel expects the deal to close in the first quarter of 2011.

• Sanofi goes public with Genzyme bid. Sanofi-Aventis (SNY) offered $18.5B in cash to buy Genzyme (GENZ), equivalent to $69/share. According to Sanofi's statement, the non-binding offer was first made on July 29 but was reiterated yesterday in a letter sent to Genzyme CEO Henri Termeer "after several unsuccessful attempts to engage Genzyme's management in discussions." The decision to make the offer known to the public is meant to put added pressure on Genzyme and push it towards a deal, but Sanofi has already hinted it may opt for a hostile bid if the "bear hug" letter doesn't do the trick. Premarket: SNY +0.5% (7:00 ET).

• BoJ extends easing in emergency meeting. The Bank of Japan held an emergency meeting today to discuss the yen's surge to a 15-year high, as the currency's appreciation is weighing on Japan's economy. The bank will add ¥10T ($117B) to an existing low-interest ¥20T lending facility, and Japan's prime minister is preparing to unveil a modest stimulus package tomorrow. There have also been indications that Japan may intervene directly in the currency markets, though many analysts think Tokyo is relying on the threat of action rather than action itself. The yen fell against the dollar and euro, as the bank intended, shortly after the meeting was announced, but strengthened somewhat after details of BoJ's measures were released; +0.4% against the dollar (5:30 ET).

• Posco buys control of Daewoo International. Posco (PKX), the world's No. 3 steelmaker, agreed to buy a controlling stake in Daewoo International for 3.37T won ($2.8B) in order to expand its sales network and gain raw materials. Posco will acquire 68.15% of Daewoo, a steel and crude oil trader, at a purchase price 53% higher than Daewoo's close on Friday.

• Dell mulls 3Par options. Dell (DELL) said yesterday that it's assessing its bid for 3Par (PAR) and is deciding whether to once again raise its offer for the company, following an announcement by 3Par's board late on Friday that H-P's (HPQ) $2B offer represents a "superior proposal." Dell has the right to match any higher bid and have its offer take precedence within three business days, starting today.

• Nokia Siemens in talks with P-E firms. Nokia (NOK) and Siemens (SI) confirmed they're in talks with various private equity firms over a possible investment in Nokia Siemens Network. Executives from both companies said they were committed to completing a turnaround before considering other options when the JV ends in 2013. An investment could be worth as much as $1B, and Blackstone (BX), Bain Capital and TPG Capital are said to be among the firms considering a potential stake.

• Anglo American to sell Scaw assets. Anglo American (AAUKY.PK) has begun the sale process for the international assets of Scaw Metals as it works to refocus on its core business. The assets in areas such as Canada and Australia, which do not include Scaw's main South African operations, are estimated to be worth around $1B. First-round bids are due early next month.

• No angst for Google over new acquisition. Google (GOOG) confirmed its acquisition of Angstro, a startup that sorts news and information across social networks like Facebook, as it works to build its social network presence. Terms of the deal weren't disclosed. Google is also said to be in negotiations with some of Hollywood's top studios to launch a global pay-per-view video service by the end of 2010 via YouTube. The move would put Google in greater competition with Apple (AAPL), Netflix (NFLX) and Hulu (GE, NWS, DIS) over the digital distribution of film and television content.

• Disney, Time Warner near fees agreement. Disney (DIS) and Time Warner Cable (TWC) are said to be nearing an accord over programming fees and expect to reach an agreement in time to prevent a threatened TV blackout. If a deal isn't reached by midnight on Thursday, millions of Time Warner Cable subscribers will lose access to TV channels like ESPN and ABC.

• Investor group readies backup-bid for AIG's Taiwan unit. A group of investors led by former Taiwanese diplomat Wang Shih-jung said they're lining up a $2.5B bid for AIG's (AIG) Taiwan unit in case the planned $2.2B sale to China Strategic and Primus falls through; the deal has been on hold since October because of Taiwanese regulators' concerns. Wang declined to list the names of the investors in his group, but said $900M of the bid cost would come from Japanese investors, $1.25B from a Qatari fund and the rest from Taiwanese banks. AIG said it remains committed to its deal with China Strategic and Primus.

• BHP may divest some Potash assets. BHP Billiton (BHP) may look to divest Potash's (POT) nitrogen and phosphates businesses if its $39B for the fertilizer maker goes through. BHP told analysts that 70% of the value is in the potash assets, and a sale of both the nitrogen and phosphates businesses could bring in as much as $12B. Agrium (AGU) has already indicated it could be interested in the two units if they come on to the market.

U.S. markets have been rattled in recent weeks by new signs the economic recovery has lost steam. The weaker-than-expected recovery was acknowledged last week by Ben Bernanke, the chairman of the Federal Reserve, who soothed the markets on Friday in a high-profile speech.

Stocks rallied Friday, recovering some ground after being down most of the week, as investors looked past a report that showed economic growth slowed in the second quarter and the cautious remarks from the chairman of the Federal Reserve.

The economy will continue to be a big driver this week, with reports due on consumer spending, home sales and manufacturing activity. But mostly, investors will be gearing up for Friday's monthly jobs report.

As the Labor Department's monthly employment report doesn't come until Friday, investors will look for signs earlier in the week for clues about the jobs market. The Institute for Supply Management releases its monthly manufacturing survey Wednesday, which has an employment component to it. Payroll company ADP also releases its data on private jobs growth Wednesday.

The ADP report is often used as a gauge ahead of the Labor Department's monthly report later in the week. The government's report also includes public sector jobs growth, making it a broader measure of the health of the employment market.The Labor Department releases its weekly report on unemployment claims Thursday. New claims fell last week, but remain at elevated levels. That indicate employers are not adding new workers, even if they aren't firing too many employees either.

"Overall, what's driving markets today is Bernanke's speech last Friday, where he explained in more detail what they would do if the economy continues to deteriorate," said Mads Koefoed, macro strategist at Saxo Bank in Copenhagen.

"And then the Bank of Japan decided to help him out by issuing a statement," he said. "Those two events have certainly spurred risk sentiment this morning."