Market Outlook
Thursday, November 04, 2010

Thursday are quite a few economic reports scheduled. They are:-

  • Chain Store Sales

  • 6:00 … Monster Employment Index

  • 7:00 … BoE Announcement

  • 7:45… ECB Announcement

  • 8:30… Initial Jobless Claims

  • 8:30 … Productivity and Costs

  • 10:30 … EIA Natural Gas Inventory

  • 4:30 PM… Money Supply

  • 4:30 PM … Fed Balance Sheet

Also the following companies are reporting their quarterly earnings:-

• DIRECTV (DTV), Frontier Oil Corp. (FTO), Fuel Systems Solutions Inc. (FSYS), Liz Claiborne Inc. (LIZ), PG&E Corp. (PCG), Sirius XM Radio Inc. (SIRI), Suncor Energy Inc. (SU), Time Warner Cable Inc. (TWC), Activision Blizzard Inc. (ATVI), bebe stores inc. (BEBE), Blue Nile Inc. (NILE), CF Industries Holdings Inc. (CF), Crocs Inc. (CROX), Isis Pharmaceuticals Inc. (ISIS), Kraft Foods Inc. (KFT), SandRidge Energy Inc. (SD), and Starbucks Corp. (SBUX).

thursday outlook

Thursday sees U.S. stocks poised to rise of the government's weekly report on the number of people filing for unemployment benefits, and October same-store sales data from retailers -- both set to be released before the opening bell.

The Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were all higher ahead of the market open.

Economic Concerns

Initial Jobless Claims

The government's weekly report on initial claims for unemployment benefits comes out before the opening bell.

Economists surveyed by expect 445,000 claims were filed in the week ended Oct. 30, up from 434,000 the week before. Continuing claims for the week ended Oct. 16 are forecast to have risen to 4.38 million, from 4.35 million.

Same-Store Sales

The nation's top retailers are scheduled to release October sales reports before the market opens.

Thomson Reuters, which tracks same-store sales for a group of 28 national chains, expects that same-store sales for the group rose 1.6% last month. Same-store sales measure sales at stores that have been open for at least a year.

Discount retailers such as Costco (COST), Target (TGT) and BJ's Wholesale (BJ) are forecast to have the biggest sales gains in the month. Teen-oriented retailers Abercrombie (ANF) and Zumiez (ZUMZ) are also expected to do well.

Productivity and Costs

Also out this morning are third-quarter productivity figures. Economists expect productivity rose by 0.9% in 3Q versus the 1.8% decline last quarter, according to Thomson Reuters.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) closed at a two-year high on Wednesday, as Wall Street digested the midterm election results and the Fed's plan to purchase $600 billion in bonds.

What's more, the blue chip barometer appears to be poised to take out its 2010 intraday high today, as futures on the DJIA and the S&P 500 Index (SPX) are trading roughly 77 points and 10 points above fair value, respectively.

Look for the DJIA to find support in the 11,150-11,200 area, while resistance may materialize near 11,300-11,350.

The S&P 500 Index (SPX)’s 1,200-1,205, is an area to watch for technical resistance, while support could emerge near 1,195.

• The U.S. Dollar Index The U.S. dollar has extended its recent run lower in the wake of yesterday's Fed announcement. Specifically, the U.S. Dollar Index has dropped 0.68% to 75.96, just above a fresh annual low for the index.

Benchmark crude futures for December delivery gained $1.21 to $85.90 a barrel.

Gold futures, for December delivery rose $25.20 to $1337.60 an ounce.

Bonds: Yield on the benchmark 10-year U.S. Treasury note was 2.56% Thursday morning, down from 2.62% late Wednesday.

Equity options activity on the Chicago Board Options Exchange (CBOE) saw 1,445,460 call contracts traded on Wednesday, compared to 800,243 put contracts. The resultant single-session put/call ratio arrived at 0.55, while the 21-day moving average held at 0.61.

Overseas Concerns

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

European Markets

European share markets were up across the board in morning trading. Britain's FTSE 100 moved 1.7% higher, the DAX in Germany was up 1.3% and France's CAC 40 increased 1.9%.

In Europe, at midday, London +1.7%. Paris +1.9%. Frankfurt +1.5%.

Asian Markets

Earlier, Asian markets ended the session higher. The Shanghai Composite ticked up 1.9%, the Hang Seng in Hong Kong rose 1.6% and Japan's Nikkei gained 2.2%.

In Asia, Japan +2.2% to 9359. Hong Kong +1.6% to 24536. China +1.9% to 3087. India +2.1% to 20894.

Futures Trading

As of 7 a.m. in New York, the Dow Jones Industrial Average futures rose 62 points, or 0.55%, to 11239.00, the S&P 500 index futures were up 7.7 points to 1205.00 and the Nasdaq 100 futures were up 12.25 points to 2176.50.

Futures at 7:00: Dow +0.6%. S&P +0.65%. Nasdaq +0.55%. Crude +1.2% to $85.70. Gold +1.8% to $1361.90.



Company News

Sirius XM Radio Inc. (SIRI) said that it swung to a third-quarter profit of $67.6 million, or a penny per share, compared with a loss of $151.5 million, or 4 cents per share, in the year-ago period. Revenue rose to $717.5 million from $618.7 million. Analysts were looking for breakeven earnings on revenue of $719.1 million.

Whole Foods Market Inc. (WFMI) reported fiscal fourth-quarter net income rose 58% to $57.5 million, or 33 cents per share. Analysts had expected the grocer to earn 28 cents. Sales rose 15% to $2.1 billion.

QUALCOMM Inc. (QCOM) reported a fiscal fourth-quarter profit of $865 million, or 53 cents per share, compared with a profit of $803 million, or 48 cents per share, for the year-earlier period. Revenue was $2.95 billion, up from $2.69 billion. Adjusted income was 68 cents per share. Analysts had expected the company report earnings of 59 cents per share, on revenue of $2.85 billion.

Some Interesting News

Canada blocks BHP's Potash bid. Canada decided to block BHP Billiton's (BHP) $40B bid for Potash (POT), a victory for the province of Saskatchewan and Potash management which had opposed the deal, but a blow to investors and free-trade sentiment in Canada. The highly-anticipated ruling leaves little room for a modified offer, and BHP investors think the company's next move will be to abandon the pursuit and return capital to shareholders through a stock buyback or expand its interests in oil and gas. Finding a new feasible acquisition target may not be easy, as "BHP is of a size now where just about anything it wants to do of any substance is going to get blocked on regulatory grounds." Premarket: POT -3.8%, BHP +4.2% (7:00 ET).

Bernanke rolls out QE2. Investors and central banks alike tuned in to hear yesterday's FOMC announcement in which the Fed launched a second round of quantitative easing via $600B in purchases of longer-term Treasurys by the end of June, at the rate of around $75B/month. Continued POMO reinvestments could total $250B-300B during the same period, and the Fed reserved the right to take more action if growth and inflation don't pick up. The vote was 10-to-1, with Kansas City Fed's Thomas Hoenig saying the risks of QE2 outweigh the benefits. The FOMC maintained near-zero rates and expects to do so for an "extended period."

Markets, analysts react to QE2. KC Fed's Hoenig isn't alone in his skepticism of QE2 (see above). Many see QE2 as an "inevitably blunt instrument for the difficult task of restoring growth and generating jobs" during what the Fed called a 'disappointingly slow' economic recovery. Emerging markets were equally unimpressed, pledging to come up with new measures to curb capital inflows stemming from the Fed's easing; their opposition to QE2 means next week's G-20 meeting is very likely to produce any sort of meaningful compromise on global imbalances and currencies. The size and duration of the QE2 plan were largely in-line with expectations, and the move had largely been priced in to markets before the announcement itself: S&P closed +0.4%, and the 10-year Treasury sank, pushing the yield up to 2.634%. Asian and European markets are seeing strong gains today, as are U.S. futures.

U.K. intervenes on News Corp's BSkyB offer. U.K. Business Secretary Vince Cable has asked the country's communications regulator to examine whether News Corp's (NWS) offer for BSkyB goes against the public interest. A report on the matter will be submitted by Dec. 31. EU competition regulators will also take a closer look at the bid, deciding by Dec. 8 whether to approve it or not. News Corp is offering £7.8B ($12.5B) for the 61% of the British satellite broadcaster it doesn't already own.

GM files for IPO at last. General Motors filed its long-awaited IPO, and will offer 365M shares at $26-29 each. The move will cut the Treasury's stake in the carmaker to 43% from 61%. GM also plans to sell around $3B of preferred shares that would convert to common shares under mandatory provision. The IPO values GM at just over $41B at the midpoint of the pricing range, not quite the $70B valuation that would allow taxpayers to break even on the company's bailout.

Swiss Re pays back Buffett. Swiss Re (SWCEY.PK) reached a deal to repay Berkshire Hathaway (BRK.A) for a multi-billion franc bond that provided a crucial lifeline for the world's No. 2 reinsurer during the financial crisis. Paying back the original 3B Swiss franc ($3.1B) bond plus interest payments will result in a $1B pretax charge in Q4, but analysts view the repayment as a sign that Swiss Re has regained its financial footing. That view was further solidified as Swiss Re also announced today that net profit rose to $618M in the most recent quarter, up from $314M the year before. With the repayment of the loan, Swiss Re is expected to look at returning money to shareholders through a buyback or dividend.

BNP Paribas is world's No. 1 bank. France's BNP Paribas (BNPQY.PK) is the world's No. 1 bank, with a 34% increase in assets over the last three years to €2.24 ($3.2T), the same size as Bank of America (BAC) and Morgan Stanley (MS) combined. However, analysts say BNP may also have one of the lowest capital ratios among major European banks under the new Basel III rules, and French regulators are doing very little to rein in the bank; last month, Bank of France Governor Christian Noyer said "if banks in some countries have very risky profiles and regulators ask them to hold more capital, it’s their problem. Don’t conclude that everyone has to do exactly the same thing." After reporting a 46% rise in Q3 net profit today, BNP acknowledged that the Basel rules will have "a significant, but manageable impact on the group's risk-weighted assets." In Paris trading, shares +4.3% (7:00 ET).

SEC bans naked access. The SEC voted to prohibit brokers from granting "naked access" to high-frequency traders, a move aimed at preventing bad trades from potentially disrupting markets. Naked access trading has grown rapidly, and as much as 30% of market activity is conducted this way. However, the vote will have limited impact on the largest HFT firms because they are broker-dealers with their own direct access to the markets.

Wal-Mart eyes Indonesian hypermarkets. Wal-Mart (WMT) has reportedly joined the list of suitors interested in buying Indonesian retailer Matahari's hypermarket business. Carlyle Group and South Korea's Lotte Shopping are also expected to participate in the auction, which could run up to $1B. Wal-Mart is betting on acquisitions in emerging markets to help compensate for sluggish domestic sales.

Qantas grounds Airbus fleet after engine failure. Qantas Airways will ground its six Airbus A380 super-jumbo jets after a mid-air engine failure today; the plane made an emergency landing and there were no injuries. Airbus parent EADS (EADSY.PK) and engine-maker Rolls-Royce (RYCEY.PK) will work with Qantas to identify the problem.

Car sales pick up. U.S. car sales rose 13.4% in October from the year before, totalling 950,165 vehicles. Perhaps more tellingly, October's seasonally adjusted, annualized selling pace came to 12.26M vehicles, the best showing since the government's 'cash for clunkers' program prompted a spike in auto purchases in August 2009. Among the highlights:

Toyota (TM) Oct. U.S. sales: -4.4% to 145,474 vehicles. Ford (F): +19.2% to 157,935 vehicles, vs. Edmunds expectations of +14%.

Chrysler (FIATY.PK): +37% to 90,137 vehicles, vs. Edmunds expectations of +40% - a seventh straight month of sales gains. GM: +3.5% to 183,759 vehicles vs. Edmunds expectations of -4.2%, with core brands up 13%.

New sheriff in town for Fannie, Freddie. Spencer Bachus, the Republican expected to take over chairmanship of the House Financial Services Committee, said yesterday that mortgage giants Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) should be in liquidation, not conservatorship. Bachus said reforming the two GSEs is at the top of his priorities list.

MGM files for bankruptcy. Beleaguered studio Metro-Goldwyn-Mayer filed for bankruptcy, bringing an end to a takeover bid by Lions Gate Entertainment (LGF) after coming to terms with Carl Icahn, who will get a chance to elect a director. The plan will extinguish $4B in debt and install managers from Spyglass Entertainment.


Stocks ended a choppy session with gains Wednesday, after the Federal Reserve said it would buy $600 billion worth of Treasuries as part of a plan to further aid the economic recovery.

Both the Dow .DJI and Nasdaq .IXIC closed at levels not seen since 2008 while the S&P .SPX ended at a six-month high.

The gains were preceded by an erratic session in which equities zigzagged as the Fed announced a plan to buy $600 billion in Treasuries. The size of the plan was greater than had been anticipated but less than many hoped.

Investors continue to digest the results of Tuesday's midterm election, which propelled the Republican party to a majority in the House and strengthened its voice in the Senate.

Both events have been highly anticipated for weeks, and many investors say the market has already priced in any potential benefits of the financial injection and election results. As a result, the focus Thursday could shift back towards the outlook for the economy -- particularly the job situation.

On Friday the Labor Department is scheduled to release its key monthly jobs report. Economists expect it to show that employers added jobs in October after cutting them in September. But the unemployment rate is forecast to remain a persistently high 9.6% nationwide.


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