Market Outlook
Friday, November 05, 2010

Friday has a few economic reports scheduled. They are:-

  • 8:15 … Atlanta Fed Conference: The History and Future of the Federal Reserve

  • 8:30… KC Fed's Hoenig: Factors Impacting the Economy

  • 8:30 … Nonfarm payrolls

  • 12:30 PM… Pending Home Sales

  • 2:00 PM… Bernanke speaks at Jacksonville University

  • 3:00 PM … Consumer Credit

Also the following companies are reporting their quarterly earnings:-

  • Beazer Homes USA Inc. (BZH),

  • Coventry Health Care Inc. (CVH),

  • DISH Network Corp. (DISH) and

  • Plains Exploration & Production Co. (PXP)

friday outlook

Friday sees U.S. stocks set for a mild retreat, as investors take a breather ahead of the government's monthly jobs report, due before the opening bell.

Stocks staged a major rally Thursday, a day after the Federal Reserve's announcement to pump $600 billion into the economy. All three main indexes finished at two-year highs.

Ahead of the opening bell Friday, Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were all lower.

Economic Concerns

The labor market has been a focus for investors hoping for recovery, and they'll get the latest barometer early Friday with the release of the government's monthly jobs data. Reports on housing and consumer credit are also on tap.

Nonfarm payrolls

The government will release its monthly jobs report before the bell Friday. A consensus estimate from analysts polled by expect employers to have added 60,000 jobs in October after cutting payrolls by 95,000 the month before. The unemployment rate is expected to hold steady at 9.6%.


Pending Home Sales

Also before the opening bell, the National Association of Realtors releases its pending home sales index. The index, which is a measure of sales contracts for existing homes, is expected to have risen by 2.5% in September after jumping by 4.3% in August.

Consumer Credit

A report on consumer credit is due late in the afternoon, and it's forecast to show a decline of $3.5 billion in September. The figure fell by $3.3 billion in the previous month.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA): surged 220 points Thursday in the wake of the Fed's $600 billion quantitative easing package, to close at its highest point since the collapse of Lehman Brothers.

Look for the DJIA to find support in the 11,350-11,400 region, with resistance at 11,500.

The S&P 500 Index (SPX) should remain between the 1,215 and 1,225 levels.

The U.S. Dollar Index:After tagging a fresh 2010 low yesterday in the wake of the Fed's $600 billion quantitative easing plan, the U.S. dollar has bounced back a bit this morning. In fact, the U.S. Dollar Index was last seen higher by 0.62% at 76.35.

Benchmark crude futures for December delivery gained 6 cents to $86.43 a barrel.

Gold futures for December delivery rose $1.00 to $1384.10 an ounce, retreating from an earlier intraday record of $1394.40 an ounce.

Bond:The price on the benchmark 10-year U.S. Treasury fell, pushing the yield up to 2.49% from 2.48% late Thursday.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,445,460 call contracts traded on Thursday, 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

The Bank of Japan announced it would maintain its low interest rates, leaving the overnight call rate at between zero and 0.1%.

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

European Markets

European share markets dropped slightly in morning trading. Britain's FTSE 100 was down 0.1% and the DAX in Germany was just below its previous close. France's CAC 40 dropped 0.1%.

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

Asian Markets

Earlier in Asia, markets ended the session higher. The Shanghai Composite was up 1.4%, while the Hang Seng in Hong Kong was up by 1.4%. Japan's Nikkei also rose 2.9%.

In Asia, Japan +2.9% to 9626. Hong Kong +1.4% to 24877. China +1.4% to 3130. India closed.

Futures Trading

As of 7:05 a.m. in New York, the Dow Jones Industrial Average futures were down 38 points to 11349, the S&P 500 futures were down 5.6 points to 1213.00 and the Nasdaq 100 futures fell 7 points to 2178.00.

Futures at 7:00: Dow -0.3%. S&P -0.45%. Nasdaq -0.3%. Crude +0.1% to $86.60. Gold +0.1% to $1384.60.


Company News

Toyota (TM) reported strong sales for the six months ending Sept. 30, posting a net income of $3.6 billion despite the negative impact of the stronger yen. The company attributed the earnings jump to cost-cutting measures. The report comes a day after Toyota reported a drop in monthly auto sales.

DISH Network (DISH) reported an 11% rise in revenue to $3.21 billion and said it earned 55 cents a share. That was better than the 42 cents a share that analysts expected. Sales also topped forecasts, which called for the satellite TV provider to report revenue of $3.15 billion.

American International Group Inc. (AIG) posted a third-quarter net loss of $2.4 billion, or $17.62 per share. The quarter included several large charges, totaling $4.5 billion, related to a major restructuring. On an adjusted basis, AIG lost $200 million, or $1.47 per share.

Activision Blizzard Inc. (ATVI) reported non-GAAP third-quarter earnings of 12 cents per share on revenue of $857 million. Analysts had been looking for revenue of $748 million with earnings of 9 cents per share for the quarter.

Coffee king Starbucks Corp. (SBUX) reported that its fourth-quarter net operating income doubled to $399.3 million, or 37 cents per share. Analysts had forecast earnings of 32 cents per share. Sales rose 17% to $2.8 billion. Comparable store sales rose 8%.

Dow Jones component Kraft Foods Inc. (KFT) reported that its third-quarter net income fell 8% from a year ago to $754 million, or 43 cents per share. Excluding items, Kraft earned 47 cents per share. Analysts had expected earnings of 45 cents per share. Sales rose 26% to $11.9 billion.

Some Interesting News

Markets climb to two-year high. Wednesday's long-awaited QE2 announcement sent the stock market to a two-year high yesterday. The Dow soared 2% to 11,435 and the S&P 500 jumped 1.9% to 1221. The price of gold for December delivery rose to a high of $1,384.80 per ounce as the U.S. Dollar Index slipped 0.6% to $75.84. In after-hours trading, gold rallied to $1,393.40, its highest price ever. Analysts say the Fed gave the "green light" to buy gold and that "gold and non-dollar investments should benefit."

BoJ keeps key rate near zero, prepares QE. Japan's central bank kept its key interest rate near zero today, and said it will follow in the Fed's footsteps by buying Japanese government bonds next week, plus exchange-traded funds and real-estate investment trusts later, to inject liquidity into its financial system and help stabilize the economy. The Asset Purchase Program will total ¥35T ($434B).

Cost of Fannie, Freddie bailout might hit $685B. Initially projected two years ago to cost taxpayers $200B, the bailout of Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) could reach $685B, according to a new S&P estimate. The tab so far is $134B, but a slowdown in the housing market might lift that total to $280B. Creating the companies to take the place of the two fallen mortgage giants will likely cost taxpayers another $400B in capital. S&P analysts wrote that addressing the firms' problems "is likely to be an expensive repair job for U.S. taxpayers."

Strong banks may get go-ahead on dividend hikes. The Fed looks ready to grant some banks with strong capital levels permission to increase dividend payments. Analysts note the solid performance numbers that some banks are posting, and say that investors are eager to be shown the benefits of those numbers. One source said the Fed does not want to prevent that from happening. Investors are cheering, sending shares of financial stocks higher. Yesterday's key gains: Bank of America (BAC) +5.3%, Citigroup (C) +3.3%, Goldman Sachs (GS) +2.3%, JPMorgan (JPM) +5.5%, Wells Fargo (WFC) +3.8%. Premarket: BAC -1.1%, C -1.15%, JPM -0.25% (7:00 ET).

Citigroup wins EMI court battle. Citigroup (C) defended itself against a multibillion dollar lawsuit by Terra Firma Capital Partners and its chairman, Guy Hands, who said the bank tricked him into overpaying for EMI Group in 2007. U.S. District Judge Jed Rakoff called the suit "a catfight between two rich companies," and narrowed the range of damages to $2.2B from $8.3B and dismissed punitive damages entirely. Hands is likely to lose control of EMI in the wake of the trial, and Citigroup will probably break up the company to try recouping some of the $4.8B it lent to finance the EMI acquisition. EMI has not fared well, and Terra Firma partners is unlikely to want to continue supporting it.

Geithner's current-account deficit target may be 'unworkable.' Treasury's Geithner wants to end the "currency war" by having nations set current-account deficit or surplus targets of less than 4% of GDP, citing excessive savings in Asia as having helped spark the recent credit crisis. Asian officials counter that the Fed's liquidity injections are warping global capital flows. China's vice foreign minister said the setting of a numerical target smacks of "a planned economy." The issue will be raised at meetings in Kyoto, Japan today and tomorrow of the Asia-Pacific Economic Cooperation, and next week at the G-20 summit in Seoul.

Unemployment probably still near 10%. Economists surveyed by Bloomberg think today's unemployment report will show a jobless rate of 9.6% in October. The key figure has been at 9.5% or higher since August 2009, a record time span at such high levels since monthly data began six decades ago. The survey results predicted nonfarm payrolls increasing by 60,000 in October. Analysts say the economy needs a monthly net gain of at least 125,000 jobs to begin reducing the unemployment rate.

Toyota turns profit despite strong yen. Toyota (TM) said today that it achieved a net profit of ¥289B ($3.58B) in the first half of its fiscal year through September, and improved its full-year outlook even though it expects the already strong yen to strengthen further. It previously assumed the dollar would average 90 yen for the year, but lowered that to 85. Even so, it raised its full-year net profit forecast to ¥350B from ¥340B. Toyota's strong report assuaged concerns that its massive safety recalls would create ugly earnings. Overnight in Japan, Toyota shares gained more than 2%.

Starbucks brews 86% profit. Starbucks (SBUX) reported that its profit for the quarter ended Oct. 3 increased 86%. It posted a profit of $278.9M, or 37 cents a share, up from $150M, or 20 cents a share, a year earlier. Its net revenue jumped 17% to $2.84B and same-store sales grew 8%, marking the fourth quarter in a row of improving revenue. The company raised its full-year profit forecast, and founder and CEO Howard Schultz said in the conference call that its "future has never looked brighter." Thus emboldened, the company is considering ending its 12-year-old arrangement with Kraft Foods (KFT) to distribute packaged Starbucks coffee. In AH trading, SBUX +2.5%. Premarket: KFT -2.1% (7:00 ET).



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