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Market Outlook
Friday, November 12, 2010



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

  • 8:35 … Fed's Tarullo: Financial Regulatory Reform

  • 9:55 … University of Michigan Consumer Sentiment

  • 10:30… ECRI Leading Index

  • 4:30 PM… Fed Balance Sheet

  • 4:30 PM … Money Supply

  • 4:35 PM… Fed's Bloom: Mortgage Servicing Issues

Also the following companies are reporting their quarterly earnings:-

  • Agilent Technologies Inc. (A),

  • D.R. Horton Inc. (DHI),

  • J.C. Penney Company Inc. (JCP) and

  • Wendy's Arby's Group Inc. (WEN).


friday outlook

Friday sees U.S. stocks set to fall following a volatile trading session in Asian markets that ended with the Shanghai Composite down more than 5%.

Additionally, European Union officials are scrambling to deny rumors of an Irish bailout, casting more doubt on sovereign debt in the euro zone.

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

Economic Concerns

Consumer Sentiment

A report on consumer sentiment comes out before the market opens, in what has been a light week for economic news.

The University of Michigan Index of consumer sentiment for early November is expected to rise to 69 from 67.7, according to consensus estimates from economists surveyed by Briefing.com.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA): For the week, the DJIA is sitting on a loss of about 1.4%, giving back nearly all of last Friday's relief rally gains.

Look for the Dow to find support near the 11,200 region, which is home to the Dow's 20-day moving average.

The S&P 500 Index (SPX) is also sitting on a loss of about 1.0%, giving back nearly all of last Friday's relief rally gains.

The SPX should find a floor near the 1,205 region and its 10-day moving average.

T he U.S. Dollar Index was down 0.20% at 78.06, putting a dent in the greenback's weekly gains.

Benchmark crude futures for November delivery slipped $1.75 to $86.06 a barrel.

Gold futures for December delivery fell $16.70 to $1,386.70 an ounce.

Bond: The price on the benchmark 10-year U.S. Treasury dropped, pushing the yield up to 2.63%. The Treasury market was closed Thursday for the Veteran's Day holiday.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,628,409 call contracts traded on Thursday, compared to 921,560 put contracts. The resultant single-session put/call ratio arrived at 0.57, while the 21-day moving average held at 0.58.

Overseas Concerns

The wave of selling pressure started in Asian trading overnight, as fears of interest rate hikes in Beijing sent traders scrambling for the sidelines. The concerns were raised after China's consumer price index surged a greater-than-expected 4.4% in October. Furthermore, Chinese media reported overnight that new rules out of Beijing limit foreign property rights. As a result, China's Shanghai Composite suffered its biggest single-session loss in 14 months.

Regional markets in Europe were quick to follow suit, but euro-zone leaders stepped up to calm rising fears concerning Irish debt, helping stocks to rise from session lows. In a joint statement, the finance ministers of France, Germany, Italy, Spain, and the U.K. said there would be "no impact whatsoever" on existing sovereign bondholders if new measures were taken to shore up struggling countries.

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

Currency has been a hot topic for the G-20 summit, and the leaders declared at the close of the meeting an effort to "refrain from competitive devaluation of currencies." An issue both former chairman of the Fed Alan Greenspan and U.S. Treasury Secretary Timothy Geithner don't see eye-to-eye on.

European Markets

European share markets fell during morning trading as well on worries of the eurozone's fiscal crisis. Britain's FTSE 100 edged lower by 0.5%, the DAX in Germany slipped 0.3%, and France's CAC 40 declined 1.5%.

In Europe, at midday, London -0.3%. Paris -1.0%. Frankfurt -0.3%.

Asian Markets

Earlier in Asia, markets ended the session with large losses, as overseas investors fear future interest rate hikes in China. The Shanghai Composite plunged 5.2%, the Hang Seng in Hong Kong dropped 1.9% and Japan's Nikkei ticked down 1.4%.

In Asia, Japan -1.4% to 9725. Hong Kong -1.9% to 24223. China -5.2% to 2985. India -2.1% to 20157.

Futures Trading

As of 6:45 a.m. in New York, the Dow Jones Industrial Average futures fell 53 points, or 0.47%, to 11189.00, the S&P 500 futures fell 7.6 points to 1203.50 and the Nasdaq 100 futures were down 13.75 points to 2158.75.

Futures at 7:00: Dow -0.4%. S&P -0.6%. Nasdaq -0.6%. Crude -2.15% to $85.92. Gold -1.2% to $1386.20.



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Company News

NVIDIA Corp. (NVDA) shares have jumped nearly 5% in electronic trading. The company reported a third-quarter profit of $84.9 million, or 15 cents per share, compared with a profit of $107.6 million, or 19 cents per share, for the year-earlier period. Revenue was $843.9 million, down from $903.2 million. Analysts had expected earnings of 14 cents per share, on revenue of $843.6 million.

• Retailer JC Penney is among the companies due to report quarterly results early Friday morning.

Analysts expect that JC Penney (JCP) earned 17 cents per share on sales of $4.25 billion in the third quarter, according to Thomson Reuters.

• Other companies slated to post results are fast food chain Wendy's (WEN) and homebuilder DR Horton (DHI).

Walt Disney Company's (DIS) results were unexpectedly released about 30 minutes before the market closed Thursday. Walt Disney Co. (DIS) has added roughly 2.5% in premarket activity after the firm said its fiscal fourth-quarter profit fell 7% on charges and decreased earnings at its cable channels and theme parks. Disney said it earned $835 million, or 43 cents per share, compared to a profit of $895 million, or 47 cents, in the year-ago period. Results in the latest three months include restructuring and impairment charges of $58 million, or 2 cents per share. Revenue slipped 1% to $9.74 billion. Analysts were expecting a profit of 46 cents per share on sales of $9.95 billion.

Some Interesting News

G-20 ends with little progress. Leaders wrapped up the two-day G-20 summit in Seoul today, and issued a joint communique in which they pledged to "move toward more market-determined exchange rate systems" to reflect "underlying economic fundamentals." However, language about 'undervalued' currencies was dropped because of Chinese opposition, the so-called 'historic agreement' was short on specifics and leaders delegated much of the negotiations to future meetings. G-20 leaders also discussed Ireland's debt crisis, and finance ministers from Germany, France and the U.K. issued a joint statement intended to reassure holders of Irish government debt that they won't be required to take writedowns.

More layoffs for Yahoo? Yahoo (YHOO) may be preparing to fire as many as 20% of the employees in its 7,000-strong consumer products group, sources said, adding it's unclear whether layoffs will extend beyond the group. It would be the company's third round of layoffs in as many years, after cutting 1,400 employees in 2008 and another 700 in 2009, and would come as other tech companies move to bolster hiring and employee retention.

Boeing pinpoints cause of fire, no word on Dreamliner schedule. Boeing (BA) said late yesterday that a fire earlier this week on a test flight of its 787 Dreamliner was caused by a faulty electrical panel which set fire to insulation blanketing located underneath the cabin floor. The panel's failure also caused several of the plane's key systems to stop working, though back-up systems kicked in as they should have. While the announcement brings some clarity to the incident, Boeing still has no word on when test flights will resume or whether the incident will further delay the Dreamliner's delivery schedule.

Shanghai plunges on rumored property-buying limits. Chinese stocks closed down a sharp 5.2%, with the sell-off prompted in part by Chinese media reports that the country is preparing to limit foreigners' property purchases. According to the reports, foreign companies will only be allowed to purchase property if it is office space for their own use, and foreigners living in China will be able to buy one residential unit only for their own use. Speculation is also growing that China may soon take additional measures to curb inflation by lifting interest rates again and selling from reserves.

AIG may accelerate Nan Shan sale. AIG (AIG) aims to sell its Taiwan life insurance unit in two months for around $2B, according to a report in the Chinese-language Commercial Times. AIG CEO Robert Benmosche has reportedly been in talks with Taiwan's financial regulators, who had blocked a $2.15B sale of the unit in August, though other sources said AIG had not sent officials to discuss the Nan Shan unit. AIG said last week that it believes a sale of the unit could be completed within twelve months.

Citigroup shrinks while OneWest grows. Citigroup (C) sold a $1.4B real-estate loan portfolio to OneWest Bank for undisclosed terms. The move is part of Citi's strategy to keep shedding non-core assets, and underscores the aggressive expansion being pursued by OneWest, the bank formed from the ruins of IndyMac. Private-equity-owned OneWest has bought two other failed banks and earned almost $2B since it was created, but this recent purchase is its first without the help of the FDIC and a precursor to further purchases of banks and assets.

Eurozone growth slows. The eurozone economy grew 0.4% in Q3, down from 1% growth in Q2. The slowdown was expected, and most of the expansion was driven by Germany, where the economy grew 0.7% on the quarter for a 3.9% Y/Y rise. Euro +0.3% vs. the dollar (7:00 ET).

Recalls by Nissan, Chrysler, GM. Nissan (NSANY.PK) is recalling nearly 600,000 Frontier pickup trucks and Xterra SUVs after finding that corrosion could cause the steering shaft to crack. Nissan said no accidents have been reported in connection to the flaw. In two more unrelated announcements, GM said it will recall nearly 14,000 sedans because of potential problems with the power steering, and Chrysler said it will recall around 16,000 SUVs because of faulty windshield wiper systems.

Conclusion

Stocks took a dive Thursday, after Cisco Systems issued a sales forecast that disappointed many investors late Wednesday. The chipmaker is seen as a bellwether for demand across the technology sector, and Cisco's bearish outlook dragged down the broader market.

Meanwhile stocks are being underpinned by the Federal Reserve's recent move to stimulate the economy, by purchasing $600 billion worth of U.S. Treasuries over the next several months. The strategy, called quantitative easing, is largely seen by investors as part of a broader effort by the Fed to boost asset prices.

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