Market Outlook
Friday, November 19, 2010

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

  • 5:15… Bernanke: Global Rebalancing

  • 9:30 … CFTC Hearing: Proposed Rules Under Dodd-Frank

  • 10:30 … ECRI Leading Index

Also the following companies are reporting their quarterly earnings:-

• AnnTaylor Stores Corp. (ANN), H.J. Heinz Co. (HNZ), and Yingli Green Energy Holding Co. Ltd. (YGE).

friday outlook

Friday sees U.S. stocks headed for a small retreat ahead of the opening bell, as Federal Reserve Chairman Ben Bernanke defended the central bank's recent plan to spur economic growth, in an early morning speech at a banking conference in Frankfurt, Germany.

Stock futures inched lower Friday morning as Wall Street appears poised to give back a slice of Thursday's GM and Ireland-fueled rally amid concerns about China's efforts to cool its economy.

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

In his speech, Bernanke defended the Fed asset-buying plan, saying the strategy has worked in the past and could help reduce unemployment in the United States. He also argued that nations need to work together to correct global imbalances, as the world economy recovers at an uneven pace.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA): soared more than 170 points on Thursday, but enthusiasm for a potential solution to Ireland's debt crisis wasn't enough to power the DJIA past the 11,200 level and its 20-day moving average.

Unfortunately, the DJIA may be hard pressed to make a serious run at overhead resistance today, as China is once again front and center after Beijing raised its reserve requirement ratio for banks.

Technical support for the Dow resides near 11,100, while the SPX should find a floor near 1,185.

The S&P 500 Index (SPX) should find a floor near 1,185.

The U.S. Dollar Index: More weakness for the U.S. dollar is having a modest buoying effect on commodities this morning. As Europe comes closer to sorting out Ireland's debt issues, the euro has advanced against the greenback, sending the U.S. Dollar Index lower by 0.4% to 78.30 at last check.

Benchmark crude futures for December delivery gained 18 cents to $82.03 a barrel.

Gold futures for December delivery rose $4.00 to $1,357.00 an ounce.

Bond: The price on the benchmark 10-year U.S. Treasury increased, pushing the yield down to 2.88% from 2.90% late Thursday.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,535,754 call contracts traded on Thursday, compared to 832,801 put contracts. The resultant single-session put/call ratio arrived at 0.54, while the 21-day moving average held at 0.59.

Overseas Concerns

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

European Markets

European share markets were lower in morning trading. Britain's FTSE 100 lost 0.9%, the DAX in Germany fell 0.9% and France's CAC 40 slid 0.3%.

In Europe, at midday, London -0.8%. Paris -0.5%. Frankfurt -0.1%.

Asian Markets

Earlier in Asia, markets ended the session mixed. The Shanghai Composite gained 0.8% and Japan's Nikkei rose 0.1%, while the Hang Seng in Hong Kong lost 0.1%.

In Asia, Japan +0.1% to 10022. Hong Kong -0.1% to 23606. China +0.8% to 2889. India -1.7% to 19585.

Futures Trading

As of 7:22 a.m. ET, the Dow Jones Industrial Average futures sank 35 points to 11141, the Standard & Poor's 500 futures declined 4.00 points to 1193.70 and the Nasdaq 100 futures fell 5.25 points to 2129.00.

Futures at 7:00: Dow -0.2%. S&P -0.2%. Nasdaq -0.3%. Crude +0.3% to $82.12. Gold +0.3% to $1357.40.



Company News

Dell (DELL)

Dell Inc. (NASDAQ:DELL) reported fiscal third-quarter earnings-per-share that beat expectations, as the PC-maker increased profit and sales compared to the year-ago quarter.

The company expects its fourth-quarter revenue to be even with or slightly higher than in the third quarter. Analysts polled by Thomson Reuters are predicting fourth-quarter sales of $16.29 billion.

In the fiscal third quarter, Dell weighed in with profit of $822 million, or 42 cents a share, compared with earnings of $337 million, or 17 cents a share, one year ago.

Revenue rose 19% to $15.39 billion, up from year-ago revenue of $12.90 billion as gross margin widened to 19.5%, compared with 17.3% in the year-ago quarter.

The Street had predicted earnings of 32 cents a share on revenue of $15.74 billion.

"Our strong results demonstrate that we are listening to customers and delivering what they want,” said Michael Dell, chairman and chief executive officer, in a statement. “It validates that our strategy to offer choice and efficiency at every level of the IT enterprise computing stack is taking hold, and we are more focused than ever to being a true partner—not merely a provider—to our customers."

Shares of Dell rose 31 cents, or 2.36%, in Thursday’s session, closing the day out at $13.66. The stock was up another 84 cents, or 6.11% in after-hours trading.

Intuit Corp. (INTU) reported a net loss of $70 million, or 22 cents per share. On a non-GAAP basis, INTU earned 12 cents per share, as revenue grew to $532 million. Analysts were expecting a loss of 12 cents per share on revenue of $520.4 million. Inc. (CRM) reported net income of $21.1 million, or 15 cents per share. Earnings on a non-GAAP basis would have been 32 cents per share for the recent period. Revenue grew 30% to $429 million. Analysts were expecting earnings of 31 cents per share on revenue of $409.8 million.

Harrah's Entertainment Inc.announced that it is canceling its $500 million initial public offering, "due to market conditions." Harrah's had planned to sell 31.25 million shares for an estimated price of $15 to $17 per share. The stock would have traded under the name Caesars Entertainment Corp. with a symbol of CZR.

Some Interesting News

KKR in talks to buy Del Monte. KKR (KKR) is said to be in advanced talks to buy Del Monte Foods (DLM) and has reportedly made an offer of $18.50/share, valuing the company at $3.6B. Sources said the two hope to finalize a deal by Dec. 2 when Del Monte reports its quarterly earnings. If a deal falls through, other private-equity firms, including Apollo, could be interested in the company. In yesterday's trading, DLM rose 8.3%, and shares are up another 9.8% to $17.25 in premarket trading.

Bernanke defends QE2, criticizes China. Bernanke is in Frankfurt today for the ECB's Central Banking Conference, and is using the opportunity to mount a defense of the Fed's QE2 decisions and implicitly criticize China for keeping its currency weak. In prepared comments, Bernanke doesn't name China directly, but takes issue with "large, systemically important countries with persistent current-account surpluses" and says "both growth and trade are unbalanced" globally. He also warns that the world's post-crisis "sense of common purpose has waned" and "tensions among nations over economic policies have emerged and intensified, potentially threatening our ability to find global solutions to global problems."

Ambac joins putback calls. Ambac Assurance, whose parent company filed for bankruptcy earlier this month, says certain banks that put together a dozen poor performing mortgage bonds that Ambac insured need to pay for some of those losses. The demand comes as Ambac reviews loans in residential mortgage-backed securities issued by Bank of America's (BAC) Countrywide unit, affiliates of Citigroup (C), and others. According to its regulatory filing, Ambac "believes, based on its review, that the sponsors of these securities are obligated to pay sums, which may in certain cases be material." Ambac has also sued in connection with 17 RMBS, most of which were structured by Countrywide.

GM gains modestly in debut. General Motors (GM) posted a gain in its first day of trading, but couldn't sustain its initial momentum; shares closed +3.6% to $34.19, after climbing as high as $35.99. Still, some analysts called it 'an excellent debut,' noting first-day profit-taking is common and too much of a bounce would have prompted criticism that the government was handing out a quick profit to stock flippers.

• China raises reserve ratio. China raised its reserve ratio by another 50 bps, effective Nov. 29, marking the fifth increase this year as China tries to tighten liquidity and rein in inflation. State media reported that the PBOC may have ordered select banks to set aside even more reserves, which officials have neither confirmed nor denied.

Meredith Whitney takes on ratings firms. Bank analyst Meredith Whitney plans to challenge Moody's (MCO), S&P (MHP) and Fitch by setting up her own credit-rating agency. Whitney said her agency is in the process of applying for a license, and will rely on the status quo business model in which issuers of debt pay for credit ratings. Whitney, who plans to rate global structured products and corporate bonds, dismissed the problem of potential conflicts of interest: "If you run a good business and you have compliance in place, there should not be problems."

Cisco launches stock buyback. Cisco (CSCO) is taking advantage of its recent drop in share price, announcing plans for up to $10B in additional stock repurchases. Cisco's stock is down 19% this year, and 14% this month; shares +1% premarket (7:00 ET).

Dell's earnings beat. Dell (DELL) posted better-than-expected quarterly results yesterday (see details below), and saw record profitability in its key enterprise solutions and services business. Sales came in somewhat lower than expected at $15.4B vs. $15.8B consensus, but Dell's closely-watched gross margins figure was around 20% for the quarter vs. an expected 17.5%. Dell benefited from falling prices for components and now expects full-year revenue near the middle of the 14-19% range it set earlier in the year. Shares +4.3% premarket (7:00 ET).

SEC to vote on hedge fund supervision. The SEC will meet later today to vote on a proposal requiring the registration of hedge funds and private-equity funds with more than $150M in assets under management. The SEC hopes the increased supervision will better enable the agency to uncover fraud in the $1.6T hedge fund industry.

Airbus seeks compensation from Rolls-Royce. Airbus (EADSY.PK) said it plans to seek full compensation from Rolls-Royce (RYCEY.PK) for extra logistical costs after the failure of Rolls' Trent 900 engine on an Airbus plane operated by Qantas. Airbus said it's "making extra efforts to keep our production flow going and to help our customers maintain their operations," adding that Airbus's A380 delivery schedule has been 'challenged' by the engine problem and Rolls still hasn't disclosed details of its plan for replacing engines in already-operational aircraft.

P-E firms circle Denmark's ISS. Several private-equity teams, including a group led by Blackstone (BX), are reportedly preparing bids for ISS, the $7B Danish cleaning giant owned by Goldman Sachs (GS) Capital Partners and Sweden's EQT. CVC and Apollo Management are among the firms who are interested, and sources said indicative offers are due next week; an IPO is possible if bids come in too low. ISS refused to comment, other than to reiterate that it's exploring 'strategic alternatives.'


Stocks jumped Thursday, as worries about Ireland's debt woes eased and GM's newly issued stock rallied on its first day of trading.

With no economic data or major corporate reports on the agenda for Friday, investors may continue to take their cues from overseas markets and Bernanke.

Still, the early losses come after the Dow soared 173 points -- its best day in two weeks -- amid enthusiasm for a possible bailout of the Irish banking sector and the successful return to the New York Stock Exchange by General Motors (GM). The gains helped Wall Street recapture about half of its losses from the previous week.

Wall Street was also digesting a speech in Europe from Bernanke, the chairman of the Federal Reserve, who defended the central bank's controversial stimulus plan that is known as "QE2." The Fed has come under criticism both at home and abroad for the approach, which centers on purchasing Treasurys to drive down interest rates and is aimed at avoiding deflation.

Bernanke issued a surprisingly direct offensive, arguing China and other nations have held back the global economy by preventing their currencies from strengthening. He said the currency moves have helped lead to a "two-speed" recovery.

Wall Street managed to mostly shrug off new efforts by China to prevent its economy from overheating. China's central bank raised the reserve ratio for banks by 0.50% percentage points, its fifth increase in reserves this year. The move is aimed at draining cash from China's financial system and avoiding asset bubbles from forming.


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