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Market Outlook
Monday, November 22, 2010



Monday provides only a couple of basic economic reports. The following is the schedule:-

  • 8:30 … Chicago Fed National Activity Index

  • 81:30 PM … Fed's Kocherlakota speaks to business leaders

Also the following companies are reporting their quarterly earnings:-

• Tyson Foods Inc. (TSN), Analog Devices Inc. (ADI), Brocade Communications Systems Inc. (BRCD), Focus Media Holding Limited (FMCN), Hewlett-Packard Company (HPQ), Jack in the Box Inc. (JACK), La-Z-Boy Inc. (LZB), and Pacific Sunwear of California Inc. (PSUN)



monday outlook



Monday sees U.S. stock index futures pointed to a higher open on Wall Street, with futures for the S&P 500 SPc1 up 0.45 percent, Dow Jones DJc1 futures up 0.37 percent and Nasdaq 100 NDc1 futures up 0.71 percent at 0900 GMT.

The EU and the IMF agreed on Sunday to help bail out Ireland with loans expected to total 80 billion to 90 billion euros to resolve its banking and budget crisis. Fears of a contagion from the Irish debt crisis to other euro zone countries has weighed on stocks in recent weeks.

The news boosted the euro against the dollar, while oil rose to above $82 a barrel, bouncing back from two straight weeks of losses, helped by the weakening dollar.

European stocks rallied early, led by banking stocks such as Societe Generale (SOGN.PA) and Barclays (BARC.L).

Economic Concerns

There are no economic reports on tap for Monday, but investors will have to digest a full plate of top-tier economic indicators before packing it in for the week.

Reports on the agenda later this week include a revised reading on U.S. economic growth, housing data and durable goods orders, as well as personal income and spending figures. In addition, the Federal Reserve is scheduled to release minutes from its November 3 policy meeting on Tuesday.

Basel III Banking Rules

The new Basel III banking rules will leave the biggest U.S. banks short of between $100 billion and $150 billion in equity capital, with 90 percent of the shortfall concentrated in the top six banks, the Financial Times said, citing research from Barclays Capital.

Notes of Importance

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

The Dow Jones Industrial Average’s (DJIA) clawed its way back above the 11,200 level on Friday, but the blue chip barometer's victory may be short-lived.

Technically, the DJIA should find support near 11,100, with resistance holding firm in the 11,200-11,250 area. The SPX, meanwhile, should trade between the 1,200 and 1,190 levels.

The U.S. Dollar Index: The U.S. dollar is trading lower this morning, after China's top banking official said that there is room for appreciation in the yuan versus the dollar, while Ireland finally petitioned for aid. As a result, the U.S. Dollar Index has slipped 0.24% to 78.32 in premarket trading.

Crude Oil futures for January delivery gained 81 cents to $82.79 a barrel.

Gold futures for December delivery rose $5.00 to $1,357.30 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury rose, pushing the yield down to 2.87% from 2.88% late Friday.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,692,728 call contracts traded on Friday, compared to 975,261 put contracts. The resultant single-session put/call ratio arrived at 0.58, while the 21-day moving average held at 0.58.

Overseas Concerns

Ireland

On Sunday, Irish Prime Minister Brian Cowen formally requested substantial "financial assistance" from the European Union and the International Monetary Fund. The group is now working to hammer out final details of a rescue package worth tens of billions of dollars.

The formal request is likely to give U.S. markets a boost, according to Peter Cardillo, chief market economist for Avalon Partners.

But even with progress in Ireland, Cardillo said jitters will remain over debt levels in Portugal and Spain, until weaker members of the European Union get some sort of assistance.

While the terms of the loan package were not disclosed, reports by major media outlets put the Irish bailout package at roughly $110 billion over the next three years. The size of the package will change depending on how markets and the global economy progresses over the next few years.

Ireland is the second EU country this year to accept aid from the EU and the International Monetary Fund, following Greece earlier this year. There are several other European nations considered to have major budgetary problems, notably Spain, Portugal and Italy.

China

China's economic planning body, the National Development and Reform Commission, said Monday that it would work to keep domestic prices stable. The organization said it would increase subsidies for the low-income bracket in accordance with price hikes.

Aggressive anti-inflation controls or interest rate increases could hamper economic activity in China, Cardillo said. But he added that growth is so strong, it would take major action to adversely affect the market.

"Will they raise rates to the point where they cripple economic growth? I don't think so," he said.

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

European Markets

European share markets were higher in morning trading amid progress on Ireland's international bailout. Britain's FTSE 100 rose 0.4%, the DAX in Germany ticked up by 0.4% and France's CAC 40 advanced 0.4%.

Europe at midday, London -0.2%. Paris -0.1%. Frankfurt +0.3%.

Asian Markets

Earlier, Asian markets ended the session mixed. The Shanghai Composite fell 0.2% and the Hang Seng in Hong Kong lost 0.4%, while the Japan's Nikkei gained 0.9%.

Asia: Japan +0.9% to 10115. Hong Kong -0.3% to 23524. China -0.1% to 2884. India +1.9% to 19958.

Futures Trading

As of 6:45 a.m. in New York, the Dow Jones Industrial Average futures rose 14 points to 11193, the S&P 500 futures were up 1 points to 1199.70 and the Nasdaq 100 futures rose 6.75 points to 2140.25.

Futures at 7:00: Dow +0.1%. S&P +0.1%. Nasdaq +0.3%. Crude +0.8% to $82.64. Gold +0.3% to $1356.60.



futures112210



Company News


Dow component Hewlett-Packard (HPQ) is among the companies due to report quarterly results after the market closes.

Analysts expect the computer maker to post fiscal fourth-quarter earnings of $1.27 per share on sales of $32.75 billion, according to Thomson Reuters.

Tyson Foods Inc. (TSN) reported fourth-quarter net income of $208 million, or 57 cents per share, compared to a loss of $457 million, or $1.23 per share a year ago. Adjusted earnings were 64 cents per share. Sales rose to $7.44 billion from $7.24 billion last year. Analysts were expecting a profit of 56 cents per share on sales of $7.71 billion.

Green Mountain Coffee Roasters Inc. (GMCR) announced that it will restate its financial performance for fiscal years 2007 to 2009 and the first three quarters of fiscal 2010 due to errors. The errors were found while the company prepared for its year-end audit and conducted an internal investigation prompted by the Securities and Exchange Commission. The adjustments are expected to lower cumulative net income by 4 cents to 5 cents per share, the company said. In pre-market trading, GMCR shares were last seen up nearly 12%, as investors were expecting the adjustments to be much worse.

Some Interesting News

Ireland officially asks for aid. Ireland became the second eurozone country to ask for aid, and will begin talks with the EU and IMF over an aid package that could come in around €80B ($110B). The U.K. will make a bilateral loan of around £7B, and Sweden may extend a loan as well. Talks will focus on the government’s deficit cutting plans and a restructuring of the country's ailing banking system. Premarket: AIB -2.4%, IRE -20.6%, euro flat against the dollar (7:00 ET).

Genzyme considers alternate deal structuring. Genzyme (GENZ) is considering using a contingent value right, or CVR, deal structure to help break a months-long impasse over Sanofi-Aventis' (SNY) $69/share offer for the biotech company. A CVR structure, in which shareholders would receive an extra benefit if certain future targets are met, is often used when a buyer and seller disagree on a purchase price. In this case, it would largely be tied to the performance of Campath, a drug Genzyme believes will reach $3.5B in sales by 2017 while Sanofi forecasts a more modest $700M in sales. Sanofi has indicated it's open to a CVR, though sources say the main obstacle to a deal remains Sanofi's unwillingness to raise its offer price. Premarket: SNY +1.3% (7:00 ET).

AIG looks to sell rail-car unit. AIG (AIG) has reportedly put its $660M rail-car unit up for sale, though it's unclear how much the insurer is seeking for the business. GATX Corp. (GMT) chief Brian Kenney said his company, which competes with AIG's rail-car unit, was interested in the assets but that GATX and other strategic buyers were being excluded from the auction. AIG had no official comment, and sources said the unit is being pitched to private-equity firms and other potential buyers who don't already have a presence in the rail-car leasing business.

Exxon sells assets to Energy XXI. Energy XXI (EXXI) agreed to buy nine Exxon Mobil (XOM) gas and oil fields in the shallow waters of the Gulf of Mexico for $1.01B. The deal will boost Energy XXI's reserves and production by more than 70%. Exxon confirmed that it's also considering the sale of 100 gas stations in Scotland, but declined to comment on reports that it's considering the sale of $2B of North Sea assets.

U.S. banks face Basel III shortfall. U.S. banks face a capital shortfall of between $100B and $150B once Basel III rules go into effect, according to Barclays Capital, assuming that banks choose to create a one-point cushion above Basel requirements by aiming for a tier one capital ratio of 8%. The BarCap study also suggests that U.S. banks can cut their equity needs by $10B with every $125B reduction in risk-weighted assets, and that the country's top 35 banks will need to come up with another $500B in cash and easy-to-sell assets to meet new Basel liquidity requirements that take effect in 2015.

Currency volatility prompts Nissan output shift. Nissan (NSANY.PK) CEO Carlos Ghosn said his company will shift the balance of its production and support functions towards dollar-linked economies like the U.S. and China to minimize the impact of currency fluctuations. Ghosn said he doesn't intend to close down facilities in Japan, but can't expand there anymore, as there's a 'big imbalance' caused in costs and revenues by producing cars in one currency and selling them in another, given recent exchange rate volatility.

Friday's failures. Bank closures in Florida, Pennsylvania and Wisconsin brought this year's failures to 149 so far, and will cost the FDIC's insurance fund just under $200M.

Conclusion

Stocks held modest gains Friday, ending a volatile week relatively unchanged. Investors were nervous about China's efforts to temper bank lending and a potential bailout for Ireland. But optimism over GM's (GM) initial pubic offering helped limit the downside.

Semiconductor shares rallied on Friday as robust revenue from Marvell Technologies buoyed the sector, but the market ended flat for the week as investors backed away from a strong autumn advance.

The Dow Jones industrial average .DJI added 22.32 points, or 0.20 percent, to 11,203.55. The Standard & Poor's 500 Index .SPX edged up 3.04 points, or 0.25 percent, at 1,199.73. The Nasdaq Composite Index .IXIC put on 3.72 points, or 0.15 percent, to 2,518.12.

Trading could be choppy but light this week, with many market participants taking time off ahead of the Thanksgiving holiday on Thursday -- when all U.S. markets will be closed.

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