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Market Outlook
Wednesday, November 24, 2010



Wednesday has quite a few economic reports scheduled. They are:-

  • 7:00 …MBA Mortgage Applications

  • 8:30 …Durable Goods

  • 8:30… Personal Income and Outlays

  • 8:30… Initial Jobless Claims

  • 9:55… Reuters/UofM Consumer Sentiment

  • 10:00… New Home Sales

  • 10:00 …FHFA Housing Price Index

  • 10:30… EIA Petroleum Inventories

  • 10:30… ECRI Leading Index

  • 11:00… KC Fed Manufacturing

  • 12:00 PM… EIA Natural Gas Inventory

  • 1:00 PM …Results of $29B, 7-Year Note



Also the following companies are reporting their quarterly earnings:-

  • Deere & Co. (DE) and

  • Tiffany & Co. (TIF).


wednesday outlook

Wednesday sees U.S stocks poised for a higher open as investors face a full slate of economic data, and overseas tensions in Korea and the eurozone fiscal crisis lessen.

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

Economic Concerns

The holiday-shortened week has packed Wednesday's session with a full docket of economic reports: personal income, durable goods, weekly jobless claims and new home sales.

Personal Income And Spending

Before the start of trade, the Commerce Department will release the latest data on personal income and spending. Last month's report showed an unexpected dip in consumer income in September, but economists polled by Briefing.com are expecting an increase of 0.4% in October.

Personal spending is also expected to have risen 0.6% during the month, up from a 0.2% increase the month before.

Durable Goods Orders

The Commerce Department will also release its report on orders for durable goods before the bell, which are items meant to last three years or more. Economists polled by Briefing.com predict orders increased by 0.4% in October, after a 3.5% gain the previous month.

Initial Jobless Claims

The Department of Labor will release weekly new jobless claims before the start of trade. The number of Americans filing for unemployment benefits is expected to have risen to 442,000, from 439,000 the previous week.

New Home Sales

Later on Wednesday, the Commerce Department will report data for new home sales in October. Analysts expect they rose to an annual rate of 314,000 last month, from 307,000 in September.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) plunged 142 points on Tuesday, but the battered and bruised blue chip barometer weathered the Korean conflict and Irish debt woes by closing above psychological support at the 11,000 level. While neither of those fears have been completely alleviated, the Dow appears poised to head higher today, though volume will be light ahead of tomorrow's Thanksgiving holiday.

• The U.S. Dollar Index: Global uncertainty and light volume ahead of the Thanksgiving holiday is fueling gains for the U.S. dollar this morning. Extending yesterday's safe-haven rally, the U.S. Dollar Index has added 0.17% to trade at 79.82 in premarket activity.

Gold futures for December delivery fell $1.40 to $1,376.20 an ounce.

Oil futures for January delivery gained 26 cents, rising to $81.51 a barrel.

Bonds: The price on the benchmark 10-year U.S. Treasury dropped, pushing the yield up to 2.78% from 2.76% late Tuesday.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,114,862 call contracts traded on Tuesday, compared to 809,079 put contracts. The resultant single-session put/call ratio arrived at 0.73, while the 21-day moving average rose to 0.58.

Overseas Concerns

• Ireland's teetering government will announce plans on Wednesday to cut welfare spending sharply and raise taxes to help pay for the country's catastrophic banking crisis and meet the terms of an international bailout.

• Portugal's biggest unions went on their first joint general strike since 1988 on Wednesday, hoping to weaken the Socialist government's resolve on implementing austerity measures meant to tackle a debt crisis.

• Investors' focus was also on the Korean peninsula. South Korea warned North Korea of "enormous retaliation" if it took more aggressive steps after Pyongyang fired scores of artillery shells at a South Korean island in one of the heaviest attacks on its neighbour since the Korean War ended in 1953.

• A U.S. aircraft carrier group set off for Korean waters on Wednesday in a move likely to enrage Pyongyang and unsettle its ally, China.

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

European Markets

European share markets were higher in morning trading. Britain's FTSE 100 gained 0.6%, the DAX in Germany rose 0.6% and France's CAC 40 ticked up 0.3%.

In Europe at midday, London +0.6%. Paris +0.2%. Frankfurt +1.1%.

Asian Markets

Earlier in Asia, markets ended their session mixed. The Shanghai Composite gained 1.1% and the Hang Seng in Hong Kong rose 0.6%, while Japan's Nikkei dropped 0.8%.

In Asia, Japan -0.8% to 10030. Hong Kong +0.6% to 23024. China +1.1% to 2859.94. India -1.2% to 19460.

Futures Trading

As of 6:55 a.m. in New York, the Dow Jones Industrial Average futures were up 32 points to 11046.00, the S&P 500 futures gained 4.2 points to 1182.50 and the Nasdaq 100 futures were up 4.75 points to 2123.75.

Futures at 7:00am: Dow +0.3%. S&P +0.3%. Nasdaq +0.2%. Crude +0.5% to $81.69. Gold -0.2% to $1375.40.



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Company News

Deere & Company (DE) reported a fourth-quarter profit of $457 million, or $1.07 per share, as sales jumped 35% to $7.2 billion. Analysts were expecting a profit of 95 cents and sales of $6.3 billion.

Tiffany & Co. (TIF) reported adjusted third-quarter earnings of 46 cents per share, as revenue rose to $681.7 million. Wall Street was looking for earnings of 37 cents per share and revenue of $650.3 million. Looking ahead, Tiffany said that it now expected to earn an adjusted $2.72 to $2.77 per share for fiscal 2011, up from its previous estimate of $2.60 to $2.65 per share. The consensus estimate for 2011 was set at $2.63 per share.

TiVo Inc. (TIVO)announced that its third-quarter loss widened to $20.6 million, or 18 cents per share, from a loss of $6.48 million, or 6 cents per share, in the year-ago period, as operating expenses increased. Service and technology revenue declined to $41.3 million from $42.1 million. Analysts were expecting a loss of 17 cents per share on service and technology revenue of $41.4 million.

Some Interesting News

• SAP to pay Oracle $1.3B in damages. A federal jury ruled SAP (SAP) must pay Oracle (ORCL) $1.3B in damages for copyright infringement. SAP had admitted liability by its TomorrowNow unit, which it closed in 2008, but its lawyers told the jury at trial that it should owe only $40M in damages. Oracle said the verdict is "the largest amount ever awarded for software piracy," while a disappointed SAP promised to "pursue all available options, including post-trial motions and appeal if necessary." Premarket: ORCL +2.1%, SAP -2.2% (7:00 ET).

Ireland discusses bailout size, set to take majority bank stake. The EU and IMF haven't yet determined the exact size of Ireland's aid package, but PM Brian Cowen said a figure of around €85B ($113B) had been discussed, which could be used to recapitalize the banks and fund the public finances. As part of the deal, the government is poised to take a majority stake in the Bank of Ireland (IRE) in a move that would leave the country without a significant lender independent of state control. The terms of the bailout may also include a new bank levy, creating a way for Ireland to increase its 'tax yield' from the corporate sector without raising the 12.5% corporate tax rate that Irish officials are fighting so hard to maintain. S&P lowered Ireland's debt rating two notches to A, with a negative outlook. Premarket: IRE -25.3%, AIB -9.1%, euro -0.1% vs. the dollar (7:00 ET).

• FDA approval boosts Lilly, Acrux. The FDA approved Axiron, Eli Lilly's (LLY) topical solution for testosterone replacement therapy in men. The U.S. testosterone market is estimated at $1B and is expected to grow 20% annually. Acrux (ARUXF.PK), Lilly's Australian partner on the drug, rose 9.1% in Aussie trading.

Insider trading probe picks up steam. Federal officials appear to be rapidly expanding the scope of their insider trading probe: hedge fund Citadel Investment Group reportedly received a wide-ranging subpoena from the Justice Department; mutual fund Wellington Management is said to have received a document request from the FBI; and, mutual fund provider Janus Capital (JNS) said it received an inquiry for general information and plans to cooperate fully. Other subpoena recipients reportedly include hedge funds Millennium Capital Management and Maverick Capital Management, while SAC Capital Advisors sent investors a letter yesterday confirming it had received several 'extraordinarily broad' subpoenas which don't "shed much light on whom or what the government may be investigating."

FOMC struggles with dual mandate. Minutes released yesterday from the FOMC's Nov. 2-3 meeting show officials were at odds over the wisdom of their new bond-buying program, particularly its effects on the dollar, though there was still general support for QE2. FOMC members turned more negative on the outlook for growth and employment, with some members saying it could take more than six years for the jobless rate to return to normal. Fed officials see growth of 3% to 3.6% next year, down from an earlier prediction of 3.5% to 4.2% growth, while the new forecast for 2010 growth is 2.5%, down from a prior forecast of 3% to 3.5%. "The FOMC thinks that it will be failing on both sides of its dual mandate three years from now," said economist Stephen Stanley in response to the minutes, so "it is easy to understand their dovishness given that outlook... odds of the FOMC cutting QE2 short prior to the June endpoint are pretty close to zero."

More problem banks, uneven sector recovery. Commercial banks earned $14.5B in Q3, the FDIC said in its latest Quarterly Banking Profile, an increase of $12.5B from the year-earlier period and the fifth consecutive quarter of year-over-year increase. The results are below Q2's $21.4B profit; the FDIC largely attributes the decline to $10.4B in writedowns by Bank of America (BAC). Bank debt holdings declined just $6.8B, suggesting a two-year contraction in loan portfolios "may have run its course." Loan-loss reserves shrunk for the first time since Q4 2006, due almost entirely to big banks reducing provisions, even as smaller banks continued to build them. The number of banks at risk of failure climbed to 860 as of Q3 but the FDIC said the industry's health continues to improve overall, though many point out the recovery of larger financial firms is not being shared equally by many smaller banks.

Treasury's GM proceeds boosts TARP recovery. The Treasury announced yesterday the delivery of $11.7B in proceeds from GM's (GM) initial public offering, bringing the total of TARP funds returned to taxpayers to $252B so far. The Treasury could receive another $1.8B from the IPO if an overallotment option is fully exercised, and said it will receive another $2.1B in December when GM repurchases preferred stock.

Court ruling hurts Air Products' pursuit of Airgas. The Delaware Supreme Court reversed a ruling that would have allowed Airgas (ARG) shareholders to move up the next annual meeting to January 15. The ruling is a setback for suitor Air Products and Chemicals (APD), which needs the meeting to replace ARG's directors. Air Products' attempts to win Airgas shareholder support will now have to wait until at least next fall. Air Products, which has said in the past it doesn't want the process to drag out indefinitely, may either raise its bid to persuade Airgas' board or drop the bid altogether. In yesterday's trading, ARG -5.9%, APD -1.1%.

Sojitz, Lynas form rare-earth deal. Japanese trading house Sojitz reached a deal with Australian mining company Lynas (LYSCF.PK) on the supply of rare earth metals, and plan to announce details of the agreement later today. The announcement comes one day after Australia vowed to become a future long-term supplier of rare earths to Japan following China's increasingly tight export quotas of the crucial metals. Media reports said Sojitz would pay around $300M for the rights to buy 8,500 tons of rare earth metals annually, representing around 30% of annual demand in Japan; a Sojitz spokesman declined to comment on the figures. In Aussie trading, Lynas rose 10.5%.

Cerberus looks to sell Chrysler Financial. Cerberus Capital Management is reportedly shopping auto lender Chrysler Financial, which the P-E firm acquired in 2007. The unit has a book value of $6B-7B, and Cerberus has been soliciting interest from large banks.

Conclusion

Stocks suffered on Tuesday -- with all three major indexes losing about 1.4% -- as violence erupted on the Korean peninsula, concerns about Europe's debt crisis expanded and the Federal Reserve issued a dour outlook. The central bank slashed its forecast for the U.S. economy for this year and 2011, projecting the economy could take several years to return to health.

The Dow Jones industrial average .DJI lost 142.21 points, or 1.27 percent, to 11,036.37. The Standard & Poor's 500 .SPX fell 17.11 points, or 1.43 percent, to 1,180.73. The Nasdaq Composite .IXIC dropped 37.07 points, or 1.46 percent, to 2,494.95.

Financial markets will be closed Thursday and open for a half day on Friday. Trading is expected to be light with many on Wall Street taking a four-day weekend, however, light volume tends to bring volatility.

After the holiday, investors will be focused on retailers to see how sales fare on Black Friday. It's considered the first shopping day of the critical holiday retail period, and a key barometer of how the next six weeks will pan out.

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