Market Outlook
Friday, October 01, 2010

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

  • 8:30… Auto sales

  • 8:30 …Personal Income and Outlays

  • 8:30 …Fed's Dudley: 'Economy in Recovery'

  • 9:55… Reuters/UofM Consumer Sentiment

  • 10:00 …ISM Manufacturing Index

  • 10:00 …Construction Spending

  • 11:30 …Fed's Evans: 'The Future of Monetary Policy'

  • 4:00 PM… Fed's Fisher: 'Globalization, Economic Recovery and Monetary Policy'

Also the following companies are reporting their quarterly earnings:-

  • There are no major earnings reports scheduled for Friday.

friday outlook

Friday sees U.S. stocks headed for a higher start, as investors expressed optimism about the economy with the start of a new month and quarter.

Also, U.S. stock index futures climbed as a pickup in Chinese manufacturing eased concerns about the state of the global economy a day after Wall Street closed its best quarter in a year.

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

Friday is the first trading day in October, and also marks the beginning of the fourth quarter.

U.S. stocks are coming off their best September performance in 71 years. Despite a topsy-turvy month, the Dow and S&P 500 posted their biggest September gains since 1939.

Economic Concerns

Personal Income and Outlays

Traders will be watching for a report on August personal spending and income due out at 8:30 a.m. ET from the Commerce Department. Economists anticipate the report to show consumer spending and income both rose 0.3% in August -- a slower pace for consumer spending, and a faster one for income. In July, income rose 0.2 percent and spending was up 0.4 percent.

ISM Manufacturing Index

The Chinese data comes ahead of a report expected to show U.S. manufacturing resumed its slowing path last month in a further indication of decoupling between emerging and developed economies. The ISM manufacturing index at 10 a.m. (1400 GMT) is expected to show a reading of 54.5 versus 56.3 in August, according to a Reuters poll.

Thomson Reuters/University of Michigan Surveys of Consumers

Friday is another heavy day for economic data. Thomson Reuters/University of Michigan Surveys of Consumers will release final September consumer sentiment index at 9.55 a.m. (1355 GMT). Economists expect a reading of 67.0 compared with 66.6 in the preliminary September report.

Construction Spending

At 10 a.m. (1400 GMT), the Commerce Department also releases August construction spending. Economists in a Reuters survey forecast a fall of 0.4 percent compared with a 1.0 percent drop in July.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA): After soaring 7.7% to its strongest September gains since 1939, the Dow Jones Industrial Average (DJIA) is poised to extend its rally into October and the start of the fourth quarter.

Technically, the Dow closed below 10,800 yesterday, but held firm above support in the 10,750 region. What's more, the blue chip barometer established short-term resistance in the 10,950 region with Thursday's high.

The S&P 500 Index (SPX) held support at the 1,135 level, with resistance holding firm near 1,150.

• The U.S. Dollar Index (DXY) dropped 0.5% to 78.288; the euro rallied 0.7% to $1.3723. The British pound gained 0.7% to $1.5837.

Benchmark crude futures for November delivery gained 61 cents to $80.50 a barrel.

Gold futures for December delivery added $7.10 to $1,316.70 an ounce.

Bonds: The price on the benchmark 10-year bond fell, pushing up the yield up to 2.53% from 2.52% late Thursday.

Equity option activity on the CBOE saw 1,160,710 call contracts traded on Thursday, compared to 638,220 put contracts. The resultant single-session put/call ratio arrived at 0.55, while the 21-day moving average slipped to 0.58.

Overseas Markets

Chinese manufacturing picked up steam in September after a mid-year lull, helping to allay fears of a slowdown in the world's second economy, although other leading Asian economies showed some signs of softer business activity.

In what could be a boon for resource related stocks, the Chinese data bolstered oil and metal prices. Copper rallied to its highest in more than two years, while oil traded at around a seven-month high, moving close to $81 a barrel.

European Concerns

European share markets rallied in morning trading. Britain's FTSE 100 rose 0.9%, France's CAC 40 climbed 0.6% and Germany's DAX was up 0.8%.

In Europe, at midday, London +0.9%. Paris +0.5%. Frankfurt +0.7%.

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

Asian Concerns

Earlier in Asia, markets finished the day mostly higher. The Shanghai Composite soared 1.7%, while Japan's Nikkei rose 0.4%. The Hang Seng in Hong Kong edged lower.

In Asia, Japan +0.4%. Hong Kong -0.1%. China +1.7%. India +1.8%.

Futures Trading

As of 6:40 a.m. in New York, the Dow Jones Industrial Average futures rose 55 points, or 0.52%, to 10779, the S&P 500 index futures rose 6.3 points to 1143.00 and the Nasdaq 100 futures rose 13.75 points to 2009.25.

Futures: S&P +0.26%. 10-yr -0.04%. Euro +0.65% vs. dollar. Crude +1.19% to $80.92. Gold +0.54% to $1316.70.


Company News

Lawson Software Inc (LWSN) – click for further details

Lawson Software (LWSN) reported net income of $9.64 million, or 6 cents per share, as revenue rose 3% to $174.7 million. On a non-GAAP basis, the company said it earned $18 million, or 11 cents per share, on revenue of $176.6 million. Analysts were expecting earnings of 9 cents per share on revenue of $172.2 million.

Hewlett-Packard (HPQ) named Leo Apotheker as its new president and CEO late Thursday. Apotheker previously held top roles at SAP (SAP), including a brief stint as CEO. Shares of HP (HPQ) fell nearly 2% in premarket trading.

BP will use assets in the Gulf of Mexico as collateral for its $20 billion fund for oil spill victims, the company said Friday. BP permanently sealed its Macondo well on Sept. 19, after an oil spill that started there dragged on for more than 5 months. BP (BP) shares rose 1.7% in premarket trading.

Some Interesting News

Hurd successor alarms H-P shareholders. Hewlett-Packard (HPQ) named former SAP (SAP) chief executive Leo Apotheker as president and CEO, succeeding Mark Hurd, and former Oracle (ORCL) president Ray Lane as non-executive chairman. Investors were not impressed with the surprising choice, sending shares down 2% after-hours. "I thought it would be difficult for H-P to hire an outsider and have its stock to go down, but this board seems to have found a way," analyst Brian Marshall said. H-P described Apotheker as a "strategic thinker with a passion for technology... and proven operational discipline," but analysts noted SAP's customer relationships and employee morale suffered badly during his reign.

Sinopec takes $7.1B stake in Repsol's Brazil unit. Repsol (REP) said Friday it will sell 40% of its Brazilian unit to China's Sinopec (SNP) for $7.1B. The joint-venture, valued at $17.8B overall, guarantees Repsol key funding to develop all of its current projects in Brazil, and to continue to explore its vast and coveted offshore stake in the country. The transaction also underscores China's growing presence in the international energy scene; the IEA had previously predicted that China's overseas energy investments in 2010 will broadly outflank the $18.2B spent in 2009. REP +6.5% premarket.

Jobs recovery nowhere to be seen. Despite a notable return to growth in the global economy, the outlook for employment has worsened significantly, the International Labour Organization said in a report Thursday. Assuming current policies persist, a return to pre-crisis levels won't happen until at least 2015, instead of the 2013 it projected last year. ILO warned that, "the coexistence of private-debt-led growth in certain developed countries with export-led growth in large emerging economies has proved to be the Achilles' heel of the world economy," and said any recovery will be fragile as long as the labor market remains weak "and the financial system remains dysfunctional."

Japan PM says huge debtload is unsustainable. Japan's fiscal situation is unsustainable given its huge public debt, and Tokyo remains committed to curb a rise in the yen, PM Naoto Kan said this morning in a speech opening the first parliament session. Kan also hinted at further easing during the BOJ's policy meeting next week, saying the central bank is on board with the government's stance, and would "take further necessary policy actions to end deflation." Earlier today, Japan said core consumer prices fell for the 18th straight month in August.

BP boss predicts return of dividend. BP's (BP) new CEO Robert Dudley said it has set aside ample funds to cover potential lawsuits from the Macondo spill, and that he's confident BP will resume paying its dividend next year. Some experts believe the $32B charge BP took in July to pay for the spill was inadequate, and predict it may have to set aside $60B or more to meet the huge wave of penalties and legal claims expected in coming months. Separately, highlighting the potential difficulty BP could experience in returning to the Gulf of Mexico, it sold yesterday a 20% stake in its deepwater Tubular Bells development to Hess (HES) for $40M.

White House on TARP: We told you so. The financial bailout will cost taxpayers less than $50B, the White House said Thursday, slashing a prior estimate by more than 50% partly due to a new plan to exit its stake in AIG (AIG) at a significant profit. The numbers are likely only to improve as the Treasury unwinds its positions in AIG, GM and Chrysler, spokesman Robert Gibbs said. TARP loses its legal authority to enter new positions on Sunday.

Hertz spurned, Avis set to drive away with Dollar Thrifty. Dollar Thrifty's (DTG) shareholders rejected Hertz's (HTZ) $1.46B takeover bid, likely signaling the end of Hertz's pursuit of the car rental company, and opening the door for a rival bid from Avis (CAR). Hertz said Wednesday it would terminate its offer if shareholders voted against it, the same day that Avis promised DTG a $20M breakup fee if its $1.53B bid doesn't pass regulatory muster - which was the main reason DTG's board supported Hertz's bid over Avis's. Shares of Hertz fell almost 9%.

Sprint loosens its grip on Clearwire. Three Sprint (S) executives were pressured off Clearwire's (CLWR) board Thursday, stoking speculation the move would make Clearwire appear more independent from Sprint - which owns 54% of the company - and open the door for a possible deal with T-Mobile (DTEGY.PK). Clearwire said earlier Thursday it questioned the legality of Sprint's prominence on its board given the companies' "interlocking directorships," which apparently led to the departure, but experts say the legal issue is a smokescreen for Clearwire's aspirations to build its subscriber base and possibly sell the company.

Whirlpool, Panansonic admit big price-fixing conspiracy. Whirlpool (WHR) and Panasonic (PC) will plead guilty to fixing prices on refrigerant compressors and pay $141M in criminal fines; Whirlpool will pay $92M and Panansonic will pay $49M. Prosecutors allege the two companies (and other unnamed co-conspirators) conspired to fix prices, and followed up by exchanging information to monitor and enforce the agreed-upon prices.

Ballmer's bonus shaved on Kin, tablet failures. Microsoft (MSFT) CEO Steve Ballmer lost half of his potential $1.4M bonus this year even as the company notched record sales, due to his weak performance in mobile phones, and not responding fast enough to the iPad (AAPL), according to an SEC filing yesterday. Microsoft's Kin smartphone was dropped less than three months after launch with poor sales. Ballmer said in July tablets running Windows would appear as soon as they are ready; we're still waiting.

Q2 GDP growth muted. Q2 GDP growth was revised to 1.7% in the government's final reading, up from 1.6%. Personal consumption expenditures were revised up to 2.2% from 2% due to stronger-than-expected services consumption; fixed investment dipped to 18.9% from 19.5%; import growth rose to 33.5% from 32.4%; and government spending was revised to 3.9% from 4.3%. Many economists think the economy grew at around the same pace, or slightly worse, during Q3.


Wall Street wrapped up its best quarter in a year on Thursday with the S&P and Nasdaq logging in the biggest monthly gains since April 2009, as data showed the economy in better shape than expected.

Defying September's track record as the worst month for stocks, the S&P 500 was up 8.8 percent. In the third quarter, the index gained 10.7 percent, which was the best in a year.


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