Market Outlook
Monday, October 4, 2010

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

  • 10:00… Factory Orders

  • 10:00… Pending Home Sales

  • 7:30 PM… Bernanke: 'Fiscal Sustainability and Fiscal Rules'

Also the following company is reporting its quarterly earnings:-

  • The Mosaic Company (MOS)

monday outlook

Monday sees the U.S. stocks set to fall at the market's open, as investors brace for reports expected to show slowing in both the manufacturing sector and the housing market.

Also, stock futures headed lower going into Monday's session as weakness in European markets translated into modest selling this side of the Atlantic.

Switzerland plans to tighten banking rules weighed on regional markets ahead of a new round of U.S. data.

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

Stocks started October on a positive note, although Friday's advance was mild, and with economic uncertainty hanging over investors -- Wall Street is likely in for a rough month – or if history repeats itself, maybe not!

Economic Concerns

Factory Orders in August

A report from the Commerce Department is expected to show a 0.4% dip in factory orders in August, following a 0.1% increase in July, heightening fears that growth in U.S. manufacturing is slowing down.

Pending Home Sales Index

Also due after the bell, the National Association of Realtors releases its pending home sales index. The report is expected to show a mere 1% uptick in pending home sales in August, down from the 5.2% increase the month before.

Both reports could add to concerns that the U.S. economy is stalling, instead of recovering.

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): Despite logging a stellar September and third-quarter, the Dow ended both with a whimper last week. Look for the DJIA to remain between support at the 10,750 level and resistance near 10,900.

The S&P 500 Index (SPX), sidles between the 1,135 and 1,150 levels.

The U.S. Dollar Index: A rising U.S. dollar is also applying pressure to crude prices, as the U.S. Dollar Index is up 0.40% at 78.41, as investors search for safe havens.

Benchmark crude futures for November delivery fell 66 cents to $80.92 per barrel.

Gold futures for December delivery fell $2.60 to $1,315.20 an ounce.

Bonds: Prices for U.S. Treasurys rose, pushing the yield on the 10-year note down to 2.47% from 2.51% late Friday.

Equity option activity on the CBOE saw 1,052,033 call contracts traded on Friday, compared to 604,616 put contracts. The resultant single-session put/call ratio arrived at 0.57, while the 21-day moving average rebounded to 0.59.

Overseas Markets

European markets were weighed down by modest losses in both the auto and financial sectors overnight. Shares of banks like Banco Santander (STD) and Societe Generale (SCGLY) were both down 1% while the European auto makers lost between 1% and 2% in late-afternoon trading.

The losses in Europe were more than enough to offset the news that Sanofi-Aventis (SNY) was going to proceed with a hostile $18.5 billion bid for pharmaceutical company Genzyme (GENZ).

Switzerland will seek rules to require global banks UBS AG (UBS)(UBSN.VX)and Credit Suisse (CS)(CSGN.VX) to hold more top-quality capital. The potential regulations, stricter than international standards, could crimp the banks' competitiveness in investment banking.

U.S.-listed shares of Credit Suisse were off 0.3 percent to $43.13 in premarket trading, while UBS was unchanged at $17.13. The FTSEurofirst 300 .FTEU3 index of top shares was down 0.4 percent.

Concerns about Europe's banking system have been a headwind for U.S. stocks in recent months, even as some improving domestic data eased concerns over a possible double-dip recession.

European Concerns

European share markets declined in morning trading. The CAC 40 in France and Germany's DAX each were down about 1% in the early going. Britain's FTSE 100 dipped 0.5%.

Europe at midday, London -0.4%. Paris -1.1%. Frankfurt -1.0%.

In currencies: After taking a beating all last week, the U.S. dollar was up sharply against the major currencies, with the dollar up against the euro by 0.8% and the yen by 0.7%.

Asian Concerns

Earlier, Asian markets: the Shanghai Composite rallied 1.7% and the Hang Seng gained nearly 1.2%. Japan's Nikkei finished the session down 0.3%.

In Asia, Japan -0.3% to 9381. Hong Kong +1.2% to 22619. China +1.7% to 2656. India +0.1% to 20476.

Futures Trading

As of 6:35 a.m. in New York, the Dow Jones Industrial Average futures lost 47 points, or 0.44%, to 10721, the S&P 500 futures fell 5.3 points to 1137.00 and the Nasdaq 100 futures fell 10.25 points, to 1984.25.

Futures: Dow -0.3%. S&P -0.4%. Nasdaq -0.3%. Crude -0.7% to $80.99. Gold -0.1% to $1316.90.


Company News

Dow component Microsoft Corp (MSFT) fell 2 percent to $23.90 in premarket trading after Goldman Sachs downgraded the stock to "neutral," in part citing competition from tablet computers.

Continental Airlines, a unit of United Continental Holdings Inc. (UAL), said that total September traffic rose 3.1%, to more than 7.16 billion revenue passenger miles, from a year ago. Total September capacity rose 1.4%, to 8.64 billion available seat miles, from a year ago. Load factor, or the percentage of available seats filled with passengers, in September rose 1.4 points, to 82.9% from last year. Continental's mainline unit revenue jumped by an estimated range of 21% to 22%.

Chesapeake Energy Corp. (CHK) sold five years of natural gas production from its Barnett Shale fields in Texas to affiliates of Barclays Bank plc (BCS) for $1.15 billion. The deal includes 390 billion cubic feet of proved reserves and 270 million cubic feet per day of net production in 2011.

Some Interesting News

Sanofi goes hostile on Genzyme. Sanofi-Aventis (SNY) has launched an $18.5B hostile takeover offer for Genzyme (GENZ) after Genzyme's continued refusal to accept a $69/share offer or negotiate with Sanofi. Sanofi's tender offer to acquire outstanding Genzyme shares for $69 each will expire on Dec. 10; Sanofi CEO Chris Viehbacher said he saw "no particular reason to bid more" and expects the offer to be successful. If it is, this will be the biggest hostile takeover deal in the drug industry since 2004. Premarket: GENZ -0.6% (7:00 ET).

Much tougher capital requirements for UBS, Credit Suisse. A Swiss government-appointed panel announced today that UBS (UBS) and Credit Suisse (CS) will need to hold nearly twice the capital required under Basel III rules. The banks will eventually need total capital equal to at least 19% of their assets, weighted according to risk, while Basel III requires just 10.5%. The lenders will also need to hold at least 10% of the capital in common equity by 2019, as compared to the 7% required under the Basel rules. Both banks said they expect to meet the new "Swiss finish" rules without selling additional shares. Shares are up slightly premarket, as the new requirements are less strict than some had feared: CS +0.1%, UBS +0.1% (7:00 ET).

AIA lowers valuation, gets Kuwaiti investment. AIG (AIG) has lowered its valuation for the Hong Kong IPO of its AIA unit in order to secure a $1B commitment from the Kuwait Investment Authority. AIG had originally hoped to sell shares of AIA at a level that would value the company at $35B-37B, but the Kuwaiti sovereign wealth fund would only agree to invest in the IPO if AIA was valued at $30B-32B. A valuation of $32B would come as a disappointment to the Treasury, and is markedly lower than the $35.5B Prudential (PUK) was willing to pay for the unit. AIA shares are set to start trading on Oct. 29.

Microsemi buys Actel. Microsemi (MSCC), a maker of power management semiconductors, said it will buy integrated circuit manufacturer Actel (ACTL) for around $430M, to expand in the defense and aerospace market. Microsemi will pay $20.88/share in cash, a 30% premium to Actel's Friday close. The deal is expected to add $0.22-0.28 per share to Microsemi's 2011 earnings. Premarket: ACTL +28% to $20.50 (7:00 ET).

Visa, MasterCard near antitrust settlement. Visa (V) and MasterCard (MA) are said to be close to settling a Justice Department antitrust probe over credit-card acceptance rules. A settlement, which could be announced this week, probably won't result in a major financial hit to either of the two firms, but could potentially give merchants more flexibility to steer customers to cheaper forms of plastic. American Express (AXP) is also under investigation by the Justice Department, but isn't expected to join in the settlement.

Verizon to issue millions in refunds. Verizon (VZ) announced late yesterday that it will issue a refund to around 15M customers, in the amount of around $2-6 each, for incorrectly billing them for data services they didn't use. Sources said the refunds will cost the company around $50M, though Verizon declined to comment on whether it could narrow the potential payout range of $30M-90M. The decision comes after the FCC began looking into the issue 10 months ago, and the FCC confirmed this morning it will continue to press Verizon on the issue and may seek additional penalties over the unauthorized charges. Premarket: VZ -0.4% (7:00 ET).

VimpelCom nears merger deal. VimpelCom (VIP), Russia’s second-largest mobile-phone operator, and Egyptian billionaire Naguib Sawiris are said to be very close to a $7B deal to merge their phone assets. A merger would include Sawiris' 51% stake in Egypt’s Orascom Telecom Holding (ORSDF.PK) and Italian mobile operator Wind Telecomunicazioni, and would create a company with more than 200M mobile subscribers and a valuation of more than $25B. A deal announcement could come as soon as today.

Isilon may sell itself. Isilon (ISLN) is reportedly seeking bidders for a sale of the company. The move is not totally unexpected, as analysts have suggested the data storage firm might be a good target for Dell (DELL), which lost data storage company 3Par (PAR) to H-P (HPQ). Isilon has a market cap of $1.5B, and its stock has more than tripled this year on speculation it may become a takeover target.

Bidders line up for RBS' property loans. At least three potential bidders, including Goldman Sachs (GS) and Blackstone (BX), are said to be interested in a £3B ($4.8B) property loan portfolio that might be sold by RBS (RBS). Sources expect first round bids to be submitted in the next two weeks. RBS declined to comment about whether the portfolio is up for sale.

GE said to be Wellstream bidder. General Electric (GE) is said to be the mystery suitor behind a £800M-plus ($1.3B) bid for British oilfield services firm Wellstream. Wellstream said on Sept. 21 that it had received several bid approaches, but declined to name the bidders. Sources said GE was the initial bidder that put Wellstream in play, and is still the lead contender.


While no S&P 500 companies were on tap to report results on Monday, this week will mark the unofficial start of the third-quarter reporting season, with Alcoa Inc (AA) due on Thursday. Micron Technology Inc (MU), PepsiCo Inc (PEP) and Monsanto Co (MON) are all set to report this week.

Wall Street extended a rally on Friday, led by gains in natural resource stocks after data in China showed a pickup in manufacturing activity.


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