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Market Outlook
Tuesday, October 05, 2010



Tuesday has a couple of important economic reports scheduled. The reports that are available are:-

  • 7:45… ICSC Retail Store Sales

  • 8:55… Redbook Chain Store Sales

  • 9:00… Tsy's Miller: 'The Perspectives on the U.S. Economy, Financial Markets and Debt Management'

  • 10:00… ISM Non-Manufacturing Index

  • 5:00 PM …ABC Consumer Confidence Index



Also the following companies are reporting their quarterly earnings:-

  • Wolverine World Wide Inc. (WWW) and

  • Yum! Brands, Inc. (YUM)


tuesday outlook

Tuesday sees U.S. stocks geared up to build off upward momentum in overseas markets, as global investors welcomed a surprise move by the Bank of Japan to cut its key lending rate and stimulate the Japanese economy.

Also, U.S. stock-index futures signaled opening gains for Wall Street, with key ISM non-manufacturing data on tap and gold pushing higher in the wake of a Bank of Japan policy move.

Futures for the S&P 500 SPc1 are up 0.4 percent, the Dow Jones DJc1 futures are up 0.2 percent and Nasdaq 100 NDc1 futures are up 0.4 percent at 0950 GMT.

Stocks in focus for Tuesday include Yum Brands Inc. (YUM), which will report third-quarter earnings after the market closes.





Economic Concerns

ISM non-manufacturing data for September

First and foremost for the U.S. markets on Tuesday is the ISM non-manufacturing data for September, scheduled for release at 10 a.m. Eastern time. Economists surveyed by MarketWatch are forecasting the index to rise to 52.3 from 51.5 in the prior month.

“After the disappointing ISM number last week, people will watch very carefully what is happening with this index, the main factor to drive the market on the economic front,” said Francois Savary, economist and director of investments at the Reyl Group.

Ben Bernanke – Asset Purchases

The Fed's asset purchases lowered borrowing costs and helped the economy, and more buying could further ease financial conditions, its chairman, Ben Bernanke, said on Monday. The Fed bought $1.7 trillion of mortgage-related and Treasury bonds after cutting benchmark interest rates to near zero to combat the financial crisis and help the economy pull out of a severe recession.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA): Thanks to a late-session buying spree, the Dow Jones Industrial Average (DJIA) rebounded from a triple-digit loss to close down 78 points. The blue-chip barometer also maintained key support at the 10,750 level.

Look for the Dow to hold support at the 10,750 level, while resistance remains at 10,900.

The S&P 500 Index (SPX) should find a floor at 1,135, while 1,150 remains a potentially significant roadblock.

Gold futures: Gold hit a record high above $1,323 an ounce.

Gold futures for December delivery rose $9.90 to $1,326.70 an ounce.

• The U.S. Dollar Index: The dollar index hit an 8-1/2-month low against a currency basket on Tuesday as demand for the euro put the U.S. unit under broad selling pressure.

The dollar index (DXY) dropped 0.5% to 78.086.

Benchmark crude futures: Oil prices rose, building on a week of gains after Japan lowered interest rates, raising expectations of further boosts for other major economies.

The price of crude oil for November delivery rose 56 cents to $82.03 per barrel.

Bonds: Prices for U.S. Treasurys rose, pushing the yield on the 10-year note down to 2.46% from 2.48% late Friday.

Equity option activity on the CBOE saw 979,163 call contracts traded on Monday, compared to 599,286 put contracts. The resultant single-session put/call ratio arrived at 0.61, while the 21-day moving average held at 0.59.

Overseas Markets

The Bank of Japan on Tuesday pledged to pump more funds into the struggling economy and keep interest rates close to zero, surprising markets and stealing a march on the U.S. Federal Reserve in providing a fresh dose of economic stimulus. The Nikkei jumped 1.5 percent while the yen retreated.

The bank said it would purchase ¥5 trillion (about $60 billion) of government bonds and other assets to boost the pace of the country's recovery.

While the Bank of Japan also downgraded its economic forecast, investors welcomed the bank's easing of monetary policy as a hopeful sign for the world's third largest economy.

Australia's central bank left interest rates steady for a fifth month on Tuesday, confounding expectations for a hike, though it did says higher rates would likely be needed in time to contain inflation.

• Moody's said on Tuesday it may cut Ireland's credit rating again, pointing to the huge bill for cleaning up its banks announced last week, a weak economic recovery and rising borrowing costs.

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

European share markets rose in morning trading. The CAC 40 in France climbed 0.7%, Britain's FTSE 100 rose 0.3% and Germany's DAX inched up 0.1%.

European investors welcomed better-than-expected data on the euro-zone services sector but gains were limited by fears about Ireland's debt crisis. Moody's said Tuesday that it was considering a possible downgrade for the country.

In Europe at midday, London +0.1%. Paris +0.6%. Frankfurt -0.1%.

Asian Concerns

Earlier Asian markets: Japan's Nikkei rallied 1.5% after the Bank of Japan's decision, but the Hang Seng in Hong Kong ended the session down 0.4%.

In Asia, Japan +1.5% to 9519. Hong Kong +0.1% to 22639. China +1.7% to 2656. India -0.3% to 20408.

Futures Trading

As of 6:40 a.m. in New York, the Dow Jones Industrial Average futures rose 25 points, or 0.23%, to 10732, the S&P 500 futures gained 3 points to 1137.80 and the Nasdaq 100 futures were up 7 points to 1984.00.

Futures: Dow +0.1%. S&P +0.2%. Nasdaq +0.3%. Crude +0.7% to $82.01. Gold +0.8% to $1327.20.



futures100510



Company News

Wolverine World Wide Inc. (WWW)

Wolverine World Wide Inc. (WWW) reported that third-quarter net income rose 27% to $34.1 million, or 70 cents per share. Analysts were looking for earnings of 67 cents per share. For the year, WWW now expects to earn $2.04 to $2.08 per share, compared to Wall Street's expectations for a full-year profit of $2.07 per share.

Mosaic Co (MOS)

Mosaic Co (MOS.N) said on Monday quarterly profit nearly tripled as demand for its fertilisers surged, although results missed expectations and the company's shares fell.

Chevron Corp (CVX) plans to resume quarterly buybacks of up to $1 billion of its own stock after a nearly two-year halt as the second-largest U.S. oil company grows more confident about its finances.

Some Interesting News

Televisa takes minority stake in Univision. Mexico's Grupo Televisa (TV) will pay $1.2B to help recapitalize rival U.S. broadcaster Univision, and the two firms will extend their programming agreement to 2020 from 2017, with a possible extension to 2025. Under the terms of the deal, Televisa will pay $130M for a 5% stake in privately-held Univision, and the rest of the $1.2B will be convertible debt equivalent to 30% of Univision shares. Televisa will also have the option to acquire another 5% of the company after three years. The deal will help Televisa expand the reach of its programming in the U.S.

Amex fights DoJ while rivals settle. The Justice Department filed suit against Visa (V), MasterCard (MA) and American Express (AXP), accusing them of violating antitrust laws. Visa and MasterCard agreed to settle, and will let merchants offer discounts to consumers who use cheaper kinds of credit or debit cards. Amex, which could potentially take a profit hit from the lawsuit, has "no intention" of settling and will fight the charges. At yesterday's close, V -0.1%, MA -1%, AXP -6.5%.

Bernanke backs more asset purchases. Speaking to college students yesterday, Bernanke said additional asset purchases by the Fed could help the economy and called the Fed's $1.7T purchase of Treasurys and mortgage-backed bonds an "effective program." His comments are the latest indication that the Fed is likely to move ahead with more asset purchases, perhaps as soon as next month, if the economic outlook remains weak. Separately, Janet Yellen and Sarah Bloom Raskin were sworn in yesterday by the Federal Reserve Board in Washington, and both are likely to be Bernanke allies on more asset purchases or quantitative easing.

Surprise rate cut from BOJ. The Bank of Japan surprised markets this morning, cutting its overnight call rate target to a range of 0-0.1% from 0.1%. Labeling its move "comprehensive monetary easing," BOJ pledged to keep its benchmark interest rate at “virtually zero” until deflation has ended, and will set up a ¥5T ($60B) fund to buy government bonds and other assets. The Nikkei closed +1.5%, and the yen fell as much as 1% against the dollar following the announcement, though the dollar's weakening has since erased those losses.

Aussies hold rate steady. In another rate surprise, the Reserve Bank of Australia kept its key cash rate steady at 4.5% this morning. Analysts had widely expected a 25 bps increase following warnings from policymakers that a rate hike was necessary to head off inflationary pressures. The Aussie dollar is -0.8% vs. the U.S. dollar (7:00 ET).

Minor boost for BHP's Potash bid. Saskatchewan's advisers urged the Canadian province not to oppose BHP Billiton's (BHP) attempted takeover of Potash (POT), adding that a possible Chinese bid could hurt their budget even more. The report said that if BHP's bid is successful, it could cost the province C$2B ($1.96B) over ten years in lower royalty payments. However, China's preference to keep potash prices low could make any Chinese-led rival bid much more dangerous, as "a producer that is unhinged from market discipline could potentially wreak havoc on Saskatchewan's finances." Potash is based in Saskatchewan, and the province will play a key role in helping the Canadian government decide whether to approve the BHP bid.

Obama's comments signal possible tax reform. Obama signaled he's open to lowering the U.S. corporate tax rate from its current 35% level, saying a reduction would help ensure that companies operating overseas "can operate effectively and aren’t put at a competitive disadvantage." Though he stressed that any solution would have to be "revenue neutral," his comments add to speculation that the White House could seek broad-based tax code reform as soon as next year.

Brookfield Properties, Brookfield Homes create new firm. Brookfield Properties (BPO) is combining the North American residential unit of Brookfield Office Properties with Brookfield Homes (BHS) to form a new company called Brookfield Residential Properties Inc. Brookfield Residential will hold $2.5B in assets and have an equity value of $1B, and will apply to trade on the New York and Toronto stock exchanges.

FCC wants more info from Comcast, NBC Universal. The FCC sent letters to Comcast (CMCSA) and NBC Universal (GE) yesterday, requesting more information about their proposed tie-up. Among other items, the FCC wants details on Comcast's and NBC's distribution agreements and on Comcast's decisions on which programming to carry.

Global pact needed on currencies. The world's leading countries need to agree on a new currency pact to help rebalance the global economy, according to the Institute of International Finance, which represents more than 420 of the world’s leading banks and finance houses. Failure to do so could lead to increased protectionism, as countries engage in "currency wars" and act unilaterally to keep their currencies artificially low.

German bank sues Goldman over CDO loss. Germany's Landesbank Baden-Wuerttemberg filed suit against Goldman Sachs (GS) over a $37M loss incurred on a collateralized debt obligation composed mostly of subprime and "midprime" mortgages. The complaint said that Goldman, which was the placement agent for the CDO, represented the investment as "safe, secure, and nearly risk free" at the same time that Goldman execs were privately calling it "game over" for subprime lenders and were reducing their mortgage exposure.

SocGen's Kerviel sentenced to jail. Jerome Kerviel, the former Societe Generale trader whose rogue trading caused the bank a €4.9B ($6.7B) loss, has been given a five-year jail sentence (with two years suspended) after being found guilty of breach of trust. The court also ordered Kerviel to pay €4.9B in damages. Kerviel is expected to appeal.

Conclusion

U.S. stocks fell in light trading on Monday as investors took profits on recent gains, using middling economic data and worries about euro zone debt as a catalyst for shedding long positions.

Stocks lost ground as downgrades hit several sectors, raising jitters about earnings season, which Alcoa Inc. (AA) is due to kick off later this week.

The Dow Jones industrial average .DJI fell 78.41 points, or 0.7 percent, at 10,751.27. The Standard & Poor's 500 Index .SPX lost 9.21 points, or 0.8 percent, at 1,137.03. The Nasdaq Composite Index .IXIC dropped 26.23 points, or 1.1 percent, at 2,344.52.

Friday’s non-farm payroll data remain the main event for the week, Francois Savary, economist and director of investments at the Reyl Group said. “The influence of that number and the certainty concerning that number will be key from the point that people will be able to reassess prospects of rapid or not rapid quantitative easing and the Federal Reserve,” he said.

He said the market remains range-bound and the S&P 500 could go to 1,120, with much depending on Friday’s data. But until earnings season gets into full steam, macroeconomic issues will continue to be key, said Savary.

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