Market Outlook
Friday, October 08, 2010

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

  • 8:30 … Nonfarm payrolls

  • 9:40… ERCI Future Inflation Gauge

  • 10:00 … Wholesale Trade

  • 10:30 … ERCI Leading Index

  • 2:25 PM… Fed's Tarullo: International Financial Regulation

Also the following companies are reporting their quarterly earnings:-

  • There are no major earnings reports scheduled for Friday.

friday outlook

Friday sees U.S. Stock futures slump, as investors turn their attention to a government jobs report due before the bell.

Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were down three hours ahead of the jobs report.

Stocks surged earlier this week, sending all three major gauges to 5-month highs. But investors pulled back slightly after other reports showed weakness in the labor sector.

The early pessimism comes after Wall Street closed in a stalemate on Thursday as a stronger U.S. dollar overshadowed a decent report on weekly jobless claims and stronger-than-expected sales reports from a slew of retailers.

Unemployment figures remain one of the defining measures of the recovery. All week, Wall Street has been gearing up for the Labor Department's monthly jobs report due at 8:30 a.m. ET today.

Economic Concerns

Non-farm Payrolls

Economists are expecting the government to say the economy added no jobs in September, and that the unemployment rate ticked up to 9.7% from 9.6% in August.

All eyes will be on the jobs picture at 8:30 a.m. ET as the Labor Department is scheduled to release its monthly jobs report. Wall Street is bracing for the new report, which economists believe will show non-farm payrolls held steady in September, while the unemployment rate inched up from 9.6% to 9.7%. The markets will be keying in to see how many private-sector jobs were credited, with economists calling for an increase of 74,000 jobs.

Wall Street has received mixed signals this week on the jobs picture, with one group saying the U.S. unexpectedly lost private-sector jobs in September and the Labor Department saying initial jobless claims posted a surprise slide last week.

Wholesale Inventories

Investors will also watch for a report on wholesale inventories, due from the Commerce Department at 10 a.m. ET.

Economists expect the government will say wholesale inventories rose by 0.4% in August after having jumped 1.3% the previous month.

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) technical outlook remains the same, with support at 10,900, and 10,750, while resistance remains firm at 11,000.

The S&P 500 Index (SPX) to be bound by the 1,150 and 1,165 levels, with key support at the 1,135 level should today's data spark a selloff.

• The U.S. Dollar Index : The dollar is strengthening against its major foreign counterparts, and commodities are headed lower ahead of this morning's jobs data. At last check, the U.S. Dollar Index was up 0.3% at 77.62, with the greenback gaining ground against the yen, but holding steady against the euro.

Benchmark crude futures for November delivery fell $1.04 to $80.63 per barrel.

Gold futures for December delivery fell back slightly from their record run. Prices slumped $4.80 to $1,330.20 an ounce.

Bond: The yield for the benchmark 10-year U.S. Treasury was nearly unchanged at 2.38%.

Equity option activity on the CBOE saw 1,155,306 call contracts traded on Thursday, compared to 793,908 put contracts. The resultant single-session put/call ratio arrived at 0.69, while the 21-day moving average held at 0.59.

Overseas Markets

European Concerns

European share markets fell in morning trading. Britain's FTSE 100 and France's CAC 40 both trimmed off about 0.5%, and the DAX in Germany fell 0.3%.

In Europe, at midday, London -0.8%. Paris -0.7%. Frankfurt -0.4%.

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

Asian Concerns

Earlier in Asia, markets finished the session mixed. Japan's Nikkei index fell nearly 1% and the Hang Seng in Hong Kong rose 0.3%. Coming back from a week-long holiday, China's Shanghai Composite soared 3.1% after Moody's said it may raise the nation's debt rating.

In Asia, Japan -1.0% to 9589. Hong Kong +0.3% to 22944. China +3.1% to 2739. India -0.3% to 20250.

Futures Trading

As of 6:26 a.m. ET, the Dow Jones Industrial Average futures slid 44 points to 10868, the S&P 500 futures declined 5.20 points to 1151.30 and the Nasdaq 100 futures dropped 8.75 points to 2005.25.

Futures: Dow -0.4%. S&P -0.4%. Nasdaq -0.35%. Crude -1.5% to $80.42. Gold -0.6% to $1327.20.


Company News

The markets will also be digesting the positive kickoff to earnings season from metals giant Alcoa (AA). The aluminum maker beat the Street by a penny with a non-GAAP profit of 9 cents a share and solidly topped forecasts with a 15% jump in revenue to $5.3 billion.

Regis Corp (RGS)


Hair-salon operator Regis Corp (RGS), which is exploring strategic alternatives, reported first-quarter sales that missed market expectations as sales at stores open at least a year continued to fall.

The operator of the Vidal Sassoon and Supercuts chains said consolidated revenue fell 5 percent to $578 million, short of analysts' expectations of $581.6 million, according to Thomson Reuters.

Last year's revenue includes sales to Premier Salons Beauty Inc, to which Regis sold its Trade Secret division, as part of an agreement to provide certain transitional support services to Premier.

Regis -- which has been witnessing declining sales amid an uncertain consumer environment as thrifty consumers go longer between haircuts -- said same-store sales in the quarter fell 1.5 percent.

However, the company said visitation trends are improving, adding that it continued to expect same-store sales to turn positive in the back half of the year.

The Minneapolis-based company's shares, which have risen 21 percent in value since it announced it was exploring strategic alternatives in early August, closed at $18.99 Thursday on the New York Stock Exchange.

Micron Technology Inc (MU)


Micron Technology Inc (MU) missed quarterly earnings and revenue expectations as weak technology spending by corporations and consumers hurt PC memory chip prices.

Micron also warned on Thursday that the rising popularity of tablet computers, such as Apple Inc's (AAPL) iPad, would hurt demand for personal computers over the longer term.

The top U.S. maker of memory chips for computers said it had signed a 10-year cross-patent agreement with Samsung Electronics (005930.KS) worth $275 million, which some analysts said helped bolster Micron's technology credentials.

Shares of Micron, which competes with industry leader Samsung as well as Elpida (6665.T) and Hynix Semiconductor (000660.KS), slid 2 percent in after-hours trade to $6.97, all but erasing a 2.3 percent gain during the regular session.

Micron stock had, like its rivals', taken a beating in past months as worries grew about a slowdown in corporate and consumer spending on personal computers after Intel Corp (INTC) and Advanced Micro Devices (AMD) trimmed sales forecasts.

"The PC industry was slower, a little worse than we expected," said Stifel Nicolaus analyst Kevin Cassidy. But he was optimistic on the licensing deal because "it shows Micron has a technology advance that Samsung must be interested in."

Industry executives warn that PC demand -- still the main driver of memory chip sales for the industry -- may continue to soften as new devices such as tablets, which use flash memory, replace desktops and laptops.

"It appears that some of the (slowdown in) demand is being driven by unstable consumer sentiment. But some of the softening in the desktop, notebook space can also be attributed to the success of the tablet PC category," Micron CEO Steve Appleton told analysts on a conference call.

Micron's results arrived days ahead of earnings reports from Intel and AMD, which traditionally kicks off the results season for the technology sector.

Micron said net profit was $342 million, or 32 cents per share, in its fiscal fourth quarter ended September 2, compared with a net loss of $100 million, or a loss of 12 cents per share, a year earlier.

That compared with an average expected net profit of $439 million, or 38 cents per share, according to Thomson Reuters.

Micron and other memory chip were hit in 2009 by one of the worst downturns in decades. Over the past four quarters Micron has posted a net profit.

Revenue grew to $2.5 billion from $1.3 billion a year ago, below the mean forecast of $2.65 billion, boosted by acquisitions such as this year's purchase of flash-memory chip maker Numonyx.

The company, based in Boise, Idaho, posted slightly lower average selling prices and unit sales for dynamic random access memory (DRAM) products.

Its gross margins on core memory products fell to 37 percent in the quarter from 40 percent in the previous three months. Analysts on average had forecast overall gross margins of 31 percent.

Some Interesting News

Genzyme spurns Sanofi, looks at options. Genzyme's (GENZ) board unanimously rejected a $69/share tender offer from Sanofi-Aventis (SNY) as "inadequate and opportunistic" and urged shareholders not to tender their shares. The company also disclosed that Sanofi had privately indicated it would pay as much as $80/share for the biotech firm before it decided to go hostile with its original, lower bid. Genzyme has been exploring its alternative strategic options, and reportedly received indications of interest following preliminary communications with Pfizer (PFE), GlaxoSmithKline (GSK) and Johnson & Johnson (JNJ) earlier this year.

Microsoft gearing up to buy Adobe? Shares of Adobe (ADBE) closed up 11.5% yesterday on heavy volume following rumors that Adobe may be a takeover target for Microsoft (MSFT). The speculation was sparked by a New York Times report about a secret meeting between Microsoft CEO Steven Ballmer and Adobe chief Shantanu Narayen, where the two discussed Apple's (AAPL) dominance in the mobile market and the possibility of acquiring Adobe as a way to fight back. Adobe didn't deny that the meeting took place, but both Microsoft and Adobe declined to comment. Premarket: ADBE -2.1% (7:00 ET).

U.A.E. backs off BlackBerry ban. The United Arab Emirates announced this morning that it won't suspend BlackBerry (RIMM) services this month as it had previously planned, since "BlackBerry services are now compliant with the U.A.E.’s telecommunications regulatory framework." Regulators didn't provide further details on their agreement with Research In Motion.

HSBC ordered to cease and desist. U.S. regulators sent HSBC's (HBC) North American unit a "cease and desist" order, telling the unit it needs to strengthen its risk management and compliance with federal anti-money laundering laws. The order follows an investigation which uncovered several compliance lapses, and is an embarrassment to the banking giant which generally has a reputation for exercising caution in its global operations. No fine was levied, though regulators said HSBC could still face civil penalties down the road. Premarket: HBC -0.8% (7:00 ET).

Coming Soon: Amazon apps store. Amazon (AMZN) is reportedly jumping into the apps market, with plans to open an online app store for phones running Google's (GOOG) Android software. The move would bring Amazon into competition with Apple's (AAPL) iPhone app store; the two already compete in sales of digital music, videos and books. It would also pit Amazon against Google's own digital-app marketplace called Android Market, with the one big advantage that Amazon already has payment relationships with millions of customers familiar with its checkout process.

New rules for winding down banks. The FDIC is expected to issue as early as today new rules on the seizure and resolution of large financial firms that are failing. The rules are expected to include a controversial provision that would allow some creditors to get a better deal than others in specific cases; additional payments can be made to short-term creditors when it maximizes the value of the firm or enables the government to continue essential operations of the company while it's in receivership. The FDIC's Bair said the authority to differentiate among creditors "will be used rarely," but some officials worry the provision will prompt creditors who know they're going to suffer heavy losses to pull out of a firm if it experiences a rocky period.

Obama vetoes foreclosure bill. In the first effective veto of his presidency, Obama blocked a bill that would have required state and federal courts to accept the validity of out-of-state document notarizations, making it harder to challenge the authenticity of foreclosures and other legal documents. Opponents argued the bill would let banks involved in the recent robo-signing scandal off the hook (including such heavyweights as BofA (BAC) and JPMorgan (JPM)), and would make it harder for homeowners to stop foreclosures. Following the veto, the bill will be sent back to Congress, while regulators continue to move ahead cautiously with their investigation of banks' foreclosure practices.

Chamber of Commerce to take Obama policies to court. Saying over-regulation "will silence the heartbeat of our economy," the U.S. Chamber of Commerce pledged to step up legal challenges to Obama's regulatory policies. In particular, the nation's largest business lobby plans to target health care and financial regulation reform, noting litigation is "one of our most powerful tools" in ensuring regulators "follow the law and are held accountable." The Chamber has already taken an activist stance: Earlier this week, the SEC put on hold a rule giving shareholders more power to influence corporate boards after the Chamber filed a lawsuit.

Japan open to further forex intervention. Japanese Finance Minister Yoshihiko Noda said last month's intervention in currency markets wasn't a sign that Japan is prepared to conduct large-scale interventions to guide the yen to a specific level. However, he kept the door open to "firm measures, including intervention, when needed." His comments come ahead of the G-7 meeting and amid rising tensions on the issue of unilateral currency actions.

Moody's considers China upgrade. After months of sovereign downgrades and outlook warnings, at least one country is in line for a possible upgrade. Moody's said this morning it may upgrade its A1 rating on Chinese government debt, citing the nation's growth outlook, the "determined and effective" stimulus program enacted during the financial crisis, and the "likely containment" of risks associated with 2009's credit expansion. Following the global crisis, China's economic performance has been "resilient and strong."


Investors stayed cautious ahead of a crucial job report which could determine whether more money supply measures will be introduced to spur the flagging economy.

European shares slipped at midday Friday, with Barclays leading the banking sector lower as a key investor effectively further cut his stake.

"We're seeing a bit of profit-taking today after a few good days, " said Mark Bon, fund manager at Canada Life in London, adding: "Ironically," it could boost the market if labor data is weaker than expected ... It could well be that if the payroll numbers are slightly disappointing, that will encourage people to think that QE (quantitative easing) will be sooner rather than later."


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