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Market Outlook
Monday, October 11, 2010



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

  • 8:00… International Bankers' Breakfast Regulatory Dialogue

  • 2:45 PM… NABE Annual Meeting: Challenges to Economic Prosperity

Also the following company is reporting its quarterly earnings:-

  • Global Payments Inc. (GPN)


monday outlook

Monday sees the U.S. stock futures were pointing higher, with investors gearing up for an important earnings week and looking to see whether big gains in the prior session can be extended.

Investors continued to speculate that the sluggish recovery would spur the Federal Reserve to step in and boost the economy.

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

The U.S. government and Treasury market are closed for Columbus Day, but all other financial markets are open.

Stocks rose on Friday after non-farm payrolls data disappointed and put the possibility of debt-buying by the Federal Reserve back in the spotlight. The Dow Jones Industrial Average (DJIA) finished just above 11,000 on Friday, the first close above that level since May 3. It gained 1.6% on the week.

The S&P 500 (SPX) rose 1.7% on the week and the Nasdaq 100 (COMP) added 1.3%.

“The market is in a very bullish mood,” said Christian Tegllund Blaabjerg, chief equity strategist at Saxo Bank in Denmark. For the next two weeks, and until markets know for sure when and how the Fed will pump more cash into the economy, earnings will take precedent, he said.

"Absent of any news, the market will continue to drift higher, given that the focus remains to be likelihood of the Fed's action," said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

"Anything that gives investors reason to pause and reconsider the idea that the Fed will pump more liquidity into the system would be a detriment to equity prices," he added.

Economic Concerns

No major economic reports are on tap, but Janet Yellen, vice chairman of the Federal Reserve Board, will address the annual meeting of the National Association for Business Economics at 2:45 p.m. ET.

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): After closing above the 11,000 level for the first time since May, the Dow Jones Industrial Average (DJIA) appears to be headed higher once again this morning.

The DJIA has tentative support at 11,000, with more solid footing at 10,900. Resistance could emerge near 11,150.

The S&P 500 Index (SPX): 1,170 could emerge as a ceiling, with 1,150 providing key support.

The U.S. Dollar Index: The U.S. dollar is treading water versus its major foreign competitors, as questions continue to surface regarding the future of U.S. monetary policy. With the greenback weakening versus the yen, and rising against the euro, the U.S. Dollar Index has added a mere 0.08% to trade at 77.25.

Benchmark crude futures for November delivery rose 19 cents to $82.85 a barrel.

Gold futures for December delivery climbed $3.90 to $1,349.20 an ounce.

Equity option activity on the CBOE saw 1,325,149 call contracts traded on Friday, compared to 817,937 put contracts. The resultant single-session put/call ratio arrived at 0.62, while the 21-day moving average held at 0.59.

Overseas Markets

There were worries of a monetary tightening in China. The country has raised reserve requirements for six large commercial banks on a temporary basis, a move to drain cash from the economy but avoid over-tightening.

China's top offshore oil producer CNOOC Ltd (0883.HK) has agreed to pay $1.1 billion for a stake in a U.S. shale oil and gas field, testing the market for the first time since its 2005 failed bid for Unocal.

European Concerns

European share markets moved higher in late morning trading. Britain's FTSE 100, France's CAC 40 and the DAX in Germany all posted modest gains in the early going.

Markets saw broad-based gains, with financials higher and autos also gaining on hopes of further stimulus by central banks.

Europe at midday, London +0.3%. Paris +0.2%. Frankfurt +0.2%.

In currencies: The dollar rose against the Japanese yen, the British pound and the euro.

The dollar fell to a 15-year low of 81.40 yen on Monday but later clawed higher and stabilized, with the chances of a short-term bounce growing, despite expectations the Federal Reserve will have to print money to support the economy.

The dollar was affected by discord in international currency policies after the IMF's member countries failed to agree on a concrete plan to tackle global imbalances at multilateral meetings over the weekend.

Asian Concerns

Earlier, Asian markets ended the session with solid gains. The Shanghai Composite soared about 2.5% and the Hang Seng in Hong Kong jumped nearly 1.2%. Japanese markets were closed.

Resource stocks led Chinese markets higher; while miners lifted Australian stocks hit a five-month high.

In Asia, Japan closed. Hong Kong +1.1% to 23207. China +2.5% to 2807. India +0.4% to 20340.

Futures Trading

As of 6:30 a.m. in New York, the Dow Jones Industrial Average futures rose 21 points, or 0.19%, to 10968, the S&P 500 futures rose 2.8 points to 1163.40 and the Nasdaq 100 futures were up 6.25 points to 2027.00.

Futures: Dow +0.2%. S&P +0.25%. Nasdaq +0.3%. Crude +0.2% to $82.84. Gold +0.3% to $1349.50.



futures101110



Company News


There are no results due Monday, but Tuesday kicks off with chip maker Intel Corp. (INTC) , Wednesday features J.P. Morgan Chase & Co. (JPM) , Google Inc. (GOOG) reports Thursday and General Electric Co. (GE) will announce results Friday.

On the basis of those four companies reporting, this week is “going to be massively important,” said Blaabjerg. “On Friday, when we go home for the weekend, we’ll be a lot more enlightened on what we should expect from 2011.”

He expects a “very strong earnings season. The benchmark for an average earnings season is two thirds of the companies surprising to the upside. This season we’re going to see 70% surprising on the upside,” he said.

LDK Solar Co., (LDK) lifted its third-quarter revenue shipments estimates. The company now expects revenue of $610 million to $640 million, versus its prior view for $570 million to $600 million. Wall Street is looking for $568.3 million in revenue for the quarter. Wafer shipments should total 550 megawatts to 570 megawatts, the company said, compared with its previous estimate of 520 megawatts to 550 megawatts. Module shipments, meanwhile, should reach 80 megawatts to 90 megawatts, above prior guidance for 75 megawatts to 85 megawatts.

• Also in the solar sector, Canadian Solar Inc., (CSIQ) named Andrew Chen as chief financial officer. The company also affirmed its third-quarter and 2010 outlooks. For the quarter, CSIQ said that it would ship 190 megawatts to 200 megawatts at a gross-profit margin of 14.5% to 15.5%. For fiscal 2010, Canadian Solar estimates that shipments reached the middle to the high end of its earlier estimate of 700 megawatts to 800 megawatts.

ImmunoGen Inc. (IMGN) said it expects to report a net loss of between $60 million and $64 million for the fiscal year. The firm also announced that Novartis AG (NVS) will pay it $45 million, with potential milestone and royalty payments, to license its targeted antibody payload technology. Separately, IMGN said that an early-stage clinical trial of its lorvotuzumab mertansine anticancer compound showed encouraging early data, with 29% of patients showing a reduction of tumor volume and 22% showing no discernible increase.

Some Interesting News

CNOOC inks deals on shale, LNG. CNOOC (CEO) will pay $1.08B for a one-third stake in Chesapeake Energy's (CHK) Eagle Ford shale project in Texas, marking the biggest acquisition of a U.S. oil and gas asset by a Chinese company. CNOOC will also fund 75% of Chesapeake’s share of drilling and completion costs until an additional $1.08B has been paid. Though the project is CNOOC's first energy asset in the U.S., China's third-largest oil company has spent over $3.8B in the past year on energy acquisitions. CNOOC also announced that GDF Suez (GDFZY.PK) will supply it with 2.6M tons of liquefied natural gas over four years, in a deal valued at more than $1B. The deal marks CNOOC's first medium-term LNG agreement as it tries to find strategic partners. Premarket: CHK +2.8% (7:00 ET).

Statoil, Talisman create shale gas JV. Statoil Norway's Statoil (STO) scored another deal to help it boost its U.S. shale gas operations, announcing a joint venture with Canada's Talisman Energy (TLM) to acquire acreage on the highly-sought Eagle Ford project in Texas for $1.325B. The deal will give Statoil recoverable reserves of about 550M barrels of oil equivalent, and follows a previous U.S. shale deal signed in 2008 with Chesapeake Energy (CHK).

No FDA clearance for Jazz Pharma's fibromyalgia drug. Jazz Pharmaceuticals (JAZZ) said the FDA had failed to clear for marketing JZP-6, its potential treatment for fibromyalgia. The FDA had cited "the need for additional clinical studies" as well as "methods for ensuring safe use" as some of the factors in its decision. Jazz plans to meet with the agency to clarify the letter before making a decision on its next steps for the drug. Premarket: JAZZ -10.4% (7:00 ET).

Major snag for Constellation Energy's nuclear project. Constellation Energy (CEG) said on Saturday that it wouldn't move forward with an application for a federal loan guarantee essential to its plans to build a new nuclear reactor in Maryland. Calling the government's terms "unworkable," Constellation's decision to pull out of the government program has all but killed the project. It's the latest (and seemingly last) in a string of challenges that has plagued the project over the last five years, and further strains relations between Constellation and its French partner, Electricite de France. EDF called the decision disappointing, while a federal spokesman said the announcement took officials by surprise and that Constellation was being urged to look at a new set of terms.

Rival suitors prep Potash bids. BHP Billiton (BHP) may face some competition for Potash (POT) after all, with reports that Canada's Ontario Teachers' Pension Plan is planning a spoiler bid. OTPP is said to be in talks to partner with Singapore's sovereign wealth fund Temasek on the bid, with Teck Resources (TCK) thought to be involved as well. The early-stage discussions have covered both an outright takeover or the purchase of a minority stake. Separately, China's Sinochem has reportedly approached Indian state-run miner NMDC about a joint bid for Potash, though NMDC denies it has any designs on the "very expensive property." If no rival bids are successful, Potash is reportedly considering defensive moves, including a break-up of the business, to fend off BHP. Premarket: BHP -0.6% (7:00 ET).

No currency resolution at IMF meeting. Exchange rates dominated the agenda at the IMF's annual meeting, but global financial leaders failed to find common ground. Officials blamed exchange rate imbalances on everything from China's undervaluation of the yuan to unilateral currency intervention by countries like Japan to America's monetary expansion, which has flooded the international economy with capital. Unable to forge an agreement amongst themselves, countries turned to the IMF to serve as a "currency cop" by preparing reports which show how one country's policies affect the economies of others; the reports will focus on the U.S., U.K., China and the eurozone. Currencies will likely dominate the agenda once again when G-20 leaders meet in November.

OECD sees global economy slowing. The global economy appears to be slowing, and most developed and large developing countries are already in a downturn, according to the OECD's latest composite leading indicators. It's the second month of decline for the forward-looking CLIs, which are designed to provide early signals of turning points between economic expansion and slowdown, and "the outlook given by the CLIs for Canada, France, Italy, the United Kingdom, Brazil, China and India points strongly to a downturn."

States broaden foreclosure probe. The attorneys general of up to 40 states plan to announce as soon as Tuesday a joint investigation into banks' use of flawed foreclosure paperwork. Banks have been reeling from the robo-signing scandals which stemmed from the disclosure that some bank officials signed off on hundreds of foreclosure documents a day without properly reviewing the paperwork. The pressure of such a large-scale joint investigation could prompt banks to follow the lead of Bank of America (BAC), which just days ago announced a temporary halt on foreclosures in all 50 states.

China lifts reserve ratio for top banks. China has reportedly lifted the reserve requirement for its top banks by half a percentage point, its first such move since May as it tries to drain cash from the economy. The nation's six largest commercial lenders will have to set aside 17.5% of their funds. Bank of America Merrill Lynch analysts said the rate hike was rumored to be punishment for lax oversight of the amount of new loans issued in September.

Conclusion

Stock futures pointed to modest gains on Monday but with the Columbus Day holiday, trading is expected to be light.

U.S. markets rose moderately on Friday despite a disappointing September jobs report on speculation that the weak economy could lead to continued low interest rates and more quantitative easing by the Federal Reserve and other central banks.

With little to trade on, the easy money speculation by traders carried over into European and U.S. markets overnight. In Europe, the continent's major indices were up between 0.15% and 0.2%.

There's no economic data released today and bond markets are closed for the holiday.

Wall Street's agenda picks up tomorrow with earnings from Intel Corp (INTC) and later this week results from JPMorgan Chase (JPM), General Electric (GE) and Google (GOOG).

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