Market Outlook
Wednesday, October 13, 2010

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

  • 7:00 …MBA Mortgage Applications

  • 8:30 …Import/Export Prices

  • 1:00 PM… Results of $21B, 10-Year Note Auction

  • 2:00 PM …Treasury Budget

  • 4:10 PM… Bernanke: 'Business Innovation in Pittsburgh'

  • 6:45 PM …Fed's Lacker: Business leaders discussion

Also the following companies are reporting their quarterly earnings:-

  • ASML Holding N.V. (ASML),

  • JPMorgan Chase & Co. (JPM), and

  • Apollo Group Inc. (APOL).

wednesday outlook

Wednesday sees U.S. stocks headed for gains, boosted by growing expectations of further quantitative easing by the U.S. Federal Reserve and an upbeat forecast from technology firm Intel (INTC).

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

Stocks recovered from early losses Tuesday to end the session slightly higher after minutes from the Fed's latest meeting suggested central bank policymakers are prepared to implement additional measures to bolster the economy.

Economic Concerns

Treasury Budget

The Treasury budget is due out at 2 p.m. ET. Investors will also look to readings on export and import prices.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA)has hovered above support at the 11,000 level all week, the blue-chip barometer may now be ready to leave this safety net behind this morning. The Dow appears poised to challenge short-term resistance at the 11,100 level. As for support, look for the DJIA to find a floor near 11,000, and 10,900 if things should go sour.

The S&P 500 (SPX) is also in rally mode, jumping 6.9 points above fair value. The SPX could trade above 1,180 for the first time since early May. As for support for the SPX, buyers should emerge near 1,160 if Wall Street decides to take profits.

• The U.S. Dollar Index: A resurgence in global equities markets and the promise of additional quantitative easing by the Federal Reserve has sapped the U.S. dollar's strength this morning. At last check, the U.S. Dollar Index was off 0.36% at 77.09.

Gold futures for December delivery surged $12.40 to $1,359.10 an ounce.

Benchmark crude futures: Oil majors were expected to be in focus as crude prices CLc1 rose above $82 helped by a weaker dollar and after China's crude imports jumped last month.

Bonds: The price fell on the benchmark 10-year U.S. Treasury, pushing up the yield to 2.46% from 2.42% late Tuesday.

Equity option activity on the CBOE saw 1,222,569 call contracts traded on Monday, compared to 728,197 put contracts. The resultant single-session put/call ratio arrived at 0.60, while the 21-day moving average held at 0.59.

Overseas Concerns

China posted a trade surplus of $16.9 billion for September, as exports climbed 25% and imports rose 24%. That's down from a $20 billion surplus in August.

But the drop is not enough to ease tensions between the China and the United States, which has been pressuring China to allow its currency appreciate against the dollar because an undervalued yuan hurts U.S. manufacturers by undercutting their export prices.

"China's overall trade surplus may have declined slightly last month, but tensions are unlikely to do the same," said Mark Williams, senior China economist at Captial Economic.

Currencies: The dollar fell against the euro and the British pound but rose versus the Japanese yen.

European Markets

European share markets are sharply higher with shares in France leading the region. The CAC 40 is up 1.4%, while Germany's DAX is up 1.4% and London's FTSE 100 is up 1.2%.

In Europe at midday, London +1.3%. Paris +1.6%. Frankfurt +1.4%.

Asian Markets

Earlier in Asia, markets closed in positive territory. The Hang Seng in Hong Kong shot up 1.5% and the Shanghai Composite gained 0.7%. Japan's Nikkei edged higher 0.2%.

In Asia, Japan +0.2% to 9404. Hong Kong +1.4% to 23458. China +0.7% to 2861. India +2.4% to 20688.

Futures Trading

Futures at 7:00am: Dow +0.6%. S&P +0.7%. Nasdaq +0.8%. Crude +1.2% to $82.66. Gold +0.9% to $1359.10.


Company News

JPMorgan Chase (JPM)


JPMorgan Chase said it earned $4.4 billion during the third quarter on Wednesday, an increase of 23% from a year ago, as loan loss reserves continued to decline.

The first of the nation's big banks to report results, JPMorgan (JPM) said it earned $1.01 per share. Analysts polled by Thomson Reuters were expecting the New York City-based bank to earn a 90 cents a share during the three-month period ended September 30.

The provision for credit losses was $3.2 billion, down 67% from a year ago.

"We are pleased to report a continued overall decline in credit costs, although our mortgage and credit card portfolios continued to bear very high net charge-offs," said chief executive Jamie Dimon in a statement.

JPMorgan shares rose 1.4% in pre-market trading.

Intel Corp (INTC)

Intel (INTC) has climbed 1.11% in electronic trading after the company posted a third-quarter profit of $2.96 billion, or 52 cents per share. Revenue for the quarter was $11.1 billion, up from $9.4 billion. Analysts had expected earnings of 50 cents per share, on revenue of $11 billion.

CSX Corp (CSX)

Shares of CSX Corp. (CSX) have spiked nearly 5% in premarket trading, as traders cheer the company's third-quarter report. For the period, CSX posted a profit of $414 million, or $1.08 per share, as revenue climbed 16% to about $2.7 billion. Analysts had forecast earnings of $1.04 per share on revenue of $2.66 billion.

• Analysts expect the bank to report an anemic 1.3 percent increase in profit over the same period last year and an earnings per share (EPS) of $0.90.

• Other companies to report earnings include Apollo Group (APOL) and Host Hotels & Resorts (HST).

Chevron Corp (CVX) said its third-quarter earnings are expected to be lower than the previous quarter, weighed down by a drop in U.S. production, higher costs and the effects of a weaker dollar. Its shares fell 0.9 in after-hours trading.

IGate Corp (IGTE)

IGate Corp (IGTE), an information technology and outsourcing services provider, reported third-quarter results that beat market expectations, helped by new customer wins.

The company, which rivals Cognizant Technology (CTSH), Infosys Technologies (INFY.BO) (INFY) and Tata Consultancy Services (TCS.BO), posted a 61 percent rise in net income at $14.3 million, or 25 cents per share.

Revenue rose 52 percent to $74.8 million.

Analysts on average were expecting IGate to earn 21 cents a share on revenue of $68.8 million, according to Thomson Reuters.

The company, which is incorporated in Pennsylvania but head-quartered in California, counts Royal Bank of Canada (RY.TO) and General Electric (GE) among its biggest customers.

Separately, the company said it planned to file a shelf registration with the U.S. Securities and Exchange Commission to offer 10 million shares and debt securities of up to $100 million.

The company's shares closed at $18.37 Tuesday on Nasdaq.

IGate's stock has risen 30 percent since it reported second-quarter results in July.

Host Hotels & Resorts (HST)

Host Hotels & Resorts (HST) on Wednesday said its funds from operations (FFO) rose in the third quarter, as it reaped more revenue from each of its rooms.

The company, which owns 104 luxury and upscale hotels, said its FFO was $75 million, or 11 cents a share, up from $66 million, or 11 cents a share, in the same period a year earlier.

Total revenue rose 11 percent to $1.0 billion from $903 million.

FFO, a common performance measure for real estate investment trusts, removes the profit-reducing effect of depreciation, a non-cash accounting item.

Host Hotels expects 2010 comparable hotel revenue per available room, or revPAR, to rise 5.5 percent to 6.5 percent.

It also sees 2010 FFO per share of 67 cents to 69 cents.

Some Interesting News

• A venture of Blackstone Group LP (BX) and other private investors has bought $300 million of debt in 14 hotels that Blackstone had sold to Columbia Sussex for $1.4 billion in 2006, according to a report on the Wall Street Journal Website on Tuesday.

Great Atlantic & Pacific Tea (GAP), the operator of A&P supermarkets, is in talks with advisors about potentially restructuring its balance sheet, according to a story in the Wall Street Journal.

Standard Chartered planning rights sale. Shares of Standard Chartered (SCBFF.PK) were suspended in Hong Kong trading after reports the company is planning to raise as much as £7B ($11B) in a rights offering to shore up its capital position; the company subsequently issued a statement that it's planning to raise around £3.3B ($5.2B) in an offer. A share sale would make StanChart the second large international bank to respond directly to new Basel III requirements, after Deutsche Bank (DB) raised €10.2B ($14.2B) earlier this month. Though StanChart's core tier one ratio of 9% is well within the normal range for banks and is ahead of Basel III's 7% minimum, analysts have estimated that a 9% ratio today could be worth as little as 6% once the Basel rules are fully phased in by 2019.

Suitors line up for Clearwire spectrum. A handful of major telecom operators and cable companies have expressed interest in a Clearwire (CLWR) auction of wireless airwaves. Clearwire, which is majority owned by Sprint (S), has said it's looking to raise new funding by the end of this year in order to continue expanding its high-speed wireless network. Companies including AT&T (T), Verizon Wireless (VZ, VOD), Deutsche Telekom (DTEGY.PK) and Sprint are reportedly among those interested in the sale, which is said to be in its second round of bidding and could bring in as much as $5B.

Alibaba, Microsoft launch new Chinese search engine. Alibaba, which is 40% owned by Yahoo (YHOO), and Microsoft (MSFT) have launched a new Chinese search website in a move that could challenge market-leader Baidu (BIDU). The new website is aimed at driving traffic to Alibaba's retail website,, and Taobao listings appear first in search results, followed by related online forums. Search results provided by Microsoft's Bing appear last. Analysts don't expect the new website to pose a serious threat to Baidu in the short-term, but the move is "a coup for Microsoft," which is still testing its Chinese search site and doesn't yet have a significant share of market revenue. Premarket: MSFT +0.9%, BIDU +1.6% (7:00 ET).

RIM gets Indian reprieve. India has once again extended a reprieve to Research In Motion (RIMM), giving the company until the end of the year to come up with a permanent solution to security concerns connected to its BlackBerry devices. RIM dodged a bullet last week as well, when the United Arab Emirates backed off its planned BlackBerry ban and said BlackBerry services had complied with UAE telecom regulations. RIM insists it's sticking to the principles laid out in August for working with government officials, including not providing "special deals for specific countries," but the company has also declined to provide details on its agreement with the UAE or its provisional deal with India.

Gov't lifts deepwater drilling ban. The government lifted its moratorium on deepwater drilling in the Gulf of Mexico; the controversial ban, which critics called arbitrary and unjustified, had been in place since the Deepwater Horizon disaster in April. The immediate practical ramifications are limited, as it could take weeks for rig operators to win regulatory approval to return to work in the region. In addition to slowing down the resumption of drilling, the new safety regulations could prove costly for companies to comply with and could potentially force smaller firms to stop operating in the Gulf.

FOMC suggests QE2 coming soon. The FOMC minutes, released yesterday, supported market speculation that a second round of quantitative easing will be coming soon, as "several" officials said the Fed would need to act soon unless inflation moves back towards a more consistent level. As expected, the committee cut its growth expectations for the rest of this year and next. Spending is mixed and hiring concerns are weighing down business investment, but a return to recession is unlikely.

Foreclosure mess spreads. Fallout from the foreclosure mess and robo-signing scandals is growing, with GMAC Mortgage saying it will expand its review of foreclosures to all 50 states, and for the first time it will look at all foreclosure sale files nationwide to ensure there are no errors. Wells Fargo (WFC) said it has started a review of all pending home foreclosures where affidavits are required, though the bank says it has no plans to initiate a foreclosure moratorium. White House officials threw their support behind a joint investigation by 40 states into flawed foreclosure procedures, but continued to insist that a nationwide foreclosure moratorium would be unwise as it could damage the country's fragile economic recovery.

FDIC takes first step on TBTF rules. As expected, the FDIC's proposed rules for dismantling large, failing financial firms would require creditors to take a loss, though regulators left room for the government to give preferential treatment to some creditors in specific cases. The FDIC will outline several additional proposals next year as it works to clarify how it would wind down large firms, including how the U.S. could recover its money if it has to step in and provide temporary funding.

China's forex reserves surge. China's foreign-exchange reserves surged by a record $194B to $2.65T as of the end of September. A separate report showed that China's September exports were the second-highest on record at $145B. Taken together, the two data points will undoubtedly intensify calls for China to allow the yuan to strengthen, especially as talk heats up among international leaders about the threat of a currency war.

Intel's beat raises hopes. Intel (INTC) beat earnings estimates yesterday (see details below) and pointed to "solid [global] demand" for computers, allaying concerns that businesses are reducing tech spending. Its gross profit margin rose to 65.9% from 57.6%, and the company expects it to rise to 67% for Q4. Intel is seeing strong demand for an overhauled line of microprocessors, and expects the Apple-led resurgence in tablets to eventually "be additive to our bottom line and not take away from it."


U.S. stocks hit fresh 5-month highs on Tuesday and the dollar came under pressure as details from the Fed's latest meeting showed the U.S. central bank may once again flood markets with cheap cash "before long" to further boost growth.

Minutes of a U.S. Federal Reserve meeting in September revealed officials thought the struggling recovery might soon need more help and they discussed several ways to provide it, including possible adoption of a price-level target.

The better-than-expected profit from JPMorgan Chase (JPM) may also offer some hope for the rest of the banking sector. Citigroup (C), Bank of America (BAC), Morgan Stanley (MS) and Wells Fargo (WFC) are all slated to report their latest results next week.


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