Market Outlook
Thursday, October 14, 2010

Thursday has quite a few economic reports scheduled. They are:-

  • 8:30 … Trade Balance

  • 8:30 … Producer Price Index

  • 8:30 … Initial Jobless Claims

  • 10:30 … EIA Natural Gas Inventory

  • 11:00 … EIA Petroleum Inventories

  • 4:30 PM… Money Supply

  • 4:30 PM… Fed Balance Sheet

  • 5:00 PM… UMACHA Payments Conference

Also the following companies are reporting their quarterly earnings:-

  • Safeway Inc. (SWY),

  • Advanced Micro Devices Inc. (AMD),

  • Google Inc. (GOOG),

  • J.B. Hunt Transport Service Inc. (JBHT), and

  • The Progressive Corp. (PGR)

thursday outlook

Thursday sees U.S. stock futures headed for gains, ahead of economic data on jobless claims, producer prices and the nation's trade deficit, while the dollar’s retreat and gold’s advance both gained momentum.

Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were higher ahead of the opening bell. The gains for futures came after U.S. markets posted their fourth successive rise on Wednesday, following upbeat reports from several industry giants.

Stocks rallied Wednesday, as investors bet that the Fed will announce plans next month to resume large-scale purchases of Treasurys.

The biggest earnings news Thursday will come from Internet-search giant Google Inc. (GOOG)after markets close. Analysts are expecting the company to report a profit of $6.70 a share in the third quarter.

Economic Concerns

Initial Jobless Claims

Data on first-time jobless claims, producer prices and the U.S. trade balance are due an hour before the opening bell.

Economists are expecting the government to report jobless claims rose to 450,000 last week, up from 445,000 the week before.

Initial claims have been stuck in a tight range since November, and economists say there's little reason to celebrate the recovery until weekly claims head below the 400,000 mark.

Producer Price Index

The government's latest reading on inflation at the manufacturing level is expected to rise by 0.2% in September, a slower pace than the 0.4% growth in August. Excluding volatile food and energy prices, core PPI is forecast to rise 0.1% -- the same rate as in the month before.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) extended its winning streak to four in a row on Wednesday, as Wall Street cheered a round of stronger-than-expected quarterly earnings reports. Expectations for quantitative easing from the Federal Reserve also played a fairly large role in the advance.

Traders appear positive ahead of this morning's reports on jobless claims and September's producer price index (PPI), and the DJIA looks poised to do battle with the 11,150 level once again today. Support for the Dow continues to solidify at the 11,000 level, while a firmer floor resides at the 10,900 level.

The S&P 500 Index (SPX) broke a key short-term technical resistance level when it moved above 1,173.57, the highest point it had hit since the market's "flash crash" on May 6. The next technical barrier for the S&P 500 is at the 2010 high, near 1,220.

SPX support lies at 1,170, with resistance manifesting at 1,185.

• The U.S. Dollar Index fell sharply overnight as forex traders continued to digest the consequences of the Federal Reserve's quantitative easing strategy, which was alluded to in a report released Tuesday by the central bank. The dollar was down 0.7% against the euro and 0.7% against the Japanese yen.

The U.S. dollar this morning brings with it a convergence that has the U.S. Dollar Index trading at its 2010 lows. First, Singapore's central bank unexpectedly widened the trading range for the Singapore dollar, effectively tightening monetary policy. Meanwhile, the euro has tagged a nine-month high versus the greenback, while the dollar has plunged to a 15-year low against the Japanese yen. At last check, the U.S. Dollar Index was off 0.69% at 76.54.

Benchmark crude futures rose 62 cents to $83.63 per barrel.

Gold futures for December delivery surged $11.60 to $1,382 an ounce. In earlier trading, gold reached $1,388.10 an ounce -- a new intra-day trading high.

Bonds: The price fell on the benchmark 10-year U.S. Treasury, pushing up the yield to 2.44% from 2.42% late Wednesday

Equity options activity on the CBOE saw 1,953,116 call contracts traded on Wednesday, compared to 876,146 put contracts. The resultant single-session put/call ratio arrived at 0.45, while the 21-day moving average slipped to 0.58.

Overseas Concerns

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

The euro rose 0.7% to $1.40847 and the dollar fell 0.9% to 80.97 yen.

“Momentum remains one-sided against the dollar as a new wave of selling overnight triggered by (Singapore) pushed the greenback through key support levels,” said Lloyds TSB economist Kenneth Broux in a note to clients.

European Markets

European share markets were mixed in morning trading. Germany's DAX rose 0.6%, while the CAC 40 in Paris slipped 0.4% and the FTSE 100 fell 0.2%.

In Europe, at midday, London -0.4%. Paris +0.1%. Frankfurt +0.3%.

Asian Markets

Earlier, Asian markets closed in positive territory. The Hang Seng in Hong Kong rose 1.7% and the Shanghai Composite gained 0.6%. Japan's Nikkei edged higher 1.9%.

In Asia, Japan +1.9% to 9584. Hong Kong +1.7% to 23852. China +0.6% to 2880. India -0.9% to 20498.

Futures Trading

As of 7 a.m. in New York, the Dow Jones Industrial Average futures rose 12 points, or 0.11%, to 11056, the S&P 500 futures rose 1.6 points to 1175.90 and the Nasdaq 100 futures gained 0.5 points to 2056.50.

Futures: Dow +0.05%. S&P +0.1%. Nasdaq +0.1%. Crude +0.5% to $83.39. Gold +0.7% to $1380.


Company News

Wal-Mart Stores Inc. (WMT) lowered the high end of its capital spending forecast for fiscal 2011 by $1 billion. The retailer now expects capital spending for the fiscal year to range from $13 billion to $14 billion, while fiscal 2012 capital spending is projected at $13.5 billion to $14.5 billion. "Overall sales growth is forecasted between 4% and 6%. In the United States, we will shift more capital toward new stores, including supercenters and smaller formats," said Charles Holley, executive vice president.

Apollo Group Inc (APOL) – click for details

Apollo Group Inc. (APOL) announced that its fourth-quarter profit declined to $41 million, or 28 cents per share. Excluding one-time items, the company would have reported earnings from continuing operations of $1.31 per share, as revenue rose to $1.26 billion. Analysts were looking for a quarterly profit of $1.30 per share on revenue of $1.26 billion. Additionally, Apollo Group withdrew its business outlook for 2011, citing increased regulatory uncertainty in its industry.

Some Interesting News

AOL, P-E firms consider Yahoo bid. AOL (AOL) and several private-equity firms, including Blackstone (BX), are considering buying Yahoo (YHOO) either as a team or separately, sources said. News Corp. (NWS) was also listed as a potential buyer. An acquisition by AOL would be complicated both strategically, since both major brands face steep challenges, and financially, since AOL's market cap of $2.7B is just a fraction of Yahoo's $20.6B. As a result, a number of complex scenarios are being considered, including having Yahoo sell its 40% stake in Alibaba along with several other assets, or possibly even having Yahoo buy AOL. Sources cautioned that talks are still in an early stage and haven't yet involved Yahoo. In yesterday's trading, AOL closed +3.25%, BX +2.25%, NWS +0.8%, YHOO +5.7%. Yahoo shares are up another 11.5% in premarket trading (7:00 ET).

J.C. Penney gears up for a fight. J.C. Penney (JCP) has reportedly hired Goldman Sachs (GS) as it gears up for a possible fight with Pershing Square's Bill Ackman. The move follows news that Ackman took a 16.5% stake in the retailer and is building an alliance with Vornado Realty Trust (VNO), which holds a 9.9% stake. Ackman, a high-profile activist investor, has already told Penney that he plans to take a hard look at its assets and financial condition, while recent corporate decisions have left Penney with few takeover defenses.

Proxy battle for Genzyme looks more likely. Sanofi-Aventis (SNY) is getting closer to launching a proxy battle for Genzyme (GENZ), sources say, as it prepares for a drawn-out takeover bid. Though Sanofi CEO Chris Viehbacher raised the possibility in theoretical terms last week, a source said that a proxy battle isn't theoretical and isn't that far away, but rather "definitely part of the playbook." Genzyme is also likely to face pressure from activist investors Carl Icahn and Ralph Whitworth, who won representatives on the board earlier this year. This has led some analysts to suggest that "a proxy fight is possible but it doesn't necessarily have to be fought by Sanofi-Aventis. If there are enough frustrated shareholders... in the end it might be Genzyme shareholders fighting the battle for Sanofi." Premarket: SNY +1.1% (7:00 ET).

Potash shuffles staff in BHP defense. Potash (POT) has promised to relocate some key staff to Saskatchewan province from Chicago, hoping the move will win it some political favor as it fights off BHP Billiton's (BHP) advances. BHP had pledged to move key jobs back to Canada and beef up the company's headquarters if it wins control of Potash. Political influence actually will play a role here, as the views of the province's government will be influential in Canada's decision, due on November 3, on whether to allow BHP's hostile bid for Potash to move forward. Premarket: BHP +1.45% (7:00 ET).

SEC cleared of bias on Goldman charges. A report by the SEC's Office of Inspector General cleared the agency of improper conduct in its fraud lawsuit against Goldman Sachs (GS). Critics had alleged the timing of the suit was politically motivated, but the report found no evidence that the SEC was trying to influence Congress's discussion of the financial-regulation bill. The report also found no evidence that the SEC shared information with the media about the Goldman probe before it filed the suit.

Watchdog weighs in on Treasury's bailout outsourcing. The Treasury's decision to hire failed mortgage giants Fannie Mae and Freddie Mac to manage its main foreclosure-prevention program was questionable at best, according to a new report by the Congressional Oversight Panel, and may have increased taxpayer losses. In addition to distracting Fannie and Freddie from their efforts to fix their own financial problems, the Treasury also chose to overlook the mortgage giants' history of misreporting key data and missing important deadline. Aside from Fannie and Freddie, the report mostly praises the Treasury's management of companies it hired to run bailout programs, though it raises questions about the opaque subcontracting process.

Foreclosure mess gets uglier. A total of 288,345 properties were foreclosed upon in the July-September quarter, up from nearly 270,000 in Q2 and the highest quarterly tally since the real estate market started to tank in 2006. Complicating matters, many of the foreclosures may eventually be challenged in court as fallout from the robo-signing scandals gains momentum and attorneys general across the nation launch an investigation into banks' foreclosure practices. Decisions by some major banks to temporary halt foreclosures may end up simply dragging the process out, rather than achieving any substantial improvements in the deteriorating situation.

UBS rules out legal action against ex-bosses. UBS (UBS) admitted it made mistakes during the financial crisis but ruled out the possibility that it would take legal action against former executives, including past chairman Marcel Ospel. Among other shortcomings during the financial crisis, UBS also admitted its investment banking growth strategy wasn't properly planned, its risk control was based too heavily on statistical models, and it rarely questioned the ratings of external agencies. Premarket: UBS +0.4% (7:00 ET).


U.S. stock indexes hit their highest level in five months on Wednesday as stronger-than-expected earnings and lingering U.S. dollar weakness increased demand for equities.

The Dow Jones industrial average .DJI gained 75.68 points, or 0.69 percent, to 11,096.08. The Standard & Poor's 500 .SPX added 8.33 points, or 0.71 percent, to 1,178.10. The Nasdaq Composite .IXIC rose 23.31 points, or 0.96 percent, to 2,441.23.

“Asset markets in general are transfixed by what the Fed will do next and until we hear from (Ben) Bernanke directly tomorrow in his speech on monetary policy, we see no imminent turnaround in positive risk trends as U.S. corporates make a promising start to third-quarter earnings,” said Lloyds TSB economist Kenneth Broux.


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