Market Outlook
Thursday, October 28, 2010

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

  • 8:30… Initial Jobless Claims

  • 10:30… EIA Natural Gas Inventory

  • 11:00… KC Fed Manufacturing

  • 1:00 PM… Results of $29B, 7-Year Note Auction

  • 4:30 PM… Money Supply

  • 4:30 PM …Fed Balance Sheet

Also the following companies are reporting their quarterly earnings:-

• 3M Company (MMM),

• Avon Products Inc. (AVP),

• Colgate-Palmolive Co. (CL),

• Exxon Mobil Corp. (XOM),

• Motorola Inc. (MOT),

• Potash Corp. of Saskatchewan Inc. (POT), and

• Microsoft Corp. (MSFT)

thursday outlook

Thursday sees U.S. stocks set for a slightly higher open, ahead of weekly jobless claims, another round of earnings reports and the Federal Reserve's decision on monetary easing still the market's main focus.

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

Stocks ended mixed Wednesday, as investors lowered their expectations for an aggressive move by the Federal Reserve to stimulate the economy.

Economic Concerns

Initial Jobless Claims

Weekly initial jobless claims will earn a close look, in part because the next Fed policy-setting meeting is before the October employment report, making initial claims one of the last jobs-related indicators the Fed might take into account. The number of U.S. workers filing new claims for benefits is expected to have ticked up slightly, to 453,000 from 452,000, according to a Reuter’s survey of 46 economists.

Monetary Easing

The dollar slipped on Thursday, relinquishing some of the gains made earlier this week as U.S. Treasury yields pulled back from a recent rise as investors continued to recalibrate expectations for U.S. monetary easing.

Most leading economists expect the Federal Reserve to buy between $80 billion and $100 billion worth of assets per month under a new program to bolster the struggling economy, a Reuters poll found on Wednesday.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) rebounded off support at its 20-day moving average on Wednesday, reclaiming its 10-day trendline and the 11,100 level by the close.

Several key Dow companies are on the earnings calendar today, including 3M Company (MMM) and Exxon Mobil Corp. (XOM), while Wall Street will also be greeted with weekly initial jobless claims. The technical picture remains the same for the DJIA, with support at 11,100 and 11,000, while resistance is holding firm overhead in the 11,200-11,250 region.

The S&P 500 Index (SPX) remains trapped between 1,175 and 1,195.

• The U.S. Dollar Index The U.S. dollar reversed course in Asian trading, as the Bank of Japan held firm in its current course of monetary policy, declining to implement new easing at its latest meeting. The greenback is taking the news hard, with the U.S. Dollar Index falling 0.62% to 77.67 in premarket trading.

Benchmark crude futures for December delivery gained 11 cents to $82.07 a barrel.

Gold futures, for December delivery fell $16.00 to $1326.60 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury remained unchanged at 2.71%.

Equity options activity on the Chicago Board Options Exchange (CBOE) saw 1,324,696 call contracts traded on Wednesday, compared to 795,784 put contracts. The resultant single-session put/call ratio arrived at 0.60, while the 21-day moving average held at 0.60.

Overseas Concerns

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

European Markets

European share markets moved higher in morning trading. Britain's FTSE 100 was up 1.0%, and the DAX in Germany rose 0.8%. France's CAC 40 advanced 0.9%.

In Europe, at midday, London +0.8%. Paris +0.6%. Frankfurt +0.6%.

Asian Markets

Earlier, Asian markets ended the session mixed. The Shanghai Composite slid 0.2%, while the Hang Seng in Hong Kong rose by 0.2%. Japan's Nikkei fell 0.2%.

In Asia, Japan -0.2% to 9366. Hong Kong +0.2% to 23211. China -0.1% to 2993. India -0.3% to 19941.

Futures Trading

As of 6:45 a.m., in New York, the Dow Jones Industrial Average futures rose 17 points to 11089, the S&P 500 futures rose 2.4 points to 1181.20 and the Nasdaq 100 futures were up 4 points to 2127.75.

Futures at 7:00: Dow +0.15%. S&P +0.2%. Nasdaq +0.15%. Crude +0.1% to $82.02. Gold +0.3% to $1326.40.


Company News

Exxon Mobil (XOM), the largest publicly traded oil company, is expected to report higher quarterly profit and production as crude oil prices rose from a year-ago and natural gas output climbed.

• Other companies due to report include 3M (MMM), Motorola (MOT) and Colgate-Palmolive (CL).

• Late Wednesday, AIG (AIG) said its chairman Steve Miller will take over the company if chief executive Bob Benmosche's cancer leaves him unable to lead.

Nintendo (NTDOY) posted a half-year earnings loss and a significant drop in sales Thursday morning. It was the company's first net loss in the fiscal first half in 7 years, according to reports. The Japanese video game maker's earnings report covers a six-month period leading up to the end of September.

• Chemical giant Dow Chemical (DOW) was one of the first large names to report this morning, saying it earned an adjusted profit of 54 cents per share beating the 21-cent-per-share target analysts were looking for. Sales rose to $12.87 billion in the quarter.

• Later today, software maker Microsoft (MSFT) will report after the closing bell today with analysts expecting Microsoft to report earnings of 12 cents a share for its third quarter, according to Thomson Reuters.

Motorola Inc. (MOT) posted third-quarter adjusted net income of 16 cents per share, topping the company's forecast of 10 cents to 12 cents per share. Revenue increased 6% to $5.8 billion. Wall Street analysts expected earnings of 12 cents per share on revenue of $5.66 billion. Looking ahead, Motorola expects fourth-quarter earnings of 14 cents to 16 cents per share, versus the consensus estimate for 15 cents per share.

Avon Products Inc.'s (AVP) third-quarter profit rose 7% to $166.7 million, or 38 cents per share. On an adjusted basis, the company earned 41 cents per share, falling 6 cents shy of Wall Street's expectations for a profit of 47 cents per share. Revenue increased 4% to $2.62 billion. "We continue to expect sales growth for the full year of at least mid-single digits in constant dollars, but now expect operating margin to be roughly flat," said Andrea Jung, chairman and chief executive officer.

Visa Inc. (V) reported fiscal fourth-quarter net income came in at $774 million, or $1.06 per share. On an adjusted basis, net income for the quarter was $695 million, or 95 cents per share. The company was expected to make 95 cents per share. Net operating revenue in the fiscal fourth quarter was $2.1 billion, an increase of 13% over the prior year.

Some Interesting News

NY Fed solicits QE2 opinions. The New York Federal Reserve has asked bond dealers and investors for their projections of how large the central bank's asset purchases will be over the next six months, with the options to choose from listed as zero, $250B, $500B and $1T. The survey also asks respondents how those purchases are likely to affect yields, how often they anticipate the Fed will re-evaluate the program and what its ultimate size would be. Fed officials are trying to get a better handle on market expectations for a second round of quantitative easing, which investors believe will be announced next week.

Air Products extends tender offer. Air Products (APD) extended its tender offer for the shares of rival Airgas (ARG) until Dec. 3; the offer, which had already been extended three times, was scheduled to expire tomorrow. Airgas has repeatedly rejected Air Products' advances, calling its offer of $65.50/share “grossly inadequate,” but said yesterday it would be willing to negotiate at a price above $70/share.

Foreclosure 'epidemic' spreads. The foreclosure crisis is intensifying across a majority of large U.S. metropolitan areas, according to a report by RealtyTrac. Though California, Nevada, Florida and Arizona are still the states hardest-hit by foreclosures, cities like Chicago and Seattle saw a sharp increase in foreclosure warnings this summer. RealtyTrac's Rick Sharga characterized the trend by saying "the epidemic is spreading from the states at the ground zero of the foreclosure problems out into areas that hadn't been previously affected." Banks seized 816,000 homes in the first nine months of the year, and are on track to seize more than a million by the end of December.

Wells Fargo admits foreclosure mistakes. Wells Fargo (WFC) admitted late yesterday that some of the foreclosures it handled had not followed proper procedure, particularly when it came to affidavits and notarization. However, the bank insisted the errors didn't affect the quality of the loans, "nor does the company believe that any of these instances led to foreclosures which should not have otherwise occurred." Wells has no plans to halt foreclosure sales, but will submit additional affidavits for around 55,000 pending foreclosures.

Fidelity backtracks on indemnity agreement. Fidelity National (FNF) reversed course yesterday, issuing an internal memo that it will no longer require an indemnity agreement before insuring individual foreclosed properties. Fidelity, the country's largest title insurer, put the requirement in place a week ago to protect itself as a growing number of banks have begun to admit to foreclosure mistakes. However, the failure of other insurers to follow Fidelity's lead put it at a competitive disadvantage, though Fidelity said the reversal is because of "heightened review" processes being undertaken by banks. Fidelity will continue its existing indemnity agreement with Bank of America (BAC).

Silver suits for JPMorgan, HSBC. Investors have filed separate lawsuits against JPMorgan (JPM) and HSBC (HBC) charging the banks with manipulating silver by amassing huge short positions from early 2008. According to the allegations, the two banks illegally "reaped hundreds of millions of dollars, if not billions of dollars in profits" from the conspiracy. The lawsuits, filed by two investors, seek class-action status, damages that may be tripled and other remedies. Premarket: HBC +1.3% (7:00 ET).

Economic recovery lifts Shell's earnings. Royal Dutch Shell (RDS.A) saw profit rise 7% in the third quarter to $3.46B, or $4.9B excluding one-time items and inventory changes. The oil giant's earnings were a result of a rebound in energy demand and a lengthy restructuring that focused on cost efficiency and recovering industrial demand. The company plans to invest in Qatar, China and the U.S. to further increase output. Premarket: RDS.A +0.9% (7:00 ET).

Global regulators vs. raters. The Financial Stability Board called on national regulators to reduce the role of credit rating agencies in the financial system, warning an overreliance on the raters "is a cause of herding and cliff effects... that can amplify procyclicality and cause systemic disruption." The FSB wants to see the elimination "wherever possible" of references to credit ratings in legal statutes and business practices. G-20 leaders are expected to address the FSB's recommendations at next month's summit in Seoul, with potentially damaging consequences for Moody's (MCO), S&P (MHP) and Fitch.

U.S. ends Street View probe. The Federal Trade Commission closed its investigation into Google's (GOOG) Street View service, saying the company had taken steps to address past privacy violations. The Street View fiasco, in which private consumer data was mistakenly collected, is still being investigated by several countries and more than 30 U.S. state prosecutors, but the penalty-free close of the FTC probe is a victory for the internet giant.

BoJ holds rate steady. The Bank of Japan held its key overnight call rate unchanged, as expected, and cut its growth outlook. Economic growth for the fiscal year through March 2011 is now expected to come in at +2.1%, down from the +2.6% forecast issued three months ago. The bank also moved its next policy meeting to Nov. 4-5 from a previously scheduled Nov. 15-16, setting up the meeting to immediately follow an expected QE2 announcement from the U.S. Fed on Nov. 3.

AIG taps chairman as CEO back-up. Following the disclosure that CEO Robert Benmosche has been diagnosed with cancer, AIG's (AIG) board met to review its succession plans. The company expects Benmosche to continue operating as chief executive; if he needs to step down, chairman Steve Miller would serve as interim CEO until a long-term replacement is found.


U.S. stocks fell on Wednesday as investors scaled back expectations of how aggressively the Fed would act to stimulate the economy.

However, they finished off lows as Broadcom (BRCM.) led a rally in techs after posting a rise in fourth-quarter revenue.

The Dow Jones industrial average .DJI and The Standard & Poor's 500 Index .SPX fell 0.4 and 0.3 percent, respectively. The Nasdaq Composite Index .IXIC gained 0.2 percent.


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