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Market Outlook
Thursday, September 16, 2010



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

  • 8:30… Producer Price Index

  • 8:30 …Initial Jobless Claims

  • 8:30 …Current Account

  • 9:00… International Capital Flow

  • 9:30… Hearing:Home Mortgage Disclosure Act

  • 10:00 …Philly Fed Business Outlook

  • 10:00…Hearing: Report on Exchange Rate Policies, I (Geithner)

  • 10:00… Hearing: The SEC's New Confidentiality Provision

  • 10:30… EIA Natural Gas Inventory

  • 2:00 PM …Hearing: Report on Exchange Rate Policies, II (Geithner)

  • 4:30 PM… Money Supply

  • 4:30 PM …Fed Balance Shee

Also the following companies are reporting their quarterly earnings:-

  • FedEx Corp. (FDX),

  • Pier 1 Imports Inc. (PIR),

  • Oracle Corp. (ORCL), and

  • Research In Motion Limited (RIMM)


thursday outlook

Thursday sees U.S. stocks poised to head lower, as investors await government's latest data on first-time filers for jobless benefits and producer prices.

Stock futures were down moderately early this morning as U.S. investors waited for key economic data related to inflation and the jobs market along with a few key earnings reports, most notably from Oracle (NASDAQ:ORCL) and FedEx (FDX).

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



Economic Concerns

Initial Jobless Claims

The Labor Department's weekly report on initial jobless claims is due before the bell. Economists expect 460,000 Americans filed for first-time unemployment insurance last week, up from 451,000 the previous week.

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.

The number of people filing for unemployment benefits has dropped noticeably in the last few weeks, a sign to some economists that the economy may be finding an equilibrium in what is expected to be a struggling and modest recovery from last year's recession. Because inflation is widely expected not to be an issue for at least awhile, the jobless claims number is expected to carry more weight than the PPI data.

Producer Price Index

The government's latest reading on inflation at the manufacturing level is also due ahead of the market's open.

Economists forecast the Producer Price Index to show a 0.3% rise in August, up from a 0.2% rise the month before, according to consensus estimates from Briefing.com.

Philadelphia Fed Index

After the bell, traders will be watching for the Philadelphia Fed Index, which is expected to show modest expansion in the region's manufacturing sector.

“The survey started to deteriorate since June and has been on a downward trend since then,” said strategists at Deutsche Bank. “Markets are hopeful for a bounce today.”

Treasury Secretary Timothy Geithner

Traders are also eagerly awaiting congressional testimony by Treasury Secretary Timothy Geithner due after the market opens. Geithner will testify on exchange-rate policy, including that of China.

The comments will be particularly interesting after Japanese authorities intervened in the currency markets on Wednesday to stem the rise of the Japanese yen, which recently surged to a 15-year high against the dollar.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) shrugged off a round of lackluster economic data on Wednesday to close higher by nearly 50 points. Resistance at the 10,600 level held firm however, and the Dow appears to be consolidating in yet another trading range, bound on the lower side by support at the 10,500 level.

The S&P 500 Index (SPX) has found support at its 200-day moving average around the 1,115 level, but the benchmark index has been unable to pierce the 1,130 threshold, seen as a key resistance level by analysts.

• The U.S. Dollar Index fell 0.6% to 81.167.

Benchmark crude futures for October delivery fell 84 cents to $75.18 a barrel.

Gold futures for December delivery rose $4.70 to $1,273.40 an ounce. Gold futures extended their ground-breaking run, soaring above Tuesday’s record closing level. The metal’s appeal as a safe haven has been one reason that investors have rushed to buy it.

Bonds: The yield on the 10-year Treasury note fell to 2.72% from 2.74% late Wednesday

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,280,720 call contracts traded on Wednesday, compared to 699,052 put contracts. The resultant single-session put/call ratio arrived at 0.55, while the 21-day moving average slipped to 0.61.

Overseas Markets

In India overnight, the central bank lifted interest rates.

In Europe, the Swiss National Bank is expected to maintain its expansionary monetary policy and keep the Libor rate in the lower part of the target range, at around 0.25%. Investors will scrutinize the reaction of the Swiss franc in light of the currency’s recent strength.

U.K. retail sales posted an unexpected 0.5% monthly decline for August, sending the British pound as low as $1.5537. The currency later recovered some ground to trade down 0.2% at $1.5600.

European Concerns

European share markets were lower in the early going. The CAC 40 in France lost 0.3%, Germany's DAX fell 0.1%, and Britain's FTSE 100 dipped 0.2%.

In Europe, at midday, London -0.1%. Paris -0.2%. Frankfurt flat.

The dollar fell against the euro and the Japanese yen, but posted slight gains against Britain's pound.

Asian Concerns

Earlier, Asian markets closed lower. Japan's benchmark Nikkei index fell 0.1%, and Hong Kong's Hang Seng index fell 0.2%. The Shanghai Composite sunk 1.9%.

In Asia, Japan -0.1% to 9509.5. Hong Kong -0.2% to 21691. China -1.9% to 2602. India -0.4% to 19417.

Futures Trading

As of 6:15 a.m. in New York, the Dow Jones Industrial Average futures were down 29 points, or 0.28%, to 10480, the S&P 500 index futures lost 2.2 points to 1118.50 and the Nasdaq 100 futures lost 2 points to 1937.50.

Futures: Dow -0.1%. S&P -0.1%. Nasdaq -0.2%. Crude -1% to $75.27. Gold +0.4% to $1274.20.



futures091610



Company News

Pier 1 Imports Inc (PIR)

Home decor chain Pier 1 Imports Inc (PIR) reported a quarterly profit just above Wall Street estimates, boosted by fewer promotions, tighter cost controls and strong sales.

The company, whose wares range from wicker chairs to wine glasses, has managed its inventory tightly, reducing the need for markdowns and clearance events.

"Our return to profitability and beyond is firmly on track," Chief Executive Alex Smith said in a statement. "We are all extremely upbeat about short and long-term prospects for our company."

Net income was $14.4 million, or 12 cents a share, in the second quarter ended Aug. 28, compared with a year-earlier loss of $15.8 million, or 17 cents a share.

Analysts on average were expecting a profit of 11 cents a share, according to Thomson Reuters.

This was the fourth consecutive quarterly profit for the Fort Worth, Texas-based retailer after years of losses during the housing downturn and the recession.

Many home goods retailers reworked their strategies to salvage sales as they watched Linens 'N Things [LNNHDL.UL], once the No. 2 U.S. home goods chain, and smaller players like Gottschalks (GOTTQ) become casualties in the downturn.

Under Smith's leadership, Pier 1 has shed jobs, pruned its store base, negotiated with landlords to reduce rents, and made merchandising changes.

The company began offering more decorative furniture items like end- and side-tables rather than bulky pricey goods like couches and armoires. While it offered fewer items in large numbers in prior years, Pier 1 is now offering shoppers more choice.

Sales rose 8.1 percent to $309.9 million, compared with analysts' estimates of $310.1 million. Sales at stores open at least a year rose 11.2 percent.

The company, whose rivals include Bed Bath & Beyond Inc (BBBY), Williams-Sonoma Inc (WSM) and Cost Plus Inc (CPWM), said merchandise margins were 58.3 percent of sales in the quarter, compared with 52 percent a year earlier.

Pier 1 shares have dropped about 19 percent since touching a 52-week high in April.

FedEx (FDX)

FedEx Corp (FDX) reported a quarterly profit that more than doubled, but came slightly shy of Wall Street's revised expectations, as a recovery in the global economy sparked demand for the U.S. company's package-delivery services.

FedEx said on Thursday fiscal first-quarter profit was $380 million, or $1.20 per share, compared with earnings of $181 million, or 58 cents per share, a year earlier.

Analysts, on average, had anticipated earnings of $1.21 per share, according to Thomson Reuters.

Revenue rose 18.1 percent to $9.46 billion.

The Memphis, Tennessee-based company, which had last raised its 2011 profit forecast in July, increased it for a second time to a range of $4.80 to $5.25 per share, excluding the cost of merging some ground operations. It said demand for air freight services rose as companies -- particularly Asian electronics makers -- scrambled to rebuild the inventories they had cut to the bone during the recession.

FedEx shares are up about 2 percent so far this year, outpacing the 0.5 percent rise of the Standard & Poor's 500 .SPX, but lagging the 18 percent rise of larger rival United Parcel Service Inc (UPS).

Oracle (ORCL)

After the close, Oracle (ORCL) is expected to report a profit of 37 cents per share, versus 30 cents a year ago.

Research in Motion (RIMM)

Also after the close, BlackBerry maker Research in Motion (RIMM) is forecast to earn $1.35 per share, compared with $1.03 a year ago.

NRG Energy Inc. (NRG)

NRG Energy Inc. (NRG) kept the merger-and-acquisition ball rolling on Wall Street by announcing that it is buying Green Mountain Energy Company for $350 million in cash. NRG said the acquisition fits its strategy to "become the clean energy provider of choice for Americans who want to make a difference for the environment." The company plans on running Green Mountain as a stand-alone business. NRG said it would fund the purchase with cash on hand, and expects the deal to close by the middle of November.

Ford Motor Co. (F)

Barclays Capital upgraded Ford Motor Co. (F) to "overweight" from "equal weight," and lifted its price target on the shares to $16 from $15. "[Investors] appear to be ignoring the fundamental increase in Ford's earnings power even in a slower-growth environment," the brokerage firm wrote in a research note. That increase is "driven by favorable Ford product (and U.S. industry pricing) on top of a stripped-down cost base, even at flat share."

Some Interesting News

Uncertain future for Abbott's diet drug. An FDA advisory panel split 8-8 on whether to recommend that Abbott Laboratories' (ABT) Meridia diet pill stay on the market after a study linked the pill to more heart attacks, strokes and deaths. Meridia has already been pulled in Europe, and of the eight FDA panel members who voted against a ban, six urged restricted sales along with a strong "black box" warning. The FDA will weight the panel's advice as it makes its final decision on the drug, which is expected to generate around $30M in U.S. sales this year.

Airgas ousts CEO from board, Air Products in pursuit. At Airgas' (ARG) annual meeting, shareholders voted out CEO Peter McCausland from his role as chairman of the board, and ousted two other board members as well, electing in their stead three board nominees from hostile bidder Air Products & Chemicals (APD). Shareholders also approved three bylaw proposals put forth by Air Products, though Airgas said it believes two of them weren't legally valid because they failed to win support from 2/3 of the shareholders. Air Products, which had threatened to drop its pursuit of Airgas if the votes didn't go in its favor, said "Airgas shareholders have provided a clear mandate to negotiate a transaction" and the firm is "ready to negotiate immediately."

Yahoo sticks with Alibaba. Yahoo (YHOO) CEO Carol Bartz denied speculation that the company is nearing a sale of its 39% stake in Alibaba (ALBCF.PK) for as much as $11B, saying the relationship is a smart way to invest in China. Bartz said Alibaba "constantly" approaches Yahoo about repurchasing its stake, and Alibaba confirmed this morning that it had made an offer to partially buy back Yahoo's stake but was rejected. Reports of the possible deal helped boost Yahoo's shares yesterday, and Bartz's denial did nothing to crimp the stock's rise; shares closed up 4.7% in yesterday's trading.

Boeing, Airbus both claim WTO victory. As expected, the WTO issued a preliminary finding that Boeing (BA) had received illegal subsidies from the U.S. to the detriment of European rival Airbus. Also as expected, both Boeing and Airbus claimed a victory on the decision, with Airbus pleased that the WTO had slammed the actions of Boeing and the U.S., and Boeing relieved that only a fraction of the funding in question was found to violate WTO rules. This is the latest, but not the last, development in the six-year-old dispute between the U.S. and EU over subsidies to the aircraft makers.

U.S. files WTO complaints against China. The U.S. filed two WTO complaints against China yesterday, one on payment-processing companies (which impacts such U.S. firms as Visa (V) and MasterCard (MA)) and the other on steel duties (which impacts firms like AK Steel (AKS)). The filings followed congressional demands hours earlier to push China on accelerating yuan reform. Geithner, who will testify before lawmakers today on China's trade and currency, plans to say the U.S. is dissatisfied with the pace of yuan appreciation and is considering ways to encourage China to let the currency rise faster.

TARP's ineffectiveness complicates future responses. The Treasury's "ineffective" handling of TARP will make it more difficult for the government to respond to future financial crises, according to a new report from the Congressional Oversight Panel. "The early change in TARP strategy from asset purchases to capital injections, followed by the rollout of numerous seemingly unconnected programs, combined with largely ineffective communication of the reasoning behind these actions, spread confusion in the public and undermined trust in the TARP... The greatest consequence of the TARP may be that the government has lost some of its ability to respond to financial crises."

Microsoft scores on video game. Microsoft (MSFT) said global sales of its new videogame "Halo: Reach" broke the $200M mark on its launch day. The strong debut should help Microsoft's November rollout of its new gaming system, and provides a glimmer of hope as Microsoft and gaming rivals Nintendo (NTDOY.PK) and Sony (SNE) try to revive sales in the flagging $60B game industry.

Conclusion

Stocks ended higher Wednesday, thanks to a surge in the last half hour of trading tracking the U.S. dollar's gains, after Japan moved to curb the yen's strength.

The data and corporate results, today, could be welcome catalysts to a market that has been stuck at the top of a trading range in recent days.

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