Market Outlook
Friday, September 17, 2010

Friday has only very few economic reports scheduled. They are:-

8:30 …Consumer Price Index

8:30…Real Earnings

9:30 …Fed's Tarullo:'Regulating the shadow banking system'

9:55 …Reuters/UofM Consumer Sentiment

Also the following companies are reporting their quarterly earnings:-

  • There are no major earnings reports scheduled for Friday.

friday update

Friday saw U.S. stock futures pointed to an opening rally on Wall Street, as investors cheered better-than-expected results from Research In Motion Ltd. and Oracle Corp.

But investors are also awaiting the government's latest report on consumer prices and bracing for a potentially volatile trading day as traders adjust their portfolios during so-called "quadruple witching."

The term refers to the phenomenon that takes place four times a year when several derivatives contracts expire at the same time -- those tied to market index futures, market index options, stock options and stock futures. It often leads to a massive surge in trading as professional investors adjust their portfolios.

"This has been a tech-led morning so far, and the market does look pretty good," said Marc Riddick, chief investment strategist and senior analyst at Riddick Consumer Strategies.

"As we move toward those consumer numbers later in the morning, anything in line with estimates will allow that to continue. But with quadruple witching, there's certainly going to be a good amount of volatility to go with it."

Economic Concerns

Consumer Price Index

Economists are looking for August's CPI, which is also the most common gauge of inflation, to rise 0.2% while the Michigan survey is expected to come in at a reading of 70.0 compared with August's 68.9.

Consumer Sentiment

The University of Michigan's index of consumer sentiment is expected to show that consumers were slightly more optimistic in the early part of September. The index is expected to rise to 70 from 68.9.

Elizabeth Warren

In the afternoon, President Obama is scheduled to announce that he's appointing Harvard law professor Elizabeth Warren as a special adviser to help create the Consumer Financial Protection Bureau that's a part of the Wall Street reform law.

Warren will advise the president and Treasury Secretary Timothy Geithner during the set-up process, but the announcement does not mean that she will run the new consumer bureau once it's up and running. But she remains a candidate for that job as well, sources have told CNN.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA)managed to squeeze out a minor gain on Thursday, stopping short at resistance at the 10,600 level, but extending the September rally.

• The U.S. Dollar Index has slipped 0.1% to trade at 81.15 heading into the open.

Benchmark crude futures for October delivery rose 51 cents to $75.08 a barrel.

Gold futures for December delivery rose $9.10 to $1,282.90 an ounce, and earlier in the morning posted a new intra-day trading high of $1,284.40 an ounce.

The contract closed at an all-time high of $1,273.80 on Thursday, topping the previous record of $1,271.70, which came on Tuesday.

Bond: The yield on the 10-year Treasury note was flat at 2.76%.

Equity options activity on the Chicago Board Options Exchange (CBOE) saw 1,176,486 call contracts traded on Thursday, compared to 681,683 put contracts. The resultant single-session put/call ratio arrived at 0.58, while the 21-day moving average held at 0.61.

Overseas Markets

European Concerns

European share markets rallied Friday. The CAC 40 in France rose 1.2%, Britain's FTSE 100 gained 1% and Germany's DAX rose 0.9%.

In Europe, at midday, London +0.9%. Paris +1.0%. Frankfurt +0.8%.

The dollar dipped against the euro, the Japanese yen and Britain's pound.

Asian Concerns

Earlier in Asia, markets closed higher. Japan's benchmark Nikkei index gained 1.2%, and Hong Kong's Hang Seng index rose 1.3%. The Shanghai Composite fell 0.2%.

In Asia, Japan +1.2% to 9626. Hong Kong +1.3% to 21971. China -0.1% to 2599. India +0.9% to 19595.

Futures Trading

As of 6:35 a.m. in New York, the Dow Jones Industrial Average futures were up 60 points, or 0.57%, to 10610, the S&P 500 index futures added 8 points to 1130.60 and the Nasdaq 100 futures rose 14.25 points to 1964.00.

Futures: Dow +0.7%. S&P +0.6%. Nasdaq +0.5%. Crude +0.8% to $75.17. Gold +0.6% to $1281.50.


Company News

Shares of Oracle and Research in Motion were up 3.7% and 5% respectively in the pre-market session after both companies reported earnings well above expectations and raised their guidance for the year.

Johnson & Johnson (JNJ) announced that it is in advanced talks to buy all the shares of Dutch biopharmaceutical company Crucell that it doesn't already own for around 1.75 billion euros ($2.29 billion). The all-cash deal would be worth 24.75 euros a share, the two companies said in a statement. The price would represent a 58% premium to Thursday's closing price of 15.70 euros. JNJ holds around 17.9% of Crucell's shares through an affiliate.

Some Interesting News

FDA panel rejects Arena's diet drug. An FDA advisory panel dealt Arena Pharmaceuticals (ARNA) a heavy blow, rejecting its proposed obesity drug, lorcaserin, on concerns the drug didn't work well and carried potential safety problems. The FDA will make a final decision on the drug on Oct. 22, and will likely follow the panel's recommendation. To make matters worse, Arena may face investor lawsuits for failing to disclose the drug caused cancer in rats, information which was only revealed in briefing documents prepared by the FDA this week. Pharmaceutical firms have been drawn to the potential blockbuster profits of weight-loss drugs, but have struggled to get FDA clearance; earlier this week, an advisory panel split 8-8 on whether to approve a diet drug from Abbott Laboratories (ABT), and Vivus' (VVUS) drug was rejected by the panel in July. Shares of rival Orexigen (OREX), which also has a diet drug under review, rose 38% yesterday; shares of Arena dropped 42% in after-hours trading.

J&J moves to buy out Crucell. Johnson & Johnson (JNJ) announced it's in advanced talks to buy the shares of Crucell (CRXL) it doesn't already own for around €1.75B ($2.3B) in cash, or €24.75/share. The offer is a 58% premium to Crucell's closing price yesterday in Amsterdam. Full control of the Dutch company, in which J&J currently holds an 18% stake, would strengthen J&J's ability to discover, make and sell vaccines, while Crucell would benefit from J&J's experience in developing and marketing pharmaceutical products. Premarket: CRXL +54% (7:00 ET).

Couche-Tard goes hostile. Alimentation Couche-Tard (ANCUF.PK) is making a hostile $38.50/share bid for Casey's General Stores (CASY), after its buyout offer of the same amount was rejected last week. To win over investors, Couche-Tard issued an open letter to Casey's shareholders reminding them that 7-Eleven, which has held discussions with Casey's, hasn't made a formal offer and may not come through. Couche-Tard also said it's willing to raise its price. Casey's will hold its annual meeting next week, and Couche-Tard has nominated eight directors to replace Casey's board.

Tech firms near settlements. Some of the biggest technology firms in the U.S. are in advanced talks with the Department of Justice to avoid an antitrust suit over whether the companies colluded on wages and agreed not to steal employees from one another. The talks are still fluid, sources said, but there's a strong incentive for both sides to settle before the case goes to trial, as the Justice Department may have a hard time proving its case while tech firms are wary of even chancing a government win, which could expose them to a wave of lawsuits from private investors. The companies include such heavyweights as Google (GOOG), Apple (AAPL), Adobe (ADBE), Intuit (INTU) and Disney's (DIS) Pixar.

Novell in talks to sell itself. Novell (NOVL) is reportedly in advanced talks to sell its Linux operating system business to VMware (VMW) and to sell some or all of its remaining assets, including its NetWare network operating system, to private equity firm Attachmate. Though negotiations are in a late stage, they are being slowed by several factors, including disagreement between Novell and VMware on the valuation of the Linux business and determining how to divide Novell's sales force and patents.

Warren to set up consumer protection agency. Elizabeth Warren has accepted the job of setting up the Consumer Financial Protection Bureau, declaring the time for financial "tricks and traps" is over. Warren will set up the agency but not run it once it's established; this workaround allowed Obama to sidestep the congressional confirmation process, as Republicans could have tried to block Warren's nomination.

RBS to start Chinese securities firm. Royal Bank of Scotland (RBS) has reportedly reached a deal to start a Chinese securities firm, after signing a memorandum of understanding with a local partner and filing for approval from the China Securities Regulatory Commission. The deal isn't final and RBS' partner couldn't be identified. However, sources say it's likely the deal will go forward, allowing RBS to manage domestic equity sales in China and boost its returns.

Mixed news from RIM. Research In Motion (RIMM) beat earnings expectations yesterday (see details below), but the news wasn't all good. Despite growth in quarterly profit and revenue, the company added fewer new subscribers than it had expected, a sign of the tough competition BlackBerry faces from Apple (AAPL) and devices based on Google's (GOOG) Android operating software. Co-CEO Jim Balsillie said subscriber growth was also hurt by concerns local service might be disrupted in places like India and the United Arab Emirates over security issues. RIM is hoping to see stronger sales and subscriber gains in Q3, when its new Torch model rolls out in more markets, but analysts warn initial sales of the device have been weak.

U.S. poverty climbs to 15-year high. The recession pushed more families below the poverty line in 2009, raising the U.S. poverty rate to 14.3% from 13.2%, according to a Census Bureau report released yesterday. The fact that the country's poverty rate is now at a 15-year high, and unemployment near a 26-year high, will likely intensify the ongoing debate among lawmakers about the effectiveness of increased spending to reduce unemployment.

Countrywide case to go to trial. The SEC received court approval to take former Countrywide CEO Angelo Mozilo and two other former Countrywide executives to trial. The SEC has accused Mozilo and the other two executives of failing to disclose the true state of Countrywide's deteriorating mortgage portfolio, and the case is one of the highest profile enforcement actions to come out of the recent financial crisis.

BOJ under growing pressure to act. The Bank of Japan, a notoriously conservative central bank, took the unusual step yesterday of allowing the estimated $21B generated by the government's intervention in currency markets to remain in the banking system. Usually, the money generated by an intervention is taken out by a central bank through daily money market operations; the decision to leave the money untouched essentially gives Japan's economy another boost. However, pressure is increasing on the bank to take further action and bolder steps to reinvigorate Japanese growth.


The blue-chip Dow index (DJIA) eked out small gains on Thursday. It ended up 0.2%, bringing its month-to-date gains to 5.8%.

“Yesterday we had some very good earnings releases. Oracle was a big surprise to the upside,” said Christian Tegllund Blaabjerg, chief equity strategist at Saxo Bank.

FedEx Corp. (FDX) also reported that international demand is picking up, easing concerns over a possible double-dip recession, which has been a key worry for the markets lately, he added.

”Also, Research In Motion came out with better results than expected,” Blaabjerg said. “Two tech companies coming out with better results than expected and a transportation company saying that international demand is picking up — this is the news the market was looking for.”

Investors have been encouraged by recent signs of improvement in manufacturing, but the outlook for job growth remains cloudy. Without any clear indication of where the economy is headed, the stock market has drifted modestly higher so far in September.


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