Market Outlook
Monday, September 20, 2010

Monday has very little in the way of economic reports scheduled. The following is all that is happening:-

  • 10:00… NAHB Housing Market Index

  • 2:15 PM… FOMC Meeting, Day 1

Also the following companies are reporting their quarterly earnings:-

  • Discover Financial Services (DFS) and,

  • Lennar Corp. (LEN)

monday outlook

Monday sees the U.S. stock futures drifting higher, as investors awaited the latest update on the housing sector and looked ahead to a busy week of economic events.

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

Trading has been choppy on Wall Street recently. Stocks managed to rise last week, although gains over the last five trading days have been modest. But investors may find direction, with a raft of economic readings coming out this week.

Economic Concerns

NAHB Housing Market Index

The National Association of Home Builders/Wells Fargo issues its monthly housing market index. Economists in a Reuter’s survey expect a reading of 14 versus 13 in August.

**On Tuesday, the Federal Reserve will announce its latest rate decision. Economists aren’t expecting any change in policy, but will be on the lookout for any hints about possible future quantitative-easing measures.

Notes of Importance

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

The Dow Jones Industrial Average’s (DJIA) next layer of resistance lies at the 10,700 level, while the 10,500 area should provide some support in the event of a pullback.

The U.S. Dollar Index has slipped 0.29% to trade at 81.16 heading into the open.

Benchmark crude futures for October delivery gained 18 cents to $73.84 a barrel.

Gold futures for December delivery gained $3.60 to $1,281.10 an ounce, nearing its intra-day high of $1,284.40 reached on Friday.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,519,394 call contracts traded on Friday, compared to 876,940 put contracts.

Overseas Markets

European Concerns

European share markets were higher in morning trading. Britain's FTSE 100 jumped 1.2%, the CAC 40 in France rose 1%, and Germany's DAX added 0.7%.

Europe at midday, London +1.2%. Paris +0.8%. Frankfurt +0.6%.

In currencies: The dollar fell against the euro, the Japanese yen and Britain's pound.

Asian Concerns

Earlier, in Asian markets the Hang Seng ended modestly higher, while the Shanghai Composite edged lower. Japanese markets are closed for a holiday today.

In Asia, Japan +1.2%. Hong Kong flat. China -0.4%. India +1.6%.

Futures Trading

As of 6:35 a.m. in New York, the Dow Jones Industrial Average futures were up 47 points, or 0.44%, to 10585, the S&P 500 index futures climbed 6.5 points to 1126.20 and the Nasdaq 100 futures were up 11.25 points to 1964.00.

Futures at 7:00:S&P +0.51%. 10-yr +0.05%. Euro +0.38% vs. dollar. Crude +0.43% to $75.24. Gold +0.3% to $1281.30.


Company News

Lennar Corp (LEN)

Lennar Corp (LEN), the third-largest U.S. homebuilder, posted a better-than-expected third-quarter profit as deliveries jumped.

However, Lennar said new orders during the period fell 15 percent to 2,624 homes, and that expiration of a homebuyer tax credit hurt sales.

For the June-August quarter, Lennar posted earnings of $30 million, or 16 cents a share, compared with a loss of $171.6 million, or 97 cents per share, a year ago.

Revenue rose 14 percent to $825.0 million, as deliveries jumped 10 percent to 2,950 homes.

Analysts were expecting a profit of 6 cents a share on revenue of $777.5 million, according to Thomson Reuters.

Lennar and other homebuilders had benefited from a federal tax credit for first-time home buyers, but the credit expired in April.

Last week, Beazer Homes USA Inc (BZH) cut its full-year outlook for new home orders after the expiration of the tax credit, saying potential buyers remain cautious amid high unemployment and continued foreclosures.

The expiration of the government tax credit has pulled the rug out from under homebuilders who, earlier this year, had seen a rebound in sales that many hoped reflected improving fundamental demand.

Lennar shares, which have lost 36 percent of their value since hitting a year-high in April, closed at $13.99 Friday on the New York Stock Exchange.


Verizon Communications (VZ) is expected to name Lowell McAdam as its president and chief operating officer, the Wall Street Journal reported, citing a person familiar with the matter.

BP (BP) announced Sunday that its Macondo well in the Gulf of Mexico has been cemented shut and is "effectively dead." The well ruptured 5 months ago, causing the worst oil spill in U.S. history.

Some Interesting News

Safran boosts U.S. business with $1.1B L-1 buy. French security firm Safran said it will pay $1.1B for L-1 Identity Solutions (ID) ($12/share), a 24% premium to Friday's close. Safran will incorporate L-1 into its existing Morpho security arm, where it will join previous acquisitions including Motorola's (MOT) Printrak biometrics unit and GE's (GE) Homeland Protection unit. L-1 provides secure ID credentials to government and commercial customers, and specializes in biometric security, such as fingerprint, iris and face recognition.

Junk demand blasts above pre-crisis levels. Strong demand for junk bonds has pushed prices to the highest level since June 2007 - at the height of the credit boom. BofA's benchmark junk debt index rose last week above 100 for the first time since the start of the credit crisis, a level that assumes bonds will generally be repaid in full. Sales of U.S. junk bonds reached $168B last week - already surpassing 2009 when the $164B total set a record. • Macondo's dead; issues live on. Shares of BP (BP) are marginally higher premarket (+1%) after it confirmed it has finished capping Macondo by drilling a relief well into its base. No oil has leaked since a temporary cap was installed on July 15, but BP said the permanent plug represents "a significant milestone." BP also said payouts to people affected by the spill have increased dramatically since it surrendered authority for dispensing funds to an independent administrator. Total spill response costs now stand at $9.5B.

General Mills craves Yoplait. General Mills (GIS) is pondering a £1B takeover bid for Yoplait after the French firm tried to scrap a distribution deal between the companies, sources say. General Mills declined to comment.

Her Majesty wants access to your bank account. UK tax collectors proposed today that all paychecks be processed by the government, which would deduct taxes before transferring funds to employees. The agency described the plan, which would require employers to share real-time information with tax authorities, as a "radical" change from the current system.

Greek stress tests postponed. European regulators and the IMF have agreed to postpone stress tests for Greek banks by a month after a government bond auction last week was well received. Tomorrow National Bank of Greece (NBG) will auction three-month paper, which could give further indication of investors' confidence.

Big small plans for Wal-Mart. Commercial real estate brokers say Wal-Mart (WMT) is gearing up for a move into small convenience stores in large urban markets like Chicago and LA, hoping to revitalize sagging domestic growth. Street chatter suggests Wal-Mart is in the market for hundreds of locations across the U.S. Separately, Wal-Mart has begun experimenting with online purchases delivered free to FedEx (FDX) outlets in a bid to boost sales in locations like LA and Boston where Wal-Mart has little to no store presence.

Nissan looks to boost China sales. Nissan (NSANY.PK) plans to double its production in China to 1.2M units by 2012 looking for a 10% share of the world's No.1 auto market. The goal is 20% higher than Nissan's previous target, underscoring its strong interest in China, which has been a bright spot for automakers during the global downturn.

Apple pushes iMag store. Sources say Apple (AAPL) is trying hard to persuade publishers to help it create a hub for buying newspaper and magazine subscriptions. An iPad-based subscription service would give publishers a much-hoped-for source of growth, but they are also wary of letting Apple gain the same degree of influence over the periodical market that it has over music sales.

China kicks GM's tires. Sources say China's No.1 automaker SAIC has approached GM about taking a "single digit" stake in the automaker's IPO this fall. In a posting Friday, the Treasury said the much-awaited IPO will be open to a wide range of U.S. and overseas investors - which may or may not extend to Beijing. A SAIC spokeswoman commented only that, "SAIC is closely watching the process of a GM IPO."

French banks docked €385M for fee cartel. The French competition watchdog has fined 11 banks - including HSBC (HBC), Societe Generale (SCGLY.PK) and BNP Paribas (BNPQY.PK) - €385M for colluding to charge bloated fees on checks and other banking services.

PE firms eye Honda bike business. A group of private-equity firms including KKR & Co. (KKR) and Bain Capital are competing to buy a 15% stake in Honda's (HMC) Hero Honda Motors, India's biggest motorcycle maker. The stake is valued at about $1.1B.


Stocks are set to extend their September rally into a fourth week as traders eye the Federal Reserve's meeting in the coming days.

There is a growing expectation the Fed's rate-setting committee might relaunch programs to buy Treasurys and mortgage bonds in an effort to further stimulate the struggling economy. At the very least, it might hint at future plans to make such moves.

Key housing reports throughout the week will also be closely scrutinized for signs of improvement in the struggling market. There are no major economic reports due out Monday.


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