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Market Outlook
Tuesday, September 21, 2010



Tuesday has a couple of major economic reports scheduled. The reports that are available are:-

  • 7:45… ICSC Retail Store Sales

  • 8:30 … Housing Starts

  • 8:55 … Redbook Chain Store Sales

  • 10:00 … Hearing: 'Creating jobs and growing the economy'

  • 2:15 PM… FOMC announcement

  • 5:00 PM … ABC Consumer Confidence Index


Also the following companies are reporting their quarterly earnings:-

  • AutoZone Inc. (AZO),

  • ConAgra Foods Inc. (CAG),

  • Adobe Systems Inc. (ADBE),

  • Cintas Corp. (CTAS) and

  • Darden Restaurants Inc. (DRI)


tuesday outlook

Tuesday sees U.S. stocks opening slightly higher ahead of the Federal Reserve's highly anticipated announcement on interest rates.

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

Investors are gearing up for the Fed's announcement on interest rates, due at 2:15 p.m. ET.

“Perhaps the market is setting itself up for a letdown if the FOMC [Federal Open Market Committee] decides to do nothing today,” Mads Koefoed, market strategist at Saxo Bank said. “We expect more quantitative easing, but it’s too soon right now. We think it’s much more likely they will do it in November.”

Jeffrey Kleintop, chief market strategist at LPL Financial, said the Fed has historically provided additional stimulus at this point in the economic cycle.

“We put about a 25% chance of quantitative easing in September, with a greater chance of action at the November meeting scheduled the day after the mid-term elections,” Kleintop said in a note to clients.

“If the Fed does act and announces action at their meeting on Tuesday, the stock market may break out of its current range to the upside,” he said.

Economic Concerns

Interest Rates

The Fed is widely expected to leave rates unchanged. But, as has been the case for nearly two years, investors will be looking for signals about the economic outlook and for references to quantitative easing, the central bank's recent policy of buying bonds to stimulate the economy.

Any deviation from expectations could move markets in either direction.

At its previous meeting, the Federal Reserve took a cautious stance about the recovery, saying it plans to reinvest its debt into longer-term Treasury securities.

Recap of the Aug. 10, 2010 Fed statement

Going forward, it's unlikely that Fed policymakers will authorize new asset purchases at the meeting, but might want to signal their intentions to do so in the future, Kathy Lien, director of currency research at Global Forex Trading said in a note to investors.

"The Fed could wait until the economy deteriorates further before implementing additional quantitative easing, but if they want to pre-empt the potential slowdown, it may be smarter to act before the slowdown materializes because it will be a more difficult fix," she said.

Housing Starts

Reports on August housing starts and building permits are due out at 8:30 a.m. ET.

Economists are expecting the reports to show new home construction ticked marginally higher in August, with housing starts rising to an annual rate of 550,000 for the month, up from 546,000 in July, according to consensus estimates from Briefing.com.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) enters today trading firmly above potential support in the 10,700 region, a region that had previously provided stiff technical resistance.

The S&P 500 Index (SPX): has potential support at the 1,135 level, and at 1,130 below that.

Gold futures: for December delivery rose $1.30 to $1,282.10 an ounce, hovering near its intraday high of $1,285.20. Gold continues to break records, settling at a record-high close at $1,280.80 an ounce on Monday.

• The U.S. Dollar Index: In the currency markets, the dollar fell against most of its major rivals, with the dollar index (DXY) trading down 0.4% to 81.052. The euro gained 0.6% to $1.3136 and the greenback dropped to 85.54 Japanese yen.

Benchmark crude futures: The expiring October oil futures contract fell 62 cents to $74.24 a barrel. Oil futures for November delivery, which will be the active contract beginning Wednesday, fell 15 cents to $76.04 a barrel.

Bonds: The yield on the benchmark 10-year note fell to 2.71% from 2.72% late Monday.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,475,119 call contracts traded on Monday, compared to 704,247 put contracts.

Overseas Markets

In Europe, equity markets rose, as a well-received Irish bond auction buoyed sentiment.

The dollar fell against the euro and the Japanese yen and was up slightly against the British pound.

European share markets edged higher in morning trading. Britain's FTSE 100 gained 0.4%, the CAC 40 in France rose 0.6% and Germany's DAX rose rose 0.5%.

In Europe at midday, London +0.30%. Paris +0.45%. Frankfurt +0.39%.

Asian Concerns

Earlier in Asian markets, the Hang Seng index in Hong Kong and Shanghai Composite finished the session slightly higher. Japan's Nikkei index fell about 0.3%.

In Asia, Japan -0.25% to 9602. Hong Kong +0.11% to 22003. China +0.11% to 2592. India +0.48% to 20002.

Futures Trading

As of 6:35 a.m. in New York, the Dow Jones Industrial Average futures fell 6 points, or 0.06%, to 10665, the S&P 500 index futures were down 1.1 points to 1135.50 and the Nasdaq 100 futures fell 0.75 points to 1981.00.

Futures: Dow -0.09%. S&P -0.07%. Nasdaq +0.05%. Crude -0.85% to $74.22. Gold +0.22% to $1283.60.



futures092110



Company News

ConAgra Inc. (CAG)

ConAgra Inc. (CAG) reported first-quarter earnings of $146.3 million, or 33 cents per share, as revenue slipped 2.4% to $2.82 billion. Analysts were expecting a profit of 38 cents per share on revenue of $2.97 billion. ConAgra also said it now expects fiscal 2011 adjusted earnings per share to grow 5% to 7% from its fiscal 2010 level of $1.74. Additionally, the company lifted its dividend 15%, to 92 cents per share on an annualized basis, from 80 cents per share, effective in December.

Boeing Co. (BA)

Boeing Co. (BA) said that it is anticipating $80 billion in commercial aircraft purchases from African customers over the next 20 years. "As the demand for African commodities grows and foreign development and tourism increase, African carriers will require a modernized fleet in order to compete on routes historically dominated by foreign carriers," said Mike Warner, senior market analyst for Boeing Commercial Airplanes. Warner added that the current fleet of African aircraft is nearly 20 years old, on average.

Bank of America Corp (BAC) is laying off less than 5 percent of its investment banking staff and will tell employees about the cuts this week, a source familiar with the plans told Reuters on Monday.

• Global airlines are likely to post sharply higher profit in 2010 than previously forecast as the industry rebounds from economic recession, the International Air Travel Association said on Tuesday.

• Real estate investment trust Home Properties (HME) raised its outlook for third-quarter funds from operations, citing better-than-expected rental income and cost controls.

Barnes & Noble Inc (BKS) failed to win the support of an influential shareholder advisory firm in its bitter proxy fight with billionaire investor Ron Burkle over the future of the nation's largest bookseller but got help from another. Institutional Shareholder Services on Monday came out in support of Burkle's bid to install himself and two other directors on Barnes & Noble's board and to amend a poison pill designed to prevent him from taking a larger, more influential ownership stake.

Some Interesting News

H-P and Hurd settle, paving the way for the ousted CEO’s move to Oracle. It looks like the battle between Hewlett-Packard (HPQ) and its ousted CEO Mark Hurd is coming to an end. The two sides said in a joint statement yesterday that Hurd would agree to protect H-P’s confidentiality while fulfilling his duties at Oracle (ORCL). Hurd also agreed to make a change to his severance package, forfeiting about 345,000 in restricted stock units worth an estimated $13M.

It’s official, recession ended in June 2009. The National Bureau of Economic Research, the official arbiter of when recessions begin and end, determined that what is now called The Great Recession ended in June 2009. Having begun in December 2007, it is the longest downturn since World War II. The decision was made by the Business Cycle Dating Committee of the NBER. The committee also decided that any further downturn of the economy would be considered a new recession, rather than a continuation of the recession that began in December 2007.

Deutsche Bank eyes $13B share offering. Deutsche Bank (DB) is expected to raise as much as $13B in Europe’s biggest rights offer this year. Germany’s biggest bank plans to sell more than 308M new shares in Germany and the U.S., priced at a 30% discount to yesterday’s closing price. Shareholders will be able to buy one new share for every two that they own. The bank will use the proceeds to fund a takeover of Postbank (DEUPF.PK) and to increase reserves.

Capital IQ to buy rival TheMarkets.com. Capital IQ, a unit of Standard and Poor’s, is putting together a deal to buy TheMarkets.com, a joint venture of several Wall Street banks including Goldman Sachs (GS) and JP Morgan Chase (JPM), for $300M. TheMarkets.com was formed in 2000 as a way to provide banks’ sell-side research to institutional investors.

Microsoft bets on Zune in Europe. Microsoft (MSFT) is rolling out new software that will expand its Zune music and movie download service to Europe. It is hoping that Zune will catch on with users of its Xbox gaming system and its forthcoming smartphone operating system, Windows Phone 7, to help it compete with Apple’s (AAPL) iTunes service.

Nokia delays delivery of N8 smartphone… again. Mobile equipment maker Nokia (NOK) announced that it would delay the delivery of its much anticipated smartphone N8. The Finnish company said it would hold off on delivering pre-orders for a few weeks to do some final adjustments. It is just the latest snafu in the roll-out of the phone, which it hopes can compete with offerings from Apple (APPL) and others that are based on Google’s (GOOG) Android operating system, including those from Motorola (MOT). Last week’s announcement of the new phone was overshadowed by a shakeup in the company’s top ranks.

UniCredit chief loses battle, likely to step down . Alessandro Profumo is expected to step down as CEO of UniCredit (UNCFF.PK), Italy’s largest bank, after losing the support of some key investors. The bank is likely to appoint chairman Dieter Rampl to run the bank on an interim basis. A group of shareholders accused Profumo of not listening to their concerns. Shares of the bank were down as much as 4% in trading in Milan.

Toyota settlement expected to be sealed. A federal judge said that he is inclined to keep the settlement confidential between Toyota (TM) and the relatives of four people killed when a driver was unable to stop a Lexus. A sealed suit could hurt the chances of hundreds of plaintiffs who are pursuing a class-action against Toyota to settle their case. In separate news, Chinese authorities are pursuing a bribery charge against Toyota, alleging that the automaker’s finance arm paid bribes to encourage dealers to push loans from Toyota on customers.

Imax goes big into China. Theater operator Imax (IMAX) signed a deal with a subsidiary of South Korea’s CJ CGV Co. to have 15 Imax systems installed in China. While terms were not disclosed, Imax said in a statement that it would trade lower up-front fees for a larger share of the box office generated by the theaters. CJ CGV already operates five Imax theaters in South Korea.

Judge orders Kerr-McGee to pay $23M in fines. A federal judge ordered Kerr-McGee Oil and Gas (KMG) to pay $23M in fines stemming from false royalty claims it submitted to the federal government. The fine includes $5.7M in payments to an auditor who uncovered the fraud, as part of the federal whistleblower program. Kerr-McGee is weighing an appeal of the decision.

Conclusion

The blue-chip Dow index (DJIA) rallied 1.4% on Monday to end at 10,753.62, marking its highest close since May 13. The Dow has gained 7.4% so far this month and is currently on track for its best September performance since 1939, according to index data from Dow Jones.

“There is no doubt that generally investors are overlooking all the bad signs in the economy,” said Mads Koefoed, market strategist at Saxo Bank. “We had a bad housing number yesterday, but nothing bites right now.”

The NAHB/Wells Fargo housing-market index remained at multimonth lows in September, data showed on Monday, but investors focused instead on positive earnings reports and a declaration by a research group that the U.S. recession ended in June 2009.

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