Market Outlook
Thursday, September 30, 2010

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

  • 8:30… GDP Q2

  • 8:30 … Initial Jobless Claims

  • 8:30… ISM New York Business Index

  • 8:30 … Corporate profits

  • 9:45 … Chicago PMI

  • 10:00… Hearing: Implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act

  • 10:30 … EIA Natural Gas Inventory

  • 11:00 … KC Fed Manufacturing

  • 2:30 PM… Fed's Bernanke: Town Hall Meeting

  • 4:30 PM … Money Supply

  • 4:30 PM … Fed Balance Sheet

  • 6:00 PM… Fed's Pianalto: 'Vital Economic Issues Confronting the New Congress'

Also the following companies are reporting their quarterly earnings:-

  • Accenture Plc (ACN) and

  • McCormick & Company, Inc. (MKC)

thursday outlook

Thursday sees U.S. stock futures little changed as investors enter the last day of the quarter cautiously.

An upcoming report on first-time claims for unemployment benefits Thursday and a final reading on second-quarter gross domestic product are keeping traders from making any big moves.

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

”We have seen some fairly good numbers today from the euro zone — Germany saw the unemployment rate decline,” said Mads Koefoed, a strategist at Saxo Bank. “These numbers suggest that we still have some sort of recovery going on in Europe.”

However, “the problem for stocks has been that the last few days have been all about the sovereign debt concerns,” Koefoed said.

Economic Concerns

Later in the session, investors will closely watch U.S. second quarter final GDP. Economists in a Reuters survey forecast a 1.6 percent annualized pace of growth, a repeat of the second estimate.

Also on the macroeconomic front is the latest U.S. weekly jobless claims and the September ISM New York report will also be released at 1230 GMT, with September's Chicago PMI data due at 1345 GMT.

Initial Jobless Claims

Economists are looking for weekly claims to fall by 9,000 to 457,000 claims.


The Commerce Department's third estimate for second-quarter gross domestic product is due out at 8:30 a.m. ET. Economists surveyed by expect the report to show no further changes after the government's last revision to the number in August showed the economy grew at an annual rate of 1.6%.

China Bill

Investors are also mulling over a bill passed by the House of Representatives Wednesday evening that censures China for artificially keeping its currency at a low value against the dollar.

In an aim to help U.S. companies compete, the legislation would authorize the Commerce Department to impose tariffs on imports from countries with undervalued currencies. The Senate is not expected to take up the issue until later this year.

**The U.S. Senate approved two of President Barack Obama's three nominees to the Federal Reserve on Wednesday, including San Francisco Federal Reserve Bank chief Janet Yellen to serve as vice chairman.

**Elizabeth Warren, the Obama administration's new consumer financial czar, offered an olive branch to the largest U.S. banks on Wednesday, saying she wanted their help in developing a principles-based approach to rulemaking.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA): U.S. stocks ended slightly lower on Wednesday, with the blue-chip Dow index (DJIA- 10,835) falling 0.2%. The Dow, however, is still on track for its best September performance since 1939, according to data from Dow Jones Indexes.

Look for the DJIA to hold support near 10,750, with resistance near 10,900.

The S&P 500 Index (SPX) has gained over 9 percent so far this month, helped by signs of stabilization in the economy and hopes the Federal Reserve will take extra steps to spur the recovery.

The SPX should find a floor at 1,130, and a ceiling at 1,150.

• The U.S. Dollar Index: The dollar dropped against other major rivals, with the dollar index (DXY) trading down 0.3% to 78.488.

Benchmark crude futures for November delivery rose 20 cents to $78.06 a barrel.

Gold futures, for December delivery edged $5.50 higher to $1,315.80 an ounce, after surpassing another intra-day trading record earlier.
Bonds: The yield on the benchmark 10-year bond rose to 2.51% from 2.5% late Wednesday.

Equity options activity on the CBOE saw 1,168,894 call contracts traded on Wednesday, compared to 657,776 put contracts. The resultant single-session put/call ratio arrived at 0.56, while the 21-day moving average held at 0.59.

Overseas Markets

In Ireland, the country's central bank said that it would have to raise billions in additional capital to help prop up the Irish banking system. Anglo Irish Bank, which was nationalized at the height of the global financial crisis, could need up to 5 billion euros in additional capital. Allied Irish Bank could need 3 billion euros in additional capital.

For Ireland, the entire banking system rescue could cost Irish citizens upwards of 50 billion euros.

Also in Europe, Moody's Investor Services downgraded the credit rating of Spainto "Aa1" on Thursday, making it the last of the major credit agencies to downgrade Spain's debt. The downgrade had been rumored in the markets for a couple days now.

The bad news from Ireland and Spain were counterbalanced by another round of good economic news from Germany, where data showed the number of unemployed declined in September. The unemployment rate unexpectedly edged down to 7.5%.

European Concerns

European share markets fell in midday trading, after Ireland's central bank unveiled a bank bailout set to reach about $46 billion. Ireland's budget deficit is on track to hit 10 times the European Union guidelines for eurozone members, the central bank said.

European shares fell for a fourth straight day on Thursday, with investors moving away from riskier assets on concerns about deeper fiscal cuts in Ireland and as Moody's downgraded Spain's government bond ratings.

In Europe, at midday, London -0.11%. Paris -0.72%. Frankfurt -0.22%.

Currencies: The euro extended its losses against the dollar and yen on Thursday after Ireland's central bank put the price of bailing out Anglo Irish Bank at 34 billion euros ($46 billion).

The dollar fell against a broad range of currencies, including the euro, the Japanese yen and the British pound.

Asian Concerns

Earlier, Asian market shares ended mixed. Japan's Nikkei fell 2% and the Hang Seng in Hong Kong lost 0.1%. The Shanghai Composite rose 1.7%.

In Asia, Japan -1.99% to 93369. Hong Kong -0.09% to 22358. China +1.72% to 2656. India +0.57% to 20069.

Futures Trading

As of 6:45 a.m. in New York, the Dow Jones Industrial Average futures lost 4 points, or 0.04%, to 10776, the S&P 500 futures fell 0.9 points to 1140.00 and the Nasdaq 100 futures were down 1.25 points to 2007.75.

Futures: Dow -0.01%. S&P -0.09%. Nasdaq -0.01%. Crude +0.21% to $78.02. Gold +0.27% to $1313.90.


Company News

McCormick & Co. (MKC)

McCormick & Co. (MKC) posted a third-quarter profit of $102.4 million, or 76 cents per share, topping analysts' expectations for earnings of 59 cents per share. For the full year, McCormick raised its outlook to $2.67 to $2.71 per share, excluding a one-time tax benefit, from a prior view of $2.49 to $2.54 per share. Analysts were forecasting full-year earnings of $2.54 per share.

Johnson & Johnson's (JNJ) massive recall of faulty medicines, including a quiet buyback of its Motrin painkiller, has angered U.S. lawmakers who will question the company's chief executive and a senior health regulator on Thursday.

McDonald's Corp (MCD) may cut health insurance for its nearly 30,000 hourly workers unless U.S. regulators waive a requirement of new health care legislation championed by President Barack Obama, The Wall Street Journal reported, citing a company memo.

Yahoo Inc (YHOO) is losing another three executives, including U.S. head Hilary Schneider, All Things Digital reported on Wednesday, citing sources close to the situation.

• Car rental company Avis Budget Group Inc (CAR) said on Wednesday it would be willing to include a break-up fee in its offer for Dollar Thrifty Automotive Group (DTG) if rival Hertz Global Holdings (HTZ) walks away from its own takeover bid for Dollar Thrifty.

AIG (AIG) took another step towards paying back its government bailout Thursday, after announcing an agreement to sell its Japan-based units for $4.8 billion. The insurer said it is selling its Star Life and AIG Edison Life companies to New Jersey-based Prudential Financial.

Some Interesting News

House passes bill targeting China's yuan policy. The House easily passed legislation to penalize China's foreign exchange practices, sending a powerful signal to Beijing to boost the value of its currency but risking a backlash that could harm U.S. companies and consumers. The measure allows but does not require the U.S. to levy tariffs on countries that undervalue their currencies. Chinese Premier Wen Jiabao has said China would suffer "major social upheaval" if it acquiesces to demands for a 20%-40% rise in the yuan. Earlier today China warned that the bill could seriously affect bilateral ties.

U.S. Agrees to AIG Exit Plan. AIG’s (AIG) board approved a plan for the Treasury to convert its preferred shares into common stock, paving the way for the federal government to begin to unwind its position in the troubled insurer. Treasury may begin converting its $49B stake in AIG into common stock and sell it off next year. The move is not expected to impact AIG’s credit rating.

AIG to sell Japan life units to Prudential. In separate AIG (AIG) news, the insurer announced that it was selling two units, AIG Star Life Insurance and AIG Edison Life, to Prudential (PRU) for $4.2B in cash and the assumption of $600M in debt. The two Japanese life insurance units will give Prudential revenue in the second largest life insurance market of nearly $18B. The move is an effort on AIG’s part to raise cash to pay back U.S. taxpayers.

JP Morgan suspends foreclosures as robo-signing controversy spreads. JPMorgan Chase (JPM) is delaying foreclosure proceedings to systematically review documents after alerting attorneys that employees may have signed affidavits without personally reviewing the documents. It's the same issue that has plagued GMAC Mortgage, which admitted employees signed foreclosure affidavits in 23 states without knowledge of the documents or a notary present, a process known as "robo-signing." JPMorgan is suspending some 56,000 foreclosures until a review of its filing process in completed.

Moody’s issues downgrade on Spain. Moody’s (MCO) downgraded Spain’s government debt, following downgrades by other credit rating agencies last spring. The move cut the rating by one notch from Aaa to Aa1, and cited a weak economic outlook and doubt that Spain will reach deficit-reduction targets. Bonds actually rose on the news, as some traders had expected a two-grade cut.

Fed divided over quantitative easing. Three different Federal reserve officials offered three different views on the economy and whether the Fed should buy more Treasury bonds to push down long-term interest rates and stimulate growth: Boston's Eric Rosengren is a strong supporter, Philly's Charles Plosser is clearly opposed, while Minneapolis Fed's Narayana Kocherlakota has been skeptical but his gloomy outlook could sway him. The Fed is a house divided, but if Bernanke really wants to move to quantitative easing, analysts say he's got the votes.

FedEx shipping rates to rise. FedEx (FDX) will increase average FedEx Express shipping rates on U.S. domestic and export services by 3.9%, effective Jan. 3. The full average rate increase of 5.9% will be partially offset by reducing its fuel surcharge. FedEx Freight and less-than-truckload shipment rates will increase by 6.9%, effective Nov. 1. CEO Fred Smith paints an optimistic view, saying the company is "back on track" to reach long-term growth of 10%-15% in EPS and 10%+ in operating margins. But that growth will come mostly from international express shipping, not from the "tepid" U.S. economy.

RIM may expand use of new operating system. Research in Motion (RIMM) is considering using a new operating system, developed for its tablet device unveiled earlier this week, in some of its smartphones. The operating system was part of a $200M acquisition in April of QNX for use in its new PlayBook tablet. Such a move would likely allow BlackBerry phones to use a wider array of applications. Currently, it lags well behind Apple’s (AAPL) iPhone and Google’s (GOOG) Android operating system in the number of apps it can use, and is beginning to slip in market share too.

Goldman raises $2.3B by reducing ICBC stake. Goldman Sachs (GS) raised $2.25 billion from the sale of part of its stake in Industrial & Commercial Bank of China (ICBAF.PK). The bank increased the size of the share placement due to strong demand, cutting its holdings in ICBC by 23%. Goldman continues to own 3% of the Beijing-based bank. Regulatory risks, coupled with ICBC's upcoming rights offering, were considered factors behind Goldman's selldown.

Nokia finally ships N8 smartphone. After a series of delays, the number one maker of mobile phones, Nokia (NOK) finally announced that it was shipping its new flagship N8 phones, that are expected to compete with Apple’s (AAPL) iPhone and phones that run on the Android platform. The phone was originally scheduled to reach customers in June, and then last week, Nokia said there would be another delay. The company said it has a higher number of pre-orders for N8 than any phone in its history.


Wall Street took a breather from a month-long rally on Wednesday, with investors bracing for higher volatility going forward as the best quarter in a year nears its end. The Dow Jones industrial average .DJI shed 0.2 percent, the Standard & Poor's 500 Index .SPX dipped 0.3 percent and the Nasdaq Composite Index .IXIC fell 0.1 percent.


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