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Market Outlook
Thursday, August 05, 2010


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

Monthly retail same-store sales

6:00 …Monster Employment Index

7:00 …BoE Announcement

7:45 …ECB Announcement

8:30… Initial Jobless Claims

9:00 …Treasury's Wolin: Implementing Wall Street Reform

10:30… EIA Natural Gas Inventory

11:00… Geithner: Social Security and Medicare

11:00… San Francisco Fed Hearing: Home Mortgage Disclosure Act

4:30 PM… Money Supply

4:30 PM …Fed Balance Sheet

Also the following companies are reporting their quarterly earnings:-

• Beazer Homes USA Inc. (BZH),

• Diana Shipping Inc. (DSX),

• DIRECTV (DTV),

• Fuel Systems Solutions Inc. (FSYS),

• Hyatt Hotels Corp. (H),

• Liz Claiborne Inc. (LIZ),

• Playboy Enterprises Inc. (PLA),

• Time Warner Cable Inc. (TWC),

• Activision Blizzard Inc. (ATVI) and

• Kraft Foods Inc. (KFT).

charging bull

Thursday sees U.S. stocks set for a flat open, as investors remained cautious a day before the release of two key jobs reports over the next two days.

U.S. stock futures traded little changed on Thursday, as investors displayed caution ahead of jobless claims data and monetary-policy announcements from the European Central Bank and the Bank of England.

Analysts say unemployment remains the biggest hurdle to a stronger recovery, and traders avoided any big moves before the Labor Department's two reports. The economy continues to grow, but the pace of the rebound has slowed in recent months. That's because consumers have scaled back spending and started saving more as unemployment remains high and employers continue to avoid significant hiring.

Retailers are reporting monthly sales figures throughout the morning. Signs of spending growth could indicate confidence is starting to creep back in among shoppers.

Economic Concerns

Jobs: A weekly report on unemployment claims comes out before U.S. markets open Thursday.

Economists surveyed by Briefing.com expect 455,000 Americans filed for jobless claims last week, down from 457,000 the previous week.

The reading comes ahead of Friday's much-anticipated July jobs report released by the U.S. Labor Department.

It would be the second straight weekly decline, but claims are still too high to indicate broad hiring. Claims have hovered around 450,000 throughout the year, meaning that job cuts aren't prevalent like during the recession, but hiring hasn't picked up either.

The report is due out at 8:30 a.m. EDT.

Retail sales: Investors will also be watching July chain-store sales for the latest signs on the health of the consumer.

Retailers are reporting monthly sales figures throughout the morning. Signs of spending growth could indicate confidence is starting to creep back in among shoppers.

Many U.S. retailers will report same-store sales for July. Costco Wholesale Corp. (COST) said its July sales at stores open at least a year rose 6%. Analysts polled by Thomson Reuters had, on average, expected same-store sales to rise 5.5%.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) edged higher on Wednesday, as traders digested the latest employment data from ADP, but the blue-chip barometer was unable to topple growing resistance in the 10,700 region. The Dow appears poised to make another run at this round-number resistance today, as futures are pointing toward an opening gain of about 12.5 points.

The S&P 500 Index (SPX) continues to trade above support in the 1,115 region, which is home to its 200-day moving average, while short-term resistance continues to cap the broad-market index in the 1,130 region.

Gold futures: The front-month gold contract continues to meet with resistance near $1,200 an ounce. In London, gold futures are up $2.40 at $1,198.30 an ounce.

• The U.S. Dollar Index has resumed its trek lower this morning, though the index is still holding above support in the 80-80.50 region. Heading into the open, the index is off 0.30% at 80.65.

Benchmark crude futures are pulling back this morning, as traders remain skittish ahead of today's report on weekly initial jobless claims. In electronic trading, the front-month crude contract is down 37 cents at $82.10 per barrel.

Bonds: Treasury prices were mixed Thursday. The 10-year note was higher, pushing its yield down to 2.96%.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,146,541 call contracts traded on Wednesday, compared to 648,519 put contracts.

The CBOE Market Volatility Index (VIX) is still trading below its 200-day moving average, but the VIX refuses to stray far from this long-term trendline. If all goes well, we could see the "fear" index decline in the wake of this week's jobs data.

Overseas Markets

Traders are awaiting the monetary-policy announcements from the Bank of England and the European Central Bank. Both banks are expected to leave their key rates on hold, but the press conference of ECB President Jean-Claude Trichet will be watched closely for comments.

"There is likely to be a large focus towards the ECB post-rate news conference as the market seeks more details on the outlook for the European recovery," said Joshua Raymond, market strategist at City Index, in a note to clients.

Officials from the European Union and the International Monetary Fund said that the Greek economic program has "made a strong start."

The quantitative performance criteria have all been met and important reforms are ahead of schedule, officials said after they completed their first review of the program.

European Concerns

European share markets edged higher in the early going. Britain's FTSE 100 and Germany's DAX posted mild gains. France's CAC 40 rose 1%.

In Europe, at midday, London +0.3%. Paris +0.8%. Frankfurt +0.3%.

The euro gained 0.3% to $1.3195.

The dollar fell versus the euro, but edged higher against the British pound and the Japanese yen.

Asian Concerns

Earlier in Asian markets, Japan's Nikkei rallied, climbing 1.7%. The Shanghai Composite fell 0.7% and the Hang Seng in Hong Kong finished little changed.

In Asia, Japan +1.7%. Hong Kong flat. China -0.7%. India -0.2%.

Futures Trading

Futures: Futures at 7:00: S&P +0.24%. 10-yr -0.04%. Euro +0.41% vs. dollar. Crude -0.45% to $82.10. Gold +0.21% to $1198.40.

us futures-aug05,2010



Company News

Cardinal Health Inc. (CAH) posted adjusted earnings from continuing operations of 50 cents per share in the latest quarter, as revenue rose to $24.46 billion. Analysts were expecting earnings of 49 cents per share on revenue of $24.64 billion. The company also raised its adjusted fiscal 2011 profit forecast to a range of $2.38 to $2.48 per share from its prior range of $2.35 to $2.45 per share. Wall Street is currently looking for $2.45 per share for the year.

Cigna Corp. (CI) said that its second-quarter net profit fell to $294 million, or $1.06 per share, despite revenue rising to $5.35 billion. The company now estimates full-year adjusted earnings in a range of $4.10 to $4.40 per share.

Same-store sales are beginning to roll in from several retailers. Along those lines, Big Lots Inc. (BIG) said that its same-store sales rose 3.8% in the second quarter, falling just shy of the company's forecast for a 4% to 5% rise. Also, Costco Wholesale Corp. (COST) said that its same-store sales rose 6% for the second-quarter, topping the Wall Street estimate for a rise of 5.5%.

Some Interesting News

Fingers crossed as well kill commences. BP (BP) will start pumping cement into its crippled well today after successfully reducing pressure by injecting mud from the top, a procedure known as a static kill. Yesterday, the cost of insuring BP debt dropped below five-year premiums for the first time in two months on speculation the new attempt will succeed. Separately, Transocean (RIG), which owns the exploded drilling rig, said BP may seek to avoid its full contractual responsibility for the disaster. BP +3.5% premarket.

SEC looks to break open proxy process. Under a rule being considered by the SEC, shareholders of large firms would be able to directly nominate directors on corporate ballots, a change that could dramatically affect the board-selection process at many companies. Currently, if shareholders want to propose directors, they need to pay out of their own pockets to engage in a proxy fight. Under the new rule allowing them to put their own nominees next to the company's, the company would foot the cost.

House clears path for $26B emergency aid package. In a highly unusual move, House lawmakers agreed to break from their summer recess and return to Capitol Hill to vote on a $26B emergency aid package for state and local governments. House Speaker Nancy Pelosi tweeted the news yesterday, and later issued a statement. The legislation would provide $16B to help state governments pay for rising Medicaid costs, and would transfer $10B to local school boards to help them avert layoffs.

Motorola jumps after Icahn boosts stake. Shares of Motorola (MOT) rose 6% Wednesday after billionaire investor Carl Icahn revealed an increased stake in MOT - to 9.9% from 8.75%. The news coincided with an NPD report that Android-based phones - led by Motorola - took the lead in the U.S. mobile market in Q2. Icahn's increased stake is seen as a sign of confidence in Motorola's plan to split the company in two in early 2011.

FTC slaps Intel's wrist. Intel (INTC) resolved charges it engaged in a decade-long campaign to stifle competition and create a monopoly in the U.S. computer chip market. Its settlement with the FTC bans Intel from using threats, bundled prices, and discounts to deter PC makers from buying chips from its competitors. It also prohibits Intel from manipulating benchmark tests in ways that hurt the performance of competing products, or from deceiving PC makers about the performance of non-Intel products. Industry insiders said the settlement doesn't seem to restrict Intel's actions significantly.

Senators want action on China currency manipulation. In a letter to Obama yesterday, a group of 11 senators raised concerns about China's currency practices, urging the government to take stronger measures to combat "unfair" trade practices. "There is no doubt that the Chinese government is manipulating its currency to keep its value lower than it otherwise would be, which gives its exports a significant price advantage over U.S. manufactured goods," the group wrote. "During this economic recovery, it is critical the administration use all trade enforcement tools available to ensure U.S. industries the opportunity to compete fairly." Earlier Wednesday, Treasury Secretary Geithner said the U.S. will be watchinig how fast and how much China lets its yuan currency appreciate following Beijing's recent commitments to forex flexibility.

Taiwan on verge of groundbreaking trade deal. In what could be a watershed moment for Taiwan (ETF: EWT), it said today it is exploring a trade agreement with Singapore (EWS). If not blocked by Beijing, which considers Taiwan its own, other countries will likely seek similar pacts with export-reliant Taiwan, whose economy has struggled during the global slowdown and in the face of low-cost Chinese competition. Next up? Former colonial ruler Japan, Malaysia (EWM) or the Philippines . Taiwan has not signed free-trade agreements with major trading partners due to opposition from Beijing, but is expect to back off following its own economic cooperation framework agreement with Taiwan signed in June.

IRS move signals crackdown on multinationals. The IRS said Wednesday it will overhaul its large business and international division, a shift that would bolster its growing focus on international tax evasion. The move will give examiners the authority to decide whether to pursue or settle contentious tax cases involving multinational corporations. Studies show large corporations are increasingly using gray areas of the tax code to minimize or illegally evade billions of dollars in taxes every year through complex international structures.

HSBC subject of money laundering probe. HSBC (HBC) said U.S. authorities are investigating its U.S. global banking unit over its compliance with anti-money laundering laws. In a SEC filing, HSBC USA said it has received subpoenas and other requests for information from the Office of the Comptroller of the Currency, the Chicago Fed, the U.S. AG. and the DOJ.

Goldman, Morgan Stanley near deals to offload trading desks. Sources say Goldman Sachs (GS) plans to spin off its proprietary trading business as early as this month to comply with the so-called Volcker rule, while Morgan Stanley (MS) is nearing a deal to cede control of its in-house hedge-fund firm FrontPoint Partners. The desks manange about $7B and $9B respectively. The moves are the beginnings of what promises to be a major Wall Street shakeup as I-banks move to offload some of their proprietary trading businesses out of concern employees will bolt for hedge funds and other financial firms that won't be as affected by the new legislation.

IBM (IBM) and Aetna Inc (AET) on Thursday jointly launched a service aimed at helping hospitals improve patient care by making better use of electronic medical records and other digital data.

Verizon Communications Inc (VZ) and Google Inc (GOOG) agreed to a deal over how Internet traffic will be treated, two people familiar with the agreement said on Wednesday.

Conclusion

The risks of the U.S. economy entering a double-dip recession and falling into deflation may now be around one in four, the chief executive of PIMCO, the world's biggest bond investment manager, said on Thursday.

U.S. stocks rose Wednesday, but gains were slight, as investors focused on economic data. The Dow added 0.4% and the broader S&P 500 increased 0.6%.

"Trading will be pretty light as investors continue to digest corporate earnings and look ahead to the July jobs report due Friday morning," said Derek Hoffman, founder of The Wall Street Cheat Sheet. "The market is going to wait until after tomorrow's report to make the next move."

The weekly claims data has become one of the more important economic readings each week because of how dependent growth is on new jobs. But unless the report is vastly different from expectations, it might have little effect Thursday because of the monthly report on employment is being released Friday.

The monthly report is expected to show private employers hired 90,000 workers in July, a slight increase from the 83,000 hired in June. But because of government layoffs tied to cutting temporary census jobs, the unemployment rate is expected to rise to 9.6 percent from 9.5 percent.


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