Market Outlook
Thursday, July 29, 2010

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

8:30 … Initial Jobless Claims

10:30… EIA Natural Gas Inventory

1:00 PM… $29B, 7-Year Note Auction

1:20 PM… Fed's Fisher: 'Current Issues Affecting the Economy'

4:30 PM… Money Supply

4:30 PM… Fed Balance Sheet

Also the following companies are reporting their quarterly earnings:-

• Avon Products Inc. (AVP),

• Barrick Gold Corp. (ABX),

• Celgene Corp. (CELG),

• Colgate-Palmolive Co. (CL),

• Exxon Mobil Corp. (XOM),

• Motorola Inc. (MOT),

• Northrop Grumman Corp. (NOC),

• Sony Corp. (SNE),

• Strayer Education Inc. (STRA),

• Wynn Resorts Limited (WYNN),

• Chiquita Brands International Inc. (CQB),

• Coinstar Inc. (CSTR),

• Expedia Inc. (EXPE),

• First Solar Inc. (FSLR),

• McAfee Inc. (MFE), and

• MetLife Inc. (MET).

thursday outlook

Thursday saw U.S. stocks set to edge higher, as investors attempt to shake off worries about slowing economic growth and looked to corporate earnings.

Stock futures pointed toward a solidly-positive open on Wall Street Thursday, as strong earnings reports from European companies buoyed sentiment, with traders awaiting results from oil major Exxon Mobil Corp. and data on U.S. weekly jobless claims.

Economic Concerns

The Department of Labor releases weekly jobless claims figures before the opening bell.

Economists surveyed by expect the number of Americans filing new claims for unemployment last week to have held steady at 464,000. Continuing claims, a measure of Americans who have been receiving benefits for a week or more, is expected to have risen to 4,550,000 from 4,487,000 in the previous week.

The Labor Department will report weekly jobless claims at 8:30 a.m. Eastern time. "The U.S. data docket is fairly quiet, but initial jobless claims will likely be closely watched again," said strategists at Deutsche Bank.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) ended its winning streak at four sessions in a row on Wednesday, with disappointing durable goods orders applying pressure early in yesterday's trading. This morning, however, the Dow appears to be headed firmly higher, with futures on the blue-chip barometer trading about 50 points above fair value. What's more, if the weekly initial jobless claims report comes in better than expected, we could see the DJIA break out above resistance in the 10,600 area - a level that rejected the Dow on June 21.

The S&P 500 Index (SPX) found short-tem support in the 1,105 region on Wednesday, as resistance in the 1,115 region and its 200-day moving average proved too much to overcome. The SPX is trading about 6 points above fair value heading into the open, so we could see the index challenge this technical hurdle once again this morning.

Gold futures have added only about $5.50 to trade at $1,167.90 in London, as the malleable metal hovers near its May 2010 lows.

• The U.S. Dollar Index breached support at the 82 level in Asian trading, with the greenback plunging to a roughly three-month low versus its major competitors.

Benchmark crude futures are up 32 cents at $77.31 per barrel, as the lead contract finds support near its 20-day moving average.

Bonds: Treasury prices fell, and the yield on the 10-year note edged up to 3% from 2.99% late Wednesday.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 926,981 call contracts traded on Wednesday, compared to 661,957 put contracts.

The CBOE Market Volatility Index (VIX) reclaimed its 200-day trendline on Wednesday, though resistance is looming overhead at its 10-day and 20-day moving averages near 24.50 and 26, respectively.

Overseas Markets

European Concerns

European shares rose, as investors digested a deluge of mostly positive earnings reports. The Europe Stoxx 600 index (ST:SXXP) gained 0.4%.

"Company earnings are coming in thick and fast, and the general theme so far has been one of outperformance as opposed to disappointment, and this has invigorated appetite for risk," said Joshua Raymond, market strategist at City Index.

In the energy sector, Royal Dutch Shell (UK:RDSA) reported a 15% rise in second-quarter net profit as higher production and lower costs were partly offset by a bigger tax bill. Revenue surged 42% to $90.57 billion.

Oil giant BP PLC (BP) (UK:BP.) is in negotiations with its Russian venture TNK-BP over the sale of about $1 billion of oil assets in Venezuela, the Times newspaper reported on Thursday. BP this week tripled its target for asset disposals to $30 billion in an effort to secure enough cash to cover the costs of the disastrous Gulf of Mexico oil spill.

In Spain,Banco Santander (STD) (ES:SAN) said its second-quarter net profit fell 8%, while profit at Telefonica (TEF) (ES:TEF) rose 16% driven by revenue growth in Latin America.

Germany's blue-chip DAX index (DX:DAX) advanced 0.5%. The most actively traded stock in the index was Siemens AG (SI) (DE:SIE) , which reported a 12% increase in fiscal third-quarter net profit, as orders soared 22% to 20.87 billion euros ($27.08 billion).

Shares of car maker Volkswagen AG (DE:VOW3) rose 2% after it said its first-half net profit surged to €1.82 billion from €494 million in the same period a year ago. Revenue rose 21% to €61.8 billion.

In the pharmaceutical sector, shares of Astra Zeneca PLC (AZN) (UK:AZN) rallied 4% after it reported profit growth and raised its guidance. France's Sanofi-Aventis (SNY) (FR:SAN) announced a 61% increase in second-quarter net profit.

European share markets advanced in morning trading. The CAC 40 in France gained 0.5%, the FTSE 100 in Britain rose 0.7% and Germany's DAX was up 0.6%.

In Europe, at midday, London +0.8%. Paris +0.4%. Frankfurt +0.6%.

• The euro gained 0.5% to $1.3065, as data showed that economic sentiment in the 16-nation euro zone rose in July, while the number of unemployed in Germany declined.

The dollar was down versus the euro, the British pound and the Japanese yen.

Asian Concerns

Earlier in Asia, markets finished mixed. The Shanghai Composite gained 0.6% and the Hang Seng ended a shade higher, but the Nikkei in Japan tumbled 0.6%.

In Asia, Japan -0.6% to 9696. Hong Kong flat at 21094. China +0.6% to 2648. India +0.2% to 17992.

Futures Trading

As of 7:15 a.m. in New York, the Dow Jones Industrial Average futures rose 49 points, or 0.47%, to 10497, the S&P 500 index futures rose 5.5 points to 1107.60 and the Nasdaq 100 futures were up 6.75 points to 1876.50.

Futures: Dow +0.4%. S&P +0.5%. Nasdaq +0.4%. Crude +0.3% to $77.21. Gold +0.5% to $1165.80.

us futures-july29,2010

Company News

Motorola Inc. (MOT) reported a second-quarter profit of $162 million, or 7 cents per share. Adjusted earnings were 9 cents per share, while sales slipped to $5.41 billion. Analysts were looking for earnings of 8 cents per share of profit on $5.2 billion of revenue.

Colgate-Palmolive Co. (CL) posted a second-quarter profit of $603 million, or $1.17 per share, with sales climbing to $3.81 billion. Wall Street was expecting a profit of $1.17 per share, with sales seen coming in at $3.95 billion. Looking ahead, CL lowered its full-year earnings guidance by 10 to 15 cents per share due to currency devaluation in Venezuela.

Potash Corp. of Saskatchewan (POT) said that its second-quarter net profit more than doubled to $472 million, or $1.55 per share, as revenue jumped 68% to $1.44 billion. Analysts had expected earnings of $1.21 per share on sales of $1.4 billion. "The undeniable need for sustainable food production continued to drive fertilizer demand and our performance in the second quarter," said CEO Bill Doyle. The company said it expects 2010 earnings of $5.00 to $5.50 per share, surrounding Wall Street's view for annual earnings of $5.30 per share.

Some Interesting News

• Later in the day, the Treasury will sell $29 billion in 7-year notes.

Sanofi preps formal Genzyme bid. Sanofi-Aventis (SNY) is likely to make a formal offer for Genzyme (GENZ) in the coming days, with sources saying the company's board has authorized an offer of up to $70 per share, or around $18.7B. Sanofi is counting on acquisitions to help replace revenue lost to competition from generic drugs, but analysts believe a $70/share bid won't do the trick and that Genzyme is unlikely to acquiesce until it gets a price closer to $75-85/share.

Avis tops Hertz bid for Dollar Thrifty. Avis Budget Group (CAR) offered $46.50 per share for Dollar Thrifty (DTG), topping a $39/share bid from rival Hertz (HTZ). Avis' cash-and-stock offer, which is valued at more than $1.3B, also removes some of the terms that are in the Hertz-Dollar deal, such as a break-up fee, and promises to make more divestitures to secure antitrust approval. In after-hours trading, CAR -0.5%, DTG -1.4%, HTZ +2.6%.

Profitable Panasonic to buy out two subsidiaries. Along with reporting a better-than-expected FQ1 profit of ¥43.7B ($501M), Panasonic (PC) said it would buy out two of its subsidiaries to streamline management and increase the group's green technology business. Panasonic is offering a maximum of ¥818.4B ($9.4B) to buy the shares it doesn't yet own of Sanyo Electric (SANYY.PK) and Panasonic Electric Works. To finance the tender offer, which will take place between Aug. 23 and Oct. 6, the company has filed a shelf registration for up to ¥500B in shares, while "any external financing will be carefully considered, based on the actual purchase amount."

California declares fiscal emergency. California Governor Arnold Schwarzenegger declared a state of fiscal emergency yesterday, as California faces a $19B shortfall in a budget that is already more than a month overdue. Schwarzenegger ordered state employees to take three unpaid days off a month, starting in August, in order to preserve cash for paying the state's debt and for essential services; the decision will affect tens of thousands of state employees. Any additional delay in the budget threatens California's already-weak credit rating, but analysts expect it will be weeks before lawmakers reach an agreement.

P-E firms hungry for California Pizza Kitchen. Private equity firm American Securities is reportedly bidding for California Pizza Kitchen (CPKI). The restaurant chain had said in April that it's considering changes in its capital structure or a possible sale, among other options. Private equity firm Harvest is also said to be eyeing California Pizza, though its level of interest is unclear. The takeover rumors helped lift CPKI's stock 9.6% yesterday.

Rio, Chinalco sign iron ore deal. Rio Tinto (RTP) and Chalco, a subsidiary of Chinalco (ACH), set aside recent tensions and announced they will establish an iron ore joint venture in Guinea. Chalco will provide $1.35B to fund development work in the next 2-3 years, receiving in return a 47% stake in Rio's Simandou project. "Developing our relationship and business links with China is a key priority for Rio Tinto," said Rio Tinto Chairman Jan du Plessis. Premarket: RTP +1.7% (7:00 ET).

Moody's: U.S. needs debt plan. The U.S. government needs to lay out a credible plan to address its rising debt if it wants to maintain its triple-A credit rating, said Steve Hess, Moody's top sovereign analyst for the U.S., East Asia and Australasia. At present, the U.S. appears to have "no plan" to deal with its fiscal outlook. The U.S. rating remains on a stable outlook at Moody's.

Beige Book shows economic fragility. U.S. economic activity continued to be "weak" in June and into July, the Federal Reserve said in its Beige Book report, in the latest sign that the recovery may be running out of steam. Though most districts reported continued improvements in economic conditions, the improvements were modest; gains were limited for retail sales, housing and construction remained weak, and banking lending remained tight.

Kindle aims for the masses. Amazon (AMZN) is making a mass-market push with its Kindle e-reader, announcing a new Wi-Fi only model that will sell for just $139, making it among the cheapest wireless-equipped e-readers currently being sold. Though the Kindle was initially developed for "serious readers," CEO Jeff Bezos believes "at these price points, it may be much broader than that. People will buy them for their kids. People won't share Kindles any more." The goal, of course, isn't just to sell more Kindles, but to set up stronger sales for Amazon's digital books. The company also announced improvements for its Wi-Fi/3G model which sells for $189.

SEC exempted from public disclosure. Here's another of the unexpected loopholes created by the financial reform regulation: The SEC no longer has to comply with nearly all requests for information releases from the public, including those filed under the Freedom of Information Act. This is because the law exempts the SEC from disclosing information derived from "surveillance, risk assessments, or other regulatory and oversight activities," and as a regulatory agency, this covers nearly every SEC action. It's "hard to imagine how the bill could be more counterproductive," said one former SEC staff attorney.


The Dow (DJIA) fell 0.4% on Wednesday, snapping a four-day winning streak, as disappointing data rekindled concerns over U.S. economic growth.

But with a lack of major economic reports on tap for Thursday, investors are likely to turn their attention back to earnings reports.

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