Market Outlook
Thursday, June 10, 2010



Thursday presents several economic reports. The schedule for today is:-

7:00 … BoE Announcement

7:45 … ECB Announcement

8:00 … Cleveland Fed Conference: Housing Policy

8:30 … Initial Jobless Claims

8:30 … Trade Balance

10:00 … Hearing: U.S.-China Economic Ties (Geithner)

10:00 … Quarterly Services Report

10:30 … EIA Natural Gas Inventory

1:00 PM … 30-Year Bond Auction

2:00 PM … Treasury Budget

4:30 PM … Money Supply

4:30 PM … Fed Balance Sheet

Also, once again, there are several companies reporting their quarterly earnings:-

• Del Monte Foods Co. (DLM),

• lululemon athletica inc. (LULU), and

• National Semiconductor Corp. (NSM).

futures

Thursday saw the U.S. stock market futures trading higher as traders readied for key monetary policy meetings in Europe and the U.K. and eyed strong Chinese economic data.

Investors were bracing for the European Central Bank's news conference that will follow the central bank's interest rate decision. The Bank of England kept its rates on hold and left its 200 billion pounds of quantitative easing purchases unchanged on Thursday, as expected.

After climbing more than 100 points and clearing 10,000 for the first time this week, the Dow industrials ended at 9,899.25, off 40.73 points, or 0.4%. Analysts said the only major catalyst was a dip below $1.20 for the euro.

Jonathan Coughtrey, managing director for Europe and Asia at Action Economics, said markets were looking at a few positives on Thursday: encouraging data out of Japan and Australia, coupled with news of China's investment intentions in Greece and export data, along with a pension fund in China arguing that the euro can withstand the debt crisis.

"I presume that all the above positives collectively brought some relief amid a lack of negative leads today. Also, market positioning probably played a role as the market has doubtlessly been pretty short lately, so ripe for a short squeeze," said Coughtrey, in an email response.

Economic Reports

Investors focused on the domestic economy will get their first reading on initial jobless claims since a disappointing employment report last week sent markets tumbling.

initial claims

The Labor Department is expected to say initial claims for jobless benefits fell by 5,000 to 448,000 last week, according to economists polled by Thomson Reuters. The report is due out at 8:30 a.m. EDT.

While it would mark the third straight week claims fell, they still haven't fallen to a point that economists believe indicate sustained job growth. Economists say claims would have to fall to about 425,000 to show private employers are consistently adding new workers.

That was borne out in the monthly jobs report last Friday. Hiring by private employers slowed in May to the lowest levels since January, which renewed caution about the pace of a domestic recovery. High unemployment remains one of the biggest obstacles to a strong rebound in the U.S.

Also due at 8:30 a.m. ET is the latest reading on the trade balance for April, expected to have widened to $41.2 billion from $40.4 billion in March.

Geithner

The Treasury budget for May is slated for release at 2 p.m. ET.

Treasury Secretary Timothy Geithner testifies before the Senate Finance Committee on the future of U.S. economic relations with China.

The U.S. Congress put the last pieces in place on Wednesday to begin hammering out a historic financial regulation overhaul, a day after primary elections vindicated get-tough-on-Wall Street politics.

The Energy Sector

BP sign

BP (BP) said Thursday that there was no justification for the sharp drop in its U.S. stock price in the previous day's trading. The shares sank 16% in New York Wednesday.

The company's London-listed shares tumbled 5% in morning European trading on Thursday, though its U.S. shares were up 11% in premarket trade.

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

• The Dow Jones Industrial Average (DJIA) remains below the 10,000 level and is clinging to support in the 9,900 region.

• The S&P 500 Index (SPX) is holding support at the 1,050 level at the moment.

• Gold has retreated this morning, losing $5.70 to rest at $1,224.20 an ounce in London.

• The U.S. dollar is down sharply this morning against strength in the euro. The U.S. Dollar Index is down 0.53% in pre-market trading.

• Benchmark crude futures are up in electronic trading, with the most active contract gaining 27 cents to sit at $74.65 per barrel.

• Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,283,230 call contracts traded on Wednesday, compared to 913,754 put contracts.

• Treasury prices were slightly higher, pushing the benchmark 10-year note's yield down to 3.21% from 3.22% late Wednesday. Bond prices and yields move in opposite directions.

Overseas Markets

Stock futures rose Thursday after reports showed China's economy has not been slowed by the European sovereign debt crisis.

Asian and European markets rose after China said exports rose 48.5 percent in May, while imports jumped 48.3 percent last month. The jump in trade at least temporarily provides some relief that mounting debt problems in Europe would throw off a global economic recovery.

"Macro data from China has been strong, and the country's economy continues to rebalance itself, becoming less dependent on exports as domestic consumption rises," said Yves Bonzon, chief investment officer of Pictet.

"Overall, the outlook for global growth remains strong, but it could take a few months before the market stops worrying about sovereign debt risks and focuses on that."

Also lifting investor confidence in Europe, the Chinese national pension fund chief said the euro will be able to weather the sovereign debt crisis, triggering a rebound in the euro from the day's lows.

The 27-nation European Union accounts for China's largest trading partner, so there are worries that if Europe's economy slows, China's economy will as well.

An economic recovery in China and other developing nations has outpaced a rebound in more developed economies, so a pullback there would deal a blow to global growth.

European stocks were generally higher, with miners gaining after official data confirmed a solid exports picture from China, and markets awaiting European Central Bank and Bank of England rate decisions -- neither is seen adjusting rates -- as well as an ECB press conference at 8:30 a.m. Eastern.

"Given continued declines in risk appetite and rising non-German government bond yields, markets will be looking to the ECB press conference for announcements that can help restore some confidence," said Christel Aranda-Hassel, an analyst in London for Credit Suisse in a note to investors.

New Zealand's central bank on Thursday raised its key interest rate for the first time since the global financial crisis began in 2008, citing a recovery. Australia's government reported that the nation's jobless rate fell to 5.2% in May, down from 5.4% in April.

European Concerns

European share markets headed higher in morning trading. France's CAC 40, the DAX in Germany and Britain's FTSE 100 posted modest gains.

In Europe, at midday, London +0.3%. Paris +1.0%. Frankfurt +0.5%.

The euro was up 0.6% to $1.2057. Goldman Sachs on Thursday said it now is targeting $1.15 for the euro for the next three to 12 months, against a prior forecast of $1.35.

The euro, which is used by 16 countries in Europe has become an indicator of investor confidence in Europe's economy. It has also heavily influenced global stock markets in recent weeks because of concerns that rising debt in countries like Greece, Spain and Portugal would upend a global economic recovery.

Spain sold 3.9 billion euros of new three-year government bonds on Thursday, which analysts said met with strong demand, helping soothe concerns over the euro zone's debt problems.

Asian Concerns

Earlier in Asia, stocks mostly gained. Japan's benchmark Nikkei index jumped 1.1% and the Hang Seng in Hong Kong finished the session a shade higher.

China stocks lost ground despite strong exports data, which appeared to have been factored in by investors. Stocks fell on worries that further tightening measures could emerge after property prices in 70 of China's large and medium-sized cities rose for a 12th consecutive month in May.

In Asia, Japan +1.1% to 9543. Hong Kong +0.1% to 19633. China -0.8% to 2563. India +1.6% to 16922.

Futures Trading

Ahead of the opening bell, Dow Jones industrial average futures rose 2, or less than 0.1 percent, to 9,916. Standard & Poor's 500 index futures rose 0.70, or 0.1 percent, to 1,059.90, while Nasdaq 100 index futures fell 1.50, or 0.1 percent, to 1,790.00.

Futures: Dow +0.9%. S&P +1.1%. Nasdaq +0.9%. Crude +0.6% to $74.83. Gold -0.5% to $1224.20.

us futures-june10,2010



Company News

AT&T Inc. (T) late Wednesday acknowledged a security flaw that exposed the e-mail addresses of users of Apple Inc.'s (AAPL) iPad. The media and technology blog Gawker had earlier reported that an Internet security group called Goatse Security identified a flaw in AT&T-supported iPads that exposed the e-mail addresses of thousands of owners of the high-profile device. "This issue was escalated to the highest levels of the company and was corrected by Tuesday," AT&T said in a statement.

"We are continuing to investigate and will inform all customers whose e-mail addresses... may have been obtained."

Palm Inc. (PALM) announced that it has agreed to settle a class action lawsuit filed by shareholders over its pending merger deal with Hewlett-Packard (HPQ). In a statement, Palm said it has entered into a memorandum of understanding with the plaintiff to settle the lawsuit. No terms of the settlement were given. Palm has scheduled a special shareholders' meeting on June 25 to vote on the proposed buyout by HPQ.

Some Interesting News-

• Deutsche Bank (DBKGn.DE) slid 0.6 percent after a report in Germany's financial daily Handelsblatt said a U.S. unit of the bank may need fresh capital and has drawn attention from U.S. regulators. Deutsche Bank declined comment on the report.

Germany dashed Opel's hopes of receiving state aid on Wednesday, at least initially, and General Motors (GM) may now be forced to contribute more than the planned 1.9 billion euros ($2.55 billion) of U.S. taxpayer funding to keep Opel afloat.

• Among stocks in focus, shares of BP (BP) were up 13% in pre open trade. The company said it knew of no reason why its shares fell 16% in New York on Wednesday.

• Shares of (ARM Holdings ARMH) ( were up 24% in pre- open trade, with traders citing renewed talk of bid interest from Apple (AAPL).

Goldman targeted in second CDO probe. Goldman Sachs (GS) is reportedly the target of a second SEC probe, this time in connection to its $2B Hudson Mezzanine collateralized debt obligation, sold in 2006. Goldman selected the subprime mortgage assets in the CDO, but was also the only investor buying credit protection on the entire transaction. Separately, an Australian hedge fund is suing Goldman for misrepresenting the value of its Timberwolf CDO, which the hedge fund claims contributed to its 2007 demise. The fund is seeking $1B in punitive damages.

Battered BP faces new penalties. Shares of BP (BP) plummeted yesterday, as the bad news continued to pile up: Forty-three House members wrote a joint letter calling on the company to suspend its dividend, stop advertising and spend that money on cleanup instead; the company's 582-page regional spill plan contains numerous errors; BP could potentially face RICO charges for withholding video feeds of the broken riser; doubts are growing about BP's ability to cope with the massive spill; and the government is pushing BP hard over the costs it must cover, with plans to ask BP to cover the salaries of any workers laid off because of the six-month deepwater drilling moratorium enacted after the spill. It was a question of when, not if, but BP is now also facing a class-action shareholder lawsuit for "mislead[ing] investors prior to the Deepwater Horizon oil spill." Shares of BP closed -15.8% yesterday, while BP's bonds and credit-default swaps are trading like the company has already lost its investment-grade credit rating.

Gov't watchdog: Heavy AIG losses ahead. The Congressional Oversight Panel warned taxpayers "remain at risk for severe losses" from AIG's (AIG) bailout. The government, which failed to adequately protect taxpayers during the insurer's rescue, is likely to "remain a significant shareholder in AIG through 2012" and it's unclear if the bailout funds "will ever be repaid in full." In contrast, Bernanke expressed his belief yesterday that AIG, like other rescued financial firms, will repay the government in full.

Germany rejects Opel aid for GM. The German government rejected General Motors' request for €1.1B ($1.3B) in aid to reorganize Opel. Economy Minister Rainer Bruederle said he's "convinced GM has sufficient financial resources" to cover the restructuring costs on its own, and that "the state is not the better entrepreneur." GM must now devise a new strategy for funding the €3.6B reorganization of the money-losing unit.

CVS strikes back at Walgreen. CVS Caremark (CVS) said it has "no choice" but to block up to 53M patients from filling prescriptions at Walgreen (WAG) pharmacies as early as next month, escalating the battle between the two companies. CVS is also ending Walgreen's participation in its Medicare prescription-drug plan networks as of Jan. 1, 2011. Walgreen had announced on Monday that it plans to stop filling prescriptions for new CVS Caremark plans starting next year.

Bernanke points to moderate growth, unsustainable deficit. Testifying before lawmakers yesterday, Bernanke said that while the economy is expanding at a "moderate pace," growth is still "not as fast as we would like" and the recovery continues to be constrained by the real estate market. Many banks have failed to modify their pay practices, so the Federal Reserve and other regulators will release compensation guidelines and push banks to quickly restructure payment schemes. Bernanke also urged lawmakers to come up with a long-term plan to reduce the deficit: "Unless we as a nation make a strong commitment to fiscal responsibility, in the longer run, we will have neither financial stability nor healthy economic growth."

Modest signs of improvement from Beige Book. The Federal Reserve's Beige Book showed economic activity improved across all 12 Fed districts for the first time since October 2007, though many districts described the pace of growth as "modest." Consumer and business spending picked up, the job market improved slightly, and inflation remained in check. Financial activity was little changed since the last report, published in April.

AT&T: Data breach for iPad users. In the latest privacy blunder among major corporations, AT&T (T) disclosed that a security hole on its website had exposed the private data of iPad (AAPL) owners, with as many as 114,000 email addresses uncovered. Financial and billing information did not appear to have been part of the breach. AT&T said the security problem has been fixed and affected customers will be notified.

Buyers scarce for Citi's retail cards portfolio. Citigroup (C) is having a hard time finding buyers for its $50B portfolio of retailers' credit card loans, and could end up holding onto the assets for years. Buyers have been generally reluctant to get involved with credit card assets because of ongoing changes in industry regulations. Citigroup's portfolio makes a particularly difficult sell because of its size and the fact that these types of cards are likely to experience higher-than-average losses.

Conclusion

The bulls will try to take the reins once again this morning, with futures on the Dow Jones Industrial Average up slightly above fair value. The bulls have been encouraged by better-than-expected Chinese exports and decisions by European central banks to keep interest rates at record lows. The bulls certainly gave it their best shot on Wednesday, rising by triple digits in the morning, but they ran out of steam by midday.

As I have mentioned on numerous occasions this is the time to be making the most of trading options.

Success is simple. Do what's right, the right way, at the right time.



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