Market Outlook
Tuesday, August 31, 2010

• 7:45 … ICSC Retail Store Sales

• 8:30… ISM New York Business Index

• 8:55 … Redbook Chain Store Sales

• 9:00 … S&P Case-Shiller Home Price Index

• 9:45… Chicago PMI

• 10:00 … Consumer Confidence

• 10:00… State Street Investor Confidence Index

• 2:00 PM… FOMC Minutes

• 3:00 PM … Farm Prices

• 5:00 PM… ABC Consumer Confidence Index

Also the following companies are reporting their quarterly earnings:-

• Dollar-General Corp. (DG) and

• DSW Inc. (DSW)

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

Investors will take in reports on consumer confidence, home prices and manufacturing Tuesday morning.

Standard & Poor's/Case-Shiller Home Price IndexesThe Case-Shiller 20-city home price index comes out before the opening bell and is expected to have risen 3.1% in June, after rising 4.6% in May, according to a consensus estimate from Briefing.com.

Home building stocks like KB Home (KBH) and Toll Brothers (TOL) could be moved by the data.

Consumer Confidence index for August

The Conference Board releases its Consumer Confidence index for August after the start of trading. Economists forecast the index to have edged down to 50 in August from 50.4 in July.

The Chicago PMI

The Chicago PMI, a regional reading on manufacturing activity, is expected to have fallen to 57 in August from 62.3 in July.

Policy Meeting

Later in the day, the Federal Reserve will release minutes from its most recent policy meeting.

"I don't think the minutes will provide an awful lot more insight into Fed policy," said Mike Lenhoff, chief strategist at Brewin Dolphin in London. "They may reveal a bit more about the loss of recovery momentum and the fact that inflation is not at levels the [Federal Open Market Committee] feels entirely comfortable with."

"The key thing for the markets is where this loss of recovery momentum is going to lead," he added. "Is it really going to take us back into recession?"

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

• The Dow Jones Industrial Average (DJIA) is perched just above 10,000 heading into the open, it is likely that we will see this psychological level breached in early trading. Support for the DJIA could materialize near 9,950.

• The S&P 500 Index (SPX) is also headed lower, and appears poised to open near its lowest levels since July 7. 1,035 is the next potential floor for the SPX should 1,040 fall.

• Gold futures

• The U.S. Dollar Index: For maybe the first time in two weeks, the Japanese yen is not the center of attention among commodities traders, as the euro has turned higher in the wake of reports that Germany's jobless numbers fell for the 14th straight month. That's not to say that the yen didn't continue its rally versus the dollar, as the Japanese currency shrugged off more comments from the country's top finance minister. Surprisingly, the U.S. Dollar Index is only off about 0.10% in the midst of this flurry of activity, with the index holding above support in the 83 region.

• Benchmark crude futures are being pummeled once again, dropping $1.01 to $73.69 per barrel.

• Bonds: The yield on the 10-year Treasury note fell to 2.50% from 2.54% late Monday.

• Equity option activity on the Chicago Board Options Exchange (CBOE) saw 692,508 call contracts traded on Monday, compared to 403,434 put contracts.

• If early indications carry over into the regular session, we could even see the CBOE Market Volatility Index (VIX) breakout above the 28-29 region - an area that has held the index in check since July 6.

In Japan overnight, the Nikkei Stock Average dropped 3.6% to end at its lowest level since April 2009, with shares of exporters falling sharply as the yen continued to gain against the dollar.

"We didn't have a very good lead from Asia for a start," said Mike Lenhoff, chief strategist at Brewin Dolphin in London.

"All these markets are very much preoccupied and almost obsessed with this loss of recovery momentum, particularly the recent developments in the U.S.," Lenhoff said.

India's economy grew by 8.8% during the three months ended June 30. That compares to 8.6% during the previous quarter, and 6% growth during the same quarter a year ago.

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

European share markets: lost ground in early trading. The CAC 40 in France was 0.9% lower, the DAX in Germany shed 0.7%, and Britain's FTSE 100 fell 1%.

• In Europe at midday, London -0.9%. Paris -1.1%. Frankfurt -0.7%.

Asian Concerns

Earlier in Asia, markets ended lower. Japan's benchmark Nikkei index sank 3.6% to a 16-month closing low. The Shanghai Composite decreased 0.5% and the Hang Seng in Hong Kong lost 1%.

• In Asia, Japan -3.5% to 8824. Hong Kong -1.0% to 20536. China -0.5% to 2639. India -0.3% to 17971.

Futures Trading

As of 6:20 a.m. ET, the Dow Jones Industrial Average futures fell 29 points to 9950, the S&P 500 futures dropped 2.80 points to 1042.30 and the Nasdaq 100 futures slipped 6.50 points to 1763.25.

• Futures: Dow -0.2%. S&P -0.3%. Nasdaq -0.3%. Crude -1.2% to $73.83. Gold -0.3% to $1235.70.

Deere & Co. (DE)

Deere & Co. (DE) announced the sale of its John Deere Renewables unit to Exelon Corp. (EXC) in a deal valued at $900 million. Exelon said that the deal will help it expand into the wind generation business through the addition of 735 megawatts of wind energy, including 230 megawatts which are currently under development. Deere plans to take an after-tax charge of approximately $25 million in its fourth-quarter results as part of the sale.

Cigna Corp. (CI)

Cigna Corp. (CI) has acquired privately held Vanbreda International in a move to expand its global presence. Terms of deal were not disclosed. Vanbreda specializes in insurance and employee benefits for non-government organizations as well as corporate clients. "There is little overlap between our current businesses and capabilities bringing mutual opportunity to both," said William Atwell, president of CIGNA International.

Dollar General Corp. (DG)

In earnings news, Dollar General Corp. (DG) reported second-quarter earnings of $141 million, or 41 cents per share, as sales rose to $3.2 billion from $2.9 billion a year ago. Analysts were looking for a profit of 39 cents per share on sales of $3.2 billion. Looking ahead, Dollar General lifted its 2010 adjusted earnings forecast to $1.68-$1.74 per share from $1.62-$1.69 per share.

• Hewlett-Packard Co (HPQ) has agreed to pay $55 million to settle kickback allegations related to federal government contracts, the U.S. Justice Department said on Monday.

• Regulators reject AIG's sale of Taiwan unit. Taiwanese regulators rejected AIG's (AIG) planned $2.15B sale of its Taiwan life insurance unit to Primus Financial and China Strategic, saying the deal failed to comply with regulations on mainland investment. Regulators also cited the lack of insurance experience on the part of Primus and China Strategic. Though some analysts said the decision was not a surprise after ten months of regulatory delay, it still leaves AIG with the uncertainty of facing another auction. Alternatively, AIG may be able to reach a deal with a group of investors led by a former Taiwanese diplomat who said they are putting together a bid in order to "save" the unit from mainland ownership. China Strategic will be able to appeal the decision for 30 days.

• Exelon buys Deere's wind energy business. Exelon (EXC) agreed to buy Deere's (DE) wind energy business in a deal worth a total of $900M (a purchase price of $860M with a provision for up to $40M upon commencement of construction on the advanced development projects). In its statement, Exelon said "not only does this acquisition add value for Exelon shareholders, providing incremental earnings in 2012 and cash flows in 2013, but it also is one more way to implement a clean energy future."

• Hedge funds move to block Ambac payments. A group of hedge funds has filed a motion to prevent Ambac Financial Group (ABK) from moving assets from Ambac Assurance Corp., its main operating business. The plaintiffs hold more than $1B in mortgage securities or other debt insured by Ambac Assurance and want to prevent Ambac Financial from receiving dividends from the unit until their claims have been paid in full. The group also alleges that $230M in dividend payments made in 2008-2009 were fraudulent because they took place at a time when the company's finances were rapidly deteriorating. Ambac Financial, which recently said it may file for bankruptcy protection, wasn't available for comment.

• Gov't proposes new grading system for cars. The Environmental Protection Agency and the Transportation Department jointly proposed new rules that would require passenger cars to be labeled with a grade from A to D depending on the vehicle's fuel efficiency and emissions. Electric cars and plug-in hybrids, for example, would be the only vehicles that could receive an A-minus, A or A-plus, while SUVs would get a C or C-minus. It would be the largest shake-up to car labeling rules in the last 30 years, and has left critics disgruntled that the government is trying to legislate its own value judgments about vehicles.

• Dell seen as likely to abandon 3Par pursuit. Dell (DELL) has until tomorrow to decide whether it wants to match H-P's (HPQ) latest bid for 3Par (PAR) but analysts think the rich valuation will prompt Dell to bow out of the heated bidding war. Both firms see the strategic advantage of storage in cloud computing architecture, so the issue will likely simplify to the size of H-P's balance sheet ($115B in annual revenue) and what it can afford to pay vs. the size of Dell's balance sheet ($53B). Dell said it's still assessing the situation.

• Google stacks the deck on social networking. Google (GOOG) acquired Social Deck, a producer of social games and platform technology for mobile devices, as the search engine giant works to bolster its social-networking efforts. Terms of the deal weren't disclosed. Google recently acquired Angstro and Slide, both of which focus on social networking.

• Whispers the PBOC chief has defected. Rumors have been flying furiously in the last 24 hours that Zhou Xiaochuan, head of the People's Bank of China, may have defected, possibly coming to the U.S., because a $430B loss on U.S. Treasury bonds may prompt the Chinese government to punish some individuals in the PBOC. The Hong Kong-based news agency that initially published the story has since recanted, but that has only added to the rumors, as has the fact that Zhou’s name has been blocked from internet search engines in China. A defection, if true, could have significant implications for Chinese monetary policy and for Sino-U.S. ties which have been strained recently.

• RIM wins Indian reprieve. Research In Motion (RIMM) has caved to Indian demands that the government be allowed to access secure BlackBerry data, and will make that information available beginning tomorrow. As a result, India has promised to delay by 60 days its decision about whether to shut down BlackBerry services as it tests the new monitoring solution. Failure to act would have led to disrupted service for more than 1M users and halted RIM's efforts to expand in the world's No. 2 cellphone market, but privacy critics are likely to make their opposition heard loud and clear and the move could damage BlackBerry's popularity with businessmen and lawmakers. Premarket: RIMM -1.4% (7:00 ET).

• IMF rolls out precautionary credit line. The IMF is creating a new credit line that is expected to serve as a precautionary "insurance policy" for developing countries with sound fundamentals that may not meet the more stringent requirements of the IMF's 2009 flexible credit line. The aim is to provide these countries with financial help before they reach a crisis point.

• India's economy rockets ahead. India's economy expanded at the fastest pace in over two years, growing 8.8% in Q2 from a year earlier. The rapid growth may force officials to raise interest rates, even as Japan steps up its monetary stimulus and the U.S. signals it stands ready to take additional steps as necessary to prevent a second recession.

Gearing up for the final trading day of what has been a dismal August on Wall Street, stock futures headed south Tuesday morning as the markets brace for a fresh batch of reports on the recovery.

The early weakness in the premarkets comes after the Dow tumbled 141 points on Monday on very light volume and in the face of upbeat news on consumer spending and the strengthening M&A market.

Wall Street's economic concerns are likely to be front and center again on Tuesday amid scheduled reports on home prices, manufacturing, consumer confidence and the Federal Reserve's most recent policy meeting.

Investors are especially wary ahead of Friday's big jobs report, which is expected to show that the economy lost jobs for a third month in a row in August.

Economists expect employers to have shed 120,000 jobs in August, after cutting payrolls by 131,000 in July. The unemployment rate is forecast to creep up to 9.6% from 9.5%.

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