Tuesday presents several economic reports. The schedule for today is:-
6:15 … Fed's Bullard: 'Asset Bubbles and Monetary Policy'
7:45 … ICSC Retail Store Sales
8:30 … Import/Export Prices
8:30 … Empire State Mfg Survey
8:55 … Redbook Chain Store Sales
9:00 … International Capital Flow
9:30 … Hearing: Drilling Safety (XOM, CVX, COP, BP, RDS.A)
10:00 … NAHB Housing Market Index
5:00 PM … ABC Consumer Confidence Index
8:00 PM … Obama delivers address on the Gulf oil spill
Also the following company is reporting its quarterly earnings:-
• Best Buy Co., Inc. (BBY)
Tuesday saw U.S. stock futures rise with attention expected to focus on deals and data as well as six-notch credit rating downgrade of under-fire oil giant BP.
U.S. stocks ended lower Monday, with the Dow industrials surrendering more than a 120-point advance after Moody's Investor Service cut Greece's government-bond ratings by four notches to a junk-grade rating. The Dow Jones Industrial Average ended down 20.18 points at 10,190.89.
"The [slide Monday] to me is a bit of a nonsense because the market knew that Greece is in trouble anyway," said Michael Hewson, market analyst at CMC Markets in London. "The main focus will be on the empire manufacturing and import price data."
Mr. Hewson added that the markets will be looking at the earnings of Best Buy for indications of how the retail sector has performed in 1Q. "If the figures are as expected or better this will boost what should already be a positive start."
A cautious stance came from Joel Kruger, currency strategist with Daily FX, who said "the broad resurgence in risk appetite looks to be facing its first challenge" on Tuesday across many markets.
"We would recommend looking to use Monday's lows in some of the major markets to gauge directional bias. Developments over the past several hours have produced a mixed sentiment towards risk, and taking to the sidelines seems to be a logical strategy," he said.
Economic and corporate news could help direct trading. U.S. economic data on the calendar includes June Empire State Manufacturing index and the June NAHB home builders' index. Import prices and Treasury inflow data also will be released.
House and Senate conferees resume work on the financial regulation reform bill Tuesday, trying to iron out differences between the two versions.
The Commodity Futures Trading Commission approved so-called box office futures, allowing traders to bet on how well movies will do at the box office. Trading is expected to begin sometime during the third quarter.
The Energy Sector
BP Plc's U.S. chief faces accusations in Congress on Tuesday that the energy giant caused the worst oil spill in U.S. history with a calculated strategy to cut costs, hours before President Barack Obama uses a televised address to defend his handling of the disaster. U.S. lawmakers will ask Lamar McKay why BP made repeated choices that appeared to favor cost savings over safety before its rig blew up in the Gulf of Mexico.
McKay, the head of BP America, will be surrounded at the congressional hearings by executives from Exxon Mobil (XOM), Chevron (CVX), ConocoPhillips (COP) and Royal Dutch Shell (RDSa.L) seeking to stave off repercussions for the industry.
BP cut corners, gets downgraded. Newly released documents have led lawmakers to suggest that in the lead up to the Gulf spill, BP (BP) "made decisions that increased the risk of a blowout to save the company time or expense." In one example, BP engineers decided to use six "centralizers" to stabilize the well instead of the recommended 21 in order to shorten the time spent on installation. Lawmakers have called on BP to set aside $20B in an escrow account for clean-up costs, prompting Fitch to downgrade the company's credit rating by a staggering six notches on cost concerns. BP has hired Blackstone (BX), Goldman Sachs (GS) and Credit Suisse (CS) to advise the company on its spill liabilities.
Shares of BP fell another 10% Monday as the company's board met to discuss its dividend policy.
Later Tuesday, President Barack Obama will make his first Oval Office address, underlining the scale of the Gulf catastrophe and vowing to hold BP to account for the environmental damage wrought by its eight-week-old oil spill.
There are a few further points to the mornings trading which need to be considered:-
• The Dow Jones Industrial Average (DJIA) continues to find resistance at its 10-month moving average, which is currently resting just below 10,300.
• The S&P 500 Index (SPX) was neatly rejected by its 200-day moving average on Monday. This trend line is currently hovering just below the 1,110 area, while support could emerge near the 1,080 or 1,060 levels.
• Gold futures are basically flat this morning, with the most active contract down 20 cents at $1,224.30 an ounce in London.
• The U.S. Dollar Index has dipped 0.10% to 86.42 in pre-market trading, with the euro gaining ground.
• Benchmark crude futures have gained more than 75 cents, or 0.98%, to trade at $77.03 in electronic trading this morning.
• Bond prices fell, pushing interest rates higher.
• The yield on the benchmark 10-year Treasury note rose to 3.29 percent from 3.26 percent late Monday.
• Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,183,695 call contracts traded on Monday, compared to 700,951 put contracts.
• Greece downgraded to junk. Moody's downgraded Greece four notches to junk status. Though the eurozone rescue package eliminates the risk of near-term liquidity-driven default, wrote analyst Sarah Carlson, "macroeconomic and implementation risks associated with the program are substantial." Markets generally took the downgrade in stride, and the euro is +0.4% against the dollar this morning (7:00 ET).
• Credit crisis hits Spain. Spain admitted that its banks are struggling as a result of Europe's financial crisis, with foreign banks unwilling to lend to some Spanish ones. Germany said the EU is ready to step in if Spain needs a Greece-style rescue but Spain denied the need for additional financing and said it's not on the brink of crisis.
EU officials denied on Monday that they're readying a bailout package for Spain from the euro zone's support mechanism. "Spain continues to be the pivotal country for sentiment and the health of the financial system," said Jim Reid, strategist with Deutsche Bank.
European share markets fell in morning trading. Germany's DAX, the CAC 40 in France and Britain's FTSE 100 all dipped in early trading.
However the European markets rebounded to shake off early losses, with the Stoxx Europe 600 index rising 0.6%. Markets took in stride a sharply disappointing ZEW confidence survey for Germany, with the economic expectations index declining to 28.7 in June from 45.8 in May, against forecasts for a reading of 42.5.
"June's drop in German ZEW investor sentiment is another sign that fears about peripheral debt are damaging sentiment towards core euro-zone economies," said Jennifer McKeown, senior European economist with Capital Economics.
• In Europe, at midday, London +0.4%. Paris +0.7%. Frankfurt +0.5%.
The euro was kept under pressure due to German data.
The dollar and yen gained ground during European trading hours as investors sought safety amid fresh concerns over euro-zone periphery economies. The dollar was down in Europe at ¥91.30, while the euro was down at $1.2195 and the pound had fallen to $1.4704.
The global economic recovery is likely to be "slow and tortuous" and China faces risks from a multitude of factors including trade protectionism and bad real estate loans, China's Banking Regulatory Commission (CBRC) said on Tuesday.
Earlier in Asia, stocks edged higher. Japan's Nikkei and the Hang Seng in Hong Kong finished with slight gains. The Shanghai composite rose 0.3%.
• In Asia, Japan +0.1% to 9888. Hong Kong +0.1% to 20062. China +0.3% to 2570. India +0.4% to 17413.
Dow Jones Industrial Average futures rose 60, or 0.6 percent, to 10,201. Standard & Poor's 500 Index futures rose 7.30, or 0.7 percent, to 1,093.50, while Nasdaq 100 Index futures rose 14.50, or 0.8 percent, to 1,861.00.
Futures: Dow +0.7%. S&P +0.6%. Nasdaq +0.8%.
Britain's BSkyB snubbed a buyout proposal by Rupert Murdoch's News Corp (NWS). News Corp. proposed to buy the share of BSkyB that it does not already own, but BSkyB said the offer, which is not formal, undervalues the company.
Callaway Golf Co (ELY) shares dropped 11.2 percent to $6.75 in extended trade on Monday after the company gave guidance for the second quarter.
Tenet Healthcare Corp (THC) shares gained 3.4 percent to $5.23 in extended trade on Monday after the company boosted its 2010 adjusted EBITDA view by $50 million and forecast 2010 earnings between 27 cents to 40 cents a share.
FactSet Research Systems Inc. (FDS) reported third-quarter net income of $38.7 million, or 81 cents per share. Excluding a one-time gain of 3 cents per share, FactSet earned 78 cents per share, as revenue rose 4% to $160.3 million. Looking ahead, the firm sees fourth-quarter earnings of 78 cents to 80 cents per share, including a charge of a penny per share.
Some Interesting News-
• Hershey Co (HSY) plans to cut 500 to 600 jobs, or up to 5 percent of its workforce, as part of a restructuring aimed at upgrading and enlarging its facilities to compete globally and save some $60 million to $80 million in annual costs.
• American Tower (AMT) is one of the three firms in talks to buy the telecoms tower unit of Reliance Communications (RLCM), India's No. 2 cellular carrier, the Economic Times reported on Tuesday.
• News Corp. targets BSkyB. News Corp. (NWS) offered £7.8B ($11.5B) for the 61% stake of British Sky Broadcasting that it doesn't already own. BSkyB, the U.K.'s largest pay-TV provider, rejected the offer, demanding an extra £1B and saying the directors "unanimously consider the terms of the [original] proposal to undervalue significantly BSkyB." If News Corp. comes back with an acceptably higher offer, shareholders will still face a protracted deal-making period as regulatory approval could take 12-18 months. Separately, News Corp. bought Skiff, a company that helps distribute newspaper and magazine content to e-readers, and made an investment in Journalism Online, a company that helps publishers earn revenue from online news. Financial terms of the deals weren't disclosed.
• Ambac rises on exec comments. Shares of Ambac (ABK) closed +20.3% yesterday after Chairman Michael Callen commented at a shareholder meeting that the insurer has options aside from bankruptcy. Possibilities include an infusion of capital from companies that have sold credit-default swap protection on the insurer. CEO David Wallis made similar comments, saying the company is looking at ways to improve its liquidity, such as trying to get cash from a dividend from its operating unit.
• Fed keeps tabs on growth risks. Federal Reserve officials have quietly begun to debate which steps should be taken in the event that the recovery suddenly stalls or inflation continues to fall. Though Fed officials generally believe a durable recovery is underway, sovereign debt fears in Europe, domestic stock market declines and high U.S. unemployment have left some worried that the recovery could fizzle out and inflation could fall even farther below the Fed's informal target. One of the few avenues left to the Fed in those scenarios would be asset purchases.
• Banks get derivatives reprieve. Sen. Blanche Lincoln offered to modify her plan to limit swap trading by banks in return for assurances that at least some parts of her proposal will be included in the final financial reform bill. The new proposal would allow banks to trade and deal derivatives through separately capitalized affiliates, rather than spin off their derivatives businesses entirely. The proposal isn't entirely bank-friendly, however, as banks would still have to set aside billions of dollars to protect against losses in these affiliates.
• Citi sells credit card portfolio. Citigroup (C) agreed to sell its nearly C$2B ($1.9B) Canadian MasterCard portfolio to the Canadian Imperial Bank of Commerce (CM). The sale is part of Citi's push to shed non-core assets. Terms of the deal were not disclosed but aren't expected to have a material impact on Citi's net income or capital ratios. Premarket: C +1% (7:00 ET).
• Swiss gov't okays UBS data handover. Switzerland's Lower House of Parliament reportedly voted in favor of a measure that would allow the names of thousands of UBS (UBS) customers suspected of U.S. tax evasion to be handed over to U.S. authorities. Lawmakers had rejected the bill last week. The upper and lower houses now have a week to reach a final deal on the matter.
• RIMM plans iPad assault. Research in Motion (RIMM) is reportedly testing out a tablet device and a touchscreen smartphone with a slide-out keyboard as it tries to keep its flagship BlackBerry from losing more ground to Apple's (AAPL) iPad and iPhone. RIM said the company won't comment on rumors, but executives previously said a phone running a new operating system and web browser would ship in the quarter ending Sept. 30.
• BoJ offers new lending. The Bank of Japan held its key policy rate steady at 0.1%, as expected, and rolled out a new lending initiative that would let financial institutions borrow up to ¥3T ($32.8B). The new lending facility will be temporary, and funds will be available around the end of August, as the bank tries to stimulate economic growth. Analysts remained skeptical, noting "there is already an abundance of available liquidity, which has failed to translate into strong credit growth primarily because of sluggish demand."
• Apple (AAPL ) could be in focus after it unveiled a redesigned, energy-efficient Mac Mini desktop.
There is plenty of indecision's within the trading arena still, as investors are becoming more mind-boggled and making decisions based on emotion instead of factual evidence. Therefore, it is important, particularly in options trading, to roll with the punches.
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