Market Outlook
Tuesday, September 07, 2010

Tuesday has no major economic reports scheduled. The reports that are available are:-

  • 10:00 …Employment Trends Index

  • 1:00 PM… Results of $33B, 3-Year Note Auction

  • 5:00 PM… ABC Consumer Confidence Index

Also the following companies are reporting their quarterly earnings:-

  • Casey's General Stores Inc. (CASY),

  • Navistar International Corp. (NAV),

  • The Pep Boys (PBY), and

  • Phillips-Van Heusen Corporation (PVH)


Tuesday sees U.S. stock poised to slip, following global markets lower, as optimism from the previous week faded and renewed worries about the economy weighed on investors.

Stocks erased losses for the year Friday, with the major indexes rallying more than 1%, after a government report showed fewer jobs were lost in July than economists had expected. U.S. markets were closed Monday for Labor Day.

We're in September, which is traditionally a softer month for stocks, and so far we've escaped that," said Peter Cardillo, chief market economist for Avalon Partners. "But lingering worries won't diminish until we get more indicators that show the decline in economic activity is leveling off and beginning to turn around again."

It’s a quiet start to the trading week with no major economic data and only a few company earnings reports this morning. Stocks were weighed primarily down by a buoyed U.S. dollar, which in turn put pressure on dollar-denominated commodities such as oil.

Economic Concerns

President Obama

President Obama will introduce a new $200 billion tax cut on Wednesday that will allow businesses to write off all new investments in equipment made between now and the end of 2011. A reading on hiring from employment firm Manpower showed that employers are likely to remain reluctant to boost hiring in the fourth quarter.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) soared more than 128 points on Friday, as Wall Street cheered a round of stronger-than-expected economic data, including the addition of 67,000 new private sector jobs. However, the Dow was unable to overtake resistance in the 10,450 region, which is home to its 200-day moving average. This overhead resistance, combined with pressure on overseas banks and a drop in Germany's manufacturing orders in July, is having a negative impact on pre-market trading. Look for support to materialize near 10,350 for the Dow.

The S&P 500 Index (SPX) may find a short-term floor in the 1,095 region.

Gold futures are down $3.50 at $1,247.60 an ounce in London.

• The U.S. Dollar Index: Despite Friday's rally in the equities market, risk aversion is once again taking hold of investors, and many are retreating to the safe haven of the U.S. dollar. Heading into the open this morning, the U.S. Dollar Index has added 0.66% to trade at 82.58.

Benchmark crude futures: The rising dollar has pummeled oil prices, with the lead crude contract down 2.28% at $72.90 per barrel.

Bonds: The yield on the 10-year Treasury note fell to 2.66% from 2.71% late Friday.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 926,551 call contracts traded on Friday, compared to 521,730 put contracts.

• The CBOE Market Volatility Index (VIX) closed Friday at its lowest level since May 3. While the VIX may benefit from weakness in the equities market today, look for the index to meet with resistance near the 23.50 region, which is home to its 200-day moving average.

Overseas Markets

European markets fell after a report said the continent's major banks have more potentially risky government debt on their books than was disclosed during stress tests earlier this year.

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

European share markets: dipped in early trading. The CAC 40 in France tumbled 1%, the DAX in Germany fell 0.7%, and Britain's FTSE 100 lost 1%.

  • In Europe at midday, London -0.9%. Paris -1.1%. Frankfurt -0.8%.

Asian Concerns

Earlier in Asia, markets ended mixed. Japan's benchmark Nikkei index dropped 0.8%, while the Shanghai Composite edged up 0.1% and the Hang Seng in Hong Kong gained 0.2%.

  • In Asia, Japan -0.8% to 9226. Hong Kong +0.2% to 21402. China +0.1% to 2698. India +0.5% to 18645.

Futures Trading

As of 6:20 a.m. in New York, the Dow Jones Industrial Average futures were down 60 points, or 0.58%, to 10394, the S&P 500 index futures lost 7.8 points to 1095.70 and the Nasdaq 100 futures were down 8 points to 1859.00.

  • Futures: Dow -0.5%. S&P -0.6%. Nasdaq -0.4%. Crude -2.25% to $72.92. Gold -0.3% to $1247.50.


    Company News

    • Shares of Oracle (ORCL) gained 3% in pre-market trading after the business software maker said it has hired former Hewlett-Packard (HPQ) CEO Mark Hurd as its president.

    Barclays (BCS) shares sank 5% following reports that the British bank's CEO John Varley will retire March 31. Bob Diamond, the bank's U.S.-born president and investment banking chief, will replace Varley.

    • The energy and mining companies were the early decliners in U.S. equities, led lower by Exxon Mobil (XOM), BP (BP), Freeport McMoRan (FCX) and BHP Billiton (NYSE:NYSE:BHP).

    Some Interesting News

    Air Products sweetens Airgas bid. Air Products & Chemicals (APD) raised its bid for Airgas (ARG) to $65.50 a share from $63.50; the offer is a 50% premium to Airgas' share price before an offer was first made in February, but is lower than Airgas' Friday close of $66.67. The bid is contingent on Airgas electing Air Products' board nominees next week. Airgas said it would review the offer and urged shareholders to take no action at this time.

    DoJ probes Google's ITA deal. The Justice Department has reportedly opened an antitrust probe into Google's (GOOG) $700M deal to purchase travel software firm ITA Software. Sources say the investigation is still in an early stage, and is focused on whether Google could unfairly disadvantage potential new rivals by cutting off their access to ITA's software or unfairly steer web searchers to its own travel services. Google had previously disclosed that the Justice Department had asked for more information on the deal, but hadn't specified the department's concerns. Premarket: GOOG -0.5% (7:00 ET).

    Miners waver as Aussie's Labor takes power. Australia's Labor Party narrowly secured a second term today, winning the support of two independent lawmakers to form a minority government. The country had been in political deadlock since Aug. 21 when a national election failed to give a clear mandate to either Labor or the conservative Liberal-National coalition. Miners, which had gotten a boost in August on hopes a Liberal government would scupper the controversial mega-mining tax, are trading down this morning: In London, Xstrata -2.7%. Premarket U.S.: RTP -3.8%, BHP -2.6%. Aussie dollar -0.65% against the U.S. dollar (7:00 ET).

    New chief for Barclays. Barclays (BCS) confirmed that Bob Diamond, the head of its investment bank, will become the firm's chief executive when current CEO John Varley steps down in March 2011. Diamond lacks experience in retail banking or credit cards, both major components of Barclays' business in the U.S. and Europe, but he has built Barclays Capital from scratch into a multibillion-pound operation. Premarket: BCS -5.2% (7:00 ET).

    Hurd finds a home at Oracle. Oracle (ORCL) confirmed weekend rumors that Mark Hurd, the ousted CEO of H-P (HPQ), will join the company as co-president and a member of the board of directors. Analysts said the move is a coup for Oracle as the company is aggressively branching out and increasingly coming into competition with firms like H-P and IBM (IBM). Premarket: ORCL +4.4% (7:00 ET).

    HSBC chairman expected to step down. HSBC (HBC) Chairman Stephen Green is reportedly stepping down from his post to become U.K. Trade Minister. Sources say an announcement will be made later today, and that HSBC has no immediate plan to name a permanent successor for Green. Premarket: HBC +0.2% (7:00 ET).

    AIG considers new sale of Taiwan unit. AIG (AIG) is leaning towards a new sale of its Taiwan unit after regulators rejected AIG's $2.2B deal with China Strategic and Primus Financial. AIG said it's still discussing its next move, but in a filing with Hong Kong regulators yesterday it indicated its current view that "it would be in the best interests of the parties to terminate the share purchase agreement." Several Taiwanese banks have expressed interest in the unit.

    Basel III to boost capital requirements. The Basel Committee will require global banks to hold Tier 1 capital of 9%, according to a draft proposal obtained by German weekly Die Zeit, and will be able to demand banks accumulate an "anti-cyclical buffer" of 3% so that Tier 1 capital requirements can rise to 12% in boom times. This is a significant jump from the present requirements, under which banks are required to have a Tier 1 ratio of no less than 4%. Regulators and central bank officials are meeting today to finalize the Basel III package.

    New spending, tax relief proposed to spur growth. Obama called on Congress to approve a six-year public works program that would spend $50B upfront on upgrades to roads, rail lines and airport runways in an effort to combat unemployment. The administration said it will work with Congress to fund the plan without adding to the deficit, perhaps by cutting subsidies on oil and gas exploration and production. However, lawmakers preparing for the midterm elections may not provide the zippy approval Obama is hoping for. Obama is also expected to announce this week an expanded tax incentive to encourage business investment.


      Stocks worldwide dropped during the spring because of worries that mounting government debt in Europe would hurt banks' ability to lend and stunt an economic recovery on the continent. That, in turn, would drag down a global rebound.

      "The apparently never-ending European debt crisis is coming back to visit the markets and with it, will bring a bout of doubt," said Andre Bakhos, director of market analytics at Lek Securities in New York.

      "We were up three solid sessions to start the month of September. We are looking now at a situation that may take some recent enthusiasm away."

      Wall Street posted its best week in the last two months, bolstered by stronger-than-expected economic data that had reduced fears of a double-dip recession.

      Investors could be taking their cues from overseas because there are few domestic economic reports due out this week that could sway traders. A barrage of mostly better-than-anticipated economic data sent stocks sharply higher last week. The reports helped push major indexes to their first winning week in a month.

      "This week, we have very little key economic news," said Marc Pado, U.S. market strategist at Cantor Fitzgerald, in a research note. "This will be an opportunity to digest last week's volatility with little distraction."

      He described September as a key month.

      "Weakness from this point on should be used as an opportunity to add to economically sensitive groups: technology, retail, consumer discretionary and even the financials," Pado said.

      The health of the U.S. economy has largely dictated trading since early August. Traders looking for new signs of the pace of recovery will get a look at regional economic activity when the Federal Reserve releases its beige book Wednesday. The Labor Department releases its weekly numbers on unemployment benefit claims Thursday.


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