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Market Outlook
Tuesday, September 14, 2010



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

  • 7:45… ICSC Retail Store Sales

  • 8:30 …Retail Sales

  • 8:55 …Redbook Chain Store Sales

  • 10:00… Business Inventories

  • 10:00… IBD/TIPP Economic Optimism

  • 5:00 PM …ABC Consumer Confidence Index

Also the following companies are reporting their quarterly earnings:-

  • Best Buy Co. Inc. (BBY),

  • Cracker Barrel Old Country Store Inc. (CBRL),

  • The Kroger Co. (KR), and

  • Pall Corp. (PLL)


tuesday-outlook

Tuesday sees U.S. stocks poised to head lower, as investors waited for key retail sales data.

Stocks are coming off a rally Monday, after the release of new global banking rules, upbeat economic data from China, and some acquisition activity helped boost investor sentiment.

Stock futures edged lower early this morning ahead of a retail-heavy trading session, with earnings results from Best Buy and Kroger along with closely-watched government retail sales data.

"After the recent rise of equity markets, many indices are close to the upper bounds of the trading range of recent months, and this acts as a resistance," said Tammo Greetfeld, an equity strategist with UniCredit Bank in Munich.

"The focus will be on the direction of incoming macroeconomic data and we think that incoming data should pose headwinds to equity markets, and we do not expect any decisive break out on the upside from the recent trading range," he said.

Economic Concerns

Retail Sales

The government is scheduled to report on the health of the retail sector before the market opens.

Economists expect U.S. retail sales rose 0.3% last month, after a 0.4% gain in July, according to consensus estimates from Briefing.com. Retail sales outside the auto sector are also forecast to have risen 0.3%, versus a 0.2% gain the month before.

Business Inventories

After the opening bell, another government report is expected to show that business inventories rose 0.7% in July, after a 0.2% increase in June.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) enters today trading below resistance in the 10,600 region, while support resides near 10,450.

The S&P 500 Index (SPX): Technical factors could also influence the market as the S&P 500 closed Monday above its 200-day moving average for the first time since early August -- a potentially bullish sign. After being range-bound through the summer, the benchmark has drifted to the top of that range through September.

Investors are keyed on the 1,130 level, which has not been seen hit May. If the level is surpassed, it could signal more gains on the horizon.

In August, the S&P closed above its 200-day moving average seven days in a row before falling nearly 8 percent over the next 18 days.

Early Tuesday, S&P 500 futures SPc2 dipped 3.7 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures DJc2 were off 27 points, and Nasdaq 100 futures NDc2 slipped 6.5 points.

Gold futures: Gold is also popular in pre-market trading, with the lead contract rising $8.80 to $1,255.90 in London.

• The U.S. Dollar Index: With Wall Street a bit nervous ahead of today's August retail sales data, the U.S. dollar is receiving a renewed safe-haven bid this morning. At last check, the U.S. Dollar Index was up 0.10% at 81.99.

Benchmark crude futures: Energy shares were in focus as oil prices dipped ahead of U.S. crude inventory reports and as the shutdown of the biggest Canada-U.S. pipeline entered a fifth day. U.S. crude futures were off 0.6 percent at $76.72 a barrel.

Bonds: The yield on the 10-year Treasury note fell to 2.74% from 2.76% late Monday.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,251,676 call contracts traded on Monday, compared to 645,382 put contracts.

Overseas Markets

European markets were unsettled by a weaker-than-expected survey of German economic sentiment. The ZEW indicator fell sharply in September to -4.3 from 14 in August, compared to expectations for a drop to 9.

The dollar fell against other major currencies, including the euro and the British pound.

Earlier in Asian trading, the dollar hit a fresh 15-year low against the yen, reportedly prompting the Japanese government to say it may take steps to curb the currency's strength amid growing concerns about the pace of the recovery.

European share markets: Struggling to find direction throughout the trading session, European shares hovered around flat after Greece announced it sold about $1.51 billion in government debt.

The CAC 40 in France rose 0.1%, and Britain's FTSE 100 and Germany's DAX were flat.

In Europe at midday, London flat. Paris -0.1%. Frankfurt flat.

Asian Concerns

Earlier in Asia, markets ended mixed. Japan's benchmark Nikkei index fell 0.2% and the Hang Seng in Hong Kong rose 0.2%. The Shanghai Composite ended flat.

In Asia, Japan -0.2% to 9299. Hong Kong +0.2% to 21696. China flat. India +0.7% to 19347.

Futures Trading

As of 6:30 a.m. in New York, the Dow Jones Industrial Average futures were down 20 points, or 0.19%, to 10452, the S&P 500 index futures lost 0.3 points to 1115.90 and the Nasdaq 100 futures were down 2.25 points to 1914.50.

Futures: Dow -0.1%. S&P -0.1%. Nasdaq -0.1%. Crude -0.6% to $76.76. Gold +0.6% to $1254.40.



futures091410



Company News

Green Mountain Coffee Roasters Inc. (GMCR) may be close to acquiring Van Houtte Inc. in a deal worth approximately $1 billion, according to The Wall Street Journal. Van Houtte operates in Quebec, Canada, selling packaged coffee beans for retailers and coffee-brewing equipment, and it operates cafes in Quebec.

Cracker Barrel Old Country Store Inc. (CBRL) reported fourth-quarter net income of $27.4 million, or $1.14 per share, on revenue of $612.5 million. Wall Street was expecting earnings of $1.12 per share and revenue of $613.8 million. Looking ahead, Cracker Barrel said it expects 2011 earnings of $3.95-$4.10 per share, compared to the consensus estimate for $4 per share.

OfficeMax Inc. (OMX) said that it expects its third-quarter adjusted income margin rate to be slightly higher than a year ago, due to tax benefits. The company had expected a lower margin. OfficeMax still expects same-store domestic sales to decline in the current quarter, but said that the results should favorably compare to the second quarter's 2.1% decline.

• Electronics retailer Best Buy (BBY) and grocery chain Kroger (KR) are both scheduled to report earnings before the market open. Analysts on average are looking for Best Buy to post a profit of 44 cents per share while Kroger is expected to earn 36 cents a share.

• U.S.-listed shares of Philips Electronics (PHG) (NL:PHIA) fell 2.2% in thin premarket trading, as the company's five-year growth plan disappointed investors.

BP Plc (BP.L)(BP.N) and its partners in the blown-out Gulf of Mexico well said thousands of fishermen, seafood processors, restaurants, hotel owners and others may not yet have the right to sue over the spill, according to court papers.

The companies said the majority of plaintiffs who brought about 400 lawsuits must first take their claims to a $20 billion fund established by BP. The oil giant's U.S.-listed shares added 0.8 percent to $38.64 in premarket trading.

Some Interesting News

Green Mountain Coffee nears Van Houtte buy. Green Mountain Coffee Roasters (GMCR) is expected to acquire smaller rival Van Houtte in a deal likely to be valued at around $1B, sources said. Green Mountain reportedly won an auction for Van Houtte after its private-equity owner Littlejohn & Co. put the business up for sale earlier this year. Terms of the acquisition couldn't be determined, though a deal announcement could come as soon as this morning.

MedAssets buys Broadlane Group. MedAssets (MDAS) agreed to acquire The Broadlane Group for $850M in cash, with $725M to be paid at closing and $125M to be paid in January 2012. MedAssets called the deal an "outstanding strategic fit" and expects it to add $0.05-0.10 to 2011 earnings per share.

Time Warner Cable, Cox talk cable swap. Time Warner Cable (TWC) reportedly held talks with privately-owned Cox Communications about swapping cable systems in California valued at around $2B and the possibility of a broader alliance. Sources said talks slowed in August after months of progress, but the two sides could be back at the negotiating table in the near future. Time Warner Cable and Cox, the second and third largest U.S. cable operators, are trying to better compete against larger rival Comcast (CMCSA) which is buying GE's (GE) NBC Universal.

AIG looks for the exit. AIG (AIG) is reportedly formulating a plan to exit government ownership faster than previously anticipated. Sources said the plan, which could be rolled out as soon as H1 2011, will repay U.S. taxpayers in full and could see the Treasury convert $49B in AIG preferred shares to common shares. Though the conversion would temporarily increase the government's stake in AIG to over 90% from 79.8%, those shares would then be sold to private investors in phases. As a result, AIG could speed up its exit from government ownership while the government could potentially turn a profit on its holdings.

Vodafone to slim down, refocus. Calling his company "a little bit too heavy, not fast enough," Vodafone (VOD) CEO Vittorio Colao wants to unwind some of the ventures built up during a decade of expansion and focus on new services in key markets. The restructuring could include selling minority stakes worth tens of billions of dollars in mobile-phone operators around the world, a process it has already begun with last week's sale of its China Mobile (CHL) stake. Expansion efforts will be focused on offering more services in Vodafone's three key regions (Europe, Sub-Saharan Africa and India) rather than pushing into new emerging markets.

Air Products continues to get the cold shoulder. Air Products and Chemicals (APD) disclosed in a regulatory filing yesterday that it once again contacted Airgas (ARG) and expressed its willingness to raise its $5.5B hostile offer, but Airgas refused to engage in constructive discussion or indicate a bid value that would prompt discussions to begin. Air Products has been repeatedly rebuffed and plans to drop its pursuit altogether if Airgas' shareholders don't elect APD's slate of directors at this Wednesday's annual meeting.

Microsoft may opt for debt sale. Microsoft (MSFT) is planning a debt sale to pay for dividends and share buybacks because too much of its cash is held overseas, sources said. The company would probably try to raise as much money as it possibly could without endangering its AAA debt rating, which means Microsoft may end up raising as much as $6B. The debt sale could come as soon as this calendar year. Shares of Microsoft rose 5.3% in yesterday's trading.

TiVo may have settled with Dish Network. Shares of TiVo (TIVO) jumped 7.2% yesterday on speculation the company may have reached a settlement in a long-standing patent infringement lawsuit against Dish Network (DISH). The speculation was prompted by an SEC filing showing that TiVo has received approval from the SEC for confidential treatment of two exhibits in its 10-Q, though skeptics note the SEC has granted confidential treatment to TiVo more than two dozen times since May 2008.

Aussie regulators nab victory. National Australia Bank (NAUBF.PK) terminated its agreement to take over AXA's (AXAHY.PK) Asia-Pacific arm in a deal that had been valued at A$13.3B ($12.45B). Australia's competition regulator had announced last week that it would block the transaction on competition grounds.

RBS gets back to MBS. Royal Bank of Scotland (RBS) is launching its first sale of mortgage-backed securities since the financial crisis hit. The £4.7B ($7.2B) issue is a significant step both for RBS, which is trying to rebalance its funding sources, and for the broader asset-backed market, which is still recovering and plays a critical role in the general economic recovery.

Kan wins in Japan, yen jumps. Japanese Prime Minister Naoto Kan beat Ichiro Ozawa in a vote today for control of the ruling party, briefly sending the yen to a fifteen-year high against the dollar before giving back some of its gains. Markets will be watching closely to see whether Kan takes any action in regard to the yen, as the yen's strength is a growing problem for Japan's exporters.

Conclusion

The dollar hit a 15-year low against Japan's yen and Treasury prices rose Tuesday, further indications investors were ready to take a break from the September stock market rally.

Traders have driven stocks higher throughout the month following signs that the economy continues to grow, albeit slowly.

U.S. stocks closed higher on Monday, lifting all indexes into positive territory for 2010, with the S&P 500 (SPX) breaching its 200-day moving average for the first time in a month.

Clarity on capital-reserve rules for banks and upbeat China data drove stocks worldwide.

The picture was more subdued on Tuesday, with European markets trading lower, while Asian equities ended mixed.

"Any hopes that another bout of quantitative easing might be about to be unleashed on the U.S. economy may receive a further blow today with the release of the August advance retail sales figure," said economists at ING in a note to investors.

They forecast another 0.4% to 0.5% rise in retail sales after a gain of 0.4% in July. Economists polled by MarketWatch forecast growth of 0.3%.

But weak leading indicators over the last couple of months continue to weigh on investors, said Tammo Greetfeld, an equity strategist with UniCredit Bank in Munich. "The declining growth momentum and the uncertainty of how much economic dynamics will weaken going further is a key burden for equity markets in general," he said.

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