Market Outlook
Wednesday, July 07, 2010

Wednesday has a few economic reports scheduled. They are:-

7:00… MBA Mortgage Applications

7:45 … ICSC Retail Store Sales

8:55 … Redbook Chain Store Sales

3:30 PM … Fed's Kocherlakota: 'Taxing Risk'

7:15 PM … Fed's Lacker: Economic Outlook

Also the following company is reporting its quarterly earnings:-

• Family Dollar Stores Inc. (FDO)


Wednesday saw U.S. stock futures dip, but were well off their lows of the morning, as investors remain concerned about the pace of a global recovery.

A day after the Dow Jones industrial average broke a seven-day losing streak; stocks are set to resume that slide.

Stock futures pointed toward the Dow erasing some of Tuesday's 57-point gain, which came on a volatile day of trading. Traders remain extremely cautious about potential growth.

There are no major economic reports due out Wednesday that could help shake the market from its recent doldrums by providing a sign that strong growth is imminent.

Economic Concerns

Debt: A report from the American Bankers Association showed that fewer consumers are behind on their debt payments when compared to a year ago.

Americans appear to be hunkering down and being more prudent with their finances amid the economic slowdown, the group said.

U.S. Treasury Secretary Timothy Geithner sounded a positive note on Tuesday, saying he was confident the economy would continue to grow as it comes back from the financial crisis, but added that recoveries were "never even, never steady."

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) support remains near 9,600.

The S&P 500 Index (SPX) should hold above 1,010. Another level to keep an eye on for the SPX is the 1,000 area. In fact, 1,000 is home to a 38.2% retracement of the index's March 2009 low and its April peak, is home to the SPX's 80-week trend line, and is also important from a round-number psychological standpoint. breached its 2010 nadir, to close at its lowest point since Oct. 20, 2009. Should the market turn lower today, support might be found near the 1,030 for the SPX.

Gold futures were last seen trading $5.80 lower at $1,189.30 an ounce.

The U.S. Dollar Index: The U.S. dollar regained some of its footing in Asian trading overnight, but the greenback remained weak against the Japanese yen. At last check, the U.S. Dollar Index was up 0.12% at 84.19.

Benchmark crude futures were up 22 cents at $72.20 per barrel.

Bonds: Treasury prices rose, pushing the yield on the 10-year note down to 2.92% from 2.93% late Tuesday.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 954,075 call contracts traded on Tuesday, compared to 609,326 put contracts.

Overseas Markets

Overseas markets all fell Wednesday. European investors are cautious ahead of a Thursday meeting of the European Central Bank. Traders are expecting the bank to keep interest rates unchanged, but will want to get details on the European Union's stress tests on banks.

Aside from domestic worries, investors have been concerned that rising sovereign debt problems in Europe would upend a recovery there, further slowing a global rebound.

Results from the European bank stress tests could provide insight into how many European banks would be affected by a further slowdown and the rising debt of countries like Greece, Portugal and Spain.

Euro zone economic growth in the first three months of 2010 was confirmed on Wednesday at 0.2 percent quarter on quarter, but any stronger expansion in the second quarter could be short-lived.

European Concerns

Shares of building materials maker CRH (CRH) dropped nearly 9% overseas after the company said it expects only to break even this quarter compared with a profit a year ago and business conditions were getting more difficult.

Clothing retailer Marks & Spencer saw shares drop 4% after the company also said it was concerned about consumer spending, especially in light of all these austerity measures taken by major European governments.

European share markets fell in morning trading. Britain's FTSE 100, France's CAC 40 and Germany's DAX all lost more than 1% in the early going.

In Europe at midday, London -0.7%. Paris -1.0%. Frankfurt -0.8%.

Asian Concerns

Asian stocks largely declined Wednesday after weak U.S. data refueled worries about the strength of the global economic recovery. Technology shares dropped, unimpressed by Samsung Electronics' forecast of a record operating profit, and focus fell to the massive IPO for Agricultural Bank of China, which priced in Asia at the middle (for Hong Kong) and above (for Shanghai) its indicated range.

Earlier in Asia, markets ended lower. Japan's benchmark Nikkei declined 0.6% and the Hang Seng in Hong Kong tumbled 1.1%. Indexes in Taiwan and Australia also fell, although the Shanghai Composite added 0.5%.

• Japan -0.6% to 9280. Hong Kong -1.1% to 19857. China +0.5% to 2421. India -0.8% to 17471.

Futures Trading

As of 7 a.m. in New York, the Dow Jones Industrial Average futures were down 58 points, or 0.6%, to 9624, the S&P 500 futures were lower by 3.9 points to 1020.30 and the Nasdaq 100 futures fell 11.5 points to 1723.00.

Futures: Dow -0.2%. S&P -0.2%. Nasdaq -0.2%. Crude +0.1% to $72.04. Gold -0.6% to $1187.40.


Company News

Family Dollar Stores Inc (FDO)

In what could be an early taste of the coming earnings season, Family Dollar Stores Inc (FDO) posted higher quarterly profit as customers sought cheap food and other everyday items in the face of high unemployment, but the discount chain forecast fourth-quarter earnings below expectations.

Family Dollar Stores Inc. (FDO) posted a third-quarter net profit of $104.4 million, or 77 cents per share, as sales rose 8.4% to $2 billion. Analysts had expected earnings of 76 cents per share. Looking ahead, the company expects fourth-quarter earnings of between 46 cents and 51 cents per share, with same-store sales growth of between 5% and 7%. For the full year, Family Dollar sees earnings in a range of $2.53 to $2.58 per share. Analysts had forecast full-year earnings of $2.59 per share.

Dollar Thrifty Automotive Group Inc. (DTG) said that it expects second-quarter adjusted earnings in a range of $70 million to $75 million. Excluding expenses related to its acquisition of Hertz, second-quarter revenue is projected to be within a range of $75 million to $80 million. Full-year adjusted earnings are expected to arrive between $200 million and $220 million, up from previous guidance of between $170 million and $190 million.

State Street Corp. (STT) said it estimates second-quarter net income at 87 cents a share, reflecting a charge and a tax benefit, on revenue of $2.3 billion. A survey of analysts by FactSet Research produced consensus estimates of profit of 93 cents a share, adjusted profit of 72 cents, and revenue of $2.16 billion.

Some Interesting News

Saudis eye strategic BP stake. Unnamed Saudi investors are looking to buy a 10-15% stake in BP (BP), according to a Saudi newspaper, and will be sending a delegation to London for direct talks with the company. The report comes as BP CEO Tony Hayward is due to meet investors and oil industry officials in Abu Dhabi, though BP said it is "not preparing an equity offering." Meanwhile, the U.S. Justice Department has asked BP for advance notice of any planned asset sale or deal involving significant cash transfers; BP confirmed that it had received the request, but has not yet agreed or responded. Shares of BP rose 8.7% yesterday after the company ruled out a share issue, and are +2.3% premarket (7:00 ET).

OECD sees possible unemployment peak. Unemployment in rich nations may have peaked, according to a new OECD report, but those countries need to create another 17M jobs to bring employment back to pre-crisis levels. For the 31 OECD countries as a whole, there are 47M unemployed people, a rate of 8.6%, and the unemployment rate could remain above 8% by the end of 2011. The report also warned governments not to let austerity measures exclude people from the job market.

Google faces EU antitrust scrutiny. Google (GOOG) is facing antitrust scrutiny in Europe, where regulators are looking "very carefully" at allegations that Google unfairly demotes rivals' sites in search results. There has been some indication that regulators accept Google's argument that the fluid nature of the internet makes it hard to behave as a monopoly, but officials also stressed the "importance of search to a competitive online marketplace." The investigation is still in an early stage.

BNY Mellon gets JV approval. Bank of New York Mellon (BK) said it has been granted regulatory approval in China to establish a fund management joint venture in the country with Western Securities. BNY Mellon will own 49% of the new company, BNY Mellon Western Fund Management, which will initially manage domestic Chinese securities in a range of local retail fund products.

KKR to start trading on NYSE. Federal regulators approved Kohlberg Kravis Roberts & Co. to list its shares on the NYSE, marking the end of KKR's three-year campaign for a public listing. According to yesterday's securities filing, co-founders Henry Kravis and George Roberts each own a 13% stake worth a combined $1.65B, as measured by the price of KKR shares trading in Europe. The shares will begin trading on July 15 under the ticker KKR.

Anadarko triggers circuit breaker. Anadarko Petroleum (APC) was halted for five minutes during yesterday's trading by the NYSE's new circuit breakers. The halt followed a trade of 200 shares for $99,999.9999 each, just a wee bit higher than the stock's prior trade of $39.14. The erroneous trade was canceled, and Anadarko closed +1.5% to $38.64.

RBS to sell real estate loans. Royal Bank of Scotland is planning to sell up to £3B ($5B) of real estate loans as it continues to shed non-core assets, with further loan sales likely if this one is successful. The loans are part of a portfolio that has been reduced to £194B from £258B, but around 25% of the remaining portfolio consists of hard-to-offload property assets. Premarket: RBS -1.1% (7:00 ET).

China imposes resource tax. China's resource producers are taking a hit after the country said it plans to impose a tax on coal, oil and gas extraction in western provinces. The move will reduce profits for firms like PetroChina (PTR) and Sinopec (SNP).

Shares of Microsoft (MSFT) are expected to traded heavy after the The Wall Street Journal reported the company plans to do a small number of layoffs.

Lockheed Martin Corp (LMT) has won a $522 million contract to build 42 F-35 fighter planes, the Pentagon said.

• Shares of the Silicon Valley electric car maker Tesla (TSLA) could see more pressure after falling below their original offering price in Tuesday trading, sliding 16%. The stock debuted last week, climbing 41% in the first day of trade.


The main U.S. stock benchmarks survived an afternoon challenge Tuesday, managing to hold onto gains and break multi-session losing streaks after an earlier rally lost steam in the face of consumer discretionary losses and concerns over global growth.

"Technically, the S&P rallied back up to 1,040 and couldn't penetrate resistance, so the bears gained the upper had. Overall, it still looks like consolidation for the week, as we look forward to earnings season providing a catalyst," said Marc Pado, U.S. market strategist with Cantor Fitzgerald.

Jim Reid, strategist with Deutsche Bank, said Tuesday's ISM non-manufacturing data weighed on global markets overnight. "This disappointing data and also the uncertainties around what will be (or not be) disclosed around the stress test seems to have kept risk takers on the back foot overnight," he said in a note to investors.

"Overall, it still looks like consolidation for the week, as we look forward to earnings season providing a catalyst," said Marc Pado, U.S. market strategist with Cantor Fitzgerald.

Rick Meckler, president of investment firm LibertyView Capital Management in New York, said the failure to hold gains in the last session indicated the market was trying to find a bottom.

"Whether we're facing a double-dip recession or whether this is just the slowing that results from the withdrawal of some government stimulation, things have certainly slowed down and worries about that have spread into the market," he said.

The Labor Department will release its weekly report on initial jobless claims and retailers will disclose monthly June sales results on Thursday.

Those reports could provide a spark for stocks because high unemployment and slowing consumer spending remain the biggest stumbling blocks to a stronger rebound.

Major indexes have fallen in recent months following a steady stream of economic reports that have fallen short of forecasts. The data does show the economy is growing, though not as fast as investors had hoped earlier this year. Private spending has not been able to make up for the inflated growth that came from government stimulus programs like the home buyer tax credit that expired at the end of April.

The slowdown in the recovery has pushed the Dow down 13 percent since it hit its high for the year in late April.

"It's a very uncertain, confusing environment for people right now," said Derek Hoffman, chief executive and founder of Wall St. Cheat Sheet. "The market has sold off recently on worries that the economy is shaky, and this week is likely to remain very choppy as we approach earnings season."

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