Market Outlook
Wednesday, July 28, 2010



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

7:00… MBA Mortgage Applications

8:30 … Durable Goods

10:30… EIA Petroleum Inventories

12:30 PM… SIGTARP's Neil Barofsky: Rooting Out Fraud in TARP

1:00 PM… $37B, 5-Year Note Auction

2:00 PM … Fed's Beige Book

2:30 PM… Hearing: Fed Board Nominations (Yellen, Diamond, Raskin)

Earnings: The following companies are presenting their quarterly reports:-

• ArcelorMittal (MT),

• The Boeing Company (BA),

• Coca-Cola Enterprises Inc. (CCE),

• Comcast Corp. (CMCSA),

• ConocoPhillips (COP),

• Constellation Energy Group Inc. (CEG),

• International Paper Company (IP),

• M/I Homes Inc. (MHO),

• Martha Stewart Living Omnimedia Inc. (MSO),

• P.F. Chang's China Bistro (PFCB),

• Sprint Nextel Corp. (S),

• Akamai Technologies Inc. (AKAM),

• Cincinnati Financial Corp. (CINF),

• Cliffs Natural Resources Inc. (CLF),

• Goldcorp Inc. (GG),

• Green Mountain Coffee Roasters Inc. (GMCR),

• NetLogic Microsystems Inc. (NETL),

• Skechers USA Inc. (SKX), and

• Sturm, Ruger & Co. (RGR).

traders-nyse

Wednesday sees U.S. stock futures straddling the flatline, as investors awaited earnings from Boeing Co. and ConocoPhillips, as well as the Federal Reserve's latest view on regional economic conditions, to give the market more direction after the previous day's choppy session.

U.S. stocks were poised for a rocky start Wednesday, as economic woes hung over investors, and stocks closed mixed a day earlier.

Economic Concerns

Investors will look to a report on durable goods orders, or goods meant to last three years or more. Economists expect orders to have risen 1% in June after falling 0.6% in May, according to a consensus estimate from Briefing.com. However, that growth is likely tied to large new orders for Boeing aircraft.

Transportation orders can often skew the report. Excluding them, orders likely rose just 0.3 percent last month after rising 1.6 percent in May. That slowdown fits in with other data in recent weeks that have shown the pace of recovery in the manufacturing sector has eased.

The Federal Reserve's "beige book," a reading on the nation's 12 economic district, is due at 2 p.m.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) is holding above support near 10,500, but is being held in check by resistance near 10,600, which is home to the Dow's June 21 peak.

The S&P 500 Index (SPX) is battling resistance at 1,115-1,120, with the index finishing perched on its 200-day moving average on Tuesday.

Gold futures have risen $4 to trade at $1,165.80 an ounce in London. So far this week, gold has plunged more than 8% to trade at a multi-month low.

The U.S. Dollar Index continues to bounce along support at the 82 level this week, though the index is being squeezed into this support level by resistance at its declining 10-day and 20-day moving averages. In pre-market activity, the index is off fractionally, shedding 0.05% to 82.15. The minor decline in the dollar has done little to bolster commodities, as the front-month crude contract is down 10 cents at $77.40.

Benchmark crude futures appear to be in danger of reversing course once again, after tangling with resistance near $79-$80 per barrel.

Bonds: Treasury prices rose, and the yield on the 10-year note edged up to 3.03% from 3.05% late Tuesday.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,332,293 call contracts traded on Tuesday, compared to 726,418 put contracts.

The CBOE Market Volatility Index (VIX) rebounded slightly on Tuesday, but met with resistance at its 200-day moving average. A rejection and extended run lower in the VIX could bode well for market bulls.

Overseas Markets

* In Europe, the FTSEurofirst 300 .FTEU3 index of top shares was higher in early trade, helped by strong corporate results as the earnings season in Europe gets into full swing. * The global economic recovery is set to continue despite signs of slowing momentum, a senior International Monetary Fund official said on Tuesday.

**The Stoxx Europe 600 index (ST:SXXP) gained 0.2%, rising for a seventh session.

**Shares of Infineon Technologies AG (IFNNY) (DE:IFX) advanced 2.1% after the German chip maker raised its full-year revenue and investment outlook. It also reported a return to fiscal third-quarter net profit and a 59% surge in revenue.

**In France, shares of car maker PSA Peugeot Citroen (FR:UG) fell 3.6%. The firm returned to profitability in the first half, but said it expected more difficult market conditions for the remainder of the year in Europe.

**ArcelorMittal (MT) , the world's biggest steel maker, reported a second-quarter net profit of $1.7 billion, compared to a loss of $792 million in the same period a year earlier. However, the firm warned that earnings in the coming months will be hit by a slowdown in demand from China. Its shares fell 1.8% in Amsterdam.

European Concerns

European share markets got off to a rough start. In the early going, the CAC 40 in France was flat, while Britain's FTSE 100 and Germany's DAX lost about 0.5%.

In Europe at midday, London -0.6%. Paris +0.1%. Frankfurt -0.6%.

The euro was little changed at $1.3003, while the dollar index / (DXY) edged lower to 82.103.

The dollar was down versus the euro and the Japanese yen, but up against the British pound.

Asian Concerns

Earlier in Asia, markets rallied. Japan's benchmark Nikkei index soared 2.7% and the Shanghai Composite climbed 2.3%.The Hang Seng index also finished the session with gains.

In Asia, Japan +2.7% to 9753. Hong Kong +0.6% to 21091. China +2.3% to 2634. India -0.7% to 17957.

Futures Trading

As of 7:05 a.m. in New York, the Dow Jones Industrial Average futures lost 14 points, or 0.13%, to 10480, the S&P 500 index futures were lower by 0.6 points to 1110.30 and the Nasdaq 100 index futures were down 1.5 points to 1885.00.

Futures: Dow -0.1%. S&P -0.1%. Nasdaq flat. Crude -0.35% to $77.23. Gold +0.3% to $1161.80.

us futures-july28,2010



Company News

Investors will receive another raft of earnings reports on Wednesday.

Dow component Boeing Co. (BA) said that its second-quarter profit fell 21% to $787 million, or $1.06 per share, as revenue dropped 9% to $15.57 billion. Analysts were looking for earnings of $1.04 per share on sales of $16.4 billion. The company also reaffirmed its full-year guidance of $3.50 to $3.80 per share, which remains below Wall Street's view for earnings of $3.88 per share.

Las Vegas Sands Corp. (LVS) said that it lost $4.7 million, or a penny per share, in the most recent quarter. Revenue jumped 50.6% to $1.59 billion. On an adjusted basis, the company earned $129 million, or 17 cents per share. Analysts were expecting a profit of 9 cents per share.

Eastman Kodak Co. (EK) reported that its second-quarter loss from continuing operations narrowed to $167 million, or 62 cents per share. Excluding one-time items, the company said it lost 51 cents per share. Wall Street was looking for a loss of 28 cents per share. Looking ahead, Kodak said that it expects a loss from continuing operations in the range of $50 million to $150 million.

Oil major ConocoPhillips (COP) is expected to report earnings of $1.55 a share and revenue of $47.2 billion for the second quarter.

Other companies expected to report quarterly earnings include Visa (V), defense firm General Dynamics (GD) and cable company Comcast (CMCSA).

* Shares of Panera Bread Co (PNRA) fell 2 percent to $77.00 in extended trading on Tuesday after the company released its second-quarter results.

* Broadcom Corp (BRCM) shares slipped 3.5 percent to $36.23 in extended trade after the company posted second-quarter results and gave third-quarter guidance.

* Shares of Cephalon Inc (CEPH) fell 2.1 percent to $61.59 after the closing bell, as the company released its quarterly results.

Some Interesting News

• In Washington, the U.S. Treasury will sell $37 billion in 5-year notes later today.

Aetna makes PBM deal with CVS. Aetna (AET) is contracting out the long-term administration of its pharmacy-benefit unit to CVS Caremark (CVS). Financial terms weren't disclosed, but the 12-year deal will allow Aetna to pitch to new customers a medical plan that comes with a drug benefit. Aetna also disclosed Q2 earnings, reporting net income of $491M, or $1.14/share, up from $346.6M, or $0.77/share, a year earlier. Revenue fell 1.4% to $8.55B. The company raised its full-year EPS outlook to $3.05-3.15 from a previous guidance of $2.75-2.85. Premarket: AET -1.2%, CVS +2.45% (7:00 ET).

Telefonica reaches Vivo deal. Telefonica (TEF) has reached an initial agreement to buy Portugal Telecom's (PT) stake in jointly owned Vivo (VIV), but declined to provide a price for the deal, which must still be approved by the boards of both companies. Sources close to the talks said Telefonica offered €7.5B ($9.8B), marking the third time it has raised its bid and a 32% increase from its initial offer.

UnitedHealth nears health firm acquisition. UnitedHealth (UNH) is reportedly close to a deal to buy closely held Executive Health Resources, a medical services firm, for about $1.5B. Facing declining profit growth in its core insurance business, UnitedHealth is hoping acquisitions to expand its health-services units will produce meaningful growth. A purchase of Executive Health Resources would be UnitedHealth's fifth acquisition in 2010, and a deal could be announced by the end of the week. UNH closed down 2.2% yesterday.

Disney picks up Playdom. Disney (DIS) announced yesterday that it would buy social-games maker Playdom in a deal worth up to $763M. It was the second social-games maker deal of the day, as hours earlier videogame retailer GameStop (GME) had announced its acquisition of Kongregate. The social-games business generates far less revenue than the traditional console business, at least for now, but companies are bullish on the sector because of its high growth rate and its already-committed audience in the tens of millions.

BP takes Gulf spill tax credit. BP (BP) said it plans to claim $9.9B in U.S. tax credits based on the $32.2B charge it reported related to costs for the Gulf oil spill. Outgoing CEO Tony Hayward said BP has "followed the IRS regulations as they're currently written," but the move will likely put more political heat on the company. Separately, India's state-run explorer Oil and Natural Gas Corp. and PetroVietnam are expected to make a formal joint offer within weeks for BP's stake in their joint Vietnamese gas project. Analysts believe the stake is worth around $966M. Premarket: BP -2.4% (7:00 ET).

GS Capital, P-E firm buy HGI Holdings. Goldman Sachs' (GS) GS Capital Partners and private equity firm Clayton, Dubilier & Rice agreed to buy medical products provider HGI Holdings from rival private equity firm Jordan Company. The price of the deal was not disclosed, but is estimated to be around $850M. This is the latest in a string of secondary buyouts as private equity firms, aggressively looking for deals, buy companies from one another.

ArcelorMittal bounces back to profit. ArcelorMittal (MT), the world's largest steelmaker, reported a Q2 net profit of $1.7B (see details below), beating analysts' expectations of a $1.26B profit and reversing a net loss of $792M in the same period last year. However, the company warned that Q3 results will be hurt by a seasonal dip in demand and an economic slowdown in China. Premarket: MT -2.4% (7:00 ET).

Google sets its sites on Facebook. Google (GOOG) is said to be in talks with several makers of popular online games as it works to create a broader social-networking service that could compete with Facebook. Top developers that have been approached to offer their social games on the service Google is building include Playdom (which was just acquired by Disney (DIS), see above), Playfish (ERTS) and Zynga, in which Google recently took a financial stake, according to sources. It's unclear when Google might launch the gaming offering.

Hess says yes to shale. Hess Corp. (HES) announced late yesterday that it's buying American Oil & Gas (AEZ) in an all-stock deal worth around $445M. The deal will boost Hess' strategic acreage position in the North Dakota Bakken shale oil play.

EU approves UAL, Continental deal. United Airlines parent UAL (UAUA) won unconditional EU regulatory approval for its $3.17B acquisition of Continental Airlines (CAL). The deal, which will create the world's largest carrier, is still under U.S. regulatory review. The carriers also announced their combined new management team, which includes four executives from each company and Continental's Jeff Smisek as president and CEO of the merged carrier.

U.S. okays Schlumberger, Smith deal. Schlumberger (SLB) and Smith International (SII) received unconditional U.S. regulatory approval for their planned merger, just a day after EU regulators cleared the deal. The merger must now be approved by Smith shareholders at their Aug. 24 annual meeting.

Fannie, Freddie spike on reform talks. Fannie Mae (FNMA) and Freddie Mac (FMCC.OB) soared yesterday after the Obama administration said it's planning an August 17 conference to discuss the future of the housing finance system, with an eye to delivering a reform proposal to Congress by January. In yesterday's trading, Fannie +46.7% to $0.399, Freddie +31.3% to $0.407.

GE settles SEC charges. General Electric (GE) agreed to pay $23.4M to settle SEC charges over oil-for-food kickbacks made to the Iraqi government in order to win contracts under a U.N. program. The SEC said GE "failed to maintain adequate internal controls to detect and prevent these illicit payments."

Conclusion

Wall Street had a rough day Tuesday after a drop in consumer confidence triggered a wave of selling that caused stocks to erase most of their gains.

Uncertainty about the economy has been weighing on markets, even as companies have turned in mostly positive earnings reports.

Cautious words from Fed chairman Ben Bernanke last week led to a sell-off in stocks. He called future growth "uncertain," which worried investors who look to Bernanke for reassurances that a rebound is under way.

Investors have been trying to balance strong earnings and corporate outlooks with economic data that isn't as rosy as forecasts being provided by company executives. Similar mixed reports led to a mostly down day in the market Tuesday.

The Dow will try to climb for the fifth straight day Wednesday. It eked out a 12 point advance Tuesday thanks to strong earnings from chemical maker DuPont Co., a component of the index. Broader indicators all dipped after another disappointing report showed consumer confidence is weakening.


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