Market Outlook
Wednesday, September 08, 2010

Wednesday has a fair amount in the way of economic reports scheduled. They are:-

  • 7:00 …MBA Mortgage Applications

  • 7:45… ICSC Retail Store Sales

  • 8:55 …Redbook Chain Store Sales

  • 10:00…Quarterly Services Report

  • 11:00… Results of $21B, 10-Year Note Auction

  • 2:00 PM… Fed's Beige Book

  • 3:00 PM …Consumer Credit

Also the following companies are reporting their quarterly earnings:-

  • Ciena Corp. (CIEN),

  • Smithfield Foods Inc. (SFD),

  • The Talbots Inc. (TLB),

  • The Men's Wearhouse Inc. (MW),

  • Shanda Games Limited (GAME), and

  • Shuffle Master Inc. (SHFL)

wednesday outlook

Wednesday sees U.S. stock futures erase early losses to trade higher, as Portugal successfully conducted a bond auction, easing short-term concerns about euro-zone sovereign debt.

"Given that the markets are focused so much on fear at the moment, every bit of good news produces a small comeback in risk," said Mads Koefoed, market strategist at Saxo Bank. "When Portuguese bonds are sold, then it's [the market] simply rallying on everything that can be interpreted as good news."

The Portuguese government sold 661 million euros ($839 million) of three-year debt and 378 million euros of 10-year bonds. Demand was solid and boosted market sentiment.

Stocks fell more than 1% Tuesday, as worries that European banks are in worse shape than previously expected weighed on shares of financial institutions. The retreat came after stocks rallied last week on improved economic news.

Jitters about the health of European lenders persisted Wednesday, as investors continued to duck out of stocks, flocking to the perceived safety of the yen and gold.

Economic Concerns

Federal Reserve's Beige Book

The September edition of the Federal Reserve's Beige Book, a snapshot of economic conditions across the central bank's 12 districts and is also used by the Fed to determine interest rate policy at its regular meetings, comes out in the afternoon.

While few expect interest rates to rise above its current range of 0% to 0.25%, investors could take their queue from what observations the bank has current slowdown in the economy.

Consumer Credit

A separate report from the Fed on consumer credit comes out later in the day. Economists expect consumer debt fell by $5.25 billion in July after a drop of $1.3 billion in June, according to consensus estimates from

President Obama’s Speech

During a speech in Cleveland Wednesday, President Obama is widely expected to officially unveil three new proposals aimed at bolstering the shaky economic recovery.

They include an estimated $200 billion in tax breaks for businesses that invest in new plants and equipment; a $100 billion extension of the business tax credit for research and development; and $50 billion over the next decade to improve roads, rails and other infrastructure.

Congress is not expected to pass the proposals soon.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) gave up 107 points on Tuesday, slipping below former support at the 10,350 level as renewed concerns about European debt levels scuttled any hope of extending the prior week's rally. This morning, however, those fears have cooled following a successful Portuguese debt auction. The Dow could reclaim support at the 10,350 level in early trading, but resistance still looms overhead in the 10,450 area, which is home to the blue-chip barometer's 200-day moving average.

The S&P 500 Index (SPX) support lies in the 1,090 area, but yesterday's decline has placed the broad-market index back below resistance in the 1,100 region.

Gold futures The lead contract is currently up a mere $1.40 at $1,260.70 an ounce in London, gold futures tagged a fresh high of $1,262.30 an ounce - a two-month high for the December contract, and higher than yesterday's record settlement high of $1,259.30 an ounce in New York.

The U.S. Dollar Index has slipped 0.14% to 82.71, as the greenback rallies against the euro, but continues to struggle versus the Japanese yen.

Benchmark crude futures: Weaker equity markets in Asia and high U.S. petroleum stockpiles continues to apply pressure to crude futures. Heading into the open, the most active contract is down 13 cents at $73.96 per barrel.

Bonds: The yield on the 10-year Treasury note fell to 2.59% from 2.6% late Tuesday.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 791,779 call contracts traded on Tuesday, compared to 477,543 put contracts.

Overseas Markets

The Portuguese auction offset weaker-than-expected German economic data. Germany's exports dropped in July from the previous month, while industrial production edged up only 0.1%, much less than economists expected

European Concerns

European share markets slipped in early trading. The CAC 40 in France and the DAX in Germany fell 0.7%, while Britain's FTSE 100 lost 0.6%.

  • In Europe at midday, London flat. Paris +0.2%. Frankfurt +0.2%.

Currencies: The Japanese yen hit a fresh 15-year high against the dollar, and the greenback fell against the euro and the British pound.

Asian Concerns

Earlier in Asia,markets ended sharply lower after the yen hit another 15-year high against the dollar. Japan's benchmark Nikkei index tumbled 2.2% and the Hang Seng in Hong Kong dropped 1.5%. The Shanghai Composite ended 0.1% lower.

  • In Asia, Japan -2.2% to 9024.6. Hong Kong -1.5% to 21089. China -0.1% to 2695. India +0.1% to 18667.

Futures Trading

As of 6:25 a.m. in New York, the Dow Jones Industrial Average futures were up 16 points, or 0.15%, to 10354, the S&P 500 index futures rose 1.7 points to 1092.90 and the Nasdaq 100 futures gained 4.5 points to 1862.00.

  • Futures: Dow +0.2%. S&P +0.2%. Nasdaq +0.3%. Crude -0.4% to $73.79. Gold +0.1% to $1260.90.


Company News

Ciena Corp. (CIEN) said that its third-quarter net loss widened to $109.9 million, or $1.18 per share. On an adjusted basis, the company posted a loss of 9 cents per share. Revenue fell to $164.8 million. Analysts were looking for a loss of 32 cents per share. Looking ahead, Ciena expects fourth-quarter revenue to rise by 5% from a year ago.

Smithfield Foods Inc. (SFD) swung to a fiscal first-quarter profit of $76.3 million, or 46 cents per share, from a loss of $107.7 million, or 75 cents per share, a year earlier. Sales rose 7% to $2.9 billion. Analysts were expecting earnings of 46 cents per share on sales of $2.99 billion. The company reiterated its "positive outlook" for the year.

• Fitch Ratings lifted its long-term issuer default rating on BP by three levels to A from BBB. Fitch said the upgrade reflects an end to the threat of further leaks from the Macondo well in the Gulf of Mexico, as well as the "improved visibility of potential liability scenarios" that the company could face.

Some Interesting News

Bristol-Myers buys ZymoGenetics. Bristol-Myers Squibb (BMY) agreed to buy biotech firm ZymoGenetics (ZGEN) for $9.75/share in cash, buying itself "full ownership of a promising investigational biologic that strengthens our very diversified hepatitis C portfolio." The total purchase price is $885M, or about $735M net of cash acquired. Bristol-Myers expects the purchase to lower earnings by $0.03/share in 2010 and by $0.07/share in 2011. In after-hours trading, ZGEN +84%, BMY +0.3%.

Vodafone to shed China Mobile stake. Vodafone (VOD) confirmed late yesterday that it will sell its 3.2% stake in China Mobile (CHL) via a public offering led by Goldman Sachs (GS), UBS (UBS) and Morgan Stanley (MS). The sale is expected to bring in £4.3B ($6.6B), and the company plans to use around 70% of the proceeds for a stock buyback and the rest to pay back debt. Analysts suggest several other stake sales could follow as Vodafone works to slim down, though disposals of its stakes in companies like France's SFR and Verizon Wireless (VZ) could be more difficult because of the limited number of possible buyers.

Foster's rejects $2.5B offer for wine unit. Foster's Group (FBRWY.PK) turned down an offer of as much as A$2.7B ($2.5B) for its struggling wine unit from an unidentified private equity firm. The company said it had considered the “indicative, non-binding” proposal, but ultimately decided that proceeding with its original plan of demerging its wine and beer businesses would provide the greatest shareholder value. In Aussie trading, Foster's closed +4.45%.

Hurd, now at Oracle, gets hit by H-P suit. Hewlett-Packard (HPQ) filed suit against Mark Hurd, its former CEO, for violating confidentiality agreements, one day after Hurd was named president of Oracle (ORCL). The lawsuit claims that Hurd's appointment to Oracle could cause H-P to lose customers, trade secrets and its competitive advantage, as it would be "impossible" for Hurd to serve as Oracle's president without using confidential information from his prior post. Oracle called the lawsuit "vindictive." Shares of Oracle rose 5.9% yesterday on news of Hurd's appointment; H-P closed down 1%.

Boeing open to a merger. Boeing (BA) said yesterday it will consolidate its military aircraft business to four divisions from six, likely resulting in work reductions, including a 10% cut in the unit's executive positions. Notably, Dennis Muilenburg, Boeing's head of defense, also said yesterday that the company is "actively" looking at potential acquisitions and would not rule out a merger with another large defense contractor.

BP accepts partial spill blame. BP (BP) will release its internal report today on the Deepwater Horizon disaster that led to the worst oil spill in U.S. history. Sources say BP shoulders some of the blame in the report, but it's unclear just how much; assuming too much blame potentially exposes the company to greater legal liability, while taking too little responsibility will prompt critics to accuse the company of shirking its responsibilities. BP has tried to position the report as an objective analysis of the events leading up to the spill. Premarket: BP +3.5% (7:00 ET).

SEC confirms 'quote stuffing' probe. The SEC's Mary Schapiro confirmed the agency is looking into "quote stuffing," the practice of placing an unusually large number of buy or sell orders for stocks in a fraction of a second, and then canceling the orders almost immediately. Schapiro said the SEC is considering requiring traders to hold orders open for minimum periods, and signaled more broadly that high-frequency traders will face new curbs in the aftermath of May's flash crash.

Coming soon: Google TV. Google (GOOG) CEO Eric Schmidt firmed up the company's plans to launch Google TV in the U.S. this fall and internationally in 2011. It's "very unlikely" Google will get into content production itself and the company has instead been focused on building partnerships with various content providers. The move is still likely to face opposition from a Hollywood worried about illegal content.


Investors will eye the U.S. central bank's release of its Beige Book at 2 p.m. EDT (1800 GMT), the economic data gathered from its 12 regional banks that will provide insight into U.S. economic conditions.

"I believe we're beginning to see some indicators show the economy leveling off at a slow growth rate," said Peter Cardillo, chief market economist at Avalon Partners in New York. "With interest rates this low, that is a positive for the stock market."

U.S. futures got their cue from a reversal in European stocks. The FTSEurofirst 300 index of leading European shares .FTEU3 was up 0.6 percent after falling more than 0.4 percent earlier in the session.

U.S. chain store sales rose 3 percent for the week ended Aug. 28 versus a year ago, Redbook Research said. The index measures sales for large U.S. general merchandise retailers, representing about 9,000 stores.

U.S. stocks fell in very light volume on Tuesday on renewed concerns about European banks after strong gains last week.


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