Market Outlook
Wednesday, September 15, 2010

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

  • 7:00 …MBA Mortgage Applications

  • 8:30 …Empire State Mfg Survey

  • 8:30 …Import/Export Prices

  • 9:15… Industrial Production

  • 9:30… Hearing: The Future of Housing Finance

  • 10:00 … Hearing: Banking Reform and Multilateral Development Banks

  • 10:30 … Hearing: China's Exchange Rate Policy

  • 10:30… EIA Petroleum Inventories

Also the following companies are reporting their quarterly earnings:-

  • CLARCOR Inc. (CLC) and

  • The Dress Barn Inc. (DBRN)


Wednesday sees U.S. stocks headed for a lower opening, as investors await key economic data on trade and manufacturing, and mull over Japan's decision to push down the yen's exchange rate.

Traders are watching foreign exchange rates this morning, as they react to the Japanese government's first jump into the currency market since 2004. After the yen rose to a fresh 15-year high against the U.S. dollar Tuesday, recently re-elected Japanese Prime Minister Naoto Kan announced overnight that he would intervene to curb the yen's sharp rise.

The stock market will also take its cues from various economic reports due out on trade and manufacturing before the market opens.

Economic Concerns

Empire State Manufacturing Survey

A regional manufacturing report for New York is also expected to show modest growth. The Empire State Manufacturing Survey Index likely rose to 8 this month from 7.1 last month. A reading above zero indicates growth.

Industrial Production

Economists expect that production rose 0.3% in August, after a more robust 1% gain in July, according to consensus estimates from Capacity utilization is forecast to come in at 75%, versus 74.8% in July.

Alan Greenspan

Alan Greenspan, the former Fed chairman, is scheduled to speak at the Council on Foreign Relations in New York early Wednesday morning.

Notes of Importance

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

The Dow Jones Industrial Average (DJIA) ended its winning streak at four in a row on Tuesday, closing a lackluster session with an 18-point loss. The blue chip barometer enters today trading above support at the 10,500 level, though the Dow may test this region early in today's trading, as futures on the DJIA are trading 15 points below fair value.

The S&P 500 Index (SPX) stayed above its 200-day moving average of around 1,115 after closing beyond that level on Monday for the first time since early August.

Staying above 1.115 could be a bullish signal and analysts have their eye on 1,130 as the next resistance point.

Gold futures: Gold for December delivery fell $1.10 to $1,270.60 an ounce. On Tuesday, the December contract rose $24.60, or 2%, to settle at a record high of $1,271.70. That topped the previous record of $1,264.80 reached on June 21.

The U.S. Dollar Index: Following the intervention of Japanese authorities, the U.S. dollar rebounded from 15-year lows versus the yen. The move helped lift the greenback to ¥85.07 from yesterday's low of ¥82.85. The U.S. Dollar Index was also pressured higher, rising 0.73% in pre-market trading to hover near 81.67.

Benchmark crude futures: for October delivery fell $1.12 a barrel to $75.68. The government's weekly crude oil inventory report comes out after the market opens.

Bonds: The yield on the 10-year Treasury note fell to 2.67% from 2.67% late Tuesday.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,290,557 call contracts traded on Tuesday, compared to 787,495 put contracts.

Overseas Markets

European Concerns

European share markets fell in early trading. The CAC 40 in France and the DAX in Germany both fell around 0.5%, and Britain's FTSE 100 was 0.3% lower.

In Europe at midday, London -0.2%. Paris -0.4%. Frankfurt -0.4%.

Currencies: The dollar rose against the euro and the British pound, and surged more than 2.5% against the Japanese yen.

The dollar surged nearly 3% against the yen overnight after Japan announced it was intervening in the foreign-exchange markets to stop the yen's continuing appreciation against the dollar, making Japanese exports more expensive abroad.

This was the first time Japan had intervened regarding the yen's value since 2004, according to reports, and Japanese monetary policy officials said that more interventions may be necessary in the coming months.

While politically unsavory, Wall Street generally likes a weak U.S. dollar because it makes U.S. company exports cheaper abroad and therefore increases economic activity here at home. When the euro fell sharply earlier this year, stocks followed suit as traders became concerned that companies such as 3M (MMM) and Procter & Gamble (PG) would see slower business abroad because of a strong U.S. dollar.

Asian Concerns

Earlier in Asia,markets ended mixed, with Japan's benchmark Nikkei index surging 2.3%. The Hang Seng in Hong Kong rose 0.1% and the Shanghai Composite fell 1.3%.

In Asia, Japan +2.3% to 9517. Hong Kong +0.1% to 21726. China -1.3% to 2653. India +0.8% to 19502.

Futures Trading

As of 6:25 a.m. in New York the Dow Jones Industrial Average futures lost 15 points, or 0.14%, to 10448, the S&P 500 index futures were down 3.5 points to 1112.30 and the Nasdaq 100 futures fell 0.5 points to 1922.00.

Futures: Dow -0.2%. S&P -0.3%. Nasdaq -0.1%. Crude -1.4% to $75.75. Gold -0.1% to $1270.60.


Company News

Beazer Homes USA Inc. (BZH) lowered its new home orders guidance for the year, citing a slower-than-expected improvement in orders. The company said it needs to book 767 orders in the final quarter to match the year-earlier total of 4,205. "Although housing affordability is at record levels, prospective home buyers continue to exercise caution in committing to a home purchase transaction," Beazer said. The company has originally said that fiscal 2010 orders would be above the previous year's level, despite the expiration of a home-buyer tax credit in April.

MasterCard Inc. (MA) said that its board of directors approved a $1 billion Class A common share repurchase program. The authorization is effective immediately, the company said. "This stock repurchase program is the result of a periodic review of our capital structure, and is enabled by MasterCard's strong and consistent cash flow," Ajay Banga, chief executive of MasterCard, said in a statement.

• Shares in AngloGold Ashanti (AU) could fall after the company late Tuesday announced plans for a simultaneous offering of stock and bonds.

Bank of America Corp (BAC) Chief Executive Brian Moynihan said on Tuesday the bank must be less volatile and was continuing to streamline its myriad businesses worldwide. He also sees more opportunities to cross-sell products to different parts of its customer base.

• Another Transocean Ltd (RIG) rig is leaving the deepwater Gulf of Mexico, still under contract with Statoil (STL.OL), the fourth rig departure resulting from a moratorium on U.S. deepwater drilling.

Intel Corp (INTC) unveiled microprocessors for smart TVs and Web-connected cars on Tuesday and expanded an online store selling application for netbooks built with its Atom chips.

Google Inc (GOOG) plans to gradually introduce social-networking features starting this fall, reviving attempts to compete with Facebook after pulling the plug on its stillborn Wave project.

• Mortgage finance giants Fannie Mae (FNMA) and Freddie Mac (FMCC) will not exist in their current form after a revamp of the U.S. housing finance system, a top Obama administration official said on Tuesday.

• Speaking at a healthcare conference, Sanofi-Aventis (SASY.PA) chief executive Chris Viehbacher said the firm was not in a hurry to buy Genzyme Corp (GENZ), and still does not see anyone else trying to buy Genzyme.

Abbott Laboratories (ABT) faces a critical test on Wednesday over whether its controversial diet pill should remain on the U.S. market, despite heart risks.

• Terra Firma Capital Partners Ltd can proceed to trial against Citigroup Inc (C) in their dispute over Terra's 2007 acquisition of music group EMI, a federal judge ruled on Tuesday.

Some Interesting News

Yen plummets on Japanese intervention. The yen tumbled from a 15-year high against the dollar after Japanese monetary authorities intervened in international currency markets for the first time since 2004. Finance Minister Yoshihiko Noda said the country unilaterally sold yen "to check excessive volatility in currency markets," with media reports suggesting Japan's intervention may have exceeded ¥100B ($1.2B). Comments from officials suggest this is a "strong conviction" intervention that could be followed by more action as needed, with 82 yen per dollar appearing to be the line of defense. The yen is -2.8% to 85.40 yen/dollar (6:00 ET), after reaching a high of 82.88 earlier today. Nikkei +2.3%.

Boeing likely to lose WTO ruling. The WTO is expected to rule against Boeing (BA) today, finding it received some illegal subsidies from the U.S. The preliminary, confidential finding will come more than a year after the WTO ruled against Airbus in a similar case, and officials may feel pressure to prove that a new ruling against Boeing is just as severe as the one meted out to its European rival.

Suit against Citi finds solid ground. Terra Firma scored an initial victory as a U.S. judge ruled its lawsuit against Citigroup (C) over EMI Group will go to trial. Terra Firma, a British private-equity fund, is suing Citigroup on claims one of its executives misrepresented to Terra Firma that Cerberus Capital Management had made a higher, competing bid for EMI in the final days before an auction for the recording company in May 2007. As a result, Terra Firma said it paid an inflated price for the company.

FDA stymies Big Pharma ambitions on diet pills. Shares of Arena Pharmaceuticals (ARNA) plunged nearly 40% yesterday after the FDA cited safety issues with lorcaserin, Arena's proposed obesity drug. An FDA panel will meet tomorrow to consider the drug, while a panel meeting today will discuss whether to call for the removal of Meridia, a separate weight-loss pill sold by Abbott Laboratories (ABT) which has been linked to heart problems. The diet drug field had once seemed like it would become a major money-maker for pharmaceutical firms, but the FDA has repeatedly sidelined these drugs because of their side effects; an FDA panel refused to recommend approval for Vivus' (VVUS) Qnexa drug in July, and is in the middle of reviewing Orexigen's (OREX) Contrave.

China worried about BHP's Potash bid. China's Ministry of Commerce expressed concern over BHP Billiton's (BHP) $39B hostile bid for Potash (POT), suggesting it could negatively impact both the global potash industry and China's domestic industry. The ministry said it would open an anti-monopoly probe of the bid if a formal application is submitted.

BP's spotty safety record prompts North Sea concerns. BP's (BP) safety standards have come under increased scrutiny since the Gulf spill, and the results have been less than satisfactory. According to documents obtained by the Financial Times, all but one of BP’s five North Sea installations inspected in 2009 were cited for failure to comply with emergency regulations on oil spills, including failure to provide offshore operators with adequate regular training or information on how to respond to an incident. The reports raise additional questions about BP's ability to manage a disaster in the area, and lend weight to calls for a moratorium on deepwater drilling in the North Sea. Premarket: BP -1.4% (7:00 ET).

AIG considers Taiwan listing for Nan Shan. AIG (AIG) has reportedly had informal contact with Taiwan's Financial Supervisory Commission as it considers its options for Nan Shan Life, and may either put Nan Shan back on sale, list it in Taiwan or continue to run the unit itself. Regulators had rejected AIG's planned $2.2B sale of the unit.

SEC probes "spiky" trading. The SEC is reportedly investigating three recent trading days when the number of buy and sell orders in the stock market jumped dramatically. The probe of these traffic spikes reflects the growing concern among regulators that excessive "noise" is disrupting the marketplace.


Stocks ended mixed Tuesday, as a recent rally on Wall Street ran out of steam. Investors welcomed a slightly better-than-expected report on U.S. retail sales, but the Dow and S&P 500 both closed lower, while the Nasdaq rose modestly.

Some profit-taking has started to creep in after gains of more than 6 percent for September as investors take a more optimistic view of the economy.


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