Market Outlook
Thursday, May 27th, 2010

Monday presents several economic reports. The schedule for today is:-

8:30 Q1 GDP

8:30 Initial Jobless Claims

8:30 Current Account

10:30 EIA Natural Gas Inventory

11:00 KC Fed Manufacturing

12:00 PM Chicago Fed Midwest Manufacturing Index

1:00 PM $31B 7-Yr Note Auction

2:40 Fed's Bullard: Economic Policy in the Aftermath of the Crisis

4:30 PM Money Supply

4:30 PM Fed Balance Sheet

Also, once again, there will several companies reporting their quarterly earnings:-

• Big Lots Inc. (BIG),

• Costco Wholesale Corp. (COST),

• H.J. Heinz Company (HNZ),

• Tiffany & Co. (TIF),

• Guess?, Inc. (GES),

• J. Crew Group Inc. (JCG),

• Novell Inc. (NOVL), and

• OmniVision Technologies Inc. (OVTI).

Thursday may be the day that the bulls actually get their act together and continue to stick to the game-plan instead of dropping the ball towards the end of the day and allowing the bears to triumph! It appears that the bulls are ready to put yesterday's sell-off behind them looking at the futures on the Dow Jones Industrial Average (DJIA) and the S&P 500 Index (SPX), which are quite advanced.

It seems that expectations for another round of upbeat U.S. economic reports and China's reassurance it will hold onto European debt has helped send stock futures sharply higher. Reports on weekly jobless claims and first-quarter gross domestic product are expected to show the domestic economy is strengthening.

Asian markets rose overnight and European markets are also significantly higher. The euro, which is seen as an indicator for confidence in the health of Europe's economy, rose to $1.2301.

The gains came after the agency that manages China's $2.5 trillion in foreign reserves denied a Financial Times report that China was considering cutting its exposure to European debt.

Concerns about whether mounting debt problems in Europe will upend a global economic recovery have dragged down stocks around the world in recent weeks. Volatility has also increased as investors remain jittery about how budget cuts in some European countries like Greece, Spain and Portugal could affect growth.

Also helping to soothe markets, Portugal said it was fully engaged in fiscal consolidation, and Spain's parliament passed a 15 billion euro ($18.4 billion) austerity package to cut its budget deficit.

In the U.S., traders are expected to get another batch of upbeat economic reports for the second straight day. Some focus has returned to the domestic economy in recent days, though investors are still keeping an eye on Europe.

Economists predict the Labor Department will say initial claims for unemployment benefits fell last week after an unexpected jump a week earlier. Claims likely fell 16,000 to a seasonally adjusted total of 455,000, according to economists polled by Thomson Reuters.

High unemployment remains a stumbling block to a stronger recovery in the U.S. The unemployment rate jumped to 9.9 percent last month.

A separate report is expected to show the nation's economy grew at an annual rate of 3.4 percent in the first three months of the year. That is better than a previous estimate that said GDP rose 3.2 percent during the first quarter.

While slow, steady growth is seen as a positive coming out of the recession and helped drive stocks higher early in the year, it still isn't strong enough to make a big dent in unemployment. Growth would have to climb to around 5 percent for a year to cut the unemployment rate by 1 percentage point.

Finally, the CBOE Market Volatility Index (VIX) closed below its 10-day moving average for the first time since May 13. However, the VIX is still up more than 73% for the month.

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

• Gold futures are down 30 cents to trade at $1,215 an ounce in London.

• The U.S. Dollar Index is down 0.76% at 86.46 in pre-market activity due to improving sentiment in the euro zone.

• Heading into the open, the July contract for crude is up is up 0.76% at 86.46.

• Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,510,503 call contracts traded on Wednesday, compared to 803,358 put contracts.

Overseas Markets

Overseas trading looks to be in very good shape this morning as all foreign indexes seem to be in positive territory.

In Asia, stocks closed higher, as bargain hunting helped to pull indexes out of early losses. Markets also rebounded after the Chinese government denied that it is reviewing its euro zone bond holdings, helped to calm nerves.

Trading in Europe is higher, after Spain's Prime Minister Jose Luis Rodriguez Zapatero won parliamentary approval for the government's 15 billion euro austerity package.

In Asia, Japan +1.2% to 9640. Hong Kong +1.2% to 19431. China +1.1% to 2656. India +1.7% to 16666.

In Europe, t midday, London +2.0%. Paris +2.1%. Frankfurt +2.4%.

Overseas, Britain's FTSE 100 rose 1.7 percent, Germany's DAX index gained 2.1 percent, and France's CAC-40 jumped 2.2 percent. Japan's Nikkei stock average rose 1.2 percent.

Bond prices fell as investors moved into riskier assets. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.28 percent from 3.19 percent late Wednesday.

Futures Trading

Ahead of the opening bell, Dow Jones industrial average futures rose 206, or 2.1 percent, to 10,127. Standard & Poor's 500 index futures surged 26.80, or 2.5 percent, to 1,088.00, while Nasdaq 100 index futures rose 45.00, or 2.5 percent, to 1,836.50.

Futures: Dow +2.1%. S&P +2.6%. Nasdaq +2.6%. Crude +2.7% to $73.44. Gold -0.2% to $1211.50.

US stock futures-may 27, 2010

Also several companies have announced their quarterly reports which seem to be supporting or surprising analysts’ predictions. These are:-

TIF-may 27, 2010

Tiffany & Co. (TIF)

Tiffany & Co. (TIF) said that its first-quarter profit surged to $64.4 million, or 50 cents per share, as sales jumped 22% to $633.6 million.

Comparable-store sales rose 10%. Looking ahead, the company said it expects full-year earnings of $2.55 to $2.60 per share, up from a previous projection for a profit of $2.50 per share.

Analysts were looking for first-quarter earnings of 36 cents per share, and full-year earnings of $2.49 per share.

HNZ - may 27, 2010

H.J. Heinz Co (HNZ)

Food maker H.J. Heinz Co. said Thursday that rising sales in emerging markets pushed its fourth-quarter net income up 9.7 percent.

Cost-cutting and higher prices also helped offset rising ingredient prices.

Heinz also raised its 2011 dividend 12 cents to $1.80.

The maker of Ore-Ida potatoes and Classico pasta sauce, as well as its signature ketchup, said it earned $192.4 million or 60 cents per share in the three months ending April 28. That compares with $175.1 million or 55 cents per share in the same period last year.

Revenue rose 8.3 percent to $2.72 billion.

According to Thomson Reuters, analysts expected earnings per share of 59 cents on revenue of $2.75 billion.

For fiscal 2011, the company expects sales growth of between 3 and 4 percent, implying revenue between $10.8 billion and $10.9 billion. It also expects earnings per share growth of 7 percent to 10 percent, implying between $2.92 and $3.20 per share.

Analysts polled by Thomson Reuters expect earnings of $3.09 per share on revenue of $10.79 billion.

For the full year, Heinz reported net income of $864.9 million, or $2.71 per share, down from $923.1 million, or $2.89 per share, a year earlier. Revenue rose from $10.01 billion to $10.49 billion.

COST-may 27, 2010

Costco Wholesale Corporation (COST)

Costco Wholesale Corp.'s profit climbed 46 percent in the fiscal third quarter as sales and membership revenue both rose.

The largest U.S. wholesale club operator said Thursday that it earned $306 million, or 68 cents per share. That's up from $210 million, or 48 cents per share, a year ago. Revenue rose 12 percent to $17.78 billion.

Thomson Reuters says analysts expected 66 cents per share and $17.63 billion in revenue for the quarter, which ended May 9.

Revenue from sales rose 12 percent to $17.39 billion, and membership revenue increased 20 percent to $395 million.

The Issaquah, Wash., company said it gained $14 million from a partial reversal of a tax charge. A year ago it paid $34 million to settle a lawsuit.

Costco said revenue from sales at stores open at least a year grew 10 percent. Excluding higher gas prices and changes in currency exchange rates, those sales rose 4 percent. Those sales are considered a key indicator of retailer health because they exclude results from stores that have opened or closed over the past year.

At the end of the quarter, Costco ran 568 warehouses. It has locations in the U.S., Canada, Mexico, the United Kingdom, Korea, Taiwan, Japan, and Australia. Costco said it plans to open five more locations by Aug. 29, the end of its fiscal year.

DBRN-may 27, 2010

Dress Barn Inc's (DBRN)

Women's clothing retailer Dress Barn Inc's (DBRN) adjusted third-quarter profit scraped past market estimates, driven mainly by sales at its Justice brand.

The retailer forecast comparable sales for the fourth quarter to rise in the mid-single digits and kept its 2010 earnings-per-share outlook of between $1.80 and $1.85.

The Justice brand came to Dress Barn in November last year after the retailer bought teen-apparel seller Tween Brands Inc to capture a larger share of the tween girls' apparel market.

Same-store sales for the third quarter grew 14 percent. "Our comparable store-sales increase in the third quarter was driven both by growth in transactions and average transaction size," Chief Executive David Jaffe said on a conference call with analysts.

Dress Barn, which operates its namesake, Maurices and Justice brands earned $48.0 million, or 59 cents a share, for the quarter ending April 24, compared with $23.1 million, or 37 cents a share, a year ago.

Excluding items, it earned 60 cents a share.

Analysts on average were looking for a profit of 59 cents a share, before items, according to Thomson Reuters.

Revenue jumped 77 percent to $665.5 million, beating analysts' expectations of $645.8 million.

Sales at the Justice brand accounted for $245.1 million in the quarter, the company said.

Shares of the Suffern, New York-based company closed at $26.63 on Wednesday.

NTAP-may 27, 2010

NetApp Inc. (NTAP)

NetApp Inc. on Wednesday reported results showing the company's quarterly profit more than doubled on strong sales of data storage products.

NetApp reported fiscal fourth-quarter income of $145.1 million, or 40 cents a share, compared with a profit of $68.4 million, or 21 cents a share, for the year-earlier period. Revenue rose to $1.17 billion from $879.6 million. Adjusted income was 50 cents a share.

Analysts had expected the company to report earnings of 44 cents a share, on revenue of $1.08 billion, according to a consensus survey by FactSet Research.

For the current quarter, the data storage company said it expects revenue in the range of $1.10 billion to $1.14 billion. NetApp also said it expects adjusted earnings in the range of 43 cents a share to 47 cents a share.

Analysts current expect the company to report earnings of 38 cents a share, on revenue of $1.03 billion.

In a statement, Chief Executive Tom Georgens said, "The server virtualization and cloud computing trends are driving significant business for us, as our competitive advantages in those areas lead more customers to choose NetApp storage efficiency solutions for larger and larger data center projects."

Cloud computing allows businesses to access computing power through a network instead of in-house data centers. Companies are also embracing virtualization which enables them to tap disparate computer systems on their premises or in hosted data centers as one network and use that computing capacity based on needs.

PAY-may 27, 2010

VeriFone Systems Inc.'s (PAY)

VeriFone Systems Inc.'s fiscal second-quarter net income nearly doubled as its technology helped process more electronic payments to businesses and government agencies.

The company said Wednesday that it earned $20.2 million, or 23 cents per share, during the three months ended in April. That compared with net income of $10.7 million, or 13 cents per share, at the same time last year.

If not for costs incurred for employee stock compensation and several other items, VeriFone said it would have made 29 cents per share. That figure topped the average earnings estimate of 26 cents per share among analysts surveyed by Thomson Reuters. Revenue for the period climbed 19 percent to $240.7 million, about $13 million above analyst projections.

In the current quarter ending in July, VeriFone expects per-share earnings to be 29 cents or 30 cents, excluding certain items. The average earnings estimate is 28 cents per share.

Management anticipates second-quarter revenue will range from $245 million to $250 million. The average analyst estimate had been $235.6 million, according to Thomson Reuters.

Shares rose 69 cents, or 4 percent, to $18 in extended trading.

BIG-may 27, 2010

Big Lots Inc (BIG)

Closeout retailer Big Lots Inc (BIG) posted a higher quarterly profit that marginally beat estimates, boosted by sales of furniture and home goods, and raised its 2010 earnings view.

Big Lots, which specializes in sales of excess inventory, now sees 2010 earnings from continuing operations of $2.75 to $2.85 a share, compared with an earlier view of $2.65 to $2.75 a share.

For the first quarter ended May 1, the company posted a profit of $55.9 million, or 68 cents a share, up from $36.3 million, or 44 cents a share, a year earlier.

Analysts on average forecast earnings of 67 cents a share, according to Thomson Reuters. Earlier this month, Big Lots said retail sales rose 8.1 percent to $1.22 billion in the quarter, with sales at stores open at least two years up 6 percent.

Big Lots shares closed at $35.87 Wednesday on the New York Stock Exchange.

Some Interesting News-

• Lehman Brothers' (LEHMQ.PK) bankruptcy estate sued JPMorgan (JPM), accusing JPMorgan of illegally siphoning off money from Lehman in the days before it filed for bankruptcy. According to the court filing, JPMorgan CEO Jamie Dimon and other top executives used inside knowledge to take advantage of Lehman as its financial state worsened, forcing Lehman to hand over $8.6B in collateral in September 2008 and triggering a liquidity squeeze that contributed to Lehman's collapse. Lehman says those actions cost the Lehman estate "tens of billions of dollars of value" and caused $5B in direct damages.

• Bank of America (BAC) and Citigroup (C) both incorrectly hid billions of dollars of debt from investors through classification errors. Over the last three years, the two banks 'accidentally' classified some short-term repurchase agreements, or "repos," as sales instead of borrowing, the same thing Lehman Brothers (LEHMQ.PK) had done before its bankruptcy to improve its balance sheet. Bank of America and Citigroup insist the misclassifications were due to errors, and not an attempt to make themselves look less risky. The disclosures were made in recent filings with securities regulators, but weren't highlighted until now.

• Shareholders holding up to 15% of Prudential (PUK) shares are preparing to write to the insurer's chairman to protest the planned $35.5B takeover of AIG's (AIG) Asian unit. The group includes some of Pru's largest institutional shareholders, and significantly hurt Pru's chances of getting the 75% approval it needs for the AIA deal. The Treasury, meanwhile, has confirmed that if the Pru-AIA deal is rejected, the original IPO plan for the unit would become a viable option, while rumors that the deal has been called off have sent shares soaring in premarket trading: PUK +10%, AIG +3.5% (7:00 ET).

• AIG (AIG) is reportedly considering the sale of American General Finance, its struggling consumer finance unit. Sources said AIG has hired Bank of America Merrill Lynch (BAC) to restructure and sell the unit, and potential buyers have been asked to submit their expressions of interest over the next few weeks. It's unclear how much the unit could fetch in a sale, but AIG insiders insist that a sale at any price would be helpful by eliminating the need to support the unit. Yesterday, AIG CEO Robert Benmosche assured lawmakers that the insurer "is now on a clear path to repaying taxpayers."

• The Treasury made a $1.32B profit from the sale of part of its Citigroup (C) stake, offloading 1.5B shares, or around 20% of its stake, and reducing its overall holdings in Citigroup to around 22% from 27%. The Treasury said it plans to sell another 1.5B shares out of the 6.2B it still holds. Premarket: C +4.4% (7:00 ET).

• In a regulatory filing, Carl Icahn said he will ask Genzyme's (GENZ) board to consider removing CEO Henri Termeer from his post as chairman of the board. Icahn is pressing for board seats for himself and three allies when the company meets in three weeks, saying it's time to change the "old guard." After hours: GENZ -3.8%.

• Talking to reporters after a speech in Washington, Jeffrey Lacker, president of the Richmond Federal Reserve, said he's growing uneasy with the "extended period" description of a zero-rate environment. His comments moved him a little closer to the stance of monetary hawk Thomas Hoenig, president of the Kansas City Fed, who for some time now has been the lone FOMC dissenter on monetary policy. Lacker, who is not a voter on the FOMC this year, thinks inflation will rebound by late this year to a 1.5-2% range.

• In complaints filed yesterday, federal authorities alleged that a Disney (DIS) employee and her boyfriend engaged in a 'brazen' plot to sell insider information. In a March 5 letter to various hedge funds, the duo wrote "I have access to Disney's quarterly earnings report before its release on 05/03/10. I am willing to share this information for a fee that we can determine later." Multiple hedge funds reported the scheme to authorities, and Disney said it is "fully cooperating" with the investigation.

• SEC regulators proposed improving market surveillance by tracking stock orders in real time. The proposal had been under development for months but took on new urgency after the May 6 flash crash. "It is shocking that the SEC does not have its own direct access to market data," said SEC Commissioner Luis Aguilar. "Most Americans assume that the SEC already has these tools and is constantly monitoring the market."

• China denied a report that it's reviewing its foreign exchange holdings of euro assets, calling such speculation "groundless." “Europe has been, and will be one of the major markets for investing China’s exchange reserves,” said the State Administration of Foreign Exchange. Euro +1.1% vs. the dollar (7:00 ET).

• Just three weeks after unveiling its new mining mega-tax, Australia has signaled it may back down from the controversial proposal, and is preparing to lift the threshold definition of a super profit from 6% to 11-12%. Major mining firms including BHP Billiton (BHP) and Rio Tinto (RTP) rejected the changes, saying "tinkering at the margins" will not stop the risk to investment in the country. Premarket: RTP +7.3%, BHP +6.85% (7:00 ET).

• After a disclosure earlier this month that Google (GOOG) had accidentally collected private consumer data via its Street View project, lawmakers are pushing for more information. In particular, three lawmakers want to know exactly how much data was collected, what Google plans to do with the information and why it took so long for the company to disclose what had happened.

• At the close of trading yesterday, Apple (AAPL) had edged out Microsoft (MSFT) as the world's largest technology company by market capitalization. Apple's market value was $223B as compared to Microsoft's $219B. Though Apple could easily slide back to second place and the rankings have little practical impact on either company, there's symbolic significance in the relative rankings of the two long-time rivals.


"We have gone through a period of a very, very hard sell-off, and I think traders are looking for some evidence of a stopping point for those sales. This morning seems to be at least the first effort at a significant comeback," said Rick Meckler, president of investment firm LibertyView Capital Management in New York.

St. Louis Federal Reserve President James Bullard said he did not expect contagion from Europe's fiscal problems to reach the United States, adding that the world's biggest economy may actually benefit from a "flight to safety."

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