Tuesday, October 21, 2008

October 21, 2008: Morning Call

October 21, 2008: Morning Call

Fair Value: SP500 – 986.63; NDX: 1359.42; DOW – 9265.30

Technical Levels:

SPX: 848-850, 899-905 support/ 1098-1100, 1142, 1250 resistance

NASDAQ: 1640 support /1890 resistance


Pre-market EPS: AKS (1.45/2.17B); ARB (.54/102.6M); AVY (.74/1.66B); FCX(1.54/4.98B); CAT(1.41/12.43B); COH (.44/765.0M); DD (.51/7.1B); FITB (.20/1.65B); LMT(1.89/10.72B); MMM (1.39/6.64B); NCC (-.31/1.74B); PCAR (.87/3.88B); SWK (.97/1.14B); WAT (.75/391.1M); UAUA (-2.42/5.55B); USB (.48/3.8B)
07:30: USB earnings call
10:00: FCX earnings call
11:00: AKS earnings call
11:00: CAT earnings call
11:15: RIMM Blackberry Developer Conference
15:10: BOE King speaks on the UK economy
17:00: ABC Consumer Confidence
17:00: AAPL earnings call
19:45: Fed’s Stern speaks on the economy
Post-market EPS: AAPL (1.12/8.07B); BRCM (.45/1.27B); NSC (1.22/2.74B); YHOO (.08/1.37B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 13 points below fair value while the NASDAQ futures are trading 25 points below fair value at 8:15am ET. Weak forward guidance from TXN and general concerns about earnings is offsetting additional improvement in the inter-bank lending markets. Energy, technology, and basic material sectors are among the weakest in the pre-market. 3M LIBOR fell another 22 basis points to 3.83, the lowest level since September 26. The decline in interbank lending rates has been the primary catalyst for the 8.5% rally in the last 3 trading sessions. Additional declines in LIBOR and the TED spread will continue to improve sentiment but it will no longer be a key driver of the broader markets because credit remains extremely tight for many consumers and businesses. The improvement in the interbank lending markets has not “trickled down” to many consumer and corporate loan indicators, which remain stressed. For example, the rate on 30-year fixed jumbo loan has increased to 7.51% from 7.06% last month. 30-year conforming loan rates increased to 6.16% from 5.87% last month. A key ingredient to halting the decline in house prices will be a decline in mortgage interest rates and increased availability of mortgage credit. Mortgage loans are more costly and are increasingly difficult to obtain. Keep your eye on 30-year fixed mortgage rates as this will indicator will quickly become far more important to market participants than the decline in LIBOR.

Asian markets: Asian markets closed higher paced by gains in Japan (up 3.3%), India (up 4.5%), and Australia (up 3.9%). Banks, insurers, and basic materials lead the gains in Asia. Oil stocks followed crude-oil prices higher. Markets were also encouraged by Fed chair Ben Bernanke’s saying he would support a stimulus package. Hong Kong fell 1.8% after Citic Pacific (267.HK) warned of almost $2B in potential foreign-exchange-contract losses and China Mobile (941.HK) missed earnings estimates. India gained 4.5% on yesterday’s surprise 100-basis-point rate cut by the country's central bank. European markets are currently unchanged after being up nearly 2% earlier in the session. Overnight results from tech companies Logitech (LOGN.VX) and Texas Instruments weighed on the sector. French banks were higher after the French government said it'd invest €10.5B in the country's top six banks by buying subordinated debt. Breadth has turned mixed as the Euro-zone markets have pulled back on the weakness in US futures.

Impact Research Calls/Market Moving News:

CAT (40.90): CAT reports Q3 EPS of 1.39 vs. street consensus of 1.41. Revenues were a little light at 12.15 billion vs. street consensus at 12.43 billion. CAT reaffirms forecast and says 2009 sales and revenues are looking “flat.” CAT also said they see slow world economic growth over the next 3 to 4 quarters. CAT is targeting 2008 world economic growth of 2.8% and 2009 world economic growth less than 2.5%. CAT does not see global economic collapse like the early 1980’s but that much of the developed world is in a recession. CAT shares are unchanged in the pre-market.

TXN (17.98): Guides lower. Texas Instruments reports Q3 EPS $0.43 vs Reuters $0.44: Company reports revenues of $3.39B vs Reuters $3.40B. Company guidance was $0.42-$0.46 on revenues of $3.33-$3.47B. Guides Q4 EPS to $0.30-$0.36 vs Reuters $0.43; guides revenues to $2.83-$3.07B vs Reuters $3.34B. Texas Instruments reports Q3 gross margin 48.5% vs Street consensus 51.7%. Texas Instruments CFO says orders got progressively worse in Q3. CFO Kevin March says orders in Q4-to-date are below orders for Q3. Book/bill was 0.95 in Q3 compared to 1.03 in Q2. TXN guided Q4 lower on a sequential basis in its press release and says on the call that it expects revenue to decline in both Q4 and Q1. Deutsche Bank is downgraded to hold from buy. TXN shares are down 7.2% in the pre-market to 16.50.

FCX (36.72): Freeport-McMoRan reports Q3 EPS $1.42 ex items vs Reuters $1.44
Company reports revenues of $4.62B vs Reuters $4.76B
. Copper sales for Q3 were 1B pounds with 307K ounces of gold. Copper production for the quarter was 1.02B pounds with gold production of 300K ounces. FCX are currently trading down 4.6% in the pre-market to 35 dollars a share.

MMM (57.51): 3M reports Q3 EPS $1.42 ex-items vs Reuters $1.38: Company reports revenues of $6.56B vs Reuters $6.67B. Guides full year EPS to $5.40-5.48 vs Reuters $5.45.

RIMM (53.91): Research In Motion coming 30-45 days critical, says Citibank: Firm says the coming weeks are important as details emerge on the company's new products and their progress into carrier sales channels in time for holiday sales. Citi says that incremental information on rollout will provide catalysts up or down as launch targets are met or missed. Shares rated hold, tp $64 vs prior $90.

WYNN (52.41); MGM (13.83); LVS (12.26): WYNN, MGM, and LVS estimates and targets lowered at UBS: Firm sees '09 Las Vegas revenue growth rate declining (5%), and expects Macua '09 gaming revenues to be down (10%) vs prior estimate of +20%. WYNN target lowered to $61 from $93. MGM target lowered to $15 from $39. LVS target lowered to $14 from $55.

UTX (52.23): United Technologies downgraded to equal-weight from overweight at Morgan Stanley

BJS (13.52): BJ Services upgraded to buy from neutral at UBS: Though upgraded, the price target is decreased to $20 from $23. Firm cites valuation.

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