November 26, 2008: Morning Call

November 26, 2008: Morning Call

Fair Value: SP500 – 856.81; NDX: 1143.58; DOW – 8476.34


Technical Levels:

SPX: 685 support/ 848, 908, 998, 1098-1100 resistance


Events:

Pre-market EPS: DE (.99/6.8B); TIF (.27/659.01M)
07:00: MBA Mortgage Applications
08:30: Durable Goods Orders (Oct): -2.6%; Ex-Transportation: -1.5%
08:30: Personal Income (October): 0.1%; Personal Spending: -1.%
08:30: PCE Core (October): 0.0% MoM; 2.2% YoY
08:30: Initial Jobless Claims (w/e Nov 22): 533,000; Cont. Claims: 4.0m
09:45: Chicago Purchasing Manager (November): 37.3
10:00: University of Michigan Confidence (November Final): 57.7
10:00: New Home Sales (October): 443,000; -4.5% MoM
10:00: DE earnings call
10:35: DOE/API Crude Oil and Gasoline Inventories
10:45: President-elect Obama holds a press conference
12:00: EIA Natural Gas Storage Change
18:30: BHP Annual Meeting

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 17 points below fair value while the NASDAQ futures 14 points below fair value at 7:40am ET. Asian markets closed higher (South Korea up 5%, India up 3.2%, Hong Kong up 3.8%) excluding Japan (down 1.3%) and Australia (down 2.3%). China lowered its lending rate by 108 basis points to 5.58% to prevent a more serious economic slowdown; the World Bank cuts its forecast for China’s economic growth next year to 7.5% from 9.2%. Financials broadly advanced after the Fed’s $800B plan to lower borrowing costs for consumers was unveiled. Australia dropped as Rio Tinto (RIO.AU) plunged 34% after BHP Billiton (BHP.AU) abandoned its takeover bid. Hong Kong rose as HSBC Holdings (5.HK) and exporters rallied on the Federal Reserve plan. Metal producers surged on the failed BHP-Rio Tinto merger, as they did in China, where Baoshan Iron & Steel Co (600019.CH), Angang Steel Co (000898.CH), and Wuhan Iron & Steel Co (600005.CH) gained. Financials like Woori Finance Holdings (053000.KS), KB Financial Group (105560.KS), and Hana Financial Group (086790.KS) all advanced 15% and led Korea higher. The chairman of the Financial Services Commission ruled out injecting public funds into banks, which boosted confidence that Korean banks were strong enough to raise capital on their own. Fitch lowered their credit rating on TM to AA from AAA and this news weighted on Japanese stocks. European markets are down 2%, falling for the first time in three days. ECB President Trichet said there might be “negative figures” fore economic growth in the Euro-zone next year. Basic resource and financial shares are among the weakest in Europe. T-bond futures are up another point this morning driving yields down to near record lows. Yields on the 10-year note have plummeted 100 basis points in November to 3% from 4% at the beginning of the month. Risk aversion, fears of deflation, and macroeconomic concerns continues to lend an unusually strong bid to Treasury bonds.



Impact Research Calls/Market Moving News:

Oppenheimer's Meredith Whitney remains cautious on financial industry: Oppenheimer believes that during Q408, banks under their coverage will incur ~$44B in write-downs and loss provisions. The firm also says that due to accounting rule changes effective over the next year, banks will have to post an additional $25B in loss reserves over the next 12 months. Whitney does not believe capital raises will spur meaningful growth for the industry and thus remains cautious on the financial institutions.


BCE (31.28): BCE says KPMG does not expect to be in a position to say on 11-Dec whether BCE would meet solvency tests to go private. BCE shares down nearly 40%. BCE has received a preliminary view from KPMG that, based on current market conditions, its analysis to date and the amount of indebtedness involve in the LBO financing, it does not expect to be in a position to deliver on the scheduled effective date of BCE's privatization, 11-Dec-08, an opinion that BCE would meet the solvency tests as defined in the definitive agreement, as amended.

DE (33.100: Deere & Company reports Q4 EPS $0.81 including items vs Bloomberg $0.99. Q4 revenues of 7.5 billion compared to 7.03B consensus. Excluding a charge for plant shut downs, EPS was .89 cents vs. consensus of .99 cents. DE guides Q1 to .65 cents vs. street consensus of .82 cents.

TIF (20.83): Tiffany & Company reports Q3 EPS $0.35 vs Reuters $0.24: Company reports revenues of $618.2M vs Reuters $643.0M. The effective tax rate in Q3 was 31.7% (versus 33.9% a year ago) and 35.7% in the year-to-date (versus 36.2% a year ago). Guides full year EPS to $2.30-2.50 vs Reuters $2.60.

CSCO (15.42): Cisco Systems plans to close its US and Canadian offices from 29-Dec to 2-Jan – WSJ: The shutdown, which Cisco spokesman Terry Alberstein says is the company's first in at least a decade, is in response to the slowdown in business-technology spending.

TM (65.73): Fitch downgrades Toyota Motor's long-term foreign and local IDRs and senior unsecured debt ratings to 'AA' from 'AAA'

BX (6.14): Blackstone Group downgraded to equal-weight from overweight at Morgan Stanley: Firm cites risk of writedowns as rationale.

M (6.46): Macy's hopes size will allow it to survive current crisis – WSJ: In an interview, CEO Terry Lundgren says having 856 doors gives the chain an advantage over smaller retailers. Macy's has been able to run a national ad campaign and strike exclusive deals with high-level brands. Other initiatives and line-by-line capital-budget cuts are also paying off. But while the downturn is nobody's friend, it poses a particular problem for Macy's, which needs to deal with $950M in debt coming due next year. It looks as though Macy's will need to use its $2B revolving credit facility to pay some debt down if credit markets don't open up by the due dates in April and July.

XOM (78.11); CVX (76.53); COP (51.23): Oil firms increasingly focused on conserving cash – WSJ: The Journal reports that if oil prices do not bounce significantly in the next few weeks, industry experts expect oil companies to begin paring back their aggressive share repurchase programs. Citing a cash-flow analysis by credit analysts at Barclays Capital, the paper adds that if oil averages $50 a barrel next year, giants such as Exxon (XOM), Chevron (CVX) and ConocoPhillips (COP) will need to take on debt, spend their cash balances or cut other costs to fund their budgets and maintain their dividends.