Thursday, December 4, 2008

December 4, 2008: Morning Call

December 4, 2008: Morning Call

Fair Value: SP500 – 870.47; NDX: 1166.88; DOW – 8592.80

Technical Levels:

SPX: 685, 752-755, 848-852 support/ 899-908, 998-1002 resistance


Pre-market EPS: TOL (-.39/681.3M); WSM (-.11/749.9M)
05:00: Euro-zone GDP (Q3): -0.2% QoQ; 0.7% YoY
07:00: Select Retailers release November Same Store Sales
07:00: Bank of England Interest Rate Decision
07:45: ECB Interest Rate Decision
08:00: SBUX Analyst Meeting
08:30: Initial Jobless Claims (Nov. 29): 540,000
08:30: PRU Investor Day
09:00: NOK Capital Markets Day
09:15: Fed’s Fisher speaks on the economy
10:00: Factory Orders (October): -4.5%
10:30: EIA Natural Gas Storage Change
10:45: Fed’s Evans speaks on the economy
11:15: Bernanke speaks on housing at a Fed Conference
16:30: Fed’s Kroszner speaks on mortgage-backed securities

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 15 points below fair value while the NASDAQ futures are trading 25 points below fair value at 8am ET. The futures have weakened over the last 20 minutes on weaker November comps and an earnings warning from DD
. European markets reversed earlier declines and are currently trading up 0.9% following a 100 bp rate cut by the BOE and a 75bp rate cut by the ECB. European markets had been up 2.0% on the initial kneejerk reaction to the BOE/ECB rate cuts. Advancers on the FTSE 100 lead decliners 7-3. Credit Suisse (CSGN.VX) reversed an early decline after a Q4 update estimated a net loss CHF 3B as of end Nov, will cut 5,300 jobs approx. 11% of total headcount. Asian markets were mixed with commodity shares boosted by merger activity Nippon Oil (5001.JP) and Nippon Mining Holdings (5016.JP) rallied on news they were in merger talks. Japan ended lower as investors were frightened by a report that General Motors (GM) and Chrysler are considering accepting a bankruptcy plan in exchange for a government bailout and plunging US car sales weighted on the sector.

Impact Research Calls/Market Moving News:

WSJ provides additional details on potential Treasury plans to lower mortgage rates: Citing people familiar with the matter, the Journal now reports that the Treasury's plan, which is in the development stage, would temporarily use the influence of Fannie and Freddie to encourage banks to lend at rates as low as 4.5%. The paper adds that the Treasury views the plan as having the ability to halt the slide in home prices by allowing borrowers to afford bigger mortgages, thus boosting demand for homes and pushing up housing values. The article notes that the lower interest rate would be available only to borrowers who are buying a home, not those refinancing a mortgage (recall that there has been some confusion regarding eligibility). Borrowers would also have to qualify for a mortgage guaranteed by Fannie, Freddie or the FHA, and the guarantees would only apply to loans where borrowers can document their income and afford their monthly mortgage payments. Under the plan the Treasury is considering, it would encourage banks to issue new mortgage loans at lower rates by offering to purchase the securities underpinning the loans at a price equivalent to the 4.5% rate. The Treasury would fund the purchases by issuing Treasury debt at 3%, meaning that the government could capture the spread.

DD (23.61): DuPont guides Q4 EPS to ($0.20)-($0.30) ex-items versus consensus of .24 cents profit. DD to cut 2,500 jobs.

ADBE (22.54): Adobe Systems reduces Q4 (Nov) revenue guidance to $912-915M vs prior $925-955M, Reuters $933M: Adobe guides non-GAAP EPS to $0.54-0.55 excluding $0.05 in favorable items, vs prior guidance of $0.51-0.53 and Reuters $0.51. Regarding the reduced revenue guidance, the company cited weaker-than-expected demand for its new Creative Suite 4 family of products that began shipping in Q4. Adobe guides Q1 revenues to $800-850M vs Reuters $944.3M, with non-GAAP operating margin of 37-38%. Finally, Adobe announced the implementation of a restructuring program, and has taken steps to reduce its headcount by approximately 600 full-time positions globally

WMT (54.38): Wal-Mart reports Nov comps +3.4% vs First Call +2%

NOK (13.30): Nokia lowers Q4 industry outlook: The mobile device market slowdown has continued more rapidly than previously expected since Nokia issued an update on 14-November. As a result, Nokia is revising its Q4 2008 outlook as follows: Nokia now estimates that Q4 2008 industry mobile device volumes will be lower than the previous estimate of approximately 330M units, which would result in full year 2008 industry mobile device volumes below the earlier estimate of 1.24B units. Nokia believes there is insufficient visibility in the marketplace to confirm its prior estimate for its Q4 2008 mobile device market share, which was expected to be at the same level or slightly up from an estimated 38% in Q3 2008.

AMZN (45.21): upgraded to overweight from equal-weight at Barclays Capital: Firm cites improvements in the company's competitive position, and sees the company gaining share in present environment. Barclays also upgraded its rating on the Internet Sector to positive from neutral.

COST (51.42): Costco reports Nov comps (5%) vs First Call (1.7%):
The company reports November Net Sales of $5.55B, (3%) y/y. US November comps were (2%); int'l (15%). US November comps (excluding the impact from gasoline deflation and foreign exchange were +1%; int'l +6%

GS (68.95): Another Goldman Sachs hedge fund facing big losses – FT: Citing investors, the FT reports that Goldman Sachs Liquidity Partners 2007, which received $1.8B in initial funding during the summer of 2007 to invest in the credit markets, is down more than 55% for the year through the end of October. The fund is understood to have invested in high-yield senior secured bank loans, high-yield debt, mortgages, emerging-market debt and CLOs.

ADBE (22.54): Adobe Systems downgraded to neutral from outperform at RW Baird: Price target decreased to $27 from $33. The firm cites guidance and the lack of a catalyst.

ADBE (22.54): Adobe Systems maintained perform at Oppenheimer after pre-announcement: Following yesterday's pre-announcement, the firm remains concerned about ADBE's demand in FY09, but believes ADBE's long-term fundamentals remain solid and expect the company to focus on maintaining operating margins in the high 30s range. Oppenheimer says fair value for the shares should be in the high teens and would look to build a position in the stock if the shares drop materially below these levels.

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