Monday, December 8, 2008

December 8, 2008: Morning Call

December 8, 2008: Morning Call

Fair Value: SP500 – 875.87; NDX: 1178.42; DOW – 8635.52

Technical Levels:

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


04:30: Euro-zone Sentix Investor Confidence (December): -40 (weaker at –42.3)
11:00: BRCM Analyst Day
13:45: Fed’s Fisher speaks on the financial crisis
15:00: RIG shareholder meeting
15:30: YHOO presents at UBS Media Conference
17:30: TXN Q4 2008 Guidance
Post-market EPS: HRB (-.40/401.0M); NSM (.21/421.2M); PBY (.01/490.6M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 20 points above fair value while the NASDAQ futures are trading 27 points above fair value at 7:45am ET. Foreign markets surged higher overnight after President-elect Barack Obama pledged the largest spending on infrastructure since the 1950’s in an effort to revive the US economy
. Obama also signaled that more aggressive steps need to be taken to stem foreclosures and the decline in housing prices. “If it is not done during the transition, it will be done by me,” Obama said. There were also signs that the size of the economic recovery package may increase from the 500 billion to 700 billion after VP Biden’s chief economist said, “it’s fair to assume the upper bound on a stimulus package is going up, not down.” Asian markets: Most markets rose as investors took US President-elect Barack Obama’s stimulus package as an indication China might take more measures to bolster its own economy (Hong Kong surged 8.6%, Japan +5.2%, South Korea up 7.8%, India up 2.2%). Lenders advanced as the cost of protecting Australian and Japanese bonds against default went down. Property stocks led gainers in Hong Kong. China Mobile (941.HK) rose 8% on a ratings upgrade from Merrill Lynch. Hong Kong Exchanges and Clearing (388.HK) jumped 16% when the city’s Financial Secretary said a plan to allow Chinese citizens to invest in shares traded on the market remains on track. Banks in China climbed after a report said the government is considering cutting a tax on their revenue from 5% to 3%. In Japan, construction-machinery-maker Komatsu (6301.JP) jumped 11% on news of the American spending package. European markets are up 6.25% with energy and mining stocks the best performers. Treasuries are trading lower, commodities are 5% higher and the US dollar and yen are weaker against most other currencies as investor appetite for the safest assets has decreased.

Impact Research Calls/Market Moving News:

Congressional Democrats, White House reach deal on automaker rescue plan – Reuters: Citing a senior Congressional aide, Reuters reports that the package totals $15-17B. The House will meet again on Tue, 9-Dec to decide whether to proceed on auto rescue—Bloomberg.

MMM (59.85): MMM guides 2009 EPS to between 4.50-4.95. Street consensus is 5.39.

BKX Index (47.32): Goldman Sachs report says US banks have only recognized half their estimated 1.8 trillion of credit-related losses. “We believe the ultimate turn for bank stocks will come when nonperforming asset growth decelerates, which is clearly not in the fourth quarter,” said analysts led by Richard Ramsden.

AAPL (94.00): Apple's iPhone to be sold at Wal-Mart; report cites WMT employee confirming 4 GB version rumors - San Jose Mercury News

COST (55.58): Costco estimates reduced below consensus at Bernstein following disappointing Nov comps: The firm reduces their Q1 EPS estimate to $0.58 from $0.62 vs. Reuters $0.62. Shares remain market perform with the target for the shares reduced to $61 from $67.

X (28.76): Goldman upgrades X to buy from sell and adds the stock to the conviction buy list. Goldman says steel prices are near bottom.

China may ask miners for 82% price cut for iron ore - Bloomberg: In an interview, an official of the China Iron and Steel Association says that iron ore prices should fall in the same time ratio in which steel prices have fallen, to their 1994 levels. Bloomberg calculates that that means an 82% price cut. Any price cut would be the first in seven years. The official also says Chinese steelmakers want annual pricing to begin from 1-Jan rather than 1-Apr, and high stockpiles mean some mills may delay taking deliveries.

NYX (21.39); DB1 GR (54.78 +4.57): Deutsche and NYSE(NYX) may merge says Der Spiegel, talks ended without result says FT – wires: Per wires, citing Der Spiegel report Deutsche Boerse and NYSE Euronext (NYX) plan to merge into what would be the world's biggest exchange group. The report comes two days before the German exchange group's supervisory board is scheduled to meet. Deutsche Boerse and NYSE Euronext would set up a holding co in the Netherlands, which then would make a takeover offer to Deutsche Boerse shareholders, the magazine said. But the FT reported the talks with NYSE had been ended without any result. NYSE Euronext declined to comment.

Cyber Monday average transaction declined 12% to $51.62 - NYT: The figure is reported by Chase Paymentech’s Cyber Holiday Pulse Index, which found an overall spending increase of less than 1% in revenue

NYX (21.39): NYSE Euronext reports November transaction activity: European cash products ADV decreased 4% to 1.5M transactions. U.S. cash products average daily volume increased 26% to 4.1B shares. U.S. derivatives products (equity options) ADV increased 1% to 2.0M contracts, driven by the addition of NYSE Amex equity options.

NYX (21.39); NDAQ (23.35); CME (194.57); ICE (71.62): Barron's says it's a good time to buy US exchange stocks: In this week's cover story, Barron's notes that US exchange stocks, including NYSE Euronext (NYX), Nasdaq OMX Group (NDAQ), CME Group (CME), and IntercontinentalExchange (ICE), have lost 50% to 75% of their value while profits continue to grow, making this a good time to buy. The article points out that the exchanges are the utilities of the financial sector, earning cash flow tied to trading fees, and notes there is a regulatory push to list on exchanges products currently traded OTC. Further noted, the futures markets trade at a premium because volume could hold up as traders continue to hedge risk, even as demand for the underlying securities falls, though Barron's points out that NYSE and Nasdaq are also inoculated against trading declines as a bulk of their revenue comes from listings and data, as opposed to trading.

Barron's Summary: Cover: It's a good time to buy US exchange stocks. Interview: Barry Ritholz, CEO and Director of Equity Research, FusionIQ, is getting ready for a significant rally. Lead Articles: Leucadia National's (LUK) savvy management and cheap assets are an enviable combination; The bear market and new regulations have left many pensions underfunded; Barron's plan to end the foreclosure market includes offering everyone a 4.5% mortgage; The decline of China's renminbi could dampen enthusiasm of foreign speculators, though the biggest China-linked ADRs listed in New York are domestic plays; Packaging companies are fairly recession resistant and are among the most defensive plays in today's market; Telstra' (TLS.AU) transformation under CEO Sol Trujillo is discussed. Columns: The Trader asks if investors can no longer count on profit growth, what can they count on? Euro Trader notes that central bank rate cuts aren't helping equities as investors realize they reflect the poor macro environment; Asia Trader discusses the possible reemergence in Japan of the PKO, or Price Keeping Operation, in which banks would fund a new government-owned fund which invests in strategically important companies that have trouble borrowing; Commodities Corner says cocoa prices could rise with equities and the US dollar; The Striking Price discusses the use of "buy-writes" to profit from volatility; Current Yield discusses global rate cutting; Follow Up discusses the Big 3's return to Capitol Hill, says Goldman Sachs (GS) still has little downside; Up and Down Wall Street comments that jobs are vanishing at an alarming rate and the end is nowhere in sight, discusses Henry Kaufman being negative on the consolidation in Wall Street; Streetwise discusses "quicksilver" trading, noting that short-term jumpiness is contributing to the markets' extreme volatility; D.C. Current says deflationary pressures will keep the threat of inflation at bay, for now; Technology Trader says the tech downturn seems to be reaching capitulation; Plugged In notes there are few candidates for next year's "Next Big Thing."

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