Friday, February 20, 2009

February 20, 2009: Morning Call

February 20, 2009: Morning Call

Fair Value: SP500 – 778.17; NDX: 1168.19; DOW: 7456.34

Technical Levels:

SPX: 685, 745-755 support/800, 848-852, 874, 899-908 resistance


Pre-market EPS: JCP (.92/5.83B); ABX (.32/1.83B); LOW (.13/10.11B)
04:00: Euro-zone PMI Manufacturing (Feb): 35.0; Services: 42.5; Composite: 38.5
08:30: US Consumer Price Index (Jan): 0.3% MoM; Ex-Food/Energy 0.1% MoM
08:30: US Consumer Price Index (Jan): -0.1% YoY; Ex-Food/Energy: 1.5% YoY
09:30: JCP earnings call

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 12 points below fair value while the NASDAQ futures are trading 14 points below fair value. European markets are down 3.0% with the insurance and bank stocks moving to 17-year lows (down 5%). Credit spreads are wider, emerging market currencies are lower, and risk aversion is accelerating (Gold up 20 to 994; Treasury Bonds up, Dollar up) on fear that the global economic downturn is deepening and that several “too big to fail” banks are going to be nationalized. Economic data in Europe also came in weaker than expected. There are just 4 stocks higher in the FTSE 100. Asian markets closed lower (Japan down 1.8%-Topix hits a 25-year low; Hong Kong down 2.5%; South Korea down 3.6%, India down 2.2%; Shanghai up 2.0%). Financial and basic material stocks led the markets lower. China was the lone exception, rising on the government’s announcement of stimulus plans for light industry and petrochemicals

Impact Research Calls/Market Moving News:

BAC (3.93); C (2.51): Bank of America (BAC), Citi (C) trading lower on fears of nationalization: The stocks are both weaker in Europe and in pre-market trading on renewed fears they will be nationalized. Both stocks are trading down 10%

Some banks in talks with regulators about additional capital injections - FTThe FT cites people familiar with the matter who say that some banks have been in talks with regulators over plans that would provide them with another capital injection, but would stop short of an outright nationalization. The paper adds that one option being discussed, at least in the case of Citi (C), would be for the government to convert some or all of its $45B worth of preferred shares, along with the $35B in preferred shares held by sovereign wealth founds and other investors, into common stock. The move would come in combination with an offering at a discount to the current share price. However, the FT, notes that it remains unclear as to whether the government will accept such a deal, as the Treasury wants to complete its new stress-tests before determining the best options for individual banks.

BAC (3.93): NY AG Andrew Cuomo subpoenas Bank of America chairman/CEO Kenneth Lewis – WSJ: People familiar with the matter say investigators also questioned former Merrill Lynch CEO John Thain yesterday to determine whether the bank withheld information from investors in violation of state law. One source says regulators are looking at Lewis's telling Congress that he had no authority over Merrill bonuses, given that they were set out in the banks' merger agreement and partially paid in BAC

Steel companies want higher tariffs – WSJ: Fitting with the protectionist concerns that have received a good deal of attention as of late, the Journal cites people familiar with the matter who say that US steelmakers are preparing a wave of complaints against foreign steel imports. The paper adds that the move could result in significant tariff increases later this year (trade lawyers say the duties could total more than 100% of final prices) and exacerbate trade tensions with China. The article notes that the companies believe that the higher tariffs will help them survive the global recession and nasty restructuring in the auto industry

BRCD (3.38): Brocade lowers F09 (Oct) non-GAAP diluted EPS guidance to $0.40-0.50 - conf. Call: Prior guidance was $0.57-$0.60 (prior to Foundry acquisition). Reuters is $0.52, First call is $0.49

T (23.19); VZ (27.99): Goldman Sachs upgrades T, VZ: AT&T (T) upgraded to buy from neutral, target is $30. Verizon (VZ) upgraded to buy from neutral, target is $33

AFL (16.32): Aflac upgraded to overweight from equal-weight at Morgan Stanley. The firm believes credit losses are unlikely to exceed $1B in 09 and that AFL could absorb that amount without a need to raise capital. Target is $36

MON (78.87): Crop scientists worried biotech seed companies stifling research - NY Times: The Times reports that university scientists say that biotech seed companies are preventing them from fully researching the effectiveness and environmental impact of genetically modified crops. The biotechs have a tight grip on the ultimate distribution of their products, and prohibit growing the crops for research purposes. The article notes that while the companies contend that such strict controls are a function of their relationship with the regulating government agencies, an EPA spokesman says the government requires only management of the crops' insect resistance and not the other prohibitive measures in the growers' agreement

RIO (14.72): Companhia Vale do Rio Doce (CVRD) downgraded to neutral from overweight at JPMorgan

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