March 31, 2009: Morning Call

March 31, 2009: Morning Call

Fair Value: SP500 – 784.61; NDX: 1221.69; DOW: 7476.51

Technical Levels:

SPX: 676, 719, 765 support/ 823, 898 resistance

Events:

Pre-market EPS: LEN (-0.69/544.3M)
05:00: Euro-zone CPI estimate (Mar): 0.9% YoY
09:00: BOE official testify to British House of Lords on the economy
09:00: S&P/Case Shiller Home Price Index (Jan): -18.50%
09:00: Fed’s Stern speaks on “Too Big to Fail.”
09:45: Chicago Purchasing Manager (March): 34.7
10:00: Consumer Confidence (March): 27.0
11:00: LEN earnings call
13:00: Fed’s Plosser speaks on regulatory reform
16:30: API Crude Oil and Gasoline Inventories
17:00: ABC Consumer Confidence
Post-market EPS: APOL (.65/866.9M); BGP (.95/1.15B)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 7 points above fair value while the NASDAQ futures are trading 14 points above fair value at 7:30am ET. European markets are trading up 1.5% to 3.0% led higher by mining and steel companies; banks have also recouped some of the sharp losses from Monday’s session. Marks and Spencer (MKS LN), the largest UK retailer, is up 10.50% after Q4 same store sales were stronger than expected. Asian markets closed mixed (Japan down 1.54%, Hong Kong up 0.89%, Australia down 0.62%, India up 1.47%). The Asian Development Bank cut economic growth forecasts and Australia said its economy would contract this year and warned of “difficult times ahead.” Japanese stocks were weak after the Prime Minister told reporters the government has yet to complete a stimulus package and a new package may be ready by mid-April.


Research Calls/Market Moving News:

Federal Reserve taking primary role in carrying out banks' stress tests - BloombergBloomberg reports that the Federal Reserve has taken the primary role in determining how much new capital the nation’s biggest banks need. “Putting the Fed in charge may help ease concern that different assessments by different agencies would lead to some firms being judged less strictly than others.” The article goes onto note that the Fed examiners are “deployed alongside counterparts from three other agencies that oversee parts of the 19 banks that are involved in the so-called stress tests.”

MS (22.13): MS CEO John Mack said 2009 will b a “difficult year” and that “even though flows of business are good, is nowhere near what we need on a long-term basis.” It “will be a difficult year for all of our firms, mainly because of some of the legacy positions that we continue to have, and they drag on all of us.”

FCX (38.53): Freeport-McMoRan downgraded to sell from hold at Deutsche Bank. Deutsche Bank expects copper prices to weaken. Price target is increased to 30 from 24.

IR (13.98): Ingersoll-Rand cuts quarterly dividend by 61.1% to $0.07 from $0.18; expects Q1 adjusted EPS to be at the low end of its previously forecasted range of ($0.15) to breakeven vs Reuters consensus ($0.01), guides F09 EPS cont. ops to be approx $0.45 below the bottom end of its previous guidance range $1.85-$2.25 vs Reuters $1.73

GOOG (342.69): Google upgraded to buy from neutral at Merriman Curhan Ford

KLAC (20.09): KLA-Tencor announces that the company will reduce its workforce by 10%in response to depressed market conditions.

X (21.55): UBS comments on meeting with U.S. Steel's CEO: Company sees emerging markets recovering first, followed by the U.S., then Europe. UBS notes that despite the $1B in cash on the balance sheet, CEO Surma did not rule out an equity raise and commented that the company would look to be preemptive ahead of a potential covenant breach by Q3. Company saw no evidence of sustained improved demand and cautioned on new sheet capacity in 2010. UBS maintains sell rating and target of $16.

FT discusses financing constraints at GMAC and CIT: The FT reports that GMAC and CIT, two of the largest finance companies in the US, are still unable to issue government-backed debt almost three months after becoming bank-holding companies to take advantage of federal rescue schemes. The paper adds that both lenders confirmed that their applications are still pending, though the FDIC declined to comment on specific applications. Citing analysts, the article notes that the delay may force CIT to rely on asset sales to cover its funding needs if it is not able to secure access in the next few weeks. Recall that the banking charger also made the lenders eligible to apply to the FDIC's temporary liquidity guarantee program (TLGP), which allows banks to issue inexpensive debt backed by the FDIC’s guarantee, in an effort to encourage them to lend to consumers and businesses.

MSFT (17.48): Microsoft maintained outperform at Oppenheimer after meeting with management: Target is $22. The firm says their recent meeting with MSFT left them incrementally more confident in its expense management efforts over the short and longer term. Oppenheimer continues to believe the WIN7 release will be a far more successful product cycle than its predecessor, making it a likely near-term catalyst for the shares. In the coming years, the firm believes that Azure will be the company's Internet