Thursday, June 18, 2009

June 18, 2009: Morning Call

June 18, 2009: Morning Call

Fair Value: SP500 – 906.79; NDX: 1455.58; DOW: 8444.01

Technical Levels:

SPX: 765, 788, 832, 875-880 support/ 935-943 resistance


Pre-market EPS: CCL (.30/3.00B); SJM (.63/991.5M)
08:00: GENZ presents at Jefferies Healthcare Conference
08:30: JCP Business Update Call
08:30: Initial Jobless Claims: 604,000 ; Continuing Claims: 6.8 million
09:30: Treasury Secretary Geithner testifies to senate on financial regulation
10:00: Philly Fed (June): -18
10:30: EIA Natural Gas Storage Chance
12:30: CELG presents at Jefferies Healthcare Conference
17:00: RIMM earnings call
Post-market EPS: RIMM (.92/3.4B); SWHC (.09/90.8M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 3 points below fair value while the NASDAQ futures are trading 8 points below fair value at 8:00am ET. The S&P futures are 6 points off the overnight high (912) because European markets reversed initial opening gains. European markets are down 0.25% to 0.70% after opening 0.25% to 0.50% higher. Weaker than expected UK retail sales is pressuring consumer, industrial, basic material, and financial sectors. Asian markets declined in quiet trading with the MSCI Asia Pacific index moving to a three-week low (Japan down 1.4%, Hong Kong down 1.7%, Australia down 0.31%, Shanghai up 1.56%, India down 1.7%, South Korea down 1.2%). The World Bank boosted their growth forecast for China to 7.2%. Although the news has not garnered much attention in the financial press, SocGen analyst Albert Edwards issued a strategy report yesterday afternoon predicting a significant drop in Chinese equities before the end of the year. This could have played a role in the weakness overnight as Edwards is known for calling for a major reversal in Asian markets in 1997.

Research Calls/Market Moving News:

IBM (107.00): IBM initiated outperform at Cowen & Co.

AAPL (135.58): Apple mentioned positively at RBC Capital: The firm sees healthy iPhone uptake and estimates AAPL ships 500K-700K iPhone 3GS units in the 1st week and 1.5M in Q1. RBC continues to see pent up demand for iPhone with AAPL handset share reaching 2.4% in C10. Shares are reiterated outperform. Target is $165.

SocGen analyst Albert Edwards comments on China: “Most areas in the markets have now discounted a V-shaped recovery. Any doubt will trigger a rapid reversal in prices. I continue to be extremely skeptical and see recent events as part of a 1930s-like, long march to revulsion. Talking about long marches, nowhere in the world fills me with more skepticism than the Chinese economic recovery. The continued enthusiasm for all things China reminds me so much of the way investors were almost totally blind to the fact the US growth miracle was built on sand. China could be the biggest disappointment yet. 􀁑 Whether you look at surging commodity prices or the near 60% ytd run-up in the Metals & Mining sector, one thing is clear; the markets believe wholeheartedly in the Chinese economic recovery. We have a long history of sticking our necks way out against the consensus. In 2001 we repeatedly wrote that the US growth miracle would be seen in retrospect as a sick joke, as it was based on Kilimanjaro-like mountains of debt. It has taken a while, but now most concur with that ‘extreme’ view. In a few years time, I believe we will look back on the Chinese economic miracle as the sickest joke yet played on investors.”

RTP (170.45); BHP (55.26): Chinese official talks up possibility of using country's anti-monopoly laws to thwart iron ore jv between Rio Tinto (RTP) and BHP Billiton (BHP) – FT: Chinese opposition to the recently announced iron ore joint venture between Rio and BHP has been widely reported but RTP and BHP shares continue to get pounded. The FT now cites comments from Chen Yanhai, head of the raw material department of China’s ministry of industry and information technology, who told state media that the proposed joint venture “has an obvious color of monopoly” and should be subject to the country’s antitrust laws.

UBS comments on global fertilizer pricing: Firm notes that timing of yesterday's announcement by K+S AG (SDF.GR) to cut its current spot potash price is surprising give the is so close to Indian/Chinese potash negotiations. UBS comments that the risk posed by the cut is that it prompts others to undercut. Firm believes however that the markets can stabilize near current levels and continues to expect China and India to sign '09 contracts in the range of $500-525 FOB Vancouver. UBS lowers its medium term potash price to $600/t from $700/t FOB Vancouver, but leaves long term forecast of $700/t unchanged.

NYT looks at proposed Consumer Financial Protection Agency: A banking industry figure says current regulators have all the authority they need; the industry claims it will lose billions of dollars if the agency comes into existence. The article describes the CFPA as a sort of FDA for financial products, having the right to set out standards before banks could offer some options, and requiring warnings on others. Visible problems include exactly how the agency will be financed, since a conflict of interest would result from bank fees' being used, and the division between state and federal powers.

GE (12.25): Regulatory overhaul likely to present problems for GE Capital – WSJ: In a "Heard on the Street" column, the Journal reports that the Obama administration's proposed regulatory overhaul of the financial industry may be particularly painful for GE Capital. The article notes that while GE Capital has $613B in assets and provides significant amounts of credit to consumers and corporations, the bulk of its operations are not subject to the oversight of a banking regulator. However, if Congress passes the administration's proposals, GE Capital would likely be deemed a systemically important firm, meaning that it would face much more stringent regulation. According to the paper, the bigger problem is that such supervision would also extend to the firm's parent company and other subsidiaries, a dynamic that could make it necessary for GE Capital to be spun off. The article goes on to note that such a move could be problematic for parent GE, given that it would have to ensure that GE Capital had sufficient capital and stable funding.

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