Tuesday, June 30, 2009

June 30, 2009: Morning Call

June 30, 2009: Morning Call

Fair Value: SP500 – 923.59; NDX: 1483.26; DOW: 8477.54

Technical Levels:

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

Last Trading Day in Q2
Pre-market EPS: SCHN (.11/382.6M)
09:00: S&P/Case Shiller Home Price Index (April): -18.75% YoY
09:00: BBBY Annual Meeting
09:45: Chicago Purchasing Manager (June): 38.5
10:00: US Consumer Confidence (June): 55.1
10:00: AIG Annual Meeting
12:00: Fed’s Bullard speaks on exit strategies
16:10: Fed’s Hoenig speaks on a topic to be determined.
16:30: API Crude Oil and Gasoline Inventories
17:00: ABC Consumer Confidence
21:00: Chinese Manufacturing PMI (June): 53.1
22:30: Chinese CLSA Manufacturing PMI (June): 51.2

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are both trading flat with fair value at 7:30am ET. Asian markets closed mixed (Japan up 1.79%, Hong Kong down 0.81%, Australia up 1.75%, Shanghai down 0.42%, India down 1.97%). The WSJ reported that Shinsei Bank (8303.JP) and Aozora Bank (8304.JP) are expected to announce on Wed their plan to merge. In China, Hebei Iron and Steel head says hoping to win more than 33% price cut in iron ore talks. Australian retailer David Jones (DJS.AU) jumped after upgrading its profit guidance for the FY after it experienced improved trading conditions in May and June. European markets are flat to down 0.25% in a range-bound session. European markets weakened following the release of a weaker final revision to Q1 UK GDP (-2.4% vs. –2.1% consensus). Decliners on the FTSE 100 lead advancers 3-2. BG Group (BG.LN) announced it'll acquire a 50% interest in 120k net acres and related and complementary gas-gathering and transportation assets from EXCO Resources (XCO) for a total approx $1.3B.

Research Calls/Market Moving News:

FCX (50.33): Freeport-McMoRan upgraded to buy from hold at Canaccord Adams: Target increased to $61 from $40.75. Firm notes an increase in copper price forecasts for '09/'10/'11.

AMZN (83.03): Amazon.com upgraded to outperform from neutral at Cowen & Co.

UBS Equity Strategy increases allocation in Financials to a modest overweight from neutral.

GS (149.36); JPM (34.60); MS (29.10); STT (48.50): UBS resumes coverage of financials GS, JPM, MS, C, and STT: Goldman Sachs (GS) resumed buy; target is $175. Citigroup (C) resumed neutral, firm says shares are a short term buy; target is $3.25. JPMorgan Chase (JPM) resumed neutral; target is $37. State Street (STT) resumed neutral; target is $49.

FDX (55.63): FedEx upgraded to overweight from equal-weight at Barclays Capital:
Target remains $71. The stock is the firm's top pick within the transportation sector.

GERN (6.69): GE Healthcare and Geron reach an agreement to share intellectual property rights for embryonic stem cell products. GERN shares are up almost 30% on the news.

APOL (65.99): Apollo Group reports Q3 EPS $1.26 vs Reuters $1.12: Company reports revenues of $1.05B vs Reuters $1.04B. Apollo Group mentioned positively at RBC: The firm believes the quarterly results will lead to upward earnings revisions and perhaps upgrades of the shares based on expectations for increased future profitability. RBC says comments during the company conf. call have positive implications for the rest of the sector from both a financial and regulatory standpoint. Shares of APOL remain sector perform rated. APOL shares are trading up 5% in pre-market trading.

Securities firms on the verge of closing most profitable quarter since the credit crisis began – WSJ: The Journal highlights some of the favorable developments, noting that according to Dealogic, the debt market saw $1.5T of global issuance in Q2 (just slightly below the level seen in Q1), while equity offerings reached nearly $26B, four times the amount recorded in Q1 and the highest since Q2 of 2008. The article also notes that spreads between bid and offer prices on fixed-income assets remained wide through much of Q2, a dynamic that helped to boost trading revenues.

FT discusses stalemate in iron ore talks: The FT reports that amid a stalemate in tense talks with Chinese steelmakers over a new iron ore supply deal, Rio Tinto has threatened to sell its iron ore into the spot markets if the parties are unable to reach an agreement on Tuesday. The paper notes that negotiations have been complicated by the fact that iron prices have jumped to their highest levels in four months, above the annual benchmark level at which the world's biggest miners struck deals with steelmakers elsewhere in Asia. Recall that the three mining companies - Rio Tinto, Vale and BHP Billiton - agreed to cut annual benchmark iron ore prices by 28%-33% for deliveries to steelmakers in Japan, South Korea, Taiwan and Europe. However, the China Iron and Steel Association (Cisa), Beijing’s negotiator, has rejected those cuts and is looking for 40-45% reduction in prices.

F (5.78): Ford guides Q3 production to 485K vehicles vs previous 460K –wires: Headlines crossed just before the close. Represents a 16% y/y increase compared to previous guidance for +10%

NCI Journal article questions cancer drugs' cost -- WSJ : The authors of the article published in the National Cancer Institute found that use of Erbitux, which costs $80K for an 18-week regiment, only prolongs survival by 1.2 months. Using that estimate and extrapolating those costs to extending the lives of 500K Americans who die of cancer annually by one year could cost $440B. The article also questions the cost of Avastin (ROG.VX, PDLI) and Nexavar (BAY.GR, ONXX) and is seeks changes in the testing and practice of medicine. The pharmaceutical companies says the article exaggerates the overall costs of the treatments as few patients are on them for extended periods.

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