Thursday, June 4, 2009

June 4, 2009: Morning Call

June 4, 2009: Morning Call

Fair Value: SP500 – 931.23; NDX: 1475.68; DOW: 8671.22

Technical Levels:

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


Pre-market EPS: CIEN (-.09/156.7M); MTN (1.55/342.7M)
07:00: Bank of England announces Interest Rate Decision: 0.50%
07:00: US Retailers release May Same Store Sales
07:45: ECB announces Interest Rate Decision: 1.00%
07:50: Fed’s Pianalto speaks on the economy
08:00: AMTD presents at Sandler O’Neill Conference
08:20: FLR presents at Credit Suisse Engineering and Construction Conference
08:25: Fed’s Dudley speaks on PPIP
08:30: Non-Farm Productivity (Q1): 1.2%; Unit Labor Costs: 2.9%
08:30: Initial Jobless Claims (w/e May 30): 620,000; Continuing Claims: 6.855 million
08:45: Fed Chairman Bernanke speaks at Fed Conference
09:00: JEC presents at Credit Suisse Engineering and Construction Conference
09:50: MDR presents at Credit Suisse Engineering and Construction Conference
10:15: MA presents at KBW Financial Conference
10:30: EIA Natural Gas Storage Change
11:15: GOOG presents at Bank of America Tech Conference
13:15: FWLT presents at Credit Suisse Engineering and Construction Conference
13:30: KLAC presents at Bank of America Tech conference
14:15: PCLN presents at Bank of America Tech Conference
14:30: ABX presents at Goldman Sachs Basic Materials Conference
Post-market EPS: COO (.49/265.7M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are trading 2 points above fair value at 7:30am ET. The jobless claims data at 8:30 will be a key catalyst because bullish market participants have been expecting a drop into the mid-high 500,000-range; May retail comps will also be important. European markets are up 0.25-0.50% following Euro-zone retail sales that came in better than expected (-2.3% vs. –2.9% consensus). European markets were up as much as 1.3% before paring gains. Decliners on the FTSE 100 lead advancers 11-9. Wm Morrison (MRW.LN) trades higher after a trading update. Debenhams (DEB.LN) declined after announcing a placing and open offer to raise approx £323M. Air Berlin (AB1.GR) announced it's to issue 6M new shares and also released May passenger traffic. Rio Tinto (RIO.LN) retreated to session lows on reports it may scrap Chinalco stake sale at today’s board meeting. Sainsbury (SBRY.LN) upgraded to overweight at Morgan Stanley. ThyssenKrupp (TKA.GR) upgraded to buy at BoA Merrill. Asian markets closed lower (Japan down 0.75%, Hong Kong down 0.40%, Australia down 2.06%, South Korea down 2.4%, India up 0.94%). Reuters reported a North Korean patrol boat briefly entered South Korea waters, retreated after verbal warning. BHP billiton (BLT.LN) is reported to have contacted big Chinese steel mills hoping to agree index-linked iron ore prices, no deal as been agreed yet. Resource and basic material stocks lead the way down.

Research Calls/Market Moving News:

GOOG (431.65): Google target increased to $580 from $450 at Citi: The firm reiterates its buy rating, noting that its checks support its estimates for Q2 and sees EPS upside in 2010. GOOG is Citi's top large-cap Internet stock pick.

GS (142.15): Goldman Sachs upgraded to outperform from market perform at Bernstein: Target for the shares is $176. Bernstein raises f09 and f10 EPS estimates to $15.33 and $16.47 saying they believe we are in the midst of a sustainable fixed income recovery that extends beyond near term expectations and through f10.

Crude Oil (66.12): Goldman Sachs raises 3-month target for WTI oil to $75 from $52: The firm expects WTI prices to continue to rally through 2010, based on supply/demand, and raises its 12-month WTI target to $90 from $70/bbl. Goldman Sachs also initiates a year-end 2010 WTI price target of $95.

AAPL (140.95): Apple's target increased at Oppenheimer: The shares are rated outperform and the target is increased to $160 from $140. The firm expects software to be the focus of next week's WWDC. Oppenheimer says that while new iPhone models are likely to hit the market within 1-2 months, there are good reasons for AAAPL to delay the announcement a bit longer and the firm would use any weakness related to the lack of an iPhone announcement as a buying opportunity. Oppenheimer is also raising their estimates to reflect strengthening Mac sales; a favorable component-pricing environment; and higher F4Q software sales with the release of Snow Leopard.

AAPL (140.95): Piper Jaffray’s Gene Munster comments on the upcoming WWDC event: Given WWDC (Mon. 6/8) will likely be in line with expectations, we expect the event to be a slight negative for shares of AAPL (despite the possibility of new iPhone models announced at the event). This does not change our confidence in our 12-month $180 price target, or our belief that the new iPhone will be additive to Street numbers. • Regardless of whether or not new iPhones are announced at WWDC, we continue to expect a mid-July launch of a family of iPhones. • New iPhone models likely to include a low-cost ($99-$149) model with reduced capacity, and a higher-end models with video camera and more storage. • Reports of cheaper iPhone plans appear to be unfounded; we believe the chances of a low-cost data plan attached to the cheaper iPhone are about 25%. • Jobs appearance at WWDC unlikely, but end of June return appears to be likely. Will Pricing Of New iPhones Be Different? We believe Street expectations for the pricing of the low-cost model appear to be aggressive, with many investors expecting a $99 iPhone with reduced monthly fees for data. This likely comes as a result of media reports indicating that the CEO of AT&T Mobility acknowledged that AT&T has considered reduced monthly fees for limited data usage on the iPhone. We see this as a possibility, but we believe $149 is a more likely price point and we believe the chances of reduced monthly fees for a limited monthly data allotment from AT&T are about 25%. We do not think Apple is interested in capping the data limits to achieve a lower price point. Given our expectations, we are anticipating WWD to be a slight disappointment to investors, as demand for increased units is driven more by lower prices than by slight tweaks to the feature set. That said, our expectations for a disappointment at WWDC do not change our broader thesis of the iPhone's proven form factor along with steady price declines and new models to address additional markets and drive unit growth”

ADBE (29.06): Adobe Systems target raised to $34 from $26 at Morgan Stanley: The firm believes EPS for f09 appears stable and indicates better visibility should move f10 consensus toward their above the Street estimates.

COST (48.47): Costco reports May comps (7.0%) vs consensus (4.2%): May revenues were (5%) to $5.47B. US comps were (6%); international comps (7%). US comps (excluding the impact from gasoline deflation) were (1%); international (excluding the effects of foreign exchange) +7%.

VLO (18.40): Valero Energy 40M share secondary priced at $18 a share through Barclays and JPMorgan.

STLD (14.03): Steel Dynamics secondary offering priced at $13.50 through Merrill Lynch, Goldman Sachs, Morgan Stanley and JPMorgan.

Financials firms looking to delay accounting rule that would force them to bring off-balance-sheet vehicles back on their books – WSJ: The banks and other financial firms are concerned that the asset consolidation could force them to raise additional capital. According to the article, a group that includes the Chamber of Commerce, the Mortgage Bankers Association, and the American Council of Life Insurers and others recently a sent a letter to Treasury Secretary Geithner regarding the off-balance-sheet accounting-rule change, noting that it should be adopted "cautiously and seek to minimize any chilling effect on our frozen credit markets." The Journal notes that the rule would apply to existing off-balance-sheet entities, known as qualifying special purpose entities. Banks typically use these vehicles to package and sell loans they made.

CFTC head Gary Gensler to propose new derivatives rules on Thursday - NY Times: The Times reports that Gary Gensler, the new chairman of the Commodity Futures Trading Commission, will ask Congress on Thursday to impose new restrictions on financial firms that deal in derivatives. According to the article, lawmakers said that Gensler is expected to propose two sets of regulations - one set for the individual dealers of derivatives and another for the marketplaces where the instruments are traded. The two sets of rules are designed to eliminate the loopholes that some have argued would have weakened the plan announced three weeks ago by Treasury Secretary Geithner. Dealers would face requirements for capital reserves and collateral, imposing significant new expenses that could reduce their profitability. The proposal would also include antifraud and anti-manipulation provisions, as well as potential limits on market positions and holdings. The new measures would apply no matter whether a dealer issued standard derivatives or custom-written contracts tailored to meet the needs of specific companies.

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