Wednesday, July 1, 2009

July 1, 2009: Morning Call

July 1, 2009: Morning Call

Fair Value: SP500 – 915.74; NDX: 1476.62; DOW: 8395.15

Technical Levels:

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

Pre-market EPS: GIS (.80/3.7B); STZ (.32/777.2M)
04:00: Euro-zone PMI Manufacturing (June): 42.4 (actual: 42.6)
07:00: MBA Mortgage Applications
08:15: ADP Employment Change (June): -395,000 (actual: -473,000)
10:00: ISM Manufacturing (June): 44.9 ; Prices Paid: 47.0
10:00: Construction Spending (May): -0.6% MoM
10:00: Pending Home Sales (May): 0.0% MoM
10:00: GIS earnings call
10:30: DOE Crude Oil and Gasoline Inventories: -2m Crude draw; +2m Gas Build
11:15: Fed’s Evans speaks on credit crunch, policy actions
14:00: GM June 2009 Sales and Revenue Call

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 6 points above fair value while the NASDAQ futures are trading 10 points above fair value at 8am ET. Chinese manufacturing expanded for the fourth straight month (PMI 53.2 vs. prior 53.1; CLSA PMI 51.8 vs. prior 51.2). Euro-zone manufacturing was in-line with expectations. Asian markets closed mostly higher with markets in Shanghai outperforming, closing above 3000 for the first time in 12 months (Shanghai up 2.26%, Taiwan 2.2%, Hong Kong closed, Japan down 0.19%, Australia down 2.05%, India up 1.0%, South Korea up 1.8%). Construction and property shares advanced in Taiwan after the government lifted a ban on Chinese investment yesterday. Telecoms climbed after the Korea Communications Commission asked the country’s wireless carriers to refrain from overheating marketing competition. A weaker-than-expected tankan had minimal impact on Japan. Chalco (601600.CH), All Nippon Airways (9202.JP) and Orix (8591.JP) fell on reports the companies plan to offer new shares. All sectors in Australia fell in the first day of trading in the new FY. Hong Kong was closed for SAR Day. European markets are up 1.3% and have been trading in a tight trading range all morning. Mining shares were amongst the leading groups and retailers are strong following positive comments by UK retailer Marks and Spencer (MKS LN). Advancers on the FTSE 100 lead decliners 4-1.

Research Calls/Market Moving News:

BAC (13.20): Bids for Bank of America's Columbia Management Advisors LLC coming below expectations – FT: The FT cites people close to the matter who say that bids for the asset management business have come in at about $2B, below the $3B that BofA had targeted. The article notes that BofA may separate Columbia's money market assets to make the business more attractive, though the move may prove unnecessary if the pricing gap narrows. People close to the situation say that BlackRock (BLK) will not be buying the business, and that buyout firms remain interested in First Republic, BofA's private bank and mortgage lender, for perhaps $600-800M.

AIG (23.20): AIG is trading down 25% following the execution of a 1 for 20 stock split. There is no clear news to account for the decline. I would note that NITE securities is the number 1 broker based on advertised volume in the pre-market. Although AIG equity is likely worth zero over the long-term, I am not seeing any new fundamental news to account for the sell-off this morning. AIG shares fell 13% yesterday on concerns about European CDS exposure. Either the shares are continuing to fall on that story or retail investors are selling the shares in a very sloppy fashion (as I said, NITE is the largest advertised broker and they typically see a big chunk of discount/online broker's order flow). Hard to believe but AIG could be worth a fade (buy) here at the 17.50 level for a quick trade.

FDIC expected to propose tough new guidelines for private-equity firms looking to invest in failed banks – WSJ: The Journal cites people familiar with the matter, though it also points out that the proposal is not final and could still change before it is issued for public comment. According to the article, the proposal is expected to focus on deterring private-equity firms from flipping failed banks and may include a mandatory investment period. The proposal is also likely to impose higher capital reserves on private-equity firms than traditional banks, and may even require firms that own several banks to offer some form of cross-guarantee.

GIS (56.02): General Mills (GIS) reports Q4 EPS $0.86 ex-items vs Reuters $0.80, guides f10 EPS to $4.20-4.25 vs Reuters $4.17; FC $4.18.

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