July 14, 2009: Morning Call

July 14, 2009: Morning Call

Fair Value: SP500 – 897.85; NDX: 1446.86; DOW: 8283.71

Technical Levels:

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

Events:

Pre-market EPS: GS (3.47/11.16B); JNJ (1.11/14.9B)
05:00: Euro-zone ZEW Economic Sentiment Survey (July): 44 (actual: 39.5)
05:00: Euro-zone Industrial Production (May): 1.5% MoM; (actual: 0.5%)
05:00: Euro-zone Industrial Production (May): -17.5% YoY (actual: -17.0%)
08:30: US Producer Price Index (June): 0.9% MoM; Ex-Food/Energy: 0.1% MoM
08:30: US Producer Price Index (June): -5.2% YoY; Ex-Food/Energy: 2.9% YoY
08:30: US Retail Sales (June): 0.5%; Less Autos: 0.5%
08:30: CSX earnings call
09:00: DELL analyst meeting
10:00: Business Inventories (May): -1.0%
11:00: GS earnings call
16:30: API Crude Oil and Gasoline Inventories
17:00: ABC Consumer Confidence
17:30: INTC earnings call
18:30: RIMM Annual Meeting
Post-market EPS: ALTR (.16/277.5M); YUM (.43/2.5B); INTC (.07/7.24B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 2 points above fair value and the NASDAQ futures are trading flat with fair value ahead of Goldman’s earnings this morning. Asian markets closed sharply higher following the strong Monday session on Wall Street (Japan up 2.34%, Hong Kong up 3.66%, Australia up 3.47%, India up 3.38%). Mining, industrial, and financial stocks outperformed. Automakers rallied in Japan on a report they were raising capacity in China. Brokerages rose and Komatsu (6301.JP) rallied on a report it probably posted an operating profit in the Apr-Jun quarter. China rose across the board, with gainers leading losers in Shanghai, 745-65. Singapore benefited when the government issued an advance reading on Q2 GDP 20.4% q/q vs cons 13.4%, and raised its forecast for the year. Former Morgan Stanley strategist Barton Biggs also said that Asian economies were emerging from the financial crisis faster than any other regions. European markets are up 0.50% to 0.75% led by mining and bank stocks. Advancers on the FTSE 100 lead decliners 7-3. Q-Cells (QCE.GR) fell after says Q2 results fall short of expectations and withdraws FY guidance.

Research Calls/Market Moving News:

GOOG (424.30): Bernstein previews the quarter for Google, sees consensus as low: The firm sees net revenue of $4.22B vs. consensus $4.05B. EPS for the quarter is seen $5.22 vs. Reuters consensus $5.08. Bernstein sees GOOG as well positioned to benefit from a recovery. Shares remain outperform rated with a $600 target.

GOOG (424.30): Oppenheimer expects Google to report lackluster results: Shares are maintained outperform and the target is increased to $490 from $440 on a higher market multiple. Firm expects GOOG to report lackluster 2Q results Thursday after the close, in-line with recently reduced expectations. Oppenheimer is lowering their revenue, EBITDA and EPS estimates by 2%, 1% and 2%, respectively.

Potash price war looming - Globe and Mail: The article relies largely on analysts and does not cite any inside sources, but says the months of cooperation among producers to cut production rather than lower prices appears to be set to end. The development comes thanks to Silvinit (SILV.RU)'s 10-Jul $460/tonne deal with India on the heels of Canpotex's $700/tonne deals announced 9-Jul. The Silvinit deal means other large companies are likely to be less willing to sign longer-term contracts.

Credit-default swaps probed by Justice Department, says Markit Group – Bloomberg: A spokeswoman declines to comment on the nature of the investigation the data provider has been informed of. People familiar with the matter say the antitrust division sent civil investigative notices this month to banks that own Markit to determine if they have unfair access to price information.

RTP (128.80): China expands steel-industry corruption investigation beyond Rio Tinto (RIO.LN) – NYT: Chinese media reported last night (13-Jul in China) that authorities have detained or questioned at least seven industry executives. An analyst says the industry is shocked and fearful of what may come next. There are reports of widespread bribery; one industry official points out that his or her company entertains officials all the time, and it is unclear if that will be considered bribery.

DELL (13.02): Dell expects "slight sequential revenue growth", "modest margin pressure" in Q2 (Jul): Company notes that y/y demand for its IT products appears to have stabilized and as a result expects to report a slight sequential revenue increase in Q2. However, gross margin is anticipated to be down modestly, with the company citing higher component costs, a competitive pricing environment, and an unfavorable mix of product and business-segment demand for the decline. Providing some color on the revenue stabilization, management says that the results "vary significantly" by customer segment and geography. Management continues to believe that customers are deferring IT purchases and expects demand to return to more typical levels "at some point.” Dell’s analyst meeting is today at 9am ET.

CIT (1.35): US officials in advanced talks to aid CIT Group -- WSJ, citing sources: Citing sources familiar with the matter, the Journal reports that government officials are in advanced talks about providing support for CIT Group. According to the article, the discussions are fluid and it remains unclear if a deal can be secured. While support on Capital Hill appears to be fairly tepid, the Journal does point out that government officials are worried about unforeseen consequences that a collapse of the commercial lender could trigger. CIT shares are trading up 22%.

CAT (31.80): Caterpillar EPS reduced at Credit Suisse: The firm says sentiment across the US remains bearish with continued deterioration in conditions overseas. Excess inventories are noted to remain an issue globally. EPS estimates for 2009 and 2010 are reduced to $0.25 and $1.00 vs. Reuters $1.13 and $1.59 respectively. Target for the shares remains $34. CAT is neutral rated.

MLM (77.10): Martin Marietta Materials (MLM) guides full year EPS to $2.70-$3.30 (incl effect of stimulus plan) vs Reuters $3.57.