Wednesday, August 12, 2009

August 12, 2009: Morning Call

August 12, 2009: Morning Call

Fair Value: SP500 – 992.47; NDX: 1594.01; DOW: 9214.10

Technical Levels:

SPX: 875-880, 910, 953, 986 support/ 1044 resistance


Pre-market EPS: ESLT (1.07/740.0M); JASO (-.06/77.7M); SLE (.24/3.2B)
05:00: Euro-zone Industrial Production (June): 0.3% MoM; (actual: weaker –0.60%)
05:30: BOE releases Quarterly Inflation Report
07:00: Bloomberg Global Confidence (August)
07:00: MBA Mortgage Applications
08:30: US Trade Balance (June): -28.5B
10:30: DOE Crude Oil and Gasoline Inventories
12:00: CSCO presents at Canaccord Adams Growth Conference
13:00: Treasury auctions 23 billion in 10-year notes
14:00: Monthly Budget Statement (July): -129.5 billion
14:15: FOMC Rate Decision: 0.25%
14:00: TOL Q3 Guidance Update
14:30: KLAC presents at Canaccord Adams Growth Conference
15:30: MSFT presents at Canaccord Adams Growth Conference
21:00: NTES earnings call
Post-market EPS: AAP (.83/1.3B); HRS (.82/1.2B); LDK (-.91/236.)M); SINA (.33/88.2M); NTES (.49/120.4)

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are trading 2 points above fair value and the NASDAQ futures are trading 7 points above fair value at 8:15am ET. The S&P futures hit an overnight low of 986 due to weakness in Asia and early in the European session. European markets are currently up 0.25% to 0.50% after opening down close to 1.0%. Euro-zone markets moved higher at 5:30am after the BOE inflation report said, “inflation is more likely to be below target in the media term than above.” Breadth is mixed with advancing issues only modestly ahead of declining issues. Asian markets closed lower with financial and resource sectors leading the decline (Japan down 1.4%, Hong Kong down 3.03%, Australia up 0.26%, Shanghai down 4.4%, South Korea down 1.2%, India down 0.36%). Shanghai was particularly weak with 17 issues declining for every advancing issue. Shanghai has pulled back 10.7% from the August 4 closing highs. Bloomberg is reporting that the Chinese commerce minister said overnight “that efforts to boost domestic demand can’t completely offset an export slump.” Chinese officials seem to be continuing a policy of “talking down” the market rather than officially tightening monetary policy.

Research Calls/Market Moving News:

AMAT (13.22): Applied Materials (AMAT) reports Q3 EPS ($0.02) ex-items vs Reuters ($0.08), reports Q3 new orders $1.07B vs StreetAccount consensus $862M, guides revenue to be up 10-20% q/q, implies a range of $1.24-1.36B vs Reuters $1.07B, guides EPS breakeven to $0.04 vs Reuters ($0.04).

TOL (20.48): Toll Brothers reports preliminary Q3 revenues of ~$461.3M vs. Reuters consensus $367.2M: First Call is $377.1M. Other Q3 metrics: backlog $930.7M and 1,626 units vs. $944.3M and 1,581 at end of Q2 and (37%) in units and (47%) in dollars y/y. net signed contracts $447.7M, 837 units, vs. $298.3M, 582 units seq., and +3% in units and (5%) in dollars y/y. gross signed contracts 915 totaling $502.6M vs. 743 totaling $418.5M seq. and (9%) and (15%), respectively y/y. cancellation rate 8.5%, 78 cancellations, vs. 21.7%, 161, seq. and 19.4% and 195 y/y; the 3Q09 cancellation rate was the lowest since f2Q06.

GS (159.22): Goldman Sachs maintained buy at UBS following meetings with CEO and CFO: Target is $180. Firm notes that management remains committed to Goldman's overall business model, but growing asset management is a priority given its stability. The company continues to have wide bid-ask spreads on liquid products and its market share gains have not slipped. In the near-term, UBS thinks the bias for consensus is to the upside and book growth should be strong. Firm adds that it does not expect a repeat of Q2's stellar results.

GRMN (32.45): Garmin added to Conviction Sell List at Goldman Sachs: The firm is concerned about 4Q09 and 2010 estimates. The target is $23.

Electricity prices fall sharply as demand drops reports the WSJ: A report due Friday is expected to show electricity demand down 4.4% in the first half which helped lead to a 40% drop in spot market prices. This is on top of a 2.7% drop in energy use in 2008 compared to 2007. Electricity demand has dropped in absolute terms in only 5 years since 1950. Wholesale prices have dropped significantly in many regions. Many consumers pay rates based on long term contracts but the lower prices will filter down over. Some utilities are reporting double digit drops in industrial usage. On top of the drop in demand, the fall in natural gas prices is another large contributing factor to the drop in electricity prices.

MSFT (23.13); NOK (13.08): NOK and MSFT to hold a conference call at 11am to discuss a partnership that will bring MSFT’s mobile office to NOK handsets.

SPWRA (30.11): SunPower downgraded to underperform from neutral at Bank of America Merrill Lynch: Price objective is reduced to $26 from $33.

Obama administration sends proposal to Congress for derivatives regulation reports the WSJ: The proposal from the Obama administration, which does not differ much from the plan outline by Treasury Secretary Geithner in May, would force many products onto regulated exchanges. There is an exemption that eases margin requirements for some hedging transactions in what the WSJ describes as a concession to small market players. The essential aim is to increase transparency with much of the power given to the SEC and CFTC but granting banking regulators the authority to oversee banks that deal in derivatives.

White House considering allowing consumers to use cash for clunkers vouchers - WSJ: The Journal reports that the Obama administration is reviewing a congressional request to allow consumers to use cash for clunkers vouchers toward future vehicle purchases. According to the article, vouchers would help address concerns surrounding the dwindling supply of many popular replacement vehicles.

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