August 14, 2009: Morning Call

August 14, 2009: Morning Call

Fair Value: SP500 – 1010.857; NDX: 1628.05; DOW: 9370.49

Technical Levels:

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

Events:

Pre-market EPS: ANF (-.04/637.9M); JCP (-.08/3.9B)
05:00: Euro-zone CPI (July): -0.6% MoM; -0.6% YoY; Core: 1.3% YoY
08:30: US Consumer Price Index (July): 0.0% MoM; Ex-Food/Energy: 0.2% MoM
08:30: US Consumer Price index (July): -2.1%; Ex-Food/Energy: 1.6% YoY
08:30: ANF earnings call
09:15: US Industrial Production (July): 0.1%; Capacity Utilization: 68.1%
09:30: JCP earnings all
10:00: University of Michigan Confidence (August): 68.5



Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 3 points above fair value and the NASDAQ futures are flat with fair value at 8am ET. Asian markets closed mixed (Japan up 0.75%, Hong Kong up 0.15%, Australia up 0.57%, Shanghai down 2.8%, India down 0.70%, South Korea up 2%). Upbeat comments from Australia’s central bank governor boosted Australia and New Zealand. Technology and bank stocks allowed South Korea to lead the region. Shipping issues gained on a higher Baltic Dry Index. In Japan, insurers fell and real estate firms and trading houses rose but the market reversed early gains when China fell. New Zealand rose as retail sales advanced in Q2 for the first time in two years. European markets are up 0.27% to 0.50% in quiet but whippy trading. Mining shares are amongst the leading gainers while the auto sector was lower led by Volkswagen (VOW.GR) having confirmed reaching of agreement on formation of integrated car group with Porsche (PAH3.GR). Major indices gained around +0.8-1.0% before paring their advance. Advancers on the FTSE 100 lead decliners 3-2.

Research Calls/Market Moving News:

C (4.06): Citi upgraded to buy from underperform at Bank of America Merrill Lynch. C shares are up 3.2%.

BAC (17.00): Bank of America may expand metals and energy team by 25% in next 2-3 years to capitalize on rebound in commodity prices – Bloomberg: The wire cites interviews with the unit's heads. People familiar with the matter say the commodities group currently has 600 people.

Obama administration wants larger banks to pay more for oversight - Washington Post: The latest plan would see banks with more than $10B in assets pay higher fees from its existing regulator and the new consumer protection agency. Smaller banks might pay lower fees. Current rates for banks are determined by whether they are overseen by federal or state officials. Unregulated consumer financial firms, such as mortgage lenders, would have to pay for their oversight for the first time (My take: The Obama administration was expected to take a “carrot and stick” approach with the banking sector. Thus far, it has been almost exclusively carrot, which has been a big surprise particularly to the short-sellers. Clearly, the government has done a brilliant job at orchestrating the current “confidence” trade. But, the greatest longer-term risk for the banking stocks is that the “stick” approach becomes increasingly politically attractive as the mid-term election season begins next year. The fact that regulatory reform has stalled has led many market participants to conclude that the threat of the “stick” approach has diminished and the sector is back to business as usual. Right now, the timing for aggressive reforms is tricky given that the Administration is probably worried about quickly reversing the huge gains in capital markets. Rest assured, the stick will be used at some point and the negative impact on earnings will surprise bank stock bulls.)

WMT (51.88): Wal-Mart making stores around the world more and more local – WSJ: The company has grown to appreciate that what works in Bentonville won't necessarily increase sales in Beijing. The company now uses 60 names besides "Wal-Mart" outside the US. The article focuses on Brazil, where the company is using small discount stores rather than huge boxes resembling its US offerings, and where the company nonetheless remains in third place, behind Carrefour (CA.FP) and Pão de Açúcar Group (CBD). The company is now employing ideas developed in its far-flung countries, like the UK, India, China, and Japan, rather than forcing its American preconceived notions and SKU selections on all global markets.

JWN (29.76): Nordstrom (JWN) reports Q2 EPS $0.48 vs Reuters $0.48, guides f09 EPS to $ 1.50-1.65 vs prior $1.25-1.50 vs Reuters $1.48.

India may trigger INR1.9T ($39B) in stock sales with proposal to limit stakes of controlling shareholders – Bloomberg: The government is considering requiring a 25% minimum public float, which Bloomberg calculates would necessitate equity sales in 560 of Mumbai's 3,335 most-active stocks.

GPS (18.67): Gap upgraded to outperform from neutral at Wedbush Morgan: Checks show strengthening sales at Gap and Old Navy and says shares should show significant appreciation as the company delivers f09 and f10 earnings power above consensus

ETFC (1.40): Citadel Investment Group is cutting its E*TRADE stake reports the WSJ: Citadel has sold 13.9M shares of ETFC and has set up a 10b-5 plan that will allow the sale of up to 120M ETFC shares between 31-Aug and the end of October. One analyst said this announcement clears up any thoughts that Citadel might have wanted to be majority owner of the company.