Morning Call: August 21, 2009

August 21, 2009: Morning Call

Fair Value: SP500 – 1006.15; NDX: 1613.99; DOW: 9337.86

Technical Levels:

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

Events:
Pre-market EPS: ANN (.02/472.2M); SJM (.80/1.0B)
10:00: Existing Home Sales (July): 4.98M; 1.8% MoM
10:00: Fed’s Bernanke speaks on Financial Stability and Macroeconomic Policy
12:45: Fed’s Madigan speaks on Fed panel discussion

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are trading 5 points above fair value reversing nearly 13 points off the overnight session lows, which occurred overnight due to Asian market weakness. European markets triggered the reversal in the futures following strong French, German, and Euro-zone PMI data. The German service sector came in much better than expected (54.1 vs. 48.6). French and Euro-zone manufacturing also showed modest expansion in August. European markets are up 1.1% to 1.6% near the session highs. Utility, industrial, consumer, and financial stocks are outperforming while Technology and basic material stocks are lagging. Asian markets closed mixed (Japan down 1.4%, Hong Kong down 0.65%, Australia down 1.99%, Shanghai up 1.88%, India up 1.53%). The Chinese market shook off a report that China is moving to tighten bank capital requirements and lending. Shippers were hit by a drop in the Baltic Dry Index. Industrial & Commercial Bank of China (601398.CH) and Shenzhen Bank (000001.CH) rose on results. China Mobile (941.HK) fell on downgrades following disappointing results.

Research Calls/Market Moving News:

FSLR: Jefferies downgrades Solar sector and First Solar on concerns that the downward spiral of pricing in the sector will continue due to a glut of capacity. Expects weaker 2010 estimates and believes that "liberal Chinese lending practices" have encouraged overproduction. The firm downgrades FSLR to hold from buy and cuts the price target to 130 from 200. This call seems very late given that these concerns have been driving the stock lower (from 170) for the last month. I would also note that German solar stocks have ripped higher in Europe (up 3-5%) after German solar companies called for protective tariffs to counter what they say is improper government support for the industry in China. FSLR should bounce today off the 129 pre-market level because most of their revenues come from Germany. But, longer-term, I would note that the momentum continues to be negative given the poor reaction to the news of two huge projects with SCE. It is pretty clear that FSLR holders have shifted their focus away from "revenue growth" and toward module pricing and potential margin erosion. JP Morgan thinks investors have shifted away from the long-term growth potential for FSLR and are "currently focused on the short-term impact the tough financing and oversupplied module market are having on the profitability of the industry. Signs of a stabilizing bottom in the products ASPs are needed to get investors refocused on the revenue and associated earnings growth potential."

AAPL (166.33): Apple estimates increased at Thomas Weisel: Following a meeting with management, the firm is more confident in AAPL's long-term outlook and raise f09 and f10 EPS estimates on higher gross margin assumptions. Above-consensus revenue estimates are unchanged. Thomas Weisel expects an iPhone distribution agreement for China with China Unicom (CHU) in c2H09. The rating remains overweight; target $180.

LVS (13.19): chatter that a Hong Kong IPO may come in late November or December for a minority stake in the Macau operations - LVS expected to target raising 1 to 2 billion dollars.

BRCD (8.05): Brocade reports Q3 EPS $0.12 ex-items vs Reuters $0.11: Company reports revenues of $493.3M vs Reuters $503.3M. Non-GAAP gross margin 58.2% vs. 56.2% seq. and 61.9% y/y; non-GAAP operating amrgin 20.3% vs. 18.8% seq. and 22.6% y/y

China plans to tighten banks' capital requirements – Bloomberg: People familiar with the matter say that 19-Aug, banks received draft rules requiring them to deduct all subordinated and hybrid debt from their supplementary capital. Banks have until 25-Aug to give feedback. Banks may need to restrict lending or sell shares to raise their capital adequacy ratios to the required 12%. The rules also limit a bank's holdings of subordinated or hybrid bonds to 20% of core capital.

Morgan Stanley comments on smartphone survey: Firm's survey indicated that the iPhone and Blackberry were both the top choices in consumers, while Palm's share of the smartphone sales fell.