Tuesday, September 22, 2009

September 22, 2009: Morning Call

September 22, 2009: Morning Call

Fair Value: SP500 – 1060.10; NDX: 1730.17; DOW: 9716.56

Technical Levels:

SPX: 875-880, 910, 953, 986, 1044 support/1110 resistance


Pre-market EPS: KMX (.18/1.7B); CCL (1.18/4.04B); CAG (.34/3.09B); FDS(.74/154.0M)
03:00: EU’s Lowe speaks at Anti-trust conference
04:00: CS Investor/Analyst Day
10:00: Richmond Fed Manufacturing Index (Sep): 15
10:00: US House Price Index (July): 0.5%
10:00: LOW Analyst/Investor Day
10:30: LH presents at UBS Healthcare conference
11:00: MSFT Business Update Call
12:30: MYGN presents at UBS Healthcare conference
13:00: BRCD analyst day
13:00: Treasury Auctions 43 billion in 2-year notes and 27 billion in 1year notes
13:30: CELG presents at UBS Healthcare Conference
14:30: VRTS presents at UBS Healthcare Conference
16:30: API Crude Oil and Gasoline Inventories

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are trading 8 points above fair value and close to the highs of the overnight session. European markets are up 0.80% to 1.25% with basic material, energy, and technology stocks leading the rally. The Euro is breaking out to fresh relative highs against the dollar on expectations of faster global economic growth, which is lending a solid bid to commodities and gold (commodities are up 1.5% to 3.0%). Russian markets are the strongest in Europe (up 3.3%), a sign that market participants continue to reach for risky assets. Asian markets closed mixed (Hong Kong up 1.06%, Australia down 0.30%, Shanghai down 2.4%, South Korea up 1.56%, India up 0.87%). According to Bloomberg, Asian Development Bank said Asia, excluding Japan, would grow 3.9% this year, better than the March estimate of 3.4%. In addition, government data showed net crude oil imports by China last month was the second-highest on record.

Research Calls/Market Moving News:

GOOG (497.00): Google target increased to $560 from $480 at Canaccord Adams: Firm expects Q3 to be seasonally in line with expectations, but sees more upside growth to Q4 than consensus is modeling. Rating is buy.

Calyon analyst Mike Mayo remains cautious on the banking sector -- CNBC: Even if the downside in the credit cycle may be over, which is not clear, Mayo notes several differences as compared to the emergence from normal credit cycles, including potential disinflation, deleveraging, de-risking, the deposit insurance fund to decipher, and a decline in deposit service charges.

DNDN (29.46): Dendreon initiated outperform at Leerink Swann

Banks benefiting from CDO liquidations – FT: The FT reports that billions of dollars of worth of collateralized debt obligations (CDOs) are bing liquidated, allowing banks, insurance companies and other investors to clear toxic assets from their balance sheets. According to the article, while hundreds of billions of dollars of CDOs have defaulted, the structures can only be liquidated if the underlying collateral can be sold. In recent weeks, more investors have been purchasing the underlying assets at deep discounts, leading to better liquidity in the market and helping to boost prices for some existing CDOs. The FT goes on to note that the recent rally has been particularly significant for CDOs backed by corporate bonds and loans.

C (4.43): Government of Singapore reduces stake in Citi to below 5% -- wires: In a statement, GIC said that it had reduced its stake below 5% through open market sales and that the stake was consistent with what it had intended when it invested in Citi through convertible securities. GIC had held more than 9% as a result of the exchange of convertible securities on 11-Sep, together with the U.S. Government and other private investors. GIC said it would continue its investment in Citi as it was confident in its long-term prospects.

BAC (17.25): Bank of America to pay $425M to terminate asset guarantee term sheet: BAC announced that it has reached an agreement with the U.S. Government to terminate its term sheet with respect to the guarantee of up to $118B in assets by the U.S. Government. The term sheet was executed in connection with Bank of America's acquisition of Merrill Lynch in January 2009. Bank of America also announced that it had received FDIC approval to exit the debt guarantee program under the FDIC's Temporary Liquidity Guarantee Program.

Citi upgrades ANR, BTU: Alpha Natural Resources (ANR) upgraded to buy from hold; target increased to $46 from $32. Peabody Energy (BTU) upgraded to buy from hold; target increased to $46 from $34. The firm has a more positive stance on met coal, raising its forecast for met to $200/ton from $140/ton for 2010-11. Citi prefers CONSOL Energy (CNX), ANR and BTU. ACI, MEE and PCX remain rated hold.

M (17.79): Macy's upgraded to buy from hold at Citi: Target increased to $30 from $15. The firm sees revenue improvement from the My Macy's initiative, as well as potential operating margin improvement, following meetings with management.

HPQ (46.35); DELL (16.01): Hewlett Packard (HPQ) upgraded, DELL downgraded at Credit Suisse: HPQ upgraded to outperform from neutral, target increased to $55 from $44. Cost-cutting and leverage from opex, as well as a potential catalyst in the analyst day on Thursday, are cited. DELL downgraded to neutral from outperform, target reduced to $16 from $19. The firm is concerned about DELL's acquisition strategy, noting the difficulty of integrating Perot (PER).

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