October 5, 2009: Morning Call

October 5, 2009: Morning Call

Fair Value: SP500 – 1021.05; NDX: 1661.03; DOW: 9428.08

Technical Levels:

SPX: 875-880, 910, 953, 986, 1003 support/ 1044, 1110 resistance

Events:

03:45: Italian PMI Services (Sep): 47.2 (actual: 48.5)
03:50: French PMI Services (Sep): 52.2 (actual: 53.2)
03:55: German PMI services (Sep): 52.2 (actual: 52.1)
04:00: Eurozone PMI Services, Composite (Sep): 50.6, 50.9 (actual: 50.9, 51.1)
04:30: Euro-zone Investor Confidence (Sep): -11.8 (actual: -12.6)
04:30: UK PMI Services (Sep): 54.5 (actual: 55.3)
05:00: Euro-zone Retail Sales (Aug): -0.5% MoM; -2.4% YoY (actual: -0.2%, -2.6%)
10:00: ISM Non-Manufacturing Index.
18:30: Fed's Dudley speaks on the economy
Post-market EPS: MOS (.36/1.54B)

Foreign Market Summary/Key Macro News/Commentary:

Futures are following Euro-zone markets higher this morning. S&Ps are 6 above fair value moving in lock step with European markets. Euro-zone markets are up 0.50% after opening slightly lower. Markets react positively to better than expected economic data out of Europe (Italian, French, Euro-zone PMI, and Euro-zone Retail Sales all beat consensus). Treasury Bonds are up 1/2 point. FOREX quiet as G7 statements over the weekend were a non-event, and commodities are mixed with crude off 1% but industrial commodities (Copper, lead, nickel) trading up. Basic materials are leading the advance after bearing the brunt of the sell-off last week. AA kicks off Q3 EPS season on Wednesday. Asian markets mostly declined (Japan down 0.60%, Hong Kong up 0.26%, Australia down 0.63%, South Korea down 2.6%, India down 1.56%). Hong Kong ended slightly up in volatile trading as China-related shares rose on optimism the country will not rein in its stimulus measures. Exporters like Nikon (7731.JP) were the main losers in Japan, but banks climbed 2-3% as worries about a loan-repayment moratorium subsided. Financials led Australia down. South Korea dropped sharply as investors priced in weakness from the 2-Oct holiday. China remained closed for National Day

Research Calls/Market Moving News:

BRCD (7.65): Brocade quietly puts itself on the block – WSJ: People familiar with the matter say no deal is imminent, but Hewlett-Packard (HPQ) is interested, and Oracle (ORCL) might be. Brocade's market cap is $3.2B. BRCD shares are up 16% in the pre-market.

RIMM (65.42): Research In Motion upgraded to buy from hold at Needham: The firm believes current sentiment is too pessimistic and has a price target of $85. “From being overly optimistic on RIM’s outlook, we believe investors have become unduly pessimistic following the release of second quarter earnings. Our previous hold rating was based on the premise that new competitors, such as forthcoming Android phones, would capture share from BlackBerry and dramatically slow its growth. We’re not rejecting the prospect of a more competitive environment, but we believe the impact on BlackBerry’s growth should be muted relative to its impact on other smartphone platforms. In contrast with its competitors, BlackBerry and the iPhone have demonstrated that the integrated software/hardware model is superior to the operating system license model embraced by Windows Mobile and other smartphones. The integrated model has enabled the two companies to construct platforms that trump competitors in terms of services, features and ease of use. RIM has the additional benefit of an email service that no competitor can come close to matching. We’re raising our fiscal 2010 earnings estimate from $4.55 to $4.60 on revenues of $15.5 billion (vs. consensus of $4.16 on revenues of $14.9 billion) and our 2011 estimate from $5.50 to $5.70 on revenues of $21.4 billion (vs. consensus of $4.87 on revenues of $18.3 billion). The major risk in our Buy rating is that with the advent of new competitors running on Google’s android platform, RIM’s growth rate could deteriorate far more quickly than we’ve assumed.”

WFC (26.28); CMA (28.78); COF (33.19): Goldman Sachs upgrades CMA, WFC; adds COF to Conviction Buy List: Wells Fargo (WFC) upgraded to buy from neutral; target increased to $35 from $31. Comerica (CMA) upgraded to neutral from sell; target increased to $31 from $19. Capital One (COF) is added to the Conviction Buy List. Target increased to $44 from $37.

MTW (8.14): MTW is upgraded to buy from hold at Deutsche Bank. Shares are one of the biggest percent gainers in the pre-market (up 8%).

AAPL (184.90): Blu-ray iMacs may arrive in a few weeks -- Silicon Alley Insider: The site speculates that the new machines could be announced this month. Sources indicate that licensing may finally have been worked out and the prices of the drives are now more reasonable. Separately, AppleInsider notes ads in Europe that appear to have been placed online premature and may indicate that in a few days there will be thinner iMacs, new thinner and lighter plastic Macbooks and speed-bumped Mac minis.

JPM (41.86); BAC (16.34): Barron's Follow Up is positive on JPMorgan (JPM) and Bank of America (BAC): The executive shuffle at JPMorgan (JPM) last week shows investors one more reason to be positive on the shares because the moves highlight the talent pool at the top of the bank for when Jamie Dimon eventually steps down. The stock could rise to more than $70 over the next few years. Bank of America (BAC) is emerging from the financial crisis in surprisingly strong shape. The bank is ready to deliver strong profits and big gains to investors. The stock could climb as high as $30 over the next 2 years.

BAC (16.34): Bank of America to pick "emergency CEO" this week in case Ken Lewis has to leave early – WSJ: A person familiar with the situation says work on the contingency plan, in case legal trouble forces Lewis to step down before 31-Dec, began after Lewis announced his retirement. A five-person board committee formed earlier this year to address concerns raised by regulators is in charge of the process.

GS (179.61): Goldman Sachs to receive $1B if CIT Group (CIT) files for bankruptcy – FT: People familiar with the matter say the payment arises from the structure of a $3B rescue finance package Goldman gave CIT 6-Jun-2008. The sources say Goldman would be likely to agree to postpone payment on part of the "make-whole amount."