October 6, 2009: Morning Call

October 6, 2009: Morning Call

Fair Value: SP500 – 1036.30; NDX: 1674.18; DOW: 9540.16

Technical Levels:

SPX: 875-880, 910, 953, 986, 1003 support/ 1048, 1110 resistance

Events:
Pre-market EPS: PBG (1.07/3.76B)
04:30: UK Industrial Production (August): 0.2% MoM; -8.7% YoY
04:30: UK Manufacturing Production (August): 0.3% MoM; -9.3% YoY
09:00: MOS earnings call
09:00: CHK presents at Johnson Rice Energy Conference
09:00: TDW presents at Johnson Rice Energy Conference
11:15: SGR presents at Johnson Rice Energy Conference
13:00: Treasury auctions 39 billion of 3-year notes
15:30: BCRX presents at JMP Securities Healthcare Focus Conference
16:30: API Crude Oil and Gasoline Inventories
17:00: ABC Consumer Confidence
19:01: UK Nationwide Consumer Confidence (Sep): 68
21:45: Fed’s Hoenig speaks on the economy
Post-market EPS: YUM (.58/2.79B)

Foreign Market Summary/Key Macro News/Commentary:

Futures are trading sharply higher due to significant strength in Europe and a strong session overnight in Asia. Commodity prices are also up 1%-2% due to weakness in the dollar following a report in the Independent that Arab states are launching secret moves with China, Russia and France to stop using the U.S. dollar for oil trading. Kuwait's oil minister denied the story but also said that he expected stronger demand for crude from the United States and Europe. Gold is up 10 bucks to 1026 triggering strong pre-market gains in gold mining stocks. European markets are up 1.5% - 1.7%, near the highs of the session. UK Industrial production came in much weaker than consensus but market participants ignored the data point. Advancers lead decliners on the FTSE 100 by a margin of 19 to 1. Financials are strong after BofA upgraded their view on the sector to overweight. Asian markets closed higher (Japan up 0.18%, Hong Kong up 1.87%, Australia up 0.40%, Taiwan up 1.3%, South Korea down 0.56%, India up 0.55%). Financial stocks were the strongest across the region. Developers led Hong Kong up as luxury home sales almost tripled m/m. PC shares led Taiwan higher. Banking shares pared or reversed their gains, and Australia came off its highs after the central bank announced an unexpected 25bps increase in the cash rate. Banks gained in Japan when the country’s financial services minister said they would not need to raise provisions for bad loans if borrowers delay repayments. Mazda (7261.JP) and Takeuchi (6432.JP) rose after narrowing their FY loss forecasts. South Korea reversed gains following Australia's rate hike on fears it might be the next to raise rates. China remained closed for National Day.

Research Calls/Market Moving News:

RIMM (65.42): Research In Motion initiated underperform at Bernstein: Target is $60. This report came out last night after the market closed and could explain some of the relative weakness in RIMM shares yesterday.

NTRI (15.05): NTRI signs a distribution deal with WMT. Shares are trading up 25%. Short squeeze is in motion in the pre-market as there are 7.5 million shares short as of September 15 versus a float of 28.3 million shares.

AVCT (20.52): Emerson (EMR) to acquire Avocent for ~$1.2B Emerson and Avocent announced they have reached agreement for Emerson to acquire Avocent. The Avocent board unanimously endorsed the terms of an all-cash tender offer of $25 per share, or approximately $1.2B. The purchase is expected to close around 1-Jan-2010 pending customary regulatory approvals and acceptance of the offer by Avocent stockholders holding a majority of Avocent shares.

MOS (45.96): Mosaic reports Q1 EPS $0.23 vs Reuters $0.36: Company reports revenues of $1.46B vs Reuters $1.54B. Sales volumes for the Phosphates segment are expected to range from 1.8 to 2.2M ton for Q2 of fiscal 2010. Mosaic's realized DAP price, FOB plant, for Q2 of fiscal 2010 is estimated to be $265 to $305 per ton. Mosaic is not providing financial guidance on potash sales volumes or MOP selling price until market conditions normalize. Capital spending for fiscal 2010 is expected to grow to a range of $1.0B to $1.2B. Mosaic is executing its multi-year potash expansion plan as well as investing substantial funds to further improve operating performance of its existing plants and mines. SG&A is estimated to range from $350M to $370M in fiscal 2010 and the effective income tax rate is estimated in the high 20% range for the year. MOS shares are trading slightly higher despite the EPS miss.

DVN (66.34): Devon Energy downgraded to underperform from neutral at Credit Suisse: Target increased however to $59 from $54. Firm cites an expected loss of operational momentum due to a sharp fall in 2009 drilling activity, which could translate to significantly declining volumes for 2010.

INTC (19.10): Intel should report Q3 revenues above the midpoint of its guidance range, says Morgan Stanley: Q3 revenue estimate increased to $9.20B, vs. Reuters consensus of $9.00B and company guidance of $8.80-$9.20B. 2010 revenue estimate increased to $37.1B from $35.9B. Reuters is $36.74B; First Call $36.78B. The rating remains overweight; target $24.

ADBE (32.55): Oppenheimer is positive on Adobe Systems ahead of the upcoming analyst meeting: The firm would be buyers ahead of the 7-Oct meeting saying that investor focus has shifted from its upcoming product release by the OMTR acquisition. Believes the meeting will provide 'a more comprehensive overview' of the deal's benefits and preview new features in the upcoming CS5 release. The firm sees the multiple expanding back to historical levels in the near future because of improving fundamentals, a dominant market position and the upcoming product releases.

EXTR (2.87): Extreme Networks (EXTR) guides Q1 revenue to ~$66M vs Reuters $80.4M; FC $80.6M. Extreme shares are trading down 13% in the pre-market.

CHK (27.50): Chesapeake Energy downgraded to underperform from neutral at Credit Suisse: Target is $24. Firm notes valuation and risks to growth from light hedges and a potential loss of flexibility.

EMC (17.00): EMC reiterated overweight at Barclays after checks: Firm says their checks indicate that EMC is benefiting from a new product cycle and stronger storage demand in general. Barclays continues to believe that EMC is one of the primary beneficiaries of the "Utilization Era" with exposure to cloud computing, storage efficiency, server virtualization and desktop virtualization trends.