Tip of the day: Start writing a journal after your trading days, good things you did, things you need to improve, aspects you want to research etc.
The journal helps do a couple of things, put a closure to your trading day and serves as help for your future trading.
Barchart.com U.S. Morning Call for Monday, November 13, 2006 Overnight Global News
- US Q3 earnings – Q3 earnings season is winding down with only 19 of the S&P 500 companies due to release earnings this week. Q3 earnings performance has been very strong at +19.0% y/y, which is much stronger than market expectations of +14.0% as recently as October 1, according to Thomson First Call. Of the companies that have reported so far in Q3, 73% of those companies reported earnings above expectations, which is 13 percentage points better than the usual number of 60% of companies that report better than expected earnings. In addition, the upside earnings surprise has averaged 6.5%, which is above the 3.8% average. The question going forward is whether US companies can put in a better than expected performance again in Q4, thus providing a catalyst for continued stock market gains. The market consensus currently calls for Q4 earnings growth to fall by nearly half to the single-digit level of +9.8%, and then ease further to +9.0% in Q1 and +6.9% in Q2.
- China's Oct CPI eased to +1.4% y/y from Sep's +1.5%, which was weaker than the market consensus for a rise to +1.6% y/y. The decline in China's CPI was tied to lower energy and food prices and excess capacity in some industries. The subdued CPI reduces the chances for another rate hike by the Chinese central bank before year-end.
Overnight U.S. Stock News - Dec S&Ps this morning are trading +0.10 points. The US stock market last Friday closed slightly higher (Dow +0.04%, S&P 500 +0.19%, Nasdaq Composite +0.58%). The US stock market is consolidating below the recent highs, which were posted on the very strong Q3 earnings season. The stock market is now trading mainly on oil prices, T-note prices, and early assessments of whether Q4 earnings will be stronger than expected as were Q3 earnings.
- Tyson Foods is due to report fiscal-Q4 earnings before today's opening and is expected to report another loss (-3.6 cent analyst consensus). Tyson was battered last year by a backup in chicken exports due to bird flu in Asia and is now grappling with the sharp corn rally and higher feed prices.
- GE is up +0.3% in European trading this morning after Citigroup put GE on its Recommended List since the Citigroup analysts, though concerned about the overall capital goods industry's performance, said that GE is not as cyclical as Caterpillar or Honeywell. Citigroup also added Intel and Office Depot to its list of favorite stocks. Citigroup removed McDonalds, Honeywell, Johnson & Johnson, and Wyeth from its Recommended List. Citigroup raised its rating to "overweight" from "market weight" on US large-cap retail and semiconductor stocks, and cut their rating to "market weight" for consumer staple retailers and biotech stocks citing "valuations and earnings revision concern."
- Motorola is up +0.6% in European trading this morning after news that it received a $1.6 billion order for telephone handsets from China Telling Communications, a Chinese phone distributor.
- IBM is down -0.2% in European trading after news that IBM will join Citigroup's $3 billion bid for China's Guangdong Development Bank and buy up to 5% of the Chinese bank.
- Chevron is lower this morning by -0.5% on the continued sell-off in oil prices this morning, which added to last Friday's sharp -$1.57 decline.
- Lockheed Martin (LMT) and Boeing (BA) may see some strength this morning after the New York Times carried a story saying that US arms sellers doubled their sales to overseas governments after the US loosened up its overseas arms bans. The story said that arms sales contracts totaled $21 billion in the year through September, versus $10.6 billion in the year-earlier period.
- MasterCard (MA) rallied 4% in after-hours trading after Jim Cramer on his "Mad Money" show recommended the stock.
- New York Times Co (NYT) today may show some strength on a weekend Barron's story saying that the company is worth about $35 per share based just on its assets.
- Whole Foods Market (WFMI) may see some support today from a weekend Barron's article saying that the company may rally to $60 within 18 months after getting over recent same-store sales disappointments. Whole Foods on Friday closed +27 cents at $48.97.
- Wynn Resorts (WYNN) today may benefit from a weekend Barron's story saying that Steve Wynn's gaming company may rally to $140 on revenue from the company's Macau casino, citing a T Rowe Price analyst. Wynn on Friday closed +$3.39 at $82.19.
Today's U.S. Market Focus - This week’s key US economic news includes Tuesday’s Oct PPI report (expected -0.6% m/m overall and +0.1% core), Tuesday’s Oct retail sales report (expected -0.4% overall and -0.2% ex-autos), Wednesday’s Oct 24 FOMC meeting minutes which will contain the latest Fed comments on inflation, Thursday’s Oct CPI report (expected -0.3% overall and +0.2% core), Thursday’s Oct industrial production report (expected +0.3%), and Friday’s Oct housing starts report (expected -5.5%).
- Fed policy - Expectations for Fed policy last week eased a bit for the time horizon beyond spring 2007. The market is still anticipating no change in Fed policy at the next two FOMC meetings on Dec 12 and Jan 30-31. However, the market is now fully discounting a 25 bp rate cut to 5.00% by June, and a 50% chance of a further 25 bp cut to 4.75% by September. The Oct unemployment report released on Oct 3 doused talk about a recession and the market is now discounting GDP growth in the low to mid 2% area through next year.
- The focus in the US credit market this week will be on the Oct CPI and PPI reports which are expected to show declines in headline inflation due to lower oil prices. However, the question is whether core inflation can stabilize and start to move lower in coming months as well. The minutes from the Sep 20 FOMC meeting said that FOMC members saw a “substantial risk” that core inflation might not decline as they expect. As long as core inflation is stuck near the current high levels (Sep core CPI +2.9%, Sep core PCE deflator +2.4%), the Fed cannot even consider easing monetary policy in response to lackluster US GDP growth in the low to mid 2% area.
- Dec T-note prices this morning are trading +3 ticks as the market looks ahead this week to weaker retail sales and inflation reports. Dec T-note prices last Friday extended last week's post-election rally to post a new 6-session high and close +7 ticks. Bullish factors last week included foreign demand for US Treasury securities plus the Democrats' election victory which will purportedly result in a lower budget deficit via no tax cuts and curbs on Bush's spending policies.
- The dollar this morning is trading slightly higher (dollar/yen +0.21 yen; euro/dollar -0.06 cents) The dollar index last Friday posted a 2-1/2 month low but then recovered to close just mildly lower. The dollar fell late last week mainly because of indications China is planning to expand its dollar reserve diversification program. China has most of its $1 trillion reserves in dollars, and diversification would clearly benefit the euro and other currencies such as the British pound, the yen and the Australian dollar.
- Dec crude oil prices this morning are trading -67 cents as the market continues to fret about warm weather in the US and weaker demand. Dec crude oil prices last Friday fell sharply and closed -$1.57 per barrel. Bearish factors included IEA's third straight monthly cut its global demand estimate for crude oil (mainly due to slower consumption from China) and the prospects for continued warm weather in the US. Prior to last Friday's sell-off, crude oil and the products moved higher on last Wednesday's sharp -0.8 point drop in the refinery operating rate to 88.1%, which suggested that inventories will be trimmed for gasoline and heating oil.
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