MarketView for November 11

 

 

Summary  

  

The Dow Jones industrial average and the S&P 500 indexes hit at 13-month high on Wednesday as an upbeat forecast from a top homebuilder and data from China pointed toward a strengthening global economy. The Dow's advance was its sixth straight as comments from top Federal Reserve officials suggesting low interest rates will stay for some time added to the positive tone. Shares of Wal-Mart were up 1.3 percent at $52.97 and gave the biggest lift to the Dow.

 

Toll Brothers late Tuesday offered up a revenue forecast that was better than expected. As a result, Toll saw its shares end the day up 16.4 percent to close at $21.41. At the same time, data released prior to the opening bell indicated that Chinese factory output rose to a 19-month high in October. Investors bet the data heralded growing demand in the world's third-largest economy.

 

After the closing bell, 3Com rose 34 percent to $7.64 on the news that Hewlett-Packard had agreed to buy the company for $2.7 billion. The Hewlett-Packard announcement could give investors reason to extend the stock market's gains.

 

Volume was light due to the Veterans Day holiday. Federal offices and the bond market closed for the day. Fed comments from Tuesday that the economic recovery would be bumpy bolstered the view that rates will stay low and economic stimulus will remain intact, a boon for stocks. Dragging on the market, Macy's fell 8.1 percent to $17.86 after the company offered up a relatively poor outlook on same-store sales for the fourth quarter.

 

In after hours trading, Applied Materials rose 2.1 percent to $13.53 after the company reported quarterly results.

 

Geithner Looks To A Stronger Dollar

 

Treasury Secretary Timothy Geithner said on Wednesday he believes strongly in the need to maintain a strong dollar and said the government was determined to reduce its budget deficit. The dollar's decline has been a source of concern in the export-heavy region, especially since top exporter China keeps its currency's value closely managed against the dollar and so felt less impact on prices for its exports than other Asian nations that let their currencies float freely.

 

The dollar index, which measures the dollar's value against a basket of six major currencies, has fallen 7.6 percent this year and hit a 15-month low of 74.889 on Wednesday. Geithner said the United States was well aware it must work to keep investors' confidence in its. economic policymaking.

 

"We bear a special responsibility for trying to make sure that we are implementing policies in the United States that will sustain confidence ... in investors around the world that as growth recovers and growth strengthens that we're going to bring our fiscal position back to a sustainable balance," he said.

 

The budget deficit hit a record $1.4 trillion in the fiscal year that ended on September 30 and is expected to be about the same this fiscal year.

 

In an interview on Wednesday, Geithner said that while the economy was growing again, the recovery was still in the very early stages. "It's a very early stage of recovery, again this is a very tough economy," Geithner said. "Unemployment is really very, very high, exceptionally higher in the United States. It's still rising. It's probably going to rise for a bit longer, until you see a longer period of growth take hold."

 

Geithner said he was encouraged by Tokyo's commitment to shift its policy toward growth that comes from more spending at home rather than from selling abroad -- a policy that the Obama administration is encouraging throughout Asia.

 

"Both the (finance) minister and the prime minister made it clear at the very beginning of our conversations that the basic objective of economic policy here is to make sure that future growth comes more from domestic demand," he said.

 

Geithner said the reality was that if a still-struggling recovery was to be turned into sustainable future growth "it will have to be less driven by the U.S. consumer" because heavy levels of debt were forcing American consumers to save more.

 

Geithner cited signs of stabilization in the global economy but said it still needed the stimulus that governments around the world have poured in to foster stronger growth.

 

"We're at a point now where I think we all recognize that although the world economy is now growing again, you don't yet have all the conditions for a self-sustaining recovery led by the private sector," he said.

 

"It's going to take continued, carefully designed support from government policy as a bridge to that recovery," Geithner added. "It's too early on a global basis to see people shift to restraint."

 

In response to repeated questions about China's policy of closely managing the exchange rate for its yuan currency, Geithner credited China with helping get the global economy out of crisis and welcomed Beijing's commitment to adopt a more flexible currency over time.

 

"China has an excellent record of delivering on broad policy objectives," Geithner said. But he said a more flexible currency was only part of "a very complicated mix of policy changes" Beijing was attempting, which he said show encouraging signs of boosting domestic demand-led growth in the world's No.3 economy.

 

Crude Chalks up Small Gain

 

Oil prices rose slightly on Wednesday as the market weighed a rebound in the dollar against data showing strong demand growth from China. Sweet domestic crude futures for November delivery settled up 23 cents per barrel at $79.28, after hitting $80 earlier in the day. Brent crude futures settled up 45 cents per barrel at $77.95.

 

Data from China on Wednesday showed crude imports hit the second-highest level in October, signaling that oil demand continues a gradual revival from a sharp slowdown in late 2008 and early this year.

 

Money moves into oil and other commodities when economic data indicates a rebound that could spur fuel demand. Oil prices have also felt pressure when funds retreat into safer havens, such as the dollar.

 

Further weakness came as oil and natural gas companies restored operations shut down due to Tropical Storm Ida earlier in the week in the Gulf of Mexico. The Minerals Management Service reported 31 percent of Gulf of Mexico oil production and nearly 8 percent of natural gas output remained off line on Wednesday.

 

OPEC raised its forecast for world oil demand growth slightly, but added that fuel consumption may not return to levels seen before the global economic slowdown. Data from the American Petroleum Institute released late Tuesday indicated a larger-than-expected increase in domestic crude oil stockpiles during the week to November 6, as well as gains in gasoline and distillate inventories. Inventory data from the Energy Information Administration is being delayed by one day until Thursday due to the U.S. Veteran's Day holiday.

 

In Europe, crude oil inventories rose in October as refiners reduced operation rates to match falling demand.

 

Oil n floating storage reached 90.3 million barrels and now exceeds total daily oil consumption on a global scale. The move was an upward revision of nearly 15 million barrels from the previous estimate of 76 million barrels at the end of October.

 

Hewlett-Packard Acquires 3Com

 

Hewlett-Packard has agreed to acquire network equipment manufacturer 3Com for $2.7 billion to step up competition against Cisco Systems and expand into China. HP said it would pay $7.90 per share for 3Com, or a premium of 39 percent over its Wednesday closing price on Nasdaq.

 

The move comes amid a flurry of acquisitions by Cisco and other technology vendors trying to broaden their product portfolios and provide a one-stop shop for computing, networking and storage equipment.

 

3Com, which has a large presence in China, has been pushing into the large enterprise market outside that country with its H3C brand, trying to take on giants like Cisco. The company has been an acquisition target before. In 2008, Bain Capital Partners and China's Huawei Technologies tried to buy 3Com for $2.2 billion but failed to win approval from a U.S. government security panel. Huawei is a privately held company set up by a former Chinese army officer.

 

In acquiring 3Com, HP will be competing head to head with Cisco in the networking equipment market. Cisco recently entered the server market, where HP is strong.

 

The terms of the deal were approved by the HP and 3Com boards of directors, but still need shareholder approval. The deal is expected to close in the first half of 2010.

 

HP also reported preliminary quarterly profit and revenue exceeding Street expectations and raised its outlook for fiscal 2010. 3Com shares jumped 35 percent to $7.66 in after-hours trading. HP shares edged 0.4 percent lower to $49.80.