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Having briefly scanned the dataflow Friday before checking out the price action, your writer had thought he may be confronted with somewhat softer markets. Wrong. Rather, a combination of slightly weaker than expected GDP growth in Europe and a wider trade deficit and decline in consumer confidence in the US seems to have been trumped by a decent earnings report from Walt Disney (NYSE:DIS) and upped Christmas guidance from JC Penney (NYSE:JCP). Indeed, in the US, consumer cyclicals led the way with a 1.5% gain, versus a 0.6% gain for the S&P 500. Commodity markets were mixed. The most notable features were a new closing high for gold and another sharp jump in the Baltic Dry Freight Index. The latter is now at its highest level this year, with strong Chinese demand for core and iron ore, port congestion in China and Australia and generally tight ship availability.

Indeed, there is a toy called a “Weeble,” shaped more or less like an egg with a weight at the bottom so that no matter how hard or frequently you try to knock it down, it always bounces back. Risk appetite, it feels, is the market’s Weeble of the moment. As often as it is knocked over by a nugget of bad news, concerns over risk asset valuation or the vagaries of chartists, risk appetite comes bouncing back. The “weight” which ensures the bounce back is a combination of the ongoing improvement in the global economy and the power of the trend. Occasional disappointments on the data front have simply not got the power to force a change in attitude toward risk so long as the trend remains your friend. Monday this argument has been reinforced by yet more dodgy real world data with US retail sales ex autos disappointing at 0.2% versus the 0.4% expected, and the Empire manufacturing survey slipping to 23.51 against a forecast of 30. Yet the market just keeps on rallying.

US stocks in the news Monday include bookseller Barnes and Noble (NYSE:BKS) as a private equity firm has raised their stake to 17% and Citigroup (NYSE:C) after the legendary Paulsen & Co. picked up 300 million shares. A story in Barron’s sees value in Exxon Mobil (NYSE:XOM) and suggests that the stock may reach $90 next year, while they view FedEx (NYSE:FDX) as good punt and say the shares may rise to $100. Retailer Lowe’s (NYSE:LOW) had a slight miss on EPS and may see some selling. Staying with retail, Nordstrom (NYSE:JWN) should be supported by a Goldman Sachs “buy” recommendation today. I’d expect Barrick Gold (NYSE:ABX), Alcoa (NYSE:AA), Newmont Mining (NYSE:NEM), etc all to be bid Monday on the moves in basic resources stocks. Intel (NASDAQ:INTC) raised their quarterly dividend by 12.5% to 15.75c and Sprint Nextel (NYSE:S) has leapt 8% on an upgrade at Credit Suisse. Builder Toll Bros. (NYSE:TOL) may also be active after analysts at Citibank raised their price target to $25.

Glass Half Full Or Empty

Today’s Market Moving Stories

  • Concern on dilution, which was heightened by a series of public offering announcements in Japan (Mitsubishi (OTCPK:MSBHY) was off 5.5% on a newspaper report of a $11.2 rights issue), may have been the reason behind the Nikkei’s underperformance overnight despite the much-stronger-than-consensus Japan’s 3Q GDP. Although Japan’s 3Q headline GDP was much stronger than consensus (1.2% quarter-over-quarter vs 0.7% expected), this was mainly due to a significant upward surprise to inventory. The implication for the economic outlook is not necessarily positive. On the negative sign, the domestic demand deflator fell 2.6%, the largest drop in 51 years.
  • The APEC meeting saw a good deal of talk about the next Fed-fuelled bubble, where the near zero-rate policy and weak dollar create imbalances in other parts of the world, and Asia in particular. Hong Kong’s Tsang Said that, “America is doing exactly what Japan did last time,” adding that Japan’s zero interest rate policy contributed to the 1997 Asian financial crisis and US mortgage meltdown. We have a US dollar Carry Trade at the moment. Where is the money going? It’s where the problem’s going to be: Asia. You can see asset prices going up, not only in Korea but in Taiwan, in Singapore and in Hong Kong, to levels that are incompatible or inconsistent with the economic fundamentals.
  • Liu Mingkang, China’s chief banking regulator accused US of fuelling ‘huge carry trade’ through the combination of a weak dollar and low Interest Rates that was having a “massive impact on global asset prices”.
  • Meanwhile World Bank President Richard Zoellick said that the US has a limited ability to halt the dollar’s decline. He also expressed concern that the global stimulus, especially the flood of liquidity pumped out by Central Banks, could create asset bubbles. “The increased liquidity could lead to inflation, such as in commodities. Asset bubbles “could undermine confidence in 2010,” Zoellick said.
  • The State Information Center states that the Chinese economy is expected to grow by 8.5% next year while inflation will be subdued at about 2.5%, indicating that monetary policy should remain appropriately loose to solidify the basis of the recovery.
  • Chicago Fed’s Evans said that “inflation is under-running and the economy is underperforming, so an accommodative policy is likely to continue to be appropriate, I would say well into 2010, most likely beyond.” Turning to growth, the US economy is likely to grow by “roughly 3% over the next 18 months. That’s positive but modest.”
  • Berties BookEuropean new car registration bounced back 11.2% in October on a revival of demand in Spain and the UK. Peugeot (OTCPK:PEUGY) was up 4% on the news and Daimler (DCX) popped 4.5% after a story that Ad Dhabi’s Aabar is in talks to raise their stake from 9% to 15%.
  • The Invest Property Databank disclosed late on Friday that its benchmark index rose by 1.9% in October, the largest rise for nearly four years. This is the third consecutive monthly rise, taking the increase in the index to 3.2% over the last three months. Putting this into perspective, the market had fallen over 44% in the previous 25 months since June 2007. This more positive trend is expected to be reflected in pronouncements from British Land and Land Securities.
  • In the UK, the Rightmove Nov. House Price Index fell -1.6% month-over-month, +1.6% year-over-year, in line with the traditional Christmas slowdown. Rightmove said it was typical seasonal behaviour for house prices to fall and activity to slow in the run-up to Christmas.
  • A few negative stories on the UK economy in the press Monday morning with the BCC reporting that an increasing number of small and medium sized businesses are finding it difficult to obtain financing, with 33% of businesses saying it had become more difficult to secure credit in the past three months compared with 20% in June. A joint survey on employment trends by the CBI and Harvey Nash reported that half of British companies are planning to freeze pay in 2010.
  • In FX markets, GBP weakness is this morning’s theme with market commentary catching on to the idea that a large majority for the UK government after the next election is by no means a done deal. A hung parliament would be a disaster for the pound.

Holiday Season Approaches
US Thanksgiving on November 26 marks the official start of the holiday shopping season. While the relative importance of holiday sales for the entire industry has been shrinking over the past decade, they still account for almost 19% of annual sales. The National Retail Federation, NRF, projects 2009 holiday sales to be 1% lower than in 2008. Last year, sales slumped already 3.4%. Even Wal-Mart (NYSE:WMT), who has benefited in recent months from households looking for bargains, said it expected its holiday sales to be largely unchanged from last year. This benign outlook for the upcoming months will also be a drag on the labor market. Seasonal factors “expect” retailers to hire a total of 500k to 550k additional workers for the holiday season in November and December. Given the retailers’ expectations of flat or shrinking holiday sales, those numbers are unlikely to be reached. In 2008, for example, there were only 231k holiday hires. A similar number this year would mean that Nonfarm Payrolls in November and December will be reduced by a total of about 250k to 300k. By the end of the year, the gradual underlying improvement in the labor market, as signaled by lower initial jobless claims, will therefore be masked by below-average holiday hires.

Company News

  • Basic resource stocks (think the usual suspects BHP Billiton (NYSE:BHP), Rio Tinto (RTP), Lonmin (OTCPK:LNMIY), Randgold (NASDAQ:GOLD)) are higher today as commodities advanced following on from the APEC junket at which they pledged to keep the punch bowl topped up.
  • UK homebuilding stocks were in demand, with Persimmon up 3% after numbers from the company showed more than £500 million of sales booked for next year, a 50% jump on the same period last year. Bellway is up almost 7%.
  • Vivendi (OTCPK:VIVEF), owner of the world’s biggest music company, can decide as soon as today to sell its 20% stake in NBC Universal, paving the way for General Electric (NYSE:GE) and Comcast (NASDAQ:CMCSA) to combine their media assets. Vivendi’s decision on its NBC Universal stake is key to a plan that would let GE gradually exit the media business, ceding it to the largest U.S. cable company Comcast. Vivendi announced on Friday evening that they had outbid Telefonica (NYSE:TEF) for GVT trumping Telefonica’s improved offer of 50.5 reais with a 56 reais offer. This will give Vivendi majority control. The Group is likely to fund the deal with the proceeds from the sale of their NBC Universal stake.
  • Hitachi (HIT), Japan’s fourth-largest company by sales, plans to raise as much as $4.6 billion selling stock and convertible bonds to replenish capital after posting a record loss last year. The shares fell the most in six months.
  • Samsung (OTC:SSNLF), the world’s largest television maker, raised its flat panel TV shipment target for this year by 15% to 30 million units. James Chung, a spokesman at Suwon, South Korea-based Samsung, didn’t give a breakdown between liquid-crystal display and plasma models. Samsung said earlier this year it plans to sell more than 22 million LCD TVs and 4 million plasma sets.
  • Danone (OTC:GDNNY) have announcement of a €1.25 billion bond buyback in order to reduce the average cost of its debt going forward. I strongly suggest that major acquisitions are now off the agenda for the moment.
  • On the DAX, ThyssenKrupp (OTCPK:TYEKF) is bid after news that it is selling its Safeway (NYSE:SWY) division to Odyssey to cut debt. The stock was also upgraded by JP Morgan to “overweight”.
  • Kingspan’s (OTC:KGSPF) IMS today covers trading since July 1st. The statement is generally along expected lines with four key themes: (1) operating profit for this year is forecast at c.€60 million, broadly in line with market forecasts; (2) but there is good news on debt reduction with year-end net debt forecast at around €190 million, comfortably better than analysts expectations; (3) there are signs of stabilisation in some areas, especially in the key insulation division; and (4) the group’s outlook comments remain cautious, especially in relation to non-residential markets in Central and Eastern Europe and North America. Non-residential activity in both regions is expected to continue to contract for some time.
  • General Motors will repay $6.7 billion of the $49.9 billion in aid it received from the US government starting next month, more than five years sooner than required. GM, the largest U.S. automaker, plans to make a payment of $1 billion a quarter, with the first instalment December 31. The Treasury Department is unlikely to recover all of the aid it provided, a congressional oversight panel said in a report September 9.
  • UK utility Centrica (OTCPK:CPYYY) is planning a £1 billion acquisition spree in North America. The company has a £1.5 billion war chest and takeover targets could include oil and gas exploration companies in western Canada and power stations in Texas.
  • Boots announced over the weekend that it is set to double its retail stores in Ireland over the next three years and is looking to boost its pharmacy operations via acquisition. Boots current has 55 stores in Ireland an increase from 36 three years ago and the group are now targeting 100 stores within the three year timeframe. Following this announcement, previous speculation surrounding the sale of United Drugs wholesale and distribution division in Ireland to Boots are sure to resurface.

And Finally… Ford Unveils New Car For Cash-Strapped Buyers

Disclosures: None