Markets to Open Lower - More Earnings in Focus, Swine Flu and GM Restructuring

April 27, 2009 – The futures are indicating sharply lower openings this morning ahead of another busy week of earnings, and on amidst concern about a deadly swine flu outbreak in Mexico that poses a global threat, and a threat to derail a global economic recovery.

In addition to the new concerns about the impact of the swine flu on global markets, and earnings reports, focus will also be on this week’s line-up of economic data:

Tomorrow we will get the consumer confidence data for April  and the S&P CaseSchiller Home Price Index for February. On Wednesday, we will get the advanced GDP number for Q1, the weekly crude inventories report and the FOMC rate decision. On Thursday, we will get weekly jobless claims, personal income and spending data for March, the employment cost index for Q1, and the Chicago PMI for April. Then on Friday, we will get the University of Michigan’s revised consumer confidence report for April, factory orders for March, the ISM index for April and auto sales for April.

So this week there is no shortage of data to influence the mood on the Street.

This morning the dollar is slightly stronger against the euro, largely on expectations that the European Central Bank will lower interest rates at its meeting next month. The euro is trading at $1.3104 relative to the dollar. Gold prices are down $0.90 at $913.20, but have strengthened considerably lately. Oil prices are drifting downward by $2.43 to $49.01 as concerns increase about the depth and breadth of the global economic recession and its impact on oil demand. Increased output by non-OPEC producers has left the market oversupplied by about 720,000 barrels per day, according to Algeria’s oil minister.

On the corporate front,

·         Automotive Sector – GM (NYSE:GM) is cutting 21,000 factory jobs, and is phasing out the Pontiac brand, and it offering 225 shares of common stock for every $1,000 in notes held by bondholders – a conversion price of $4.44, or about $2.75 over Friday’s closing stock price (a premium of 162%), which is not too compelling.  

·         Health Insurance Sector – Humana (NYSE:HUM) reported an 11% increase in Q1 revenues to $7.71 billion, with earnings of $205.7 million, or $1.22 per share, compared with a profit of $80.2 million for the same period last year. Expectations were for a profit of $1.18 per share on $7.65 billion in revenues. Management increased FY earnings expectations to a range of $6.10 to $6.20.

·         Pharmaceutical Sector – Some of these companies (Roche and GlaxoSmithKline) which manufacture anti-viral drugs that would deal with the swine flu may see some strength.  

·         Travel & Hospitality Sector – Look for weakness in the sector today on concerns about the impact of the swine flu in Mexico.  

·         Telecommunications Sector – Verizon (NYSE:VZ) reported a 12% Y/Y increase in Q1 revenue to $26.59 billion, earning $3.21 billion, or $0.58 per share compared with $3.05 billion for the same period last year. Expectations were for earnings of $0.59 per share on revenue of $26.32 billion.  

In international markets, Poland’s jobless rate hit 11.2% in March. In Germany, consumer confidence held for May, according to the GfK’s index at 2.5 points. In Japan, the Cabinet said its economy is likely to contract by 3.3% this fiscal year, the worst since the World War II.

In terms of what we expect in today’s session, we expect downward pressure throughout. Look for support to get tested at the 7,840 level in the next day or two on the DJIA, and 832 on the S&P 500. A break of that support level could take the DJIA back to the 7,520 level and the S&P 500 back to the 787 level.

Wit, Wisdom, Fools and Folly

Marc Faber, who we think is an important fellow to listen to, told Bloomberg this morning that he sees a correction in the range of the November lows on tap and that the money printing around the world, and lower interest rates will weigh on the markets. He said that the worse things get the ‘money printer at the Fed’ (Bernanke) will just print more money. Under any negative scenario, the current Fed and banks around the world will be inclined to print more money.