Markets To Slightly Lower Ahead of Manufacturing and Construction Data

November 3, 2008 – The futures are indicating lower openings this morning on the heels of the first back-to-back gains in the markets in more than a month, and amidst declining overnight rates. Libor fell to 2.86% for three-month dollar loans, down from 3.03% on Friday, and the lowest level since September 17.

In terms of economic data on tap, the Institute of Supply Management will provide some insight into the manufacturing sector in October, which is expected to show contraction in September. And the Commerce Department is expected to report that construction spending slowed by 0.8% in September. We will also get a look at vehicles sales data for October, which are expected to come in less than 1 million sold.

On the international front, stocks closed higher overnight as expectations mount that the European Central Bank and Bank of England will cut rates this week. The European Commission forecast this morning that the economy in the euro zone will grow just 0.1% next year, and it expects unemployment to climb to 8.4%. Spain’s jobless rate is expected to increase to 15.5% in 2010 from 10.8% this year. China’s Federation of Logistics and Purchasing said its purchasing managers’ index fell to 44.6% in October, the lowest level since the survey began in 2005. China’s stock market closed at its lowest level on Monday in 26 months. The WTO is hosting a meeting amongst the world’s top bank leaders to discuss ways to finance global trade. Russia’s president Medvedev is pointing fingers this morning at the U.S., blaming it for the global financial crisis.

The euro is stronger this morning against the dollar, at 1.2815 on the heels of last week’s rate cut, but still well off its highs against the dollar which were closer to 1.50. Our outlook for the dollar remains bearish in light of the massive amount of debt the Fed and Treasuring have piled on lately, and its most recent rate cuts. Oil prices are $0.62 lower to $67.19 per barrel this morning. We expect that OPEC will step back in sooner than later to cut production further in an effort to boost prices back higher. Gold prices are up $17.10 this morning to $735.30. Gold has been the victim of deflation in the commodities markets lately, losing its status, at least temporarily of ‘safe-haven’ to the dollar, ironically enough.

On the corporate front,

·         PepsiCo (NYSE:PEP) said it is going to invest more than $1 billion in China in the next 4 years to expand its manufacturing resources and sales;

·         UltraLife Batteries (Nasdaq:ULBI) said it intends to purchase U.S. Energy Systems for $2.85 million in cash and a performance-based equity incentive payable in an amount of 200,000 unregistered shares of ULBI common stock based on milestones being hit over 4 years. The acquisition is expected to be accretive, according to management, in the Q1 of 2009;

·         ReneSola (NYSE:SOL) raised its Q3 2008 guidance to a range of $210 to $220 million, and estimates production output guidance to a range of 100MW to 103MW, compared to previously issued guidance of 90MW to 95MW. It also said it secured additional credit lines of approximately RMB 2.8 billion in aggregate. It said has recently completed and commissioned 90MW of multicrystalline ingot and wafer capacity and 35MW of monocrystalline ingot and wafer capacity on schedule, bringing its annualized monocrystalline ingot and wafer production capacity to 325MW and annualized multicrystalline ingot and wafer production capacity to 250MW. It expects to achieve capacity expansion to 645MW in annualized ingot production capacity and 585MW in annualized wafer production capacity by the end of 2008;

·         VeraSun (NYSE:VSE) launched a CH11 petition for relief to enhance liquidity while it reorganizes. It intends to resume normal operations after it as “taken steps to ensure continued supply of product to its customers and to fulfill all customer obligations.”

In terms of what we expect in today’s session, we think the markets will trade with light volume and will test negative territory at some point this morning, ahead of tomorrow’s election. There just aren’t any catalysts in place to justify tacking on a third day in a row of gains.

Fast Facts

The number of government-backed loans for small businesses fell by 30% in 2008 as owners struggled with tighter credit and a shaky economy, US Small Business Administration reported. The total value of loans fell 13% to $17.96 bln, while average loan size rose by $41,000 to $183,000.

Channel Checks

IDC reported that: Worldwide PC microprocessor shipments in the third calendar quarter of 2008 (3Q08) reached record levels again, according to new data from IDC. However, the outlook for the processor market in 4Q08 and 2009 is very murky.

Worldwide PC processor unit shipments grew 14.0% quarter over quarter (QoQ) and 15.8% year over year (YoY); market revenue grew 7.6% QoQ and 4.1% YoY to $8.3 billion. Intel's new Atom processor for ultra low-cost mobile PCs (which Intel calls "Netbooks") made a notable difference in the overall market performance; without Atom, unit shipments grew 8.3% QoQ and 8.7% YoY.

Quotes of the Day

Jim Rogers on Bloomberg – On the financial crisis, “All you have to close the Federal Reserve and the crisis takes care of itself.” He said he doesn’t know of any American politician that can resolve the problem. He said they don’t understand the economics. He said Bernanke doesn’t understand. He said Paulson has been dead wrong time and again. So “why do you listen to these people.”