Markets are down somewhat this morning ahead of two very critical events over the next 24 hours.
1. Alcoa reports earnings today after the close.
2. Tomorrow morning we will get the Nonfarm Payroll Number for September.
With virtually the entire market fixated on how soon the Fed will launch QE2, tomorrow's NFP number will be a critical factor for determing the market's direction over the coming weeks. The consensus is for no change in jobs on the aggregate from the prior month, but with jobs coming from the private sector to see an increase of 74K, with the unemployment rate to tick up 0.01% to 9.7%.
What is going to be fascinating however, is seeing how the market reacts to this number. If the report is better than expected, will the market necessarily have to sell-off on good news? Surely a good number must be read as a mitigating factor against the current Goldman Sachs (and therefore market consensus) expectation of a Nov. 3rd launch of QE2.
If the number is bad, we will likely rally through Dow 11,000 as it will be assured that Bernanke will officially declare war on the middle class on election day.
If the number is in-line, then we will likely trade off of Alcoa's numbers from this afternoon.
Alcoa is expected to report EPS of $0.05 on revenue of $4.95B. The consensus ranges are $0.01-$0.12 and $4.52B-$5.36B. The stock has risen from $10 to $12 in September. With the stock already up 20%, investors appear nervous heading into earnings with good news already somewhat priced-in, AA trading down $0.14 or 1.21% at the time of this writing. Also creating anxiety is an article on Bloomberg this morning which notes that Alcoa's profits may drop 20% as the weak dollar offsets the higher realized spot aluminum prices. Alcoa's revenue is in USD but pays costs in its non-US operations in local currencies. The largest source of revenue after the US is Australia, whose currency is up 14% against the USD this quarter alone. Alcoa also has sizable operations in Brazil, and the real has climbed 7% this quarter (Thanks BB!)
Speaking of AA, they can also thank the Fed for its extraordinary intervention. They've got $2.96 billion in debt maturing by 2013 on which they're paying a weighted average of 620 bps, and they're carrying only $1.36b in cash, and unlevered operating cash flow is roughly $1.8b. So, guess who gets to roll 10 year paper at 5.6% even as the spread has widened 200+ bps in the last few years!
ReplyDelete