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Commodity Trading Discussion Forum

Morning Watch, May 7

Posted By: USCoralSea
Date: Thursday, 8 May 2008, at 6:24 a.m.

Jody Osborne, Optionetics.com
May 7, 2008

Futures point to slightly lower open despite better than expected earnings from Cisco (CSCO). News that Sprint Nextel (S) and Clearwire (CLWR) will form a new broadband company is a positive, but comments from a Fed leader have put a damper on sentiment. Economic news will be important Wednesday as well with data on productivity and costs as well as pending home sales on tap.

Sprint Nextel and Clearwire announced that they will merge their wireless broadband businesses to create a new mobile broadband company. The value of the deal is estimated at $14.5 billion with Sprint owning 51 percent of the company and existing shareholders of Clearwire getting a 27 percent interest. The investing companies, which include Intel (INTC), Google (GOOG), Comcast (CMCSA) and Time Warner (TWC), will receive the remaining 22 percent. Shares of S are up more than five percent in pre-market trading with rising more than 11 percent.

In earnings news, Cisco reported better than expected results for its fiscal third quarter, but the stock looks to open flat Wednesday. Though the networking giant beat earnings per share estimates by 2-cents, the company took a cautious outlook and this has kept the bulls as bay. Shares of Disney (DIS) are rising however in pre-market trading, up more than two percent after a strong earnings release last night. Ironically, despite a tough economy, Disney stated that its movie studio did well and attendance at theme parks was strong.

Part of the reason for lower futures Wednesday has to do with comments made by Fed President Hoenig. The Kansas City Fed President stated that inflation is troublesome and a serious matter and could damage the economy down the road. Mr. Hoenig’s comments suggested that he is not in favor of further rate cuts, though he is not a voting member of the FOMC. However, the fact remains that many Fed leaders are now starting to be more concerned with pricing pressures than an economic slowdown and this could lead to rate hikes sooner rather than later.

Crude prices will get plenty of attention today following another record close on Tuesday. Oil inventory data for the latest week is on tap this morning and could impact crude prices. Many things have combined to push energy prices higher, including a falling dollar and concerns about supply due to unrest in several regions of the world. On Tuesday, June crude contracts closed at $121.84 a barrel.

Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site

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