TM Toyota Motor Corporation

Wednesday, January 4, 2012

Stock market action will likely be mixed today following the enthusiastic start to the New Year on Tuesday when slew of domestic and international reports pushed the market higher. Not only is the domestic economic calendar on the quieter side today, with November Factory Orders and December Auto Sales as the only releases on tap, but Europe-related headlines are also making a comeback this morning. Rising bond yields in Spain and new questions about Hungary (not a Euro-zone member) are a reminder to investors that Europe will remain as important an issue in the New Year as it was 2011.

Unconfirmed reports from a Spanish newspaper indicate that the country’s new elected government is thinking of applying for loans from the European Union rescue fund (the EFSF) and the IMF to fund the planned restructuring of the country’s distressed banking sector. The inadequate size of the EFSF has long been a source of concern in the market, particularly relative to the feared needs of the Spanish and Italian economies. Confirmation of this report will likely put a spotlight all over again on those concerns.

Separately, the Hungarian currency is under pressure today, falling to its all-time lowest level against the Euro, following concerns about legislative changes curtailing the autonomy of the country’s central bank. This action will have a negative impact on Hungary’s ability to receive aid from the IMF and the EU. Switzerland and EU member countries are the largest holders of Hungarian government bonds.

A host of domestic labor market reports the rest of this week will push these international concerns to the background. Ahead of Friday’s all-important non-farm payroll report for December, we will get the ADP and Jobless Claims readings on Thursday. The employment component of Thursday’s non-manufacturing ISM survey will also give us a feel for the Friday jobs reading.

In corporate news, shares of TiVo (TIVO) will be in focus after the company announced settlement of pending patent litigation with AT&T (T), where it will receive $164 million in recurring payments through 2018. In other news, Acme Packet (APKT), the maker of networking equipment, provided a weaker than expected outlook for the fourth quarter. We will also be getting December auto sales numbers from General Motors (GM), and Ford (F), Toyota (TM) and other automakers. It will be interesting to see the impact that the recent strength in Yen will have on Toyota's monthly sales numbers.

Sheraz Mian
Director of Research

 
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