US & World Daily Markets Financial Briefing 01-03-2010

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Stocks Posting Moderate Gains Following Deluge Of Data

Stocks are showing moderate strength in mid-morning trading on Monday, as the markets are digesting a largely mixed batch of data. The major averages are all in positive territory, seeing an upward move following last week's pullback.

This morning, the Commerce Department reported that personal income edged up by 0.1 percent in January following a downwardly revised 0.3 percent increase in December. Economists had expected income to increase by 0.4 percent, matching the growth originally reported for the previous month.

Meanwhile, the report also showed that personal spending rose by 0.5 percent in January after rising by an upwardly revised 0.3 percent in the previous month. The increase exceeded economist estimates for 0.4 percent growth.

Shortly after the opening bell, the Institute for Supply Management said that its index of activity in the manufacturing sector fell to 56.5 in February from 58.4 in January, with a reading above 50 still indicating growth in the sector. Economists had been expecting the index to show a more modest decrease to a reading of 58.0.

Separately, the Commerce Department issued data showing that construction spending fell 0.6 percent to an annual rate of $884.1 billion in January from the revised December estimate of $889.6 billion. The drop in spending, which followed a 1.2 percent decrease in the previous month, matched the expectations of economists.

On the merger and acquisition front, German pharmaceutical and chemicals company Merck KgaA said Sunday that it has entered into an agreement to buy U.S.-based life science company Millipore Corp. (MIL) in a transaction valued at about $7.2 billion, including net debt.

Further, AIG (AIG) announced an agreement for the sale of its Asian operations to U.K. firm Prudential PLC (PUK) for approximately $35.5 billion. AIG noted that this transaction has been approved by the boards of both companies and is expected to close by the end of 2010.

The major averages have all seen some downside in recent trading, puling back off of their highs of the session. The Dow currently remains up 48.83 points or 0.5 percent at 10,374.09, the Nasdaq is up 20.74 points or 0.9 percent at 2,259.00 and the S&P 500 is up 5.62 points or 0.5 percent at 1,110.11.

Sector News

Biotechnology stocks are some of the morning's strongest performers, as reflected by the 4.8 percent gain being shown by the NYSE Arca Biotechnology Index. With the upward move, the index has reached a fresh historic intraday high.

OSI Pharmaceuticals (OSIP) is helping to lead the biotech sector higher after Astellas Pharma offered to acquire the company for $3.5 billion or $52 per share in cash. Millipore (MIL) is also posting a notable gain on its agreement to be acquired by Merck.

Electronic storage stocks are also seeing notable strength, driving the NYSE Arca Disk Drive Index up by 3.4 percent. The advance is helping the index to partially offset last week's pullback.

Semiconductor, health insurance, airline and defense stocks are also seeing strong buying interest, while banking stocks are under pressure, limiting the advance by the broader markets. The KBW Bank Index is down by 0.9 percent but remains rangebound.

Stocks Driven By Analyst Comments

Pentair (PNR) is on the rise in mid-morning trading after being upgraded at Piper Jaffray from Neutral to Overweight. The stock has gained 4.5 percent, climbing to a two-month intraday high.

Denbury Resources (DNR) is also moving higher following an upgraded at KeyBanc Capital Markets from Hold to Buy. Shares are currently up by 3.6 percent.

On the other hand, First Midwest Banc (FMBI) is retreating after a downgrade at Robert W. Baird from Outperform to Neutral. The stock is down by 4 percent, moving further off of last week's more than one-year closing high.

TSX May Open Higher As GDP Soars

Canadian stocks are likely to open higher Monday on encouraging economic data from both sides of the border. While Canada's fourth quarter GDP grew at 5%, a report from U.S. revealed that consumer spending rose more than expected. Also speculation that Greek will cut its budget deficit will likely help improve sentiment.

The U.S. stock futures also point to a strong opening. The S&P/TSX Composite Index ended flat, losing 1.81 points or 0.02% to 11,629.63 Friday.

The price of oil was edged up $0.22 to $79.88 a barrel, while gold eased $3 to $1,115 an ounce. Meanwhile, copper rose to its five-week high after a massive earthquake hampered production in Chile,

It could be an active day for financial stocks amid mixed news from the major financial companies. HSBC, Europe's biggest bank, reported $7.1 billion pretax profit for 2009, missing consensus estimates for a profit of $11 billion. Meanwhile, American International Group said it will sell its insurance arm, AIA Group, to Britain's Prudential Plc for $35.50 billion.

Potash stocks may be in play after U.S based Intrepid Potash said that its fourth quarter earnings plummeted 70% on pricing.

Integrated oil firm Talisman Energy signed an agreement with San Leon Energy of Poland to jointly develop the San Leon's gas shale assets in Poland.
 
Global mining company Rio Tinto said it will hike its stake in Ivanhoe Mines by 2.7% to 22.4% by pumping in as much as $233 million.

Telecommunications company Phonetime acquired all of the outstanding shares of Modern Digital Communications Inc., a telecom company based in Victoria, British Columbia for C$202,500 and 1 million common shares of Phonetime.

Gold and diamond explorer Etruscan Resources posted full year 2009 net loss of C$0.49 per hare, wider than C$0.34 per share in the prior year period.

In economic news, Statistics Canada reported that the country's Gross Domestic Product expanded a 5% annualized rate in the fourth quarter 2009, at a faster pace since the third quarter of 2000. This could put pressure on the policy maker to hike interest rates. Notably, Bank of Canada is scheduled to decide on interest rates tomorrow.

From the U.S. the Commerce Department said that personal spending rose by a better than expected 0.5% in January. However, incomes edged up only 0.1%, lower than the widely expected 0.4% gain.

Earlier, China said its purchasing managers index expanded at a lower rate in February presumably as result of the recent move by the government to curb lending to cool its overheating economy.

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Asian Markets End Higher On Optimism About Recovery

The markets across Asia ended in positive territory on Monday, the first trading for the week and month on expectation that uncertainty over Greece will be over later in the day. Higher commodity prices, especially copper, in the aftermath of the earthquake that hit Chile over the weekend, lifted resource stocks. The Indian and South Korean markets are closed for holiday.

In Japan, the benchmark Nikkei 225 Index rose 46.03 points, or 0.5%, to 10,172, while the broader Topix index of all First Section issues gained 4.83 points, or 0.5%, to 899.

On the economic front, a statement released by Japan Automobile Dealers Association revealed that auto sales in the country rose 35.1% in February on an annual basis, following 36.8% increase in the previous month. The statement noted that sales totaled 294,887 in February compared to 218,212 in the previous year. Toyota sold 146,145 units in February, up 47.9% from the previous year. At the same time, sales of Lexus-brand cars totaled 3,373.

Light sweet crude oil futures for April delivery ended at $80.21 a barrel in electronic trading, up $0.55 per barrel from previous close at $79.66 a barrel in New York on Friday.

Mining stocks gained following higher copper prices in the international market in the aftermath of the earthquake in Chile. Toyo Seikan Kaisha gained 1.52%, Sumitomo Metal Mining Co., advanced 1.11%, Dowa Holdings Corp. climbed 1.79%, Mitsui Mining & Smelting Co. rose 1.64%, Mitsubishi Materials Corp., added 0.43% and Sumitomo Electric Industries edged up 0.37%.
 
Trading companies also ended in positive territory. Mitsui & Co., gained 2.10%, Mitsubishi Corp. advanced 0.90%, Toyota Tsusho Corp. added 0.47%, Itochu Corp. rose 0.56%, Sumitomo Corp. edged up 0.21% and Marubeni Corp., increased 0.38%.

Banking stocks advanced after JP Morgan revised the outlook for the banking sector as a whole to "slightly bullish". Sumitomo Mitsui Financial gained 1.12%, Resona Holdings advanced 0.93%, Mizuho Financial surged up 3.49% and Mitsubishi UFJ Financial rose 1.56%.

Shipping stocks ended weaker. Kawasaki Kisen Kaisha slipped 1.55% and Nippon Yusen shed 0.31%. However, Mitsui OSK Lines managed to remain unchanged from previous close.

In Australia, the benchmark S&P/ASX 200 Index gained 48.80 points, or 1.05% to close at 4,687, while the All-Ordinaries Index ended at 4,695, representing a gain of 43.80 points, or 0.94%.

On the economic front, a statement released by the Australian Bureau of Statistics revealed that the country saw a seasonally adjusted current account deficit of A$17.459 billion in the fourth quarter of 2009, up 19% or A$2.728 billion from the preceding third quarter. Economists expected a current account deficit of A$17.2 billion for the quarter following a revised A$14.731 billion deficit reported in the previous quarter. The report further noted that exports of goods and services decreased A$266 million and imports of goods and services increased by A$1,572 million.

A report released by the Housing Industry Association revealed that new home sales in the country surged 9.5% in January compared to the previous month. The report noted that sale of new detached homes jumped 10.5% while sales in multi-unit sector rose 4.1%.

The Australian Industry Group and PricewaterhouseCoopers revealed that the Australian Performance of Manufacturing Index stood at a seasonally adjusted 53.8 in February, up from 51.0 in January. A reading above 50 indicates expansion, while one below 50 suggests contraction. Eight of the twelve sub-sectors expanded in February, with paper, printing & publishing and textiles leading the way.

A statement jointly released by TD Securities and the Melbourne Institute said that a gauge measuring inflation in the country showed modest increases in February, with prices rising 0.1% on month after adding 0.8% in January. On an annual basis, inflation was up 1.9 percent after the 2.6 percent increase in the previous month.

Light sweet crude oil futures for April delivery ended at $80.21 a barrel in electronic trading, up $0.55 per barrel from previous close at $79.66 a barrel in New York on Friday.

Oil stocks advanced on higher crude oil prices in the international market. Woodside Petroleum added 0.23%, Santos gained 1.08%, Oil Search advanced 0.38% and Origin Energy rose 1.07%.
 
Gold stocks also surged up on higher bullion prices. Lihir Gold climbed 3.40% and Newcrest Mining rose 2.55%.

Mixed trading was witnessed among metals and mining stocks. Fortescue Metals advanced 1.08%, Gindalbie Metals climbed 2.99%, Iluka Resources rose 2.51%, Macarthur Coal gained 3.33%, Minara Resources surged up 5.76%, Oz Minerals soared 5.29% and Rio Tinto increased 1.28%. However, BHP Billiton bucked the trend and ended in negative territory with a loss of 0.29%.

Banks also ended in positive territory. ANZ Bank gained 1.94%, Commonwealth Bank of Australia advanced 0.98%, National Australia Bank added 0.67% and Westpac Banking rose 1.53%.

In Hong Kong, the Hang Seng Index ended in positive territory with a gain of 448.23 points, or 2.17%, at 21,057 as traders evinced fresh buying interest on increasing optimism that the global economy will sustain the pace and magnitude of economic recovery, despite mixed economic reports, in the medium term. Positive trading across other markets in the region, higher commodity prices, especially copper, and speculation that Greece's problems will be resolved favorably, lifted market sentiment. As many as 41 out of 42 components in the index ended in positive territory.

 The markets in India and South Korea are closed for holiday.

Among the other major markets, Singapore's Strait Times advanced 23.20 points, or 0.84% to 2,774, Indonesia's Jakarta Composite Index added 5.64 points, or 0.22%, to 2,555, and Taiwan' s Weighted Index gained 141.65 points, or 1.90%, to close at 7,578. China's Shanghai Composite Index also ended in positive territory with a gain of 35.90 points, or 1.18%, at 3,088.

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The major European averages opened Monday’s session notably higher, although they have pared back some of the gains by the mid-session. The French CAC 40 Index and the German DAX Index are rising 0.85% and 1.12%, respectively, while the U.K.’s FTSE 100 Index is advancing 0.35%.

Among the economic reports, a survey by Hometrack showed that the average asking price for a house in the U.K. rose 0.3% month-over-month in February. On a year-over-year basis, house prices rose 0.4%, reversing some of the 1% decline in the previous month.

Among the manufacturing purchasing managers’ surveys done by Markit Economics, the French purchasing managers’ index fell to 54.9 in February from 55.4 in January. The U.K. manufacturing sector continued to expand for a fifth consecutive month in February, with the index coming in unchanged at a 15-year high of 56.6. Economists had expected a slight decline to 56.3. The euro zone’s manufacturing purchasing managers’ index stood at 54.2, coming in above the January reading of 52.4.

Eurostat reported that the euro area’s jobless rate came in at 9.9% in January, unchanged from December rate. Economists had expected the jobless rate to climb to 10.1%.

U.S. Economic Reports

After a week characterized by weakness on Main Street, market attention now shifts to the unfolding week, with a couple of key economic reports that could give direction to the markets due to be released. Traders may stay focused on the monthly non-farm payroll employment report to be released on Friday, the results of the Institute for Supply Management's manufacturing and services surveys for February and the Federal Reserve’s Beige Book.

The jobless claims report, the Bureau of Economic Analysis' personal income and outlays report for January, the ADP private sector employment report, the pending home sales index for January and the Fed speeches scheduled to be delivered during the week are also likely to be on the radar.

Among the other reports due for the week are the construction spending report, the factory goods orders report for January, the revised fourth quarter productivity & costs report and the Federal Reserve's consumer credit report for January. Announcements concerning a series of Treasury auctions of 3-year notes, 10-year notes and 30-year bonds may also draw some attention.

The government's non-farm payrolls data is likely to show distortions arising from the unusually bad weather and hiring related to decennial census. Going by the increase in jobless claims in recent weeks, positive payroll growth may not materialize in February. Additionally, harsh winter weather is also seen as posing a downside risk.

The ISM's manufacturing index may see a small decline in February, but it should remain at levels that are consistent with very strong GDP growth. According to Capital Economics, larger export-oriented manufacturers are benefiting from restocking happening domestically and a stronger rebound in final demand abroad. At the same time, these manufacturers aren't impacted significantly by contraction in bank credit. Meanwhile, the non-manufacturing index could see an improvement, given the recent improvement in underlying retail sales growth.

Economists expect the Fed’s Beige Book to continue to sound cautiously optimistic, although they expect weather to be reported as dampener on activity. BMO Capital Markets is of the view that the report may highlight the potential downside risk on the housing front, given the renewed downturn in the housing indicators.

The Bureau of Economic Analysis reported that personal income edged up by 0.1% in January following a downwardly revised 0.3% increase in December. Economists had expected income to increase by 0.4%, matching the growth originally reported for the previous month.

At the same time, personal spending rose by 0.5% in January after rising by an upwardly revised 0.3% in the previous month. The increase exceeded economist estimates for 0.4% growth.

The results of the manufacturing survey of the Institute for Supply Management, which are based on data compiled from purchasing and supply executives nationwide, are due out at 10 AM ET. Economists expect the index to show a reading of 58 for February.

In January, the manufacturing purchasing managers' index rose to 58.4 from 54.9 in November, with the latest month's reading the highest since August 2004. Thirteen of the eighteen industries showed growth. The new orders index rose 1.1 points and the index of order backlogs climbed 6 points to 56. The employment index continued to climb, rising 3 points to 53.3. Despite increasing 3.5 points, the inventories index remained below '50' at 46.5.

The Commerce Department's construction spending report to be released at 10 AM ET is expected to show a 0.6% decline in spending for January.

Construction spending fell 1.2% month-over-month in December, while the previous month's drop was revised downwards to a 1.2% decline from the 0.6% drop estimated initially. Private as well as public construction spending fell 1.2% each. In the private category, multi-family house construction spending fell 4.4%, offsetting a 0.6% increase in spending on single-family homes, while non-residential construction spending edged up 0.2%.

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Millipore (MIL) may be in focus after it announced that it has agreed to be acquired by Merck KgaA for $107 per share. The total transaction value, including net debt, is $7.2 billion. The company noted that the boards of both companies have approved the deal.

Shanda Interactive Entertainment (SNDA) is likely to see activity after it reported fourth quarter net revenues that rose 49% year-over-year to $221.6 million. The company’s non-GAAP net income rose to 6.06 yuan per ADS or 88 cents per ADS compared with 4.90 yuan per ADS in the year-ago quarter. The consensus estimates called for earnings of 84 cents per share on revenues of $212.59 million.

FirstMerit Corp. (FMER) is likely to move in reaction to its announcement that it has converted all 24 Chicago-area First Bank branches to the FirstMerit brand. The company noted that the conversion coincided with FirstMerit’s acquisition of George Washington Savings Bank and its four Chicagoland branches. FirstMerit acquired George Washington from the FDIC last Friday.

Solutia (SOA) is also likely to be in focus after it announced that it has reached an agreement to acquire Etimex Solar GmbH, a wholly owned subsidiary of Etimex Holding, and a supplier of ethylene vinyl acetate. The deal has been sealed for 240 million euros in cash.

OSI Pharma (OSIP) could gain ground after it announced that Japan’s Astellas Pharma will commence a tender offer to buy all outstanding shares of OSI Pharma for $52 per share in cash for an aggregate value of $3.5 billion.

Shire (SHPGY) could see some activity after it announced that the FDA has granted marketing approval for VPRIV, a human cell line derived enzyme replacement therapy for the long-term treatment of Type 1 Gaucher disease in pediatric and adult patients. VPRIV was designated for priority review and granted marketing approval in just 6 months.

PepsiCo. (PEP) may react to its announcement that it has completed the merger of its bottlers Pepsi Bottling Group (PBG) and PepsiAmericas (PAS). The companies have merged into Pepsi-Cola Metropolitan Bottling Co., a wholly owned subsidiary of Pepsi.

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