US & World Daily Markets Financial Briefing 01-05-2009

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Uncertain Economic Milieu May Introduce Caution Among Traders

In recent trading, the major averages have moved well off their worst levels of the day, although they remain modestly below the unchanged line. The Dow is currently down 22.38 at 8,145.74, the Nasdaq is down 5.41 at 1,711.89 and the S&P 500 is down 1.52 at 871.29.

The major U.S. index futures are pointing to a higher opening on Friday, as the markets conscientiously look past the fundamentals concerns and cling to recovery hopes. The market is coming off a strong performance in April and the run up seen in the month may prompt some traders take money off the tables. Meanwhile, the delay in the release of stress test results should stir fears among traders over the health of the 19 big U.S. banks being assessed.

Commodity prices aren’t taking off despite intermittent short surges, as economic indicators aren’t giving any clear signal on the course of the recovery. With the positive results of the companies driven by earnings outperformance brought about by cost control, the markets aren’t quite impressed with them due to a lack of top line growth. Amid all these sore spots, the markets may stay tuned to the results of the manufacturing survey and the consumer sentiment survey of the Reuters/University of Michigan to determine their course of action.

While U.S. stocks opened higher and rose sharply in early trading on Thursday, the markets could only sustain the gains till the afternoon. Thereafter, the announcement concerning Chrysler’s liquidation filing led to a lot of indecision in the markets, as the major averages began moving back and forth before closing on a mixed note.

The Dow Industrials ended down 17.61 points or 0.22% at 8,168 and the S&P 500 Index receded 0.83 points or 0.10% to 873. However, the Nasdaq Composite managed to hold above the unchanged line throughout the session before closing with a gain of 5.36 points or 0.31% at 1,717.

Market breadth was even among the Dow components, with 15 ending lower and 15 closing higher. JP Morgan Chase fell 4.29%, while Exxon Mobil slipped 2.59% in reaction to its earnings. Procter-Gamble, Citigroup, Chevron and McDonald’s fell close to 2% each. On the other hand, Caterpillar climbed 5.61% and General Motors rallied 6.08%. Other notable gainers included Alcoa (up 3.07%), Bank of America (up 2.88%), Disney (up 4.24%), General Electric (up 3.52%), Intel (up 2.80%) and Johnson & Johnson (up 2.61%).

Among the sector indexes, the Amex Airline Index, the Amex Oil Index, the Amex Biotechnology Index, the Amex Gold Bugs Index and the KBW Bank Index receded over 2% each. The Philadelphia Housing Sector Index ended down 1.94%. However, the Philadelphia Semiconductor Index gained 2.78% and the Amex Disk Drive Index rose 2.62%. The Amex Computer Hardware Index moved up 2.14%.

April was good to the markets, with the major averages posting gains for the month. The Dow was up 7.35% in the month compared to a 9.39% advance by the S&P 500 Index and 12.35% rise by the Nasdaq Composite. Significant upside has been seen in the beaten down sectors.

On the economic front, the Bureau of Economic Analysis said personal income and spending were down a little more than expected, down 0.3% and 0.2%, respectively. January and February spending were revised up to show 1.1% and 0.4% growth, respectively from the initially estimated 1% and 0.2% growth. Personal consumption expenditures declined 0.9% year-over-year, remaining negative for four months in a row. The core personal consumption expenditure price index rose 0.2% month-over-month and was up 1.8% from the previous year.

The Labor Department said the employment cost index rose 0.3% in the first quarter, marking the smallest increase on record. While wages and salaries were up 0.3%, benefits climbed 0.5%. Meanwhile, initial jobless claims for the week ended April 25th were at 631,000, while the previous week’s figures were revised up by 5,000 to 645,000. Continuing claims rose to another fresh record of 6.271 million. Peter Boockvar from Miller Tabak commented that the trend continues to be towards a stabilization in the level of firing but a further deterioration in the level of hiring.

The ISM’s Chicago purchasing manager’s index came in at 40.1 in April compared to economists’ estimate of 35. The prices paid index fell 6 points to 28.4, while the production index increased to 38.1 in April from 32.7 in March. The new orders index also trended up, rising about 11 points to 42.1, and the employment index rose to 31.8 from 28.1 in the previous month. Inventories remained lean, as suggested by a 4.3-point drop in the inventories index to 34.9, which marked the lowest reading since 1982.

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Bay Street Stocks Climb Above 9,400 Again

Canadian stocks turned to the upside again on Friday, led by further strength in the mining sector. With the gain, Toronto's main index recovered most of its losses from yesterday and moved above 9,400 again.

The S&P/TSX Composite Index has added 80.99 points or 0.86% to move at 9,405.82. Yesterday, the index reached its highest level since November above 9,500 before drifting lower.

Mining stocks once again led the gainers with a 3.75% rise. Copper prices gained another 1% to move further above $2 a pound on the Comex.

Teck Resources has rallied nearly 6% after the company said it executed definitive amended and restated credit agreements and related documents, giving effect to the bridge and term loan extension announced on April 21, 2009.

Lundin Mining gained 3.7% after it announced the appointment of Marie Inkster as Chief Financial Officer, effective today. Inkster succeeds Ted Mayers to the position. Inkster joined Lundin in September 2008 as Vice President, Finance.

Uranium producer Cameco is up 1.2% despite announcing its net income dropped to C$82 million or $0.22 per share, down from C$133 million or$0.37 cents per share a year earlier.

Energy stocks are up 1.8% as crude oil prices jumped above $52 a barrel on the NYMEX. Suncor has gained 4%, Canadian Oil Sands is 2.6% and Canadian Natural Resources has added 2.1%.
 
In other corporate news, Domtar Corp. has dropped 2.8% after the company reported a first quarter net loss of US$45 million US$0.09 per share, compared to net earnings of US$36 million or US$0.07 per share for the first quarter of 2008.

Fairfax Financial Holdings Ltd. is down 0.4% after the company posted a net loss of $60.4 million or $3.55 per share, compared to net earnings of $631.8 million or $33.78 per share in the prior year period.

TransCanada shares are flat after the company reported net income for first quarter 2009 of C$334 million, or C$0.54 per share, compared to C$449 million, or C$0.83 per share, for first quarter 2008.

ATCO has gained nearly 2% after the company reported adjusted first-quarter earnings of C$96.1 million or C$1.66 per share, compared to C$92.3 million or C$1.60 per share for the same three months in 2008.

On the economic front across the border, the Reuters/University of Michigan's revised reading on consumer sentiment in April came in at 65.1, compared to 57.3 in the month of March. Meanwhile, march factory orders fell 0.9% in March, while the ISM manufacturing index climbed to 40.1 for April.

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In Europe, most markets are closed on account of the ‘Labor Day’ holiday. The market in London, which is opened today, is trading with modest gains. The FTSE 100 Index of the U.K. is currently up 0.07%.

Resource stocks are moving to the upside, while financial stocks are pulling back sharply. Some degree of profit taking is witnessed after the advances of the past two sessions.

U.S. Economic Reports

Individual car and light duty truck manufacturers are scheduled to release their sales. These sales are a good indicator of the trend in consumer spending.

Treasury Secretary Tim Geithner is scheduled to take part in a dialogue at the U.S.-China conference in Washington at 8 AM ET. Additionally, St. Louis Federal Reserve President James Bullard is due to speak to the Arkansas Bankers Association in Hot Springs at 9:45 AM ET.

The final reading of the Reuters/University of Michigan's consumer sentiment index for April is due to be released at 10 AM ET. The report is expected to show that the consumer sentiment index remained unchanged at 61.9.

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 38.4 for April.

The manufacturing index for March came in at 36.3, just above economists' expectation of 36. The new orders index rose by 8 points to 41.2 and the backlog of orders index rose to 35.5, its highest level since September. While the production index remained almost unchanged, the employment index rose 2 points to 28.1.

The Commerce Department is due to release its report on factory goods orders for March at 10 AM ET. Orders for manufactured goods are likely to have decreased 0.6% in the month.

Last week, the Commerce Department said orders for durable goods fell 0.8% month-over-month to $161.2 billion in March, marking the seventh decline in the last eight months. Economists were looking for a 1.5% decline in durable goods orders for March. Durable goods make up the bulk of the factory goods orders.

The decline was mainly due to a 1.4% drop in transportation equipment orders. Shipments of durable goods slid 1.7% and unfilled orders tumbled 1.4%. Inventories were down 1.1%. Non-defense capital goods orders, excluding aircraft orders, rose 1.9% in March, adding to the 4.9% gain in the previous month.

Earnings

Aon Corp. said its first quarter adjusted earnings from continuing operations rose 9% to 76 cents per share. Revenues fell 3% to $1.9 billion, dragged down by a 44% decline in investment income. Analysts expected earnings of 88 cents per share on revenues of $2.08 billion.

Dean Foods’ first quarter adjusted net income from continuing operations was 52 cents per share, up 126% from 23 cents per share last year. Net sales fell 12% to $2.7 billion. Analysts, on average, estimated earnings of 42 cents per share on revenues of $2.90 billion.

Fortune Brands reported that its first quarter adjusted earnings from continuing operations were 30 cents per share compared to 75 cents per share in the year-ago period. Net sales fell 20% to $1.44 billion. Analysts estimated earnings of 22 cents per share on revenues of $1.41 billion. The company reaffirmed its 2009 adjusted earnings estimate of $20$2.50 per share compared to the $2.25 per share consensus estimate.

MasterCard said its first quarter net revenue fell 2.2% to $1.2 billion, with the decline blamed on unfavorable currency impact and higher rebates and incentives. The Street estimated revenues of $1.21 billion. The company reported net income of $2.80 per share, ahead of the consensus estimate of $2.61 per share.

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The major Asian markets that were open today closed in a mixed fashion. The Japanese markets rose, as the yen weakened following an increase in the risk preference of traders that led to a build in carry trades and on the back of the release of a few negative economic readings. However, the Australian and the New Zealand markets closed lower. Most other markets were closed for ‘May Day.’

Japan’s Nikkei 225 average opened higher and rose in early trading. Although some selling emerged in late morning trading, the index moved sharply higher in the afternoon to close up 149.11 points or 1.69% at 8,977.

Automakers were mostly higher in the session, while most other tech exporters also moved to the upside. Canon rallied 6.10%, while auto parts maker Clarion jumped about 11% and Denso climbed 8.01%. Fujitsu surged up 18.10% compared to a near 10% advance by Itochu. Trading firm Marubeni soared 9.27% and Sojitz moved up 10.53%.

Mining, steel, oil and financial stocks also found significant buying interest. On the other hand, Heiwa Real Estate fell 4.33% and Japan Tobacco declined 6.48%. Mitsubishi Logistics receded 3.85% and Mitsui Sumitomo declined 3.18%. Toyobo slumped 7.79% compared to a 12.84% decline by Unitika.

In economic news, Japan’s core inflation eased 0.1 percent year-over-year in March, the Minister of Internal Affairs and Communication said, marking the first annual decline since September 2007. Analysts had been expecting a 0.2 percent decline following a flat performance in April.

According to a separate release from the ministry, Japan's unemployment rate grew by 0.4 percentage points from the previous month to hit a seasonally adjusted 4.8% in March. The rate of expansion topped the 0.3-point growth in February, prompting the ministry to maintain its overall assessment of the labor situation as "rapidly deteriorating."

Australia’s All Ordinaries traded below the unchanged line for the better part of the session before closing down 6.80 points or 0.18% at 3,738. The S&P/ASX200 Index ended at 3,770, down 10.9 points.

Most sector stocks came under selling pressure, with the exception of energy, healthcare and industrial stocks. Resource stocks, including BHP Billiton, Rio Tinto, Onesteel and Lihir Gold ended the session lower, while Newcrest Mining bucked the downtrend. The four major banks ended on a mixed note.

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Gold Prices Extend Recent Slump

Gold prices moved lower again on Friday in U.S. trading amid hopes the economy is on the mend, reducing the appeal of the precious metal as a hedge. The metal is down for a fourth time in five sessions this week.

June-dated gold fell to $884.10 per ounce, down $7.10 on the session. Prices slipped as low as $882.30 in the opening hour.

The dollar continued to rise against the yen but struggled in light trading against the euro and sterling Friday morning in New York. Gold usually moves opposite the dollar because of the precious metal's hedge appeal.

Trading activity is expected to be somewhat subdued due to the May Day holidays taking place in a number of countries around the world. Most of the overseas markets were closed on the day.
 
On the economic front in the U.S., The Institute for Supply Management's index of activity in the manufacturing sector is expected to rise to 38.4 in April from 36.3 in March, although a reading below 50 indicates a contraction in the sector.

The Reuters/University of Michigan's revised reading on consumer sentiment in April and the Commerce Department's report on factory orders in March could also impact trading.

Meanwhile, the World Health Organization said the H1N1 virus, widely known as swine flu, has infected a total of 331 persons across 11 countries. This is in addition to the hundreds of more suspected cases in the U.S., Mexico, Australia and New Zealand.

Thursday, gold lost $9.30 for the session as encouraging employment data led traders away from the safety investment of the precious metal.

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