US & World Daily Markets Financial Briefing 01-09-2009

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Stocks Look to Economic Data Amid Recent Weakness

The major U.S. index futures are pointing to a lower opening on Tuesday. The global cues are mixed, with Asian stocks advancing in reaction to a positive Chinese economic data, while the European averages are seeing significant weakness. That said, given the economic release calendar of the day, we could see some volatility in the markets, as traders react to the numbers. The results of the ISM’s manufacturing survey is likely to impact the market movement along with the housing data from the National Association of Realtors

Stung by the weakness in the global markets and continued anxiety over an economic recovery, U.S. stocks opened Monday’s session sharply lower and moved mostly sideways for the rest of the session. The Dow Industrials ended down 47.92 points or 0.50% at 9,496, the S&P 500 Index moved down 8.31 points or 0.81% to 1,021 and the Nasdaq Composite Index receded 19.71 points or 0.97% to 2,009.

Nineteen of the thirty Dow components ended the session lower, with Alcoa, Boeing, Bank of America, Caterpillar, Disney and Exxon Mobil showing sharp declines. On the other hand, JP Morgan rose 1.26%, Procter-Gamble  gained 1.73% and Travelers Co. moved up 1.63%.

Among the sector indexes, the Dow Jones Transportation Average declined 1.51%, the Dow Jones Utilities Average lost close to 1%, the Dow Jones U.S. Basic Materials fell by 2.10% and the NYSE Arca Airline Index moved down 2.57%. The NYSE Arca Oil Index and the Philadelphia Oil Service Index receded 1.49% and 2.85%, respectively, while the NYSE Arca Gold Bugs Index declined 2.07%.

The S&P Retail Index ended down 1.57% and the Philadelphia Housing Sector Index fell 1.72%. In the technology space, the Philadelphia Semiconductor Index dipped 1.61%, the NYSE Arca Disk Drive Index slipped 1.59%, the NYSE Arca Internet Index lost 1.39% and the NYSE Arca Networking Index receded 1.38%. On the other hand, the NYSE Arca Securities Broker/Dealer Index rose 1.05%.

The technology-weighted Nasdaq Composite Index, which advanced 1.55% in August and 27.4% in the year-to-date period, has led the market revival in the current downturn. That said, the index is seen consolidating in recent sessions, and for a further leg up, a break above the 2,030 to 2,050 level seems necessary. The 14-day relative strength index suggests that the index is in overbought territory and therefore caution should be the watchword as traders consider their next portfolio moves.

On the economic front, the ISM-Chicago’s survey revealed that the business barometer index rose to the break-even level of 50 in August from 43.4 in July. Economists had expected a more modest improvement to 48. The production index climbed about 10 points to 52.9 and the new orders index rose 4.5 points to 52.5, while the index of backlog orders surged up to 45.8 in August from 32.1 in July. The employment index was in contraction zone for the twenty-first consecutive months, although it improved to 38.7 from 35.3. The prices paid index also rose, climbing 15 points to 50.

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Bay Street Stocks Could Extend Decline

Canadian stocks could extend its slump on Tuesday morning with markets in the U.S. and Europe seeing red.

Biovail may come under pressure after reporting it failed to reach its primary end point in a Phase III study for pimavanserin, its drug to treat Parkinson's disease.

In other corporate news, Bombardier said it has received an order for 99 Flexity Berlin trams from Berliner Verkehrsbetriebe. The order is valued at around 300 million euros, or US$431 million.

Aecon Group said its Buildings Division was awarded the $52 million construction contract for redevelopment of the Queenston-Lewiston Border Crossing Plaza in Niagara Falls by the Niagara Falls Bridge Commission.
 
On the commodity front, crude oil has inched above $70 per barrel in electronic trading after tumbling sharply in yesterday's deals. Gold is flat, while copper has moved up 1.2%.

There is no major economic data expected from Canada on Tuesday. Across the border, data on pending home sales, construction spending and a manufacturing survey are expected shortly after the open.

On Monday, the S&P/TSX Composite Index dropped 109.76 points or 0.99% to settle at 10,868.21. Resource stocks led the decliners.

Gold Hovers Near Flat Mark Ahead Of Economic Reports

Gold prices were little changed on Tuesday as traders awaited the released of some key economic data. The dollar turned slightly higher versus major rivals, limiting the metal's hedge value.

December-stamped gold rose to $954.90, up $1.40 on the session. Prices touched as high as $956.50 after hitting as low as $947.50.

The dollar rose within a recent trading range against the euro, recovering some of yesterday's mild losses. The greenback also saw modest strength versus the sterling.

Construction spending data is due at 10 a.m. ET. Economists expect spending to fall 0.2% in the month of July, compared to a 0.3% increase in June.
 
The Institute of Supply Management manufacturing index is also due at 10 a.m. A reading of 50.2 is forecast for August, compared to a 48.9 in July.

At the same time, pending home sales index is expected to rise 1.5% in July, compared to 3.6% in June.

Employment data takes center stage later in the week, starting with the ADP report tomorrow. The minutes from the latest FOMC meeting are also on tomorrow's docket.

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Asian Markets End Higher On Chinese Economic Data

The Asian markets ended in the positive territory on Tuesday following robust PMI data from China for August, a day after a sell-off in Shanghai on concerns about over-heating in the economy. Positive closing in Shanghai also lifted market sentiment despite weak closing in the U.S. in the previous session. The market in India, however, ended in negative territory following weak European markets.

In Japan, the benchmark Nikkei 225 Index ended at 10,530, representing a gain of 37.53 points, or 0.36%, while the broader Topix index of all first section stocks gained 3.04 points, or 0.31%, to close at 969.

Chip-makers advanced on prospects of higher demand and increased earnings. Toshiba Corp. the biggest maker of semiconductors in the country, gained 2.72%, Sumco Corp. advanced surged up 10%, and NEC Corp added 1.49%.

Precision equipment makers also ended in positive territory. Nikon Corp. gained 4.25%, Olympus Corp. added 1.58%, Ricoh Co advanced 1.79% and Konica Minolta rose 1.70%.

Automotive stocks ended in positive territory after Japan Automobile Dealers Association revealed that domestic car sales increased 2.3% during August. The strengthening of the U.S dollar also lifted the sentiment as a weaker local currency increases the realization of export proceeds.
 
Honda Motor gained 1.19%, Toyota Motor Co added 0.75%, Suzuki Motor rose 1.35% and Mitsubishi Motor climbed 0.59%.

Marine stocks declined following drop in Baltic Dry Index. Among the shipping stocks, Kawasaki Kisen lost 1.47%, and Mitsui OSK Lines declined 2.02%. However, Nippon Yusen remained unchanged at previous close.

In Australia, the benchmark S&P/ASX200 Index gained 0.70% or 35.50 points to close at 4,515, while the All-Ordinaries Index ended at 4,511, representing a gain of 27.20 points, or 0.61%.

On the economic front, the Reserve Bank of Australia decided to keep the interest rates unchanged at 3% in an effort to spur the economy and gauge the pace of recovery in the economy. Analysts are of the view that the central bank might wait and watch the response from the economy before deciding to hike interest rates before Christmas.

A report released by the Australian Industry Group and PriceWaterhouse Coopers revealed that manufacturing activity in the country expanded for the first time in 15 months in August, reflecting sharp increases in production, new orders and deliveries. According to the report, the seasonally adjusted Performance of Manufacturing Index climbed 7.2 points to 51.7 in August, rising above the 50 point level separating expansion from contraction.

In a separate report, the Australian Bureau of Statistics revealed that the country posted a seasonally adjusted current account deficit of A$13.34 billion in the second quarter compared to an upwardly revised deficit of A$6.35 billion in the first quarter.

The Statistics Bureau further stated that building approvals continued to fall, although at a slower pace in July. Residential building approvals were down 3.9% on a yearly basis in July, better than a 9.1% fall anticipated by economists and the 14.3% drop seen in June.

Light sweet crude oil price for October delivery ended at $70.38 a barrel in electronic trading, up $0.42 from its previous close $69.96 a barrel in New York on Monday.

Banks ended in positive territory on prospects of growth in the economy. ANZ Bank advanced 3.33%, Commonwealth Bank of Australia added 0.67%, National Australia Bank rose 2.49% and Westpac Banking gained 1.97%.

Metals and mining stocks also ended higher after UBS revised the forecast for the commodities sector. BHP Billiton gained 1.33%, Iluka Resources advanced 2.53%, Oz Minerals added 0.47% and Rio Tinto rose 2.33%.
 
Mixed trading was witnessed among the oil stocks following a sharp drop in crude oil prices in the international market on Monday. While Woodside Petroleum slipped 0.92% and Santos edged down 0.13%, Oil Search advanced 0.96% and Origin Energy gained 1.18%.

Qantas, the largest airline in the country, reported a rise in passenger traffic for the month of July compared to the same period last year, helped by huge discounts. The stock declined 1.19%.

Gold stocks ended in negative territory. Lihir Gold edged down 0.37%, Newcrest mining lost 0.87% and Sino Gold Mining slumped 4.87%.

In Hong Kong, the Hang Seng Index ended in positive territory with a gain148.11 points, or 0.75% at 19,872, after a statement in Beijing revealed that the official Purchasing Managers' Index rose to a seasonally adjusted 54 from 53.3 in July. Positive trading in Shanghai, which saw a 6.7% slump in the previous session, also attracted buying interest in select property stocks, china-related stocks, resource stocks and banks.

In South Korea, the benchmark KOSPI Index ended at 1,623, up 31.21 points, or 1.96% as institutional investors evinced buying interest on increasing confidence about turnaround in the global economy. Positive economic data in China related to manufacturing as well as trading across other markets lifted market sentiment.

As European stocks reversed their early gains and U.S. stocks futures dropped, the Indian market, which rose sharply in early trading on firmer Asian cues, slipped deep into the red before recovering some lost ground in late trading. The BSE Sensex ended at 15,551, down 115 points or 0.74% from the previous close, and S&P CNX Nifty fell 37 points or 0.79% to 4,625.

Among the other major markets in the region, China's Shanghai Composite Index gained 0.60% or 15.98 points, to 2,684, Taiwan's Weighted Index surged up 193.80 points, or 2.84% to close at 7,020, and Singapore's Strait Times Index added 3.49 points, or 0.13%, to close at 2.596. However, Indonesia's Jakarta Composite Index bucked the trend and ended in the negative territory with a loss of 14.62 points, or 0.62% at 2,327.

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The major European averages are trading lower on Tuesday, with the French CAC 40 Index and the German DAX Index moving down 1.51% and 0.88%, respectively. At the same time, the U.K. FTSE 100 Index, which opened after Monday’s public holiday is receding 1.19%.

In corporate news, French media company Vivendi reported that its first half net earnings declined to 1.19 billion euros from 1.22 billion euros in the year-ago period. The company’s underlying profit, which excludes one-time items, was up 1% to 1.47 billion euros, while EBITDA rose 13% to 2.9 billion euros.

On the economic front, a report released by the German Federal Labor Agency showed that Germany’s jobless rate stood at 8.3% in August, unchanged for the second straight month. Meanwhile, Eurostat said in a report that the euro zone’s jobless rate stood at 9.5% in July, up from 9.4% in the previous month, marking the highest rate since May 1999. The jobless rate came in line with economists' expectations.

U.S. Economic Reports

Individual automakers will report their monthly sales, comprising unit sales of domestically produced cars and light duty trucks.

The results of the Institute for Supply Management’s manufacturing survey, 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 50.2 for August.

The index rose to 48.9 in July from 44.8 in June, with the latest month's reading marking the highest since August 2008. The new orders index climbed above 50 to 55.3 from 49.2 and the backlog of orders index rose 2.5 points to 50. Additionally, the employment index rose about 5 points to 45.6. Despite a 2.7 point-increase, the inventories index was still at depressed levels at 33.5, while the prices paid index rose 5 points to 55.

The Commerce Department's construction spending report to be released at 10 AM ET is expected to show a 0.2% decline in spending for July.

Construction spending showed a 0.3% increase for July. Public construction spending climbed 1%, helping to offset a 0.1% drop in private construction spending. Single-family construction rose for the first time in 40 years, while multi-family construction declined again. In the private category, non-residential construction declined 0.5%.

Data on Pending Home Sales, which is a leading indicator of housing market activity released by the National Association of Realtors, is due out at 10 AM ET. A pending sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

Pending home sales climbed 3.6% month-over-month in June. Economists had estimated a mere 0.7% increase. The measure indicates contract signings and is a leading indicator for existing home sales. The gains were more pronounced in the South and West, which saw a significant number of foreclosure sales.

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eBay may be in focus after a New York Times report suggested that it may announce a deal to sell its Skype Internet unit to a group of private investors. The company is reportedly seeking $2 billion for the unit.

Pioneer Natural Resources Co. is likely to see activity after it said it has sold certain oil and gas properties in the Spraberry field in West Texas to Pioneer Southwest Energy Partners (PSE) for $171.2 million in cash.

United Technologies is likely to be in focus after it reported that its Carrier Corp. has acquired StrionAir, a producer of air purification systems.

Schering-Plough is likely to react to its announcement that a federal court has rejected the company’s request for a $473 million tax refund, as it attempted to avoid paying taxes on the $690 million in profits it earned abroad.

Sina Corp. may see weakness after it said it expects third quarter revenues to be $91 million - $94 million, below the consensus earnings of $105.4 million.

The company also reported that its second quarter earnings declined to 23 cents per share from 37 cents per share in the year-ago period. On an adjusted basis, the company reported earnings of 29 cents per share.

Revenues fell 1% to $90.3 million. Analysts estimated earnings of 29 cents per share on revenues of $88.1 million.

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