US & World Daily Markets Financial Briefing 01-10-2009

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Traders May Be Cautious as They Await Key Manufacturing, Jobs Reports

The major U.S. index futures are pointing to a negative opening on Thursday, with the sentiment likely to be dictated by mixed news. The International Monetary Fund is much more optimistic over economic growth than it had been earlier and a report released earlier in the day showed that personal spending and personal income rose at a stronger than expected rate. However, jobless claims rose sharply in the recent reporting week.

With the Labor Department’s non-farm payroll employment report to be released tomorrow and the ISM manufacturing index due for release later in the day, traders may exercise a lot of caution, rendering it difficult for the market to make a meaningful move in either direction.

While there has been considerable uncertainty about a recovery, the International Monetary Fund said that in a report today it expects a stronger rebound in the global economy in 2010, with the institution predicting 3.1% growth in 2010 compared to its earlier estimate for 2.5% growth. Although the U.S. economy is expected to grow next year, the growth is likely to be tepid.

After a better-than-expected GDP report contributed to a higher open on Wednesday, the major averages took a nosedive in early trading as a manufacturing reading unexpectedly contracted, re-igniting fears over a recovery. Although the major averages gradually recovered, popping into positive territory by the mid-session, they showed nervousness and retreated again in late trading to close modestly lower.

The Dow Industrials fell 29.92 points or 0.31% to 9,712 and the S&P 500 Index ended down 3.53 points or 0.33% at 1,057, while the Nasdaq Composite declined 1.62 points or 0.08% to 2,122.

Twenty-one of the thirty Dow components ended lower in the session, with JP Morgan Chase (JPM) (down 2.36%), Alcoa (AA) (down 1.43%), Bank of America (BAC) (down 1.40%), DuPont (DD) (up 1.17%), Disney (DIS) (down 1.72%), General Electric (GE) (down 1.74%) and Pfizer (PFE) (down 1.31%) showing notable declines. However, Cisco Systems (CSCO) rose 1.03% and Kraft Foods (KFT) gained close to 1%.

Among the sector indexes, the Dow Jones Utility Average and the NYSE Arca Airline Index declined about 1% each, while the Philadelphia Housing Sector Index fell 2.52%. On the other hand, the NYSE Arca Oil Index rose 1.94% and the Philadelphia Semiconductor Index ended up 1%.

On the economic front, the ADP private sector employment report showed that the sector saw a decline of 254,000 jobs in September, marking the smallest decline since July 2008. Economists had pitched their job loss estimate at 200,000. Although the private sector lost more jobs than had been expected, it was positive in the sense that job losses continued to moderate.

The government upwardly revised its second quarter GDP estimate for the second quarter to a decline of 0.7%, while economists had expected the BEA to downwardly revise the metric to a 1.2% decline. The upward revision was facilitated by an upward revision to consumer spending, gross private investment, trade and government spending.

However, there was disappointment in the form of the ISM Chicago’s index of regional manufacturing activity, which unexpectedly fell to 46.1 in September from 50 in the previous month. Economists had expected the index to rise to 52. The new orders index fell 6 points to 46.3, marking the lowest level in three months, and the order backlog index declined 9 points to 36.7. The employment index was nearly unchanged at 38.8. Reflecting an increase in auto production as plants came back online, the inventories index rose 11.4 points to 38.9.

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Toronto Stocks May Struggle Thursday Morning

Toronto stocks could see some weakness early on Thursday as commodity prices are lower. Stocks overseas are also in the red, which could weigh on the Bay Street market.

Crude oil prices are down 61 cents to $70 per barrel. Gold is down $4.70 to $1,004.60 an ounce, while copper has lost 3.85 cents to $2.7805 a pound.

In corporate news, MacDonald, Dettwiler and Associates announced that it has signed a multi-million dollar contract with Thales Alenia Space France to provide an advanced technology solution for the European Space Agency's or ESA Sentinel-3 mission.

Garneau said it has entered into an asset purchase agreement with Bayou Perma-Pipe Canada to sell its Camrose business. The deal is worth C$12.25 million.

Bankrupt Canadian network solutions company Nortel Networks announced plans to sell vide "open auction" all of its global GSM/GSM-R business. The sale is expected to include the transfer of certain GSM patents.
 
On the economic front, the International Monetary Fund predicted the Canadian economy will grow by 2.1% in 2010, compared to the previous forecast of a 1.6% increase. The IMF also expects the economy to decline 2.5%, compared to a previously-predicted 2.3% dip.

Across the border, the Labor Department announced that initial jobless claims rose to 551,000 for the week ended September 26. This was up 17,000 from the previous week's revised total of 534,000.

Meanwhile a Commerce Department report showed that personal spending rose by 1.3 percent in August following an upwardly revised 0.3 percent increase in July. Economists had expected spending to rise 1.1 percent.

Personal income increased by a much more modest 0.2 percent in August, matching the revised increase for the previous month. Income had been expected to edge up 0.1 percent.

On Wednesday, the S&P/TSX Composite Index slipped 0.03 points to 11,394.96. With the modest retreat, Toronto's main index gave back a portion of its gains from the previous session.

Currency, Commodity Futures

Crude oil futures are trading down $0.45at $70.16 a barrel after rising $4 to $70.61 a barrel on Wednesday. Gold futures, which closed up $4.20 at $1,009.30 an ounce in the previous session, are trading down $2.10 at $1,007.20 an ounce.

On the currency front, the U.S. dollar is trading at 89.8380 yen compared to the 89.995 yen it fetched at the close of New York trading on Wednesday, while the greenback is currently worth $1.4561 versus the euro.

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Indian Market Ends Flat

After gains in the previous two sessions, the Indian market ended Thursday's session flat, weighed down by weak global cues and profit taking ahead of the long weekend. For most of the day, the benchmarks showed no significant movements in either direction.

India's exports fell for the eleventh straight month in August, data from the commerce ministry revealed. Merchandise shipments fell 19.4 percent year-over-year to $14.3 billion in August.

On the other hand, lifted by rising food prices, India's headline inflation rate rose for the third straight week, government data showed. The annual wholesale-price index for the week to Sept 19 climbed 0.83% from 0.37% in the previous week.

Inflation for the week ended July 25 has been revised upwards to minus 0.71% from minus 1.58%. On Tuesday, the finance ministry said that inflation may reach 6 percent by March 2010, above the RBI's July forecast of 5 percent.

On the flip side, the Purchasing Managers' Index compiled by HSBC Holdings Plc and Markit Economics showed a monthly reading of 55 in September compared to 53.2 in August. A reading above 50 suggests expansion while below 50 reading denotes contraction.

After moving in a narrow range of 17,196-17071, the BSE Sensex finished at 17,135, up 8 points or a modest 0.05%, while the S&P CNX Nifty closed almost unchanged at 5,083. Second-line stocks underperformed large-caps and the market breadth on the BSE was fairly negative, with 1663 losers versus 1123 gainers.
 
Sector-wise, IT, banking, FMCG, public sector and metal stocks witnessed modest buying support, but healthcare, auto, consumer durable and oil/gas stocks ended down notably.

Among the top gainers, Bharti Airtel rose over 4% after it called off a $23 billion merger deal with South Africa's MTN. Reliance Communications rallied 3.25% on reports it has tied up with South Korea's SK Group for roll-out of 3G/4G services.

ICICI Bank advanced 2.17% after it offloaded a 4.41% stake in its subsidiary 3i Infotech through open market deals on stock exchanges. TCS, Mahindra & Mahindra, BHEL, ONGC, Hindustan Unilever, Wipro, ACC, Infosys, Jaiprakash Associates, SBI and DLF were the other prominent gainers.

On the other hand, Maruti Suzuki, HDFC, Grasim, Tata Power, Hero Honda Motors, Tata Motors, Hindalco Industries, NTPC, Reliance Industries, Reliance Infrastructure, Larsen & Toubro and Sun Pharma ended in the red.

State-owned oil-marketing companies fell after crude oil prices surged past $70-a barrel mark on Wednesday. BPCL declined 2.73%, HPCL fell over 3% and IOC gave off 1.5%.

United Spirits advanced nearly 1% amid reports it may raise up to $350 million via private equity or a qualified institutional share placement. Aksh Optifibre hit the 5% upper circuit limit after the company proposed to raise up to $20 million on a private placement basis.

ONGC has received an approval from the Union Cabinet for investment in Vietnam through its subsidiary, reports said. The stock ended up 0.91%.

Bajaj Auto rose 1.15% on reports it is expanding capacities in two of its factories. Mahindra & Mahindra gained 1.14% after its vehicle sales grew 11% in September. Maruti Suzuki fell 2.82% despite reporting a 17.3% growth in vehicle sales in September year-over-year.

Prakash Industries fell 3.27% after its board approved raising up to Rs.500 core via a overseas convertible bonds issue. Television Eighteen India gave off a percent after it proposed to raise $10 million through allotment of preferred stock of its subsidiary to global investor Nokia Growth Partners (NGP) II Mauritius.
 
Gulf Oil Corporation hit the 5% upper circuit limit after its subsidiary, IDL Speciality Chemicals, signed an agreement with Biocon for selling its bulk pharmaceutical business Likewise, Supreme Petrochem was locked at the 5% upper circuit limit after it entered into an agreement with Italy-based Ultrabatch s.r.l for marketing the high-end additive Masterbatches.

Elsewhere, the other Asian markets ended mostly lower, as traders exercised caution ahead of the release of the non-farm payroll employment report from the U.S. The Chinese and the Hong Kong markets remained closed on account of public holidays.

The European markets have squandered their early gains and are trading uniformly lower, while the U.S. markets are set to open considerably lower Thursday morning, suggesting weakness for the third straight session.

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The major European markets are trading lower on Thursday, with the resource space serving as a drag on the averages. The French CAC 40 Index and the German DAX Index are receding 0.38% and 0.05%, respectively, while the U.K.’s FTSE is down 0.34%.

On the economic front, Eurostat reported that the euro zone’s jobless rate inched up to a seasonally adjusted 9.6% from 9.5% in July. In the year-ago period, the unemployment rate was 7.6%. August’s reading marked the highest since March 1999.

Earlier in the day, the German Federal Statistical Office released retail sales for Germany, which showed a 2.6% year-over-year decrease in real terms in August following an upwardly revised 0.8% drop in July. Economists had expected a more modest 0.8% decline. On a monthly basis, retail sales fell a seasonally and calendar year adjusted 1.5%, reversing the 0.7% growth in the previous month.

U.S. Economic News

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

Personal income rose 0.2% in August compared to the previous month following an upwardly revised 0.2% growth in July. Economists estimated a 0.1% increase in personal income. At the same time, personal spending climbed 1.3%, slightly bigger than the 1.1% growth expected by economists.

The PCEI, excluding food and energy, rose 1.3% from a year-ago in August, slower than the 1.4% growth in the previous month.

The U.S. Labor Department announced that initial jobless claims rose to 551,000 for the week ended September 26. This was up 17,000 from the previous week's revised total of 534,000.

The four-week moving average for initial claims, a statistic that flattens out week-to-week fluctuations, edged down to 548,000 from the previous week's reading of 554,250.

Continuing claims, which measures the number of people receiving ongoing unemployment help, slipped 70,000 to a level of 6.09 million. This was its lowest reading since early April.

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 54 for September.

The manufacturing index rose to 52.9 in August from 48.9 in July, with the reading showing an expansion for the first time in a year and a half. Economists had estimated a reading of 50.5. Eleven of the eighteen manufacturing industries showed expansion. The new orders index climbed to 64.9, its highest level since the end of 2004, and the production index rose 4 points to 61.9. Jumping 10 points to 65, the prices paid index moved to its highest reading in a year.

The Commerce Department's construction spending report to be released at 10 AM ET is expected to show a 0.1% decline in spending for August.

In July, construction spending declined 0.2% month-over-month, in line with expectations. Spending on single-family home building climbed 7%, marking the sharpest advance since 1983, while multi-family construction spending declined 3.3%. Private construction spending edged up 0.1% compared to a 0.7% drop in public construction spending.

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. The index is expected to rise 1% in August.

Pending home sales index rose 3.2% in July compared to the previous month, marking the sixth straight month of growth.

Atlanta Federal Reserve Bank President Dennis Lockhart will also speak on the U.S. economic outlook at Macon State College in Macon, Georgia at 5:30 PM ET. Around the same time, Cleveland Federal Reserve Bank President Sandra Pianalto is due to speak to a Market News International seminar in New York.

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Constellation Brands is expected to be in focus after it reported second quarter comparable earnings per share of 54 cents. Sales fell to $1.09 billion from the year-ago’s $1.24 billion. Analysts estimated earnings of 41 cents per share on revenues of $834.21 million. The company reaffirmed its 2010 comparable earnings per share estimate of $1.60-$1.70, while analysts estimate earnings of $1.63 per share.

Bank of America moved higher in Wednesday’s after hours session after it announced that its president and CEO Kenneth Lewis would retire, effective December 31st, 2009.

Cisco Systems is likely to be in focus after it announced a definitive agreement to launch a recommended voluntary cash offer to buy Norway-based TANDBERG, a video endpoint and network infrastructure solutions provider. The agreement provides for Cisco to acquire all of the outstanding shares of TANDBERG for 153.5 Norwegian Kroner or $3 billion in total. The company expects the deal to close in the first half of 2010, while it expects the transaction to be accretive to its non-GAAP earnings in 2011.

Cincinnati Bell may react to its announcement that it has priced a public offering of $500 million worth of principal amount of senior notes due 2017. The notes will bear an interest rate of 8.25%, payable semi-annually on April 15th and October 15th. The company expects to generate net proceeds of $482.8 million from the offering.

Vornado Realty is expected to see some activity after it said it would record its 32.7% share of ‘Toys R US’ second quarter results in its third quarter. The company noted that it would record a loss of 4 cents per share in the third quarter, with its share of funds from operations before income taxes at 2 cents per share compared to a negative FFO before income taxes of 1 cent per share in the year-ago period.

Colonial Property Trust and Saks could react to the pricing of their respective common stock offerings. Colonial Property Trust said it has priced its public offering of 10.53 million shares at $9.50 per share, expecting net proceeds of $95.4 million from the offering. Saks said it would sell 14.93 million shares at $6.70 per share to raise about $100 million.

Xoma may gain ground after it announced the sale of 18 million shares to Azhimuth Opportunity for gross proceeds of $13.9 million or about 77 cents per share. The deal was executed under its existing committed equity financing facility with Azimuth. The company also said it now believes that it has sufficient cash resources to meet its anticipated net cash needs into 2011.

Wynn Resorts is expected to be in focus after it said its subsidiary Wynn Macau has priced its proposed offering of 1.25 million shares at 10.08 Hong Kong dollars or $1.30 per share. The offering is expected to raise proceeds of about $1.6 billion.

Vertex Pharma may also be in focus after it said it would receive $155 million in cash from two financial transactions, about $120 million from the issuance of notes repayable no later than October 31st, 2012 and another $35 million in cash from the sale of up to $95 million of rights to potential milestone payments the company is eligible to receive from Janssen Pharmaceutica for the launch of its hepatitis C virus protease inhibitor telaprevir in Europe. Separately, the company said it expects a GAAP loss of $650 million for 2009 compared to its earlier loss estimate of $515 million, with the revision reflecting the company’s decision to retain experimental rheumatoid arthritis drug VX-509 for mid-stage trials and $115 million related to certain one–time items.

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