US & World Daily Markets Financial Briefing 02-06-2010

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Stock Seeing Solid Upside After Upbeat Pending Home Sales Data

Stocks are posting solid gains in mid-morning trading on Wednesday, as encouraging data from the housing sector has prompted stocks to build on their initial gains. The major averages are all in positive territory, offsetting a portion of yesterday's losses.

A short time ago, the National Association of Realtors reported that pending home sales rose for the third consecutive month in April, with the continued growth reflecting the impact of the home buyer tax credit and favorable housing affordability conditions.

NAR said its pending home sales index increased by 6.0 percent in April following an upwardly revised 7.1 percent increase in March. Economists had expected pending home sales to increase by 4.3 percent compared to the 5.3 percent growth originally reported for the previous month.

In corporate news, U.K. insurer Prudential plc (PUK) said it is in negotiations with American International Group (AIG) regarding the termination of the agreement to acquire AIG's wholly-owned Asian insurance unit, American International Assurance, or AIA.

On March 1st, AIG announced the deal to sell Hong Kong-based AIA to Prudential for about $35.5 billion in cash and stock. The transaction was approved by the boards of both companies and was expected to close by the end of this year.

Further, gold producer Goldcorp Inc. (GG) said that it agreed to sell the San Dimas gold-silver mine in Mexico to Mala Noche Resources Corp. for $500 million. The transaction is expected to be completed on or about July 30, 2010.

The major averages have all seen choppy movement in recent dealing, hovering near their session highs. The Dow is up 72.03 points or 0.7 percent at 10,096.05, the Nasdaq is up 20.57 points or 0.9 percent at 2,242.90 and the S&P 500 is up 8.82 points or 0.8 percent at 1,079.53.

Sector News

Steel stocks are some of the morning's strongest performers, driving the NYSE Arca Steel Index up by 5.3 percent. With the move, the index is recovering further from last month's six and a half month closing low.

Airline stocks are also moving markedly higher, prompting a 4 percent advance by the NYSE Arca Airline Index. With the gain, the index has more than offset yesterday's loss and has set a one-month intraday high.

Oil service, natural gas, railroad and biotechnology stocks are also posting strong gains, further reflecting today's broad-based rally.

Stocks Driven By Analyst Comments

Despite the upward move in the broader markets, Steelcase (SCS) is moving lower after being downgraded by analysts at Longbow from Buy to Neutral. The stock has sunk by 1.5 percent and is on pace for its lowest closing level in nearly a month.

Meanwhile, logistics firm Werner Enterprises (WERN) is seeing strength after RBC Capital Markets upgraded the stock from Underperform to Outperform. The broker also raised the target from $19 to $28. The stock is up by 4.5 percent, bouncing off of the nearly one-month closings low set in the previous session.

Watts Water Technologies, Inc. (WTS) is also moving higher after an upgrade at Oppenheimer from Underperform to Perform. The stock has gained 3.1 percent but remains in a range near May's nearly two-month closing low.

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TSX Poised For A Mixed Open Wednesday

Bay Street stocks may open mixed Wednesday amid falling commodities prices and a host of merger and acquisition deals.

Bargain hunting at lower levels may help lift sentiment as the main index moved back near the levels where it started the calendar year.

On Tuesday, the S&P/TSX Composite Index lost 191.02 points or 1.62% to 11,571.97, after Bank of Canada hiked its target for the overnight rate to 0.50%, as widely expected.

The price of crude edged down ahead of weekly inventories data from the API. Crude oil for July delivery was down $02.0 to $72.38 a barrel.

The price of gold snapped its five day up move, with gold for August delivery slipping $4.30 to $1,222.60 an ounce.

In corporate news, transportation equipment maker Bombardier Inc. reported lower first-quarter net income of $0.08 per share, compared to $0.09 per share last year. Analysts were expecting the company to report net income of $0.07 per share in the quarter.

In a major divestment deal, gold mining company Goldcorp Inc. announced that its subsidiaries have entered into a binding letter agreement to sell the San Dimas gold-silver mine in Mexico to Mala Noche Resources Corp. for $500 million. The consideration will consist of $275 million in cash, $175 million of Mala Noche common shares and $50 million promissory note. Interestingly, in the fiscal year ended December 2009, Mala Noche, a capital pool company, has cash and equivalents of $1.07 million.

Convenience stores operator Alimentation Couche-Tard Inc. announced that it commenced a tender offer to acquire all of the outstanding shares of common stock of Casey's General Stores Inc. for $36.00 per share in cash. The transaction has a total enterprise value of approximately $1.9 billion on a fully diluted basis.

Gold and silver explorer Gammon Gold hiked its stake to 5.3% in Golden Queen Mining Co. Ltd. by acquiring 5 million shares for C$8 million.

Commercial forest plantation operator Sino-Forest said it has hiked its stake in Greenheart Resources Holdings Ltd. to 39.6%.

Uranium explorer Ur-Energy Inc. said Tuesday that it has placed 5 million shares for C$5 million to Blackrock, Inc., an insider of the company.

Investment and financial advisory company Pinetree Capital acquired ownership of one million common shares and one million common share purchase warrants of Habanero Resources Inc., which upon exercised would take its total holding to 2.3%.

Engine and fuel injection systems maker Westport Innovations reported a narrower fourth quarter net loss of C$0.32 per share, compared to a net loss of C$0.43 per share in the year-ago quarter.

With a light economic calendar, traders will look to the movements in the commodities market to get clues.

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Asian Markets End Mixed

Mixed trading was witnessed across Asia with the markets in China, India, and Singapore having ended in positive territory, while the markets in Australia, Japan, Hong Kong and Taiwan ended in negative territory with modest losses amid concerns about global economic recovery.

In Japan, the benchmark Nikkei 225 Index fell 108.59 points, or 1.1%, to 9603, while the broader Topix index of all First Section issues was down 9.99 points, or 1.1%, to 870.

On the economic front, a statement released by the Bank of Japan revealed that the monetary base in the country jumped 3.7% on year in May, coming in at 98.432 trillion yen. That was sharply higher than analyst expectations for a 2.8% annual increase following the 2.9% gain in April. Banknotes in circulation were up 0.6% on year, although coins in circulation eased an annual 0.4%. Current account balances surged 22.9% on year, including an 18.6% annual spike in reserve balances. Seasonally adjusted, the monetary base was up 12.4% to 97.479 trillion yen.

Light sweet crude oil futures for July delivery ended at $72.02 a barrel in electronic trading, down $0.56 per barrel from previous close at $72.58 a barrel in New York on Tuesday.

Trading companies declined following drop in crude oil prices in the international market. Mitsui & Co., plunged 8.25%, Mitsubishi Corp. fell 3.84%, Toyota Tsusho Corp. lost 2.66%, Sumitomo Corp. shed 2.65%, Itochu Corp. declined 3.66% and Marubeni Corp. slipped 0.80%.


Automotive stocks also ended in negative territory. Honda Motor declined 1.85%, Toyota Motor Corp. slipped 0.92%, Nissan Motor Co., fell 1.98%, Hino Motors lost 2.65%, Suzuki Motor Corp. shed 0.65%, Mazda Motor plunged 4.26% and Mitsubishi Motors was down 0.86%.

Exporters also declined on profit taking after the local currency weakened slightly against the US dollar. Kyocera Corp. declined 1.40%, Sony Corp. fell 2.76%, Sharp Corp. plunged 3.14%, Panasonic Corp. shed 2.05%, Canon Inc. edged down 0.13% and Fanuc Ltd slipped 0.32%.

Banking stocks also ended in negative territory. Sumitomo Mitsui Financial declined 0.80%, Resona Holdings fell 3.32%, Mitsubishi UFJ Financial lost 1.35% and Mizuho Financial slipped 0.61%.

Shipping related stocks also declined. Kawasaki Kishen Kaisha declined 1.96%, Nippon Yusen fell 1.53% and Mitsui OSK Lines shed 1.10%.

In Australia, the benchmark S&P/ASX200 Index declined 32.10 points, or 0.73% and closed at 4,381, while the All-Ordinaries Index ended at 4,404, representing a loss of 33.00 points, or 0.74%.

On the economic front, a report released by the Australian Bureau of Statistics revealed that the economy grew at a considerably slower pace between January and March compared to the final three months of 2009, with private sector spending on machinery and equipment and construction acting as a major drag on growth, official figures have shown. As per the report, the nation's GDP grew 0.5% from October to December period of last year. This was exactly in line with analyst forecasts, and follows a revised 1.1% expansion in the final three months of 2009. Economic growth for the December quarter was revised up from 0.9%. The report further noted that, on a year-over-year basis, the Australian economy grew 2.7% in the March quarter. This was slightly better than forecasts for a 2.4% increase.

Light sweet crude oil futures for July delivery ended at $72.02 a barrel in electronic trading, down $0.56 per barrel from previous close at $72.58 a barrel in New York on Tuesday.

Mixed trading was witnessed among banking stocks. ANZ Bank slipped 0.94%, Commonwealth Bank of Australia fell 1.29%, National Australia Bank slipped 0.66% and Westpac Banking lost 1.49%. However, investment banking firm Macquarie Group managed to end in positive territory with a gain of 0.40%.

Metals and mining stocks also ended mixed amid choppy trading. BHP Billiton was down 0.94%, Fortescue Metals edged down 0.25%, Gindalbie Metals lost 2.40%, Iluka Resources shed 1.85%, Macarthur Coal fell 2.06%, Mincor Resources slipped 1.83%, Oz Minerals was down 1.42% and Rio Tinto eased 0.18%. However, Murchison Metals managed to end in positive territory with a gain of 2.91%.

Gold stocks ended weaker. Lihir Gold was down 1.00% and Newcrest Mining fell 1.17%.


Oil related stocks also declined. Woodside Petroleum slipped 0.37%, Santos Ltd fell 3.01%, ROC Oil plunged 4.29%, Oil Search 1.78% and Origin Energy declined 1.08%.

Airline stocks also ended in negative territory. Qantas Airways shed 1.19% while Virgin Blue Holdings fell 6.56%.

Among defensive stocks, telecom major Telstra ended in positive territory with a gain of 3.09% and Singapore Telec- CDI rose 2.05%. Other major gainers included Primary Healthcare which climbed 2.99%, Ramsay Health advanced 1.19% and Sonic Health care rose 2.05%.

In Hong Kong, the benchmark Hang Sang Index ended in negative territory with a loss of 25.15 points, or 0.13%, at 19,471.80, having pared off much of the earlier gains on profit taking as traders exercised caution and moved to the sidelines awaiting more cues on global economic recovery and important economic data related to jobs in the U.S over the next two days.

Extensive short covering after the steep losses since mid-April and a little bit of bargain hunting in the wake of strong domestic growth outlook lifted Indian equities sharply higher on Wednesday. Shrugging off initial volatility and weak global cues, the benchmark 30-share Sensex closed up about 170 points or a little over a percent at 16,742, while the 50-share Nifty rose by 50 points or a percent to 5,020.

Among the other major markets open for trading, China's Shanghai Composite Index ended in positive territory with a gain of 3.14 points, or 0.12% at 2,571, Indonesia's Jakarta Composite Index added 9.06 points, or 0.33% to close at 2,734 and Singapore's Strait Times Index advanced 12.13 points, or 0.45% to close at 2,728. However, Taiwan's Weighted Index ended in negative territory with a loss of 93.62 points or 1.28% at 7,196.

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The major European averages are trading lower on Wednesday following a mixed performance in yesterday’s session. The major averages opened lower and are seeing further losses, with the French CAC 40 Index and the German DAX Index receding 0.79% and 0.61%, respectively, while the U.K.’s FTSE 100 Index is declining 1.08%.

On the economic front, U.K. construction activity increased for the third consecutive month in May. The Markit /Chartered Institute of Purchasing & Supply/construction purchasing managers' index rose to 58.5 in May from 58.2 in April. This marks the highest level for the headline PMI since September 2007. A rise in new orders drove the increase in activity and also led to an increase in employment. All three of the construction sectors registered growth during May.

A report released by the Bank of England showed that the number of loans approved for house purchases in the U.K. totaled 49,871 in April, higher than the March’s 49,008. Economists had expected the number of approvals to be 49,500. Total net lending to individuals rose by 0.4 billion pounds in April compared to a 0.3 billion pound increase in March. The twelve-month growth rate was unchanged from a revised 0.8% rate for March.

Eurostat reported that producer prices in the eurozone jumped sharply in April, with the index rising 2.8% in April compared with the previous year. That was slightly above analyst forecasts for a 2.6% gain after the 0.9% increase in March.

On a month-over-month basis, producer prices rose 0.9% in April, faster than the 0.6% increase in March. Economists had expected a 0.7% rise. Among the member states, the biggest increase in producer prices was recorded in Greece.

U.S. Economic Reports

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 show a 4.3% increase for April.

The pending home sales index rose 5.3% month-over-month in March, slightly better than the consensus estimate of 5% growth. Among the regions, sales rose 12.7% in the South, 1.9% in the West and 1.2% in the Midwest, while the Northeast saw a 3.3% decline in sales.

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Shanda Interactive Entertainment (SNDA) may be in focus after it announced that its first quarter net revenues rose 19% year-over-year to $193.1 million. On a non-GAAP basis, the company reported earnings of 58 cents per share. The consensus estimates had called for earnings of 65 cents per share on revenues of $201.61 million.

Continental Airlines (CAL) is also expected to be in focus after it said its consolidated load factor rose 2.9 percentage points year-over-year to 83.8% in May. Traffic rose 3.7% and capacity edged up 0.2%.

Amgen (AMGN) could see some activity after it said the FDA approved its osteoporosis therapy Prolia for the treatment of post-menopausal women with osteoporosis at high risk for fracture. The company noted that it is an every six month 60 mg subcutaneous injection administered by a healthcare professional and costs $825 per 60 mg injection.

Air Products (APD) may move in reaction to its announcement that it has extended the expiration date of its tender offer for all outstanding shares of Airgas (ARG) for $60 per share in cash. The offer, originally scheduled to expire at midnight on June 4th, will now be open till midnight on August 13, 2010.

Hansen Medical (HNSN) is expected to see some activity after it announced the appointment of Bruce Barclay, who is serving CEO of SurModics (SRDX), as its president and CEO, effective June 9, 2010. The company also named Frederic Moll as the executive chairman of the board.

HCC Insurance (HCC) may also be in focus after it announced that its board has authorized the repurchase of up to an aggregate of $300 million of its common stock. Separately, the company also announced that it has elevated its CFO Tobin Whamond to the role of COO, effective August 10th. The company noted that Brad Irick, who was hired by the company on May 10th, would now serve as its CFO.

Collective Brands (PSS) is likely to react to its announcement that its first quarter net earnings rose to 83 cents per share from 59 cents per share last year. Net sales rose 1.8% to $878.8 million. Analysts estimated earnings of 75 cents per share on revenues of $888.23 million.