US & World Daily Markets Financial Briefing 03-11-2009

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Traders Likely to Remain Cautious Ahead of Fed Decision, Data

The major U.S. index futures are pointing to a lower opening on Tuesday, with the futures trimming their losses following the trickling in of deal news. However, traders are likely to tread a cautious line, as they await the outcome of the FOMC rate setting meeting and the release of employment data. Earnings news of the day has been mixed and the prices of commodities are showing mixed trend, although oil may see volatility amid the release of the weekly oil inventory report.

After seeing some early weakness on Monday, U.S. stocks advanced strongly following the release of positive manufacturing and construction spending data. The major averages flattened out after the initial surge, losing momentum by the afternoon. Despite the release of another promising housing report, the major averages showed uncertainty thereafter, moving back and forth across the unchanged line to close higher.

While the Dow Industrials advanced 76.71 points or 0.79% to 9,789 and the S&P 500 Index moved up 6.69 points or 0.65% to 1,043, the Nasdaq Composite Index rose 4.09 points or 0.20% to 2,049.

Twenty-four of the thirty Dow components advanced in the session, with American Express (2.41%), DuPont (up DD) (up 1.41%), JP Morgan Chase (up 1.94%) and United Technologies (up 1.97%) advancing strongly.

Among the sector indexes, the Dow Jones U.S. Basic Materials Average rose about 1%, the NYSE Arca Biotechnology Index climbed 2.92%, the KBW Bank Index gained 0.90% and the S&P Retail Index moved up 0.86%. The NYSE Arca Gold Bugs Index advanced 0.96%, while the NYSE Arca Airline Index fell 0.92%.

The S&P 500 Index, although it has bounced off a support around 1,029, is still trading below its 50-day moving average, which is currently at 1,053. The week's economic reports are very important, given the fact that the index is currently at a crucial juncture. For the continuation of the uptrend that has been witnessed since the bear market bottom in early March, the index has to break convincingly above the 1,100 level.

On the economic front, the Institute for Supply Management reported that its manufacturing index rose to 55.7 in October from 52.6 in September, while economists had forecast a more modest 0.4 point increase to 53. The October reading represented its highest level since April 2006. Notwithstanding the improvement in the headline number, the new orders index fell by more than 2 points to 58.5 and the order backlogs index remained flat at 53.5. On the other hand, the production index rose to its highest level since July 2004, coming in at 63.3. Meanwhile, the employment index rose 7 points to 53.1, the first time the index was above the '50' cut-off mark since July 2008.

At the same time, the National Association of Realtors' reported that the pending home sales index rose 6.1% month-over-month in September, with the optimism reflecting home buyers scramble to take advantage of the $8,000 first time homebuyers credit before it expires by November 30th. Economists had expected a 0.1% decrease for the month. Pending home sales rose by the most in the West, an area which witnessed a flurry of foreclosure activity, and the Midwest. The South also showed gains, while the Northeast showed a decline in pending home sales.

Meanwhile, the Commerce Department's construction spending report showed a 0.8% month-over-month increase in construction spending for September. The increase was unexpected, as economists had expected a 0.2% decrease for the month. Public construction spending rose 1.5% and private construction spending increased by a more modest 0.5%. In the private category, a 2.4% climb in spending on single-family construction offset the 4.1% decline in multi-family housing construction and a 1.8% drag from private non-residential construction spending.

The Commerce Department is due to release its report on factory goods orders for September at 10 AM ET. Orders for manufactured goods are likely to have increased 0.8% in the month.

Durable goods orders, which make up the bulk of factory goods orders showed a 1% month-over-month increase in September. Excluding transportation orders, the order growth was 0.9%. The increase was helped by a 7.9% increase in machinery orders. Shipments rose 0.8%, while inventories fell. Non-defense capital goods orders, excluding aircrafts, rose 2% after two months of declines, while shipments of this category of goods edged down 0.2%.

Bay Street Stocks Continue Downward Swing As RIM Falls On Downgrade

Toronto stocks finished at a two-month low on Monday, closing in the red for the sixth time in seven sessions. Tech stocks led the decliners after a downgrade for Research in Motion.

The S&P/TSX Composite Index fell 32.4 points or 0.29% to settle at 10,878.35. The market had hit below 10,750 earlier in the session, the lowest mark since early September.

Tech stocks fell 2.3%. Research in Motion dropped 5.75% after the Blackberry-maker was downgraded to Sell from Buy at Citigroup.

Mining stocks lost 1%. HudBay declined 2.8% ahead of its quarterly earnings report, which is due tomorrow.

Inmet Mining added 1% after the company appointed Jochen Tilk, the company's President and Chief Operating Officer, to the position of President and Chief Executive Officer.

In other corporate news, Domtar has rallied 7.8% after the stock was upgraded to Overweight from Neutral at JPMorgan Chase.

Air Canada risen 1.9% after the stock was upgraded to Buy from Hold at Genuity Capital Markets.

Cameco dropped 1.1% after announcing adjusted third quarter earnings declined to C$104 million, or C$0.26 per share, from C$127 million, or C$0.37 per share, in the year-ago quarter.

UTS Energy Corp. climbed 2.9% after the company agreed to sell 50% of its interest in Alberta oil sands to Exxon Mobil for C$250 million.

BPO Properties, Catalyst Paper Corporation, Constellation Software,Killam Properties, Morguard, Red Back Mining, Russel Metals and Talisman Energy are also on tomorrow's earnings docket.

Currency, Commodity Futures

Crude oil futures are receding $0.51 to $77.62 a barrel after rising $1.13 to $78.13 a barrel on Monday. Gold futures are trading up $7.90 at $1,061.90 an ounce. In the previous session, the precious metal advanced $13.60 to $1,054.

Among currencies, the U.S. dollar is trading at 90.224 yen compared to the 90.2095 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is currently valued at $1.4667 compared to yesterday's $1.4776.

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Asian stocks mostly edged lower on Tuesday on concerns that the premature withdrawal of the stimulus measures could undermine the global economic recovery. After a fairly positive opening, most markets in the region drifted lower, with participants choosing to tread cautiously ahead of interest rates announcements from the U.S, the U. K and the eurozone this week. The Japanese market was closed for a holiday.

The Reserve Bank of Australia today raised its interest rates by 25 basis points to 3.5 percent, but it said it may pause its tightening cycle in December.

China's benchmark Shanghai Composite index, which tracks both A and B shares, ended up 1.2% or 38 points at 3,114 on optimism about manufacturing growth in the fourth quarter after a report by Caijing magazine showed the country's four big banks ramped up lending last month

However, the Hong Kong market fell sharply, dragged down by banks and property developers. The benchmark Hang Seng index closed at 21,240, down 380 points or 1.76%. The IMF said it expects Hong Kong's gross domestic product to contract 2.0% this year versus the 3.5% decline it previously forecast.

The Australian market pared its initial gains to end mostly unchanged amid the interest rate decision. The benchmark S&P/ASX 200 closed at 4,531, down 9 points or 0.2%, and the broader All Ordinaries index fell 0.13% to 4,540.

Big miner BHP Billiton and its rival Rio Tinto ended almost flat in positive territory. However, gold miners Lihir Gold and Newcrest Mining advanced by around 4% each after the precious metal rose to a record high.

Banking stocks closed mixed. National Australia Bank fell 1.76% and Westpac Banking Corp shed 0.63% ahead of its full-year earnings announcement on Wednesday, but Commonwealth Bank rose 0.73% and ANZ ended flat.
QBE Insurance fell nearly 4% after it cut back its projected insurance revenue growth. Macmahon Holdings surged up 7.48% and Leighton advanced 1.43% after they agreed to extend a memorandum of understanding over the partnering on large infrastructure projects. Department store chain Myer gained some lost ground after its plunge in its debut on Monday.

The South Korean market ended in the red for the sixth consecutive session, dragged down by banks on concerns surrounding the CIT Group's filing for insolvency protection over the weekend. KB Financial Group and Shinhan Financial Group ended down over 2% each.

The benchmark KOSPI closed at 1,550, down 9 points or 0.59% and losers outnumbered gainers by 422 to 364. While domestic institutions offloaded shares worth KRW366.3 billion on a net basis, foreign investors and local retail investors bought shares worth KR173.9 billion and KRW184.8 billion, respectively.

The Indian market moved in a choppy fashion before falling sharply in the afternoon. Disappointing earnings announced by some top blue chip companies and continued profit taking on valuation concerns weighed on market movement. The benchmark BSE Sensex ended at 15,405, down 491.34 points or 3.09%.

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The major European markets are showing notable weakness across the board, with the French CAC 40 Index and the German DAX Index moving down 1.70% and 1.31%, respectively. Meanwhile, the U.K.'s FTSE 100 Index is declining 1.68%. Continuing uncertainty over the recovery and lackluster earnings from some domestic companies are weighing on the averages, even as they await the Fed decision, due out on Wednesday, and the decisions of the Bank of England and the European Central Bank, both due on Thursday.

In corporate news, UBS reported a third quarter loss of 564 million Swiss francs compared to a profit of 283 million Swiss Francs in the year-ago period. On an adjusted basis, the company reported a pre-tax profit of 1.56 billion Swiss Francs.

Lloyds Banking Group announced that it plans to raise 21 billion pounds, as it strives to stay afloat without having to participate in the government's asset protection scheme.

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Hanover Insurance Group could react to its announcement that it reported a profit of 97 cents per share for its third quarter, which included a one-time benefit of 6 cents per share. Net premiums written rose 6% year-over-year to $688.8 million. Analysts estimated earnings of 99 cents per share on revenues of $671.37 million.

Lockheed Martin may see buying interest after it announced that the Pentagon has extended its top-tier operations and maintenance support contract with the company, which is valued at $292.7 million.

Forest Oil could see some activity after it reported that it adjusted third quarter earnings fell 62% to 48 cents per share, below the 52 cents per share consensus estimate. The company downwardly revised its 2009 net sales volume forecast to reflect divestitures and third party pipeline or infrastructure shut-ins.

Anadarko Petroleum is also likely to be in focus after it reported third quarter earnings of 40 cents per share compared to $4.62 per share last year, which benefited from non-cash hedging gains. On an adjusted basis, the company reported a loss of 11 cents per share. Revenues fell to $2.7 billion from the year-ago's $6.15 billion. Analysts estimated a loss of 33 cents per share on revenues of $2 billion. The company raised its production volume forecast for 2009 to 220 million barrels of oil equivalents from 210 million barrels of oil equivalents.

Republic Services saw modest weakness in Monday's after hours session after it reported adjusted earnings of 39 cents per share for its third quarter, ahead of the 36 cents per share consensus estimate. Revenues climbed to $2.07 billion from $834 million in the year-ago period, with the recent quarter benefiting from its acquisition of Allied Waste Industries. The company also raised its full year earnings guidance to $1.46-$1.48 per share, while analysts estimate earnings of $1.46 per share.

Vulcan Materials may be in focus after it reported that its third quarter net earnings from continuing operations fell to 38 cents per share from 54 cents per share last year. Net sales fell to $738.66 million from the year-ago's $958.84 million. Analysts estimated earnings of 37 cents per share on revenues of $809.17 million.

Sterling Bancshares could see some activity after it said it would record an additional loan loss provision to the tune of $28.6 million or 23 cents per share for the third quarter in order to sell certain non-performing loans and further strengthen its allowance for loan losses. The company noted that the total provision for credit losses was $56.1 million for the quarter. Accordingly, the company said its net loss applicable to common shareholders was 30 cents per share.

Cisco Systems may also be in focus after it announced that it has agreed to acquire the set top box business of DVN Holdings for a consideration of up to $44.5 million. The agreement allows payment of $17.5 million of the total consideration up front and the remaining $27 million will be paid over a four-year period based on the achievement of specific sales milestones.

Continental Airlines is likely to react to its announcement that its October consolidated load factor rose 3.5 percentage points to 82.5% in October. Piedmont Natural Gas could see some strength after it initiated 2010 earnings per share guidance at $1.90-$2.0, including a one-time gain of 42 cents per share among other things. Analysts estimate earnings of $1.62 per share for the year.

Compellent Technologies may move to the upside after Standard & Poor's said the company would replace Central Pacific Corp. in the S&P SmallCap 600 Index. Emergent BioSolutions, which will replace Independent Bank Corp. may also see buying interest.

Peet's Coffee is expected to recede after it announced that it has agreed to acquire Diedrich in a cash and stock deal valued at $26 per share or $213 million in total. Peet's Coffee expects the deal to be close by the end of the year 2009 and believes that the deal will be dilutive to earnings in 2010 and accretive thereafter.

In other acquisition news, machine tool maker Stanley Furniture agreed to acquire Black & Decker in all cash transaction valued at $3.43 billion. Berkshire Hathaway announced a definitive agreement to buy the 77.4% of outstanding shares of Burlington Northern Santa Fe that it does not currently own for $100 per share in cash and stock. Including shares currently owned by Berkshire, the deal is valued at $44 million, including $10 billion of Burlington's outstanding debt.

Live Nation receded in Monday's after hours session after it announced that it has completed the sale of its remaining U.K. theatrical venues and operations to Ambassador Theatre Group for $160 million.

Schering-Plough could gain ground after the interim results from its ongoing Phase IIa study of its protease inhibitor narlaprevir demonstrated potent anti-viral activity in treatment-naïve patients with chronic hepatitis C virus.

Qwest Communications may react to its announcement that it has decided not to provide future pension benefit accruals for active management employees under two of its pension plans. The company also said it would not award a merit increase to management employees in 2010. Through both the actions, the company expects to save $85 million annually in 2010.

Ford could see some activity after it announced measures to improve its balance sheet and enhance liquidity. The measures include a proposal to lender under its revolving credit facility to extend the maturity of the facility from 2011 to 2013 in exchange for reducing lenders' commitments and increasing interest margins and fees. The company also said it is seeking to raise additional capital with a convertible debt offering and an equity distribution plan.

Diebold is expected to be in focus after it announced that it has appointed Bradley Richardson, who earlier served Modine Manufacturing Company as executive VP, corporate strategy, as its executive VP and CFO, effective November 23rd.

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