US & World Daily Markets Financial Briefing 03-12-2009

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Traders Show Cautious Optimism Amid Good Tidings From BofA and Job Market

The major U.S. index futures are pointing to a higher opening on Thursday. Sentiment is likely to remain guardedly positive following the release of the Labor Department’s weekly jobless claims report that showed an unexpected drop in claims. However, a separate report released by the Department revealed that productivity growth for the third quarter was smaller than initially estimated. That said, traders may take heart from Bank of America’s (BAC) announcement that it is repaying its TARP debts in full- a proposition that vouches for the health of banks.

Traders may also stay tuned to the results of the ISM’s services sector survey and comments from Federal Reserve Chairman Ben Bernanke, who is scheduled to appear for his confirmation hearing.

U.S. stocks ended a lackluster session on Wednesday on a mixed note, as traders reacted to an employment report that showed faster than expected job losses and a Beige Book that suggested that the recovery is gaining traction. After showing indecision in early trading, the Dow Industrials saw some strength in mid-morning trading before receding below the unchanged line. Thereafter, the index languished below the unchanged line to close down 18.90 points or 0.18% at 10,453.

The Nasdaq Composite held above the flat line throughout the session, although ending off its morning’s high at 2,185, representing a gain of 9.22 points or 0.42%. The S&P 500 Index closed nearly flat at 1,109.

Seventeen of the thirty Dow components ended the session lower, with McDonald’s (MCD) (down 1.64%), Hewlett-Packard (HPQ) (down 1.23%), Caterpillar (CAT) (down 1.24%) and Bank of America (BAC) (down 1.51%) posting notable losses. On the other hand, Alcoa (AA) rose 6.56%, Verizon Communication moved up about 1% and Home Depot (HD) gained 1.18%.

Among the sector indexes, the Philadelphia Oil Service Index fell 0.99%, while the NYSE Arca Gold Bugs Index rallied 2%. The NYSE Arca Internet Index and the Philadelphia Semiconductor Index gained 1.13% and 1.61%, respectively. The NYSE Biotechnology Index, the Dow Jones U.S. Basic Materials Average, Dow Jones Utility Average and Dow Jones Transportation Average all ended up with gains in excess of 1%. Meanwhile, the NYSE Arca Airline Index advanced 3.68%.

On the economic front, the Fed’s Beige Book said that economic conditions in the 12 Federal Reserve Dsistricts have generally improved modestly since the last report. Eight districts indicated some pick up in activity, while the remaining four reported that conditions were little changed and/or mixed. While consumer spending was reported to have picked up, tourism activity varied across districts.

The Fed reported that manufacturing conditions improved moderately or remained steady, and in the services sector, non-financial services activity strengthened. Residential real estate activity improved from depressed levels, with home sales picking up, while home prices remained flat or declined modestly. However, commercial real estate activity was reported to be deteriorating. Labor market conditions, although reported as weak, are showing signs of stabilization.

Look To Continue Upward Move

Toronto stocks could see some further strength in early Thursday trading, following the lead of foreign markets, amid hopes the economy is on the mend. Investors will also consider some positive earnings news from the financial sector.

National Bank Financial Group announced fourth-quarter net income of C$225 million compared to C$59 million in the fourth quarter of 2008.

TD Bank Financial Group reported fourth quarter net income of C$1.010 billion, compared to C$1.014 billion last year. The results topped the expectations of analysts.

Canadian Imperial Bank of Commerce reported that its fourth-quarter net income was $644 million, up from $436 million for the fourth quarter of 2008.

In other corporate news, Canadian National Railway said that it has reached an agreement to end the strike by locomotive engineers immediately.

Bombardier reported third-quarter net income of Bombardier was US$167 million or US$0.09 per share, compared to US$222 million or US$0.12 per share last year.
 
Resource stocks could also get a boost as crude oil and gold prices are again in the green. Light sweet crude has added 54 cents to $77.17 per barrel and gold has gained $3.80 to $1,216.10 per ounce after earlier hitting a record $1,227.50.

Employment data will be featured on Friday with key reports from both sides of the border on the schedule.

A Labor Department report on Thursday showed that U.S. initial jobless claims edged down to 457,000 from the previous week's revised figure of 462,000. The decrease surprised economists, who had expected jobless claims to increase to 480,000 from the 466,000 originally reported for the week ended November 21.

Meanwhile, the European Central Bank left its key interest rate unchanged at a record low for the seventh straight month in December to boost the 16-nation economy, which technically exited recession in the third quarter.

On Wednesday, the S&P/TSX Composite Index climbed 72.41 points or 0.61% to settle at a 14-month best of 11,779.73. The market gained 260 points on Tuesday.

Commodity, Currency Futures

Crude oil futures are moving up $0.46 at $77.06 a barrel after declining $1.77 to $76.60 a barrel in the previous session. Wednesday’s retreat came after the release of the weekly oil inventory report, which showed that crude oil inventories rose by 2.1 million barrels to 339.9 million barrels in the week ended November 27th. Inventories were above the upper limit of the average range for this time of the year.

Gasoline stockpiles climbed by 4 million barrels and were above the upper limit of the average range. While distillate inventories declined by 1.2 million barrels, they were still above the upper boundary of the average range. Refinery capacity utilization averaged 79.8% over the four weeks ended November 27th compared to 80.1% in the previous week.

After advancing $12.80 to $1,213 an ounce in the previous session, gold futures are currently rising $2.40 to $1,215.40 an ounce.

According to Commerzbank, euphoria is currently ruling the commodity markets, and this creates the risk of a significant price correction. The firm believes that the absence of physical demand has been compensated for by investors.

Among currencies, the U.S. dollar is trading at 88.175 yen compared to the 87.3852 yen it fetched at the close of New York trading on Wednesday. Currently, the U.S. dollar is trading at $1.5089 versus the euro.

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Asian Markets Extend Gains

The markets across Asia extended gains for the fourth day on Thursday, on increasing optimism that the recent Dubai crisis will have little or no impact on recovery prospects and encouraging economic data will further help sustain the recovery prospects. Japanese Nikkei gained the most on the weaker yen, led by automakers. Bank of America's decision to repay the $45 billion TARP loan also lifted market sentiment.

In Japan, the benchmark Nikkei 225 Index surged up 368.73 points, or 3.17% to 9,978, while the broader Topix index of all First Section issues advanced 29.30 points, or 3.41%, to 888.

On the economic front, a report released by the Ministry of Finance revealed that capital expenditure by Japanese companies plunged 24.8% year-on-year during the third quarter, faster than the 21.7% decline reported in the second quarter. Economists expected the capital spending to decline by a modest 16% during the third quarter.

Separately, a report released by Markit Economics revealed that the Japan Nomura Services Purchasing Managers' Index stood at a seasonally adjusted 42.3 in November, down from 45 in the previous month. A reading above 50 indicates expansion, while one below 50 suggests contraction.

Light sweet crude oil futures for January delivery ended at $76.74 a barrel in electronic trading, up $0.14 per barrel from previous close at $76.60 a barrel in New York on Wednesday.

Automakers led the gains in the market following weaker yen. Toyota Motor Corp. surged up 5.62%, Honda Motor rose 4.19%, Mitsubishi Motor soared 12.60%, Nissan Motor climbed 6.81% and Suzuki Motor gained 4.47%.
 
Exporters also ended sharply higher on weaker yen. Canon Inc. gained 5.37%, Sony Corp. rose 6.00%, Sharp advanced 3.98% and Sumco Corp. advanced 2.66%.

Banks also ended in positive territory. Mitsubishi UFJ Financial advanced 2.26%, Mizuho Financial added 1.20%, Resona Holdings gained 2.69% and Sumitomo Mitsui Financial rose 2.83%.

Brokerages also advanced. Nomura Holdings climbed 3.39%, Matsui Securities surged up 7.14% and Daiwa Securities rose 3.53%.

Trading companies also ended in positive territory. Toyota Tsusho Corp surged up 5.75%, Mitsui & Co. gained 5.72% and Itochu Corp., rose 4.60%.

Shipping stocks also ended higher. Kawasaki Kisen Kaisha surged up 6.48%, Mitsui OSK Lines climbed 4.19% and Nippon Yusen advanced 1.97%.

In Australia, the benchmark S&P/ASX200 Index added 12.20 points, or 0.26% to close at 4,775, while the All-Ordinaries Index ended at 4,789, representing a gain of 12.60 points, or 0.26%.

O n the economic front, a report released by the Australian Bureau of Statistics revealed that retail sales increased modestly by a seasonally adjusted 0.3% month-on-month during October, compared to a 0.2% drop in the previous month. The data came in line with economists' expectations.

Separately, the Australian Industry Group said in a report that the AIG / Commonwealth Bank Australia Performance of Services Index fell to 52.5 in November from 54.8 in the previous month. A reading above 50 indicates expansion, while one below 50 suggests contraction.

A report released by the Federal Chamber of Automotive Industries revealed that auto sales increased in November as businesses took advantage of government tax incentives to buy light commercial and sports utility vehicles. New vehicle sales climbed by a seasonally adjusted 9.2% in November from October, the report showed.

Mixed trading was witnessed across most of the sectors in relatively low volumes as traders preferred to remain in the sidelines.

Among mining and metal stocks, BHP Billiton gained 1.31%, Fortescue Metals rose 2.33%, Gindalbie Metals climbed 4.21% and Oz Minerals added 0.40%. However, Rio Tinto edged down 0.04%, Iluka Resources slipped 0.81% and Mincor Resources lost 1.49%.
 
In energy space, Woodside Petroleum declined 0.88% and Oil Energy slipped 0.17%. However, Santos gained 0.87% and Origin Energy rose 1.20%.

Gold stocks also witnessed mixed trading. While Sino Gold Mining managed to end in positive territory with a gain of 0.36%, Lihir Gold fell 1.34% and Newcrest Mining slipped 0.18% on profit taking.

Among bank stocks, National Australia Bank slipped 0.42% after announcing a 25 basis point rise in variable mortgage rate, following hike in interest rates by RBA. Commonwealth Bank of Australia also ended weaker with a loss of 1.08%. However, ANZ Bank added 0.41% and Westpac Banking advanced 0.78%.

In Hong Kong, the Hang Seng Index extended gains for the fourth successive session and ended at 22,554, representing a gain of 264.30 points, or 1.19%, lifted by bank stocks and property stocks on increasing optimism that the recovery prospects will not be impacted by the recent Dubai financial crisis. Positive economic data related to consumer spending in the U.S, and weaker Japanese yen also lifted market sentiment. Of the 42 components in the index, as many as 38 stocks ended in positive territory.

In South Korea, the KOSPI Index ended in positive territory with a gain of 23.37 points, or 1.47%, at 1,615, taking cues from other markets in the region. Technology stocks and ship builders led the gains as institutional investors evinced fresh buying interest in these sectors on increasing optimism about growth prospects following positive economic data in the U.S. Bank of America's decision to repay the $45 billion TARP funds also impacted the market sentiment.

The Indian market pared most of its early gains to finish on a flat note Thursday. Sentiment was upbeat as Stanchart, Goldman Sachs, Nomura and Morgan Stanley revised upwards India's FY10 GDP forecasts. However, as the benchmark indexes reached key resistance levels, sudden selling pressure emerged, dragging the market lower into the red for a brief period. A report on food inflation also triggered concerns that the central bank may tighten its monetary policy soon. The BSE Sensex closed at 17,186, up 16 points or 0.09% and the S&P CNX Nifty rose by 8 points or 0.16% to 5,132.

Among other major markets in the region, China's Shanghai Composite Index bucked the trend and ended in negative territory with a loss of 5.12 points, or 0.16% at 3,265. However, Indonesia's Jakarta Composite Index added 28.47 points, or 1.15% to close at 2,500, Taiwan's Weighted Index edged up 0.09%, or 7.05 points, to close at 7,685, and Singapore's Strait Times Index advanced 11.84 points, or 0.42%, to 2,808.

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The major European markets opened Thursday’s session higher and moved sideways in the morning, before paring back some of their gains. The French CAC 40 Index and the German DAX Index are moving up 0.37% and 0.90%, respectively, while the U.K.’s FTSE 100 Index is inching up 0.16%

In corporate news, Siemens (SI) reported that its fourth quarter loss narrowed to 1.1 billion euros compared to 2.4 billion euros in the year-ago period. The recent quarter’s results included charges related to its Nokia Siemens Networks business.

On the economic front, Eurostat reported that the eurozone exited recession in the third quarter, helped by government spending. The region’s GDP rose 0.4% sequentially in the third quarter following five straight quarters of contraction. Annually, GDP fell 4.1%.

A separate report released by the agency showed that the eurozone’s retail sales remained unchanged in October compared to the previous month. Economists had estimated a 0.2% increase in sales.

Meanwhile, the final Markit Composite Output Index rose to 53.7 in November from 53 in October. The purchasing managers' index for the services sector climbed to 53 in November from 52.6 in October.

The European Central Bank’s Governing Council announced today that it is retaining its key interest rate unchanged at a record low of 1%, maintaining a status quo stance for the seventh straight month. The last change in the key interest rate was in May 2009, when the bank cut the rate by 25 basis points to the current level of 1%.

The ECB had lowered the key interest rate by a total of three and a quarter percentage points since early October 2008. The focus now shifts to the post-decision press conference to be hosted by the bank's President Jean-Claude Trichet and Vice President Lucas Papademos.

U.S. Economic News

Federal Reserve Chairman Bernanke is scheduled to appear for a confirmation hearing before the Senate Banking Committee. Additionally, President Barack Obama is due to hold a jobs summit with leaders from the business, labor, finance and the nonprofit sectors.

The Labor Department released its report on first-time claims for unemployment benefits in the week ended November 28th, revealing that jobless claims unexpectedly showed a modest decrease compared to the previous week.

The report showed that initial jobless claims edged down to 457,000 from the previous week's revised figure of 462,000. The decrease surprised economists, who had expected jobless claims to increase to 480,000 from the 466,000 originally reported for the week ended November 21st.

Initial jobless claims, a key measure of layoffs, dropped 35,000 last week to a level of 466,000. This was the first reading below 500,000 this early January. Continuing claims fell 190,000 to a level of 5.423 million, the 10th consecutive week of declines.

The U.S. Labor Department’s revised third quarter productivity report showed a 8.1% increase in non-farm productivity, revised up from the 9.5% increase estimated initially. The consensus estimates had called for an 8.5% increase in non-farm productivity.

The agency noted that the productivity growth was the strongest since the third quarter of 2003, when it rose 9.7%. The productivity growth was helped by a 2.9% increase in output and a 4.8% drop in hours worked. Meanwhile, unit labor costs fell 2.5%.

The Institute for Supply Management is scheduled to release the results of its non-manufacturing survey at 10 AM. The non-manufacturing index is likely to show a reading of 51.5 for November.

The services sector survey for October showed that the services index eased to 50.6 in October compared to 50.9 in September. Economists had expected the index to climb to 51.5. The business activity index rose slightly to 55.2, representing the highest level since October 2007. The employment index moved down 3.2 points to 41.1. While the new orders index rose 1.4 points to 53.6, the backlog orders index climbed 2 points to 53.5. The price paid index rose 4.2 points to 53.

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Bank of America (BAC) is expected to gain ground after it said it would repay all of the $45 billion in TARP funding it owes the government. The decision will help the bank to escape executive compensation restrictions imposed by the government and will also help in its CEO search when the Kenneth Lewis leaves the company by the year-end.

Ciena (CIEN) is likely to see some activity after it said the U.S. and Canadian courts have approved its agreement with Nortel to acquire substantially all of the optical networking and carrier Ethernet assets of Nortel’s Metro Ethernet Networks business in North America, Latin America and Asia.

Vertex Pharma (VRTX) may be in focus after it said it has entered into an agreement to sell 11.5 million shares of its common stock in an underwritten public offering at a price of $38.50 per share. The company expects the offering to generate gross proceeds of $442.8 million. Meanwhile, Human Genome Sciences (HGSI) said it has priced its previously announced public offering of 15.5 million new shares at $26.75 per share. The company noted that the size of the offering was raised from the originally announced 12.5 million shares.

A. Schulman (SHLM) may see some activity after it announced that it has agreed to acquire all outstanding shares of ICO, Inc. (ICOC) for $105 million in cash and 5.1 million shares of A. Schulman common stock.

Northrop Grumman (NOC) is expected to gain ground after it announced that the U.S. Navy has awarded the company a $171 million fixed-price advance procurement contract to provide long lead materials for a continuation in the company’s Aegis-class DDG 51 destroyer program.

Progress Software (PRGS) could react to its announcement that it has unveiled a series of initiatives to position itself for better growth and profitability. The initiatives include a 12%-14% global workforce reduction across all functions and geographies as well as a consolidation of ts offices in certain locations globally.

Toll Brothers (TOL) may move in reaction to its announcement that its fourth quarter loss widened to 68 cents per share from 49 cents per share in the year-ago period. Revenues declined 30% year-over-year to $486.6 million. Analysts estimated a loss of 46 cents per share on revenues of $450.1 million.

In the retail sector, Aeropostale (ARO) reported third quarter sales of $567.8 million, up 18% year-over-year. The company’s earnings rose to 92 cents per share from the year-ago’s 63 cents per share. The company forecast fourth quarter sales of $1.20-$1.24 per share compared to the $1.22 per share consensus estimate.

Jo-Ann Stores (JAS) reported third quarter earnings of 90 cents per share compared with 40 cents per share in the year-ago period. Revenues moved up 6% to $509.1 million. The consensus estimates called for earnings of 89 cents per share. For the full year, the company expects adjusted earnings of $1.95-$2.05 per share compared to the $2.04 per share consensus estimate.

Costco Wholesale (COST) may also be in focus after it said its November same store sales rose 6%, while sales, excluding the favorable impacts from higher gas prices and the stronger dollar, were up 2%.

Zumeiz (ZUMZ) reported an 8.5% decline in same store sales for November, while Hot Topic’s (HOTT) same store sales fell 11.7% year-over-year. Limited Brands (LTD) said its same store sales increased 3%.

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