US & World Daily Markets Financial Briefing 04-01-2010

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Traders Look Ahead to Manufacturing Data Amid Cautious Optimism

The major U.S. index futures are pointing to a higher opening on Monday, as signs of a global economic recovery has generated optimism concerning demand for commodities. Manufacturing activity in Europe and Asia has rebounded nicely, adding to recent evidence that growth is solidifying. Additionally, oil is advancing, as cooler than usual winter weather has improved demand outlook for the black gold. That said, traders may exercise caution ahead of several key economic reports to be released over the course of the week.

U.S. stocks gave back some ground in the holiday-shortened week ended December 31st, as uncertainty intensified, given the fluid state of the economy and the run up for most of the past year that created uneasiness among traders.

Amid uncertainty last Monday, the major averages closed modestly higher, with the upside aided by the early momentum built on the back of news suggesting strong holiday sales and positive economic data from Asia. However, the 6-day winning stint led to some profit taking on Tuesday, as stock retreated modestly.

Stocks continued to show a lack of direction on Wednesday despite the release of upbeat manufacturing data from the Chicago region. After showing choppiness, the major averages closed slightly higher.

Although an unexpected decline in weekly jobless claims helped the major averages open little changed on Thursday, selling pressure emerged thereafter, causing the averages to decline steadily throughout most of the session. In late trading, the selling pressure intensified, sending the major averages down by about 1% each.

For the week, the Dow Industrials ended down 0.88%, the S&P 500 Index lost 1.01% and the Nasdaq Composite slid 0.72%.

Among the sector indexes, the Dow Jones Transportation Average, the NYSE Arca Airline Index and the Philadelphia Housing Sector Index lost over 2% each, while the NYSE Arca Gold Bugs Index receded close to 2%. The NYSE Arca Securities Broker/Dealer Index, the KBW Bank Index and the Philadelphia Oil Service Index all moved down over 1%.

Bay Street Looks To Kick Of New Year On Upbeat Note

Toronto stocks are likely to open the first session of 2010 on a positive note as commodities and energy prices are vibrant. Canada's main index surged 23% in 2009 and closed the last trading session very near to its multi-month high, hit in early December. The S&P/TSX Composite Index closed Thursday at 11,746.11, gaining 28.65 points or 0.24%.

The U.S. stock futures are also point to a strong opening.

With no major Canadian economic data on tap today, direction of the market will likely to be guided by the commodities prices. Meanwhile, Royal Bank of Canada said its Consumer Confidence Index rose 8 points last month, indicating "job anxiety" fell significantly.

Gold and energy stocks may get a boost from higher commodities prices. Gold gathered $20 today and was hovering at $1115 an ounce. The price of crude oil moved above the $80-psychological mark and was trading at $80.84.

In corporate news, Alex Minerals announced the extension of its bid to acquire Garson Gold until January 15, 2010.

Iamgold Corp. said its President & Chief Executive Officer, Joseph Conway, will be leaving the company effective January 15.
 
SouthGobi Energy Resources plans to raise as much as $400 million in a Hong Kong share sale.

A final judgment has been entered in favor of Cipher Pharmaceuticals Inc. in relation to pending patent litigation with Purdue Pharma Products L.P. and Napp Pharmaceutical Group Ltd in the U.S. District Court for the Eastern District of Virginia.

In brokerages action, Raymond James reduced Petrominerales rating to Under Perform from Market Perform and RBC cuts Gran Tierra Energy to Sector Perform from Out Perform.

Elsewhere in a major deal, Swiss drug maker Novartis AG has offered to buy the rest of Alcon Inc. from Nestle for $38.5 billion.

In economic news from across the border, the U.S. will be releasing its Construction Spending and ISM Manufacturing data during trading hours.

Commodity, Currency Markets

Crude oil futures are trading up $1.61 at $80.97 a barrel after the commodity rose $1.78 or 2.27% to $79.36 a barrel in the week ended December 31st. Oil rose moderately on Monday and followed it up with a slight advance on Tuesday. The commodity moved higher yet again on Wednesday and Thursday before closing the holiday-shortened week higher.

Gold futures are currently climbing $21.40 to $1,117.60 an ounce. In the previous week, the precious metal slid $8.60 or 0.78% to $1,096.20 an ounce, as the dollar went from strength to strength during the week.

On the currency front, the U.S. dollar extended its winning streak in the week ended December 31st, gaining 0.65% against the euro to $1.4318. The greenback also advanced against the yen to end 2.13% higher at 93.035 yen.

Currently, the U.S. dollar is trading at 92.773 yen and is valued at $1.4404 versus the euro.

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Asian Markets End In Positive Territory; Commodity Stocks Gain

The markets across Asia ended in positive territory on Monday, the first day of trading in 2010, led by resource stocks after commodity prices advanced in the international market. Crude oil price surpassed the $80 a barrel mark and is expected to rise further on cold weather conditions across the U.S. Optimism about global recovery is fueling the market rally as the markets await more economic data during the course of the week.

In Japan, the benchmark Nikkei-225 Index gained 108.35 points, or 1.03% to 10,655, the benchmark's highest close since Oct. 3, 2008, while the broader Topix index of all First Section issues was up 8.16 points, or 0.90%, to 916.

Airline stocks led the gains after after the government revealed on Sunday that the state-owned Development Bank of Japan will double its credit line, as a stopgap measure, to the belegueared Japan Airlines. Following the news, the stock of Japan Airlines surged up 33.33% on huge volume. The other airline, All Nippon Airways, climbed 5.16%.

Automakers gained on weaker local currency against the US dollar. Honda Motor Co., rose 1.93%, Suzuki Motor Corp. advanced 0.92%, Toyota Motor added 0.26%, Isuzu Motors climbed 4.62%, Nissan Motor gained 0.74% and Mitsubishi Motor increased 1.56%.

Among exporters, Fanuc Ltd gained 1.62%, Canon Inc. advanced 0.90%, Sharp Corp. rose 0.94% and Sony Corp. climbed 2.26%.

Trading companies also ended higher. Toyota Tsusho Corp. gained 1.83%, Mitsui & Co., also gained 1.83%, Sumitomo Corp. climbed 2.55%, Marubeni Corp. surged up 2.94% and Mitsubishi Corp. added 0.58%.
 
Shipping stocks also ended in positive territory. Kawasaki Kisen Kaisha gained 1.89%, Mitsui OSK Lines added 0.61% and Nippon Yusen edged up 0.35%.

Banking stocks, however, bucked the trend and ended in negative territory. Sumitomo Mitsui Financial slipped 1.13%, Resona Holdings shed 0.64%, Mizuho Financial fell 2.41% and Mitsubishi UFJ Financial edged down 0.22%.

In Australia, the benchmark S&P/ASX Index added 5.70 points, or 0.12% to close at 4,876, while the All-Ordinaries Index ended at 4,890, representing a gain of 7.10 points, or 0.15%.

Trading volumes were relatively thin as most of the traders have not yet returned from their holidays.

Energy stocks led the gains following rise in crude oil prices and speculation that oil prices might continue to rise owing to higher demand in the U.S due to freezing temperatures. Woodside Petroleum advanced 0.70% and Santos gained 1.42%. Oil Search Ltd managed to end unchanged from previous close while Origin Energy slipped 0.12%.

Gold stocks ended in positive territory. Lihir Gold gained 0.61% and Newcrest Mining climbed 1.90%.

Mixed trading was witnessed among the metals and mining stocks. Fortescue Metals advanced 1.13%, Gindalbie Metals gained 1.89%, Iluka Resources added 0.28%, Minara Resources climbed 3.09%, Mincor Resources surged up 5.34% and Rio Tinto edged up 0.04%. However, BHP Billiton slipped 0.09% and Macarthur Coal lost 2.13%.

Banking stocks held on to the gains amid speculation that National Australia Bank might consider taking over the beleagured British bank Northern Rock. ANZ Bank added 0.04% and Commonwealth Bank of Australia also edged up 0.04%. National Australia Bank and Westpac Banking Corp. ended unchanged from its previous close.

Retail stocks ended the session in negative territory. David Jones lost 2.04%, Harvey Norman fell 3.32%, JB Hi-Fi Ltd slipped 1.11% and Wesfarmers edged down 0.03%. However, Woolworths bucked the trend and ended in positive territory with a gain of 0.46%.
 
In Hong Kong, the Hang Seng Index ended the first day of 2010 in negative territory with a minor loss of 49.22 points, or 0.23%, at 21,823, dragged down by Chinese bank stocks on concerns that China might impose stricter norms to control asset bubbles and the Chinese central bank might resort to hiking the interest rates. ICBC led the decline with a loss of 1.09% while China Construction Bank declined 1.20%.

In South Korea, the KOSPI Index ended in positive territory with a gain of 13.37 points, or 0.79%, at 1,696, on the first day of trading in 2010. Technology stocks and brokerage stocks led the gains as traders evinced fresh buying interest on increasing optimism that the momentum in economic recovery will be sustained in near future. Higher commodity prices on weaker dollar as well as positive trading across other markets in the region also lifted market sentiment. Shares of Kumho Group, however, ended weaker limiting the overall gains, on liquidity concerns.

Positive sentiment in global markets, strong auto sales and an encouraging manufacturing sector report for December helped the Indian market end notably higher at a fresh 52-week high on Monday. India's manufacturing output rose the most since May in December, driven by strong domestic demand and a steady improvement in the export sector, according to a report released today. The benchmark Sensex finished at 17,559, up 94 points or 0.54% and the Nifty rose 31 points or 0.60% to 5,232.

Among other major markets open for trading in the region, Indonesia's Jakarta Composite Index gained 41.06 points, or 1.62% to close at 2,575, and Taiwan's Weighted Index added 19.74 points, or 0.24% at 8,208. However, the Straits Times Index in Singapore ended in negative territory with a marginal loss of 3.07 points, or 0.11%, at 2,895, and China's Shanghai Composite Index lost 33.82 points, or 1.02%, to close at 3,243.

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The major European markets are advancing on Monday, with the averages in the region opening sharply higher and moving sideways thereafter. The buoyancy is being supported by the rally in commodity prices.

Currently, the French CAC 40 Index is advancing 1.17%, the German DAX Index is moving up 0.64% and the U.K.’s FTSE 100 Index is rising 0.73%.

In corporate news, reports suggest that U.S.-based Kraft Foods (KFT) is contemplating to upwardly revise its $16.9 billion offer for Cadbury over the next two weeks, the period during which it is eligible to table a revised bid. Under Kraft’s December 4th offer, Cadbury shareholders have until January 5th to tender their shares.

Meanwhile, Royal Bank of Scotland (RBS) said today that its agreement to sell its Pakistani operations has lapsed due to its failure to secure regulatory approval to sell it to MCB Bank. Separately, reports said that Brazilian firm Itau Unibanco may buy stakes in Royal Bank of Scotland and Lloyds Banking Group as the U.K. government eyes to dispose its stakes in these banks.

On the economic front, Eurostat revealed that the euro area’s purchasing managers’ index stood at a seasonally adjusted 51.6 in December, higher than the November reading of 51.2. Meanwhile, the CDAF/Market Economics survey revealed that the French manufacturing purchasing managers’ index rose to 54.7 in December from 54.4 in November. Manufacturing output was higher for the sixth consecutive month.

Meanwhile, the U.K.’s manufacturing purchasing managers’ index rose to a seasonally adjusted 54.1 in December from 51.8 in November, according to a survey released by CIPS/Markit survey. The upside was attributed to a greater inflow of new orders. The BME/Markit Economics survey showed that the German manufacturing purchasing managers’ index rose to its highest level since May 2008, rising to 52.7 in December from 52.4 in November.

The index for Eurozone investor sentiment rose to minus 3.7 in January from minus 5.5 in December, the Sentix research group said. It was the sixth increase in a row and the best reading since June 2008. The current conditions index of the survey climbed to minus 17.5, the highest since October 2008, from minus 19.5. Meanwhile, the expectations measure increased to 11.25 from 9.5.

U.S. Economic Reports

After two weeks of fairly light news flow on the economic front, action picks up on Main Street, with several key first-tier economic reports scheduled to be released in the unfolding week.

With the tidings from the job market turning out to be less downbeat, traders are now reconciled to the idea of seeing a slow and steady improvement in labor market conditions. Against this backdrop, the week's monthly non-farm payrolls report, the weekly jobless claims report and the ADP's private sector employment survey assume importance. Additionally, traders may also stay focused on the employment components of the Institute for Supply Management's national manufacturing and non-manufacturing surveys.

The results of the ISM's manufacturing and services sector surveys for December, the National Association of Realtors' pending home sales index for November, the results of the announcement of the details of the upcoming Treasury auctions of 3-year notes, 10-year notes and 10-year Treasury Inflation Protected Securities all due to be announced at 11 AM ET on Thursday and 30-year bonds (due to be announced at 9 AM ET on Thursday) are likely to offer additional clues about how the economic environment is panning out.

Traders may also pay attention to the Fed speeches scheduled for the week and the minutes of the December FOMC meeting to be released on Wednesday. The construction spending report, the factory goods orders report and the wholesale inventories report all for November and the Federal Reserve's consumer credit report for November are also likely to be on the radar.

Services activity is expected to have rebounded in December, helped partly by improving freight activity and the continued positive momentum in the financial markets. Consequently, the ISM's non-manufacturing index is likely to move back into expansion territory.

The positive data points from the labor market have increased hopes for a cessation in the job losses that began in January 2008. That said, the unemployment rate could remain elevated for some time, as the workers who had previously given up on their job search are likely to come back to the labor force when they see the improvement in the market.

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 December.

The manufacturing sector expanded at a slower pace in November, with the manufacturing index falling to 53.6 in November from 55.7 in October. Economists had expected a more modest decline to 55. The production index fell to 59.9 from October's 63.3, but the new orders index rose 1.8 points to 60.3.

Although the employment index fell 2.3 points to 50.8, it remained in expansion zone for the second straight month. The inventories index continued to decline, showing that there was no respite from destocking.

The Commerce Department's construction spending report to be released at 10 AM ET is expected to show a 0.5% decline in spending for November.

Construction spending remained unchanged in October from the previous month. A 0.3% increase in private construction spending was offset by a 0.4% slippage in public construction spending. In the private category, spending on residential construction climbed 4.4% compared to a 2.5% drop in spending on non-residential construction.

Atlanta Federal Reserve Bank President Dennis Lockhart is scheduled to speak on government crisis response to the American Economic Association conference in Atlanta at 10:15 AM ET.

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Novartis (NVS) and Alcon (ACL) may see activity after Novartis said it has exercised its option to purchase the remaining shares in Alcon at a price of $180 per share, with about 156 million shares of Alcon to be purchased. On completion of the purchase, Novartis will own approximately a 77% stake in Alcon. Additionally, Novartis announced that it has submitted a proposal to Alcon’s board for a merger of Alcon totally into it by acquiring 23% of public traded Alcon shares at $153 per share.

Cablevision (CVC) and Scripps Networks (SNI) could be in focus after Cablevision accused Scripps Networks, which runs thr HGTV and Food Network channels, of holding viewers hostage for negotiating a 200% price increase following the expiration of an earlier fee agreement between both companies at midnight on December 31st, 2009.

Time Warner (TWX) and News Corp. (NWS) are likely to move in reaction to their announcement that both companies agreed on a deal that averted a crisis over the price that Time Warner has to pay News Corp.’s Fox stations for the latter’s programs. The companies did not disclose the terms of the deal.

Timken Co. (TKR) may also be in focus after it said it has completed the sale of its Needle Roller Bearings business to Japan’s JTEKT Corp. The company received about $330 million, including retained receivables from the sale.

Disney (DIS) is likely to see some strength after it said it has completed the acquisition of Marvel Entertainment (MVL) after Marvel’s shareholders approved the transaction. Marvel shareholders will receive $30 per share in cash plus an additional 0.77452 Disney shares for each share they own.

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