US & World Daily Markets Financial Briefing 04-08-2009

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Traders May Await Further Signals to Confirm Recovery

The major U.S. index futures are pointing to a lower opening on Tuesday. Odds favor a pullback after the scintillating run up in the past couple of sessions. Additionally, commodity prices are pulling back, increasing the likelihood of a retreat in the commodity space. An economic report released earlier in the day showed that personal spending rose by a little more than expected, while personal income saw a steeper-than-expected decline.

Markets participants may also closely watch the National Association of Realtor’s pending home sales report to reinforce recent views that the housing sector is approaching a bottom.

U.S. stocks opened Monday’s session higher, aided by the solid positive momentum in the rest of the global markets. The sentiment gained strength following the release of positive domestic manufacturing and construction data. The major averages saw some further upside over the course of the day to close sharply higher.

The Dow Industrials advanced 114.95 points or 1.25% to 9,287, the Nasdaq Composite Index gained 30.11 points or 1.52% to close at 2,009 and the S&P 500 Index rose 15.15 points or 1.53% to 1,003.

Twenty-six of the thirty Dow components ended higher, with Alcoa (AA) (up 7.14%), Bank of America (BAC) (up 3.58%), DuPont (DD) (up 3.14%), Bank of America (BAC) and Travelers Co. (TRV) (up 4.53%) among the notable gainers. 3M Co. (MMM), General Electric (GE), JP Morgan (JPM), Cisco Systems (CSCO), Caterpillar (CAT) and Boeing (BA) also advanced notably.

Among the sector indexes, the Dow Jones Transportation Average rallied 2.65%, while the NYSE Arca Securities Broker/Dealer Index and the KBW Bank Index rose 1.10% and 2.62%, respectively. The S&P Retail Index and the Philadelphia Housing Sector Index gained 1.50% each. In the resource space, the NYSE Arca Oil Index rose 2.02% compared to a 4.56% climb by the Philadelphia Oil Service Index and a 2.58% advance by the NYSE Arca Gold Bugs Index.

In the technology space, the Philadelphia Semiconductor Index moved up 1.75%, while the NYSE Arca Disk Drive Index gained 2.69%. The NYSE Arca Networking Index rose close to a percentage point.

Although there is no denying of the fact that the recent equity market rally is impressive, the questionable nature of the economic recovery, which many expect will be short-lived, reduces the probability of seeing a multi-year rally.

Traders are likely to focus on the economic numbers, and just like dust drifting in the wind, the markets are likely to sway in reaction to the economic numbers. Steady progress by the markets is seen as a remote possibility. Governmental initiatives, while succeeding in turning sentiment more positive, are yet to manifest as concrete results. The upcoming week’s FOMC meeting may not have a catalyzing role, given the fact that the Fed has exhausted all the ammunition in its war chest.

With yesterday’s advance, the S&P 500 Index closed above the psychological mark of 1,000 for the first time since November 4th, 2008. The index has nicely bounced off its March 6th low of 666. On the downside it has support around 943, while resistances are found around the 1,055, 1,114 and 1,214 levels.

July proved to be benign for the markets, with some of the upside attributed to end-of-the-quarter window dressing. Volumes are picking up and the breadth of the rally is also encouraging. With earnings season tapering off, the focus is likely to shift back to economic numbers. The pull and push triggered by mixed economic numbers and the lack of visibility into a sustainable recovery points towards some consolidation in the near term.

On the economic front, the ISM’s manufacturing purchasing managers’ index rose to 48.9 in July from 44.8 in June, with the latest month’s reading marking the highest since August 2008. The new orders index climbed above 50 to 55.3 from 49.2 and the backlog of orders index rose 2.5 points to 50. On a positive note, the employment index rose about 5 points to 45.6. Despite a 2.7 point-increase, the inventories index is still at depressed levels at 33.5, while the prices paid index rose 5 points to 55.

The Commerce Department’s construction spending report showed a 0.3% increase in the spending for July. Public construction spending climbed 1%, helping to offset a 0.1% drop in private construction spending. Single-family construction rose for the first time in 40 years, while multi-family construction declined again. In the private category, non-residential construction declined 0.5%.

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Bay Street Stocks Look To Extend Gains After Holiday Weekend

Canadian stocks could extend last week's gains on Tuesday as traders return from a three-day weekend. Toronto markets were closed for Civic Day on Monday as stocks in the U.S. and Europe posted gains.

Crude oil prices dropped in electronic trading, surrendering some of yesterday's rally to a seven-week high. Gold was nominally lower at $958.60 while copper fell 2.55 cents to $2.713.

Gold mining company Kinross Gold Corp. said unionized employees at its subsidiary Compania Minera Mantos de Oro in Chile have voted in favor of a new collective agreement, ending a strike at the La Copia mine that began in July 2008.

In other corporate news, Canadian energy company Suncor Energy Inc. Monday announced the completion of its merger with oil and gas firm Petro-Canada on August 1. The new Suncor is expected to contribute annual reductions of $1 billion in capital spending, in addition to expected annual savings of $300 million in operational expenditures.
 
Immunotec Inc. said the FDA has approved an investigator-held IND to conduct a pilot study of 48 patients to determine the effect of IMN 1207, a cysteine-rich whey protein supplement, in preventing additional weight loss in patients with stage IV non-small cell lung cancer or NSCLC.

Orvana Minerals Corp. announced that it has extended its all-cash offer of C$0.75 per share for all outstanding common shares of Kinbauri Gold Corp. The bid is now set to expire on August 17.

Cardiome Pharma Corp. appointed Doug Janzen as President and Chief Executive Officer, effective immediately. Janzen was formerly President and Chief Business Officer of the company.

Street stocks rallied to their highest level in almost eight months on Friday. The S&P/TSX Composite Index rallied 110.43 points or 1.03% to settle at 10,787.15.

Gold Moves Slightly Higher As Dollar Hovers Near Lows

The price of gold moved slightly higher on Tuesday morning, extending its recent rally. The precious metal's hedge appeal remained strong as the dollar lingered near long-term lows against its European rivals.

Gold for immediate delivery added $2.90 to $961.70 per ounce. The more-actively traded December contract rose $2.80 to $961.60.

The dollar has stabilized against the euro near 1.4400 after touching an eight-month low of 1.4444 yesterday. The buck also settled into a range against the pound near a multi-month low.

In economic news, a Commerce Department report showed that personal spending rose 0.4% in June following a revised 0.1% increase in May. Economists had been expecting spending to increase by 0.3% compared to the 0.3% increase originally reported for the previous month.
 
At the same time, the Commerce Department said that personal income fell by 1.3% in June after increasing by a revised 1.3% in the previous month. The decrease compares to economist estimates of a 1% decline.

Pending home sales data is coming at 10 a.m. ET. Sales are expected to be up 0.3% in June after rising 0.1% in May.

In other metal trading, silver rose 20.3 cents to $14.455 per ounce and copper was little-changed at $2.7395 a pound. Meanwhile, crude oil slipped 32 cents to $71.26 per barrel.

Yesterday, gold for August delivery rose to $956.60 per ounce, up $2.90 for the day. Prices touched as high as $964 earlier in the session.

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Asian Markets End Higher; Profit Taking Trims Gains

Most of the markets across Asia ended in positive territory following rise in commodity prices in the international market. Banks also gained following better-than-expected results from major European banks. However, profit taking following recent gains trimmed the gains and most markets ended off the day's high. The markets in India, Hong Kong, Singapore and Taiwan ended in the negative territory.

The stock market in Japan ended in positive territory on Tuesday following Wall Street cues where the major averages ended strongly higher on positive economic data. Profit trading late in the session following recent gains, however, trimmed the gains.

The benchmark Nikkei 225 Index ended the session at 10,375, up 22.54 points, or 0.22%, while the broader Topix index of all first section stocks rose to a nine-month high of 959, with a gain of 1.46 points, or 0.15%.

Light sweet crude oil for September delivery ended the Asian trading session at $70.81, down $0.77 from its previous close in New York at $71.58 a barrel on Monday.

Trading companies advanced following rise in commodity prices in the international market. Mitsui & Co. surged up 5.68%, Mitsubishi Corp gained 2.09% and Sumitomo Corp. rose 3.67%.

Sumitomo Metals & Minerals advanced 4.68% and Nippon Mining gained 2.58%. Insurance stocks also advanced after the TED spread narrowed, signaling the return of stability in the global financial market. T&D Holdings rose 2.94% and Tokio Marine Holdings rose 1.24%.

Mixed trading was witnessed among the financials on profit taking. While Mitsubishi UFJ Financial remained unchanged from previous close and Mizuho Financial added 0.88%, Resona Holdings fell 2.45% and Sumitomo Mitsui Financial edged down 0.72%.

Automakers slipped on poor earnings results. Suzuki Motor, which reported a 92% drop in quarterly earnings on Monday, slumped 4.96%. Nissan Motor declined 4.41% and Toyota Motor dropped 1.47%.

In Australia, the benchmark S&P/ASX200 Index ended at 4,315, representing a gain of 1.21% or 51.70 points, and the All-Ordinaries Index ended with a gain of 43.40 points, or 1.02% at 4,314.

On the economic front, the Reserve Bank of Australia left its key interest rate unchanged as expected for the fourth month. The official cash rate now stands at 3%, the lowest level in 49 years. In a separate report, the Australian Bureau of Statistics revealed that retail sales, on a seasonally-adjusted basis, dropped 1.4% month-on-month in June, after rising 1% in the preceding two months and 2% in March. Total retail sales amounted to A$19.4 billion, down from A$19.7 billion in May.

Mining stocks advanced following sharp rise in commodity prices in the international market. BHP Billiton gained 2.02%, Rio Tinto surged up 4.30%, Iluka Resources advanced 3.02% and Fortescue Metals edged up 0.23%.

Financials advanced on expectations of global recovery and stabilization in the global financial sector after the major European banks reported satisfactory results and were cautiously optimistic in their forecast. ANZ Bank gained 3.00%, Commonwealth Bank of Australia advanced 1.97%, National Australia Bank rose 3.97% and Westpac Banking added 0.45%.

Mixed trading was witnessed among the oil stocks despite rise in crude oil prices. While Woodside Petroleum slipped 0.82% and Santos edged down 0.20%, Oil Search added 0.89% and Origin Energy advanced 0.82%.

Gold stocks also ended mixed. Sino Gold surged up 4.42% and Newcrest Mining gained 3.97%. However, Lihir Gold edged down 0.36%.

In Hong Kong, the Hang Seng Index ended in negative territory with a loss of 10.83 points, or 0.05% at 20,796, as traders preferred to lock in gains following a recent rally.

HSBC Holdings, which reported better than expected results on Wednesday, surged up 6.95%. Aluminum Corp. of China, or CHALCO, advanced 3.31% and China Shenhua rose 2.31%.
 
Retailer Li & Fung, which exports most of its goods to Wal-Mart in the US, added 3.15% on recovery hopes. Other notable gainers include China Mercantile Holdings which surged up 6.52% and Cathay Pac Air which advanced 2.93%. Property stocks and other components of the index ended in negative territory on profit taking.

In South Korea, the benchmark KOSPI Index ended in positive territory with a modest gain of 1.39 points, or 0.09% at 1,567, led by foreign institutional investment who picked up auto-related stocks and blue chips. Profit taking across the board following recent gains limited the upside. Automakers, steel and technology shares attracted buying interest from the investors in a relatively low volume trading session.

The Indian market closed with a modest loss on Tuesday, as weak global cues led to some profit taking after recent gains. The BSE Sensex finished the session at at 15,831, down 93 points or 0.59% from its previous close, and the S&P CNX Nifty fell 31 points or 0.66% to close at 4,680.

Among the other major markets in the region, China's Shanghai Composite Index added 8.85 points, or 0.26% to close at 3,471 and Indonesia's Jakarta Composite Index advanced 21.30 points, or 0.91% to close at 2,361. On the other hand, Singapore's Strait Times Index lost 32.88 points, or 1.23% to close at 2,649 and Taiwan's Weighted Index fell 100.84 points, or 1.43% to close at 6,956.

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The major European markets are trending lower, with the French CAC 40 Index, the German DAX Index and the U.K.’s FTSE 100 Index moving down 0.50%, 0.75% and 1.08%, respectively. Resource stocks have receded after their strong run up in yesterday’s session.

In corporate news, UBS (UBS) reported a loss of $1.4 billion euros for the second quarter compared to a loss 395 million euros in the year-ago period. The loss stemmed mainly from charges related to job cuts and its attempts to reduce its debts. The company was guarded in its outlook, saying a recovery will be constrained by low credit creation and the structural weaknesses in the balance sheets of consumers and governments.

Meanwhile, Standard Chartered said it intends to offer new shares to raise 1 billion pounds to fund acquisitions in Asia. The company reported that its profits for the first quarter rose 5%, aided by higher profits from trading and financing activity.

In its interim update, U.K. food company Premier said it expects first-half profits to be lower due to higher marketing and manufacturing costs.

On the economic front, Eurostat said eurozone industrial producer prices dropped 6.6% year-over-year in June, compared with a 5.9% decline in the previous month. The wholesale inflation rate came in line with economists' expectations. On a monthly basis, producer prices increased 0.3% in June following a flat reading in May.

U.S. Economic Reports

With personal spending increasing by slightly more than expected and personal income falling by more than expected, the Commerce Department released a report on Tuesday showing a notable decline in the personal savings rate in June.

The report showed that personal spending rose 0.4 percent in June following a revised 0.1 percent increase in May. Economists had been expecting spending to increase by 0.3 percent compared to the 0.3 percent increase originally reported for the previous month.

At the same time, the Commerce Department said that personal income fell by 1.3 percent in June after increasing by a revised 1.3 percent in the previous month. The decrease compares to economist estimates of a 1.0 percent decline.

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. Economists estimate a 0.7% increase in the pending home sales index for June.

Pending home sales rose 0.3% month-over-month in May and the previous month's gain was revised up to 7.1% from the initially reported 6.7% increase.

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Walgreen could react to its announcement that its sales for July rose 7.3% year-over-year. The company’s comparable store sales increased 2%. PHH Corp. (PHH) is likely to be in focus after the company said its second quarter net income per share was $1.91 per share compared with 30 cents per share in the year-ago period. Net revenues rose to $768 million from $663 million in the year-ago period. Analysts estimated earnings of 76 cents per share on revenues of $615 million.

Vulcan Materials may also be in focus after it said its second quarter net earnings fell to 20 cents per share from $1.27 per share in the year-ago quarter. Earnings from continuing operations were 14 cents per share. Analysts estimated earnings of 20 cents per share for the quarter. Total revenues fell to $721.86 million from last year’s $1.02 billion. The company lowered its 2009 earnings from continuing operations guidance from its earlier estimate of 40-65 cents per share.

Pulte Homes may see some weakness after it reported a loss of 74 cents per share, wider than 63 cents per share last year. Sales fell 58% to $679 million. The consensus estimate called for a loss of 57 cents per share on revenues of $647.1 million.

Amgen could react to its announcement that Phase III trails showed that its osteoporosis drug denosumab performed in a similar manner as Novartis’ Zometa. Continental Airlines (CAL) may be in focus after it reported that its July consolidated load factor was 87.3%, up 3.1 percentage points year-over-year.

Earnings

Tenet Healthcare said it confirmed all the earnings details provided in its preview dated July 28th, 2009. The company reported a loss of 3 cents per share for the quarter, flat with the year-ago period. Sales were up 5.5% at $2.23 billion. The company expects 2009 earnings growth of 3%-5%.

DR. Horton reported that its third quarter net loss was 45 cents per share compared to a loss of $1.26 per share in the year-ago period. Analysts’ estimates, which typically exclude one-time items, expected a loss of 23 cents per share. Homebuilding revenue for the third quarter totaled $914.1 million compared with $1.4 billion in the same quarter last year.

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