US & World Daily Markets Financial Briefing 04-12-2009

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Strong Rally in the Cards as Job Market Shows Signs of Return to Form

The major U.S. index futures are pointing to a higher opening on Friday, with futures skyrocketing following the release of a refreshingly surprising jobs data. The job market, which was bleeding since January 2008, seems to have hit the bottom, with the economy losing very few jobs in November. The retreat of the jobless rate should add to the comfort. In reaction, oil is climbing and the safe haven gold, which has been having a scintillating run in recent weeks, is giving back some ground.

Bond prices are also retreating, with the yield on the 10-year treasury note rising 0.10% to 3.48%. Relishing the evidence of growth solidifying in the U.S. economy, the dollar is rallying across the board.

U.S. stocks showed some early strength in Thursday’s session, as the weekly jobless claims data unexpectedly fell for the recent reporting week. Thereafter, the major averages gave back their gains and began moving back and forth across the unchanged line in a narrow range until late trading before declining sharply. Sentiment was subdued due to the release of downbeat non-manufacturing sector data and lackluster chain store sales results.

The Dow Industrials fell 86.53 points or 0.83% to 10,366 and the S&P 500 Index ended down 9.32 points or 0.84% at 1,100. At the same time, the Nasdaq Composite declined more modestly to end at 2,173, representing a loss of 11.89 points or 0.54%.

Twenty-three of the thirty Dow components ended the session higher, with American Express (AXP) (down 5.29%), Alcoa (AA) (down 2.71%), Travelers Co. (TRV) (down 2.30%), 3M Co. (MMM) (down 1.71%) and DuPont (DD) (down 1.55%) among the worst decliners.

Among the sector indexes, the Dow Jones U.S. Basic Materials Average fell 1.85%. The KBW Bank Index and the NYSE Arca Securities Broker/Dealer Index declined 3.02% and 1.68%, respectively. In the resource space, the NYSE Arca Oil Index lost 0.90%, the Philadelphia Oil Service Index receded 2.45% and the NYSE Arca Gold Bugs Index moved down 2.68%. The S&P Retail Index and the Philadelphia Housing Sector Index ended down more than 1% each. However, the Philadelphia Semiconductor Index gained 1.15%.

On the economic front, the Institute for Supply Management reported that the November non-manufacturing index fell to 48.7 from 50.6 in October. Economists had estimated an increase in the index to 51.5. The business activity index slipped below the ‘50’ level to 49.6, down 5.6 points, while the new orders index edged down 0.5 points to 55.1. The order backlogs index declined 5 points to 48.5 compared to a 0.5 point-slippage in the employment index to 41.6.

Meanwhile, non-farm productivity rose at a downwardly revised 8.1% rate in the third quarter versus the 9.5% growth estimated initially. The strong productivity growth reflects companies squeezing out every bit of production they can from the workforce. Annually, productivity increased 4%. While compensation rose at a 5.4% annualized sequential rate in the third quarter, real compensation adjusted for inflation rose 1.8%. On the other hand, unit labor costs declined 2.5% quarter-over-quarter and 1.4% year-over-year.

May Rise After Encouraging Jobs Data

Toronto stocks could see strength in early Friday trading on strong employment reports from both sides of the border.

Canada's economy unexpectedly added 79,000 jobs last month, bringing the unemployment rate down 0.1 percentage points to 8.5%, according to data released Friday by Statistics Canada.

The U.S. Labor Department revealed that non-farm payrolls dropped by 11,000 last month - a significant improvement from the 111,000 jobs that were lost in October. Most economists had expected job losses to once again total more than 100,000.

In the top corporate news of the day, Royal Bank of Canada reported that its fourth-quarter net income was C$1.24 billion, compared to C$1.12 billion in the same quarter last year. On a per share basis, net income was C$0.82, compared to C$0.81 last year.

Meanwhile, TSO3 announced that the company has received clearance from the US Food and Drug Administration to expand the intended use claims for its TSO3 STERIZONE 125L Sterilizer.
 
Harry Winston Diamond announced appointment of Frédéric de Narp as President and Chief Executive Officer of Harry Winston, Inc., its New York-based jewelry and watch subsidiary, effective January 4.

In commodities, gold dropped $27.10 to $1,188.70 per ounce amid lower demand for hedge investments. Copper fell 1.35 cents to $3.2315 per pound, while crude oil edged up 13 cents to $76.37 a barrel.

On Thursday, the S&P/TSX Composite Index fell 143.18 points or 1.21% to finish at 11,636.55. The market saw notable weakness in the final hour.

Canada's Ivey Purchasing Managers Index for November is due at 10 a.m. ET. A reading of 59.4 is forecast, compared to a 61.2 in October.

Currency, Commodity Futures

Crude oil futures are currently rising $0.61 to $77.07 a barrel. In Thursday’s session, oil fell $0.14 to $76.46 a barrel. Gold futures, which advanced $5.30 to $1,218.30 an ounce in the previous session, are currently slipping by $11.30 to $1,207 an ounce. The precious metal has been receiving ample support from speculation over continued central bank gold purchases.

On the currency front, the U.S. dollar is trading at 89.36 yen, stronger than the 88.2645 yen it fetched at the close of the New York session on Thursday. The euro is currently valued at $1.4989.

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Asian Markets End Mixed; Await US Jobs Report

The markets across Asia ended mixed, on Friday, with traders preferring to book profits and stay on the sidelines ahead of the key jobs report to be released shortly before the U.S. markets open. While the markets in Japan, South Korea and China ended in positive territory, the markets in Hong Kong, Australia, India, and Taiwan ended in negative territory on profit taking.

In Japan, the benchmark Nikkei 225 Index gained 44.92 points, or 0.45%, to 10,023, while the broader Topix index of all First Section issues added 1.54 points, or 0.17%, to 890.

The weakening of the local currency against the dollar and other major currencies by as much as 4 yen from the 14-year low recorded in the past week lifted the market sentiment, despite weak closing on Wall Street.

Among automotive stocks, Suzuki Motor, which announced sale of its stake in Joint Venture with GM Canada, surged up 4.73%, Honda Motor gained 1.51%, Nissan Motor advanced 3.12% and Mitsubishi Motor soared 5.12%. However, Toyota Motor slipped 0.80% on profit taking.

Airline stocks ended in positive territory on talks of consolidations in the industry. Japan Airlines surged up 8.70% and All Nippon Airways gained 2.52%.

Shipping stocks also ended in positive territory. Kawasaki Kisen Kaisha advanced 1.52%, Mitsui OSK Lines added 0.80% and Nippon Yusen soared 6.18%.
 
Mixed trading was witnessed among banking stocks, on profit taking. While Resona Holdings advanced 0.71% and Mizuho Financial added 0.60%, Sumitomo Mitsui Financial edged down 0.34% and Mitsubishi UFJ Financial edged down 0.20%.

In Australia, the benchmark S&P/ASX200 Index declined 72.40 points, or 1.52% to close at 4,702, while the All-Ordinaries Index ended at 4,721, representing a loss of 12.60 points, or 1.42%.

Mining and metal stocks declined following drop in commodity prices in the international market.

BHP Billiton declined 2.52%, Rio Tinto lost 2.26%, Fortescue Metals fell 2.50%, Gindalbie Metals shed 1.52%, Mincor Resources slumped 6.57% and Oz Minerals decreased 2.78%.

Oil stocks also ended in negative territory. Woodside Petroleum slipped 0.53%, Santos fell 1.65% and Origin Energy lost 1.57%. However, Oil Search bucked the trend and ended in positive territory with a gain of 0.33%.

Gold stocks also ended sharply lower after bullion prices declined in the international market. Lihir Gold fell 4.08%, Newcrest Mining declined 2.27% and Sino Gold Mining lost 3.92%.

Banking stocks also ended in negative territory. ANZ Bank slipped 0.99%, Commonwealth Bank of Australia edged down 0.28%, National Australia Bank fell 2.02% and Westpac Banking fell 1.72%.

Retail stocks also ended weaker. David Jones fell 2.60%, Harvey Norman lost 3.80%, JB Hi-Fi Ltd declined 1.67%, Wesfarmers shed 1.71% and Woolworths slipped 0.50%.

In Hong Kong, the Hang Seng Index snapped its 4-day gains and ended in negative territory with a loss of 55.72 points, or 0.25%, at 22,498, as investors preferred to lock in gains and move to the sidelines ahead of the key economic report related to jobs before the US markets open for trading. Weak closing on Wall Street in the previous session and lower commodity prices impacted the market sentiment. Banks led the declines during the trading session. Of the 42 components of the index, as many as 30 stocks ended in negative territory on profit taking.

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The major European averages, which showed moderate weakness in early trading on Friday, have moved into positive territory following the release of the U.S. jobs report. The French CAC 40 Index and the German DAX Index are rising 1.07% and 0.80%, respectively, while the U.K.’s FTSE 100 Index is advancing 0.56%.

In economic news, Markit Economics reported that Germany’s construction purchasing managers’ index came in at 44.6 in November compared to 43.4 in the previous month. Lower levels of construction output were attributed to unfavorable market conditions, a corresponding lack of confidence among clients and falling volumes of new work. New orders fell at their steepest rate in five months in November.

U.S. Economic News

The Labor Department’s monthly non-farm payroll employment report showed that the economy lost 11,000 jobs in November, notably lower than the 111,000 jobs shed in the previous month. Economists had estimated a loss of 114,000 jobs. October’s job loss was initially estimated at 190,000.

In November, the servicing providing sector added 58,000 jobs, with professional and business services sector adding a total of 86,000 jobs. There was an addition of 40,000 jobs by the education and health services sector. The goods producing sector lost 69,000 jobs, weighed down by job losses in the manufacturing sector, which shed 41,000 jobs.

At the same time, the unemployment rate edged down to 10% in November from 10.2% in October. Average hourly earnings rose 0.05% to $18.74.

The Commerce Department is due to release its report on factory goods orders for October at 10 AM ET. Orders for manufactured goods are likely to have increased 0.1% in the month.

Durable Goods Orders, which make up the bulk of factory goods orders, showed a 0.6% month-over-month decline for October. Orders, excluding transportation, fell by 1.3%. Notwithstanding 1.5% increase in transportation orders, total orders remained weak due to soft demand for machineries and electronic products. Shipments edged down 0.2%, while inventories remained unchanged. Non-defense capital goods orders, excluding aircrafts, fell 2.9%, reversing the 2.6% increase in the previous month.

Philadelphia Federal Reserve President Charles Plosser is due to deliver opening remarks at conference on Policy Lessons from the Economic and Financial Crisis in Philadelphia at 10 AM ET. Also scheduled to make a public appearance on the day will be St. Louis Federal Reserve Bank President James Bullard, who is due to speak at a Philadelphia Fed conference in Philadelphia at 1:15 PM ET.

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Marvell Technology Group (MRVL) may climb after it reported that its third quarter earnings rose to 32 cents per share from 12 cents per share last year. On an adjusted basis, the company reported earnings of 35 cents per share, as revenues rose about 2% to $803 million. Analysts estimated earnings of 27 cents per share on revenues of $770 million.

Novell (NOVL) may be in focus after it reported that its fourth quarter non-GAAP net income rose to 11 cents per share from 6 cents per share last year. However, net revenues fell to $216 million from the year-ago revenues of $245 million. Analysts estimated earnings of 7 cents per share on revenues of $215.69 million. For the first quarter, the company expects revenues of $200 million to $210 million compared to the $214.20 million.

Mentor Graphics (MENT) is likely to react to its announcement that it posted a loss of 28 cents per share for its third quarter compared to a loss of 85 cents per share last year. On an adjusted basis, the company reported a profit of 5 cents per share, ahead of the 1 cent per share consensus estimate. Revenues rose 2% to $189.2 million, also exceeding the $183.5 million consensus estimate.

UnitedHealth (UNH) may gain ground after the company announced that Judge Lawrence McKenna of the Southern District of New York entered an order granting preliminary approval of a $350 million class action settlement with the company. The settlement resolves contention over the company’s practices related to reimbursement for health care services by out-of-network providers.

Bank of America (BAC) may see weakness after it announced that it has priced its offering of its 1.286 billion common equivalent securities at $15 per share. The company expects the offer to generate gross proceeds of $19.29 billion. The bank will use the proceeds together with existing funds to redeem preferred stock issued to the Treasury as part of the TARP.

Genworth (GNW) could see some activity after it said it has priced its public offering of 7-year senior notes in an aggregate principal amount of $300 million and with an interest rate of 8.625% per year.

Unilever (UL) is also likely to be in focus after it announced that it is voluntarily recalling all of its Slim-Fast ready-to-drink products in cans due to possible bacterial contamination. While noting that the microorganism could cause diarrhea and nausea/vomiting, the company noted that the probability of adverse health consequences is remote.

United Airlines (UAL) may react to its announcement that its consolidated load factor rose 3.5 percentage points to 80.2% in November. The increase was supported by a 1.8% increase in traffic, while capacity declined 2.7%. Meanwhile, peer American Airlines (AMR) reported a 3 percentage points increase in its load factor for November to 79.6. Traffic and capacity fell 0.5% and 4.2% year-over-year.

SWS Group (SWS) could see some activity after it announced that it has priced its previously announced public offering of 4.35 million shares at $11.50 per share. The company expects the offer to close on December 9th, 2009.

Tyson Foods’ (TSN) is likely to gain ground after it said three of four operating segments produced returns at or above normalized levels in 2009. The company also noted that its chicken segment made significant improvement from the first to the second half of 2009, with operating margin of the segment rising to 3.5% in the second half compared to a –7.3% in the first half.

FedEx (FDX) could be in focus after it announced a 4.9% increase on an average in its standard list rates for FedEx Ground and FedEx Home Delivery, effective January 4th, 2010. The company also noted that the rates for FedEx SmartPost will also change.

Regency Centers (REG) may see weakness after it announced that it plans to commence an offering of 8 million shares in an underwritten public offering. Separately, the company reaffirmed its 2010 earnings guidance, as it expects positive interest savings from the use of excess cash to repay its existing term loan and settlement of the equity forward beginning in the second half of 2010.

Biogen Idec (BIIB) could see some activity after it announced that it has increased its offer for buying Facet Biotech (FACT) to $17.50 per share, up 21% from its previous offer. Ecolab (ECL) may rally after it announced an increase in its quarterly cash dividend by 11% to $0.155 per share to be paid January 15th, 2010 to shareholders of record as of December 15th, 2009.

Mannatech (MTEX) is likely to be in focus after it announced the resignation of its President and CEO Wayne Badovinus for personal reasons. The company said it has appointed its CFO Steve Fenstermacher and Chief Science Officer Dr. Rob Sinnott as co-CEOs.

Take-two Interactive (TTWO) may see some weakness after it reduced its full year guidance for a second time, citing weak sales of its “Major League Baseball” titles. The company said it is unlikely to achieve its goal of making an operating profit on an adjusted basis in 2010. For the full year, the company expects an adjusted loss of $1.10-$1.15 per share on revenues of $950 million to $975 million. The consensus estimates call for a loss of 84 cents per share on revenues of $995.1 million.

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