US & World Daily Markets Financial Briefing 05-08-2009

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The major U.S. index futures are pointing to a lower opening on Wednesday, with sentiment souring slightly following the release of a private sector survey that showed a bigger-than-expected job loss. Fears of a long overdue correction may keep sentiment subdued, even as traders fervently hope for seeing more evidence pointing towards stabilization in economic conditions.

Commodity prices are showing some weakness, with oil price likely to see some volatility amid the release of the weekly inventory report. The results of the services sector survey of the Institute for Supply Management may also impact trading in today’s session.

The major averages ended a volatile session on Tuesday modestly higher. Stocks saw notable weakness early in the session, as traders expressed apprehension over the recent sessions’ gains amid the release of a report that showed a steeper-than-expected drop in personal income and a pullback in commodity prices. Thereafter, the market movement reflected a fight between bears and bulls, with the major averages bouncing back and forth across the unchanged line.

The Dow Industrials ended up 33.63 points or 0.36% at 9,320 and the S&P 500 Index rose 3.02 points or 0.30% to 1,006, while the Nasdaq Composite Index rose 2.70 points or 0.13% at 2,011.

Sixteen of the thirty Dow components ended the session higher, with Alcoa (up 1.90%), Bank of America (up 2.09%), Caterpillar (up 6.14%) and Travelers Co. (up 2.75%) recording notable gains. However, Cisco, Merck, United Technologies and Verizon showed modest weakness.

Among the sector indexes, the Amex Airline Index rallied 4.97%, the NYSE Arca Gold Bugs Index rose 1.27% and the Philadelphia Housing Sector Index gained 1.68%. The KBW Bank Index jumped 2.65% and the NYSE Arca Biotechnology Index moved up 2.29%. On the other hand, the Philadelphia Oil Service Index fell 1.65% and the S&P Retail Index lost close to a percentage point.

On the economic front, the Bureau of Economic Analysis said personal income declined 1.3% in June following a 1.3% increase in May. At the same time, personal spending climbed 0.4%, one-tenth of a percentage point more than what economists had expected. Taking away the impact of stimulus spending, personal income was down a mere 0.1%. Notwithstanding a 0.4% increase in personal spending, real spending declined 0.1%. The personal savings rate declined to a 4.8% rate from a revised 6.2% in May.

Meanwhile, the National Association of Realtors said pending home sales climbed 3.6% month-over-month in June. Economists had estimated a mere 0.7% increase. The measure indicates contract signings and is a leading indicator for existing home sales. The gains were much pronounced in the South and West, which saw a significant number of foreclosure sales.

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Toronto Stocks Could Remain Near Eight-Month High At Open

Bay Street stocks could see little change at the open on Wednesday morning after soaring to an eight-month high in the previous session. U.S. futures are pointing at a flat open and commodities are hovering near the unchanged line.

Oil prices slipped slightly in electronic trading, but remained above $70 per barrel, as investors await the Energy Information Administration's weekly inventory report. Crude fell modestly yesterday after recent sharp gains took it to a seven-week high.

Gold prices fell $3.20 to $966.50 per ounce and copper was little-changed at $2.7895.

In corporate news, Agrium announced that its second quarter net earnings were US$370 million or US$2.35 per share, compared to US$636 million or US$4.00 per share, for the same quarter of 2008. Analysts expected the company to report earnings of US$1.81 per share for the quarter.

Yamana Gold reported adjusted second quarter net earnings of US$95.8 million or US$0.13 per share, down from US$102.7 million or US$0.15 per share in the year-ago quarter.
 
North American Energy Partners reported first-quarter net income of C$14.77 million, compared to C$19.10 million in the same quarter of last year. On a per share basis, net income for the quarter was C$0.40, compared to C$0.52 in the year ago quarter.

Fortis Inc. reporetd second-quarter net income applicable to common shares of C$53 million or C$0.31 per share, compared to C$29 million or C$0.18 per share in the same quarter last year.

Labopharm announced that it has filed a New Drug Submission or NDS with the Therapeutic Products Directorate of Health Canada for its novel formulation of the antidepressant trazodone.

Yesterday, the S&P/TSX Composite Index rallied 230.95 points or 2.14% to finish at 11,018.10. This marks the best finish since October 1 for Bay Street's main index.

Crude Oil Remains Above $71 As Traders Watch For Inventory Data

Crude oil prices are little changed above $71 per barrel on Wednesday as investors await the Energy Information Administration's weekly inventory report. Oil slipped slightly yesterday, as some profit-takers cashed in the recent rally to a seven-week high.

Light sweet crude oil is trading at $71.44 per barrel, up 20 cents on the session. Earlier, prices touched as low as $70.85 a barrel.

The EIA inventory report is due at 10:30 a.m. ET tomorrow. Economists are predicting that crude oil stockpiles increased by 1.5 million barrels and gasoline inventories fell by 2 million barrels in the week ended July 31.

Tuesday after the close, the American Petroleum Institute reported that crude oil inventories fell by 1.52 million barrels and gasoline inventories rose by 2.1 million barrels. API data is not as closely watched, as participation is voluntary. The reports move in the same direction about 75% of the time.

EIA data released last week showed that U.S. commercial crude oil inventories increased by 5.1 million barrels during the week ended July 24.

In the first of three major employment reports this week, ADP said non-farm private employment fell by 371,000 jobs in July following a revised decrease of 463,000 jobs in June.
 
Economists had been expecting a decrease of about 350,000 jobs compared to the loss of 473,000 jobs originally reported for the previous month.

Later this morning, traders will look to the Commerce Department report on factory orders for June, with analysts expecting a 0.8 percent decline in the headline figure.

Separately, the Institute of Supply Management will release its non-manufacturing survey results for July at 10:00 am ET. Economists expect the index to show a reading of 48 after having increased to 47 in June.

August gold has rallied to $957.50 per ounce, up $10.90 for the session. Prices reached as high as $969.50 an ounce earlier in the day.

Tuesday, crude oil dropped to $71.42 a barrel, down 16 cents on the session. Prices reached as low as $70.16 a barrel after earlier touching a high of $71.91 a barrel.

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Asian Markets Drift Lower On Profit Taking

The markets across Asia ended in the negative territory as traders preferred to lock gains following the recent rally. Traders also preferred to move to the sidelines ahead of key economic data related to employment later in the week. However, the Indian market ended in the positive territory with modest gains led by buying at lower levels

In Japan, the benchmark Nikkei 225 Index ended the session at 10,253, down 122.48 points, or 1.18%, while the broader Topix index of all first section stocks snapped its 13-day gains and ended in the red with a loss of 9.44 points, or 0.98% at 950.

Automotive stocks led the decline after Isuzu Motors reported that it swung to loss in the first quarter. The shares fell 4.68%. Among other automakers, Honda Motor fell 1.32%, Hino Motors lost 3.00%, Suzuki Motor declined 2.39% and Toyota Motor dropped 1.29%.

Retail stocks also ended weaker. Fast Retailing lost 3.47%, J Front Retailing fell 3.05% and Aeon Co. dropped 1.38%.

Trading companies ended mixed. Mitsubishi Corp. lost 1.28%. Toyoto Tsusho Corp. fell 1.57% and Itochu Corp. slumped 2.49%. However, Sumitomo Corp edged up 0.10% and Mitsui & Co., advanced 1.92%.

Shipping stocks also ended mixed. While Kawasaki Kisen added 0.80%, Nippon Yusen fell 1.20% and Mitsui OSK Lines lost 1.32%.
 
Banks ended in the red on profit taking. Sumitomo Mitsui Financial declined 1.93%, Resona Holdings lost 2.80%, Mizuho Financial dropped 1.30% and Mitsubishi UFJ Financial slipped 0.83%.

In Australia, the benchmark S&P/ASX200 Index ended at 4,265, having shed 44.80 points, or 1.04%, and the All-Ordinaries Index ended with a loss of 0.97% or 41.70 points, at 4,272.

On the economic front, the Australian Bureau of Statistics revealed that trade deficit narrowed during the month of June, reflecting a faster rise in exports. The trade deficit stood at a seasonally adjusted A$0.441 billion in June, smaller than the deficit of A$0.737 billion in May, and lower than economists' expectations of a deficit of A$0.8 billion.

In a separate report, the Department of Education, Employment and Workplace Relations or DEEWR, revealed that the leading indicator of employment rose for the second consecutive month in August, after falling for 18 successive months. The leading indicator for August stood at minus 0.716 compared to minus 0.781 in July.

Light sweet crude oil price for September delivery ended at $71.30 a barrel in electronic trading, down $0.12 from its previous close $71.42 a barrel in New York on Tuesday.

Retailer David Jones reported a 0.6% rise in sales for the fourth quarter. The company, however, revealed that the outlook for the future is unclear. Following the comments, the share price plunged 8.38%. Among other retailers, Harvey Norman fell 4.28%, but Woolworths managed to edge up 0.45%. Westfield Group gained 0.75% after UBS upgraded its stock rating to "neutral" from "sell".

Mining stocks ended weaker on profit taking. BHP Billiton lost 1.78%, Rio Tinto lost 3.36%, Gindalbie Metals declined 2.26%, Iluka Resources shed 1.79% and Oz Minerals fell 2.67%.

Banks also ended lower on profit taking. ANZ Bank declined 1.74%, Commonwealth Bank of Australia lost 2.88%, National Australia Bank fell 1.59% and Westpac Banking slipped 0.59%.

In oil space, Woodside Petroleum lost 1.65% and Santos shed 0.55%, Oil Search fell 2.46% and Origin Energy declined 2.44%.

Mixed trading was witnessed among gold stocks. Sino Gold lost 3.52% and Newcrest Mining fell 1.89%. However, Lihir Gold bucked the trend and advanced 2.20%.

In Hong Kong, the Hang Seng Index ended in negative territory with a loss of 301.66 points, or 1.45% at 20,495, led by banks on concerns China may initiate measures to tighten the liquidity in the mainland. Property stocks slumped on profit taking. As many as 35 of the 42 components in the Index ended in negative territory.
 
Among the financials, HSBC Holdings slipped 0.78%. Hang Seng Bank lost 2.75%, Bank of China fell 2.90% and Bank of Communications slumped 3.72%.

Property stocks ended lower on profit taking. Wharf-Holdings slumped 4.41%, Henderson Land fell 4.61%, SHK Property lost 4.69%, New World Development declined 4.40% and Sino Land shed 3.49%.

In South Korea, the benchmark KOSPI Index ensnapped the recent gains and ended in negative territory at 1,559, down 6.90% or 0.44%. Traders preferred to lock in gains ahead of key economic data following recent rally. Automakers, steel and bank stocks led the declines.

Buying at lower levels recouping the early losses, helped the Indian market end modestly higher despite weak cues from other Asian markets. The BSE Sensex finished the session at at 15,904, up 72.85 points or 0.46% from its previous close, and the S&P CNX Nifty gained 13.65 points or 0.29% to close at 4,694.

Among the other major markets in the region, China's Shanghai Composite Index lost 42.94 points, or 1.24% to close at 3,429, Indonesia's Jakarta Composite Index fell 43.03 points, or 1.82% to close at 2,317, Singapore's Strait Times Index lost shed 41.93 points, or 1.58% to close at 2,607 and Taiwan's Weighted Index fell 107.63 points, or 1.55% to close at 6,848.

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After opening weaker, the major European markets are picking up buying momentum, as positive earnings are favorably impacting the markets. The French CAC 40 Index and the German DAX Index are rising 0.62% and 0.17%, respectively, while the U.K.’s FTSE 100 Index is rising 0.31%.

In corporate news, Societe Generale reported that its second quarter net profit declined 52% to 309 million euros from 644 million euros in the year-ago period. Revenues rose 2.4% to 5.72 billion euros. The recent quarter’s results were impacted by non-recurring items totaling 1.7 billion euros.

U.K. bank Lloyds reported a loss of 3.1 billion pounds for the first-half, with the loss stemming from bad loans at its mortgage unit HBOS, which it acquired in January. However, revenues rose 7% to 11.9 billion pounds.

On the economic front, the U.K. Office for National Statistics reported that manufacturing output rose 0.4% month-over-month in June, a surprise increase when economists had expected a 0.1% monthly drop. Industrial production was up 0.5% following a 0.7% drop in the previous month. On an annual basis, industrial production declined 11.1%, slightly better than the 11.4% drop expected by economists.

Meanwhile, consumer confidence in the U.K. seems to be improving, as reflected by a 1-point increase in the consumer confidence index compiled by the Nationwide Building Society, which edged up to 60.

Separately, a private housing survey showed that the U.K.'s house prices rose 1.1% month-over-month in July, reversing the 0.4% drop in June. The survey done by Lloyds Banking Group Plc's Halifax division showed that house prices increased for the second time in the last three months. Nevertheless, house prices were down 12.1% on an annual basis.

U.S. Economic Reports

The ADP National Employment report, which sheds light on non-farm private employment, showed that non-farm private employment fell 371,000 in July compared to the previous month. Economists had estimated that the sector shed 350,000 jobs in the month.

The estimated change of employment from May to June was revised by 10,000 to a decline of 463,000 from a decline of 473,000. Goods-producing sector lost 169,000, with job losses in the manufacturing sector dropping by 99,000.

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

Durable goods orders, which make up the bulk of the factory goods orders, showed a 2.5% monthly decline in June. Excluding transportation orders, orders rose 1.1%. Economists had been looking for a mere 0.8% decline in headline orders and flat order growth excluding transportation. Non-defense capital goods orders, excluding aircraft orders, rose 1.4% in June, adding to the 4.3% gain in May.

Annually, the metric is down 21.1%. Shipments of this category of goods, which go directly into GDP calculations, edged up 0.1% month-over-month. The report provided further evidence the economy is moving towards stabilization.

The ISM is scheduled to release the results of its non-manufacturing survey at 10 AM ET. The non-manufacturing index is likely to show a reading of 48 for July.

The non-manufacturing index rose to 47 in June from 44 in May, reaching its highest level since September 2008. While the new orders index rose to 48.6 from 44.4 in May, the backlog of orders index climbed 6 points to 54.5. The employment index also climbed, rising 4.4 points to 43.4. On a very positive note, the export orders index rose 7.5 points to 54.5. Meanwhile, the prices paid index rose about 7 points to 53.7, mitigating deflationary fears.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report at 10:30 AM ET.

Crude oil stockpiles rose by 5.1 million barrels to 347.8 million barrels in the week ended July 24th. Crude oil inventories remained above the upper bound of the average range for this time of the year.

Distillate stockpiles rose by 2.1 million barrels and remained above the upper boundary of the average range. However, gasoline inventories fell by 2.3 million barrels, although they remained in the upper half of the average range. Refinery capacity utilization averaged 86.3% over the four weeks ended July 24th compared to 86.9% in the previous week and 88.9% in the year-ago period.

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