US & World Daily Markets Financial Briefing 06-01-2010

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Sentiment May Remain Subdued Due to Uncertainty

The major U.S. index futures little changed on Wednesday, reflecting the indecision of traders. Traders are likely to remain cautious as they look ahead to some key economic reports that can improve the visibility on the economic environment. A private sector employment report released earlier in the day showed a decline in the rate of job losses, which was more or less in line with expectations of economists. The resurgence in the value of the dollar is keeping a lid on commodity prices. Particularly oil is expected to show some volatility amid the release of the EIA’s weekly inventory report. The results of the ISM’s services survey and the minutes of the December FOMC meeting could also influence trading in today’s session.

U.S. stocks ended on a mixed note on Tuesday following a decent run up in the previous session, as traders preferred to stay on sidelines amid caution ahead of a slew of first-tier economic reports to be released over the course of the rest of the week. Additionally, a sharp drop in the pending home sales index also weighed on sentiment. Volume of trading was light, with merely 2.49 billion shares exchanging hands.

The Dow Industrials opened slightly higher, but it immediately dipped below the unchanged line and languished in negative territory for the rest of the session. The 30-stock index closed down 11.94 points or 0.11% at 10,572. After showing a lack of direction for much of the session, moving back and forth across the unchanged line, the S&P 500 Index and the Nasdaq Composite ended higher for the day. While the S&P 500 Index advanced 3.53 points or 0.31% to 1,137, the Nasdaq Composite Index gained merely 0.29 points or 0.01% to 2,309.

Sixteen of the thirty Dow components closed the session lower, with Alcoa (AA), DuPont (DD), IBM (IBM), Pfizer (PFE), Wal-Mart Stores (WMT), Johnson & Johnson (JNJ) and Coca-Cola (KO) leading the slide. On the other hand, Kraft Foods (KFT) rallied close to 5% and JP Morgan Chase advanced about 2%. Bank of America (BAC) and Boeing (BA) both rose over 3%.

Among the sector indexes, the Dow Jones Utilities Average fell 1.03%. However, the NYSE Arca Airline Index surged up 5.21% and the Dow Jones Transportation Average gained 1.01%. The Philadelphia Oil Service Index ended up 2.06% compared to a more modest 1.03% advance by the NYSE Arca Gold Bugs Index. The Philadelphia Housing Sector Index rose 1.12%, while the KBW Bank Index rallied 2.24%.

On the economic front, the National Association of Realtors reported that the pending home sales index for November, a leading indicator for existing home sales, declined 16% month-over-month. Economists had expected a more modest decline of 2%. The decline is apparently the pay back phenomena from the first time homebuyers’ credit, which motivated homebuyers to bring forward their purchases to meet the earlier expiry deadline of November 30th. The stimulus measure has since then been extended.

After showing decent gains in the past three months, the Northeast, Midwest and South showed sharp declines. On a year-over-year basis, the index rose 19.3%, although much of the increase was due to easier comparisons. Meanwhile, factory goods orders rose a better than expected 1.1% in November.

Toronto Stocks Likely To Open Lower

Bay Street may struggle to hold on to its gains on Wednesday as energy prices eased after an uptick in the U.S. dollar. The Canadian market held on to its gains in the previous session, extending the strong rally in the first trading session of the year.

The U.S. stocks futures also point to a lower opening.

Tuesday, Toronto stocks turned mildly lower in early dealings after the pending home sales data from the U.S. raised concerns over the health of the economy. Nonetheless, they had manged to move higher as commodity prices remained firm. The S&P/TSX Composite Index gained 21.18 points or 0.18% to settle at 11,888.08 - a new 15-month high.

Energy stocks, which have been moving up nicely in the recent past, may be in play today as the price of crude oil eased $0.24 to $81.53 per barrel ahead of crude inventory data from the U.S. Energy Information Administration due later today. Meanwhile, gold edged up $3.70 to 1,122 an ounce.

In corporate news, technology service provider Calian Technologies announced the award of a C$29 million orders by the Department of National Defense.

Information technology provider MacDonald, Dettwiler and Associates said that it has signed a multi-million dollar contract with Boeing Satellite and Intelligence Systems Inc., a unit of Boeing (BA).
 
Oil and natural gas explorer Twin Butte Energy Ltd. said that it would be divesting certain non-core assets for C$13.3 million. It also revealed a C$38 million capital program for 2010 of C$38 million.

Energy explorer Niko Resources said it will drill six wells in India this year.

Contract operator Xtreme Coil Drilling Corp. announced it would buy back up to 2.64 million common shares in the next 12 months.

In rating action , JP Morgan upped Bombardier Inc. rating to 'Overweight' from 'Neutral' and Barclays hiked the price target of Talisman Energy to C$23 from C$21.

In economics news from across the border, the ADP employment report revealed that employment in the private sector in the U.S. dropped 84,000, steeper than the widely expected dip of 75,000.

Traders will look ahead to the ISM non manufacturing data and EIA crude oil inventory data that are due from the U.S. later today.

Commodity, Currency Markets

Crude oil futures are trading down $0.19 at $81.58 a barrel after advancing $0.26 to $81.77 a barrel in Tuesday’s session. According to Commerzbank, the recent uptick in commodity prices is due to heightened investor interest. The firm is of the view that institutional investors made their asset allocation decisions at the end of 2009 or right at the start of the New Year and positioned themselves on the commodity market.

Gold futures are currently rising $4.10 to $1,122.80 an ounce. In the previous session, gold moved up $0.40 to $1,118.70 an ounce.

Among currencies, the U.S. dollar is trading at 92.298 yen, stronger than the $91.715 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.4357.

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Asian Markets Extend Gains For Third Day

The markets across Asia extended gains for the third consecutive session in 2010, but well off the highs, as traders preferred to adopt a wait-and-watch approach ahead of a slew of economic data from the U.S.

In Japan, the benchmark Nikkei-225 Index rose 49.62 points, or 0.5%, to 10,731.45, while the broader Topix index of all First Section issues advanced 11.56 points, or 1.3%, to 931.

On the economic front, a report released by Markit Economics revealed that Japan Nomura Services Purchasing Managers' Index stood at a seasonally adjusted 42.7 in December, marginally higher than 42.3 recorded in the previous month, but below the reading of 50, suggesting contraction in the overall services activity.

Light sweet crude oil futures for February delivery ended at $81.76 a barrel in electronic trading, down $0.01 per barrel from previous close at $81.77 a barrel in New York on Tuesday.

Banks led the gains in the market investors priced in expectations for a forthcoming new share offer from Sumitomo Mitsui Financial which stated that it would raise 800 billion yen from the market for augmenting capital requirements. The share surged up 5.54%. Among other banks, Mitsubishi UFJ Financial climbed 4.42%, Mizuho Financial soared 6.10% and Resona Holdings rose 4.09%, on relatively higher volumes.
 
Insurance stocks also advanced after Bank of America Merrill Lynch initiated coverage with"buy" rating for insurance companies such as Mitsui Sumitomo Insurance, Aioi Insurance and Nissay Dowa General Insurance. The stock price of Mitsui Sumitomo Insurance rose 1.98%. Among other insurance stocks, T&D Holdings surged up 4.07%, Tokio Marine Holdings advanced 2.02% and Sompo Japan Insurance gained 1.96%.

Among automotive stocks, Toyota Motor Corp. rose 2.5% after stating that it sold the most cars and light trucks to U.S. consumers last year. Suzuki Motor added 0.88%.

Among the losers, Casio declined 2.94% after Barclays Capital revised the stock rating downward from EqualWeight to Underweight, citing risk of a possible drop in dividends as reason.

In Australia, the benchmark S&P/ASX Index added 1.60 points, or 0.03% to close at 4,926, while the All-Ordinaries Index ended at 4,947, representing a gain of 7.70 points, or 0.16%.

On the economic front, data released by the Australain Industry Group revealed that growth in services sector activity unexpectedly stalled in December, partly due to decline in new orders. The AIG / Commonwealth Bank Australia Performance of Services Index fell to a no-change level of 50 in December from 52.5 in the previous month. A reading above 50 indicates expansion, while one below 50 suggests contraction.

In a separate report, the Australian Bureau of Stastics revealed that the number of new dwelling units approved for construction in the country increased in November. As per the report, the dwelling unit approvals rose a seasonally adjusted 5.9% in November.

Light sweet crude oil futures for February delivery ended at $81.76 a barrel in electronic trading, down $0.01 per barrel from previous close at $81.77 a barrel in New York on Tuesday.

Bank stocks ended in negative territory, limiting the gains in the market. ANZ Bank declined 1.48%, National Australia Bank fell 1.95% and Westpac Banking slipped 0.47%. However, Commonwealth Bank of Australia bucked the trend and ended in positive territory with a gain of 0.50%.

Retail stocks also ended weaker. David Jones lost 2.49%, Harvey Norman fell 3.79%, JB Hi-Fi Ltd declined 2.52%, Wesfarmers shed 1.48% and Woolworths slipped 0.18%.

Mining and metal stocks ended higher on speculation that commodity prices will continue to rise on higher demand. BHP Billiton gained 1.25%, Fortescue Metals surged up 13.04%, Gindalbie Metals rose 4.35%, Iluka Resources added 0.27%, Macarthur Coal soared 6.00% and Rio Tinto climbed 2.92%.
 
Among gold stocks, Lihir Gold gained 1.49% while Newcrest Mining remained unchanged from previous close.

Mixed trading was witnessed among Oil stocks. Woodside Petroleum advanced 0.90% and Santos added 0.76%. However, Oil Search Ltd slipped 0.16% and Origin Energy shed 0.64%.

Quantas, the largest airline company in the country, announced that its subsidiary discount aircarrier, Jetstar entered into an agreement with AirAsiaBhd in connection with purchase of planes, parts and ground handling services in an effort to reduce the costs. The stock declined 0.34%. The other airliner Virgin Blue Holdings climbed 3.51%.

In Hong Kong, the Hang Seng Index ended in positive territory for the third successive day with a gain of 137.09 points, or 0.62% at 22,417, on increasing optimism about global economic recovery and earnings prospects. Exporters and cellphone companies led the gains in the market. Foxconn International surged up 7.87%.

In South Korea, the KOSPI Index gained 14.70 points, or 0.87% to close at 1,705 on increasing optimism about global economic recovery. Technology stocks and auto stocks led the gains in the market. Foreign institutional investors evinced fresh buying interest in technology and auto stocks despite weaker local currency or strengthening US dollar on speculation that demand will rise in the near future in the global market.

The Indian market ended a volatile session unchanged on Wednesday, as traders took some profits following recent gains amid lackluster global cues. Defensive healthcare and FMCG, high-beta realty, oil/gas and consumer durable stocks shined, but IT and metal stocks fell sharply, preventing any major upside movement. The BSE Sensex pared gains finished at 17,701, up 15 points or 0.08%. and the Nifty ended at 5,282, up 4 points or 0.07%.

Among other major markets open for trading in the region, Taiwan's Weighted Index gained 116.22 points, or 1.42% to close at 8,328, and Straits Times Index in Singapore added 10.21 points, or 0.35%, to close at 2,930. However, Indonesia's Jakarta Composite Index slipped 1.98 points, or 0.08% to close at 2,603, and China's Shanghai Composite Index declined 27.96 points, or 0.85%, to close at 3,254.

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The major European markets are trading below the unchanged line on Wednesday amid anxiety over some key economic reports to be released in the U.S. The French CAC 40 Index is trading down 0.03% and the German DAX Index is receding 0.08%. However, the U.K.’s FTSE 100 Index is moving down 0.22%.

In corporate news, Marks & Spencer reported that its like-for-like sales rose for the first rise in quarterly sales in over two years. Comparable store sales rose 0.3% in the three months ended December 26th. On a calendar-adjusted basis, like-for-like sales climbed 1.8%.

On the economic front, the Nationwide Building Society reported that its consumer confidence index for the U.K. fell to 69 in December from 74 in November, with the drop marking the biggest in more than a year. Economists had expected a more modest decline to 72.

Market Economics’ survey revealed that service sector activity in Germany expanded for the fifth straight month. The services activity index rose to a seasonally adjusted 52.7 in December from 51.4 in November, although economists had expected a higher reading of 53.7. Meanwhile, services purchasing managers’ index for France fell to 58.7 in December from 60.9 in the previous month.

Eurostat, the European Union’s statistical arm, released a duo of economic reports, which showed a steeper than expected drop in industrial orders and a decline in producer price index. Industrial new orders in the euro area fell 2.2% month-over-month in October, marking the first decline in seven months. Annually, orders fell 14.5%, less severe than the 16.3% drop in the previous month. Economists expected a 1% monthly drop in orders and an 11% annual decline.

U.S. Economic Reports

The ADP National Employment report showed that the private sector in the U.S. lost 84,000 jobs in December. Economists had expected a loss of 75,000 jobs for the month. The report also showed that the estimated change of employment from October to November was revised to a decline of 145,000 from the previously estimated decline of 169,000.

December’s job losses were the smallest since March of 2008. Employment in the service-providing sector rose by 12,000, marking the first gain since March 2008. However, employment in the goods producing sector fell by 96,000.

The ISM 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 50.5 for December.

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.

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

In the week ended December 25th, crude oil inventories fell by 1.5 million barrels to 326 million barrels, although they were near the upper limit of the average range for this time of the year.

Gasoline inventories edged down by 0.3 million barrels, but yet remained above the upper limit of the average range. Distillate inventories also fell, dropping by 2 million barrels. Despite the decline, inventories remained above the upper boundary of the average range. Refinery capacity utilization averaged 80.3% over the four weeks ended December 25th compared to 80.2% in the previous week.

The Federal Reserve is scheduled to release the minutes of its December 15th-16th meeting at 2 PM ET.

The FOMC statement released last month following the end of a 2-day meeting did not show any significant change. The central bank retained its assessment that economic activity has continued to pick up, while it turned modestly positive on the labor market. The Fed commented that the deterioration in the labor market is abating. The Fed dropped its reference to businesses cutting staff and noted reluctance on the part of the firms to add to payrolls.

As expected, the Fed maintained its stance of keeping interest rates at extremely accommodative levels for an extended period.

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Family Dollar may move after it reported that its first quarter net income rose to 49 cents per share from 42 cents per share last year. The company confirmed its preliminary sales estimate of $1.823 billion. Analysts estimated earnings of 47 cents per share on revenues of $1.83 billion. The company expects full year sales growth of 4%-6%, while it continues to expect earnings per share of $2.15-$2.35 compared to the consensus estimate of $2.25 per share.

Mosaic is likely to react to its announcement that its second quarter earnings fell to 24 cents per share from $2.15 per share last year, which included a one-time gain of $1.03 per share. On an adjusted basis, the company reported earnings of 32 cents per share, trailing the 35 cents per share consensus estimate. Sales plummeted 43% to $3.01 billion, exceeding the consensus estimate of $1.68 billion.

Beazer Homes is also likely to see some activity after it announced preliminary order results. The company said orders rose 36.6% year-over-year to 728 in the December quarter, while closings improved 8% to 961.

Phoenix Technologies may be in focus after it said it has retained GrowthPoint Technology Partners to explore strategic options for its FailSafe, HyperSpace and eSupport products and services. The company said it intends to focus on its core systems software markets.

Alaska Airl Group is expected to see some activity after it said its load factor rose to 83.6% in December from 80.7% in the year-ago period, as capacity increased 5% and traffic rose 3.2%.

Autodesk may move in reaction to its announcement that it has agreed to settle a lawsuit with Dassault Systemes’ SolidWorks pending in the U.S. District Court for the Northern District of California. The lawsuit concerns allegations that SolidWorks’ inappropriately used Autodesk’s trademarks AutoCAD and DWG. The companies did not reveal the terms of the settlement agreement.

Robbins & Myers could move to the upside after it announced an increase in its quarterly cash dividend to $0.0425 from $0.04.

Crane Co. is likely to be in focus after it said it has commenced its tender offer for Merrimac Industries pursuant to its announcement regarding an acquisition announced on December 23rd, 2009. The company has agreed to acquire all outstanding Merrimac shares at $16 per share in cash and expects the offer to close in the first quarter of 2010.

Brown & Brown could see some activity after it announced the retirement of its Vice Chairman and CEO Jim Henderson, effective August 2010. Henderson confirmed that he would not see re-election at the company’s 2010 annual shareholders’ meeting. Separately, the company also announced that its subsidiary has acquired the assets of Alamo Insurance, which has annual revenues of $4.3 million.

Sonic receded sharply in Tuesday’s after hours session after it reported that its first quarter earnings declined to 10 cents per share from 12 cents per share last year. Revenues fell 26% year-over-year to $136.5 million. Analysts estimated earnings of 13 cents per share on revenues of $137.1 million. The company also issued a below-consensus earnings guidance for 2010.

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