US & World Daily Markets Financial Briefing 06-04-2009

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Traders May Choose to Take Profits Following Recent Gains

The major U.S. index futures are pointing to a lower opening on Monday. The lack of any major catalysts following a scintillating run up in the past four weeks places the major averages on track for a pull back, as profit taking generates selling pressure. Additionally, the forthcoming reporting season and the pre-announcement season that precedes it could leave traders jittery over the fate of corporate profits. Commodities are seeing weakness, which is likely to keep buying interest among commodity stocks subdued.

U.S. stocks extended their gains for a fourth straight week last week on strengthening hopes of a recovery. Amid trepidation over what is to befall the ailing auto sector and the anxiety stirred by the comments over the still-fluid state of the financial sector, the major averages declined sharply on Monday. However, the major averages reversed course on Tuesday, supported by the end-of-the quarter purchases by funds. Stocks advanced yet again on Wednesday, with the buying momentum kept afloat by a few positive or rather ‘not-as-bad-as expected’ economic readings.

The G20 meeting ushered in more optimism into the markets, as the major averages climbed sharply on Thursday after the G20 leaders pledged more action and funds to tackle the economic downturn. Despite trading below the unchanged line for the bulk of Friday’s session, stocks closed up on the day, as traders breathed a sigh of relief over the in-line jobs report and bought technology stocks following Research In Motion’s (RIMM) strong results.

For the week, the Dow Industrials and the S&P 500 Index rose 3.10% and 3.26%, respectively, while the Nasdaq Composite rallied 4.96%.

Among the sector indexes, the Dow Jones Transportation Average and the Amex Airline Index jumped 7.21% and 6.03%, respectively for the week. The Amex Securities Broker/Dealer Index and the KBW Bank Index rallied over 5% each. The S&P Retail Index ended up 5.82% for the week, while the Philadelphia Semiconductor Index moved up 3.18%. On the other hand, the Amex Gold Bugs Index and the Amex Biotechnology Index fell 5.52% and 3.90%, respectively.

Stocks in Focus

Ticketmaster Entertainment (TKTM) is likely to react its announcement that it would be turning over information to the U.S. Justice Department regarding company’s activities in reselling concert tickets.

ConAgra (CAG) is likely to see some weakness after Standard & Poor’s lowered its credit rating on the company to “BBB” from “BBB+” and removed all ratings on the company from Credit Watch with negative implications. S&P attributed the action to the company’s weak credit and high operating costs.

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Resource Stocks Lead Toronto's Main Index Lower

Resource stocks have dragged Toronto's main index into negative territory on Monday morning. The market is on pace for a second straight negative close and is giving back some of last week's sharp gains.

The S&P/TSX Composite Index has declined 100.05 or 1.1% to move at 8,965.71. The drop took the index away from the three-month closing low from last week.

Gold stocks are down 4.5% and the Materials Index is down 3.4% as the precious metal has continued to move lower. Seagold has dropped 8.4%, Iamgold is down 8.1% and New Gold is down 8%.

Royal Gold has dropped 6.7% after the company said it agreed with a subsidiary of Teck Cominco Ltd. to acquire the gold production at the Andacollo mine located in Chile. The purchase price consists of $100 million in cash and about 4.5 million shares of common stock.

Separately, Royal Gold announced that it intends to offer 6.5 million shares of its common stock to fund the transaction.

Pan American Silver Corp. has dropped 4.5% after the company said Friday night that Union workers at its Morococha mine in Peru initiated a strike yesterday after the company and Union representatives failed to reach an agreement with respect to an increase in base pay and benefits.
 
Mining stocks have dropped 1.85% as First-Quantum is down 3.3% and Inmet has declined 2.4%.

Energy stocks are down 1.4% with crude oil down $1.36 at $51.15 per barrel. Suncor has dropped 1.7%, Vermillion is down 1.6% and Paramount Resources is down 1.2%.

Mega Brands has plunged 20.75% after the toymaker reported a net loss of US$323.3 million or US$8.83 per share for the fourth quarter, compared to a net loss of US$66.2 million or US$1.81 per share in the year-ago quarter.

Akela Pharma has plummeted 11.75% after the company reported a net loss for the fourth quarter of US$13.6 million or US$0.63 per share, in comparison a loss of US$8.9 million or US$0.75 per share in the same quarter a year-ago.

WestJet is down 1.6% after the company announced its March load factor was 81.9%, down from 86.6% in the prior year. Revenue passenger miles increased 0.6% year over year to 1.25 billion from 1.24 billion a year ago. Capacity, measured in available seat miles, grew 6.3% to 1.52 billion from 1.43 billion in the same period last year.

On the economic front, Statistics Canada reported Canadian buildings permits dropped 15.9% in February. A much more modest decline of 2.8% was predicted by economists, compared to a 6% slide in January.

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The major European markets are trading lower on Monday. While the French CAC 40 Index and the German DAX Index are moving down 1% and 0.90%, respectively, while the U.K. FTSE 100 Index is advancing about 1.21%.

The unfolding week is a very quiet week on the economic calendar, both in terms of the number and the importance of the reports. The week is truncated due to the 'Good Friday' public holiday on Friday.

Traders are likely to look forward to the minutes of the March FOMC meeting, the Commerce Department's trade balance report for February and the Labor Department's import and export prices report for March.

Some significance may also be attached to the Commerce Department's wholesale inventories report for February, the Federal Reserve's consumer credit report for February and the regularly scheduled weekly jobless claims and petroleum inventory reports.

Analysts also note that market participants will keep an eye on the heavy Treasury funding schedule, with an estimated $59 billion in notes and inflation-indexed securities to be sold next week.

The trade balance report for February is expected to show a moderate widening in the trade deficit due to a pick up in the price of oil. However, trade is likely to remain weak due to the combined impact of the global recession and the global credit crunch.

Meanwhile, the Labor Department's import and export prices report is likely to show that import prices perked up due to the strengthening of the dollar and an increase in crude oil prices. According to Wachovia Securities, the underlying trend is still downward despite the possible snapping of the seven-month declining trend.

Federal Reserve Governor Kevin Warsh is due to speak on Financial Markets in Washington at 1 PM ET on Monday.

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The major markets across the Asia-Pacific region ended higher on Monday, unfazed by the rocket launch by North Korea on Sunday. The major averages in the region extended their gains for a fifth consecutive week last week on increasing optimism that the worst of the global economic crisis is over and the initiatives of the governments will yield positive results in the near term.

In Japan, the benchmark Nikkei 225 Index gained 1.02% or 108.09 points to close at 8,886. However, the broader Topix index of all First Section Issues pared its gains and shed 0.39 points or 0.01% to close at 831.

Automakers moved higher in reaction to the yen’s strength and a report in the Nikkei newspaper that stated that the government would subsidize purchases of eco-friendly vehicles such as hybrids. Among the automakers, Toyota advanced 1.08% and Isuzu Motors rose 8.59%. However, Honda edged down 1.26%.

Exporters also benefited from the stronger yen. Canon gained 1.63%, Sony added 1.04% and Sharp rose 4.68%. However, Trading houses slipped on profit taking, Mitsubishi Corp. lost 0.61%, Sumitomo Corp. edged down 0.11% and Itochu fell 1.14%.

Oil stocks ended higher, with Inpex advancing 4.92%, Showa Shell gaining 2.19% and Nippon Oil edging up 0.92%. However, banks pared back most of their early gains and ended mixed in reaction to a report that forecast losses for the banks for the year. Mitsubishi UFJ lost 2.47%, Mizuho Financial edged down 0.49%, and Sumitomo Mitsui declined 1.37%. However, Resona Holdings bucked trend and edged up 0.45%. Brokerage Nomura Holdings fell 0.85%.

In Sydney, the benchmark S&P/ASX 200 index gained 21 points or 0.56% to close at 3,757 and the broader All Ordinaries index added 22.40 points, or 0.61% to 3,696.

On the economic front, a report showed that the TD Securities-Melbourne Institute inflation gauge fell 0.1% in March, while the annual rate rose by 2.6%. Meanwhile, a survey by Australia and New Zealand Banking Group showed that the total number of job advertisements fell 8.5% in March from the month before, to average 147,804 a week.

Among banking stocks, Commonwealth Bank of Australia gained 2.11%, National Australia Bank advanced 3.33%, Westpac moved up 1.47%, and investment bank Macquarie Group rose 5.26%. However, ANZ Banking Group bucked the trend and lost 1.15%.

In the resources sector, index leader BHP Billiton lost 1.73%, and Rio Tinto fell 2.15%. Gold-related stocks ended lower following a drop in gold prices. Lihir Gold dropped 6.13%, Newcrest Mining shed 5.10%, and Sino Gold fell 4.55%. Energy and retail stocks ended on a mixed note.

The benchmark Hang Seng Index advanced 3.11% or 452.35 points to close at 14,998. Property stocks, financials, resources and china-related stocks led the gains.

Among property stocks, Henderson Land advanced 2.79%, Wharf Holdings gained 3.05%, SHK Properties rose 3.63%, New World Development soared 7.64% and Swire Pacific added 6.18%.

Financial stocks also ended higher. HSBC Holdings gained 5.26%, Bank of China advanced 2.29%, Bank of Communications added 3.63%, ICBC rose 2.95% and Bank of East Asia moved up 3.46%.

Among the resource stocks, Aluminum Corporation of China, or CHALCO, surged 6.18%, CNOOC gained 1.68% and PetroChina rose 3.63%. However, China-related stocks ended mixed on profit taking. While China Resources gained 1.71%, China Mercantile Holdings lost 0.99% and China Overseas edged down 0.30%.

In Seoul, the benchmark KOSPI Index gained 1.10% or 14.10 points to close at 1,298. Profit taking at higher levels trimmed some of the gains during the trading session. Technology, auto, financial and shipbuilders showed significant buying interest.

Among the other major markets, Indonesia's Jakarta Composite Index advanced 1.09% or 16.28 points to 1,517, Singapore's Strait Times Index gained 27.11 points or 1.49% to close at 1,848, and Taiwan's Weighted Index ended at 5,556, up 0.48% or 26.59 points. The Chinese market was closed for public holiday.

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Crude Oil Slips Again, Tests $50

Crude oil dropped again on Monday amid demand worries with stock markets in the red. The drop took prices towards the $50 per barrel mark again.

Light sweet crude for May delivery fell to $51.06, down $1.45 for the session. Prices touched as low as $50.30 in the opening moments of the session.

Prices have dropped in three of the four sessions so far in the month of April. Experts are now questioning whether oil can remain above the $50 mark on a consistent basis.
 
Traders looked ahead to the Energy Information Administration's weekly inventory report. Last week's data showed crude oil inventories increased 2.8 million barrels from the previous week. Experts were looking for a build of about 3 million barrels. Total motor gasoline inventories increased 2.2 million barrels last week. A drop of about 1.5 million barrels was expected

Light sweet crude oil for May delivery finished Friday at $52.46 per barrel, down 18 cents for the day. Prices had touched as low as $51.02 earlier in the day.

At the pump, gasoline prices slipped slightly across the U.S. According to AAA, a regular unleaded gallon of gasoline averaged $2.039, down slightly from the day before. Prices are above the month-ago level of $1.946 but well-ahead of the year-ago mark of $3.324.

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