US & World Daily Markets Financial Briefing 07-06-2010

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Stocks Turning In A Lackluster Performance In Morning Trading

Stocks have shown a lack of direction over the course of morning trading on Monday, as traders express some uncertainty about the outlook for the markets following recent weakness. The major averages have spent the morning bouncing back and forth across the unchanged line.

The choppy trading comes as some traders have gone bargain hunting after the sell-off seen in recent weeks, while lingering concerns about the European debt crisis and the U.S. job market have helped to keep buying interest subdued.

Earlier, Hungary's Economy Minister Gyorgy Matolcsy spoke on local television, attempting to counter recent claims that the country is facing debt problems similar to Greece. The euro has since recovered to $1.1952 against the dollar after hitting a fresh four-year low of $1.1876.

Anxieties over the U.S. labor market also remain an overhang on sentiment, as a jump in May employment reported by the Labor Department last Friday was largely attributed to the hiring of temporary census workers.

News from the economic front slows down this week after the previous week's flurry of data. Later today, the U.S. Federal Reserve will release its monthly consumer credit report. Consumer credit for April is likely to show a decline of $2 billion after an increase of $2 billion in the previous month.

Shares of BP Plc (BP) remain in focus after the firm said that the cap mounted over the leaking oil well in the Gulf of Mexico is siphoning oil successfully and is likely to increase in its effectiveness in the coming days.

The major averages are currently turning in a mixed performance, with the Nasdaq posting a modest loss. The Nasdaq is down 2.32 points or 0.1 percent at 2,216.85, while the Dow is up 7.41 points or 0.1 percent at 9,939.38 and the S&P 500 is up 1.34 points or 0.1 percent at 1,066.22.

Sector News

Commercial real estate stocks are some of the morning's best performers, driving the Morgan Stanley REIT Index up by 1.4 percent. With the upward move, the index is bouncing off of the three-month closing low set in the previous session.

Resource stocks are also seeing strong gains, with the Philadelphia Oil Service Sector Index and the NYSE Arca Gold Bugs Index posting gains of 1.1 percent and 1.6 percent, respectively. The move comes despite a lack of concrete direction in the respective commodity futures.

Meanwhile, weakness is visible among health insurance, defense and housing stocks. Notably the Morgan Stanley healthcare Payor Index is down by 1.8 percent, pulling back further off of last Thursday's one-month closing high.

Stocks Driven By Analyst Comments

Sterling Banc (SBIB) is moving higher after being upgraded at Robert W. Baird from Underperform to Neutral. Shares are currently up by 2.9 percent, bouncing off of the three-month closing low set in the previous session.

Essex Property (ESS) is also seeing strength after Stifel Nicolaus upgraded shares from Hold to Buy. The stock has gained 2.3 percent, recovering from a six-week closing low set at the end of last week.

On the other hand, Brinker International (EAT) is moving lower after being downgraded at Morgan Stanley from Equal weight to Underweight. The stock has lost 4.7 percent, slipping to a four-month closing low.

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Toronto Stocks Poised For Lackluster Open Amid Falling Energy Prices

Bay Street stocks may witness a lackluster session Monday amid falling energy prices and lingering worries over global economic growth. Discouraging jobs data from the U.S. and new debt concerns on Hungary increased risk aversion among investors.

However, value buying after the main index lost around 6% from its 19-month high of 12,280 hit on April 26 may lend support at lower levels.

On Friday, the S&P/TSX Composite Index plunged 242.27 points or 2.05% to 11,569.61.

The price of oil continued to drift lower for a second session Monday morning amid a weak euro. Crude for July delivery was down $0.0.33 to $71.18 a barrel.

The price of gold was little changed amid increasing risk aversion on falling equities. Gold for August delivery was down $2.2 to $1,215.50 an ounce.

Airlines stocks may be in play after the International Air Transport Association upped its forecast for the global airlines industry. It said the industry will earn $2.5 billion in profits this year, sharply contrasting its forecast released on March that revealed airlines would lose a total of $2.8 billion in 2010. It also said that North American carriers would $1.90 billion, compared to the previously estimated $1.8 billion loss in 2010.

In corporate news, financial services holding company Fairfax Financial Holdings said it appointed John Varnell to replace Greg Taylor as CFO.

C.A. Bancorp said it has completed the sale of its units of Charter Real Estate Investment Trust to IGW Public Limited Partnership, at a price of C$1.45 per unit for a gross proceeds of C$8.77 million.

Oil and gas producer Compton Petroleum said it has entered into purchase and sale agreements relating to the disposition of a portion of its natural gas assets located in the Niton and Gilby areas in Central Alberta for gross proceeds of around $150 million.

Real estate sector services provider Gendis Inc. reported first quarter net income of $0.02 per share, compared to $0.01 per share in the year-ago quarter.

Wholesale distributor of building products Taiga Building Products turned to profit in fourth quarter, reported net earnings of C$0.03 per share, compared to a loss of C$0.14 per share in the prior year quarter.

With a very light economic calendar, traders might focus on the movements in the commodities and currency markets to get clues during the day.

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A global sell off amid concerns about the pace of the global economic recovery dragged the Indian market sharply lower on Monday.

Investors were concerned that slower than expected hiring in the U.S and mounting concerns over Hungary's finances will hinder the global economic recovery. A combination of declining commodity prices and the euro's sharp drop against the U.S. dollar due to a lack of clarity on the fiscal situation in the eurozone region also induced risk aversion.

The euro touched a fresh four-year low against the dollar Monday on fears that the Greece-triggered eurozone financial crisis could tip the continental economies into a double-dip recession.

However, the market closed off the day's low on bargain hunting after the European markets and the U.S. stock futures cut their initial sharp losses.

Closer home, the southwest monsoon, crucial for India's agricultural output, has revived after being stalled by the tropical cyclone Laila last week, the Indian Meteorological Department said on Monday.

The benchmark 30-share Sensex fell to a low 16,687 before finishing 337 points or 1.97% lower at 16,781, while the 50-share Nifty fell 101 points or 1.98% to 5,034. The BSE mid-cap and small-cap indexes lost around 1.4% each and decliners outnumbered gainers by 1909 to 869 shares on the BSE.


Selling was broad-based and was led by metal, realty, public sector, oil/gas, capital goods and banking stocks.

Among the prominent losers, property developer DLF plunged over 6%, Aluminum manufacturer Hindalco slumped 5%, steelmaker Tata Steel tumbled 4.6% and automaker Tata Motors shed over 4%.

State-run oil marketing companies such as BPCL, HPCL and IOC fell around 3% each on profit taking ahead of a ministerial meeting on fuel pricing.Heavyweight Reliance Industries, which reportedly plans to foray into nuclear energy, ended down 2%.

However, Anil Ambani-controlled Reliance Communications rallied 4.61%, a day after its board approved a 26% stake sale to strategic or private equity investors. Cement maker ACC (up 1.06%) and two-wheeler manufacturer Hero Honda Motors (up 0.02%) also closed in positive territory.

Indiaco Ventures gained 4% after the company signed a pact with Bangkok-based CTI-PFAN to work together towards the promotion of energy efficiency technologies and companies in India. Jindal Cotex edged up marginally after the company's board approved a proposal to raise up to $50 million via a GDR issue. Mastek climbed almost 14% on reports it is eyeing acquisitions in North America.

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Meanwhile, European stocks began Monday's session on a nervous note and are showing a mixed trend. The French CAC 40 Index is receding 0.45% and the U.K.'s FTSE 100 Index is declining 0.28%, while the German DAX Index is up 0.08%.

U.K.-based insurer Prudential, which recently terminated its deal to buy AIG's (AIG) Asia unit, announced today that its group sales rose 27% to 1.36 billion pounds in the first five months of 2010.

On the economic front, eurozone investor confidence unexpectedly improved in June, a survey published by the Sentix research group revealed. The investor sentiment index came in at -4.1 in June, up from -6.4 in the prior month. Economists had expected the reading to decline to -7 in June.

Eurozone finance ministers are scheduled to meet later today in Luxembourg, as European Union President Herman Van Rompuy chairs the second meeting of the special task force formed to discuss the sovereign debt crisis.

U.S. Economic Reports

The action on Main Street slows down in the unfolding week after the previous week’s flurry of data. That said, there are other concerns that could keep traders pre-occupied. The Euro zone crisis is taking a nasty turn, as warnings from other countries in the region are accentuating contagion risk.

Hungary, which incidentally is not a euro zone member country, spread panic on Friday after local politicians made comments equating the nation's fiscal problem to the one that is prevalent in Greece.

The Commerce Department's retail sales report, the preliminary Reuters/University of Michigan's consumer sentiment index and the weekly jobless claims report are among the first-tier economic reports scheduled to be released in the unfolding week. Traders may also pay attention to the Beige Book and the Federal Reserve speeches scheduled for the week, including a speech by Federal Reserve Chairman Ben Bernanke.

The Federal Reserve's consumer credit report, the Commerce Department's wholesale and business inventories reports for April, the U.S. trade balance report for April and the Treasury Budget for May round up the other events on Main Street this week. Traders may also evince interest in the results of the Treasury auctions of 3-year notes, 10-year notes and 30-year bonds.

Retail sales growth is likely to have slowed down in May, mainly due to a pullback in gasoline prices. Additionally, building materials sales should also see a retreat after decent gains in the previous two months. However, the declines could be offset by fairly robust chain store sales and auto sales.

BMO Capital Markets expects the Beige Book to showcase the ongoing improvement in the economy and some stabilization in credit standards. However, commerce construction may continue to show weakness, while inflation is likely to be termed as subdued in all regions. The firm expects the report to give an indication of how much home sales pulled back after the expiration of the tax credit in late April and whether exports to a struggling Europe are slowing.

The U.S. trade deficit is set to widen only slightly, as higher oil prices boost up imports and exports to regions outside of Europe remain solid. Going forward, IHS Global Insight expects import growth to outpace export growth in volume terms, as the swing in the U.S. inventory cycle sucks in imports, the firm expects trade to will serve as a drag on growth for the rest of the year.

The U.S. Federal Reserve is expected to release its monthly consumer credit report at 3 PM ET. Consumer credit for April is likely to show a decline of $2 billion.

In March, consumer credit outstanding increased by a seasonally adjusted annual rate of $2 billion. Non-revolving credit tied to auto loans rose $5.2 billion, while revolving credit, mostly comprising credit card loans, fell by $3.2 billion.

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Talecris Biotherapeutics (TLCR) may be in focus after it announced a deal to be acquired by Grifols by way of cash and newly-issued Grifold non-voting shares having an aggregate value of about 2.8 billion euros.

Oceaneering (OII) could see weakness after it reduced its 2010 earnings guidance to $2.80-$3.10 per share, with the company blaming the potential shortfall on the government's 6-month moratorium on deepwater permitting and drilling activities in the Gulf of Mexico region. Analysts estimate earnings of $3.48 per share.

Currency, Commodity Markets

Crude oil futures for July delivery are currently edging down $0.05 to $70.09 a barrel after moving down $2.46 or 3.33% to $71.51 a barrel in the week ended June 4th. In the previous week, oil declined by about $1.40-a-barrel on Tuesday due to an increase in risk aversion amid the economic uncertainties.

However, oil rebounded on Wednesday, although rising only moderately, after the release of the positive pending home sales report. The price of the commodity saw further gains on Thursday in reaction to bullish inventory data that showed a draw in crude oil inventories, with oil closing above $74-a-barrel. But oil came under significant selling pressure on Friday, dropping more than $3-a-barrel after a lackadaisical jobs report trigged a sell-off in risky assets.

Gold futures, which edged up $2.70 or 0.22% to $1,217.70 an ounce in the previous week, are currently declining $4.40 to $1,213.30 an ounce.

The U.S. dollar continued to advance d in the week ended June 4th, riding on its status as a safe haven. The greenback rose 0.92% against the yen to 91.8975, while against the euro, it rose 2.5% to $1.1966.

Currently, a dollar is trading at 92.031 yen and is valued at $1.1962 versus the euro.

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