US & World Daily Markets Financial Briefing 08-03-2010

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Stocks Little Changed In Mid-Morning Trading - U.S. Commentary

Stocks are lingering near the flat line in mid-morning trading on Monday, as the lack of significant economic data has traders leery of making significant moves in today's market action. The major averages are currently up by thin margins but have been bouncing back and forth across the unchanged mark.

Amid the light economic calendar, the markets may be looking ahead to comments from President Barack Obama, set to speak in Philadelphia at 11:00 a.m. ET regarding the continuing battle on healthcare reform.

On the corporate front, American International Group (AIG) entered an agreement to sell its main foreign life insurance business, American Life Insurance to MetLife (MET) for $15.5 billion in cash and stock.

McDonald's Corp. (MCD) announced that global comparable sales for the month of February grew 4.8 percent, driven by the European and Asian markets. Additionally, U.S. comparable sales edged up 0.6 percent, while the company's system-wide sales for February rose 11.2 percent.

The Dow is currently down by 3.93 points to 10,562.27, the Nasdaq is down by 3.47 points to 2,329.87 and the S&P 500 is down less than a point at 1,138.61.

Sector News

Despite the lackluster outing by the major averages, electronic storage stocks are seeing a strong performance, driving up the NYSE Arca Disk Drive Index by 1.7 percent. With the upward move, the index has scaled to a fresh one and a half month intraday high.

The index is being led higher by shares of Hutchinson Technology Inc. (HTCH), which has gained 7.8 percent and saw a comparable high in earlier trading.

Wireless, brokerage and trucking stocks are also seeing buying interest, while tobacco stocks are under pressure, with the NYSE Arca Tobacco Index down by 0.6 percent, puling off of a two and a half year closing high.

Health insurance, defense, airline and gold stocks are also down on the session, offsetting gains in other market segments.

Stocks Driven By Analyst Comments

Steel Dynamics (STLD) is on the rise in mid-morning trading after being upgraded at KeyBanc Capital Markets from Hold to Buy. The stock has gained 2.3 percent, seeing its best intraday price in nearly two months in earlier trading.

Sempra Energy (SRE) is also moving higher following an upgrade at Barclays Capital from Equal Weight to Overweight. The broker also raised its target price on the stock from $56 to $57. Shares are currently up by 1.5 percent, setting a six-week intraday high.

On the other hand, Crown Castle (CCI) is retreating after the stock was downgraded at Wells Fargo from Outperform to Market Perform. The stock has lost 1.1 percent, pulling off of last week's two month closing high.

Bay Street Poised For A Lackluster Session

Canadian stocks may struggle to build on their recent gains Monday morning on lack of positive triggers. While the price of oil ticked higher, gold was flat. Moreover, stocks may wilt under pressure on profit taking after the main index has surged nearly 5% in the previous week. With a light economic calendar this week, traders will be focusing on stock specific news and movement in commodity prices to get clues.

On Friday, the S&P/TSX Composite Index rose to its highest level in 2010, gaining 150.17 points or 1.27% to 11,975.14. Friday Canadian traders took positive cues from U.S. employment data, which revealed the economy shed only fewer jobs than expected.

The price of oil was up $0.20 to $81.70 a barrel and bullion was almost flat at $1,136. an ounce.

Financial stocks may be in play after AIG said it will sell its overseas life and health insurance unit, Alico, to MetLife Inc for $15.50 billion. Last week this sector was in limelight after a majority of Canadian banks released encouraging earnings reports.
 
In corporate news, healthcare investment company Centric Health reported earnings of C$0.04 per share for the full-year 2009, up from C$0.026 per share in the prior year.

The country's largest telecommunication operator BCE Inc. will improve its cash flow and in turn its dividend payouts, according to a report in Baron's.

Mineral explorer Nuinsco Resources said it has agreed with Coventry Resources to extend the closing date for its sale of the Cameron Lake Gold Project.

Base metal explorer Quadra Mining swung to profit reporting fourth-quarter net earnings of $0.46 per share, compared to a loss of $1.94 per share for the fourth quarter in 2008. The company also announced that it has executed a memorandum of understanding with State Grid International Development Limited, a wholly owned subsidiary of State Grid Corporation of China, the largest Chinese utility company and a major end user of copper for the formation of a joint venture.

Oil and natural gas firm Cinch Energy reported that its fourth-quarter net loss was C$1.54 million or C$0.03 per share, compared to a loss of C$1.44 million or C$0.03 per share in the same quarter last year.

Gaming solutions provider CryptoLogic said it has signed a three-year agreement to license at least nine of its most popular online betting games to Betsson Malta.

 In brokerage updates, RBC upped SNC-Lavalin price target to C$57 from C$54.

In economic news, Canadian Mortgage and Housing Corporation said housing starts in the country rose a better-than-expected 6.1% in February. New home construction rose to a seasonally adjusted annualized rate of 196,700 units from a revised 185,000 units in January.

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Indian Market Ends Off Day's High

The Indian market pared early gains and closed off the day's high on Monday. Buoyed by strong Wall Street and Asian cues, the BSE 30-share Sensex opened higher at 17,034 and rose further to a high of 17,188 by mid-session.

However, with profit taking near key resistance levels weighing on the market, the Sensex pared some gains before finishing at 17,103, up 108 points or 0.64%, while the Nifty rose by 35 points or 0.69% to 5,124. Political uncertainty amid a debate on landmark Women's Reservation Bill in the Parliament also dampened sentiment to some extent.

On the BSE, the mid-cap index rose 0.71% and the small-cap index by over a percent and the market breadth was fairly positive, with 1761 gainers versus 1097 decliners. Sector-wise, auto, banking, healthcare, capital goods, FMCG and IT stocks shined, while realty stocks bore the brunt of the selling. Consumer durable, metal, public sector and oil/gas stocks also ended subdued.

In the auto space, two-wheeler manufacturer Hero Honda Motors rallied over 3% on reports it may build a fourth plant to push rural sales. TVS Motor ended up 0.73%, shrugging off reports that its FY10 profit could be impacted by a one-time provision for negative valuation of its loss-hit finance arm.

Mahindra & Mahindra (up 4.33%), Maruti Suzuki (up 1.39%), Bajaj Auto (up 0.57%) and Tata Motors (up 0.18%) ended higher, while Ashok Leyland ended down 1.20%.

Market heavyweight Reliance Industries (RIL) ended down 0.47% amid reports that market regulator SEBI is probing insider trading charges in shares of Reliance Petroleum, which is now part of RIL.
 
ONGC rose 0.57% after its overseas arm made two oil discoveries in a block in northeastern Syria. Essar Oil soared 6.43% on reports the group could list its energy and power businesses on the London Stock Exchange.

Engineering and construction giant Larsen & Toubro advanced 1.14%, diversified business conglomerate ITC rose 2.43%, cement maker ACC gained 2.12%, software exporter Wipro added 1.52% and drug maker Sun Pharma ended up 1.48%.

SBI rose 1.16% after the government introduced the SBI amendment bill in the Lok Sabha on Monday, which will allow the state-run lender raise more money from the capital market. ICICI Bank and Axis Bank advanced over 2% each, but HDFC Bank slipped 0.23%

Nagarjuna Construction Company rose 2.45% on bagging orders worth Rs 1221 crore from various vendors for construction related works.

Telecom stocks closed mixed. Bharti Airtel declined 2.13% and Reliance Communication edged down 0.55%, but Idea Cellular ended up 0.89% and Tata Teleservices added 0.20%.

Among metal stocks, SAIL, Tata Steel, JSW Steel, Sterlite Industries and Hindustan Zinc rose modestly, while Gujarat NRE Coke, Hindalco Industries, Welspun Gujarat, Sesa Goa, Ispat Industries and NALCO ended in the red. State-run miner NMDC fell 3.35% ahead of its announcement of a follow-on public offer price.

Elsewhere, the markets in South Korea, Singapore, Malaysia, Hong Kong and Japan rose between 1.56% and 2.09%, with a strong close on Wall Street last Friday and higher commodity prices aiding sentiment to a notable extent.
 
Forecast-beating U.S jobs report, a modest rise in consumer credit and expectations that Greece will get assistance from euro-zone governments, also helped lift investor confidence in the economic recovery and boosted demand for higher-yielding risky assets.

European stocks turned briefly negative on Monday after a six-day winning streak and trading in the U.S index futures pointed towards a flat opening on Wall Street Monday morning.

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The major European averages are showing volatility on Monday, with the key indexes in the region dipping into negative territory in late morning trading after opening firmer in the morning. Since then, stocks have recouped their losses.

Currently, the French CAC 40 Index is trading down 0.08% compared to a 0.03% advance by the German DAX Index. The U.K.’s FTSE 100 Index is trading flat.

On the economic front, a Bank of France survey showed that business confidence among French industry fell unexpectedly in February, while sentiment among service providers improved. The business sentiment indicator for industries fell to 102 in February from 104 in January. Economists expected the index to have remained unchanged at 104. Meanwhile, the sentiment indicator for the services sector moved to 90 from 89 recorded in January, thanks to the confirmation of a recovery in the IT services sector.

The results of the Sentix Research Group showed that its euro area sentiment index rose to –7.48 in March from –8.23 in February. Economists had estimated a reading of –8.8. While the expectations index rose 0.75 points to 4.50, the current situation index improved to –18.75 from –19.50.

A report released by the German Federal Ministry of Economics and Technology showed that German industrial production rose 0.6% month-over-month in January compared to a 1% decline in December. On a year-over-year basis, industrial output rose 2.2%, reversing some of the 5.7% decline in the previous month. Economists expected 1% monthly growth and a 0.9% annual increase.

U.S. Economic Reports

The unfolding week's economic calendar is very light, although it boasts of a handful of key economic reports that could chart the course of the market for the week. Traders may closely watch the Commerce Department's retail sales report for February, the weekly jobless claims report and the preliminary reading of the Reuters/University of Michigan consumer sentiment survey.

The Fed speeches of the week and the results of the Treasury auctions of 3-year notes, 10-year notes and 30-year bonds may also attract investor attention. The Commerce Department's trade balance report for January, the Commerce Department's wholesale and business inventories reports for January and the Treasury Budget for February round up the other economic reports to be released during the week.

Retail sales for February are expected to show slackness, stung by inclement weather conditions. Notwithstanding the anticipated weather-induced weakness, consumer spending is expected to show healthy growth in the first quarter, given the recovery seen in consumer spending in recent months.

Although the consumer sentiment index of the Reuters/University of Michigan's survey is expected to show a slight improvement in early March, confidence is expected remain at depressed levels. According to Capital Economics, until the unemployment rate falls to more normal 5%-6% levels, confidence is likely to remain subdued.

The trade deficit is expected to widen further in January, as rising oil prices exert an upward influence on imports for the fifth straight month. However, as export growth built on the back of strong global growth and a firmer dollar loses steam, the deficit is expected to worsen.

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McDonald’s is rising in pre-market trading after it reported that its global comparable store sales rose 4.8% in February, with Asia/Pacific, Middle East and Africa showing comparable store sales growth of 10.5%.

Boeing may also gain ground after it announced that Turkish Airlines has finalized an order for 20 Next-generation 737 airplanes. The order is valued at $1.6 billion at current list prices.

RF Micro Devices is likely to see some activity after it said it expects to generate fourth quarter revenues of $240 million to $245 million. Based on the revised revenue expectation, the company expects non-GAAP earnings per share of 11-12 cents. Analysts estimate earnings of 10 cents per share on revenues of $231.79 million.

AIG and MetLife could be in focus after the companies announced that AIG would sell its American Life Insurance Co. to MetLife for about $15.5 billion, including $6.8 billion in cash and the remainder in equity securities of MetLife.

Hewlett-Packard may move in reaction to its announcement that it has downwardly revised its previously announced financial results for its first quarter due to developments in litigation involving Electronic Data Systems, which it acquired in August 2008. The company said its net earnings stand reduced by $73 million or 3 cents per share, while non-GAAP earnings have been revised to $1.07 per share from $1.10 per share estimated earlier.

Cablevision could be in focus after it announced the immediate return of WABC Channel 7 to its 3 million New York area homes. ABC Disney went off Cablevision at midnight on Saturday, as the two parties continued negotiating on a new agreement. Subsequently, Cablevision said it would agree to government calls for binding arbitration with ABC Disney.

Essex Property Trust is likely to see some activity after it announced that it has entered into a venture to acquire an interest in Essex Skyline at MacArthur Place, a high-rise condominium project in Santa Ana, California for $128 million. The company said the purchase was made in a joint venture, with each owner holding about 50% interest in the property and its operations.

YRC Worldwide could come under selling pressure after it announced that the Nasdaq stock market has notified on March 3, 2010 that the company is not in compliance with Nasdaq Marketplace Rule 5450(a) (1) related to stock price. The company closed at a share bid price of less than $1 for 30 consecutive business days. The company now has 180 calendar days to regain compliance. The company expects to effect a reverse stock split, which has already been approved by the board, during the second quarter of the year.

Northrop Grumman is likely to react to its announcement that the U.S. Navy has selected the company for the development phase of its Navy's Consolidated Afloat Networks and Enterprise Services program or CANES. The indefinite-delivery/indefinite-quantity contract, one of the two CANES contract, has been awarded to a team led by Northrop Grumman and has been valued at $17.4 million. If all options are exercised, the contract will include system production through September 2014 and will be valued at $775 million.

RockTenn may be in focus after it announced an increase in the price of its recycled paperboard products by $45 per ton. The company noted that the price increase is effective with shipments on April 6.

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