US & World Daily Markets Financial Briefing 08-12-2009

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Debt Fears May Increase Risk Aversion

The major U.S. index futures are pointing to a sharply lower opening on Tuesday, with the negative sentiment reflecting concerns over the ability of the global economy to position itself in the path of sustainable growth. The fears intensified following the release of a bleak economic reading from Germany showing smaller than expected industrial production and reports suggesting that the debt crises in Dubai and Greece are worsening.

Without growth outlook dimming, commodity prices are moving to the downside, which may prove negative for commodity stocks. However, pre-announcements from companies are suggesting that corporate profit outlook may not as bleak as feared. Although industrial conglomerate 3M Co. (MMM) issued a lackluster outlook, Xilinx (XLNX) and Tyco Electronics (TEL) were upbeat in their expectations for the current quarter.

After opening Monday’s session slightly lower, the major U.S. averages advanced in early trading and remained above the unchanged line amid some volatility, as some promising positive pre-announcements and an assurance from Federal Reserve Chairman Ben Bernanke that rates will be kept low generated some buying interest. However, stocks declined sharply in late trading, as uneasiness prevailed over a lack of clarity on the economy’s course.

The Dow Industrials managed to recover, closing up 1.21 points or 0.01% at 10,390. However, the Nasdaq Composite fell 4.74 points or 0.22% to 2,190 and the S&P 500 Index receded 2.73 points or 0.25% to 1,103. At the same time, the yield on the benchmark 10-year Treasury note fell to 3.448% from 3.48% on Friday.

Sixteen of the Dow components ended the session higher, with Boeing (BA) (up 2.08%), AT&T (T) (up 1.34%), Verizon Communications (VZ) (up 1.68%) and Wal-Mart Stores (WMT) (up 1.27%) advancing strongly. On the other hand, Pfizer (PFE) fell 2.33%, JP Morgan (JPM) receded 1.17%, Hewlett-Packard (HPQ) declined 1.16%, Caterpillar (CAT) moved down 1.27% and Bank of America slipped 2.40%.

Among the sector indexes, the Dow Jones Transportation Average fell 1.02%, the Philadelphia Housing Sector Index declined 1.42%, the NYSE Arca Securities Broker/Dealer Index lost 1.52%, the Philadelphia Housing Sector Index receded 1.42% and the KBW Bank Index retreated 1.63%. The NYSE Arca Gold Bugs Index ended down 2.06% compared to a 1.53% decline by the NYSE Arca Internet Index.

S&P Equity Research said in a recent note that it continues to overweight the cyclical sectors at the expense of defensive ones, as it sees the economy gaining strength over the next several quarters. That said, the firm cautioned of a sell-off in the shares of 2009 winners before the year is out. S&P also stated that it would view the year-end tax selling as a temporary pause in a climb above 1,200 for the S&P 500 Index.

In his address to the Economic Club of Washington, Federal Reserve Chairman Ben Bernanke said the U.S. faces significant headwinds to growth. That said, recovery signs have now become widespread, according to the Fed Chairman. The U.S. is likely to continue to see modest growth in 2010. In all, Bernanke’s statements relayed the view that the fed funds futures rate will remain low for an extended period.

A report released by the Federal Reserve yesterday showed that consumer credit outstanding fell by $3.5 billion to $2.483 trillion yen in October. September’s decline was revised to a drop of $8.8 billion from the $14.8 billion decline estimated initially. Revolving credit slipped by $7 billion, while non-revolving credit rose by $3.4 billion. The continued drop in consumer credit outstanding reflects tighter lending standards, consumers’ desire to pay down debt and the moderate pace of consumer spending.

Toronto Stocks May Continue Slide

Bay Street stocks could extend their recent losses on Tuesday morning as a rising U.S. dollar continued to push commodities lower and Scotiabank missed expectations in the fourth quarter.

Meanwhile, the Bank of Canada announced it will keep its overnight rate target at 0.25%. The move was widely expected.

Crude oil prices are down $.109 to $72.83 per barrel, while gold is down $11.10 to $1,149 an ounce and copper has lost 4.4 cents to $3.165 a pound.

Scotiabank reported fourth quarter net income available to common shareholders of C$853 million or C$0.83 per share, compared to C$283 million or C$0.28 per share last year. Analysts were looking for EPS of $0.87.

UTS Energy Corp said effective December 31, 2009, Dennis Sharp will step down as Chairman and will continue to serve as a director of UTS. Sharp has been Chairman of the UTS Board of Directors since 2006.
 
Eldorado Gold announced that Earl Price will retire as the company's Chief Financial Officer, effective December 31. The company has appointed Ed Miu as his successor.

Equinox Minerals announced that it has appointed Colin Johnstone as the company's chief operating officer, effective from January 2010.

Meanwhile, the Canada Mortgage and Housing Corporation reported Canadian housing starts rose to 158,500 units, fron 157,400 in the prior month.

On Monday, the S&P/TSX Composite Index dropped 21.17 points or 0.18% to finish at 11,489.63. The decline took the main index to a weekly low.

Currency, Commodity Futures

Crude oil futures are declining $1.17 to $72.76 a barrel after declining $1.51 to $73.96 a barrel in Monday’s session. Gold futures are moving down $17.60 to $1,146.40 an ounce. In the previous session, the precious metal fell $5.50 to $1,164 an ounce.

On the currency front, the U.S. dollar is trading at 88.314 yen compared to the 89.51 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is currently valued at $1.4744.

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Asian Markets End Weaker On Profit Taking

The markets across Asia ended in negative territory on Tuesday as traders preferred to lock in gains and move to the sidelines awaiting further direction. The rise in dollar and flat closing by the U.S. markets in the previous session impacted the market sentiment. The fresh stimulus package announced by Japan's new government failed to enthuse investors as there were no surprises. Indian market bucked the trend and ended sharply higher led by Reliance Industries.

In Japan, the benchmark Nikkei 225 Index declined 27.13 points, or 0.27%, to 10,140, while the broader Topix index of all First Section issues lost 2.23 points, or 0.25%, to 897.

On the economic front, a report released by the Ministry of Finance revealed that Japan's current account surplus rose 42.7% year-over-year to 1.398 trillion yen in October. However, the surplus came in below analysts' mean expectation of 1.483 trillion yen surplus. The trade balance came in at 949 billion yen, beating forecasts for an 864.6 billion yen surplus after the 599.2 billion yen surplus a month earlier. The annual increase of 812.4 billion yen was the largest since the series began in 1986.

Earlier, the Japanese coalition government announced a fresh stimulus package worth 7.2 trillion yen to battle the threats of deflation and a strong currency in the world's second largest economy. As per the stimulus package, the government plans to provide 3.5 trillion yen to bolster regional economies and 600 billion yen to help the job market. Another 800 billion yen is planned for environment related measures. The package consist of measures that provide subsidies for eco-friendly cars and household appliances. Additionally, 1.2 trillion yen would be used to raise funds for companies.
 
Shipping stocks declined the most, due to profit taking as well as drop in Baltic Dry Index. Kawasaki Kisen Kaisha fell 5.38%, Mitsui OSK Lines lost 3.30% and Nippon Yusen slumped 5.65%.

Profit taking was witnessed among automotive stocks. Honda Motor slipped 0.30%, Hino Motors shed 2.77%, Nissan Motor declined 0.94%, Isuzu Motor fell 2.26% and Mitsubishi Motor fell 2.16%.

Exporters also ended in negative territory. Canon Inc. fell 1.07% and NEC Corp. lost 3.49%.

Real estate stocks also ended weaker on profit taking. Tokyu Land Corp. declined 1.17%, Heiwa Real Estate lost 3.75%, Mitsubishi Estate fell 2.13%, Mitsui Fudosan shed 2.93% and Sumitomo Realty & Development decreased 2.24%.

Industrial manufacturers ended in positive territory. Dai Nippon Printing gained 1.21%, Toppan Printing advanced 1.08% and Yamaha Corp. added 0.50%.

Among other domestic companies, Yahoo! Japan surged 5.21% on increasing revenue from online advertisements.

Mixed trading was witnessed among the banking stocks. Sumitomo Mitsui Financial declined 1.92%, Resona Holdings fell 1.71% and Mizuho Financial lost 2.35%. However, Mitsubishi UFJ Financial ended in positive territory with a gain of 0.40%.

In Australia, the benchmark S&P/ASX200 Index declined 5.90 points, or 0.13% to close at 4,671, while the All-Ordinaries Index ended at 4,686, representing a loss of 8.70 points, or 0.19%.

On the economic front, a report released by National Australia Bank revealed that business confidence in the country rose to a sever-year high in November, while the index measuring business conditions eased slightly. As per the report, the business sentiment index rose 3 points to 19 in November while the business conditions slipped 2 points to 10.

In a separate report, the Australian Bureau of Statistics revealed that the country's current account deficit widened during the third quarter, in comparison to the previous quarter, driven by a surge in goods and services deficit. According to the report, the current account deficit widened to A$16.18 billion during the third quarter from A$13.18 billion reported in the previous quarter. However, the deficit was slightly lower than A$16.65 billion deficit expected by the economists.
 
Light sweet crude oil futures for January delivery ended at $74.17 a barrel in electronic trading, up $0.24 per barrel from previous close at $73.93 a barrel in New York on Monday.

Banks dragged the indices lower on speculation that higher interest rates might push up bad debts. ANZ Bank slipped 0.09%, Commonwealth Bank of Australia declined 1.30%, National Australia Bank shed 0.39% and Westpac Banking edged down 0.17%.

Mixed trading was witnessed among metals and mining stocks. BHP Billiton advanced 1.08%, Rio Tinto added 0.43%, Iluka Reources gained 1.11% and Murchison Metals rose 1.59%. However, Fortescue Metals declined 1.17%, Gindalbie Metals fell 2.06% and Mincor Resources lost 1.38%.

Gold stocks also ended mixed. While Lihir Gold remained unchanged from previous close, Newcrest Mining shed 0.69%.

Among oil stocks, Woodside Petroleum edged down 0.21%, Santos slipped 0.47% and Oil Search fell 1.02%. However, Origin Energy bucked the trend and ended in positive territory with a gain of 0.25%.

Retail stocks ended in negative territory on profit taking. David Jones declined 1.45%, Harvey Norman fell 1.63%, JB Hi-Fi Ltd lost 1.30% and Woolworths slipped 0.80%. However, Wesfarmers managed to end in positive territory with a modest gain of 0.28%.

In Hong Kong, the Hang Seng Index extended losses for the third successive trading day with a loss of 264.44 points or 1.88%, and closed at 22,060, as traders preferred to lock in gains after the US dollar gained and commodity prices, including oil, declined in the previous session in U.S. Comments from Fed Chairman Ben Bernanke that U.S economy still faces headwinds also impacted market sentiment. As many as 33 of the 42 components in the index ended in negative territory during the trading session.

In South Korea, the KOSPI Index ended in negative territory with a marginal loss of 4.87 points, or 0.30%, to close at 1,628, as traders preferred to lock-in gains after six successive days of gains prior to today's session. Flat closing on Wall Street, dovish comments about U.S economy by Fed Reserve Ber Bernanke and weak trading across other markets in the region impacted market sentiment.
 
A sudden bout of buying in index heavyweights in the mid-session lifted the Indian market sharply up on Tuesday. Earlier in the day, the market pared early gains and slipped into the red for a brief period, weighed down by weak Asian markets after the U.S Federal Reserve chief Ben Bernanke warned of continued weakness and Japan's $81 billion stimulus program failed to cheer investors. A change in sentiment helped the BSE Sensex close the near the day's high at 17,228, up 245 points or 1.44%, while the S&P CNX Nifty rose 81 points or 1.60% to 5,148.

Among other major markets in the region, China's Shanghai Composite Index declined 35.23 points, or 1.06% to close at 3,297 and Taiwan's Weighted Index slipped 0.09, or 6.93 points, to close at 7,769. However, Singapore's Strait Times Index added 8.52 points, or 0.30%, to close at 2805, and Indonesia's Jakarta Composite Index ended flat with a minor loss of 0.13 points, or 0.01%, at 2,484.

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The major European markets are trading down across the board, with the French CAC 40 Index and the German DAX Index moving down 1.67% and 2.09%, respectively, while the U.K.’s FTSE 100 Index is declining 1.71%.

In economic news, the U.K., Lloyd’s Banking Group’s Halifax division showed that U.K. house prices rose 1.4% month-over-month in November. Economists estimated a 0.6% increase in prices. Annually, house prices fell 1.6%, roughly in line with the 1.5% drop expected by economists.

The U.K. Office for National Statistics reported that industrial output remained unchanged in October compared to the 0.4% growth expected by economists. On a year-over-year basis, U.K.’s output fell 7.8%, smaller than the 9.8% decline in September.

German industrial production fell 1.8% month-over-month in October following an upwardly revised 3.1% increase in September, according to a report released by the Federal Ministry of Economics and Technology. The decline was the first drop in three months. Economists had forecast an increase of 1% in output. On an annual basis, industrial output adjusted for working days dropped 12.4% following a revised fall of 12.6% in the prior month.

Meanwhile, retail sales in the U.K. rose 1.8% year-over-year in November, with the increase smaller than the 3.8% increase expected by economists.

Pre-announcements

Xilinx (XLNX) raised its December quarter sales guidance to suggest 16%-20% sequential sales growth compared to the 6%-10% growth estimated earlier. The company attributed the strength to broad based strength across all its end market categories and geographies.

Ahead of an investor meet, Tyco Electronics (TEL) said its first quarter sales, adjusted operating income and adjusted earnings per share from continuing operations are tracking toward the high end of the outlook provided in early November. The company had said then it expects sales of $2.7 billion to $2.8 billion and adjusted earnings per share from continuing operations guidance of 35-39 cents per share. Analysts estimate earnings. Analysts estimate earnings of 38 cents per share on revenues of $2.76 billion.

3M Co. (MMM) said it expects 2009 adjusted earnings of $4.50-$4.55 per share, the same as its earlier projection. The company also said it expects 2010 earnings of $4.58-$5 per share on sales of $24.5 billion to $25.5 billion. Analysts estimate earnings of $4.57 per share for 2009 and $4.94 per share for 2010.

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Kroger (KR) could see activity after it reported that its third quarter sales rose to $17.7 billion from the year-ago’s $17.6 billion. Excluding items, the company reported net earnings of 27 cents per share, lower than 36 cents per share in the year-ago period. Analysts estimated earnings of 37 cents per share on revenues of $17.69 billion. The company expects 2009 earnings of $1.60-$1.70 per share compared to the $1.94 per share consensus estimate.

Green Mountain Coffee Roasters (GMCR) and Diedrich Coffee (DDRX) may be in focus after the companies said they have entered into a definitive merger agreement for Diedrich to be acquired by Green Mountain. The deal is valued at $35 per share in cash, with the total transaction valued at about $290 million. Earlier, Diedrich had announced a merger agreement with Peet’s Coffee & Tea, which was terminated following the execution of the definitive agreement with Green Mountain.

FedEx (FDX) is likely to see buying interest after the logistics firm said it expects second quarter earnings of $1.10 per share compared to its previous guidance of 65-95 cents per share. Notwithstanding the upward revision, the earnings estimate represents a 30% decline from the year-ago period. The company attributed the upside to better-than-expected growth in FedEx International Priority and FedEx Ground volumes coupled with benefits from its cost control programs. Analysts currently estimate earnings of 85 cents per share for the quarter.

Casey’s (CASY) could move in reaction to its announcement that its second quarter earnings rose to 66 cents per share compared to 54 cents per share in the year-ago period. Total revenues fell to $1.16 billion from the year-ago’s $1.39 billion. The consensus estimates called for earnings of 60 cents per share on revenues of $1.20 billion.

Weyerhaeuser (WY) could be in focus after it announced that it has agreed to sell its Warrenton lumber mill and its land to Hampton Affiliates. The company did not disclose financial terms of the deal, although it said it expects the deal to close in January.

Emerson Electric (EMR) is likely to see some activity after it said it has extended its offer to purchase all of the outstanding shares of Avocent (AVCT) by 3 days to 5 p.m. ET on Thursday, December 10th, 2009. In mid-October, Emerson commenced a tender offer to buy all outstanding shares of Avocent for $25 per share in cash.

Hewitt Associates (HEW) is expected to move in reaction to its announcement that its CFO John Park will leave the company early next year to pursue new career challenges. The company also announced the appointment of Robert Schriesheim, who currently serves as CFO of Lawson Software (LWSN), as its new CFO, effective January 4th, 2010.

Pep Boys (PBY) could react to its third quarter results showing sales of $472.6 million, up 1.8% from last year. The company reported net earnings of 4 cents per share compared with a loss of 14 cents per share last year. Analysts estimated earnings of 4 cents per share on revenues of $468.51 million.

Applied Materials (AMAT) may also be in focus after it said it has obtained clearance from the Federal Cartel Office of Germany under German merger control law in connection with its $11 per share cash tender offer for all of the outstanding shares of Semitool (SMTL).

FLIR Systems (FLIR) is expected to gain ground after it announced that it has received a $6.7 million of Foreign Military Sale orders for delivery to Middle East/North American nations.

Aeropostale (ARO) may move to the upside after it announced that its board has authorized a $250 million increase in the company’s share repurchase program, bringing the total share repurchase program since inception to $850 million.

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