US & World Daily Markets Financial Briefing 09-04-2009

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Major Averages See Further Upside, Dow Rises Above 8,000

After moving sharply higher at the open, stocks have seen some further upside over the course of the first half-hour of trading on Thursday. The major averages have moved firmly into positive territory, with the Dow climbing back above the 8,000 level.

Banking stocks are helping to lead the way higher on the heels of strong guidance from Wells Fargo (WFC). Housing, steel, and transportation stocks are also posting standout gains, as traders react to some better than expected economic data.

The major averages have continued to move higher in the past few minutes, once again reaching new highs for the young session. The Dow is currently up 182.07 at 8,019.18, the Nasdaq is up 41.87 at 1,632.53 and the S&P 500 is up 22.79 at 847.95.

 Eighteen of the thirty Dow components ended the session higher, American Express (AXP) led the Dow’s gains with a 4.73% advance. Alcoa (AA) rose 3.47% despite the very weak first quarter results, as the traders turned their attention to the future, which looks bright in light of an anticipated recovery. DuPont (DD), Home Depot (HD) and IBM (IBM) were among the other gainers.

On the other hand, Bank of America (BAC) slid 4.08%, Citigroup (C) lost 2.17% and General Motors (GM) declined 3.50%. Kraft Foods (KFT), Intel (INTC) and United Technologies (UTX) also saw weakness.

Among the sector indexes, the S&P Retail Index rallied 4.50% and the Amex Airline Index rose 3.85%. The Amex Biotechnology Index, the Philadelphia Oil Sector Index, the Dow Jones Transportation Index, and the Dow Jones Utilities Average gained over 1% each. The Philadelphia Semiconductor Index advanced 2.89% and the Amex Disk Drive Index rose 3.86%. While the Amex Computer Hardware Index moved up 3.50%, the Amex Internet Index rose 2.02%. The Amex Networking Index gained close to 5%, while the Amex Software Index advanced 2.42%.

The S&P 500 Index looks on track to see further upside in the recent up-leg. The index, which closed Wednesday’s session at 825, could see overhead resistances around 851 and 872 before it can take a run at the 941 level. S&P Technical analysts highlighted the fact that volatility indexes are all tracing bearish descending triangles and are very close to breaking down, which is another factor supporting moves of the major averages to the upside. Eventually, after the near term rally, there is a possibility of a retest of the recent lows.

On the economic front, the Commerce Department reported that wholesale inventories, which make up a quarter of business inventories, showed a bigger-than-expected drop of 1.5% in February. Economists had expected a mere 0.7% monthly decline. Meanwhile, wholesale sales rose by 0.6%, rendering the wholesale inventories to sales ratio to 1.31 from a revised 1.34 in January.

The minutes of the March FOMC meeting showed that the Fed cut its near-term outlook for growth and inflation, as it sees little support from exports and therefore believes that downside risks to the outlook remained significant in the near term.

The FOMC members believe that purchases of Treasuries will have effects across a variety of long-term debt markets and should ease financial conditions generally. Additionally, the Fed seems to think that direct purchases of mortgage backed securities and agency debt will help bolster the housing sector.

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Canada Swings To Trade Surplus In February

Canadian merchandise exports and imports both advanced in February following three months of rapid declines, according to data released Thursday by Statistics Canada.

Exports rose 5.2% to $33.1 billion as all sectors increased and auto makers resumed production. Meanwhile, imports increased 1.1% to $33.0 billion led by machinery and equipment. This resulted in a small trade surplus of $126 million, up from a deficit of $1.2 billion in January.

After leading the decline in January, exports of machinery and equipment and automotive products accounted for almost three-quarters of the gain in exports in February. The increase in total exports was due to a 7.0% increase in volume while prices declined 1.7%.
 
The February gain in imports was primarily supported by machinery and equipment and automotive products, while weaknesses in energy products dampened the growth. Overall, both price (+0.9%) and volume (+0.2%) increased.

Exports to the United States increased 5.0% on the strength of automotive products and precious metals. Imports rose 3.7%, largely reflecting increases in automotive products and aircraft. As a result, Canada's merchandise trade surplus with the United States increased to $3.4 billion in February from $3.0 billion in January.

Canada's trade deficit with countries other than the United States narrowed to $3.3 billion in February from $4.2 billion in January, as exports increased 5.9% while imports decreased 3.1%. Exports to China, Italy and Australia led the gain in exports to countries other than the United States.

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The major European averages are advancing on Thursday ahead of the long weekend, with commodities and financial stocks leading the markets higher. The French CAC 40 Index and the German DAX Index are rising 1.70% and 2.66%, respectively, while the U.K.’s FTSE 100 Index is moving up 1.41%.

In corporate news, Swiss drugmaker Roche-owned Genentech announced that it will withdraw its psoriasis drug Raptiva from the U.S. market in a phased manner following the establishment of a link to brain infection. Genentech said it would record a charge of $125 million related to the withdrawal.

A Wall Street Journal report suggested that Barclays (BCS) is close to announcing an agreement to sell its iShares ETF unit to CVC Capital Partners for about $4.4 billion. The report also suggested that Barclays is prepared to lend up to 70% of the purchase price to CVC Capital in an apparent move to get the deal done.

On the economic front, the German Federal Statistical Office today confirmed its earlier estimate of a 0.5% year-over-year increase in the consumer price index for March. The statistical agency noted that the March annual inflation rate was the lowest since July 1999. On a monthly basis, consumer price eased 0.1%.

Meanwhile, the U.K'.s output prices rose 2% on a yearly basis in March, slower than the 3% increase seen in February, according to a report released by the Office for National Statistics. Economists had expected output price inflation to ease to 2.1%. On a month-over-month basis, output prices edged up 0.1%, after remaining flat in February. The output price index excluding food, beverages, tobacco and petroleum rose 3.3% in the year to March compared to 3.7% in February. At the same time, the input price index for materials and fuels purchased by manufacturing industry fell 0.4% from the previous year, reversing a 1% increase in February.

Another report released by the agency showed that the U.K.'s visible trade deficit narrowed to 7.3 billion pounds in February from a revised deficit of 7.8 billion pounds in January. Economists had expected the goods trade deficit to contract to 7.6 billion pounds. In February, total exports of goods rose 2.5% to 18.9 billion pounds, while total imports of goods fell 0.5% to 26.2 billion pounds.

As expected, the Bank of England announced today that it is holding interest rates unchanged at 0.5%. Since October 2008, the central bank has been reducing rates to reinvigorate growth. With the interest rates slashed to very low levels, it is unlikely that the bank goes any further down, as the profitability of the lenders are affected at these levels.

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The major markets across the Asia-Pacific region advanced on Thursday, taking cues from Wall Street, where the major indices ended in positive territory despite concerns over corporate earnings on optimism that the economy, which has seen a slowdown in the downward momentum, will turn direction and start recovering earlier than expected.

Speculation that the Japanese government is close to announcing a $154 billion stimulus package to revive the economy and a decision by the Bank of Korea to keep interest rates frozen at 2% on indications that the fall in the economic activity has moderated of late also generated positive sentiment.

The benchmark Nikkei 225 Index gained 3.74% or 321.05 points to close at 8,916, and the broader Topix Index for all First Section Issues advanced 26.55 points to 842.

On the economic front, core machine orders in Japan unexpectedly rose 1.4% in February compared to the previous month, the government said on Thursday, marking the first increase in five months. The increase compares to analysts' expectations for a 6.9% decline following the 3.2% fall in the previous month. On an annual basis, core machine orders fell 30.1%, a smaller drop when compared to forecast for a 36.7% decline.

Automakers ended higher following an announcement by the U.S. Treasury Department that automakers General Motors and Chrysler have launched auto supplier support programs backed by up to $5 billion in U.S. government funds. Honda Motor gained 1.67%, Isuzu Motors rose 9.52% and Toyota Motor gained 4.27%.

Oil stocks also saw significant buying interest. Financials also ended in positive territory following reports that the major banks in the U.S. would pass the stress test. Mitsubishi UFJ soared 6.97%, Mizuho Financial surged 10.05%, Sumitomo Mitsui advanced 5.25%and Resona Holdings gained 5.47%.

The benchmark S&P/ASX 200 index gained 52.10 points, or 1.44% to close at 3,672, and the broader All Ordinaries index advanced 50 points or 1.40% to close at 3,617.

On the economic front, Australia's jobless rate jumped 0.5 percentage points to a seasonally adjusted 5.7% in March, the Australian Bureau of Statistics said today. The March jobless rate represented a 5-year high.

In the resources sector, index leader BHP Billiton gained 2.11%, and Rio Tinto advanced 1.87%. Gold miners ended weaker. Lihir Gold fell 0.66%, Sino Gold lost 1.92% and Newcrest Mining slipped 0.03%. Oil-related stocks gained on rising crude oil prices. Woodside Petroleum advanced 1.39%, Oil Search edged up 1.92%, and Santos added 0.36%. However, bank stocks ended on a mixed note.

In Seoul, the benchmark KOSPI Index gained 4.30% or 54.28 points to close at 1,316. Market heavyweight Samsung Electronics advanced 4.13%. Among other technology stocks, Hynix Semiconductor added 0.61%, LG Electronics advanced 3.68%, and LG Display gained 2.86%. Financial and oil stocks also advanced.

In the auto space, Hyundai Motor soared 8.80%, and Kia Motor gained 5.90%. However, Ssangyong Motor, which announced a restructuring plan yesterday, declined 4.02%.

The central bank of South Korea kept the 7-day repo rate unchanged at 2.0% at the conclusion of the monthly policy meeting today. The Bank stated the fall in economic activity has somewhat moderated of late. Analysts were anticipating the rates to be kept unchanged.

The benchmark Hang Seng Index advanced 2.95% or 426.55 points to end at 14,901. The market witnessed a broad based rally, with financial, property, resource and China-related stocks showing notable strength.

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Gold Prices Slip Below $880 Again

Gold prices drifted mildly lower in early U.S. trading on Thursday as traders sifted through a slew of economic data. With the drop, the metal erased its slight gains from yesterday.

June-dated gold futures moved to $878.20 per ounce, down $7.70 for the session.

The dollar was steady against other major currencies. The buck was little-changed amid choppy trading against the euro and moved higher against the yen. the dollar saw little movement versus the sterling for a fourth straight day, paring early losses after the the Bank of England decided to hold its interest rate at 0.5%.

On the economic front, the U.S. Labor Department announced initial jobless claims fell to 654,000 for the week ended April 4, compared to the previous week's revised level of 674,000. Analysts had expected the figure to come in at a level of 664,000.

Continuing claims rose by 95,000, bringing the total number to another record high of 5.84 million. The U.S. Commerce Department reported that the trade gap came in at a deficit of $25.97 billion for February. This compared to a revised level of $36.2 billion in the previous month.
 
Economists had been looking for a deficit around $36 billion.

A separate Labor Department report showed that import prices rose 0.5 percent in March following a revised 0.1 percent decrease in February. The increase in import prices marks the first price growth in eight months.

At the same time, the Labor Department said that export prices fell 0.6 percent in March after edging down 0.3 percent in the previous month. With the decrease, export prices fell for the seventh time in the past eight months.

Gold for June delivery ended Wednesday at $885.90 an ounce, up $2.60 for the session. The metal gained for a second day after three straight sessions of declines.

After the floor trading on the Comex ended, traders looked for the release of the minutes of the March Federal Open Market Committee meeting, which said that committee members remain concerned about downside risks to an already weak outlook for economic activity.

The minutes showed that nearly all of the meeting participants felt that economic conditions had deteriorated relative to their expectations at the time of the January meeting.

Crude oil futures are rising $1.61 to $50.99 a barrel after rising $0.23 to $49.38 a barrel on Wednesday, when it advanced in reaction to the weekly oil inventory report, which showed a smaller-than-expected build in crude oil inventories.

The report for the week ended April 3rd showed that crude oil inventories rose by 1.7 million barrels to 361.1 million barrels and were above the upper limit of the average range.

Gasoline inventories increased by 0.6 million barrels and were above the upper limit of the average range. However, distillate stockpiles fell by 3.4 million barrels, but were above the upper limit of the average range. Refinery capacity utilization averaged 81.9% over the four-weeks ended April 3rd compared to 82.1% in the previous week.

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