US & World Daily Markets Financial Briefing 09-10-2009

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Consolidation Likely as Traders Look Ahead Optimistically to Earnings

The major index futures are pointing to a lower opening on Friday, with traders likely to express apprehension, especially due to the fact that the markets have run up of late. Commodity prices are receding, as the dollar is gaining ground following Federal Reserve Chairman Ben Bernanke’s comments about raising interest rates. A report released earlier in the day showed that the trade deficit unexpectedly narrowed, as export growth rebounded.

The absence of any other major news on the economic front may lead to some indecision even as the markets look ahead to a slew of earnings and economic reports in the upcoming week.

U.S. stocks opened Thursday’s session higher, riding on the back of positive earnings expectations and a brighter data point on the jobs market, and hovered in positive territory throughout the session. The major averages ended the session moderately higher.

The Dow Industrials ended the session up 61.29 points or 0.63% at 9,787, the Nasdaq Composite advanced 13.60 points or 0.64% to close at 2,124 and the S&P 500 Index moved up 7.90 points or 0.75% to 1,066.

Twenty-one of the thirty Dow components ended the session higher, with American Express (AXP), Caterpillar (CAT), DuPont (DD), Home Depot (HD), 3M Co. (MMM) and Microsoft (MSFT) showing notable advances. However, Verizon Communication (VZ), Travelers Co. (TRV), AT&T (T) and JP Morgan Chase (JPM) were among the decliners.

Among the sector indexes, the Dow Jones Transportation Average rose 2.23%, the NYSE Arca Airline Index climbed 2.11% and the Dow Jones U.S. Basic Materials Average rose 2.42%. The NYSE Arca Oil Index gained close to 2% compared to a 3.31% advance by the Philadelphia Oil Service Index and a 1.43% climb by the NYSE Arca Gold Bugs Index.

Following the release of same store sales by the nation’s retailers, the S&P Retail Index rose 1.84%. The Philadelphia Housing Sector Index jumped 3.91%. While the NYSE Arca Disk Drive Index gained about 1%, the NYSE Arca Computer Hardware Index rose 1.56%, the NYSE Arca Software Index advanced 1.90% and the NYSE Arca Internet Index moved up 1.21%.

On the economic front, initial claims for unemployment benefits totaled 521,000 in the week ended October 3rd, down from an upwardly revised reading of 554,000 in the previous week. Continuing claims declined by 72,000 in the week ended September 26th. However, those receiving emergency unemployment compensation as well as those getting extended benefits rose, reflecting the fact that employers are still reluctant to hire new workers.

The Commerce Department said wholesale inventories fell by 1.3% month-over-month in August, a bigger decline than the 1% drop expected by economists. However, wholesale sales rose 1%, pushing the inventory to sales ratio down to 1.20 from 1.23 in the year-ago period.

The reception to the Treasury’s auction of 30-year bond was weak, with the high yield coming in at 4.009%, about 2 basis points above expectations, and the bid-to-cover ratio at 2.37. The level of indirect bidders was at 34.5%, below the average of the previous four auctions.

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Bay Street Stocks Could Ease As Commodities Turn Slightly Lower

Canadian stocks could give back some recent gains early Friday as commodities have turned moderately lower in early trading. The Bay Street market has surged this week, led by resource stocks, in hopes of a speedier global economic recovery.

Gold has slipped $7.10 to $1,049.20 per ounce, backing off its record levels. Crude oil has slipped 67 cents to $71.02 per barrel.

On the upside, Statistics Canada said employment was up 31,000 last month, driven by large full-time gains. The unemployment rate fell by 0.3 percentage points to 8.4%, the first monthly decline since the beginning of the labor market downturn in the fall of 2008.
 
In corporate news, MDS Inc. said it agreed to sell its Central Labs operation to Czura Thornton for around $8 million.

DragonWave Inc. reported second quarter net income of C$6.3 million or C$0.21 per share, compared to a loss of C$1.7 million or C$0.06 per share in the year-ago quarter.

On Thursday, the S&P/TSX Composite Index gained 134.63 points or 1.18% to move at 11,484.51. The market closed up for a fourth straight day at a two-week high.

Gold Slips Off Record Levels

Gold edged lower on Friday morning as traders collected profits on record-high prices. The dollar recovered some of its recent slide versus major rivals, reducing the metal's hedge appeal.

December-stamped gold futures fell to $1,049.40, down $7 on the session. Prices slipped as low as $1,044.70.

Gold hit record intraday and closing highs, unadjusted for inflation, for a third straight session on Thursday. The metal closed at $1,055.40, up $11.70 on the session. The metal earlier hit a new record intraday high of $$1,060.40.
 
The dollar saw strength against the euro late Thursday night in New York and remained near the highs in mid-morning on Friday. The buck also rebounded against the pound.

A Commerce Department report showed that the trade deficit narrowed to $30.7 billion in August from a revised $31.9 billion in July. Economists had been expecting the deficit to widen to $33.0 billion compared to the $32.0 billion originally reported for the previous month.

In U.S. monetary policy news, Federal Reserve Chairman Ben Bernanke reiterated Thursday evening that low interest rates will likely remain in effect for the foreseeable future.

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Asian Markets End Mixed Amid Cautious Optimism

Mixed trading was witnessed among the major markets open for trading in Asia on Friday as traders preferred to lock-in gains ahead of the weekend and move to the sidelines amid concerns about the quality of upcoming corporate earnings in the U.S and slew of economic data slated for release during the course of next week. Chinese market, which opened for trading after national holidays, surged up more than 4.5% while the markets in India, Australia and Indonesia ended in negative territory on profit taking. Japanese Nikkei and South Korea's KOSPI gained while Hong Kong's Hang Seng Index ended nearly flat with marginal gains.

In Japan, the benchmark Nikkei 225 Index advanced 183.92 points, or 1.87%, to 10,016, while the broader Topix index of all first section stocks rose 10.24 points, or 1.15%, to 898.

On the economic front, the Cabinet Office of Japan announced that core machinery orders rebounded month-on-month in August, with the rise being driven by rising machinery orders in the manufacturing sector and a slower rate of decline in orders in the core non-manufacturing sector. According to the report, core machinery orders rose a seasonally adjusted 0.5% in August compared to the 9.3% drop in the previous month. Economists had expected a more robust 2.1% increase.

Non-ferrous metals led the gains on higher commodity prices in the international market and expectation of higher demand. Sumco Corp. gained 2.00%, Sumitomo Metal Mining advanced 2.22%, Toho Zinc surged up 6.74%, and Dowa Holdings climbed 4.74%.
 
Banking and securities stocks also ended higher on increasing optimism about global recovery. Sumitomo Mitsui Financial gained 1.17%, Resona Holdings added 0.62%, Mizuho Financial advanced 1.08% and Mitsubishi UFJ Financial edged up 0.20%. Among securities, Nomura Holdings surged up 4.59%, Matsui Securities climbed 3.56%, Daiwa Securities gained 2.60% and Mizuho Securities rose 2.90%.

Trading stocks also ended in positive territory. Toyota Tsusho Corp. gained 2.42%, Mitsubishi Corp. advanced 1.06%, Itochu Corp. climbed 2.80%, and Sumitomo Corp. added 1.31%.

Automotive stocks also gained following weaker local currency. Honda Motor Co. gained 2.80%, Suzuki Motor advanced 1.47%, Nissan Motor Company rose 3.70% and Toyota Motor Company added 0.57%.

In Australia, the benchmark S&P/ASX200 Index slipped 15.70 points, or 0.33% to close at 4,753, while the All-Ordinaries Index ended at 4,754, representing a loss of 8.80 points, or 0.18%.

Mixed trading was witnessed among the metals and mining stocks as traders booked profits despite rise in commodity prices in the international market. BHP Billiton lost 0.81%, Gindalbie Metals fell 2.72% and Murchison Metals shed 2.21%. However, Fortescue Metals added 0.80%, Iluka Resources advanced 1.56%, Minara Resources surged up 5.86% and Rio Tinto edged up 0.33%.

Oil related stocks ended in negative territory. Woodside Petroleum slipped 0.35%, Santos lost 0.72% and Origin Energy fell 2.12%. However, Oil Search managed to end in positive territory with a gain of 2.58%.

Among gold stocks, Lihir Gold lost 1.26% and Sino Gold Mining edged down 0.28%. However, Newcrest Mining ended in the green with a gain of 1.59%.

Banks also ended mixed. While ANZ Bank shed 0.49% and Westpac Banking lost 0.68%, Commonwealth Bank of Australia edged up 0.36% and National Australia Bank advanced 0.80%.

Real-estate related stocks ended in negative territory. GPT Group declined 4.38%, Mirvac Group lost 1.78%, Stock and fell 1.47% and Westfield Group shed 1.85%.
 
In Hong Kong, the Hang Seng Index ended flat with a marginal gain of 6.54 points, or 0.03% at 21,499, as traders preferred to lock-in-gains following recent rally and move to the sidelines amid concerns about the quality of upcoming corporate earnings as well as slew of economic data in the U.S during next week. Retailer Li & Fung, which supplies to U.S. corporates including Wal-Mart and Target Corp., gained more than 3.7% on expectation of revival in consumer demand in the U.S.

In South Korea, the KOSPI Index ended in positive territory with a gain of 31.33 points, or 1.94%, at 1,647 as traders cheered the decision of the central bank, the Bank of Korea, to leave the interest rates unchanged at 2% and reiterated that it will maintain its accommodative policy stance for the time being. Foreign institutional investors and traders picked up stocks in blue-chip technological and financial stocks on increasing optimism about recovery prospects in the world economy.

Heavy sell-off in index heavyweights dragged the Indian market sharply lower on Friday. Despite announcing better-than-expected earnings for the second quarter, IT bellwether Infosys ended down 1.5%. The BSE Sensex ended near the day's lows at 16,643, down 201 points or 1.19% and the S&P CNX Nifty fell 57 points or 1.14% to 4,945.

Among the other major markets in the region, China's Shanghai Composite Index gained 132.29 points, or 4.76% to 2,912, Singapore's Strait Times Index edged up 1.56 points, or 0.06% to close at 2,652 and Taiwan's Weighted Inded advanced 68.65 points, or 0.91% to 7,572. However, Indonesia's Jakarta Composite Index declined 10.12 points, or 0.41% and ended at 2,474.

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Although the European markets ignored early weakness and moved into positive territory by early morning, they receded in late morning trading and are currently languishing in the red. The French CAC 40 Index and the German Index are receding 0.75% and 0.73%, respectively, while the U.K.’s FTSE 100 Index is moving down 0.44%.

On the economic front, the German Federal Statistics Office reported that turnover in German manufacturing sector fell by a real 16.4% in August following a 16.7% annual drop. On a monthly basis, manufacturing turnover declined 2.6%, bigger than the 0.5% decline in the previous month.

The French National Institute of Statistics and Economic Studies showed that French manufacturing output declined 1.9% month-over-month in August following a revised 0.8% increase in July. Industrial production climbed a better than expected 1.8%.

The Federal Statistical Office of Germany reported that German trade surplus was 8.1 billion euros, down from a surplus of 14.1 billion euros in June, as imports climbed and exports fell compared to the month-ago period. The current account surplus was 4.6 billion euros compared to 11.4 billion euros in July.

Meanwhile, U.K.’s visible trade deficit narrowed to 6.2 billion pounds in August from a deficit of 6.3 billion pounds in July, a report released by U.K.’s Office of National Statistics showed. Economists had estimated a deficit of 6.3 billion euros. Exports and imports fell by 0.6% and 1.2%, respectively.

A separate report released by the agency showed that U.K. output prices rose by 0.4% year-over-year in September. Economists estimated a 0.1% drop. On a monthly, output prices rose by 0.5%. At the same time, the input price index fell by 6.5% year-over-year and by 0.5% compared to the previous month.

U.S. Economic News

With the value of exports increasing and the value of imports declining, the U.S. trade deficit unexpectedly narrowed in August, according to a report released by the Commerce Department.

The trade deficit narrowed to $30.7 billion in August from a revised $31.9 billion in July. Economists had been expecting the deficit to widen to $33 billion from the $32 billion originally reported for the previous month. Exports rose $0.2 billion to $128.2 billion, while imports fell by $0.9 billion to $158.9 billion.

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Infosys is likely to be in the spotlight after it said second quarter revenues declined 5.1% to $1.15 billion and net income edged down 0.9% to $317 million or 56 cents per share. However, the bottom line was ahead of estimates, which called for earnings of 50 cents per share. The company raised its guidance for fiscal year 2010.

Developers Diversified could see some strength after it said it has obtained new first mortgage financing from Goldman Sachs Commercial Mortgage Capital. The company noted that the $400 million, 5-year loan is secured by a portfolio of 28 stabilized shopping centers.

Pfizer may see buying interest after it announced that the FDA Antiviral Drugs Advisory Committee voted 10 to 4 to recommend the approval of Selzentry tablets for use in treatment-naïve adult patients with CCR5-tropic HIV-1 virus as a combination therapy. The medicine was granted full approval for use in treatment-experienced adult patients in November 2008 in combination with other antiretroviral therapies.

CalAmp is expected to move in reaction to its second quarter results, which showed a loss of 9 cents per share on a non-GAAP basis on revenues of $23.9 million. In the year-ago period, the company reported a loss of 2 cents per share on revenues of $23.3 million.

99 Cents Only may be in focus after it reported that its second quarter sales were $324.7 million, a 2.2% increase from the year-ago period. Analysts estimated sales of $326.36 million for the quarter. Same store sales grew 2.3% during the period.

Regal Beloit is likely to see strength after it announced that it has raised its third quarter earnings guidance to 80-85 cents per share from its earlier estimate of 60-68 cents per share. The company attributed the revision to lower taxes and raw material costs, improved sales mix and cost cuts. However, the company maintained its revenue guidance of a 25% year-over-year decline.

Paramount Gold and Silver could see some activity after it announced that it has priced its previously announced public offering of 16 million shares. The company noted it expects to realize net proceeds of $18.7 million from the offer.

Savient Pharma may react to its announcement that it has priced its underwritten offering of 4.3 million shares at $13.29 per share, which is on par with its Thursday’s closing price. Meanwhile, Lithia Motors priced its public offering of 4 million shares at $10 per share compared to the $10.88 at which it closed on Thursday.

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