US & World Daily Markets Financial Briefing 10-05-2010

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Stocks Posting Substantial Gains In Mid-Morning Trading

After spiking sharply higher to open the session, stocks are holding onto substantial gains in mid-morning trading on Monday following news of a large safety net package passed for the Euro zone. The program has largely quelled fears of debt contagion spreading from Greece, sparking a relief rally in stocks after the steep losses seen last week.

The European aid package totals up to 750 billion euros, or $970 billion, in loans and is aimed at safeguarding the financial stability of Euro zone nations facing debt issues. Markets worldwide applauded the plan, which was much more extensive than most had anticipated.

The program consists of 440 billion euros worth of loan guarantees provided by the 16 member states of the Euro zone, plus a 60 billion euro contribution from the European Commission. The International Monetary Fund will also provide 250 billion euros in support.

Further, the European Central Bank will enter the secondary market to buy EU member bonds, while in the U.S., the Federal Reserve turned on its swap lines to provide foreign institutions with access to loans.

In other news today, McDonald's (MCD), the world's leading fast food chain and a Dow component, reported that its global comparable sales were up 4.9 percent in April following a 6.9 percent increase in the same period last year.

The major averages have all seen choppy movement in recent dealing, hovering near their highs of the session. The Dow is up 371.23 points or 3.6 percent at 10,751.66, the Nasdaq is up 93.87 points or 4.1 percent at 2,359.51 and the S&P 500 is up 42.31 points or 3.8 percent at 1,153.19.

Sector News

Steel stocks are some of the morning's strongest performers, with the NYSE Arca Steel Index rallying by 6.6 percent. The move is lifting the index off of the more than two-month closing low set on Friday.

Housing stocks are also moving sharply higher, as reflected by the 5.8 percent surge by the Philadelphia Housing Sector Index. With the gain, the index is recovering from its lowest closing level in over a month and a half.

The index is being led higher by shares of M/I Homes, Inc. (MHO), which have shot up by 17 percent, bouncing off their lowest closing price in just over three months.

Networking, electronic storage, commercial real estate and banking stocks are also seeing considerable strength amid a market-wide rally that is lifting equities well off their recent lows.

Stocks Driven By Analyst Comments

Northern Trust (NTRS) is posting a strong gain after being upgraded at Goldman Sachs to a Buy rating. The stock has jumped by 6.2 percent, moving further off of a two and a half month low set last Thursday.

Cement maker Cemex (CX) is also advancing following an upgrade at Credit Suisse to Outperform from Neutral. The brokers also set a $15 dollar price target, up from the previously set mark of $10. Shares are currently up by 8 percent, moving off of a more than one-month closing low set on Friday.

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TSX May Open Higher On Euro Zone Rescue Package, Recovering Energy Prices

Bay Street stocks are poised to open higher Monday on speculation that the aid package announced by European leaders and the IMF over the weekend will help avert the euro zone debt crisis.

Also, a smart recovery in the price of oil will help lift sentiment among energy stocks, that were battered heavily last week.

U.S. stock futures point to a strong opening after European leaders and the IMF agreed to a nearly $1 trillion rescue fund to support euro zone nations burdened by heavy debt.

On Friday, the S&P/TSX Composite Index surrendered 149.99 points or 1.27% to 11,692.43, level not seen since late February.

The price of crude oil was recovering from its last week's slump, adding $2.70 to $77.81 a barrel. Meanwhile, the price of gold retreated from near its all time high, shedding $14.80 to $1,195.60 an ounce.

In corporate news, gold explorer Red Back Mining said it closed a C$600 million private placement financing with Kinross Gold. Kinross now holds 24 million common shares of Red Back representing approximately 9.4% of Red Back's issued and outstanding common shares.

Uranium miner Uranium One slipped into the red in first-quarter, reporting net loss of $0.04 per share, compared to net income of $0.13 per share last year.


Global energy services company ShawCor Ltd reported first quarter net income of C$0.14 per share, compared to C$0.45 in the year ago quarter.

Drilling and well-servicing contractor Ensign Energy Services reported first-quarter funds from operations of C$0.57 per share, up from C$0.54 per share in the previous year.

Food products company Weston George announced that it would repurchase up to 6.45 million of its common shares, representing 5% of the about 129.07 million common shares.

Marine receiving terminals operator Polaris Minerals reported a wider first quarter net loss of $0.12 per share, compared to loss of $0.03 per share in the same quarter last year.

Commercial forest plantation operator Sino-Forest said its wholly-owned subsidiary Sino-Capital Global Inc. entered into an agreement to acquire 2.32 billion ordinary shares or 30.3% stake in Greenheart Resources Holdings for about $29 million. The offer price will be satisfied by issuing common shares of Sino-Forest.

Fibre grid operator Axia NetMedia, said it has formed an alliance with Vodafone Group plc for the New Zealand government's Ultra-Fast Broadband Initiative.

Telecommunications solutions provider WebTech Wireless said it has consolidated its Quadrant sales organization into two groups, namely Government sales and Non-Government sales

Printing services provider Worldcolor said its first-quarter net loss narrowed significantly to $29 million from $126 million for the same period in 2009.

Drug development company Cipher Pharmaceuticals announced the U.S. FDA has approved CIP-TRAMADOL ER, the company's extended-release tramadol product.

Agricultural greenhouse facilities focused fund Village Farms International reported higher first quarter net income of $0.11 per share, compared to $0.02 per share in the year ago quarter.

In economic news, Canada Mortgage and Housing Corporation said Housing Starts edged up 1.3% in April to a seasonally adjusted rate of 201,700 units from a revised 199,200 units in March. Economists were expecting housing starts to come in at 205,000.

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Asian Markets Rebound Sharply On EU Package

The markets across Asia ended sharply higher on Monday, reversing the trend in the previous week, after global leaders finalized a package of $1 trillion for rescuing European markets from debt crisis. The markets across the globe, that witnessed sharp sell-off on debt concerns, surged on bargain hunting.

In Japan, the benchmark Nikkei 225 Index rose 166.11 points, or 1.60%, to 10,531, while the broader Topix index of all First Section issues was up 12.90 points, or 1.38%, to 945

On the economic front, minutes of the monetary policy meeting of Bank of Japan held between April 6-7, revealed that the members of the Bank of Japan's board suggested that the Japanese economy may be on the verge of a self-sustaining recovery. The board members also felt that the risk of a double-dip recession was becoming increasingly unlikely, and that the worst is over for employment conditions. "Japan's economy has been picking up mainly due to improvement in overseas economic conditions and to various policy measures, although there is not yet sufficient momentum to support a self-sustaining recovery in domestic private demand," the minutes said.

Banks ended in positive territory. Sumitomo Mitsui Financial gained 1.42%, Mizuho Financial added 0.52%, Mitsubishi UFJ Financial climbed 1.74% and Resona Holdings rose 3.20%.

Exporters also ended in positive territory on weaker yen. Canon Inc. gained 1.97%, Sharp Corp. climbed 4.01%, and Sony Corp. rose 2.45%


Automotive stocks advanced. Toyota Motor gained 1.15%, Honda Motor advanced 0.83%, Hino Motors rose 2.00%, Isuzu Motors added 1.04% and Mitsubishi Motors climbed 1.65%.

In Australia, the benchmark S&P/ASX200 Index surged up 119.10 points, or 2.66% to close at 4,600, while the All-Ordinaries Index ended at 4,622, representing a gain of 114.80 points, or 2.55%.

On economic front, a report released by the National Australia Bank revealed that business confidence index in the country declined to 13 during April from16 recorded in March. This marks the second straight month in which business confidence has fallen, with the NAB citing the Reserve Bank of Australia's recent rate rises as the contributory factor.

In a separate statement, ANZ Bank revealed that total job advertisements in the country, both on the Internet and in newspapers, decreased by a seasonally adjusted 1.2% in April compared to the previous month. Newspaper job ads were down by 0.7% from a month ago, while internet job ads were 1.3% lower in April. On a year-over-year basis, total job ads were up 14.9% in April.

Light sweet crude oil futures for June delivery ended at $77.48 a barrel in electronic trading, up $2.37 per barrel from previous close at $75.11 a barrel in New York on Friday.

Banking stocks ended sharply higher. ANZ Bank climbed 4.02%, Commonwealth Bank of Australia surged up 5.19%, investment banker Macquarie Group advanced 2.39%, National Australia Bank rose 3.91% and Westpac Banking Corp. gained 3.48%.

Mining and metal stocks also advanced sharply. BHP Billiton gained 4.00%, Fortescue Metals climbed 5.04%, Gindalbie Metals surged up 10.09%, Iluka Resources advanced 1.42%, Murchison Metals soared 11.80%, Mineral Resource gained 3.43%, Mincor Resources climbed 7.81%, Oz Minerals rose 2.88% and Rio Tinto increased 5.88%.


Oil stocks also ended in positive territory. Woodside Petroleum added 0.88%, Santos gained 2.55%, and Oil Search advanced 0.77%. Origin Energy and ROC Oil Co. remained unchanged from previous close.

In Hong Kong, the benchmark Hang Sang Index surged up 506.37 points, or 2.54%, to close at 20,427, taking cues from other markets in the region following news that the EU leaders and the IMF, over the weekend, finalized a $1 trillion package to revive the European markets following the debt crisis in Greece and possible spread to other countries in the region. The markets, which had declined sharply over the past week, welcomed the announcement and rebounded sharply as traders went bargain hunting at lower levels, given that the prospect of global economic recovery will sustain this shock.

After a 5-day losing streak, the Indian market witnessed a strong rebound on Monday, led by realty, metal, banking and auto stocks. A strong recovery in world markets on news that the European Union has agreed on a massive EUR 750 billion ($1.1 trillion) emergency rescue package obviously helped boost sentiment. The 30-share sensitive index of the Bombay Stock Exchange ended up 561 points or 3.35% at 17,330, while the 50-share S&P Nifty, which lost about 250 points last week, rose 176 points or 3.50% to 5,194.

Among the other major markets open for trading, China's Shanghai Composite Index added 10.37 points, or 0.39%, to close at 2,699, Indonesia's Jakarta Composite surged up 111.09 points or 4.06% to close at 2,850, Singapore's Strait Times Index gained 59.37 points, or 0.79%, to close at 2,880, and Taiwan's Weighted Index climbed 97.63 points, or 1.29%,to close at 7,665.

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The major European markets are advancing on Monday after the European Union and the IMF announced a few radical measures to preserve the stability of the euro. Financial stocks are leading the advance in the region. The French CAC 40 Index and the German DAX Index are rising 8.75% and 4.84%, respectively, while the U.K.’s FTSE 100 Index is gaining 4.85%.

The finance ministers of the European Union, the global central banks and the IMF chalked out a benevolent package to keep Greece afloat without sinking in the debt crisis and prevent contagion risks. The U.S. Federal Reserve opened up currency swaps with some of its peers in other developed economies to provide dollar liquidity.

Meanwhile, the European Union agreed on a 500 billion euro aid package, consisting of loans and loan guarantees for any euro zone country. At the same time, the IMF pledged 250 billion euros in funding. Additionally, the European Central Bank said it would buy government bonds, with the governing council of the bank determining the scope of such purchases. Although the central bank suggests that the aim of the purchases is to ensure orderly functioning of the market, Commerzbank is of the view that it could also indirectly fund budget deficits through purchases on the secondary market.

Close on the heels of the European Central Bank decision, the Bank of England decided to hold its interest rate at a record low and maintain its bond purchase programme at GBP 200 billion as expected amid the uncertainty over the formation of a new government.

The nine-member Monetary Policy Committee maintained the official Bank Rate paid on commercial bank reserves at 0.5%. The previous change in the rate was a reduction of 0.5 percentage points on March 2009. The current rate is the lowest since the central bank was established in 1694.


In other economic events, the German Federal Statistical Office reported that Germany’s trade surplus rose to 17.2 billion euros in March, notably higher than the 14.5 billion euro surplus expected by economist and the 12.6 billion euro surplus recorded in February. Exports grew at a faster rate of 22.3% compared to a 18.3% increase in imports.

A survey done by the Sentix research group showed that the euro zone’s investor confidence fell to –6.4 in May from 2.5 in March, which was the first positive reading since June of 2008.

French statistical office INSEE reported that French industrial output rose 1% month-over-month in March after remaining unchanged in February. Economists had expected a more modest 0.2% increase. Manufacturing output, accounting for the bulk of the output, rose 0.8% from the previous month and increased 4.7% from the previous year.

U.S. Economic Reports

Even as hopes dawn that the fiscal crisis facing the euro zone region will be averted, the unfolding week’s focus is likely to be on the retail sales and the industrial production reports. The Commerce Department is set to release its retail sales report for April on Friday, and on the same day, the Federal Reserve is scheduled to release its industrial production report.

Also on tap are the Labor Department’s weekly jobless claims report and the Reuters/University of Michigan’s preliminary consumer sentiment report for March. Traders may also pay attention to the Commerce Department’s trade balance report for March, a Labor Department report on export and import prices and the wholesale and business inventories reports for March. Several Fed speeches and the results of the Treasury auctions of 3-year, 10-year and 30-year bonds may also be of interest to traders.

Retail sales are likely to see a moderation in April after a strong uptick in the previous month, mainly due to softness in auto sales and a decline in gasoline sales. Additionally, chain store sales results were also lackluster due to an early Easter. However, most other sectors are likely to show strength. BMO Capital Markets expects real consumer spending to rise a decent 2.5% in the second quarter due to the strong hand off from March. Nevertheless, spending should remain subdued for the rest of the year due to the still depressed job markets.

Going by the strong results of the manufacturing purchasing managers’ survey, industrial production growth should hold up for the tenth straight month. Capacity utilization is also expected to see a modest increase. Machinery and equipment production has been seeing buoyancy, as an improvement in business confidence and rising new orders lend support to output.

Meanwhile, the trade balance is expected to show a widening from the month-ago levels due to higher costs of oil and as the travails of the European economies temper export growth.

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Peabody Energy (BTU) may be in focus after it announced that it is reducing its offer for Australia’s Macarthur Coal to $3.4 billion from its original offer price of $3.8 billion. Peabody Energy attributed the reduction to the new tax the Australian government has proposed on the profits of mining companies.

Berkshire Hathaway (BRKA) is expected to see some activity after it reported a first quarter profit of $2,272 per Class A share compared to a loss of $990 per share in the year-ago period. On an adjusted basis, the company’s operating profit was $1,390 per share.

DISH Network (DISH) could also be in the spotlight after it reported that its first quarter revenues rose 5.2% to $3.06 billion. The company’s basic earnings fell to 52 cents per share from 70 cents per share last year. Analysts estimated earnings of 50 cents per share on revenues of $3.05 billion.

Dynegy (DYN) is likely to see some activity after it reported first quarter net income of 24 cents per share compared to a loss of 40 cents per share last year. Revenues fell to $858 million from the year-ago’s $904 million, but exceeded the $584.37 million consensus estimate.

Louisiana-Pacific (LPX) could react to its announcement that its first quarter sales rose 44% to $297 million. The company reported a loss from continuing operations of 18 cents per share compared to a loss of 29 cents per share in the year-ago quarter. Analysts estimated a loss of 11 cents per share on revenues of $292.55 million.

Tyson Foods (TSN) may also be in focus after it reported second quarter net earnings of 42 cents per share compared to a loss of 32 cents per share last year. Sales rose to $6.92 billion from the year-ago’s $6.31 billion. Analysts’ estimates, which typically exclude one-time items, called for earnings of 34 cents per share on revenues of $6.54 billion.