US & World Daily Markets Financial Briefing 10-06-2009

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Commodity Hype May Serve as Saving Grace for Markets

The major U.S. index futures are pointing to a higher opening on Wednesday. Global cues are positive, as the Asian markets closed higher, capitalizing on higher commodity prices, while the European markets are also seeing significant buoyancy. Commodities are seen as a proxy for growth, as demand for resources rises in tandem with growth. Positive economic data from a few nations including Australia and China, should serve to cement expectations of a turnaround and improve risk appetite of traders. That said, today’s EIA inventory should have an impact on how oil prices pan out in today’s session.

The foreign markets could provide the lead for the U.S. markets, even as traders combat with a still-hazy outlook. A Mortgage Bankers’ Association data showed that mortgage applications fell by 7.2% in during the first week of June from the previous week, suggesting that appetite for refinancing may be waning, which is a corollary of rising mortgage rates. The development should pour cold water on expectations of a speedy housing market recovery. In-line with expectations, a Commerce Department report showed that the trade deficit for April widened, as exports

U.S. stocks opened Tuesday’s session on a mixed note and showed some tentativeness throughout the session. After an early surge higher, selling pressure set in, dragging the Dow Industrials and the S&P 500 Index sharply below the unchanged line. However, stocks recouped their losses in early afternoon trading before closing on a mixed fashion. At the close of trading, the Dow Industrials was down 1.43 points or 0.02% at 8,763, while the S&P 500 Index was up 3.29 points or 0.35% at 942.

Texas Instruments’ positive guidance drove technology stocks higher, with the Nasdaq Composite Index hovering above the unchanged line throughout the session. The technology-weighted index ended the day up 17.73 points or 0.96% at 1,860.

Sixteen of the Dow components ended the session lower, two ended unchanged and twelve closed in positive terrain. Kraft Foods, United Technologies, Procter & Gamble, Pfizer and Hewlett-Packard all ended down over 1%. On the other hand, Intel rallied 3.14% and DuPont climbed 2.75%. American Express gained close to 5% compared to a 3.53% advance by Alco.

Among the sector indexes, the Philadelphia Semiconductor Index jumped 4.45%. The Dow Jones Transportation Average ended up 1.51% and the Amex Airline Index gained 1.18%. The Amex Biotechnology Index ended up 1.16%.

The S&P 500 Index has been consolidating between 923 and 953 ever since it broke above its 200-day moving average. However, volume during the period has been tapering. For a meaningful move to the upside, a clear break above the 1,004 level and adequate volumes supporting the price action are essential.

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Energy stocks could lead Toronto's main index into positive territory on Wednesday morning. The index has posted modest declines in each of the last two sessions.

Crude oil has surged above $71 per barrel in NYMEX trading, which is likely to provide a boost to the key energy sector. Light sweet crude is up $1.32 at $71.33 per barrel.

Gold stocks could also recover some of yesterday's weakness as the precious metal is up about 1% to $964.00 an ounce. Copper prices are flat.

On the economic front, Statistics Canada reported the New Housing Price Index decreased 0.6 percent in April, compared with a 0.5% decline in March. This resulted in a New Housing Price Index decreasing to 153.7.
 
Separately, Stats Canada reported the nation's trade balance was a deficit of $179 million, compared to a $1 billion surplus expected by economists.

In corporate news, Forzani Group Ltd. reported first-quarter net loss of C$1.12 million or C$0.04 per share, compared to net loss of C$2.82 million or C$0.09 per share last year.

Meanwhile, the five unions of Air Canada acquire a 10% stake in the company as the airliner looks to avert a strike, according to the Globe and Mail.

Quebecor World believes its restructuring plan is better than a sale to RR Donnelley for about US$1.56-billion, according to The Canadian Press.

Crude oil futures are advancing $1.16 to $71.17 a barrel after rallying $1.92 to $70.01 a barrel on Tuesday, with the commodity closing above the psychological $70-a-barrel level for the first time since early November 2008. In the Asian session on Wednesday, the commodity topped the $71-a-barrel mark.

Commerzbank has reiterated its expectations that the price of oil will go through a short-term correction, especially because the equity market has been consolidating in recent sessions and the U.S. dollar is regaining strength.

After rising $2.20 to $954.70 an ounce yesterday, gold futures are currently gaining $9.70 to $964.40 an ounce. Gold futures remain on track for further downside if the U.S. dollar continues to see strength. With softer prices expected to lead to a revival in investment as well as jewelry demand, Commerzbank believes that the precious metal will find a floor around $850-an-ounce if the price corrects sharply.

Among the currencies, the U.S. dollar is trading at 97.94 yen, 97.38 stronger than the yen it fetched at the close of New York trading on Tuesday. The dollar is currently valued at $1.4088 against the euro, compared to yesterday’s $1.4065.

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The markets across the Asia-pacific region ended higher on Wednesday, benefiting from higher metal and oil prices, which rose on expectations of higher demand. Wall Street's resilience even amid uncertainty concerning a recovery and stronger than expected economic data from Australia and China also lifted market sentiment. Concerns about the valuation of stocks and the negative sentiment generated by weak Japanese machinery orders were more than offset by optimism about a global recovery, helping the Asian stocks advance.

Japan's Nikkei 225 Average opened sharply higher at 9,833 compared to its previous close of 9,787 and continued to move higher, led by resource stocks. Weak machinery orders data did not have any major impact on stock movement. The weakening of the local currency against the U.S as well as positive trading across other Asian markets also supported the market. The index finally closed at the day's high of 9,991, representing a
gain of 205 points, or 2.09%. The broader Topix Index of all first section issues also advanced to 937, ending with a gain of 18.77 points, or 2%.

On the economic front, the Cabinet Office revealed that core machinery orders were down 5.4% month-over-month in April, falling to a 22-year low of 688.8 billion yen. Economists were anticipating a 0.4% increase in machinery orders during April following the 1.3% decline in March and the 0.6% gain in February.

In a separate report, the Bank of Japan revealed that the price of domestic corporate goods in the country declined 0.4% in May compared to the previous month. Economists were anticipating a 0.3% drop for the month following a revised 0.6% decline in April and a 0.2% contraction in March.

Resource stocks led the gains on higher metal and oil prices. The second largest zinc smelting company in the country, Dowa Holdings soared more than 8.5%. Trading companies also advanced on higher commodity prices. Mitsubishi Corp. advanced 6.3%, while Marubeni Corp. gained 5.29%.

Oil stocks surged up after crude oil prices breezed past the $71 a barrel mark in Asian trading on expectations of higher demand. Among the stocks, Inpex gained 3.48%, Nippon Oil advanced 2.36% and Showa Shell rose 1.57%.

Shipping stocks resumed their rally following a brief pause in the past few sessions after brokerage Credit Suisse Group AG raised its outlook for marine transport companies from "neutral" to "outperform" on expectations that earnings will bottom out this year. Among shipping companies, Kawasaki Kisen gained 6.40%, Mitsui O.S.K. Lines advanced 5.50% and Nippon Yusen rose 4.35%.

Kawasaki Heavy Industries gained the most after reporting that it has developed a new nickel-hydrogen battery that can be recharged in less than 10 seconds and can be used in buses. The stock advanced 15.74%.

Australia's All Ordinaries Index opened unchanged from its previous close at 3,933 and moved sharply higher, led by resource stocks. Positive economic data on consumer confidence for May and a rise in housing finance commitments lifted market sentiment. The index ended at 4,016, representing a sharp gain of 82.70 points or 1.20%. The benchmark S&P/ASX 200 Index followed a similar trend and ended higher at 4,024, a gain of 89.50 points or 2.27%.

Resource stocks led the gains on higher copper prices in the international market. BHP Billiton, the world's largest mining company, advanced 3.29%, and its rival Rio Tinto gained 3.43%. Metals soared more than 15% as small mining companies are bullish about their prospects following the fall-out of the Rio Tinto - Chinalco deal and the signing of a new joint venture deal between Rio Tinto and BHP Billiton to combine the operations of their mines in Western Australia.

In Hong Kong, the Hang Seng Index opened sharply higher at 18,340 compared to its previous close of 18,058 and continued to surge ahead on recovery hopes. Better than expected economic data from mainland China, higher commodity prices and positive sentiment across the region pushed the index up 4%. The index ended with a sharp gain of 727 points or 4.01%, at 18,786. Thirty-two of the thirty-four index components gained during the day. Banks, resource stocks and china-related shares posted notable gains.

South Korea’s benchmark, the KOSPI Index ended sharply higher, led by institutional investments in select blue-chip stocks. Institutional investors, who resorted to heavy selling in the past two sessions, returned and indulged in huge purchases on recovery hopes. After opening strongly higher at 1,380 compared to its previous close at 1,372, the Kospi continued to move higher before ending with a gain of 3.14% or 43.04 points at 1,415.

Market heavy weight Samsung Electronics gained 3.89%, while leading automaker Hyundai Motor Co. soared 6.32%. Among financials, KB Financial Group surged up 6.41%.

In India, the stock market ended sharply higher, mirroring the positive sentiment prevailing across the region. Optimism about the continuation of economic reforms at a faster pace and pre-budget announcements from the new Government continue to power the indices to higher levels. The BSE Sensex gained 339.81 points or 2.25% to close at 15,467, and the broader Nifty Index advanced 2.25% or 104.30 points to close at 4,655.

Among the other major markets in the region, China's Shanghai Composite Index ended higher by 28.36 points or 1.02% at 2,816, the Strait Times Index in Singapore gained 41.35 points or 1.76% to close at 2,391, Indonesia's Jakarta Composite Index added 15.52 points, or 0.74% to close at 2,109, and Taiwan’s Weighted Index advanced 0.75% or 47.88 points to close at 6,462.

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Higher commodity prices are driving up the markets in Europe on Wednesday, with the French CAC 40 Index and the German DAX Index rising 1.52% and 2.03%, respectively, while the U.K.’s FTSE 100 Index is advancing 1.72%.

In corporate news, Fiat is reportedly close to completing the purchase of most of assets of U.S. automaker Chrysler, which is operating under insolvency protection.

On the economic front, the German Federal Statistical Office reported that Germany’s consumer prices remained unchanged in May compared to the year-ago period. Thus, the inflation rate was the lowest in 22 years. On a monthly basis, the inflation rate was a negative 0.1%. The inflation rate was influenced by an easier comparison with the year-ago period, which saw very big price gains. Excluding food and energy, consumer prices were up 1.4% year-over-year.

A separate report released by the agency showed that retail sales in the manufacturing sector declined 23.2% on a working-day adjusted basis in April compared to the previous year. In March, the decline was 22%. Real turnover fell by 1.8% month-over-month in April.

The INSEE reported today that French industrial production dropped 1.4% month-on-month in April. Meanwhile, economists had forecast a slight fall of 0.2%. At the same time, manufacturing production was down 0.5% in April from the previous month, while the consensus estimates called for a 0.2% decline.

The U.K.'s visible trade deficit rose to 7 billion pounds in April from a deficit of 6.5 billion pounds in March, according to a report released by the Office for National Statistics. Economists had forecast the shortfall to contract to 6.4 billion pounds. The total trade deficit that includes both trade in goods and services was 3 billion pounds in April, up from a revised deficit of 2.7 billion pounds in March. The deficit was expected to decline to GBP 2.4 billion.

U.S. Economic Reports

On the economic front, the Commerce Department’s trade balance report showed that the trade deficit widened to $29.2 billion in April from an upwardly revised deficit of $28.5 billion for March. Economists estimated that the trade gap widened to $29 billion from the originally reported deficit of $27.6 billion for the previous month.

The April exports were down $2.8 billion to $121.1 billion, while imports fell $2.2 billion to $150.3 billion. The goods deficit increased $0.9 billion to $40.1 billion, while the services surplus increased $0.2 billion to $10.9 billion.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended May 1st at 10:30 AM ET.

The oil inventory report for the week ended May 29th showed a 2.9 million barrel-increase in crude oil stockpiles to 366 million barrels. Inventories were above the upper boundary of the average range.

However, gasoline inventories fell by 0.2 million barrels and were below the lower limit of the average range. On the other hand, distillate stockpiles increased by 1.6 million barrel and remained above the upper boundary of the average range. Refinery capacity utilization averaged 84.2% over the four-weeks ended May 29th compared to 84% in the previous week.

The Federal Reserve is due to release its Beige Book, which is a compilation of anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts, at 2 PM ET. The report is normally released about two weeks before the monetary policy meeting is held.

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Home Depot is likely to react to its announcement that it has updated its 2009 earnings per share from continuing operations growth guidance to flat to down 7% year-over-year. Earnings per share from continuing operations on an adjusted basis are likely to show a 20% to 26% decline. Earlier the company had predicted a 7% decline in GAAP earnings per share from continuing operations and a 26% decline in adjusted earnings per share from continuing operations. The company reaffirmed its sales, comparable store sales and gross margin guidance for 2009.

Callaway Golf may be in focus after it said it has priced its previously announced private offering of preferred stock and increased its size by $15 million. Sina Corp. may see weakness after it reported a decline in its first quarter earnings to 17 cents per share from 23 cents per share in the year-ago period. Revenues climbed 3.4% to $73.8 million. The consensus estimates had called for earnings of 22 cents per share on revenues of $75.4 million. For the second quarter, the company expects to report revenues of $85 million to $89 million, below the mean analysts’ estimate of $90.7 million.

SkyWest may also be in focus after it said its May load factor rose 1.2 percentage points year-over-year to 80.1%. The company also said traffic declined 1.2% and capacity fell 2.8%.

Barnes is expected to move to the downside after it reported that it is withdrawing its guidance for 2009 due to increased uncertainty in the transportation sector and continued weakness in the macroeconomic environment.

Marvell Technology could react to its announcement that it may have to incur some charges related to the settlement of a class action lawsuit concerning its stock option grants. Due to the settlement amount of $72 million, the company now expects a wider loss of 18 cents per share for its first quarter.

Ameriprise Financial is expected to show weakness after it announced that it is commencing an underwritten registered public offering of $900 million of its common stock. The company noted that it is intending to use the proceeds for general corporate purposes, including to support growth initiatives and to take advantage of acquisition opportunities.

Progressive Corp. may trade lower after it said its income declined 31% year-over-year in May to $54.6 million or 8 cents per share. NCI Building could be in focus after it said it posted a second quarter loss of 37 cents per share on an adjusted basis compared to a profit of 76 cents per share last year. Sales declined to $224.7 million from last year’s $416.1 million. Analysts estimated a loss of 36 cents per share on revenues of $255.2 million.

National Instruments is likely to recede after it said it expects second quarter revenues of $145 million to $155 million, while analysts estimated revenues of $163.5 million. On an adjusted basis, the company expects to report break-even results to earnings of up to 8 cents per share. The consensus estimates call for a profit of 7 cents per share.

Oxford Industries is expected to move in reaction to its announcement that its first quarter earnings fell to 42 cents per share from 59 cents per share last year. Sales declined to $216.7 million from $272.9 million in the year-ago period. The Street had estimated earnings of 25 cents per share on revenues of $219 million.

99 Cents Only Stores could see some activity after it reported a fourth quarter profit of 10 cents per share compared to a loss of 6 cents per share last year. Revenues were up 13% to $329.2 million. Analysts estimated earnings of 4 cents per share on revenues of $327.8 million.

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