US & World Daily Markets Financial Briefing 10-12-2009

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The major U.S. index futures are pointing to a higher opening on Thursday, with sentiment getting a lift from the duo of economic reports released earlier in the day, which showed that the nation’s unexpectedly narrowed. Export growth achieved on the back of a weaker dollar served to bring about the improvement. Although the weekly jobless claims for the recent reporting week rose, they still remained below the 500,000 level.

Even amid these positive developments, things are just hazy. A case in point in the housing market, which still has some creases to iron out. A report released earlier in the day by RealtyTrac showed that foreclosure filings in the U.S. fell 8% month-over-month in November, although they held above the 300,000 level for the ninth straight month. Annually, filings rose 18%.

U.S. stocks opened Wednesday’s session lower, but showed indecision over the course of trading amid volatility in the currency and commodity markets, with the major averages moving back and forth across the unchanged line. The averages moved decisively into positive territory in late trading, closing with moderate gains.

While the Dow Industrials ended up 51.08 points or 0.59% at 10,337, the Nasdaq Composite advanced 10.74 points or 0.49% to 2,184, while the S&P 500 Index closed 4.01 points or 0.37% higher at 1,096.

Seventeen of the thirty Dow components ended the session higher, with Alcoa (AA), American Express (AXP), Hewlett-Packard (HPQ), IBM (IBM), 3M Co. (MMM), Merck (MRK) and Pfizer (PFE) advancing strongly. On the other hand, United Technologies (UTX) fell 1.20%.

Among the sector indexes, the Dow Jones U.S. Basic Materials Average climbed 1.69% and the NYSE Arca Gold Bugs Index gained 2.80%. In the technology space, the NYSE Arca Computer Hardware Index rose 2.10%.

The results of the $21 billion 10-year note Treasury auction were weak, with the yield coming in at 3.448%, the bid-to-cover ratio at 2.62 and indirect bidders accounting for 32.9% of the total bidders.

In economic news, the Commerce Department reported that wholesale inventories at the end of October were up 0.3% compared to the 0.5% decline expected by economists. The increase was supported by a 1.5% increase in inventories of non-durable goods, while durable goods inventories acted as a drag, dropping 0.4%. At the same time, business sales rose 1.2%, leaving the inventory-to-sales ratio at 1.16 compared to 1.17 in September.

Bay Street Stocks Look To Continue To Rebound

Canadian Stocks will look to add to the modest gains from yesterday in early Thursday morning trading. Encouraging jobs data from the U.S. and a slight recovery for commodities could provide a spark.

Gildan Activewear reported fourth quarter net earnings of US$42.39 million or US$0.35 per share, compared to US$21.83 million or US$0.18 per share last year.

Oncothyreon said that Merck KGaA of Darmstadt, Germany, has initiated a Phase 3 trial of Stimuvax in Asian patients with advanced non-small cell lung cancer.

ADF Group Inc. posted third-quarter net earnings of C$1.4 million or C$0.04 per share, compared to C$6.5 million or C$0.18 per share for the same quarter last year.

Cliffs Natural Resources said it increased its offer to acquire Montreal-based Freewest Resources Canada to a fixed value of C$1.00 in Cliffs shares per Freewest share.
 
West 49 reported third quarter net income and comprehensive income of C$2.9 million or C$0.04 per share, compared to C$2.07 million or C$0.03 per share last year.

After the close yesterday, Lululemon Athletica reported net income loss for the third quarter of US$14.1 million or $0.20 per share, compared to $8.8 million or $0.13 per share in the year-ago quarter.

Crude oil edged up 8 cents to $70.96, while gold rose $8.40 to $1,131.10. Copper is down slightly at $3.119 a pound.

Across the border, a Labor Department report showed that initial jobless claims rose to 474,000 from the previous week's unrevised figure of 457,000. The modest increase came as a surprise to economists, who had been expecting jobless claims to edge down to 455,000.

On Wednesday, the S&P/TSX Composite Index added 10.29 points or 0.09% to close at 11,379.22. The index traded below the unchanged mark for most of the session.

Commodity, Currency Markets

Crude oil futures are edging up $0.30 to $70.97 a barrel after declining $1.92 to $70.67 a barrel on Wednesday. The decline on Wednesday came amid the release of the EIA’s oil inventory report, showing a 3.8 million barrel increase in crude oil stockpiles to 336.1 million barrels in the week ended December 4th. Notwithstanding the decline, crude oil inventories were above the upper limit of the average range.

Gasoline stockpiles rose by 2.2 million barrels, with inventories remaining above the upper limit of the average range. Distillate stockpiles rose by 1.6 million barrels. Refinery capacity utilization averaged 80.1% over the four weeks ended December 4th compared to 79.8% in the previous week.

Gold futures are currently rising $7.80 to $1,128.70 an ounce. In the previous session, the precious metal fell $22.50 to $1,120.90 an ounce.

On the currency front, the U.S. dollar is trading at 88.15 yen compared to the 87.8708 yen it fetched at the New York session’s close. Meanwhile, against the euro, the dollar is valued at $1.4738.

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The Asian market ended on a mixed note on Thursday, with the Australian, Japanese, Hong Kong, Singaporean and Taiwanese markets closing lower, while the rest of the markets in the region ended above the flat line.

Japan’s Nikkei 225 average showed indecision in early trading, holding close to the unchanged line. By the mid-session, selling pressure intensified, sending the index sharply lower in the afternoon. The Nikkei closed down 141.90 points or 1.42% at 9,863, declining for the third straight session and falling below the psychological resistance of 10,000.

Most sector stocks declined for the second straight session. Among the very few gainers were Sanyo Electric (up about 10%), Asahi Brewery, Asahi Glass, Canon, Clarion, JFE Holdings, Nippon Express, Oki Electric Industries and some utility stocks. Sanyo surged in reaction to news that Panasonic picked up about a 50% stake in the former.

The Cabinet Office reported that Japan’s core machinery orders, excluding the volatile shipping orders and orders from electric power companies, declined 4.5% month-over-month in October following a 10.5% jump in September. The decline was led by a 17.3% monthly plunge in orders from non-manufacturers. Propelled by burgeoning orders from processing industries, manufacturing orders surged up 25.4%. Commenting on the report, BNP Paribas suggested that capital spending could return to positive growth from the fourth quarter onwards, though the recovery will lack momentum, as the appetite for investment remains weak.

Meanwhile, the Bank of Japan reported that Japan’s corporate goods price index edged up 0.1% month-over-month in November following a 0.8% drop in the previous month. Prices of non-ferrous metals, chemicals, petroleum and coal products and utilities rose in the month, while prices of electronic components, general machinery and equipment and transportation equipment declined.

Australia’s All Ordinaries also declined in the afternoon after showing uncertainty in the morning, with the index closing down 29.70 points or 0.64% at 4,623. Energy and material stocks extended their declines, with most other sectors showed modest losses.
The market largely ignored an employment report showing a decline in the jobless rate to 5.7% in November from 5.8% in the previous month. The number of employed individuals also rose by a better than expected 31,200.

Hong Kong’s Hang Seng Index opened notably higher, although it moved into negative territory by early after trading. Thereafter, the index remained mostly below the unchanged line to close down 41.72 points or 0.19% at 21,700.

Most China-based financial stocks declined in the session, while utility and resource stocks showed modest gains. Among heavily weighted stocks, HSBC Holdings rose modestly, while China Mobile fell 0.70%.

In a widely awaited central bank decision from the Asia-Pacific region, the Reserve Bank of New Zealand announced that it is holding its official cash rate unchanged at 2.50%, although the bank did signal that a rate hike is imminent, given the improvement in economic conditions.

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After showing volatility in early trading on Thursday, the major European markets are trading mixed. While the French CAC 40 Index is receding 0.74%, the German DAX Index and the U.K. FTSE 100 Index are rising 1.24% and 0.66%, respectively.

In economic news, Germany’s whole price index fell 3.2% year-over-year in November compared to the 7% decline in the previous month. On a monthly basis, wholesale prices rose 0.7%, reversing the 0.4% decline in October.

French statistical agency, the INSEE reported that French manufacturing output fell 0.8% month-over-month in October compared to the 1.1% drop in the previous month. Economists had estimated a 1.3% increase. Annually, manufacturing output declined 8.8%. At the same time, industrial output fell 0.8% compared to the previous month and slipped 8.4% annually.

In another economic event, the Bank of England announced its decision to retain its interest rates unchanged at 0.5%, with interest rates remaining at their lowest since the central bank was established in 1964. The previous change in interest rates was a 0.5 percentage point reduction in March 2009.

Policymakers also decided to continue with the program of asset purchases totaling 200 billion pounds financed by the issuance of central bank reserves. The committee expects the program to take another two months to complete and added that the scale of the program will be kept under review.

U.S. Economic News

On the economic front, the Commerce Department said the nation’s trade gap showed a deficit of $32.9 billion in October compared to a downwardly revised deficit of $35.7 billion in September. Economists had estimated the deficit to widen slightly to $36.8 billion from the initially estimated deficit of $36.5 billion for September.

Exports rose to $136.8 billion from $133.4 billion in the previous month, while imports edged up to $169.8 billion from the month-ago’s $169 billion. The goods deficit narrowed by $2.4 billion to $44.8 billion, while the services surplus rose by $0.2 billion to $11.9 billion.

First-time claims for unemployment benefits unexpectedly increased in the week ended December 5th, according to a report released by the Labor Department on Thursday, although claims remained well below the key 500,000 level.

The report showed that initial jobless claims rose to 474,000 from the previous week's unrevised figure of 457,000. The modest increase came as a surprise to economists, who had been expecting jobless claims to edge down to 455,000.

The Treasury Budget, a monthly account of the surplus or deficit of the federal government is due to be released at 2 PM ET. The budget is considered an indicator of budgetary trends and the thrust of fiscal policy. Economists estimate a deficit of $131.6 billion for November.

Federal Reserve Governor Elizabeth Duke is scheduled to speak to the Chicago Fed's mortgage foreclosure policy conference in Chicago at 12:45 PM ET

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Costco (COST) may move in reaction to its announcement that its first quarter net sales rose 6% to $16.92 billion, aided by a 3% increase in comparable store sales. The company’s earnings remained flat at 60 cents per share. Analysts estimated earnings of 60 cents per share on revenues of $17.31 billion.

Pall (PLL) is expected to move to the upside even after it announced that revenues for the first quarter declined 5.4% to $546.9 million. The company’s pro forma earnings were 40 cents per share, flat with last year. Analysts estimated earnings of 40 cents per share on revenues of $558.98 million. The company said it is resuming its practice of providing guidance, estimating full year pro forma earnings of $2.02-$2.19 per share compared to the $1.90 per share consensus estimate.

Fasternal (FAST) could be in focus after it announced its decision to acquire certain assets of Holo-Krome. The company noted that sales from this business were less than 1% of the total consolidated sales for 2008. The transaction is expected to close on December 18th, 2009.

FuelCell (FCEL) receded in Wednesday’s after hours session after it said its fourth quarter revenues fell to $20.4 million from $26.2 million in the year-ago period. The company reported net loss available to common shareholders of 21 cents per share compared to a loss of 35 cents per share last year, with the company attributing the narrower loss to sales of higher-margin products. Analysts estimated a loss of 19 cents per share on revenues of $28.37 million.

American Axle (AXL) may be in focus after it announced that it has priced its public offering of 14 million shares of its common stock at $7.20 per share, slightly lower than the $7.41 at which it closed at on Wednesday. The offer is expected to generate net proceeds of $100.8 million.

Gartner (IT) receded in Wednesday’s after hours session after it announced that Silver Lake and its affiliates will sell the entire 8 million shares they held in the company in an underwritten secondary offering.

Analogic (ALOG) could see weakness after it announced that its first quarter revenues fell to $95.4 million from $98.3 million in the year-ago period. Analysts estimated revenues of $92.44 million for the quarter. On an adjusted basis, the company reported earnings of 10 cents per share compared with 19 cents per share in the year-ago period.

Oxford Industries (OXM) may gain ground after the company raised its 2009 guidance. The company now expects earnings of $1.20-$1.25 per share on revenues of $790 million to $800 million. Earlier, the company estimated earnings of $1.20-$1.25 per share on revenues of $765 million to $780 million. The company also reported that its third quarter adjusted earnings fell to 32 cents per share from 37 cents per share, as revenues declined to $200.5 million from $244.2 million in the same period last year.

Cytokinetics (CYTK) could react to its announcement that it has agreed with GlaxoSmithKline (GSK) to terminate their collaboration and license agreement, effective February 28th, 2010. Consequently, all rights for cancer drug GSK-923295 will revert to Cytokinetics. The decision reflects Cytokinetics’ intention to focus internal R&D on muscle function and related therapies.

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