US & World Daily Markets Financial Briefing 11-11-2009

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Traders to Tread Path of Cautious Optimism

The major U.S. index futures are pointing to a higher opening on Wednesday. Although apprehension is expressed about the sustainability of the recovery, positive data points received now and then are spreading optimism concerning a turnaround in economic conditions for good. Earlier in the day, economic reports released from China and Japan showed that resuscitation measures have positioned these economies on a path of sustainable recovery.

Commodities are advancing, as additional confirmation on an improvement in global economic conditions is stimulating buying interest on hopes that demand for resources will perk up. In the absence of any other major catalysts, traders may tread a path of cautious optimism, although substantial optimism ruled out, given the recent heady gains.

U.S. stocks showed considerable degree of uncertainty throughout Tuesday’s session amid a lack of any major catalysts and closed in a mixed fashion. The Dow Industrials was found moving back and forth across the unchanged line before closing at a fresh high for the year, gaining 20.03 points or 0.20% to 10,247.

The Nasdaq Composite, which traded in a 2,141-2,161 range, closed the session down 2.98 points or 0.14% at 2,151. Meanwhile, the S&P 500 Index ended at 1,093, down merely 0.07 points or 0.01%.

Twenty of the thirty Dow components ended the session higher, with American Express (AXP), Bank of America (BAC), Kraft Foods (KFT) and 3M Co. (MMM) showing notable gains. On the other hand, Boeing lost 2.01%, while DuPont (DD) and Cisco Systems (CSCO) slid 1.29% and 1.42%, respectively.

Among the sector indexes, the NYSE Arca Airline Index fell 1.07%, the KBW Bank Index declined 1.42% and the Philadelphia Housing Sector Index lost 1.01%. In the technology space, the NYSE Arca Disk Drive Index moved down close to 1% and the NYSE Arca Networking Index fell 2%, while the NYSE Arca Internet Index rose 1.90%.

Technology stocks, which were one of the sectors instrumental in lifting the markets from the bear market lows, seem to be showing lethargy now. Although earnings from technology companies have largely been better than expected and their outlooks have been rosy, the buoyancy is failing to get reflected in stock prices. The Philadelphia Semiconductor Index has been consolidating since mid-September and in late October, the index fell below its 50-day moving average, which is currently at 316.89.

Given that global supply chain inventories are at or near all time lows and global demand trends should continue to recover in 2010, there could be a possible run up in the sector going into the end of the year, as the recent weakness has rendered valuations attractive.

Among the Fed speakers, Atlanta Federal Reserve President Dennis Lockhart said he expects weakness in the commercial real estate market to limit the pace of the economic recovery. Lockhart sees sobering aspects of the economic picture and expects the pace of growth to be subdued in the medium term. He also said slow net job gains are likely to materialize in 2010.

U.S. consumers remain very cautious in response to the recession, according to San Francisco Federal Reserve President Janet Yellen, who spoke in Phoenix, Arizona. Yellen also highlighted the risk that the commercial real estate market poses to a recovery.

Meanwhile, Dallas Fed President Richard Fisher said economic growth and inflation are likely to remain below ideal levels into 2011, which vindicates the Fed’s stance on interest rates. While speaking to the Austin Headliners Club, Fisher suggested that it may take some time before significant job growth occurs and even longer before we begin to see any meaningful declines in the unemployment rate.

Canadian stocks will look to bounce back from yesterday's modest slide on Wednesday as commodity prices are moving higher again. Strong retail sales data from China has provided a boost to global equities.

Crude oil added 33 cents to move to $79.38 per barrel, gold added $12.10 to $1,114.60 per ounce and copper rose 4.85 cents to $3.01 per pound.

First Quantum Minerals posted third quarter net income of US$123.8 million or US$1.50 per share versus US$147.5 million or US$2.13 per share reported in the prior-year period.

Pan American Silver reported net income for the third quarter of US$17.38 million or US$0.20 per basic share, compared to US$6.40 million or US$0.08 per share in the year-ago quarter.

Grey Horse said its third-quarter net income and comprehensive income rose to C$1.63 million from C$1.28 million in the period year period.
 
Paladin Labs third-quarter net income declined to C$2.56 million or C$0.13 per share from C$3.62 million or C$0.24 per share in the previous year.

HSBC Bank Canada third-quarter income declined to C$101 million or C$0.20 basic earnings per share from C$120 million or C$0.23 basic earnings per share in the previous year.

TSO3 reported third-quarter net loss and comprehensive loss widened to C$2.29 million from C$1.85 million in the year-ago quarter.

On Tuesday, the S&P/TSX Composite Index dropped 60.14 points or 0.52% to finish at 11,426.74. The market had rose in three of four sessions.

Currency, Commodity Futures

Crude oil futures are edging up $0.40 to $79.09 a barrel after receding $0.38 to $79.05 a barrel on Tuesday. The price of oil moderated yesterday following a reduction in the threat from tropical storm Ida and the strengthening of the dollar. After the settlement at NYMEX, the American Petroleum Institute reported that crude oil stockpiles rose by 1.2 million barrels last week. Distillate and gasoline inventories also increased by 640,000 barrels and 1.4 million barrels, respectively.

Gold futures are moving up $12.10 to $1,114.60 an ounce. In the previous session, gold rose $1.10 to $1,102.50 an ounce. According to Commerzbank, downside risk for the precious metal is limited, as financial investors rediscover gold as a hedge against the weak U.S. currency and an instrument for capital preservation. Gold is also likely to derive support from speculation that central banks will step up their gold purchases.

On the currency front, the U.S. dollar is trading at 89.87 yen compared to the 89.81 yen it fetched at the close of New York trading on Tuesday. Currently, the greenback is valued at $1.5014 versus the euro.

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Asian Markets Ends In Positive Territory

The markets in Asia ended higher on Wednesday on higher commodity prices in the international market, positive economic news from Japan and China and comments from Fed officials that lower interest rates will prevail in the U.S for the near future. Risk appetite is driving the markets in the region higher.

In Japan, the benchmark Nikkei 225 Index ended flat with a marginal gain of 0.95 points, or 0.01%, at 9872, while the broader Topix index of all First Section issues shed 0.15 points, or 0.02%, to 872.

On the economic front, data released by the Cabinet Office revealed that core machinery orders, a key indicator that shows capital investment in the industrial sector, rose a seasonally adjusted 10.5% in September, much faster than a growth rate of 0.5% achieved in August. Economists expected the machinery orders to rise 4.1% for the month. On a year-over-year basis, core machinery orders dropped 22% in September, slower than a 26.5% decline in August, and smaller than the 26.2% drop expected by economists.

Machinery stocks advanced following spurt in machinery orders data for September. Daikin Industries rose 2.52%, Kubota Corp. surged up 4.08%, Sumitomo Heavy Industries climbed 3.61%, Hitachi Construction Machinery edged up 0.22% and Komatsu Limited added 0.11%.

Among electric machinery stocks, Denso Corp. advanced 1.21%, Pioneer Corp soared 8.80%, TDK Corp added 0.39%, Fanuc Ltd edged up 0.26% and Fujitsu Ltd climbed 2.05%.
 
Among the notable gainers, Nippon Telegraph and Telephone surged up 4.46% after Goldman Sachs added the company into its Conviction List following recent announcement from the company related to treasury share retirement plans.

Japan Airlines climbed 4.76% following news that the Development Bank of Japan (DBJ) may extend as much as Y100 billion in bridge loans to the struggling airline.

Mixed trading was witnessed among the bank stocks. Mitsubishi UFJ Financial gained 1.39% and Sumitomo Mitsui Financial advanced 0.95%. Mizuho Financial remained unchanged from its previous close while Resona Holdings slipped 1.36%.

Non-ferrous metal stocks ended in negative territory. Mitsubishi Materials Corp. lost 1.28%, Mitsui Mining and Smelting Co. shed 1.26%, Sumitomo Metal Mining Co. slipped 0.46% and DOWA Holdings plunged 5.98%.

In Australia, the benchmark S&P/ASX200 Index gained 23.40 points, or 0.49% to close at 4,757, while the All-Ordinaries Index ended at 4,766, representing a gain of 21.90 points, or 0.46%.

On the economic front, a report released by the Westpac Bank and Melbourne Institute revealed that consumer confidence in the country for November slightly eased, but remained well above last years' level. The consumer confidence index dropped 2.5% to 118.3 in November from 121.4 recorded in the previous month. A reading above 100 means optimists outnumber pessimists.

In a separate report, the Department of Education, Employment and Workplace Relations revealed that the country's leading indicator of employment rose for the fifth consecutive month in November after having fallen for 19 consecutive months up to May 2009. The leading monthly employment indicator rose to minus 0.841 from the previous reading of minus 0.998 in October.

Light sweet crude oil futures for December delivery ended at $78.68 a barrel in electronic trading, down $0.37 per barrel from previous close at $79.05 a barrel in New York on Tuesday.

Stocks of property trusts led the gains following some encouraging data from CFS Retail Property Trust, which revealed that quarterly sales at its shopping centers rose 1.3%, and Commonwealth Property Fund Office, which stated that rents rose, on average, by 3.9% and occupancy in offices, that excludes redeveloping offices, was at 98.5%.

Shares of CFS Retail Property Trust advanced 2.07% and shares of Commonwealth Property Fund Office surged up 4.26%. Among other property trust stocks, Westfield Group gained 3.45%, Stockland soared 6.02%, GPT Group rose 4.88% and Mirvac Group climbed 6.80%.
 
Mining and metal stocks also ended in positive territory on expectations that commodity prices in the international market will stay high. BHP Billiton gained 1.58%, Rio Tinto rose 1.70%, Fortescue Metals added 0.99% and Oz Minerals edged up 0.40%.

Mixed trading was witnessed among oil stocks. Woodside Petroleum gained 1.32% and Santos edged up 0.26%. Origin Energy remained unchanged from previous close, while Oil Search slipped in to red with a loss of 1.00%.

Banks also ended mixed. ANZ Bank added 0.66%, and National Bank of Australia advanced 0.46%. However, Commonwealth Bank of Australia slipped 0.99% and Westpac Banking Corp. shed 0.45%.

In Hong Kong, the Hang Seng Index ended sharply higher with a gain of 359.05 points, or 1.61%, at 22,627, primarily lifted by fresh buying interest evinced in late trading session on higher commodity prices. Positive trading in other asian markets, better than expected machinery orders data in Japan and China's trade surplus data lifted market sentiment. Banks and telecom stocks led the gains. Among the banking stocks, HSBC Holdings surged up 5.98% and Bank of East Asia soared 15.20%.

In South Korea, the KOSPI Index ended in positive territory with a gain of 12.52 points, or 0.79%, at 1,595, led by blue-chip technology stocks and stocks of securities. Fresh buying interest was evinced in technology, banking and airline stocks on optimism about recovery. Among technology stocks, Samsung Electronics gained 1.1% and LG Display rose 2.21%. Trading was relatively moderate as traders await key announcement from the Bank of Korea tomorrow.

Strong global cues following the release of better-than-expected economic reports from the Asia-Pacific region, including Japanese machinery orders, Chinese retail sales and industrial production, helped the Indian market post sharp gains on Wednesday. The BSE Sensex closed at 16,850, up 409 points or 2.49%, while the S&P CNX Nifty rose 122 points or 2.50% to 5,004.

Among the other major markets in the region, China's Shanghai Composite Index slipped 3.42 points or 0.11% to close at 3,175. However, Singapore's Strait Times Index added 32.83 points, or 1.21% to close at 2,740, Taiwan's Weighted Index gained 74.57 points, or 0.98%, to close at 7,668, and Indonesia's Jakarta Composite Index advanced 21.92 points, or 0.92% to close at 2,404.

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The major European averages are advancing on Wednesday, with the French CAC 40 Index, the German DAX Index and the U.K.’s FTSE 100 Index rising 1.09%, 1.28% and 1.08%, respectively.

On the economic front, the U.K.’s Office of National Statistics reported that the number of people claiming jobseeker’s allowance in the U.K. rose by 12,900 to 1.64 million in October. The increase marked the smallest increase since April 2008.

The claimant count rate was almost unchanged at 5.1% compared to the previous month, although it increased 1.9 percentage points from the year-ago period.

The unemployment rate measured based on ILO standards rose 0.1 percentage points to 7.8% in the three months ended September, with the number of unemployed increasing by 30,000 to 2.46 million.

The quarterly inflation report released by the Bank of England showed that the central bank expects consumer prices to rise above the 2% target in the near term.

The central bank said the risks of inflation remaining above or below target are broadly balanced by the end of the forecast period, while cautioning that there are significant risks to the inflation outlook in each direction.

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Bob Evans Farms is likely to react to its announcement that it reported a second quarter profit of 50 cents per share, higher than 37 cents per share last year. However, revenues fell to $424.8 million from the year-ago’s $435.5 million. Analysts estimated earnings of 48 cents per share on revenues of $428.6 million.

Clearwire (CLWR) could see weakness after it announced that it would raise $1.564 billion in additional equity funding for its planned network expansion. The company reported third quarter revenues of $68.81 million compared to pro forma revenues of $60.84 million last year, while analysts estimated revenues of $66.62 million.

Weight Watchers (WTW) could be in focus after it reported that its third quarter net revenues declined to $324.5 million from the year-ago’s $352.6 million. However, the company’s earnings rose by a penny to 68 cents per share. Analysts estimated earnings of 64 cents per share on revenues of $318.17 million. The company narrowed its 2009 adjusted earnings per share guidance to $2.58-$2.63 per share from its previous estimate of $2.52-$2.70. The consensus estimates had call for earnings of $2.62 per share on revenues of $1.41 billion.

Triad Guaranty (TGIC) fell sharply in Tuesday’s after hours session after it reported a net loss of $6.78 per share for the third quarter compared to a loss of $10.69 per share for the year-ago period.

Progressive Corp. (PGR) receded in Tuesday’s after hours session after it reported net earned premiums of $1.3 billion for October, up 3% year-over-year. The company reported net earnings of 16 cents per share for the month, down 26% from the year-ago revenues of 22 cents per share.

PepsiCo. (PEP) is likely to see some activity after it said it has withdrawn its notification filed with the FTC to provide the commission with more time to review its impending acquisition of its bottlers Pepsi Bottling Group (PBG) and PepsiAmericas (PAS). The company said it would refile at the appropriate time.

Stryker (SYK) may react to its announcement that it has acquired privately held software technology firm OtisMed Corp. Stryker also announced definitive agreements with Japanese firms Mutoh and some of its affiliates to acquire assets used to produce Sonopet Ultrasonic Aspirator control consoles.

Sanofi-Aventis (SNY) could be in focus after it said it has entered into agreements with Regeneron (REGN) to expand and extend their existing global collaboration to discover, develop and commercialize fully-human therapeutic monoclonal antibodies. Sanofi said it would increase its annual funding commitment to $160 million from $100 million, beginning in 2010, and the research funding will extend through 2017.

Werner Enterprises (WERN) may be in focus after it announced that its board has declared a special quarterly cash dividend of 5 cents per share payable on January 26th, 2010 to shareholders of record at the close of business on January 11th, 2010.

Cliffs Natural Resources (CLF) is likely to move to the upside after it reported that its board has announced an increase in its quarterly cash dividend to $0.0875 per share from $0.04 per share.

Toll Brothers (TOL) could gain ground after it reported preliminary fourth quarter results, expecting fourth quarter home building revenues to fall 30% year-over-year to $486.6 million and home building deliveries to decline 20%. Analysts estimate revenues of $386.18 million. For fiscal year 2009, net contract signings are likely to drop 16% in unit terms and 19% in value terms, while at the same time home building revenues are expected to fall 44%. The company also noted that unit deliveries for the fourth quarter exceeded the high-end of its guidance range due to the delivery of a higher percentage of backlog, fewer cancellations and the sale of quick delivery homes.

Vertex Pharma (VRTX) may see activity after it announced that holders of its 4.75% convertible senior subordinated notes due 2013 have agreed to swap about $190 million worth of notes with about 4.8 million shares of the company. The company noted that the number of shares determined is about 140,000 shares more than what would have been issued under the original terms. Pursuant to the transaction, Vertex will be left with about 186 million shares and about $35 million worth of the notes due 2013.

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