US & World Daily Markets Financial Briefing 11-12-2009

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Strong Growth Data Points May Keep Buying Interest Alive

The major U.S. index futures are pointing to a higher opening on Friday. Global cues are positive, with Asian markets closing mostly higher on upbeat data from China, while the European markets are also higher. China reported that industrial production rose 19% year-over-year in November, solidifying expectations for a steady rebound in global growth. Meanwhile, data released domestically showed that retail sales surged on broad based strength, signaling that holiday shoppers thronged stores unfazed by the surrounding economic uncertainty.

The positive data points have set the stage for a rebound in commodity prices, with gold as well as oil moving up strongly. Even as traders relish these reports, cautious optimisms may force them to stay focused on the consumer sentiment index based on the Reuters/University of Michigan’s consumer sentiment survey to be released shortly after the markets open.

Positive economic data gave a head start to the major U.S. averages on Thursday, as they opened uniformly higher and moved mostly sideways for the rest of the session to close with moderate gains. The Dow Industrials rose 68.78 points or 0.67% to 10,406, the S&P 500 Index climbed 6.40 points or 0.58% to 1,102 and the Nasdaq Composite advanced 7.13 points or 0.33% to 2,191.

Twenty-six of the thirty Dow components closed the session higher, with Alcoa (AA) (up 3.21%) and Disney (DIS) (up 3.13%) advancing strongly. Other notable gainers included Home Depot (HD), Coca-Cola (KO), 3M Co. (MMM), Travelers Co. (TRV) and Wal-Mart Stores (WMT).

Among the sector indexes, the Dow Jones Utility Average rose 1.33% and the S&P Retail Index rallied 1.52%. The NYSE Arca Internet Index ended up 1.78%. On the other hand, the NYSE Arca Disk Drive Index fell 1.15%.

In economic news, initial jobless claims rose to 474,000 in the week ended December 5th from 457,000 in the previous week. That said, first time claims have been lingering below the 500,000 level for three weeks now, signaling a slowdown in firings. At the same time, continuing claims fell by 303,000 in the week ended November 28th.

Meanwhile, the Commerce Department reported that the trade deficit narrowed to $32.9 billion in October, with the narrower deficit reflecting lower imports of petroleum products. The real trade deficit shrunk to $38 billion in October from $41.5 billion in the previous month. The data is GDP positive and suggests that fourth quarter growth could be stronger than initially thought due to incremental contribution from net trade.

The results of the Treasury’s 30-year bond auction was weak, with the yield coming in at 4.52%, the bid-to-cover ratio at 2.45 and indirect bidders accounting for 40.2% of the total.

Canadian stocks will look to gain for a third straight day on Friday, following the release of some strong economic data in the U.S. and China.

Resource stocks could also see strength as commodities have moved higher. Crude oil has added 49 cents to $70.99 per barrel, gold is up $4.50 to $1,137.30 per ounce and copper has gained 3.9 cents to $3.142 per pound.

In corporate news, Royal Bank of Canada has filed to sell up to US$8 billion of debt securities.

Sino-Forest Corp. said that it has agreed to sell US$400 million principal amount of convertible senior notes due in 2016.

Fraser Papers said that it received approval from the Ontario Superior Court to proceed with a firm and binding offer to sell its specialty paper assets.

Le Château reported net income for the third quarter of C$5.6 million or C$0.23 per share, compared to C$10.1 million or C$0.40 per share in the year-ago quarter.
 
On the economic front, the new housing price index rose 0.3% in October. An increase of 0.4% was forecast, compared to a gain of 0.5% in September.

Across the border, the U.S. Labor Department revealed that import prices rose 1.7 percent in November. This followed a 0.8 percent increase in October and a 0.2 percent advance in September. Export prices advanced 0.8 percent in November.

Meanwhile, a Commerce Department report showed that retail sales jumped by 1.3 percent in November following a revised 1.1 percent increase in October. Economists had been expecting sales to increase by a more modest 0.6 percent compared to the 1.4 percent growth originally reported for the previous month.

Industrial production in China surged 19.2 percent on year in November, gaining for the seventh consecutive month. That was slightly better than analyst expectations for an 18.9 percent annual increase after the 16.1 percent gain in October.

On Thursday, the S&P/TSX Composite Index gained 85.35 points or 0.75% to settle at 11,464.57. The market extended modest gains with a surge in the final half-hour.

Currency, Commodity Futures

Crude oil is trading up $0.42 at $70.96 a barrel after declining $0.13 to $70.54 a barrel on Thursday. Gold futures, which rose $5.30 to $1,126.20 an ounce in the previous session, are currently rising an incremental $10.10 to $1.136.30 an ounce.

On the currency front, the U.S. dollar is trading at 89.20 yen compared to the 88.204 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.4737 compared to yesterday’s $1.4732.

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The markets across Asia ended in positive territory taking cues from modest gains on Wall Street in the previous session. Better than expected economic data from China and weaker yen lifted market sentiment with Japan leading the gains led by automakers and exporters. Except India and China, all the other markets ended in positive territory.

In Japan, the benchmark Nikkei 225 Index rose 245.05 points, or 2.48%, to 10,108, while the broader Topix index of all First Section issues gained 14.67 points, or 1.68%, to 889.

On the economic front, a results of a monthly survey released by the Cabinet Office revealed that Japanese consumer confidence declined slightly to 39.9 in November from 40.8 reported in the previous month. The results further revealed that Households' consumer confidence also dropped in November to 39.5 from 40.5 in the prior month. All the sub indices remained below the prior month's reading. The index measuring overall livelihood came in at 40.4 versus 40.9 in October. Income growth fell to 37.7 and employment eased to 35. Willingness to buy durable goods declined to 44.8 from 46.3 in October.

Automotive stocks led the gains on increasing confidence about economic recovery in the U.S, the major export destination for the country. Toyota Motor gained 2.74%, Honda Motor rose 2.73%, Hino Motors climbed 3.01%, Mitsubishi Motor added 0.74%, Mazda Motor advanced 1.03%, Nissan Motor surged up 3.85% and Suzuki Motor increased 0.90%.

Exporters also ended in positive territory. Canon added 1.08%, NEC Corp advanced 2.36%, Sharp advanced 0.84% and Sony Corp. surged up 3.41%.
 
Trading companies also ended higher. Mitsubishi Corp. surged up 5.34%, Toyota Tsusho Corp. soared 4.81%, Mitsui & Co. climbed 4.04%, Sumitomo Corp. rose 2.85% and Marubeni Corp. gained 2.35%.

Shipping stocks ended the losing streak and finished higher. Kawasaki Kisen Kaisha gained 1.65%, Mitsui OSK Lines advanced 0.42% and Nippon Yusen added 0.38%.

Mixed trading was witnessed among the banking stocks. Sumitomo Mitsui Financial lost 1.28% and Mitsubishi UFJ Financial slipped 0.87%. Resona Holdings remained unchanged at previous close, and Mizuho Financial ended in positive territory with a gain of 1.27%.

In Australia, the benchmark S&P/ASX200 Index gained 28.50 points, or 0.62% to close at 4,635, while the All-Ordinaries Index ended at 4,651, representing a gain of 32.50 points, or 0.62%.

Metals and mining stocks gained following rise in commodity prices in the international market. BHP Billiton advanced 1.35%, Rio Tinto added 0.54%, Fortescue Metals climbed 2.89%, Gindalbie Metals gained 1.62%, Iluka Resources rose 1.15%, Mincor Resources surged up 7.65% and Oz Minerals edged up 0.42%.

Gold stocks also ended in positive territory on higher bullion prices. Lihir Gold gained 1.57% and Newcrest Mining added 0.49%.

Among oil stocks, Woodside Petroleum edged up 0.21%, Santos gained 1.18% and Oz Minerals added 0.42%. However, Oil Search bucked the trend and ended in negative territory with a loss of 1.81%.

Mixed trading was witnessed among the bank stocks. National Australia Bank managed to end in positive territory with a gain of 0.75%. However, ANZ Bank slipped 0.93%, Commonwealth Bank of Australia edged down 0.02% and Westpac Banking lost 0.88%.

In Hong Kong, the Hang Seng Index snapped the losing streak and ended in positive territory, of course well off the highs, on Friday, with a gain of 202.07 points, or 0.93%, at 21,902. Positive closing on Wall Street in the previous session, better than expected economic data on industrial production in mainland China, weaker yen and positive trading across other markets in the region lifted market sentiment. As many as 33 of the 42 components in the index ended in positive territory. Property stocks, banks and china-related stocks were the major gainers while telecom stocks ended marginally weak.
 
In South Korea, the KOSPI Index ended in positive territory with a marginal gain of 4.17 points, or 0.25%, at 1,657. Institutional investors lifted the market with fresh buying in select blue-chip stocks on increasing optimism about global economic recovery. Positive closing on Wall Street, weakening of the yen against the dollar, and better than expected economic data from China lifted market sentiment. A little amount of profit taking, however, limited the gains in relatively quiet trading session.

The Indian market reversed its early gains to finish moderately lower on Friday after industrial output data for October fell short of market estimates. Expectations that the Reserve Bank of India (RBI) would now start tightening rates early next year outweighed gains in European markets and U.S index futures. The benchmark BSE Sensex ended at 17,119, down 70 points or 0.41% and the S&P CNX Nifty fell 17 points or 0.34% to 5,117.

Among other major markets in the region, China's Shanghai Composite Index ended in negative territory with a marginal loss of 6.95 points, or 0.21% at 3,247. However, Indonesia's Jakarta Composite Index advanced 32.66 points, or 1.31%, to close at 2,519, Singapore's Strait Times Index gained 18.89 points, or 0.68%, to close at 2801, and Taiwan's Weighted Index surged up 117.16 points, or 1.53%, to close at 7,795.

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The major European averages are also trading higher on Friday, with the French CAC 40 Index and the German DAX Index rising 1.63% and 1.28%, respectively, while the U.K.’s FTSE 100 Index is advancing 1.01%.

On the economic front, the Office for National Statistics said the U.K'.s output prices rose by 2.9% year-over-year in November following October's revised 1.9% rise. The annual growth rate matched economists' expectations. The index rose 0.2% between October and November, mainly reflecting higher prices for petroleum products.

Core output prices, excluding food, beverages, tobacco and petroleum, edged down 0.1% in November from October, reversing the prior month's 0.4% increase. Annually, core output price inflation eased to 2% from 2.2%. The input price index for materials and fuels purchased by the manufacturing industry rose 4% year-on-year, much bigger than the revised 0.4% increase seen in October.

U.S. Economic News

0.6%-0.4%
A report released by the Commerce department showed that retail sales increased by more than expected in the month of November, with the growth largely due to continued, although tempered, strength in auto sales and strong sales at electronics and appliance store sales. Retail sales increased by 1.3% in November following an upwardly revised 1.9% increase in October. Economists had expected sales to increase by 0.6% compared to the 1.5%decrease originally reported for the previous month.

Excluding a 1.6% increase in auto sales, retail sales increased by 1.2% in November compared to the 1.3% increase in the previous month. The ex-auto sales growth came in above economist estimates of a 0.4% increase.

A Labor Department report showed that import prices rose 1.7% month-over-month in November compared to a revised 0.8% increase in October. The increase was due to a 7.3% surge in petroleum import prices, while import prices of non-petroleum imports rose 0.4%, the same rate as in the previous month.

At the same time, export prices grew at a faster rate of 0.8% compared to a 0.2% increase in October. Prices of agricultural exports climbed 3.7%, while export prices of non-agricultural commodities rose 0.7%.

The Reuters/University of Michigan's preliminary report on the consumer sentiment index for December is scheduled to be released at 9.55 AM ET. Consumer sentiment is expected to rise slightly to 68.8 from November's 67.4.

The Commerce Department is scheduled to release its business inventories report for October at 10 AM ET. The report summarizes the results from the monthly retail trade, wholesale trade and factory goods orders surveys. The report is expected to show a 0.2% decline in business inventories for the month.

In September, the combined value of distributive trade sales and manufacturers' shipments fell 0.3% month-over-month. Annually, business sales declined a steeper 13.1%. Meanwhile, business inventories at the end of the month fell 0.4% compared to the previous month and declined 13.4% from last year. The total business inventories to sales ratio was at 1.32 in September, flat with last year.

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AstraZeneca may be in focus after it said data from a Phase III study of post menopausal women with hormone receptor-positive advanced breast cancer showed that its fulvestrant 500 mg reduced the risk of disease progression compared with fulvestrant 250 mg dose, which is currently being used.

Gilead Sciences could also see some activity after a FDA subcommittee recommended that aztreonam for inhalation solution be approved for the treatment of infections due to Psuedomonas aeruginosa in patients with cystic fibrosis.

Health Net is likely to react to its announcement that it expects 2010 earnings of $1.90-$2 per share, including an impact of 40 cents per share from one-time items. On an adjusted basis, the company estimates earnings of $2.30-$2.40 per share compared to the consensus estimate of $2.24 per share.

Quicksilver Resources may also be in focus after it announced a $540 million capital program for 2010, including about $390 million for drilling and completion activities among other things. The company expects its capital program to increase its average daily production by 20%.

Learning Tree International could move in reaction to its announcement that its fourth quarter revenues fell 28% to $31.8 million. Excluding one-time items, the company’s loss was 10 cents per share compared to earnings of 17 cents per share a year-ago.

Esterline Technologies is also likely to move in reaction to its announcement that it reported fourth quarter earnings of $1.15 per share, lower than $1.46 per share in the year-ago. On an adjusted basis, the company’s earnings were $1.07 per share. Revenues fell to $394.7 million from the year-ago’s $404.4 million.

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