US & World Daily Markets Financial Briefing 12-07-2010

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Stocks Turn Mixed In Mid-Morning Trading

Stocks are seeing mixed movement in mid-morning trading on Monday, as traders are reluctant to make significant moves ahead of the start of earnings season. The major averages are seeing a lackluster outing after posting strong gains last week.

With another day lacking significant economic data, the markets are largely focused on corporate developments. Alcoa (AA) will kick start the earnings season today with the release of its quarterly results after the markets close.

Analysts expect the aluminum giant to turn to a profit after reporting a loss in the year-ago quarter. Alcoa is typically the first Dow component to report its financial results.

However, the results may continue to reflect the impact of softer-than-expected aluminum prices, which are expected to weigh on the company's margins. The price of aluminum, which has declined 12 percent since the beginning of the year, is tightly tied to Alcoa's profitability.

BP Plc. (BP) also remains in the spotlight following reports that the company is considering the sale of some of its Alaskan assets to Apache Corp. (APA). Meanwhile, the firm revealed that costs related to the oil spill in the Gulf of Mexico have surpassed $3.5 billion.

Meanwhile, insurance brokerage and consulting services provider Aon Corp. (AON) announced an agreement to acquire HR consulting and outsourcing firm Hewitt Associates, Inc. (HEW) for $50 per share in cash and stock. The deal is worth approximately $4.9 billion.

In global economic news, China reported a $20 billion trade surplus for June, with exports surging up 4.2 percent and imports growing at a slower pace of 0.9 percent. The strong export data may increase international pressure on China to strengthen its Yuan currency.

The major averages have all seen some downside recently but remain near the flat line amid the day's lackluster trade. While the Nasdaq is up 0.85 points or less than 0.1 percent at 2,197.30, the Dow is down 10.30 points or 0.1 percent at 10,187.73 and the S&P 500 is down 1.81 points or 0.2 percent at 1,076.15.

Sector News

Electronic storage stocks are posting strong gains in mid-morning trading, driving the NYSE Arca Disk Drive Index up by 1.2 percent. The upward move has lifted the index to a three-week intraday high.

Telecommunications and computer technology stocks are also seeing upside, further reflecting the strength in the tech sector. Meanwhile, weakness is visible among steel, airline and defense stocks, offsetting some of the aforementioned gains.

Notably, the NYSE Arca Steel Index is down by 2.8 percent, pulling back off of its best closing level in nearly three weeks.

Stocks Driven By Analyst Comments

STEC Inc. (STEC) is trading higher after ThinkEquity upgraded the stock from Hold to Buy, expecting a surge in demand for the firm's hard drives. The stock has jumped by 6.2 percent, setting a two and a half month intraday high.

EnergySolutions (ES) is also moving higher after analysts at Wedbush upgraded the stock from Neutral to Outperform. The stock is up by 4.5 percent, jumping to a three-week intraday high.

Other Markets

In overseas trading, stocks across the Asia-Pacific region closed mostly higher on Monday. Hong Kong's Hang Seng Index rose by 0.4 percent, while Japan's benchmark Nikkei 225 Index bucked the uptrend, sliding by 0.4 percent.

The major European markets are also seeing solid gains. The U.K.'s FTSE 100 Index is up by 1.5 percent, while the German DAX Index and the French CAC 40 Index are both up by 0.8 percent.

In the bond markets, treasuries are little changed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 3.050 percent, posting a loss of less than one basis point.

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TSX May Open Lower Amid Falling Commodities; Earnings In Focus

Bay Street stocks are poised for a lackluster session Monday amid easing commodities prices. Traders might turn cautious ahead of a host of corporate earnings reports from south of the border.

Also, profit taking at higher levels, after the main index gathered over 4% in the past four sessions, might weigh on the markets.

Meanwhile, most Asian markets ended marginally higher after China's customs agency said exports were up 35% in June year-over-year . However, traders were cautious trading ahead of earnings reports from major companies in the U.S. The Japanese market was down amid political uncertainties. Stocks in Europe were little changed, after a four-day rally.

On Friday, the S&P/TSX Composite Index gained for a fourth session, adding 137.09 points or 1.20% to 11,570.45.

The price of crude oil eased Monday morning after rising for the past three sessions. Crude for August was down $0.22 to $75.87 a barrel. Over the weekend, data from the General Administration of Customs, China revealed the nation's net crude purchases climbed to 22.14 million tons in June, surpassing the previous record of 20.98 million tons in April.

The price of gold ticked lower, with gold for August slipping $6.60 to $1,203.20 an ounce.

Mining stocks may be in play as the price of copper fell from a two-week high after the Chinese customs office said imports of copper and products fell 17% to 328,231 tons in June from the previous month.

In international M&A news, insurance company Aon Corp. said it will buy human resources company Hewitt Associates for $4.9 billion in a cash and stock deal, which is expected to close by November.

In corporate news oil and gas firm Pengrowth Energy Trust said it will acquire remaining 82% in junior oil and gas  firm Monterey Exploration  for C$366 million.

Precious metals explorer Tanzanian Royalty Exploration  said it would privately place a three year note bearing 3% interest rate that is convertible into 230,362 common shares for C$1 million.

Kingsway Linked Return of Capital Trust said it got an increased takeover offer from KFS Capital LLC, a subsidiary of Kingsway Financial Services Inc. Holders of units who accept the offer will now receive $20.00 per unit in cash, an increase of $2.50 or 14.3% per unit from the previous cash offer price of $17.50 in cash per unit.

Oil and gas explorer Africa Oil Corp.  said it would increase the size of non-brokered private placement from 20 million common share to 25 million common shares for gross proceeds of up to C$25 million.

Natural resources explorer New High Ridge Resources  said is proceeding with a proposed new business venture involving the development, processing and marketing of nutraceutical and other food ingredients.

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Asian Markets End In Positive Territory

Asian markets, excluding Japan and Taiwan, ended the trading session on Monday in positive territory with marginal gains on lackluster trading as most traders preferred to stay in the sidelines ahead of the start of the US earnings season later in the day. Political uncertainty in Japan where the ruling DPJ government failed to majority in the upper house, dragged the indices into negative territory. Caution ahead of the earnings season in the US and lack of clarity on global economic recovery also impacted market sentiment.

In Japan, the benchmark Nikkei 225 Index ended at 9,548, down 37.21 points, or 0.39%, while the broader Topix index of all First Section issues was down 3.51 points, or 0.41%, to 858.

On the economic front, a statement released by the Bank of Japan revealed that an index measuring prices for domestic corporate goods was down 0.4% in June, compared to the previous month, coming in at 102.9. That was slightly below expectations for a 0.2% monthly decline, following the revised 0.2% increase in May. On an annual basis, corporate goods prices added 0.5% versus expectations for a 0.6% increase following a revised 0.5% gain in May.

Banking stocks ended in negative territory. Sumitomo Mitsui Financial declined 2.25%, Resona Holdings lost 2.23%, Mitsubishi UFJ Financial was down 2.11% and Mizuho Financial also declined 2.11%.

All Nippon Airways declined 2.73%.

Pulp and paper related stocks also ended weaker. Mitsubishi Paper Mills declined 2.86%, Hokuetsu Kishu Paper Mills slipped 0.68%, Oji Paper lost 2.07% and Nissan Paper Group fell 0.58%.

Mixed trading was witnessed among the trading companies. Mitsui & Co. gained 1.68%, Sumitomo Corp. advanced 0.64%, and Itochu Corp. added 0.42%. However, Marubeni Corp. ended in negative territory with a loss of 1.28%. Stocks of Toyota Tsusho Corp., Mitsubishi Corp and Sojitz Corp remained unchanged from previous close.

Among the gainers, iron and steel stocks ended in positive territory. JFE Holdings gained 1.61%, Pacific Metals Corp. rose 1.97%, Nippon Steel Corp. climbed 2.33%, Sumitomo Metal Industries surged up 2.91%, Kobe Steel was up 2.82% and Nisshin Steel increased 2.74%.

Securities stocks also ended higher. Matsui Securities climbed 3.76%, Nomura Holdings gained 1.43%, Daiwa Securities Group rose 1.28% and Mizuho Securities Group added 0.49%.

In Australia, the benchmark S&P/ASX200 Index added 13.60 points, or 0.31% and closed at 4,410, while the All-Ordinaries Index ended at 4,429, representing a gain of 15.00 points, or 0.34%.

On economic front, a report released by the Australian Bureau of Statistics revealed that the total value of dwelling finance commitments for owner-occupied housing in Australia decreased a seasonally adjusted 0.3% in May to A$13.7 billion, following 0.6% increase in the previous month. The report further noted that the total value of dwelling finance commitments excluding alterations and additions increased 0.7% on a monthly basis to A$21.36 billion. Value of dwelling commitments for investment housing increased 2.6% to A$7.66 billion.

Mixed trading was witnessed among banking stocks. ANZ Bank edged up 0.18%, National Australia Bank advanced 0.87% and Westpac Banking gained 0.54%. However, Commonwealth Bank bucked the trend and ended in negative territory with a loss of 0.48% and investment banking company Macquarie Group edged down 0.13%.

Gold related stocks ended higher following marginal gains in gold prices in the international market. Lihir Gold climbed 2.36% and Newcrest Mining gained 1.95%.

Oil stocks also ended in positive territory on higher crude oil prices in the international market. Woodside Petroleum edged up 0.09%, Santos advanced 0.79%, ROC Oil Co. climbed 2.94%, Oil Search gained 1.04% and Origin Energy rose 0.90%.

Mining and metal stocks also advanced. BHP Billiton added 0.47%, Fortescue Metals advanced 0.67%, Gindalbie Metals surged up 4.08%, Iluka Resources climbed 5.57%, Macarthur Coal edged up 0.37%, Mincor Resources gained 2.02%, Murchison Metals was up 3.54%, Origin Energy rose 0.90% and Rio Tinto increased 0.98%.

Orica was the major loser having shed 5.61% after hiving off its subsidiary Dulux Group as part of its demerger plan announced earlier.

In Hong Kong, the Hang Seng Index advanced 88.77 points, or 0.44%, and closed at 20,467, taking cues from other markets in the region which also ended higher amid cautious trading ahead of the offial start of the earnings season in the US later in the day. Positive closing on Wall Street on Friday last week, which witnessed the best week for the year for US markets on bargain hunting, lifted market sentiment.

The Indian market extended its uptrend for a third consecutive session Monday, with realty, banking and IT stocks leading the gains on expectations of strong first-quarter corporate earnings. However, the benchmark indexes closed off the day's highs, as European stocks edged lower, dragged down by banks and miners and the U.S index futures signaled losses ahead of aluminum producer Alcoa's earnings report due later in the day. After crossing the psychological 18,000 mark for a brief period in early trading, the benchmark 30-share Sensex pared some of its gain before ending up 104 points or 0.58% at 17,937. The 50-share Nifty rose by 31 points or 0.57% to 5,383.

Among the other major markets open for trading, China's Shanghai Composite Index gained 19.80 points, or 0.80%, to 2,491, Singapore's Strait Times Index added 8.15 points, or 0.28% to close at 2,925, and Indonesia's Jakarta Composite Index advanced 14.90 points, or 0.51%, and closed at 2,959. However, Taiwan's Weighted Index bucked the trend and ended in negative territory with a loss of 7.70 points, or 0.10%, to close at 7,640.

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The major European averages are seeing a volatile trend on Monday, with the major averages in the region seen moving back and forth across the unchanged line following four straight session of gains.

The French CAC 40 Index and the German DAX Index are currently rising 0.14% and 0.25%, respectively, while the U.K.’s FTSE 100 Index is advancing 0.73%.

The revised first quarter GDP report released by the U.K. Office for National Statistics showed that the U.K. economy expanded at an unrevised rate of 0.3% compared to the previous quarter. The growth slackened from the previous quarter’s 0.4% rate.

U.S. Economic Reports

With last week’s positive comments and promising economic data allaying fears of a loss of economic momentum, the unfolding week’s heavy calendar assumes greater significance. Traders are likely to stay focused on a number of first-tier economic reports, including the Commerce Department's retail sales report for June, the weekly jobless claims report, the results of the New York and Philadelphia Federal Reserves’ manufacturing surveys for July, the Federal Reserve's industrial production report for June and the preliminary reading of the Reuters/University of Michigan's consumer sentiment index for July.

The Commerce Department's trade balance report for May, the business inventories report for May, the consumer and producer price inflation reports from the Labor Department and the FOMC minutes round up the other economic events of the week. The results of the Treasury auctions of 3-year and 7-year notes and 30-year bonds and Fed speeches may also be in focus.

Retail sales are expected to decline yet again in June, spearheaded by weaker auto and gasoline sales. However, given the fairly robust chain store sales, retail sales, excluding autos and gasoline, should show a positive performance. Capital Economics views the development positively, as falling gasoline prices depress the dollar value of sales, leaving consumers with more money to spend on other goods and services or to save.

Falling gasoline prices could also weigh on consumer prices and producer prices. Therefore, the headline producer as well as consumer price inflation may have seen declines in June.

Manufacturing output for the month isn't likely to be enterprising due to the weak employment report for June along with a drop in average work hours. However, industrial production is expected to receive some support from utilities output, which benefited from the unseasonably warm weather across much of the Northeast.

Meanwhile, the financial market swoon witnessed in recent weeks is expected to have hurt consumer sentiment and consequently, the Reuters/University of Michigan's consumer sentiment index will most likely show a decline. Additionally, consumers are likely to remain concerned about the cloudy job market outlook and some recent economic indicators suggesting a slowdown in the pace of the economic recovery.

Federal Reserve chairman Ben Bernanke is scheduled to speak at the "Federal Reserve Forum: Addressing the Financing Needs of Small Businesses" in Washington, D.C. at 10 AM ET.

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Weyerhaeuser (WY) may react to its announcement that its board has declared a special dividend of $5.6 billion, including the regular quarterly dividend of about $11 million. The dividend is a step being taken by the company in the process of converting itself into a REIT.

Staples (SPLS) could be in focus after it announced that its wholly-owned subsidiary Staples Australia Pty. Ltd. has now bought a more than 92% stake in Corporate Express Australia.

BP (BP) is likely to see some activity after reports suggested that it is in talks to sell some of its assets, including its Alaska oil fields to Apache Corp. (APA) for about $12 billion. Separately, BP said the total cost of containing the oil spill in the Gulf of Mexico has now reached $3.5 billion.

On the economic front, Aon Corp. (AON) announced a deal to buy Hewitt Associates (HEW) for $4.5 billion in cash and stock. Johnson & Johnson (JNJ) said it has agreed to buy Micrus Endovascular (MEND) for $23.40 per share in cash.

Currency, Commodity Markets

Crude oil futures are edging down $0.13 to $75.96 a barrel after advancing $3.95 or 5.48% to $76.09 a barrel in the week ended July 9th. The oil market, which opened after last Monday’s public holiday, saw the selling pressure from the previous week continue on Tuesday, as the equity markets surrendered much of their early gains.

However, the commodity rebounded strongly on Wednesday, rising over $2-a-barrel after an upbeat global oil demand forecast by the Energy Information Administration and the IMF’s forecast imparted buoyancy. Oil rose by over $1-a-barrel on Thursday, as risk appetite improved following the release of the positive jobless claims report. The commodity advanced yet again on Friday before finishing the week higher.

Gold futures, which rose $2.10 to $1,209.80 an ounce in the previous week, are currently moving down $6.80 to $1,203 an ounce.

Among currencies, the U.S. dollar ended the week ended July 9th on a mixed note, with the greenback gaining 1% against the yen to 88.6212, while it fell 0.83% against the euro to $1.2641. The euro’s advance reflects the increase in risk preference following the release of some encouraging economic reports.

Currently, a dollar is trading at 88.57 yen, with the yen extending its gains following the electoral debacle of the Japanese government in the upper house parliamentary elections, and is valued at $1.2579 versus the euro.