US & World Daily Markets Financial Briefing 13-01-2010

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The major U.S. index futures are pointing to a modestly higher opening on Wednesday after the Asian markets retreated sharply on concerns that recovery hasn’t taken root firmly. A report released earlier in the day showed that mortgage application volumes rose 14% in the week ended January 8 compared to the previous week. That said, earnings as well as pre-announcements have been mixed. Amid this backdrop, stocks may show a lack of direction, given the fact that some traders may prefer to go to the sidelines ahead of some key economic data due Thursday and Friday.

U.S. stocks opened Tuesday’s session notably lower amid nervousness over lackluster results from Alcoa (AA), negative pre-announcements from companies and the Chinese central bank’s indication that interest rates would be raised soon. The major averages languished in negative territory throughout the session to close lower.

The Dow Industrials declined 36.73 points or 0.34% to 10,627, while the Nasdaq Composite Index receded 30.10 points or 1.30% to 2,282 and the S&P 500 Index ended down 10.76 points or 0.94% at 1,136.

Eighteen of the thirty Dow components closed the session lower, with Alcoa leading the pack of losers with an 11.06% slump. Bank of America (BAC) (down 3.37%), Caterpillar (CAT) (down 2.95%), Cisco Systems (down 1.59%) Disney (DIS) (down 1.72%), Intel (INTC) (down 1.63%) and JP Morgan Chase (JPM) (down 2.34%) were notable decliners. However, Wal-Mart (WMT), Procter & Gamble (PG), Coca Cola (KO) and Kraft Foods (KFT) gained some ground.

Among the sector indexes, the Dow Jones Transportation Average slid 1.39%, the NYSE Arca Airline Index slipped 1.80% and the Dow Jones U.S. Basic Materials Average receded 2.09%. The NYSE Arca Biotechnology Index and the KBW Bank Index fell 1.25% and 1.70%, respectively. In the resource space, the NYSE Arca Gold Bugs Index declined 3.91%, while the NYSE Arca Oil Index and the Philadelphia Oil Service Index moved down over 2% each. The S&P Retail Index and the Philadelphia Housing Sector Index receded more than 1.20% each.

Among the technology indexes, the Philadelphia Semiconductor Index slumped 3.59% and the NYSE Arca Disk Drive Index fell 2.24%, while the NYSE Arca Hardware Index, the NYSE Arca Software Index, the NYSE Arca Internet Index and the NYSE Arca Networking Index all receded over 1%.

On the economic front, the Commerce Department reported that the trade balance for November showed a deficit of $36.4 billion, representing a 10-month high. The November deficit compared to expectations for a deficit of $34.6 billion and the revised October deficit of $33.2 billion. Exports rose at an anemic rate of 0.9% month-over-month compared to a 2.6% surge in imports. Excluding petroleum imports, which rose 2.3%, import growth was 2.4%. Peter Boockvar from Miller Tabak expects the wider than expected deficit to reduce fourth quarter GDP growth by 0.1%-0.2%.

The Treasury auction of $40 billion worth 3-year noteS was fairly encouraging, with the yield coming in roughly in line with expectations and the bid to cover ratio coming in at 2.98. The level of indirect bidders accounted for 38% of the total.

Toronto Stocks Likely Poised For A Slack Open

Bay Street stocks may struggle to snap back from heavy losses in the previous session Wednesday morning after China took steps to slow down its robust economy, sending commodity prices sharply lower. The U.S futures also point to a flat opening.

Canadian stocks have been under pressure since hitting a new 15-month intraday high above 12,000 on Monday.

On Tuesday, the S&P/TSX Composite Index shed 126.94 points or 1.06% to finish at 11,820.18, trimming majority of the gains it had gathered so far in 2009

Energy stocks may continue to slump along with the price of oil, which slipped below $80 today. A surprising jump in U.S. crude inventories and China's move to curb lending weighed on sentiment. Meanwhile, the price of bullion edged up $4.4 to $1,133.30 an ounce.

In corporate news, auto part maker Magna International guided 2010 sales of $19.5 billion to $20 billion and said it would spend nearly $800 million for fixed assets.

Cogeco Cable announced its first quarter earnings of C$1.16 per share, up from C$0.47 in the year ago period. It also upped its fiscal 2010 revenue outlook to C$1.290 billion from the earlier C$1.250 billion.

Suncor Energy announced plans to trim its workforce by 1,000, the Financial Post reported.

Yamana Gold said its annual output probably will increase to 1.03 to 1.145 million gold-equivalent ounces in 2010 from the 1.026 million ounces in 2009.
 
Premier Gold Mines said it plans to offer C$32 million in common shares to fund development activities. In other gold news, Jinshon Gold Mines is planning acquiring bullion projects outside China.

Wireless equipment maker DragonWave said it is likely to win business from U.S. mobile companies, AT&T and Verizon.

Corus Entertainment said its first quarter earnings were at C$0.91 per share compared to C$0.50 in the year ago quarter. Northland Resources announced the appointment of Karl-Axel Waplan as President and CEO.

Pareto Corp. said it has acquired Direct Sales Force Inc., which will be immediately accretive to earnings and generate in excess of C$10 million.

With no major economic news on tap today, traders will be focusing on movements in commodity prices for further clues.

Commodity, Currency Markets

Crude oil futures are declining $0.74 a barrel to $80.05 a barrel after receding $1.73 to $80.79 a barrel in Tuesday’s session. Gold futures, which slipped $22 to $1,129.40 an ounce in the previous session, are currently rising $5.40 to $1,134.80 an ounce.

On the currency market, the U.S. dollar is trading at 91.25 yen compared to the 90.98 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is currently valued at $1.4570.

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Asian Markets Slump On China's Decision, Concerns About Recovery

The markets across Asia, excluding India, ended in negative territory on Wednesday, reacting to the decision of the Chinese central bank to tighten the monetary policy by hiking the reserve requirements by 0.5% in an effort to cool off the growth momentum and rein in inflation. Concerns that global economic recovery might be derailed as well as softer commodity prices impacted market sentiment as traders preferred to lock in gains from recent rally and moved to the sidelines.

In Japan, the benchmark Nikkei 225 Index lost 144.11 points, or 1.32% to 10,735, while the broader Topix index of all First Section issues was down 10.11 points, or 1.06% to 944.

On the economic front, data released by Japan Machine Tool Builders' Association revealed that machine tool orders recovered strongly in December after steep falls in the past several months. According to the report, total orders for Japan-made machine tools surged up 62.8% year-on-year in December, following a 8.4% drop in the previous month.

Light sweet crude oil futures for February delivery ended at $80.09 a barrel in electronic trading, down $0.70 per barrel from previous close at $80.79 a barrel in New York on Tuesday.

Most of the stocks across the sectors ended in negative territory as traders availed the opportunity to unload shares related to China and also booked profits amid concerns that the stock market is getting overheated following recent gains.

Airlines were the major losers with the beleaguered Japan Airlines losing as much as 81.0.8% on huge volumes on concerns about looming insolvency filing and subsequent delisting from the market. The other airline company, All Nippon Airways, shed 2.37%.
 
Among machinery stocks, Daikin Industries lost 2.43%, Hitachi Construction Machinery slipped 2.34%, Komatsu Limited fell 2.86%, Kubota Corp. shed 2.67% and Japan Steel Works declined 2.44%.

Trading companies also ended in negative territory. Mitsubishi Corp. slumped 3.55%, Mitsui & Co. shed 3.71%, Toyota Tsusho Corp. declined 2.61%, Sumitomo Corp. fell 1.73% and Marubeni Corp. lost 1.83%.

Automotive stocks also slipped on profit taking. Toyota Motor Corp. lost 1.46%, Suzuki Motor slipped 1.11%, Nissan Motor fell 2.79%, and Honda Motor edged down 0.30%.

Bank stocks ended in negative territory. Sumitomo Mitsui Financial shed 2.43%, Mitsubishi UFJ Financial lost 1.84%, Resona Holdings fell 1.18% and Mizuho Financial slipped 0.56%.

In Australia, the benchmark S&P/ASX Index shed 31.40 points, or 0.64% to close at 4,868, while the All-Ordinaries Index ended at 4,900, representing a loss of 31.50 points, or 0.64%.

On the economic front, a report released by the Department of Education, Employment and Workplace Relations revealed that the country's monthly leading indicator of employment index rose to minus 0.716 in January from minus 0.743 reported in December. The rise in January was the seventh successive increase, after having declined for 18 consecutive months, confirming the prediction that employment is likely to grow more quickly than its long-term trend rate of 1.8%.

Light sweet crude oil futures for February delivery ended at $80.09 a barrel in electronic trading, down $0.70 per barrel from previous close at $80.79 a barrel in New York on Tuesday.

Mining and metal stocks ended in negative territory following drop in base metal prices in the international market. BHP Billiton declined 0.65%, Rio Tinto fell 1.60%, Fortescue Metals lost 1.92%, Gindalbie Metals slumped 5.14%, Iluka Resources declined 5.91%, Macarthur Coal slipped 0.94%, Murchison Metals shed 5.94% and Oz Minerals dropped 2.02%.

Oil stocks also ended weaker. Woodside Petroleum edged down 0.10%, Santos slumped 2.94%, Oil Search slipped 0.33% and Origin Energy shed 0.97%.
 
Gold stocks also ended lower after bullion prices declined sharply in the bullion market. Lihir Gold lost 2.34% and Newcrest Mining shed 1.18%.

Worley Parsons was the major loser in the market. The engineering and maintenance group company has lowered the profit guidance for full year 2010 citing weaker conditions in the U.S as the primary reason. The stocks slumped 11.45% following the downward revision.

Banking stocks also ended in negative territory. Commonwealth Bank of Australia declined 0.99%, National Bank of Australia slipped 0.48% and Westpac Banking shed 0.32%. However, ANZ Bank bucked the trend and ended in positive territory with a gain of 0.18%.

In Hong Kong, the Hang Seng Index ended sharply losing 578.04 points, or 2.59%, and closed at 21,749, reacting to the surprise tightening of the monetary policy in mainland China. The Chinese central bank raised the reserve requirement by 50 basis points, effective January 18, primarily with the intention of cooling off the growth and reigning inflation. Fears that this measure might derail the global recovery process triggered selling led by major Chinese banks. Bank of China lost 3.62%, China Construction Bank fell 3.89% and ICBC declined 3.58%. Of the 42 components in the index, as many as 38 stocks ended in negative territory.

 In South Korea, the KOSPI Index ended in negative territory with a loss of 27.23 points, or 1.60% at 1,671, taking cues from other markets in the region which also ended lower on concerns China's move to tighten monetary policy might derail global economic growth. Foreign institutional investors and traders unloaded stocks and moved to sidelines awaiting further direction. Weak closing on Wall Street in the previous session also impacted market sentiment.

The Indian market reversed its early loss and ended moderately higher on Wednesday, shrugging off weak global cues and fears about a surprise monetary tightening in China. The People Bank of China on Tuesday raised banks' reserve requirements by 50 basis points effective January 18, sparking concerns that the move may dampen a nascent economic recovery. The Reserve Bank of India is set to review its monetary policy on Jan 29. There is an expectation that the central bank may follow suit to rein in inflationary expectations. The benchmark Sensex opened gap-down and fell to a low of 17,277 before finishing higher at 17,510, up 87 points or 0.50%, and the Nifty rose 24 points or 0.45% to 5,234.

Among other major markets open for trading in the region, Taiwan's Weighted Index lost 112.81 points, or 1.36% to close at 8,197, Straits Times Index in Singapore fell 27.73 points, or 0.95%, to close at 2,888, Indonesia's Jakarta Composite Index shed 26.68 points, or 1.00% to close at 2,633, and China's Shanghai Composite Index slumped 101.31 points, or 3.09%, to close at 3,173.

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The European markets are seeing some volatility and are showing mixed sentiment. While the German DAX Index is moving up 0.18% and the French CAC 0 Index is advancing 0.49%, the U.K.’s FTSE Index is moving down 0.11%.

In economic news, the German Federal Statistical Office reported that Germany’s real GDP fell 5% in 2009 compared to 1.3% growth in the previous year. Weakness in exports and capital formation in machinery and equipment was responsible for the bulk of the contraction.

Meanwhile, French statistical agency INSEE released its report on consumer prices, showing a 0.9% year-over-year increase in the headline index, slightly higher than the 0.8% increase expected by economists. On a monthly basis, consumer prices edged up 0.3% following a 0.1% increase in November.

U.K. industrial production rose 0.4% month-over-month in November following a mere 0.1% gain in the previous month, according to a report released by the Office for National Statistics. The monthly growth rate came in slightly above the consensus forecast of 0.3%. Annually, industrial production fell at a slower pace of 6% in November following October's 8.4% decline. Economists were looking for a decrease of 6.1%.

U.S. Economic Reports

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended January 8th at 10:30 AM ET.

The inventory report for the week ended January 1st showed a 1.3 million increase in crude oil stockpiles to 327.3 million barrels. Inventories of crude oil were above the upper limit of the average range for this time of the year.

Gasoline stockpiles also increased, rising by 3.7 million barrels, with the inventories of gasoline remaining above the upper limit of the average range. However, distillate inventories edged down by 0.3 million barrels, although they remained above the upper boundary of the average range. Refinery capacity utilization averaged 80% over the four weeks ended January 1st compared to 80.3% 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.

The Treasury Budget, a monthly account of the surplus or deficit of the federal government is also 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 $92 billion for December.

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Google (GOOG) is likely to react to indications from the company that it will exit the Chinese market after alleged attacks by Cyber spies, who were apparently attempting to hack into the email accounts of many human right activists. Google had rolled out a Chinese version of search in January 2006 and has since then been having a rough ride.

Kraft Foods (KFT), which has launched a hostile bid for U.K. confectioner Cadbury (CBY), could be in focus after it said it raised its 2009 earnings per share estimate to at least $2 compared to its earlier estimate of $1.97. The company attributed the revision to strong operating gains and a significant increase in marketing investments. On Tuesday, Cadbury advised its shareholders not to accept Kraft’s revised offer of 767 pence per share.

Linear Technology (LLTC) rose in Tuesday’s after hours session after it reported that its second quarter revenues rose 3% to $256.4 million. The company reported earnings of 33 cents per share, including a 2 cents per share non-cash expense, compared to 38 cents per share last year. Analysts estimated earnings of 31 cents per share on revenues of $247.05 million. The company expects 7%-10% sequential revenue growth in the third quarter. However, analysts expect only a slight increase in revenues.

H.B. Fuller (FUL) is also likely to see some strength after it reported fourth quarter net income of 50 cents per share compared to a loss of $1.12 per share in the year-ago period. On an adjusted basis, the year-ago’s net income would have been 24 cents per share. Net revenues fell 2.5% to $341.6 million. The consensus estimates called for earnings of 42 cents per share on revenues of $332.71 million.

Developers Diversified (DDR) may move to the downside after it lowered its operating funds from operations guidance for 2009 to $1.83- $1.85 per share due to a loss on the sale of land and higher interest costs. For 2010, the company expects funds from operations to be $1.05-$1.15 per share compared to the $1.14 per share consensus estimate.

Cablevision (CVC) could see some activity after it announced that its board has approved the spin off of its Madison Square Garden business to Cablevision shareholders. Each Cablevision shareholder will receive 1 share of Madison Square Garden Class A common stock for every four shares of Cablevision Class A common stock they hold as of the record date of January 25th, 2010.

Furniture Brands (FBN) is expected to trade lower after it reported fourth quarter net sales of $280 million to $290 million, notably lower than the consensus estimate of $312.52 million. The company also said it expects to achieve its guidance of being cash flow positive for fiscal year 2009, excluding the effects of debt paydown and tax refunds.

Bunge (BG) may move in reaction to its announcement that it has reached agreements to become the owner of additional stakes in the Moema Group cluster of sugarcane mills in Brazil. For the additional stake, Bunge will issue 3.5 million common shares.

Pall Corp. (PLL) could react to its announcement that it has acquired privately held U.S. biotechnology company MicroReactor Technologies, which has developed an easy-to-use and cost-effective miniature bioreactor technology platform. The companies did not reveal the financial terms of the deal.

First Midwest Bancorp. (FMBI) declined in Tuesday’s after hours session after reporting a fourth quarter loss of 73 cents per share compared to a year-ago loss of 57 cents per share. Total interest income fell to $82.37 million from $97.93 million in the year-ago period. Analysts’ estimates, which typically exclude one-time items, called for a loss of 7 cents per share on revenues of $87.29 million. Separately, the company also announced that it intends to sell about $150 million shares in an underwritten public offering.

Qlogic (QLGC) is likely to see some strength after it released preliminary third quarter results, forecasting net revenues in the range of $147 million to $149 million. Earlier the company had estimated revenues of $134 million to $140 million. On a non-GAAP basis, the company expects earnings of 29-30 cents per share, higher than its earlier forecast of 22-24 cents per share. The company attributed the potential revenue upside to strong sequential growth for its Host products. Analysts estimate earnings of 24 cents per share on revenues of $138.34 million.

Health Management Associates (HMA) is likely to move in reaction to its announcement that it expects to report fourth quarter net revenues from continuing operations of about $1.2 billion and earnings per share from continuing operations of 11-12 cents per share. The Street had estimated earnings of 11 cents per share on revenues of $1.16 billion. For 2009, the company expects net revenue from continuing operations of $4.6 billion and adjusted earnings from continuing operations of 49-50 cents per share. The consensus estimates call for earnings of 48 cents per share on revenues of $4.62 billion. The company also announced the appointment of Kelly Curry as EVP and CFO, effective January 21st, 2010.

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