US & World Daily Markets Financial Briefing 14-01-2010

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Buying Momentum May Slow as Traders Confront Uncertainty Yet Again

The major U.S. index futures are pointing to a lower opening on Thursday. The shaky conviction with which traders took up to buying ways in the previous session is likely to be put to test, as economic data released earlier in the day have given rise to uncertainty yet again. The initial claims for unemployment benefits showed a bigger than expected increase, while retail sales unexpectedly fell in December, according to two separate reports released earlier in the day.

That said, data released from Asia and Europe was encouraging. Australia’s jobless rate eased in December and the euro zone region experienced a smaller than expected drop in industrial output for November, a pointer that we may be well on the path leading to sustainable growth. The technology space may see some indecision, as traders look ahead to Intel’s (INTC) results.

After showing some uncertainty in morning trading on Wednesday, U.S. stocks advanced solidly till late trading before giving back some ground going into the close. The Dow Industrials ended up 53.51 points or 0.50% at 10,681 and the S&P 500 Index climbed 9.46 points or 0.83% to 1,146, while the Nasdaq Composite Index surged up 25.59 points or 0.83% to close at 1,146.

Twenty-two of the thirty Dow components ended the session higher, with Alcoa (AA) (up 2.96%), Bank of America (BAC) (up 1.59%), Cisco Systems (CSCO) (up 1.82%), Disney (DIS) (up 1.52%), Intel (up 1.71%), Merck (MRK) (up 3.68%), Pfizer (PFE) (up 2.34%) and JP Morgan Chase (JPM) (up 1.75%) advancing solidly in the session. On the other hand, AT&T (T) fell 1.19%, while Chevron (CVX) and Exxon Mobil (XOM) also receded moderately.

Among the sector indexes, the NYSE Arca Airline Index rose 2.95%, while the Philadelphia Oil Service Index gained 1.19% and the NYSE Arca Gold Bugs Index moved up 1.15%. The NYSE Arca Biotechnology Index advanced 1.41%, the KBW Bank Index rose 1.54% and the Philadelphia Housing Sector Index rose 1.27%.

In the technology space, the Philadelphia Semiconductor Index gained 1.60% compared to a 3.39% rally by the NYSE Arca Disk Drive Index and a 1.66% surge by the NYSE Arca Computer Hardware Index. The NYSE Arca Networking Index and the NYSE Arca Software Index rose 1.25% and 2.24%, respectively, while the NYSE Arca Internet Index advanced 1.50%.

The S&P 500 Index, although in a firm uptrend, has been converging with the lower boundary of the channel, with the slope of the uptrend gradually flattening out. Although a break above the 1,200 resistance looks like a long shot, given the overbought levels, it is very likely that the index gravitates between the 1,115 and 1,150 levels. However, a break below the 1,115 level exposes the index to the risk of a short-term correction.

The results of the Treasury’s 10-year note auction were mixed, with the yield coming roughly in line with expectations. The bid to cover ratio was at 3, while the level of indirect bidders, mostly accounted for by foreign buyers, was anemic at 29%.

In the Beige Book, the Federal Reserve noted that reports from 12 Fed districts showed that economic conditions improved modestly further despite activity remaining at very low level. Ten districts reported improvement, while Richmond and Philadelphia showed mixed conditions. Consumer spending was reported as higher than 2008 levels in most districts, although found lighter than in 2007. The Beige Book showed steady auto sales and mostly flat or weak tourism activity. While non-financial services generally improved, manufacturing activity increased or held steady.

House prices showed little change, while residential real construction remained at low levels. At the same time, commercial real estate activity remained weak. The Beige Book reported weak credit conditions and generally weak labor market conditions.

TSX May Open Higher Amid Earnings Reports

The Canadian market is likely to open slightly higher on Thursday on a fairly upbeat assessment of the US economy by the Federal Reserve and on easing worries about credit squeezing by China.

The Fed's beige book said economic conditions in the US, Canada's biggest trading partner, have seen modest improvement in recent weeks, while noting that economic activity remains at a low level.

Breaking its 2-day losing streak, the S&P/TSX Composite Index closed Wednesday at 11,853.56, gaining a marginal 33.37 points or 0.28%. Canadian stocks had been under pressure since hitting a new 15-month high on Monday.

However, the main index may struggle to sustain gains witnessed in the later part of the previous session as falling oil and commodity price may weigh on sentiment.

The price of oil was lingering below the $80 a barrel mark, after the U.S. EIA said crude inventories increased last week. The price of bullion marginally edged up by $1.3 to $1,137.7 an ounce.

Mining shares will be in focus after multi-national giant Rio Tinto PLC said that demand for iron ore, copper and gold rose sharply in the fourth quarter.

In corporate news, China Investment Corp and Temasek Holding will subscribe in the initial public offering of Southgopi energy in Hong Kong for about $50 million each, out of the total issue size of $387 million.

Barrick Gold said it will sue to halt Gold Corp's planned acquisition of a 70% stake in El Morro copper-gold project in Chile.
 
Kirkland lake Gold said it it will sell at least 2.4 million units at C$8.25, Marketwire reports.

Shaw Communications reported lower earnings of C$0.26 a share in first quarter, compared to C$0.29 in the year ago period.

Jewett-Cameron Trading Company posted first-quarter net income of $0.03 per share compared with $0.12 per share in the same quarter last year.

Score Media Inc. Wednesday posted a breakeven first quarter net income of C$0.01 per share.

Weststar Resources Corp. said it has purchased a 100% interest in 27 strategic claims in the Red Chris area of northwestern British Columbia.

Xceed Mortgage Corp. said its full-year net loss narrowed to C$0.12 per share from C$0.43 per share in the prior year period.

West 49 Inc. reported net sales for the five week period ended January 2, 2010 increased 5.7% to $36.8 million from a year ago period.

From across the border, the U.S. Commerce Department said today that total retail sales unexpectedly fell 0.3% last month, against analysts, expectations of a gain of 0.5%, indicating poor job market hurts sales. The U.S. Labor Department said workers filling for unemployment benefits was up by 11,000, to a seasonally adjusted 444,000.

Commodity, Currency Markets

Crude oil futures are trading unchanged at $79.65 a barrel after retreating $1.14 to $79.65 a barrel in Wednesday’s session. The previous session’s decline in crude oil prices came about following the release of the weekly oil inventory report, which showed that crude oil stockpiled rose by 3.7 million barrels in the week ended January 8th, 2010. With the increase, inventories remained above the upper limit of the average range.

Gasoline stockpiles rose by 3.8 million barrels and remained above the upper limit of the average range. Distillate fuel inventories also increased, rising by 1.4 million barrels. Inventories of distillates were now above the upper boundary of the average range. Meanwhile, refinery capacity utilization averaged 80.4% over the four weeks ended January 8th compared to 80% in the previous week.

Gold futures are currently advancing $2.40 to $1,139.20 an ounce. In the previous session, gold gained $7.40 to $1,136.80 an ounce.

On the currency front, the U.S. dollar is trading at 91.216 yen compared to the 91.374 yen it fetched at the close of New York trading on Wednesday. The dollar is currently valued at $1.4509 versus the euro.

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Asian Markets End Higher On Recovery Hopes

The markets across Asia, excluding Hong Kong, ended in positive territory on increasing optimism about global economic recovery taking positive cues from Wall Street where the Dow ended at a 15-month high in the previous session. Profit taking at late trading however limited the gains as traders exercised caution ahead of earnings in the U.S.

In Japan, the benchmark Nikkei 225 Index rose 172.65 points, or 1.6%, to 10,908, while the broader Topix index of all First Section issues rose 14.99 points, or 1.6%, to 959.

On the economic front, data released by the Cabinet Office revealed that core machinery orders declined by a seasonally adjusted 11.3% month-over-month in November, following a 4.5% drop in the previous month. The data surprised economists who expected a bounce back in November with a marginal 0.2% gain. On an annual basis, core machinery orders plunged 20.5% during November, following a 21% contraction in the previous month. Economists expected the orders to decline 10.1% for the month, on annual basis.

In a separate report, the Bank of Japan revealed that an index measuring the prices of domestic corporate goods in the country rose 0.1% in December compared to the previous month. The index came in line with economists expectations, after having risen 0.1% in November. On annual basis, the domestic corporate goods index or CGPI declined 3.9% during December, in line with expectations, following 4.9% decline in the previous month.

Foreign institutional investors evinced fresh buying interest in blue-chip technology stocks in the Japanese market on optimism about better market performance from Japanese markets in the new year. As many as 189 stocks in the 225-stock benchmark Nikkei index ended in positive territory.
 
Among the major technology stocks, Sharp Corp. gained 3.15%, Sony Corp. rose 2.57%, and Panasonic Corp. surged up 6.10%.

Machinery stocks also ended higher. Okuma Corp. soared 13.64%, Chiyoda surged up 7.22%, Hitachi Construction Machinery advanced 1.64%, Sumitomo Heavy Industries gained 3.73% and Komatsu Limited gained 1.47%.

Trading companies also ended in positive territory. Mitsubishi Corp. climbed 4.35%, Mitsui & Co. rose 4.28%, Sumitomo Corp. gained 3.91% and Toyota Tsusho Corp. advanced 0.99%.

Among airline stocks, Japan Airlines surged up 28.57% as traders evinced buying interest for speculative purpose over this beleaguered airline company ahead of impending fear of delisting. As much as one-third of the total 3.2 billion listed shares, about 1.04 billion shares of JAL were traded in a single trading session. The other airline company, All Nippon Airways rose 1.74%.

Banks also ended in positive territory. Sumitomo Mitsui Financial climbed 3.32%, Resona Holdings rose 1.60%, Mizuho Financial surged up 5.68% and Mitsubishi UFJ Financial rose 2.09%.

In Australia, the benchmark S&P/ASX Index added 29.90 points, or 0.61% to close at 4,898, while the All-Ordinaries Index ended at 4,929, representing a gain of 29.30 points, or 0.60%.

On the economic front, data released by the Australian Bureau of Statistics revealed that the unemployment rate in the country declined by 0.1% in seasonally adjusted terms to 5.5% in December, fueling speculation that the Central Bank might continue to hike interest rates in its next meeting, if not earlier. According to the report, total employment in the country rose by 35,200 during December, following a rise of 31,200 in employment in the preceding month. Of the total 35,200 new jobs during December, 7,300 jobs were for full-time employment, while 27,900 jobs were created in part-time employment category.

Banking stocks advanced on positive economic data related to unemployment rate. ANZ Bank added 0.45%, Commonwealth Bank of Australia advanced 1.39%, National Australia Bank gained 0.86% and Westpac Banking rose 1.12%. Investment banker Macquarie Group was the major gainer in the session, having risen 3.70%.

Mining stocks also advanced on higher commodity prices in the international market. Rio Tinto reported a sharp increase in global iron-ore production for the fourth quarter. Also sales surged up in the quarter beating expectations. Following the news, the stock price of Rio Tinto climbed 2.63%. Among other mining and metal stocks, BHP Billiton advanced 1.53%, Fortescue Metals rose 3.33%, Gindalbie Metals added 1.25%, Iluka Resources surged up 4.57%, Minara Resources gained 1.23% and Murchison Metals increased 1.57%.
 
Mixed trading was witnessed among gold stocks. While Lihir Gold remained unchanged from previous close, Newcrest Mining ended in negative territory with a loss of 0.98%.

Oil stocks ended mixed. Woodside Petroleum slipped 0.33% and Santos shed 0.36%. However, Oil Search added 0.50% and Origin Energy edged up 0.23%.

Retail stocks also ended mixed. David Jones remained unchanged from previous close. JB Hi-Fi Ltd rose 1.82% and Woolworths Ltd advanced 0.79%. However, Harvey Norman fell 1.53% and Wesfarmers slipped 0.26%.

In Hong Kong, the Hang Seng Index ended in negative territory with a marginal loss of 31.65 points, or 0.15%, at 21,717, led by profit taking in late trading session, especially among the property stocks. The market, which had declined in the previous session dragged down on Chinese banks, opened in positive territory taking cues from other Asian markets and rose to as high as 21,989 in morning session. However, profit taking by traders, especially in property related stocks ahead of key data in the US and earnings from Intel, erased the early gains. Property stocks and banks ended in the negative territory.

In South Korea, the KOSPI Index ended in positive territory with a gain of 14.36 points, or 0.86%, at 1,686, taking cues from other markets in the region as well as positive closing on Wall Street in the previous session. Overcoming the anxiety over derailing of global recovery over China's tightening of monetary policy, the stocks advanced higher as foreign institutional investors evinced fresh buying interest in technology stocks and shipping stocks on optimism about sustaining recovery momentum in global economy.

The Indian market extended gains for the second successive day on Thursday, taking cues from positive trading in other Asian markets as well as the positive closing on Wall Street in the previous session. Mid and small cap companies led the gains on increasing confidence about the economy despite an uptick in the monthly inflation data released during the day. The benchmark Sensex finished at 17,585, with a gain of 75.07 points, or 0.43%, and the Nifty gained 0.50%, or 25.95 points to close at 5,260.

Among other major markets open for trading in the region, Taiwan's Weighted Index rose 93.42 points, or 1.14% to close at 8,299, Straits Times Index in Singapore added 21.14 points, or 0.73%, to close at 2,910, Indonesia's Jakarta Composite Index advanced 12.31 points, or 0.47% to close at 2,645, and China's Shanghai Composite Index jumped 42.89 points, or 1.35%, to close at 3,216.

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The major European averages opened Thursday’s session higher, but they are trading on a mixed note. The French CAC 40 Index is receding 0.14%, while the German DAX Index is trading unchanged and the U.K.’s FTSE 100 Index is moving up 0.19%.

Rio Tinto reported that its iron ore output rose to 47.2 million metric tons in the December quarter from 31.8 million tons in the year-ago period. Iron ore sales for the quarter rose to 61 million tons and the year’s sales rose to 217 million tons.

In economic news, a report released by the German Federal Statistical Office showed that Germany’s consumer prices rose 0.4% year-over-year in 2009, marking the smallest annual gain since German unification. This compares to a 2.6% increase in 2008. Meanwhile, the inflation rate for December came in at 0.9% compared to 0.4% in November. On a monthly basis, consumer prices rose 0.8% following a 0.1% increase in the previous month.

Eurostat reported that the euro zone’s industrial output declined 7.1% year-over-year in November compared to a 10.9% decline in the previous month. Economists had expected an 8.4% drop in output. On a monthly basis, industrial output climbed 1%, reversing the 0.3% drop in October.

Meanwhile, the European Central Bank announced its decision to hold its key interest rate unchanged at a record low of 1% for an eighth straight month. The decision was in line with economists' expectations. The central bank also retained its interest rate on the marginal lending facility at 1.75% and on the deposit facility at 0.25%.

The last change in the key interest rate was in May 2009, when the bank cut the rate by 25 basis points to the current level of 1%. The bank has lowered the key interest rate by a total of three and a quarter percentage points since early October 2008.

U.S. Economic Reports

Among the trio of the economic reports released, the Labor Department reported that jobless claims rose 11,000 in 444,000 in the week ended January 9th. Economists had estimated claims to have risen to 437,000 from the originally reported 434,000 for the previous week.

The four-week moving average, which smoothens volatility, fell 9,000 to 440,750. Continuing claims, a statistic that measures the number of people receiving ongoing unemployment help, dropped 211,000 to 4.596 million.

At the same time, retail sales declined unexpectedly in December, with the decline being broad based seen across categories. This follows an upwardly revised 1.8% increase in November. Economists had expected sales to increase by 0.5% compared to the 1.3%increase originally reported for the previous month.

Excluding a 0.8% decline in auto sales, retail sales eased by a more modest 0.2% in December compared to the 1.9% increase in the previous month. The ex-auto sales growth came in above economist estimates of a 0.3% increase.

Import prices remained unchanged in December compared to the previous month, according to a separate report released by the Labor Department. In November, the index had risen a revised 1.6%. The 1.4% decline in petroleum import prices was offset by a 0.4% increase in the prices of non-fuel imports.

At the same time, export prices grew at a 0.6% rate compared to a 0.9% increase in November. Prices of agricultural exports climbed 4%, while export prices of non-agricultural commodities rose 0.6%.

The Commerce Department is scheduled to release its business inventories report for November 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 0.3% increase in business inventories for the month.

In October, business inventories rose 0.2% month-over-month, marking the first increase since August 2008. Manufacturing inventories increased by 0.4% compared to unchanged inventory levels in retail goods. Business sales rose by 1.1%, resulting in an inventory to sales ratio of 1.30, representing the lowest since September 2008.

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First Midwest Bancorp. (FMBI) is likely to be in focus after it announced that it has priced its underwritten public offering of 16.4 million shares at $11 per share. The company expects to raise gross proceeds of $180 million from the offering.

Green Mountain Coffee (GMCR) and Diedrich Coffee (DDRX) may see some activity after the companies revealed that they have each received a request for additional information from the U.S. Federal Trade Commission with respect to their previously announced deal. According to the deal, Green Mountain Coffee’s subsidiary Pebbles Acquisition has issued a $35 per share cash tender offer to buy all outstanding common stock of Diedrich Coffee.

Zale (ZLC) could see substantial weakness after it announced that its CEO Neal Goldberg has left the company, effective immediately. The company announced the appointment of President Theo Killion to the additional role of interim CEO.

Clarcor (CLC) is likely to see some activity after it said its fourth quarter earnings fell to 49 cents per share from 56 cents per share last year. Revenues declined to $234.4 million from the year-ago’s $266 million. Analysts estimated earnings of 46 cents per share on revenues of $237.3 million.

Apache (APA) could move in reaction to its announcement that its Apache Canada subsidiary has agreed to buy 51% of Kitimat LNG’s planned liquefied natural gas export terminal in British Columbia. The company did not reveal the financial terms of the deal, although it said it would make an initial payment to the current owners of Kitimat LNG terminal with additional consideration due upon achievement of certain commercial and regulatory milestones.

RealNetworks (RNWK) is likely to show some reaction to the company’s announcement that its founder Rob Glaser has stepped as CEO, although he will remain Chairman of the board of directors. The company also announced the appointment of Robert Kimball as president and acting CEO.

California Pizza Kitchen (CPKI) may be in focus after it announced preliminary fourth quarter results, showing revenues of $167.8 million, up 3.8% from last year and also higher than the consensus estimate of $166.87 million. The company said its full service comparable restaurant sales fell 5.8% compared to its earlier forecast for a 5.5%-6.5% year-over-year decline. The company lowered its adjusted earnings per share guidance to 15-17 cents per share from the 16-18 cents it predicted earlier.

PC makers Hewlett-Packard (HPQ) and Dell (DELL) could also be in focus after market research firm Gartner (IT) said that worldwide PC shipments rose 22.1% year-over-year in the fourth quarter. Overall, in 2009, PC shipments were up 5.2%. Hewlett-Packard recorded a 28% increase in shipments, taking its share to 21%, while Dell’s share of the PC market dropped to 12.4% despite a 5% increase in shipments.

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