US & World Daily Markets Financial Briefing 14-06-2010

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Stocks Seeing Considerable Strength In Mid-Morning Trading

Stocks are up by substantial margins in mid-morning trading on Monday, driven higher by optimism derived from generally upbeat economic comments by St. Louis Federal Reserve Chairman James Bullard. The major averages are all in positive territory, attempting to extend the upward move started late last week.

The buying in interest stocks comes as Bullard remarked in Japan today that the "rapid Chinese growth can easily be reconciled with the fundamentals, and so the risk of a sudden slowdown in China derailing the global recovery, while certainly not zero, seems limited".

He also said that the ongoing debt crisis in Europe is not likely to deflate continued economic recuperation on a global scale and that the recovery by U.S. GDP should be complete by the third quarter of this year.

In regards to U.S. interest rates, the St. Louis Fed chief said the Fed would need to see more improvement before raising rates.

Bullard added that the financial turbulence brought on by the sovereign debt crisis in Europe makes it unnecessary to raise the Fed's discount rate at this time.

On the corporate front, BP Plc (BP) has returned to the downside today, as the firm is expected to make a decision on its dividend payout and has been contacted by the White House to set up an account for victims affected by the oil spill.

The major averages have all seen choppy movement in recent dealing, drifting near session highs. The Dow is up 63.71 points or 0.6 percent at 10,274.78, the Nasdaq is up 24.78 points or 1.1 percent at 2,268.38 and the S&P 500 is up 8.20 points or 0.8 percent at 1,099.80.

Sector News

Electronic storage stocks are among the morning's outstanding percentage gainers, lifting the NYSE Arca Disk Drive Index up by 3 percent. The index is recovering from recent weakness and remains in a range.

Trucking stocks are also seeing strong gains, resulting in a 2.1 percent advance by the Dow Jones Trucking Index. With the gain, the index is on target for a one-month closing high.

Airline, steel, semiconductor and commercial real estate stocks are also moving higher along with many others, while gold stocks are under pressure amid a decline in the price of gold, which is down $4.90 to $1,225.30 an ounce.

Stocks Driven By Analyst Comments

Venoco (VQ) is moving higher after being upgraded at KeyBanc Capital Markets from Hold to Buy. The stock has gained 4percent and set a twenty-one and a half month intraday high.

Fed Investors (FII) is also on the upside by a notable margin after analysts at FBR Capital Markets upgraded the stock from Underperform to Market Perform. Shares are currently up by 1 percent, setting a three-week intraday high.

On the other hand, Akamai (AKAM) is moving lower after being downgraded at Citigroup from Buy to Hold based on valuation. The stock has lost 2.1 percent, pulling back off of the nearly three-year closing high set in the previous session.

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TSX Poised For A Positive Open Monday

Bay Street stocks may build on recent gains Monday morning amid firm commodities prices and optimism over global economic growth.

Global markets advanced for a fourth session, with European equities surging to a four-week high. The euro continued to strengthen against the U.S. dollar on upbeat euro zone industrial production data.

On Friday, the S&P/TSX Composite Index edged up 31.07 points or 0.27% to 11,666.92.

The price of oil moved back above $75 as the euro and global equities rose for a fourth day. Crude for July delivery was up $1.90 to $75.68 a barrel.

Meanwhile, the price of gold was down $5.30 to $1,224.90 an ounce.

In global M&A space, Cablevision Systems will reportedly purchase broadband provider Bresnan Communications for $1.3 billion. France's AXA is in negotiations to sell its U.K. insurance arm to Resolution for an estimated $4 billion.


In domestic corporate news, integrated energy company Suncor Energy announced it will sell all of its shares in Petro-Canada Netherlands B.V. to Dana Petroleum plc for C$582 million including hedging gains, with an effective date of January 1, 2010. The sale is expected to close in the third quarter of 2010.

Natural and organic food company SunOpta Inc. said it has divested its Canadian food distribution assets to United Natural Foods Inc. for about C$68 million in cash.

Games and entertainment software maker Chartwell Technology reported a wider second quarter net loss of C$0.05 per share, compared to a loss of C$0.01 per share in the year ago period, mainly hurt by foreign exchange rate fluctuations.

Beer maker Brick Brewing reported lower first-quarter net income of C$7.0 million compared to $7.6 million in the previous period.

Aviation company Discovery Air Inc reported narrower first-quarter net loss of C$0.03 per share, compared to C$0.04 per share in the prior year

Generic and specialty pharmaceutical company Intellipharmaceutics International said it filed abbreviated new drug application with U.S. FDA for a generic of Protonix, or delayed release pantoprazole sodium.

In economic news, Statistics Canada said new motor vehicle sales declined 4.7% to 125,792 units in April, falling for a second month. Sales of passenger cars decreased 9.5% to 57,639 units, with overseas-built passengers cars sales dipping by 15.7%.

Elsewhere, the euro zone industrial production grew by 0.8% month-on-month in April from a 1.3% growth over previous month and beat consensus expectations for a 0.5% growth.

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Asian Markets End Higher On Economic Recovery Optimism

The Asian markets ended the trading session on Monday, the first day of the week in positive territory on optimism that the global economic recovery will not be derailed following debt crisis in the Euro zone recently. Positive closing on Wall Street on Friday despite weak retail sales data, and modest recovery in Euro against the US dollar lifted market sentiment. The market in Australia is closed for holiday and the market in China is closed for three days for the Dragon Boat Festival holidays

In Japan, the benchmark Nikkei 225 Index gained 174.60 points, or 1.80%, to 9,880, while the broader Topix index of all First Section issues was up 9.65 points, or 1.13%, to 866.

On the economic front, a final report released by the Ministry of Economy, Trade and Industry revealed that industrial production in the country recorded a monthly growth of 1.3% in April, slightly higher than the 1.2% increase recorded in March. On an annual basis, industrial production surged up 25.9%, the report revealed.

Results of a business outlook survey conducted jointly by the Cabinet Office and the Finance Ministry revealed that Japanese large manufacturers' sentiment improved during April to June quarter. As per the survey, the business survey index for large manufacturers rose to 10 points from 4.3 points in the last quarter. The non-manufacturers' sentiment index stood at 0.9 points, up from minus 6.3 points in the previous quarter. Business sentiment among all large industries, at the same time, climbed to 4 during April to June period from 2.4.

Shipping related stocks surged up on speculation that the economy is showing signs of improving further in the medium term. Mitsui OSK Lines surged up 2.91%, Kawasaki Kishen Kaisa climbed 4.11% and Nippon soared 5.09%.

Exporters gained as the local currency yen weakened against the euro and the US dollar. Canon Inc. gained 1.62%, Sony Corp. advanced 1.83%, and Sharp Corp. rose 1.45%.

Machinery stocks also surged up. Fanuc Ltd rose 2.31%, TDK Corp. advanced 2.11%, Tokyo Electron gained 1.26%, Kyocera Corp. was up 1.14% and Advantest Corp. climbed 2.01%.

Trading companies also ended higher on weaker yen. Mitsubushi Corp. advanced 1.11%, Mitsui & Co. Ltd rose 1.83%., Toytoa Tsusho rose 1.19% and Marubeni Corp., was up by 0.82%.

In Australia, the stock markets were closed for holiday.

In Hong Kong, the Hang Seng index ended in positive territory with a gain of 179.53 points, or 0.90%, at 20,052, taking cues from other markets in the region that ended trading on positive territory on optimism about global economic recovery. Positive closing on Wall Street on Friday notwithstanding the weak retail sales data as well as strengthening of the euro against the US dollar and yen also lifted market sentiment. Banks and resource related stocks led the gains in the market.
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The Indian market ended Monday's session sharply higher, extending its gains for a fourth consecutive session, thanks to positive global cues and a return of risk appetite in the financial markets. A stronger euro and higher commodity prices also bolstered investor confidence over the global economic recovery. The benchmark 30-share BSE Sensex closed up 273 points or 1.60% at an one-month high of 17,338, while the 50-share S&P Nifty rose by 78 points or 1.53% to 5,198.

Among the other major markets open for trading, Indonesia's Jakarta Composite Index gained 24.94 points, or 0.89% to close at 2,827, Singapore's Strait Times Index rose 21.78 points, or 0.78% to close at 2,818, and Taiwan's Weighted Index surged up 87.91 points or 1.20% to close at 7,387. The stock market in China will remain closed for three days on the eve of Dragon Boat Festival holidays.

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The major European averages are also trading higher for the fourth straight session, with the French CAC 40 Index and the German DAX Index moving up 1.90% and the German DAX Index rising 1.26%, while the U.K.’s FTSE 100 Index is advancing 0.58%.

In corporate news, the U.K.’s Resolution announced today that it is in talks to buy French insurer AXA’s U.K. life insurance business for 2.8 billion pounds. BP (BP) may also be in focus after reports suggested that the Obama administration will ask BP to set up an escrow account to pay damage claims by individuals and businesses hit by the oil spill in the Gulf of Mexico.

On the economic front, Eurostat reported that the euro area’s industrial output rose 0.8% month-over-month in April compared to the 1.5% growth seen in the previous month. Economists had expected a more modest 0.6% increase. On a year-over-year basis, output was 9.5% higher compared to 7.7% growth in the previous month. The annual increase was also better than the 8.6% growth expected by economists.

U.S. Economic Reports

The unfolding week with a host of economic reports on the calendar could provide further clarity on the economic environment. The Commerce Department's housing starts report for May, the National Association of Home Builders' housing market index for June, the Federal Reserve's industrial production report for May, the results of the June manufacturing surveys of the New York Federal Reserve and the Philadelphia Federal Reserve and the weekly jobless claims report are all likely to be on the radar of most traders.

The Labor Department's consumer and producer price inflation reports for May, the Conference Board's leading economic indicators index for April, the Labor Department's import and export prices data for May and a few Fed speeches round up the other economic events of the week. Additionally, announcements concerning the Treasury auctions of 2-year, 5-year and 7-year notes are also likely to be closely watched.

Going by the still elevated purchasing managers' index of the Institute for Supply Management's national manufacturing survey, one can expect industrial production growth to remain buoyant. Additionally, manufacturing employment as well as hours worked increased last month. Utilities output may also receive a shot in the arm from a weather-related jump, as the Northeast experienced unseasonably warm weather in May.

Meanwhile, the 11% month-over-month decline in building permits in April points towards weak housing starts in May after they jumped to a 1-1/2 year high in the previous month. Additionally, sales slowed following the expiration of the tax credit, putting pressure on homebuilding.

The retreat in energy prices in May is expected to exert downward pressure on the headline consumer price index. The WTI oil price slid 14.14% in May amid heightened risk aversion that drove traders from risky bets. BNP Paribas expects conditions to favor a downturn in fundamental inflationary pressures due to the depressed rental real estate market, significant productivity gains, decelerating wages and a stronger dollar.

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Celgene (CELG) may be in focus after it said data from the planned second interim analysis of a Phase III study of REVLIMID for treating elderly patients with newly diagnosed multiple myeloma met the primary endpoint of improving progression free survival.

Cablevision (CVC) could move in reaction to its announcement that its had agreed to acquire Bresnan, a MSO with cable operating systems in Colarado, Montana, Wyoming and Utah, in a deal valued at $1.365 billion.

East West Bancorp. (EWBC), the parent company of East West Bank, is likely to see some activity after it announced that it has acquired the banking operations of Washington First International Bank in a deal with the FDIC. The company is due to receive about $504 million in assets, including $403 million in loans and assume about $478 million in liabilities.

Currency, Commodity Markets

Crude oil futures are moving up $1.88 at $75.66 a barrel after advancing $2.27 or 3.17% to $73.78 a barrel in the week ended June 11th. Last Monday, oil slid modestly, extending the decline witnessed in the previous week, amid the equity market decline.

However, oil rebounded on Tuesday, rising by about half a dollar per barrel as traders resorted to bargain hunting. Crude oil defied the pullback in equities on Wednesday and advanced by about $2.40-a-barrel on press reports of a leaked document showing strong export growth in China.

The positive momentum continued into Thursday’s session, as oil rose along with equities, encouraged by China’s confirmation of the export data. The black gold pulled back on Friday, falling by about $1.70-a-barrel after the U.S. Commerce Department reported a drop in May retail sales.

Gold futures, which rose $12.50 to $1,230.20 an ounce in the previous week, are currently receding $5.90 to $1,224.30 an ounce.

On the currency front, the U.S. dollar came under some selling pressure in the week ended June 11th, with the currency taking a hit from an increase in the risk appetite following evidence suggesting strong growth in Asia. The greenback eased 0.27% against the yen to 91.648 yen, while it fell 1.2% against the euro to $1.2112, with the common currency deriving support partly from its oversold levels.

Currently, the U.S. dollar is trading at 91.856 yen and is valued at $1.2260 versus the euro.

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