US & World Daily Markets Financial Briefing 14-12-2009

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Stocks Give Back Ground After Seeing Initial Strength

After failing to sustain an initial upward move, stocks have given back some ground over the course of morning trading on Monday. The major averages have pulled back near the unchanged mark, seeing a lackluster start to the week.

The early strength was partly due to news that the Abu Dhabi government offered $10 billion to Dubai to help smooth over the debt crisis face by Dubai World. The Dubai government authorized $4.1 billion of Abu Dhabi's contribution be used to pay the 'sukuk' obligations that are due today.

Traders are also likely to keep an eye on a meeting between President Barack Obama and top members of the financial industry, with the President expected to advise bankers to extend more credit for sustaining and fast-tracking the recovery momentum.

Citigroup (C) is also in focus after the firm said it has reached an agreement with the U.S. government and its regulators to repay taxpayers for the $20 billion in TARP funds the government poured into the firm in the throes of last year's financial crisis.

Energy stocks are also in the spotlight after oil giant Exxon Mobil (XOM) announced that it has reached an agreement to acquire XTO Energy (XTO) for $31 billion. Exxon Mobil said it has agreed to issue 0.7098 common shares for each common share of XTO, a 25 percent premium to XTO stockholders.

Amid a relatively light economic calendar, the markets may adopt a wait-and-watch approach ahead of the FOMC meeting that begins tomorrow, with the results of the rate-setting meeting due to be released on Wednesday.

The major averages have ticked back to the upside in the past few minutes, although they remain well off their best levels of the day. The Dow is currently up 18.06 at 10,489.56, the Nasdaq is up 7.51 at 2,197.80 and the S&P 500 is up 4.27 at 1,110.68.

Sector News

Natural gas stocks are considerably higher in mid-morning trading, driving the NYSE Arca Natural Gas Index up by 4.5 percent. The advance has elevated the index to its best intraday level in a month. The gains by energy stocks have come in reaction to the Exxon Mobil bid for XTO Energy.

Health insurance stocks are also considerably higher, with the Morgan Stanley Healthcare Payor Index gaining 1.4 percent. With the climb, the index saw its best intraday level in fifteen months.

Computer hardware, electronic storage, oil service and tobacco stocks are also on the rise, while brokerage and banking stocks are weighing on the markets. Notably the NYSE Arca Broker/Dealer Index is down by 0.8 percent, setting a two-week intraday low

Stocks Driven By Analyst Comments

Teradyne Inc. (TER) is on the rise in mid-morning trading after the stock was upgraded at Piper Jaffray from Neutral to Overweight. The stock has jumped by 5.5 percent, setting a two-month intraday high.

RadioShack Corp. (RSH) is also moving higher following an upgrade at Barclays from Equal Weight to Overweight, with the broker citing the likelihood of the success of the firm’s earnings boosting initiatives. The broker also raised its target on the stock to $25 from $20. Shares are currently up by 3.8 percent, reaching their highest intraday price in over a month.

On the other hand, PMC-Sierra Inc. (PMCS) is retreating after being downgraded by Barclays Capital to Equal Weight from Overweight. The stock has fallen by 3.4 percent, although it remains in a trading range.

Toronto Stocks Could See Early Gains

Bay Street stocks could see early strength on Monday morning, following the lead of foreign markets, after Abu Dhabi offered $10 billion to the Dubai Financial Support Fund in an effort to help the credit problems.

The Dubai government authorized that $4.1 billion of offer be used to pay the 'sukuk' obligations that are due today. Sheikh Ahmad Bin Saeed Al Maktoum, Chairman of the Dubai Supreme Fiscal Committee, also announced certain measures with regard to Dubai World.

In commodities, gold prices have added #3.70 to $1,120.50 per ounce and copper is up 1.35 cents to $3.1465 per pound. Crude oil has dropped 54 cents to $69.24 a barrel.

In news from the energy patch, Exxon Mobil Corp. (XOM) has agreed to acquire XTO Energy in a deal worth $41 billion.
 
Among Bay Street companies, Kirkland Lake Gold (KGI.TO) reported a net loss was C$10.33 million compared with a loss of C$4.79 million last year. On a per share basis, loss widened to C$0.17 from C$0.09 a year ago.

Gendis (GDS.TO) reported third-quarter net income from operations of C$555,000 or C$0.04 per share compared to a net loss from operations of C$5.86 million or C$0.41 per share last year.

Meanwhile, a report from RBC Economics predicted the Canadian economy will see a rebound in 2010. Real gross domestic product is expected to rise 2.6% next year and by 3.9% in 2011, according to RBC.

On Friday, the S&P/TSX Composite Index lost 40.64 points or 0.35% to finish at 11,423.93. The index finished an uncertain week down 86.87 points.

Dollar Steady Even As Global Stocks Rally On Dubai Bailout

The dollar held its ground versus other majors Monday morning in New York, withstanding a bout of renewed risk appetite following news that Dubai is being bailed by out fellow emirate Abu Dhabi.

Abu Dhabi today intervened with $10 billion to help Nakheel make payments due tomorrow and also extend assistance to Dubai World, which had earlier sought 6-month time for honoring its debt. Global stocks rallied on the news.

Currency trading may be subdued on Monday, with no first-tier economic data on tap from the US. Traders will be looking ahead to Tuesday's inflation data, hoping for an indication about whether easy money is translating to higher producer prices.

The dollar held near 1.4650 versus the euro, staying around Friday's 2-month high of 1.4585. The buck finally rose on positive US economic news last week. For months, hints of an economic turnaround fueled interest in higher yielding currencies like the euro. However, speculation that encouraging news on housing and jobs could compel the Fed to tighten up sooner than expected has bolstered the dollar over the past week.

The number of persons employed in the euro area fell by a seasonally adjusted 0.5% in the third quarter compared with the previous quarter, the Eurostat reported Monday.

The buck continued to wobble versus the sterling, improving from its early lows to trade at 1.6250 approaching 8 am ET. The pair has been unable to sustain any direction over the past week, and is little changed from its early summer levels.
 
House prices in the United Kingdom dropped for the second straight month in December, a closely watched survey revealed on Monday.

Property website Rightmove said on Monday that house prices slid 2.2% month-on-month in December, faster than the 1.6% fall in the previous month.

After drifting lower versus the yen overnight, the buck settled into a range near Y88.50.

Japan's industrial production rose by a seasonally adjusted 0.5% in October from the prior month, official data showed Monday. Production was down 15.1% from the previous year.

Meanwhile, the buck advanced versus the petro-linked loonie, jumping above C$1.0600 as the price of oil slipped below $70 a barrel.

Looking ahead to Tuesday, the results of the New York Federal Reserve's empire state manufacturing survey, which elicits response from 200 manufacturing executives in New York state, is slated to be released at 8:30 AM ET. The headline general business conditions index for December is expected to come in at 24.

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Asian Markets End In Positive Territory On Abu Dhabi's Timely Assistance

The markets across Asia ended in positive territory on Monday, lifted by the news that the Abu Dhabi Government has extended assistance to the Dubai Financial Support Fund to meet the financial crisis faced by Dubai World and its arm Nakheel. Profit taking and weak sentiment in early trading was offset by the Dubai news and the markets ended in positive territory amid lackluster trading as traders preferred to adopt a cautious approach ahead of the FOMC meeting and other economic data in the U.S.

In Japan, the benchmark Nikkei 225 Index slipped 2.19 points, or 0.02%, to close at 10,106, while the broader Topix index of all First Section issues fell 3.49 points, or 0.39%, to 885.

On the economic front, results of the latest Tankan Survey released by Bank of Japan revealed that large manufacturers' confidence rose to minus 24 in the December quarter from minus 33 in the previous quarter. Economists expect a reading of minus 27 for the quarter. The survey results further revealed that sentiment among large non-manufacturers strengthened to minus 22 from September quarter's minus 24, and stood above the consensus forecast of minus 23.

Airline stocks ended in positive territory following the announcement of the landmark Japan-US "open skies agreement". Japan Airlines surged up 3.16% on higher volumes and All Nippon Airways rose 1.19%.

Glass and ceramic stocks also ended in positive territory. Asahi Glass added 0.36%, Toto Ltd gained 1.07%, Sumitomo Osaka Cement Co. advanced 0.71% and Nitto Boseki Co. gained 0.68%
 
Automotive stocks ended in positive territory on U.S economic data. Honda Motor Co., added 0.33%, Hino Motors advanced 0.65%, Nissan Motor Co., gained 0.69%, Mazda Motor Co., rose 1.52% and Isuzu Motors increased 0.61%. However, Toyota Motor declined 1.07% and Mitsubishi Motor lost 0.76%.

Shipping transport stocks ended in negative territory on profit taking. Mitsui OSK Lines declined 2.92% and Kawasaki Kisen Kaisha lost 2.43%. However, Nippon Yusen bucked the trend and ended in positive territory with a gain of 0.38%.

Banking stocks also ended in negative territory. Mitsubishi UFJ Financial slumped 3.06%, Resona Holdings edged down 0.32% and Mizuho Financial declined 1.26%. However, Sumitomo Mitsui Financial managed to end in positive territory with a gain of 0.18%.

Securities stocks also ended weaker. Nomura Holdings fell 2.07%, Daiwa Securities lost 2.11% and Matsui Securities declined 0.94%.

In Australia, the benchmark S&P/ASX200 Index advanced 18.80 points, or 0.41% to close at 4,654, while the All-Ordinaries Index ended at 4,668, representing a gain of 16.80 points, or 0.36%.

The markets, having opened flat in early session, drifted into negative territory amid concerns about global financial sector and sustaining recovery. Traders were cautious and moved to side lines amid lackluster trading. News from the Abu Dhabi Government that it would extend $10 billion to Dubai World and Nakheel in order to tide over the Sukoku bond payment tomorrow lifted market sentiment and the last hour trading help the index erase all of its earlier losses and end in the green.

Bank stocks led the sharp rebound in late trading session. Commonwealth Bank of Australia added 0.57% and Westpac Banking gained 0.64%. ANZ Bank limited the losses to 0.66% and National Australia Bank slipped 0.85%. Investment banking company Macquarie Group shed 0.65%.

Mixed trading was witnessed among minerals and metal stocks. BHP Billiton added 0.37%, Rio Tinto advanced 0.47%, Fortescue Metals rose 2.11%, Gindalbie Metals gained 3.72% and Iluka Resources remained unchanged from previous close. However, Mincor Resources fell 3.78%, Murchison Metals dropped 1.40% and Oz Minerals slipped 1.26%.

Gold stocks ended in positive territory. Lihir Gold advanced 0.62% and Newcrest Mining added 0.48%.
 
Oil stocks ended in negative territory. Santos fell 1.38%, Oil Search slipped 0.55% and Origin Energy edged down 0.13%. However, Woodside Petroleum managed to remain unchanged from previous close due to trading halt.

Airline stocks ended in positive territory after Qantas Airways announced a hike in passenger fares for the first time in 18 months. The shares of Qantas surged up 3.49%, while Virgin Blue Holdings climbed 3.70%.

Mixed trading was witnessed among retailers. David Jones declined 1.45% and Harvey Norman slipped 0.24%. However, JB Hi-Fi Ltd gained 2.09%, Wesfarmers advanced 1.23% and Woolworths rose 1.64%.

In Hong Kong, the Hang Seng Index ended in positive territory with a gain of 183.64 points, or 0.84%, at 22,086. News about Abu Dhabi Government's $10 billion assistance to Dubai Financial Support Fund lifted the market sentiment as Nakheel, the subsidiary of Dubai World, would be fulfilling its sukok repayment obligation tomorrow. Banks led the gains on expectation that the financial crisis has been effectively dealt with. The positive trading in mainland China and other neighboring markets also influenced trading with as many as 34 of the 42 components ending in positive territory.

In South Korea, the KOSPI Index ended in positive territory with a gain of 7.87 points, or 0.47%, at 1,665. Positive closing on Wall Street Friday on better than expected economic news lifted market sentiment. Institutional investors evinced fresh buying interest in steel stocks. Brokerage stocks also gained on speculation of higher trading volumes in the year-end rally. Among steel stocks, POSCO gained 1.88% and Hyundai Steel added 0.49%. Among securities stocks, Daewoo Securities rose 2.13% and Woori Investment and Securities climbed 3.26%. Profit-taking in large-cap stocks however limited the gains, with Samsung Electronics slipping 0.76% and Hyundai Motor losing 0.46%.

The Indian market pared early gains and ended moderately lower on Monday on worries that a faster-than-expected rise in inflation may prompt the RBI to withdraw more liquidity measures in the coming weeks. The wholesale price-based inflation jumped to 4.78% in November from a year earlier versus 1.34% in October, mainly due to higher prices, government data showed on Monday. The BSE Sensex finished at 17,098, down 21 points or 0.13% and the S&P CNX Nifty fell 12 points or 0.23% to 5,106.

Among other major markets in the region, China's Shanghai Composite Index surged up 1.71% or 55.59 points, to close at 3,303 , and Taiwan's Weighted Index advanced 24.06 points, or 0.31%, to close at 7,819. However, Indonesia's Jakarta Composite Index declined 12.71 points, or 0.50%, to close at 2,506, and Singapore's Strait Times Index edged down 1.21 points, or 0.04%, to close at 2799, on profit taking.

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The major European markets are moving to the upside on Monday, although they have come off their early highs. While the French CAC 40 Index and the German DAX Index are rising 0.60% and 0.96%, respectively, the U.K.’s FTSE 100 Index is moving up 0.98%.

In economic news, property website Rightmove reported that the average asking price for a home in the United Kingdom was down 2.2% in December compared to the previous month. In November, house prices fell by 1.6%. Annually, home prices rose 1.7%, adding to the 1.6% increase in the previous month.

Eurostat reported that euro zone’s industrial output fell 11.1% year-over-year in October, slower than the 12.8% decline in the previous month. On a monthly basis, industrial production declined 0.6%, reversing the 0.2% growth in September. Economists had estimated a 10.8% annual decline and 0.7% monthly growth.

A separate report released by the agency showed that the number of persons employed in the euro area fell by a seasonally adjusted 0.5% in the third quarter compared with the previous quarter, the same rate as in the previous quarter. On a year-over-year basis, the number of employed persons declined 2.1%.

U.S. Economic News

As hopes of seeing a strong fourth quarter firm up, traders may focus on the unfolding week's key economic numbers to validate their views. The FOMC meeting due to be held on 15th-16th is likely to be on the radar, given recent expectations that the Fed may begin to raise interest rates soon in the aftermath of data pointing towards strong growth. The FOMC is most likely to retain the statement reflecting its commitment to maintain rates at exceptionally low levels for an extended period.

The manufacturing surveys of the New York Federal Reserve and the Philadelphia Federal Reserve for December, the Federal Reserve's industrial production report for November, the weekly jobless claims report and the Commerce Department's housing starts report for November are among the reports that are likely to be closely watched by traders. Market participants may also stay focused on the consumer and producer price inflation reports for November, the National Association of Home builders' housing market index for December and the Conference Board's leading indicators index for November.

The extension of the first-time homebuyers' tax credit should have helped the housing starts for November. Therefore, starts may have risen after the sharp decline in October. Very low inventory levels and rising demand are likely to benefit residential home construction, although the threat of bloated inventory levels of yet-to-be foreclosed homes may pose a threat in the future.

Manufacturing growth is expected to have led to an increase in industrial output yet again in November, although warmer-than-normal temperatures may have hit utility output. At the same time, mining output could have risen modestly. The increase in industrial production is likely to have benefited capacity utilization, which is expected to inch up from the month-ago levels, although still remaining well below its long-term average of 81%.

CIBC World Markets expects year-over-year headline consumer price inflation to turn positive in November after remaining in negative territory thus far this year. However, the outlook for inflation is still very benign due to the large output gap and the slow pace of economic recovery expected for next year. Although an unfavorable year-over-year comparison is expected to push up the year-over-year rate of core consumer prices to 1.8%, it could trend lower once again in early 2010.

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Citigroup (C) could be in focus after it said it has reached a deal with the U.S. government that would permit the firm repay the $20 billion bailout money it had availed, thereby terminating the loss sharing agreement with the government.

According to the deal, Citi will sell about $17 billion in common stock and $3.5 billion of tangible equity units to raise finances to repay its government debt, while the Treasury expects to offload its 34% stake in the company through a concurrent secondary offering, which will lead to an orderly exit.

Mead Johnson (MJN) is expected to see some buying interest after Standard & Poor’s said it would replace insurer MBIA Corp. (MBI) in the S&P 500 Index. Visa (V) will replace telecommunications equipment maker Ciena (CIEN), Ross Stores (ROST) will replace Dynegy (DYN), Cliffs Natural Resources (CLF) will replace KB Home (KBH) and SAIC (SAI) will replace Convergys (CVG).

Google is also likely to see some activity after reports suggested that it would market its mobile phone called ‘Nexus One’ as early as next year. The company is looking to sell the phone without being subsidized by a wireless partner.

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