US & World Daily Markets Financial Briefing 15-03-2010

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Stocks Mostly Lower In Mid-Morning Dealing

Stocks are slightly lower in mid-morning trading on Monday following another lackluster batch of economic data that was largely in-line with estimates. The major averages are all below the flat line, although the tech-heavy Nasdaq is seeing a slightly steeper loss than its counterparts.

On the economic front, the Federal Reserve said that industrial production edged up by 0.1 percent in February following an unrevised 0.9 percent increase in January. The modest increase came as a slight surprise to economists, who had expected production to be unchanged.

Additionally, the Fed said that capacity utilization rose to 72.7 percent in February from a revised 72.5 percent in the previous month. Economists had expected capacity utilization to slip to 72.5 percent compared to the 72.6 percent originally reported for January.

Earlier, the New York Fed reported that its index of regional manufacturing activity edged down to 22.9 in March from 24.9 in February, but a positive reading still indicates growth in the sector. Economists had expected the index to slip to a reading of 22.0.

Meanwhile, the Treasury Department registered $19.1 billion in net purchases of long-term dated U.S. bonds in January following $63.3 billion in purchases in December.

On a country by country basis, Chinese holdings of U.S. debt fell by roughly $6 billion to $889.0 billion in January. Japanese holdings, meanwhile, continued to rise, coming in at $765.4 billion for the month.

Later today, the National Association of Homebuilders is scheduled to release the results of its survey on homebuilder confidence at 1:00 p.m. ET.

Aside from the day's economic data, the focus of the markets is also likely to be on the details of the much-discussed financial regulatory reform bill from Senator Chris Dodd.

In corporate news, Boston Scientific Corp. (BSX) is under pressure after the firm halted sales of its implantable cardioverter defibrillators due to a paperwork error when filing with the FDA.

The major averages have all seen choppy movement in recent dealing, turning in another lackluster performance. The Dow is down 4.83 points or 0.1 percent at 10,619.86, the Nasdaq is down 7.30 points or 0.3 percent at 2,360.36 and the S&P 500 is down 2.44 points or 0.2 percent at 1,147.55.

Sector News

Natural gas stocks are seeing notable weakness in morning trading, driving the NYSE Arca Natural Gas Index down by 1.4 percent. The decline is dragging the index further off of last week's two-month closing high.

Semiconductor stocks are also under pressure, with the Philadelphia Semiconductor Index sliding by 1.3 percent. Shares of KLA-Tencor Corp. (KLAC) are weighing on the index, falling by 4.6 percent and setting a six-week intraday low.

Airline, health insurance, oil service and steel stocks are also moving lower, while some upside is visible among biotechnology and consumer staples. Notably, the Morgan Stanley Consumer Index is up by 0.4 percent, setting an eighteen month intraday high.

Stocks Driven By Analyst Comments

Despite the weakness in the broader markets, Wal-Mart Stores Inc. (WMT) is on the rise after being upgraded at Citigroup from Hold to Buy. The broker also raised its target price from $54 to $65. The stock has gained 2.5 percent, rising to its best intraday price in fifteen months.

Greenbrier Co. (GBX) is also moving higher following an upgrade at KeyBanc Capital Markets from Hold to Buy. Shares are currently up by 3.9 percent after reaching a three-month intraday high earlier.

On the other hand, Healthcare Realty Trust Inc. (HR) is moving lower following a downgrade at Jefferies & Co. from Buy to Hold. The stock is down by 1 percent, backing off of Friday's fifteen and a half month closing high.

Industrial Production Unexpectedly Shows Modest Increase In February

With mining output showing a notable increase, the Federal Reserve released a report Monday morning showing a modest increase in industrial production in the month of February. The report also showed a slight uptick in capacity utilization.

The report showed that industrial production edged up by 0.1 percent in February following an unrevised 0.9 percent increase in January. The modest increase came as a slight surprise to economists, who had expected production to be unchanged compared to the previous month.

A jump in mining output contributed to the unexpected increase in industrial production, with mining output surging up by 2.0 percent in February following a 1.1 percent increase in January.

Utilities output showed a more modest 0.5 percent increase in February, as an increase in electric utilities more than offset a decline in natural gas utilities. The increase in utilities output followed a 0.6 percent increase in the previous month.

On the other hand, the report showed that manufacturing output edged down by 0.2 percent in February after rising by 0.9 percent in January. The modest decrease was partly due to a 4.4 percent drop in motor vehicle production.
 
Peter Boockvar, equity strategist for Miller Tabak, said, "With lean inventories as seen in last week's data, producers just need some more confidence that end demand will see sustainable growth in order to further pick up production and get us to a self sustaining recovery."

"While there are some signs of it, the inconsistencies in them with still major debt overhangs apparent are combining to create the lumpiness in the recovery," he added.

Meanwhile, the Federal Reserve said that capacity utilization rose to 72.7 percent in February from a revised 72.5 percent in the previous month. Economists had expected capacity utilization to slip to 72.5 percent compared to the 72.6 percent originally reported for January.

The uptick in capacity utilization came reflected modest increases in capacity utilization in the manufacturing and mining sectors, which edged up to 86.2 percent and 69.6 percent, respectively. Capacity utilization in the utilities sector slipped to 70.8 percent in February from 71.0 in January.

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The markets across Asia ended in negative territory on Monday, as traders exhibited caution and preferred to adopt a wait-and-watch attitude amid lack of direction and concerns about sustaining global economic recovery. Key decisions from central banks in Japan and the US, a slew of economic data, weaker commodity prices and concerns about China tightening monetary measures to cool down the economy impacted market sentiment.

In Japan, the benchmark Nikkei 225 Index advanced rose 0.72 point, or 0.01%, to 10,752, while the broader Topix index of all First Section issues gained 2.53 points, or 0.27%, to 939.

On the economic front, a survey conducted by the Cabinet Office in Japan revealed that consumer confidence in the country rose to 40 in February from 39.4 in January. The survey further noted that households' consumer confidence rose to 39.8 for the month compared to 39.0 reported in January. Economists expected a reading of 40 for the month.

Volumes were relatively less in lackluster trading with most of the traders preferring to stay in the sidelines.Automotive stocks ended higher on weaker yen and confidence about economic growth. Toyota Motor gained 1.01%, Isuzu Motors climbed 3.81%, Hino Motors rose 1.61%, Mazda Motor Corp. advanced 2.56%, and Nissan Motor Corp. added 0.39%. Mitsubishi Motors ended unchanged from previous close.
 
Among retail companies, Aeon Co. advanced 0.72%, Uny Co., added 0.57%, Isetan Mitsukoshi Holdings gained 0.39% and Takashimaya rose 0.40%. On the other hand, Fast Retailing Co., slipped 1.13%, Seven & I Holdings shed 0.24% and J Front Retailing lost 0.92%.

Banking stocks ended in positive territory with marginal gains. Sumitomo Mitsui Financial gained 0.75%, Resona Holdings advanced 0.72% and Mitsubishi UFJ Financial rose 0.64%. Mizuho Financial remained unchanged from previous close.

Real estate stocks also gained. Mitsui Fudosan rose 1.37%, Mitsubishi Estate advanced 0.87%, Sumitomo Realty Development added 0.75%, Heiwa Real Estate edged up 0.34% and Tokyu Land Corp rose 2.03%.

In Australia, the benchmark S&P/ASX 200 Index fell 34.00 points, or 0.71% to close at 4,784, while the All-Ordinaries Index ended at 4,799, representing a loss of 32.10 points, or 0.66%.

On the economic front, Malcolm Edey, Assistant Governor of the Reserve Bank of Australia said that the central bank is a reluctant regulator, which prefers to see fees in credit card payment system being held down by competition than by direct regulation. Speaking at the Cards & Payments Australasia 2010 Conference, Edey noted that the central bank has mandate to use its regulatory powers to promote broader efficiency goal through its Payments System Board.

Mining and metal stocks led the decline on weak commodity prices. BHP Billiton slipped 0.65%, Rio Tinto shed 0.76%, Fortescue Metals lost 3.04%, Gindalbie Metals plunged 4.76%, Murchison Metals declined 3.75% and Oz Minerals was down by 1.27%.

Gold stocks also ended weaker on lower gold prices in the gold market. Lihir Gold declined 1.33% and Newcrest Mining fell 1.52%.

Mixed trading was witnessed among oil stocks. Woodside Petroleum declined 0.92% and Origin Energy slipped 0.24%. However, Oil Search ended in positive territory with a marginal gain of 0.35% after announcing that financial closure has been reached for the PNG LNG project in which it has a stake. Santos, which also has a stake in the PNG project, gained 0.85%.

Banking stocks ended weaker amid concerns about global economic recovery. ANZ Bank shed 0.99%, Commonwealth Bank of Australia slipped 0.50%, National Australia Bank edged down 0.26% and Westpac Banking Corp. lost 1.00%. Investment banking company Macquarie Group was lower by 1.75%.
 
Retail stocks also ended in negative territory on concerns about economy and consumer spending. David Jones fell 2.33%, Harvey Norman lost 1.55%, JB Hi-Fi Ltd shed 0.66%, Wesfarmers shed 0.88% and Woolworths declined 1.02%. However, Reject Shop bucked the trend and ended in positive territory with a gain of 0.69%.

In Hong Kong, the Hang Seng Index ended in negative territory with a loss of 130.64 points, or 0.62%, at 21,079, as traders feared that mainland China might tighten monetary policies to cool off the economy following higher inflation for February and better than expected trade data. Weak trading across other markets in the region amid directionless trading also impacted market sentiment. Resource stocks and China-related stocks were the major losers in the market

In South Korea, the KOSPI Index shed 13.24 points or 0.80% to close at 1,649 as traders offloaded blue-chip technology shares and commodity shares amid concerns that China might tighten its monetary policy to cool off its economy. The market witnessed listless trading with no clear direction on the global economy. Weak cues from Wall Street where the major averages ended flat amid mixed economic data on Friday also impacted market sentiment.

The Indian market recovered an early loss and finished flat on Monday, boosted by encouraging fourth-quarter advance tax payments by top corporations. Driven by rising food prices, India's annual rate of inflation, based on the wholesale price index, rose 9.89% in February from a year earlier versus 8.56% in the previous month, government data showed on Monday, sparking speculation on interest rate hikes. After falling to as low as 17,061 in the morning, the benchmark 30-share Sensex cut its early loss significantly before finishing at 17,165, down 2 points or 0.01%, while the Nifty ended down by 0.16% at 5,129.

Among the other major markets, Indonesia's Jakarta Composite Index ended in positive territory with a marginal gain of 3.10 points, or 0.12%, at 2,670. However, Taiwan's Weighted Index declined 113.41 points, or 1.46% to close at 7,635, China's Shanghai Composite Index lost 36.47 points, or 1.21%, to close at 2,977 and Singapore's Strait Times Index shed 7.03 points , or 0.24%, to close at 2,874.

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The major European markets are trading on a mixed note on Monday, with the French CAC 40 Index and the U.K.’s FTSE 100 Index moving down 0.27% and 0.09%, respectively. Meanwhile, the German DAX Index is rising 0.07%. Sentiment reflected caution as we head into the week with a slew of economic reports and a few key economic events.

On the economic front, Eurostat reported that the number of unemployed people in the euro area declined 0.2% sequentially in the fourth quarter. On a year-over-year basis, the number of unemployed people fell 2% following the 2.2% drop in the previous quarter.

A house price survey from the U.K. showed that the average asking price for a home in the U.K. inched up 0.1% in March compared to the previous month. Property website Rightmove reported that this was the slowest rate of growth for the month of March in at least 8 years. On a year-over-year basis, house prices climbed 5.3%, slower than the 6.1% increase in the previous month.

U.S. Economic Reports

The U.S. Federal Open Market Committee's second rate-setting meeting of the year is likely to headline the U.S. economic calendar of the unfolding week. Although the Fed is unlikely to hastily unwind the monetary policy stimulus, given the economic milieu, the meeting assumes significance when weighed against the backdrop of the dissension in the previous meeting. It is widely expected that some regional Federal Reserve Bank presidents may slowly start resisting the Fed's commitment to low interest rates.

However, most economists expect the Fed to reaffirm its commitment to low interest rates. Due to the likelihood that GDP will exceed pre-recession levels by the end of 2010, the Fed has let the special credit programs expire, while asset purchase programs are also set to expire by the end of March. According to Commerzbank, the actual exit will start with the first-rate hike and only then can we expect more aggressive measures to drain off liquidity.

The Federal Reserve's industrial production report for February, the weekly jobless claims report, the Commerce Department's housing starts report for February, the National Association of Realtors' pending home sales report and the results of the March manufacturing surveys of the New York Fed and the Philadelphia Fed are among the first-tier economic reports that could also create a stir in the markets.

The consumer and producer price inflation reports from the Labor Department, the Labor Department's import and export prices report for February and the Conference Board's leading economic indicators index round up the economic calendar of the week. Additionally, traders may closely watch announcements concerning the Treasury auctions of 2-year, 5-year and 7-year notes and the Fed speeches scheduled to be delivered during the week.

The industrial production report for February could show static production or a slight decline, given the impact of the snowstorms that paralyzed some parts of the country. However, excluding the impact of the extraneous factor, the underlying trend is expected to show robustness.

Meanwhile, disruptive weather conditions may have hindered construction activity and consequently, housing starts may have taken a tumble. Going by the recent slowdown in new home sales, building permits are also expected to show a decline.

Consumer prices for February may have risen at a slower rate that in the previous month, with the core consumer prices expected to have risen only modestly due to a decline in housing costs and a moderation in wage costs. BNP Paribas expects the annual core consumer price inflation rate to slow to 2.3% from 2.6% in the previous month if energy prices decline in line with its forecast.

Conditions for New York manufacturers continued to improve at a steady pace in March, according to a report released by the Federal Reserve Bank of New, although the index of activity in the sector fell from the previous month.

The New York Fed said its index of regional manufacturing activity edged down to 22.9 in March from 24.9 in February, although a positive reading still indicates growth in the sector. Economists had expected the index to slip to a reading of 22.0.

The Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. for January at 9 AM ET. Economists estimate the net long-term flows to be $50 billion for the month.

The industrial production report from the Federal Reserve is due out at 9:15 AM ET. Economists estimate that industrial production remained unchanged in February, while capacity utilization is expected to come in at 72.6%.

Industrial output rose 0.9% month-over-month in January, better than the 0.7% increase in the previous month. Output from the motor vehicle & parts industry increased by 4.9%. Excluding auto production, output was still up a solid 0.8%. Business equipment output rose 0.9%, extending the 1.2% growth in December. Mining as well as utility output increased by 0.7%. Capacity utilization rose to 72.6%, marking its highest level since December 2008, although off its high of 81.2% reported in August 2006.

The National Association of Homebuilders is scheduled to release the results of its survey on homebuilders' confidence at 1 PM ET.

The housing market index rose 2 points to 17 in February. Economists had expected a more modest improvement to 16. The index measuring sales expectations rose 1 point to 27 compared to a 2 point-gain by the index measuring current sales conditions. The index measuring prospective buyer traffic remained unchanged at 12.

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Medtronic (MDT) is likely to be in focus after the company said a FDA panel recommended approval with conditions of the company’s Deep Brain Stimulation Therapy for Epilepsy as an adjunctive treatment for partial-onset seizures in adults with medically refractory epilepsy. The committee voted 7-5 in favor of the treatment.

Stanley Works (SWK) and Black & Decker (BDK) may also be in focus after they announced that Stanley Works has completed its merger with Black & Decker. The combined company will be known as Stanley Black & Decker.

Lennox International (LII) may gain ground after it announced a 7% increase in its dividend to 15 cents per share.

PepsiCo. (PEP) is also likely to see buying interest after it announced a 7% increase in its annual dividend to $1.80 per share. The company noted that the increase would take effect when the board declares the next quarterly common stock dividend. The company also authorized the repurchase of up to $15 billion worth of Pepsi common stock through June 2013.

Phillips-Van Heusen Corp. (PVH) could react to its announcement that it has agreed to acquire Tommy Hilfiger B.V. for about $3 billion or 2.2 billion euros plus the assumption of 100 million euros in liabilities. The consideration included 1.924 billion euros in cash and 276 million in Phillips-Van Heusen common stock.

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