US & World Daily Markets Financial Briefing 15-10-2009

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Heady Gains Could Make Traders Cautious Despite Positive Data

The major U.S. index futures are pointing to a lower opening on Thursday, although sentiment is likely to oscillate between pessimism following the recent strong run up and optimism generated by the better than expected economic data released earlier in the day. Following the setback witnessed by the equity market futures and aided by profit taking, the U.S. dollar is staging a comeback and consequently gold prices are trading lower. However, oil is holding up, as traders look ahead to the EIA’s oil inventory report.

Bond prices are retreating, with the yield on the benchmark 10-year Treasury note rising 1.52% to 3.48%. The financial space, which saw a strong upward move following JP Morgan’s (JPM) better than expected results, may see a pullback after Citigroup (C) turned in an not-so-impressive result. Profit taking cannot be ruled and at the best, the markets may see a consolidation move.

Positive earnings and fairly positive economic reports catalyzed a strong upward move in the U.S. markets on Wednesday, which helped the Dow Industrials scale the 10,000 level for the first time since October 3rd 2008. U.S. stocks opened higher and showed sideways movement in early trading before advancing steadily over the course of the session.

The Dow Industrials ended up 144.80 points or 1.47% at 10,016 and the S&P 500 Index closed at 1,092, gaining 18.83 points or 1.75%. The Nasdaq Composite Index advanced 32.34 points or 1.51% at 2,172. Twenty of the thirty Dow components ended the session higher, with Bank of America (BAC) (up 4.38%), Caterpillar (CAT) (up 3.36%), DuPont (DD) (up 3.66%), Pfizer (PFE) (up 3.52%) and JP Morgan (JPM) (up 3.29%) advancing strongly.

The Dow Jones Transportation Average rallied 3.92% and the NYSE Arca Airline Index climbed 4.03%. The NYSE Arca Oil Index and the Philadelphia Oil Service Index advanced 1.89% and 2.29%, respectively. The NYSE Arca Biotechnology Index climbed 2.18%, while the KBW Bank Index and the NYSE Arca Securities Broker/Dealer Index jumped 3.19% and 3.33%, respectively. Retail, housing, Internet, software, disk drive and semiconductor stocks also showed strength.

With the Dow having climbed above the psychological resistance of ’10,000’, the question in the minds of traders will be if it can sustain its gains above that level. Yesterday’s advance has helped the index break above the upper bound of it’s a 1-month trading range and in the eventuality of a pullback, the index may find support around 9,974 and its 50-day moving average of 9,561. On the upside, the index may face a test around a long-term resistance around 10,335.

On the economic front, the retail sales report for September showed a strong underlying trend. Retail sale fell 1.5% month-over-month, better than forecasts for a 2.1% decline. Excluding auto sales, retail sales were up 0.5%, a bigger increase than the 0.2% growth expected by economists. Most sectors, barring building materials and garden equipment suppliers and online stores, reported sales growth, which suggest that sales received a boost from a late Labor Day.

Meanwhile, the Commerce Department said business inventories fell 1.5% month-over-month in August compared to expectations for a 1% drop. Business sales rose 1% and consequently, the business inventories to sales ratio fell to 1.33 in August from 1.36 in the year-ago period. Following the bigger than expected drop in inventories, third quarter GDP growth may be revised down slightly. However, this could be viewed in a positive light, as depleted inventory levels provide scope for increased economic activity when inventory rebuilding begins.

The minutes of the August FOMC meeting showed that the policymakers believe that the economy is improving. The members commented that overall economic activity was beginning to pick up, with factory output and consumer spending rising due to government rebate and dealer incentives. Investment is stabilizing and the pace of job losses are slowing. The committee remained hopeful that inflation would be reined in due to weak labor markets and significant underutilization of resources.

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Metal Stocks Could Drag TSX Lower

Canadian stocks could fall at the opening bell Thursday and give back some of yesterday's notable gains as metal prices saw weakness in the early going.

Gold prices dropped $13.70 to $1,051.00 per ounce, after reaching above $1,070 yesterday. Copper dropped 4.9 cents to $2.7955 a pound and silver lost 43.3 cents to $17.47 an ounce. Oil was flat a little above $75 per barrel.

In corporate news, Capital Gold Corp. said its full-year net income rose to $10.40 million or $0.05 per share from $6.36 million or $0.03 per share in the prior year period.

BlackBerry maker Research In Motion Ltd. and Vodafone launched Thursday BlackBerry Storm2, the second generation of RIM's touch-screen smartphone, in seven European countries as well as South Africa.
 
Vasogen reported third-quarter net loss of C$1.2 million or C$0.05 per share, compared to a net loss of C$2.6 million or C$0.12 per share last year.

On the economic front, Canadian manufacturing shipments fell 2.1% in the month of August. A decline of 1.6% was forecast for August, compared to a revised increase of of 5.2% in July.

On Wednesday, the S&P/TSX Composite Index gained 119.24 points or 1.04% to move at 11,532.78. The increase was the first in three sessions for the market.

Currency, Commodity Futures

Crude oil futures are trading up $0.03 at $75.21 a barrel, with the commodity having seen strength in Asia after the American Petroleum Institute’s weekly oil inventory report showed that crude oil stockpiles declined by 172,000 barrels in the week ended October 9th. Gasoline inventories also fell, dropping by 2.7 million barrels, while distillate fuel stockpiles rose by 219,000 barrels. In Wednesday’s session, oil rose $1.03 to $75.18 a barrel.

Gold futures, which fell $0.30 to $1,064.70 an ounce in the previous session, are currently declining $11.60 to $1.053.10.

On the currency front, the U.S. dollar is trading at 90.295 yen compared to the 89.448 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.4885.

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Asian Markets End Higher Following Wall Street Cues

In Japan, the benchmark Nikkei 225 Index gained 178.44 points, or 1.77% to 10,239, while the broader Topix index of all first section stocks rose 9.77 points, or 1.09%, to close at 904.

Light sweet crude oil futures for November delivery ended at $75.84 a barrel in electronic trading, up $0.66 per barrel from previous close at $75.18 a barrel in New York on Wednesday.
 
Most of the stocks advanced on increasing optimism about recovery in the U.S, the major export destination for Japanese products and services. Steel stocks advanced on signs demand for steel has bottomed out. JFE Holdings gained 2.12%, Pacific Metals advanced 1.59%, Nippon Steel climbed 3.11%, Kobe Steel rose 3.03% and Sumitomo Metal Industries added 0.85%.

Trading companies also ended in positive territory on signs of pick-up in demand and higher commodity prices. Mitsubishi Corp. rose 2.73%, Mitsui & Co., surged up 3.71%, Toyota Tsusho Corp. gained 2.64%, Sumitomo Corp. advanced 2.52% and Marubeni Corp. climbed 1.94%.

Panasonic Corp., the largest maker of plasma products in the world, gained 3.01% after Credit Suisse AG upgraded the stock rating.

Inpex Corp., the largest energy explorer in the country, climbed 2.61% after crude oil prices surpassed the $75 a barrel mark in international market. Among other oil related stocks, Showa Shell gained 1.94% and Nippon Oil Corp. edged up 0.41%. Japan Airlines was the major loser having shed more than 10.5%.

In Australia, the benchmark S&P/ASX200 Index added 28.80 points, or 0.60% to close at 4,860, while the All-Ordinaries Index ended at 4,862, representing a gain of 28.50 points, or 0.59%.On the economic front, a latest survey released by The Melbourne Institute revealed that consumer inflationary expectations, gauged from the median expected inflation rate, stood at 3.5% in October.

Reserve Bank of Australia Governor Glenn Stevens, while speaking at a public policy breakfast forum in Perth,said that interest rates will need to be raised appropriately to foster a sustained economic recovery in the country, giving a clear indication that further rate hikes can be expected sooner rather than later.

Light sweet crude oil futures for November delivery ended at $75.84 a barrel in electronic trading, up $0.66 per barrel from previous close at $75.18 a barrel in New York on Wednesday.
 
Banks ended in positive territory following JP Morgan results. ANZ Bank added 0.44%, Commonwealth Bank of Australia gained 1.00% and Westpac Banking rose 1.12%. Bank of Queensland climbed 2.19% after reporting 21% increase in full-year cash profit as well as positive comments about its future growth prospects.

However, National Australia Bank bucked the trend and shed 0.53% after announcing that it would not charge the customary A$25 as over-limit fee for credit cards and also abolish monthly account service fees for two of its everyday banking accounts beginning from January 2010.

Metals and mining stocks advanced on higher commodity prices in the international market. BHP Billiton added 1.30%, Rio Tinto advanced 2.43%, Fortescue Metals rose 2.76%, Minara Resources gained 2.03% and Murchison Metals climbed 3.67%.

Oil stocks also ended in positive territory after crude oil prices rose above $75 a barrel in international market. Woodside Petroleum rose 1.08%, Santos gained 1.18% and Oil Search climbed 1.64%. Mixed trading was witnessed among the retail stocks. David Jones rose 2.10%, Harvey Norman gained 2.59%, JB Hi-Fi surged up 5.56% and Woolworths advanced 1.78%. However, Wesfarmers bucked the trend and slipped 2.16% on profit taking.

Gold stocks ended in negative territory on profit taking. Lihir Gold lost 3.30%, Newcrest Mining shed 1.29% and Sino Gold Mining declined 2.70%.

In Hong Kong, the Hang Seng Index ended in positive territory with a gain of 112.60 points, or 0.51%, at 21,999, taking cues from Wall Street where the major averages ended sharply higher and the Dow Jones Industrial Average surpassed the 10,000-mark for the first time in the year following better-than-anticipated quarterly results from JP Morgan and Intel. Profit taking at later part of the day, however, limited the gains as traders brace for another round of earnings from major banks in the U.S.

In South Korea, the KOSPI Index ended in positive territory with a gain of 0.60% or 9.90 points, at 1,659, following cues from Wall Street where the major averages ended higher and the Dow Jones Industrial Average surpassed the 10,000-mark for the first time since one year following quarterly results from JP Morgan and Intel. Steel and finance stocks led the gains on increasing optimism about recovery in the global economy. Profit taking was witnessed as traders preferred to lock-in gains in recent rally and prepare for upcoming earnings from major banks in the US during the course of the week
 
After a positive opening, the Indian market witnessed a choppy session before ending lower on Thursday, as investors chose to take some profits following recent gains. Flat U.S. index futures and negative sentiment across most of the European markets also dampened investor sentiment. The BSE Sensex finished at 17,195, down 36 points or 0.21%, while the S&P CNX Nifty fell 9 points or 0.18% to 5,109.

Among the other major markets in the region, China's Shanghai Composite Index added 9.26 points, or 0.31% to 2,980, Indonesia's Jakarta Composite Index edged up 3.66 points, or 0.15%, to close at 2,515, Singapore's Strait Times Index inched up 3.67 points, or 0.14% to close at 2,712 and Taiwan's Weighted Index advanced 14.65 points, or 0.19% to 7,710.

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After a volatile start following yesterday’s rally, the major European markets are currently lower. While the French CAC 40 Index is down 0.22%, the German DAX Index is receding 0.20%. Meanwhile, the U.K.’s FTSE 100 Index is moving down 0.51%.

On the economic front, the euro zone ‘s consumer price index fell 0.3% year-over-year in September following a 0.2% drop in August. Core consumer prices, which exclude food and energy, rose 1.2% in September compared to a 1.3% increase in the previous month. On a monthly basis, consumer prices remained unchanged, while core consumer prices edged up 0.2%.

U.S. Economic News

Consumer prices rose 0.2% month-over-month in September following 0.4% growth in August. The increase was in line with economists’ estimate. On an annual unadjusted basis, consumer prices showed a 1.3% drop.

The new orders index rose 11 points and the shipments index jumped 30 points. The employment indexes moved into positive territory for the first time this year. Additionally, the future general business conditions index rose to relatively high levels.

The Labor Department released its report on initial jobless claims in the week ended October 10th, showing that first-time claims for unemployment benefits decreased by a little more than economists had been expecting.

The report showed that jobless claims fell to 514,000 from the previous week's revised figure of 524,000. Economists had been expecting jobless claims to edge down to 520,000 from the 521,000 originally reported for the previous week.

The results of the Philadelphia Federal Reserve's manufacturing survey are due out at 10 AM ET. Economists expect the diffusion index of current activity to show a reading of 12 for October.

The manufacturing index rose to 14.1 in September from 4.2 in August, reaching its highest level since June 2007. The shipment index climbed about 8 points. Although the backlog orders index rose 2 points, it still remained in negative territory. The new orders index declined to 3.3 from 4.2 in August and the employment index declined 1.4 points to -14.3. Inventories continued to contract, as reflected by an 18 point-drop in by the inventories index to -18.1. The 6-month outlook index dipped 9 points but remained positive.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended October 9th at 10:30 AM ET. The report has been delayed a day from its customary scheduled date due to the government holiday on Monday.

The EIA's oil inventory report for the week ended October 2nd showed a 1 million barrel drop in crude oil stockpiles to 337.4 million barrels. Inventory levels remained above the upper boundary of the average range.

However, gasoline and distillate inventories rose by 2.9 million barrels and 0.7 million barrels, respectively. Stockpiles of gasoline were above the upper limit of the average range, while inventories of distillate fuel remained above the upper boundary of the average range. Refinery capacity utilization averaged 85.5% over the four weeks ended October 2nd compared to 86.1% in the previous week.

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Xilinx may react to its announcement that its second quarter earnings fell to 23 cents per share from 29 cents per share last year. The earnings in the recent quarter included 2 cents per share in restructuring charge. Revenues declined 14% to $415 million. The consensus estimates had called for earnings of 22 cents per share on revenues of $410 million. For the third quarter, the company expects sequential sales growth of 6%-10%.

WD-40 Co. is likely to move to the upside after it reported that its fourth quarter net income rose to 46 cents per share from 28 cents per share last year. Sales rose 1.1% to $77.8 million. The consensus estimates had called for earnings of 40 cents per share on revenues of $71.7 million. The company estimates 2010 earnings of $1.80-$1.95 per share on sales growth of 2%-9%. Analysts, on average, estimate earnings of $1.74 per share on revenues of $299.1 million.

Landstar may see weakness after it reported third quarter earnings of 39 cents per share compared to 62 cents per share last year. Revenues fell 32% to $500.7 million. Analysts estimated earnings of 38 cents per share on revenues of $511 million.

CBS Corp. could be in focus after it announced that its public offering of 26.04 million shares has been priced at $12 per share. The shares offered were sold by NAIRI, a wholly-owned subsidiary of National Amusements and a controlling stockholder of the company.

PC makers and chip stocks may react to a report released by Gartner, which said worldwide PC shipments rose 0.5% year-over-year in the third quarter. Sequentially, PC shipments rose 18%. Hewlett-Packard increased its market share to 19.9% on the virtue of it posting 9% annual growth in shipments. Acer grew shipments at a faster rate than the market leader, posting 23.6% growth while holding a 15.4% market share. Dell took third place, boasting a share of 12.8% of the market despite reporting a 6.7% year-over-year drop.

Lazard is likely to react to its announcement that its Chairman and CEO Bruce Wasserstein, who was hospitalized for an irregular heart beat, died at the age of 61. The company also announced the appointment of Steven Golub as interim CEO, effective immediately.

Enzo Biochem is likely to see some activity after it reported 16% revenue growth for the fourth quarter to $24.5 million. The company reported a net loss of 14 cents per share compared to a loss of 9 cents per share last year.

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