US & World Daily Markets Financial Briefing 15-12-2009

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Cloudy Economic Data Should Keep Traders on Edge

The major U.S. index futures are pointing to a lower opening on Tuesday, with sentiment likely to be hurt by some cloudy economic reports, which cast doubts over the sustainability of the current recovery. A manufacturing survey showed that the rate of expansion in the sector slowed substantially, while the producer price inflation report showed a quickening in the rate of wholesale price growth. Economic reports released from across the Atlantic aren’t encouraging either.

Traders may also stay focused on the Federal Reserve’s industrial production report before they chart their course of action in today’s session. Meanwhile, consumer electronics retailer Best Buy (BBY) issued a downbeat outlook for the fourth quarter, although it reported better-than-expected results for its third quarter. The 2-day FOMC meeting, which gets underway today, may keep some traders on the sidelines.

U.S. stocks opened Monday’s session higher, encouraged by the prospect of a diffusion of the debt crisis at Dubai World after the Abu Dhabi government lent a helping hand by pledging $10 billion in funding. The Dow Industrials showed some volatility, although it held above the unchanged line throughout the side, before closing up 29.55 points or 0.28% at 10,501.

The Nasdaq Composite, which opened with a positive gap of 12 points, gave back some of its gain in early trading before advancing steadily throughout the rest of the session to close up 21.79 points or 0.99% at 2,212. Meanwhile, the S&P 500 Index gained 7.70 points or 0.70% to close at 1,114.

Twenty-four of the thirty Dow components ended the session higher, with Alcoa (AA), American Express (AXP), Caterpillar (CAT), DuPont (DD), Home Depot (HD), Hewlett-Packard (HPQ), Merck (MRK) and Procter Gamble (PG) rising in excess of 1% each. On the other hand, Exxon Mobil declined 4.31% after it announced a deal to buy XTO Energy (XTO) and Wal-Mart (WMT) slid 1.06%.

Among the sector indexes, the Philadelphia Oil Sector Index climbed 1.49%, the Dow Jones U.S. Basic Materials Average gained 1.53% and the NYSE Arca Gold Bugs Index moved up 1.33%. Additionally, the Dow Jones Transportation Average rose 1.74%, the S&P Retail Index gained close to 1% and the Philadelphia Housing Sector Index advanced 1.32%.

In the technology space, the Philadelphia Semiconductor Index rose 1.50%, the NYSE Arca Disk Drive Index rallied 2.67% and the NYSE Arca Computer Hardware Index gained 2.30%. The NYSE Arca Software Index added 1.26%.

Despite all uncertainties about the sustainability of the recovery, the markets have fared fairly well in 2009. After dropping to multi-year lows in March this year, the major averages have bounced well off from these levels. From the mid-October 2007 peak, the S&P 500 Index lost about 57% till early March 2009 and has recouped about 50% of the losses since then.

Going forward, the market momentum largely depends on the economic momentum. FBR Capital Markets expects 2010 to be a strong year for stock market performance and the firm has a year-end target for the S&P 500 Index of 1,350. The firm’s expectations are based on views that the profitability of companies will improve in 2010 due to top line growth. Additionally, the interest rate environment will remain benign, given the likelihood that the Fed won’t revise rates until the fourth quarter of 2010.

Canadian Stocks May Struggle To Extend Gains

Toronto stocks are likely to witness lackluster trading on Tuesday as the upside for resource stocks will be limited following a jump in U.S dollar.

The greenback continued to strengthen against major currencies ahead of tomorrow's closely watched interest rate decision from the Federal Reserve. Though many economists believe Fed will leave rates at record low in its current meeting, traders are looking for some hint about when it will start boosting rates, as recent data signals recovery in the U.S. economy.

In the commodity markets, while gold prices continued to show weakness, due to recent strength in U.S. dollar, oil prices are looking to break the past few days downward trend by moving near the $70-mark.

In corporate news, Digital Media Inc. said it swings to profit in fourth quarter, reporting C$0.02 per share, compared to a net loss of C$0.08 per share in the year-ago quarter.

Cangene Corp. reported its first quarter net income shrank to C$0.08 per share from C$0.30 per share in the same quarter last year.
 
Silver Spruse Resources Inc. said it plans non-brokered private placement of $700,000 to be used for general exploration expenditure on the company's Newfoundland and Labrador projects.

WestJet Airlines Ltd. and Royal Bank of Canada announced plans to role out the carrier's new credit card program in late January.

Uranium One said it acquired 50 percent of the Karatau Uranium Mine in Kazakhstan for $420 million from JSC Atomredmetzoloto.

Breaking its 2-day losing streak, the S&P/TSX Composite Index ended higher on Monday, adding 121.76 points or 1.07 percent to settle at 11,545.69.

Statistics Canada reported Tuesday that new motor vehicle sales improved 3.5% to 133,559 units in October, largely helped by better sales of North-American built passenger cars, that rose 7.6%. In another report, it said Canadian labor productivity fell 0.2% in third quarter, while gross domestic product of business fell 0.1%.

Currency, Commodity Futures

Crude oil futures are currently rebounding, rising $0.43 to $69.94 a barrel, after receding $0.36 to $69.51 a barrel in Monday’s session. Oil declined for the ninth straight session yesterday despite the IEA raising its global oil demand forecast for 2010 by 1.5 million barrel per day on Friday.

Gold futures are currently receding $9.10 to $1,114.70 an ounce. In the previous session, the precious metal rose $3.90 to $1,123.80 an ounce, as the dollar’s weakness on the back of positive news related to Dubai World lent support to gold. With the negative correlation between gold and the dollar strengthening, the FOMC interest rate decision due to be announced on Wednesday is likely to dictate the direction of gold. Recent strength in the dollar, which has been achieved on the back of expectations that the Fed may soon raise begin to raise rates, faces risk, as the central bank’s monetary policy setting arm is unlikely to change its statement regarding its commitment to keep interest rates at low levels for an extended period.

On the currency front, the U.S. dollar is trading at 89.57 yen compared to the 88.6198 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is currently valued at $1.4656 compared to yesterday’s $1.4534.

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Asian Markets End In Negative Territory Ahead Of FOMC, Economic Data

The markets across Asia ended in negative territory on Tuesday, as traders preferred to adopt a wait-and-watch approach ahead of the FOMC meeting starting today as well as slew of economic data slated for release in the U.S.

In Japan, the benchmark Nikkei 225 Index fell 22.20 points, or 0.22%, to 10,083, while the broader Topix index of all First Section issues edged down 0.45 point, or 0.05%, at 885.

Real estate companies ended in positive territory following news that an investment fund agreed to purchase a building in Tokyo. Sumitomo Realty & Development surged up 4.58%, Mitsubishi Estate gained 2.87%, Mitsui Fudosan rose 2.10%, Tokyu Land Corp. climbed 3.38% and Heiwa Real Estate advanced 1.85%.

Airline stocks ended higher. Japan Airlines gained 2.04% and All Nippon Airways added 0.78%.

Mixed trading was witnessed among the automotive stocks on profit taking and strengthening of the local currency against the US dollar. Toyota Motor Corp. edged down 0.27%, Suzuki Motor fell 1.24%, Nissan Motor Corp. lost 1.09% and Mitsubishi Motors declined 0.76%.

Banking stocks also ended mixed. While Mitsubishi UFJ Financial advanced 0.90%, Mizuho Financial added 0.64% and Resona Holdings edged up 0.21%, Sumitomo Mitsui Financial fell 2.39%.
 
Shipping stocks ended in negative territory on profit taking. Nippon Yusen declined 1.91%, Mitsui OSK Lines fell 1.51% and Kawasaki Kisen slipped 0.41%.

Oil explorer Impex Corp. fell 1.52%. Among other oil stocks, Nippon Oil Corp. slipped 0.54%, Showa Shell declined 1.49% and Nippon Mining Holdings lost 1.49%.

In Australia, the benchmark S&P/ASX200 Index gained 19.50 points, or 0.42% to close at 4,673, while the All-Ordinaries Index ended at 4,688, representing a gain of 19.60 points, or 0.42%.

On economic front, the Australian Bureau of Statistics revealed that the total number of housing starts in Australia rose to a seasonally adjusted 9.4% in the third quarter, following a revised 1.9% decline in the previous quarter. Analysts expected the housing starts to rise 6% for the third quarter.

Minutes of the RBA's December 1 meeting released today revealed that the monetary policy committee saw a fine balance between the arguments for and against the recent interest rate hike. The minutes further noted that the members felt Australia's economic growth was "materially stronger than had been expected earlier in the year." It also found that prospects for continued growth were "generally strengthening."

Energy  stocks led the gains following news of acquisition of oil explorer XTO Energy by oil giant Exxon Mobil. Among energy stocks, Oil Search rose 2.22%, Origin Energy gained 1.46% and Santos added 0.37%. Woodside Petroleum remained unchanged from Friday's close as trading was halted ahead of announcements.

Mining and metal stocks advanced following rise in copper prices in the international market. BHP Billiton advanced 1.11%, Rio Tinto added 0.48%, Fortescue Metals moved up 0.46%, Minara Resources climbed 5.00%, and Mincor Resources gained 0.85%. However, Iluka Resources fell 2.56%, Murchison Metals lost 3.79% and Oz Minerals slipped 1.69%.

Gold stocks ended in positive territory. Lihir Gold advanced 1.23% and Newcrest Mining rose 2.02%.

Mixed trading was witnessed among the major insurance stocks. AXA Asia Pacific gained 1.05% and QBE Insurance Group advanced 0.73%. However, AMP slipped 0.48% and Suncorp-Metway lost 0.70%.
 
Banking stocks also ended mixed. ANZ Bank gained 1.28%, National Australia Bank edged up 0.07% and Westpac Banking added 0.38%. However, Commonwealth Bank of Australia bucked the trend and ended in negative territory with a loss of 0.15%.

Retail stocks also witnessed mixed trading. Harvey Norman gained 1.67% and Wesfarmers added 0.47%. However, David Jones slipped 0.55%, JB Hi-Fi Ltd lost 3.02% and Woolworths shed 0.26%

In Hong Kong, the Hang Seng Index ended in negative territory with a loss of 271.83 points, or 1.23%, at 21,814, dragged down by property stocks following reports from mainland China that it would take necessary measures to cool down the real estate market in the country. China related property stock in the bourses, China Overseas slumped 5.89%, while other property stocks also ended in negative territory. SHK Property fell 1.17%, Hang Lung Property lost 1.98% and New World Development slipped 0.36%.

In South Korea, the KOSPI Index ended in positive territory with a marginal gain of 1.08 points, or 0.06% at 1,666, as gains in automotive stocks and shipping stocks was offset by losses in large cap technology stocks. Institutional investors offloaded large cap stocks on automated selling program dragging the index lower in early trading. However, positive closing on Wall Street in the previous session lifted market sentiment with automotive stocks leading the gains on expectation of higher demand for automobiles in the U.S. Hyundai Motor gained 1.38% and Kia Motors rose 1.80%.

The BSE Sensex finished at 16,877, down 220 points or 1.29%, while the S&P CNX Nifty fell 73 points or 1.42% to 5,033.

Among other major markets in the region, China's Shanghai Composite Index declined 0.86% or 28.44 points, to close at 3,274, Indonesia's Jakarta Composite Index declined 11.65 points, or 0.46%, to close at 2,495, Taiwan's Weighted Index lost 11.51 points, or 0.15%, to close at 7,808 and Singapore's Strait Times Index edged down 0.84 points, or 0.03%, to close at 2798.

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The major European markets, which closed higher in the past three sessions, opened in positive territory on Tuesday. However, the indexes pared back their gains and fell below the unchanged line after an hour of trading. Currently, the French CAC 40 Index and the German DAX Index are receding 0.91% and 0.29%, respectively, while the U.K.’s FTSE 100 Index is gaining 0.81%.

In economic news, house prices in the United Kingdom rose for the fourth straight month in November, a barometer of sentiment in the residential property market showed. The house price balance index from the Royal Institution of Chartered Surveyors increased to 35 points in November from 34 points in October. Economists had expected a reading of 39 points.

Meanwhile, French statistical agency, INSEE reported that French consumer prices rose 0.4% year-over-year in November after falling 0.2% in October, marking the first positive reading in 7 months. Economists had estimated a 0.5% increase. On a monthly basis, consumer prices edged up 0.1%, the same rate as in the previous month.

The U.K. Office for National Statistics reported that the U.K.’s consumer price inflation rate came in at 1.9% in November compared to the year-ago period. The rate of inflation quickened from the 1.5% rate in the previous month. Economists had expected a more modest increase of 1.8%. Notwithstanding the increase, the inflation rate remained below the 2% target of the Bank of England. On a month-over-month basis, consumer prices rose 0.3% compared to the 0.2% increase expected by economists.

Meanwhile, the Zew Institute released the results of its economic sentiment survey, which showed that German economic sentiment weakened slightly in December compared to the previous month. The indicator of economic sentiment fell to 50.4 in December from 51.1 in November. Economists had expected a reading of 50. At the same time, the current conditions index rose to –60.6 from –65.6 in the previous month.

A report released by Eurostat showed that the hourly labor cost index rose 3.2% year-over-year in the third quarter, slower than the 4.3% increase in the second quarter. Economists expected an increase of 3.5% for the quarter. The pace of growth in wages and salaries as well as non-wage costs slowed in the quarter.

U.S. Economic News

The Labor Department reported that the producer price index rose 1.8% in November following 0.3% growth in October. Economists had been expecting prices to increase by a more modest 0.8%.

At the same time, core producer prices, which exclude food and energy prices, rose 0.5% after the 0.6%decline in October. The increase was much more than 0.2% rise in prices expected by economists.

In another data released ahead of the market open, the Federal Reserve Bank of New York released its report on conditions for New York manufacturers in the month of December, showing that conditions unexpectedly leveled off following four months of improvement.

The New York Fed said its index of activity in the manufacturing sector fell to 2.6 in December from 23.5 in November, with a positive reading indicating growth in the sector. The decrease surprised economists, who had expected the index to edge up to a reading of 24.0.

The Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. for September at 9 AM ET.

The industrial production report of the Federal Reserve is due out at 9:15 AM ET. Economists estimate that industrial production rose 0.5% in November, while capacity utilization is expected to come in at 71.1%.

Industrial production rose 0.1% month-over-month in October compared to expectations for 0.4% growth. The slowdown in industrial production growth compared to the previous month reflected a 1.7% decline in the production of motor vehicles and parts. Mining output fell by 0.2%, while utility output climbed 1.6%. Capacity utilization increased two-tenths of a percentage point to 70.7%.

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

In November, the housing market index remained unchanged at 17 in November, while economists had estimated a 2-point increase to 19. The index measuring sales expectations for the next 6 months rose 2 points to 28, while the indexes gauging current sales conditions and prospective buyer traffic rose 2 points each to 17 and 13, respectively.

However, the association noted that the readings reflected confidence levels that were prevalent at the beginning of the month, when homebuilders were facing the imminent expiration of the $8,000 first-time homebuyer tax credit.

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Verifone (PAY) may react to its announcement that its fourth quarter net revenues fell 11% to $217.8 million. On a non-GAAP basis, the company reported net income of 26 cents per share compared to 19 cents per share in the year-ago period. For the first quarter, the company expects non-GAAP net income of 22-23 cents per share on revenues of $215 million to $218 million, and for the full year, the company estimated non-GAAP earnings of 97 cents-$1 per share on revenues of $900 million to $915 million. The consensus estimates call for full year earnings of $1.01 per share on revenues of $901.02 million.

Gilead Sciences (GILD) could see some weakness after it said a late stage study if its hypertension drug candidate darusentan did not achieve its co-primary efficacy endpoints of change from baseline to week 14 in trough sitting systolic blood pressure and diastolic blood pressure compared to placebo. Consequently, the company said it would be challenging to define an expedient path forward and added that it would rather allocate resources to other promising R&D opportunities in its pipeline.

Wells Fargo & Co. (WFC) could gain ground after it said it would repay the entire $25 billion TARP funding it received from the government. The company said it would redeem the $25 billion of series D preferred stock issued to the Treasury in October 2008 upon completion of a $10.4 billion common stock offering. Additionally, the company said it would raise $1.35 billion through the issuance of common stock to Wells Fargo benefit plans and also increase equity by $1.5 billion through asset sales. Separately, the company said it would pay cash to purchase Prudential Financial’s (PRU) non-controlling interest in the retail brokerage joint venture, which includes Wells Fargo Advisors, as compared to its earlier plan to offer a combination of cash and stock for the purchase.

JA Solar Holdings (JASO) is likely to rally after it said it expects its fourth quarter shipments to exceed the high end of its previous guidance given on November 10th. Consequently, the company raised its 2009 shipment guidance to 488 MW compared to its earlier estimate of 448 MW to 478 MW. For 2010, the company expects shipments of 750 MW to 800 MW. Separately, the company announced that its board has approved the repurchase of up to an aggregate of $75 million worth of its ADS.

Tyco Electronics (TYC) is likely to see some activity after it announced the acquisition of 2 Brazilian valve companies to improve its product and service offerings. The two target companies generated annual revenues of $66 million in 2008.

Amgen (AMGN) and Array BioPharma (ARRY) may be in focus after they announced an agreement granting Amgen exclusive rights to Array’s small-molecule glucokinase activator program, including Array’s diabetes drug candidate currently evaluated in a Phase I trial. Array will receive an upfront fee of $60 million and additional contingent payments for certain clinical and commercial milestones.

Abbott Labs (ABT) could also be in focus after it said it would acquire STARLIMS Technologies Ltd. for about $123 million in cash. The target company has about $18 million in cash on hand. Abbott expects the deal to close in the first quarter of 2010, while it sees no impact on its previously issued earnings per share guidance. In another deal news, Rambus (RMBS) acquired technology and a portfolio of advanced lighting and optoelectronics patents from Global Lighting Technologies for $26 million.

Papa John’s (PZZA) is expected to move in reaction to its announcement that it expects 2010 adjusted earnings of $1.70-$1.90 per share, including potential volatility in the 2010 price of cheese. The company expects 2010 system-wide comparable store sales growth to range between –1% and +1%. The company reaffirmed its 2009 adjusted earnings guidance of $1.42-$1.46 per share. Analysts estimate earnings of $1.47 per share for 2009 and $1.75 per share for 2010.

Saks (SKS) may see some activity after it announced that its board has voted to amend the company’s Shareholder Rights Plan, advancing its expiration date to December 14th, 2009 from November 26th, 2018. The plan was adopted last year, when the company faced a takeover threat from Mexican billionaire Carlos Slim. With the company succeeding in making a change to its revolving credit agreement, raising a change of control threshold to 40% from 20% previously, the plan was deemed no longer necessary.

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