US & World Daily Markets Financial Briefing 16-02-2010

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Stocks Seeing Solid Gains In Mid-Morning Trading

Stocks are in positive territory by solid margins in mid-morning trading on Tuesday, as a report showing a pick-up in manufacturing activity in New York State and a slew of positive earnings has driven the markets higher. The major averages are all in positive territory, looking to build on last week's gains.

Initial strength came after the Federal Reserve Bank of New York reported that its index of regional manufacturing activity rose to 24.9 in February from 15.9 in January, with a positive reading indicating growth in the sector. Economists had been expecting a more modest increase by the index to a reading of 18.0.

Market sentiment was also helped by positive news amid the tail end of earnings season. Kraft Foods Inc. (KFT) reported fourth quarter earnings of $0.48 per share on revenues of $11.03 billion. Wall Street analysts had forecast the firm to earn $0.45 per share on revenues of $11.07 billion.

In addition, the company said that Cadbury's results would be consolidated with those of Kraft Foods from February 2nd, 2010 onwards. The combined company is targeting long-term organic net revenue growth of 5 percent or more.

Drug giant Merck (MRK) recorded adjusted fourth quarter net income of $0.79 per share, in-line with analyst estimates for the quarter. Sales for the quarter rose to $10.09 billion from $6.03 billion in the prior year quarter and topped the $9.70 billion projected for the period.

U.K.-based Barclays Bank (BCS) reported strong results for the fourth quarter, with its profit rising sharply and beating analysts' estimates.

The major averages have all seen additional gains in recent trading, reaching new highs for the session. The Dow is currently up 95.00 points or 0.9 percent at 10,194.14, the Nasdaq is up 20.26 points or 0.9 percent at 2,203.79 and the S&P 500 is up 11.46 points or 1.1 percent at 1,086.97.

Sector News

Steel and gold stocks are some of the morning's strongest performers, with the NYSE Arca Steel Index and the NYSE Arca Gold Bugs Index rising by 3.6 percent and 2.9 percent, respectively. With the gains, the indices are moving further off of the more than three-month lows set earlier this month.

Natural gas stocks are also on the rise, as reflected by the 2.4 percent gain being shown by the NYSE Arca Natural Gas Index. Anadarko Petroleum Corp. (APC) is helping to lead the sector higher, climbing by 3.4 percent to a one-month intraday high.

Computer hardware, utility, commercial real estate and banking stocks are also moving notably higher, while weakness is visible among health insurance stocks. The Morgan Stanley Healthcare Payor Index is down by 1.3 percent, falling to a two and a half month intraday low.

Stocks Driven By Analyst Comments

Target (TGT) is on the rise in mid-morning trading after being upgraded at UBS from Neutral to Buy. The stock has gained 2.4 percent, bouncing off of Friday's five-week closing low.

Jack Henry (JKHY) is also moving higher following an upgraded by Robert W. Baird from Neutral to Outperform. The stock is currently up by 2.4 percent, moving away from last Wednesday's more than six-month closing low.

On the other hand, Cigna (CI) is under pressure after being downgraded at BMO Capital Markets from Outperform to Market Perform. The stock is down by 1 percent, slipping to a two and a half month intraday low.

Bay Street Poised For A Higher Opening

Toronto stocks may find it easy to make headway Tuesday morning helped by upsurges in commodity prices. Investors may also keep aside, at least for now, worries over the euro zone after the European Union hinted on a tougher stance on the Greece situation. Encouraging financial reports from across the border may also aid sentiment.

The U.S stock futures also point to a higher opening. The S&P/TSX Composite Index added 34.32 points or 0.30% to 11,469.81 Friday. The price of oil added $1.30 to $75.43 a barrel and the price of bullion gathered $27.7 to $1,117.20 an ounce.

Financial stocks may be in play after Barclays reported a two-fold rise in its net profits for 2009. In corporate news, energy company Nexen Inc. said it will be sell its subsidiary, Nexen Energy Marketing London Ltd to Nomura Holdings Inc. for $55 million.

Energy services company Enquest Energy Services announced Friday that it has signed a Letter of Intent with a US-based corporation to sell the assets of Speedy Heavy Hauling, Inc.

Gold and precious metals explorer Orvana Minerals Friday reported first quarter net income of $0.01 per share, compared to a profit of $0.03 per share in the prior-year quarter.
 
Silver miner Pan American Silver reported fourth quarter net income of $0.31 per share, compared to a loss of $0.41 per share in the same period last year.

Uranium and gold explorer First Uranium slipped to loss, reporting third-quarter consolidated loss of $0.09 compared with a profit of $0.01 a year ago.

Research In Motion has introduced BlackBerry Enterprise Server Express - free new server software, which provides economical advantages to small and mid-sized businesses.

Geothermal power company Magma Energy reported a second quarter net loss of $0.02 per share, compared to a loss of $0.01 per share in the same period last year.

Bio pharmaceutical company TBioSyntech, posted third-quarter net loss of C$0.03 per share, narrower than C$0.05 per share in the previous year period.

Merchant banker Clairvest Group swung to profit, reporting third quarter net income of C$0.14 per share, compared to a loss of C$0.04 per share in the year-ago quarter.

Pharmaceutical company Immunotec slipped to loss, reporting a fiscal 2009 net loss of C$0.065 per share, compared to profit of C$0.013 per share in last year.

Mineral explorer Soltoro Ltd. said Friday it completed a non-brokered private placement of 6.71 million units at $0.35 per unit for total gross proceeds of $2.35 million.

Biological technology play Microbix Biosystems announced the closing of a private placement of 3,714,286 Common Shares at C$0.35 per share, for a total proceeds of $1.30 million.
 
In economic news, Statistics Canada said today that the country's factory sales increased 1.6% to C$43 billion in December, mainly helped by a 4.4% rise in motor vehicle sales.

From the U.S, the Federal Reserve Bank of New York said today that its index of activity in the manufacturing sector rose to 24.9 in February from 15.9 in January. Economists had been expecting a more modest increase by the index to a reading of 18.0.

Crude oil futures are trading up $1.31 at $75.44 a barrel after recovering in the week ended February 12th, when the price of advanced $2.94 or 4.13% to $74.13 a barrel.

Last Monday, crude oil rose moderately despite the equity market weakness. The commodity extended its advance into Tuesday’s session, rising over $1.80 a barrel, as risk aversion increased on signals that the European Union would support Greece. Oil rose again on Wednesday and added to its gains on Thursday. However, the commodity pulled back on Friday amid the release of the weekly oil inventory report, which was delayed due to snowstorms.

Gold futures, which advanced $37.20 or 3.53% to $1,090 an ounce in the previous week, are currently rising $29.30 to $1,119.30 an ounce.

Among currencies, the U.S. dollar inched higher against the euro last week, rising 0.3% to $1.3618. Meanwhile, the greenback slid 0.79% against the yen to 89.9598 yen. Although the euro is seeing some strength in Asian trading on Tuesday, the market is very short on the euro and the slight rebound we have been seeing lately is attributed by analysts to short squeeze, which may have further to run if more positive headlines emerge on the Greece debt front. Overhead resistance for the currency is around 1.3700. Currently, the U.S. dollar is trading at $90 and is valued at $1.3668 versus the euro.

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Asian Markets End In Positive Territory On Optimism About Economy

The markets across Asia that were open for trading ended in positive territory on Tuesday as concerns about Greece eased slightly. The markets in China, Hong Kong, Singapore and Taiwan are closed for holidays. Traders remained on the sidelines for most of the session awaiting further cues from Europe and the U.S., amid optimism about sustaining global economic recovery.

In Japan, the benchmark Nikkei 225 Index ended up 20.95 points, or 0.21%, to 10,034, while the broader Topix index of all First Section issues gained 1.70 points, or 0.19%, to 885.

All Nippon Airways gained 3.11% following an investment upgrade by the analysts.

Sea transport stocks also ended higher on expectations of sustaining economic recovery in the medium term. Mitsui OSK Lines gained 2.39%, Nippon Yusen climbed 2.17% and Kawasaki Kisen Kaisha advanced 1.31%.

Oil stocks also advanced on higher crude oil prices. Showa Shell Sekiyu rose 2.09%, Nippon Oil Corp. climbed 2.90% and Nippon Mining Holdings gained 2.64%.
 
Mixed trading was witnessed among automotive stocks. Honda Motor advanced 1.34%, Toyota Motor added 0.75%, Nissan Motor rose 0.70% and Mitsubishi Motor climbed 0.83%. However, Suzuki Motor slipped 0.86%, Mazda Motor Corp. fell 2.26% and Hino Motors edged down 0.31%.

Bank stocks also ended mixed. Resona Holdings lost 1.02%, Sumitomo Mitsui Financial edged down 0.04% and Mitsubishi UFJ Financial slipped 0.22%. However, Mizuho Financial managed to end in positive territory with a gain of 0.59%.

In Australia, the benchmark S&P/ASX 200 Index advanced 22.30 points, or 0.49% to close at 4,568, while the All-Ordinaries Index ended at 4,591, representing a gain of 20.40 points, or 0.45%.

On the economic front, results of a survey released by the National Australia Bank revealed that business confidence in the country rebounded strongly in January following unexpected decline in the previous month. The business confidence index for January stood at 15, up from 8 reported in December. However, the business conditions index declined sharply in January to 3 from 10 reported in the previous month, reflecting sharp decline in trading conditions and profit sub-indices.

Minutes of the recent RBA meeting released today revealed that the members of the Reserve Bank of Australia were happy to adopt a wait and watch approach in the recently concluded monetary policy meeting. Though the members saw the decision to leave the cash rate on hold at 3.75% to be "finely balanced", they have, however, signaled towards a resumption of the monetary tightening cycle if conditions widely evolved as expected. "Members expected that, if economic conditions continued to improve as expected, further increases in the cash rate were likely to be necessary," the minutes said.

Light sweet crude oil futures for March delivery ended at $74.50 a barrel in electronic trading, up $0.37 per barrel from previous close at $74.13 a barrel in New York on Monday.

Westpac Banking reported better than expected results for the first quarter that lifted the market sentiment in early trading. The bank stock surged up 6.18%. Among other banks, ANZ Bank rose 2.93%, and National Australia Bank climbed 3.00%. However, profit taking at late session amid lack of global cues capped the gains. Commonwealth Bank of Australia slipped 0.14% and investment banker Macquarie Group lost 1.69%.

Steel producer OneSteel surged up 5.59% after reporting a 48.6% drop in net profit for the first half despite difficult conditions, and exceeded analysts' expectations. Another steel producer, Bluescope Steel declined 2.82%.

Mixed trading was witnessed among mining and metal stocks. Fortescue Metals gained 2.66%, Gindalbie Metals added 0.53%, Macarthur Coal climbed 2.91% and Rio Tinto edged up 0.01%. However, BHP Billiton edged down 0.27%, Iluka Resources lost 3.01%, Minara Resources slipped 0.81%, Mincor Resources shed 0.34% and Oz Minerals fell 1.49%.

Gold stocks also ended mixed. Lihir Gold lost 1.06%, while Newcrest Mining managed to end in positive territory with a gain of 0.31%.
 
Mixed trading was also witnessed among oil stocks. While Woodside Petroleum managed to end in the green with a gain of 0.25%, other stocks ended in negative territory. Santos slipped 0.52%, Oil Search fell 1.90% and Origin Energy lost 2.12%.

Among the worst performers for the day, Primary Health Care plunged 11.89% after the company reported first half results that missed analysts expectations.

In South Korea, the KOSPI Index ended in positive territory with a gain of 7.39 points, or 0.46%, at 1,601, as traders heaved a sigh of relief on easing concerns about the sovereign debt crisis in Greece though the details of EU's assistance to the Greek government is not yet clear. Positive trading across other markets open for trading in the region also lifted market sentiment. Blue-chip technology stocks, steel and automotive stocks led the gains amid speculation that fresh tightening measures from China to cool off its economy might not hinder global economic recovery. Banks however ended cautiously weaker amid fiscal debt concerns in the Euro region.

The Indian market rose sharply to end near the day's high on Tuesday, lifted by short covering and some bargain hunting amid positive global cues and higher commodity prices. Metal, auto, IT, healthcare, oil/gas, realty and banking stocks saw good buying, while consumer durable stocks closed with modest gains. The benchmark Sensex ended at 16,227, up 188 points or 1.17% and the Nifty rose by 54 points or 1.12% to 4,856.

The only other major market that was open for trading in Asian region was Indonesia, where the benchmark Jakarta Composite Index gained 41.05 points, or 1.63%, to close at 2,558.

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The major European markets opened Tuesday’s session sharply higher in an indication that they may extend their gains for the second straight session. Following the paring back of some of the gains, the French CAC 40 Index is currently rising 0.64%, the German DAX Index is moving up 0.51% and the U.K.’s FTSE 100 Index is gaining 0.83%.

In corporate news, Barclays (BCS) reported a pre-tax profit of 11.6 billion pounds for fiscal year 2009, helped by a 6.3 billion pound-gain from the sales of its Barclays Global Investors’ asset management arm. Underlying profit, excluding the one-time gain, was 5.6 billion pounds, higher than 1.6 billion pounds in 2008.

On the economic front, the U.K. Office for National Statistics reported that the U.K.’s consumer prices rose 3.5% year-over-year in January from 2.9% in December. The increase was in line with expectations and represented the highest rate since November 2008. On a monthly basis, the index was up 0.2%, slightly bigger than the 0.1% increase expected by economists. The increase in the inflation rate above the 3% ceiling requires writing of an open letter to the Chancellor explaining the cause for inflation overshooting the target and what the central bank proposes to do to bring it back below the target.

Meanwhile, the Centre for European Economic Research said its economic sentiment indicator for Germany decreased 2.1 points to 45.1 in February. Economists had forecast a reading of 41. The assessment of the current economic situation improved slightly, with the corresponding indicator rising by 1.8 points to -54.8, while the expectations index came in at -53.

U.S. Economic Reports

Although the unfolding week was shortened by Monday's public holiday, the week's calendar is loaded with fairly important economic reports that could improve visibility on economic recovery. The Federal Reserve's industrial production report for January, the weekly jobless claims report, the Commerce Department's housing starts report for January, the National Association of Homebuilders' housing market index for February, the FOMC minutes and the results of the manufacturing surveys of the New York and the Philadelphia Feds are among the market moving economic reports scheduled to be released during the week.

Traders are also likely to keep an eye on the consumer and producer price inflation reports for January, the Labor Department's export and import price index for January and the Conference Board's leading economic indicators for January. Traders may also stay tuned to the Fed speeches scheduled to be delivered during the week and announcements concerning the Treasury auctions of 2- year note, 5-year notes and 7-year notes, all due at 11 AM ET on Thursday.

Among the housing data, the housing starts report is likely to show an increase in starts due to a positive payback effect from inclement weather conditions in December. However, building permits will most likely decline due to a jump in December. Although home construction has stabilized, a recovery is still proving elusive, as builder confidence regarding sales prospects remains muted, preventing a meaningful rebound.

Going by the Institute for Supply Management's manufacturing purchasing managers' index and an 11,000 increase in manufacturing payrolls in January, manufacturing output could remain solid, lending support to January's industrial production. However, utility output should reverse most of its weather-related sharp increase seen in December. Capacity utilization should increase slightly, in line with the recent trend.

With Federal Reserve Chairman Bernanke outlining the Fed's thinking on an exit plan last week, the minutes of the January FOMC meeting may appear redundant. The Fed has resigned itself to the fate of keeping rates at extremely low levels for an extended period. Danske Bank is of the view that the focus will be on whether Kansas City Federal Reserve President Thomas Hoenig's dissent enjoyed sympathy among other voting committee members. The firm is of the view that the economic forecasts of the Fed will be slightly more optimistic compared to its projections in early November.

The results of the New York Federal Reserve's empire state manufacturing survey showed that the survey’s manufacturing index rose 9 points to 24.9 in February compared to the expected reading of 18.

However, the new orders and shipment indexes declined, while the inventories index rose sharply to 0, its highest level in more than a year. The employment indexes were positive, but remained at depressed levels. The future indexes also revealed optimism.

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

Minneapolis Federal Reserve Bank President Narayana Kocher Lakota is due to speak to the Minnesota Bankers Association in St. Paul at 12:45 PM ET.

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

In January, the housing market index fell to 15 from 16 in the previous month. Economists had expected a reading of 17. The present conditions index fell 1 point to 15 and the index measuring prospective buyer traffic eased 1 point to 12, while the future outlook index remained unchanged at 26. The association attributed the sluggish reading to consumer concerns about job security and competition from foreclosed homes on the market, which is impacting demand.

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Simon Property Group (SPG) is likely to react to its announcement that it has made a written offer to acquire General Growth Properties for $10 billion, including $9 billion in cash.

Oshkosh Truck (OSK) may gain ground after it announced that the U.S. Army affirmed the contract award the company originally received on August 26th 2009 to produce the family of Medium Tactical Vehicles. The contract is a 5-year, firm fixed price requirements contract for the production of up to 23,000 vehicles and trailers. Initial delivery order is valued at $280.9 million for the production and delivery of 2,568 trucks and trailers.

Genzyme (GENZ) could move to the upside after billionaire investor Carl Icahn revealed in a filing that he has increased his stake in the company to 4.8 million shares at the end of December from 1.5 million shares in the previous quarter. At the same time, Icahn diluted his stake in Yahoo (YHOO) by four-fifths to 12 million shares.

JP Morgan (JPM) may be in focus after the company confirmed that it would buy Royal Bank of Scotland’s Sempra assets outside the U.S. RBS Sempra is jointly owned by Sempra Energy and Royal Bank of Scotland.

Earnings

Teva (TEVA) reported that its fourth quarter sales rose 33% to $3.8 billion. The company reported non-GAAP net income of 94 cents per share, up 28% year-over-year. Analysts estimated earnings of 95 cents per share on revenues of $3.81 billion.

Merck (MRK) said its fourth quarter non-GAAP earnings were 79 cents per share. The company reaffirmed its high single-digit non-GAAP earnings per share compounded annual growth forecast from 2009 to 2013. Sales were at $10.1 billion. Analysts estimated earnings of 79 cents per share on revenues of $9.70 billion.

Kraft Foods (KFT) reported that its fourth quarter net revenues rose 3.2% to $11 billion and earnings per share from continuing operations rose to 48 cents per share from 41 cents per share last year. Analysts estimated earnings of 45 cents per share on revenues of $11.07 billion. The company expects organic net revenue growth of 4% or more. The company also said Cadbury’s results will be consolidated with those of Kraft Foods spending February 2, 2010.

Abercrombie & Fitch (ANF) said its fourth quarter non-GAAP net income fell to 91 cents per share from $1.06 per share last year. Total sales fell 5% to $936 million, with comparable store sales dipping 13%. The consensus estimates called for earnings of 81 cents per share on revenues of $953.65 million. For 2010, the company expects capital expenditure of $250 million to $260 million.

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