US & World Daily Markets Financial Briefing 17-12-2009

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Lack of Clear Economic Signals To Weigh on Market

The major U.S. index futures are pointing to a lower opening on Thursday. Global cues are negative, with Asian markets sliding due to disappointment over the Fed statement, while the European markets are also trading in negative territory. The U.S. futures extended their losses after a report showed that jobless claims unexpectedly rose in the recent reporting week. Commodities are declining in today’s session, with oil trading moderately lower after 2-days of advances.

Market sentiment during the course of the session may also depend on the results of a manufacturing survey and the leading indicators index of the Conference Board, both due out shortly after the markets open.

After encouraging economic data, including reports on consumer prices and housing starts, gave a solid start to the U.S. markets on Wednesday, the buying momentum waned over the course of the session. The mood soured ahead of the Fed’s interest rate announcement, as traders sold off in apprehension over the outcome of the meeting, and, stocks declined further after the announcement.

The Dow Industrials ended the session down 10.88 points or 0.10% at 10,441, while the Nasdaq Composite Index gained 5.86 points or 0.27% to close at 2,207 and the S&P 500 Index advanced 1.25 points or 0.11% to 1,109.

Thirteen of the thirty Dow components closed in negative territory and one stock closed unchanged, while the remaining stocks ended the session higher. Intel (INTC) fell 2.12%, while Coca-Cola, 3M Co. (MMM), Travelers Co. (TRV), Wal-Mart (WMT) and Exxon Mobil (XOM) all lost over 1% each. On the other hand, Alcoa (AA), DuPont (DD), JP Morgan Chase (JPM) and Kraft Foods (KFT) gained ground in the session.

Among the sector indexes, the NYSE Arca Airline Index rallied 3.18%, the Dow Jones U.S. Basic Materials Average rose 1.17%, the NYSE Arca Gold Bugs Index rose 1.48% and the Philadelphia Oil Service Index gained 1.41%. The Philadelphia Housing Sector Index advanced 2.65% compared to a 1.96% gain by the NYSE Arca Securities Broker/Dealer Index.

In the technology space, the Philadelphia Semiconductor Index moved up 1.74%, the NYSE Arca Disk Drive Index rose 2.07% and the NYSE Arca Software Index gained about 1%.

S&P’s analysts expect the major indexes to break out in the near future, benefiting from a year-end rally. The firm expects the strength to continue into the first quarter of 2010. The S&P 500 Index, which has been bouncing around the 1,097, could decisively break above the level in the coming days. The relative strength index has come back to a more neutral level, suggesting upside potential. On the downside, the index has firm support around its 50-day moving average of 1,087.

After producer prices rose much more than expected, the Labor Department revealed yesterday that consumer prices grew in line with expectations. The consumer price index rose 0.4% month-over-month in November, while at the same time, core consumer price inflation remained unchanged, defying expectations for a 0.2% advance. The benignity of the core consumer prices was due to a 0.1% decline in owners-equivalent rent, which accounts for roughly 24% of the overall index. The year-over-year rate of consumer prices was 1.8% in November compared to a negative 0.2% in October.

Housing starts for November also increased in line with expectations, while building permits rose by more than what economists had expected, creeping to their highest level in a year. Single-family as well as multi-family starts increased month-over-month. Despite giving credit to the improvement, ING noted that construction activity is still 75% below the peak level. Nonetheless, the firm expects a substantial improvement in residential construction next year, as we are starting from a very low base.

Meanwhile, the FOMC statement released yesterday following the end of a 2-day meeting did not show any significant change. The central bank retained its assessment that economic activity has continued to pick up, while it turned modestly positive on the labor market. The Fed commented that the deterioration in the labor market is abating. The Fed dropped its reference to businesses cutting staff and noted reluctance on the part of the firms to add to payrolls.

As expected, the Fed maintained its stance of keeping interest rates at extremely accommodative levels for an extended period.

Bay Street Poised To Pull Back As Commodities Level Off

The resource heavy Canadian market may struggle to extend previous day's gains and is likely to open flat on Thursday. Sluggish movement in commodity prices signals that a rough day may be in store for resource and gold stocks. The U.S. futures also points for a weaker opening.

In the commodities market, gold and oil prices slipped, as dollar hit a 3-month high versus euro after the U.S. Federal Reserve hinted that it might bring a tighter monetary policy sooner than expected after noting that the economy is growing, however slowly. The Fed has kept rates low and had, in the recent past, injected trillions of dollars into the economy in an effort to offset the recession's impact.

Meanwhile, Bank of Canada governor Mark Carney said Wednesday that their approach of keeping interest rate at their historic low of 0.25% until June 2010 could change if the economy bounces back quicker than expected.

Statistics Canada reported Thursday Canadian Consumer prices were up 1% in 12 months to November, higher than 0.1% recorded in October and wider than consensus estimates of 0.3%. The rise was primarily on gasoline prices, that moved 14.1%.

After gaining in the previous session, gold prices slipped $15 to $1120 while, oil prices was down a tad but hovering above the $72 mark.

Across the border, the U.S. Labor Department said new jobless claims rose unexpectedly 4,80,000 last week, up 7,000 from the previous week.
 
Further, FedEx said Thursday that its second quarter results fell 30% from a year ago and offered a not-so encouraging earnings outlook, indicating $0.50 to $0.70 per share for the third quarter as against consensus estimates of $0.84.

In other corporate news, BCE Inc. announced it would use up to C$500 million to buy back its shares, through Normal Course Issuer Bid. The company also declared higher dividend of C$1.74 per share.

In another announcement, Quest Capital Corp. said it may purchase up to 12,132,650 common shares, which represents approximately 10% of the total of its public float.

Research in Motion reports its fiscal third quarter results on Thursday. Consensus estimates are at $1.04 per share on a revues of $3.78 billion.

Great Panther Resources Ltd. announced that it has acquired a 100% interest in the La Prieta concession in the Topia District $330,000.

OceanaGold Corp. announced the appointment of Jacob Klein, who earlier served as the President and Chief Executive of Sino Gold, to Board of Directors.

Toronto Dominion Bank was fined $11 million by the U.K. Financial Services Authority for repeated systems and controls failure around the pricing of sophisticated financial products. Earlier in 2007, the bank was fined 490,000 pounds.

Transat A.T. Inc. said it turns to profit in fourth quarter, reporting net income of C$0.52 per share, compared to net loss of C$2.54 per share last year. Brokerage firm, Thomas Weisel Partner initiated coverage of Biovail Corp. with an Overweight rating.

Currency, Commodity Futures

Crude oil futures are trading down $0.84 at $71.82 a barrel after the commodity climbed for the second straight day on Wednesday, rising $1.97 to $72.66 a barrel, following the release of the weekly oil inventory report. The report showed that crude oil inventories fell by 3.7 million barrels to 332.4 million barrels in the week ended December 14th. Despite the decline, inventory levels remained above the upper limit of the average range.

While gasoline stockpiles rose by 0.9 million barrels, remaining above the upper limit of the average range, distillate inventories declined by 2.9 million barrels. Nonetheless, distillate inventories also remained above the upper boundary of the average range. Refinery capacity averaged 80.2% over the four weeks ended December 11th compared to 80.1% in the previous week.

Gold futures, which gained $13.20 to $1,136.20 an ounce in the previous session, are currently moving down $19.70 to $1,116.50 an ounce.

On the currency front, the U.S. dollar is trading at 90.04 yen, stronger than the 89.7815 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is currently valued at $1.4343.

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Asian Markets End In Negative Territory

The markets across Asia ended in negative territory on Thursday in reaction to the Fed announcement yesterday which hinted that it might consider exiting from the stimulus measures once the economy shows signs of recovery. Traders preferred to lock in gains after the dollar rose to a 3-month high against the Euro as well as other major currencies.

In Japan, the benchmark Nikkei 225 Index turned negative at the last minute, losing 13.61 points, or 0.13% to 10,164, while the broader Topix index of all First Section issues was down 2.01 points, or 0.22%, to 896.

On the economic front, data released by the Cabinet Office revealed that the country's leading index for October has been revised down to 89.4 from 89.7 reported earlier. Further, the coincident index came in at 94.3 in October, in line with the preliminary estimate. In September, the reading was 93.2. Further, the lagging index reading for October was revised to 83.7 from 84.8.

Banking stocks ended lower on profit taking after having surged in the previous session. Sumitomo Mitsui Financial declined 1.49%, Mitsubishi UFJ Financial fell 1.29% and Resona Holdings shed 1.22%. However, Mizuho Financial bucked the trend and ended in positive territory with a gain of 0.55%.

Automotive stocks ended lower on profit taking. Honda Motor slipped 0.33%, Nissan Motor declined 0.41%, and Mitsubishi Motors fell 0.71%. However, Toyota Motor Corp. ended unchanged from previous close while Suzuki Motor advanced 0.92%.
 
Real estate stocks also ended lower on profit taking. Mitsubishi Estate declined 2.67%, Sumitomo Realty and Development shed 1.25%, Mitsui Fudosan slipped 0.81% and Tokyu Land Corp. fell 1.40%.

Securities stocks also ended in negative territory. Nomura Holdings declined 1.02%, Matsui Securities slipped 0.63%, Daiwa Securities fell 2.87% and Mizuho Securities lost 2.32%.

In Australia, the benchmark S&P/ASX200 Index added 8.40 points, or 0.18% to close at 4,670, while the All-Ordinaries Index ended at 4,690, representing a gain of 13.50 points, or 0.29%.

On economic front, results of a survey released by the Australian Chamber of Commerce and Industry & Westpac Banking Corporation revealed that manufacturing activity in the country during the fourth quarter expanded for the first time since the second quarter of last year. The Westpac-ACCI actual composite index rose 2.2 points to 50.4 in the fourth quarter, its third consecutive rise to reach its highest since the second quarter of 2008. However, it remained below its average reading of 51.9 for the sixth straight quarter. A reading above 50 suggests expansion in the sector.

Separately, the Australian Bureau of Statistics revealed that overseas merchandise imports into the country declined in November by a seasonally adjusted 3% or A$565 million on a balance of payments basis. The data further noted that actual international merchandise imports were down 2%.

National Australia Bank dragged the markets lower in late trading session after announcing that it would team up with France's AXA SA, the majority shareholder for AXA Asia Pacific, to buy the local as well as New Zealand assets held by AXA Asia Pacific, for a consideration of $13.29 billion.

The shares of National Australia Bank, which were in trading halt in early trading session, slumped 4.65% after resuming trading in late trading session. Among other banks, Commonwealth Bank of Australia declined 1.12% and Westpac Banking Corp. fell 1.06%. Investment banker Macquarie Group also declined 2.52%. ANZ Bank, however, bucked the trend and ended in positive territory with a gain of 0.37%.

Mining and metal stocks ended mixed. BHP Billiton added 0.88%, Rio Tinto advanced 1.20%, Gindalbie Metals rose 1.05%, Minara Resources gained 2.07%, and Mincor Resources climbed 4.07%. However, Fortescue Metals slipped 0.46%, Iluka Resources edged down 0.29%, and Oz Minerals fell 0.43%.

Oil Stocks ended in negative territory. Oil Search Ltd slipped 0.18%, Origin Energy shed 0.50%, Santos edged down 0.07% and Woodside Petroleum declined 0.19%.
 
Mixed trading was witnessed among gold stocks. While Lihir Gold gained 1.24%, Newcrest Mining slipped 0.45%.

Retail stocks also ended mixed. While David Jones added climbed 2.06% and Harvey Norman added 0.24%, JB Hi-Fi lost 2.49%, Wesfarmers fell 1.52% and Woolworths declined 0.92%.

In Hong Kong, the Hang Seng Index ended in negative territory for the third successive day and ended at 21,347, representing a loss of 264.11 points or 1.22%, led by banks and china-related stocks taking cues from the mainland Chinese market where the banks were instructed to restrict lending and also reduce the prospect of more bad loans. Property stocks also ended in negative territory. Strengthening of the US dollar against the major currencies and weak trading across other markets in the region also impacted market sentiment. Of the 42 components in the index, as many as 38 stocks ended in negative territory.

In South Korea, the KOSPI Index ended in negative territory with a loss of 16.40 points, or 0.99% at 1,648 as institutional investors, both domestic and foreign, unloaded shares of large cap companies on profit taking. Banks, automotive and builders were the major losers in the trading session. The announcement from the Fed, mixed closing on Wall Street in the previous session and negative cues from other markets in the region also impacted market sentiment.

The Indian market finished a volatile session moderately lower on Thursday, weighed down by weak global cues after the U.S Fed's decision to keep key interest rates steady offered little surprise. High-beta realty, oil/gas and capital goods stocks fell, while consumer durable, healthcare and IT stocks rose notably, helping limit the losses. The benchmark BSE Sensex finished at 16,894, down 19 points or 0.11%, while the S&P CNX Nifty closed almost flat at 5,042.

Among other major markets in the region, China's Shanghai Composite Index plunged 76.14 points, or 2.34%, to close at 3,179, Taiwan's Weighted Index slipped 9.43 points, or 0.12%, to close at 7,742, Indonesia's Jakarta Composite Index declined 12.97 points, or 0.51%, to close at 2,509, and Singapore's Strait Times Index edged down 0.66 points, or 0.02%, to close at 2813.

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The major European markets are moving to the downside, with sentiment hurt by the Fed’s statement, which did not convey anything decisively about the Fed’s future course of action. In the U.K., sentiment was weighed down by weak retail sales.

The French CAC 40 Index and the German DAX Index are moving down 0.82% and 0.67%, respectively, while the U.K.’s FTSE Index is receding 0.93%.

In economic news, the U.K. Office for National Statistics revealed that the U.K.’s retail sales fell 0.3% month-over-month in November following a revised 0.6% increase in September. Economists had estimated a 0.5% increase for the month. Annually, sales volume rose 3.1%, smaller than the 3.7% increase expected by economists.

A report released by Eurostat showed that the euro zone’s construction output fell 0.6% month-over-month in October. In September, output fell 0.8%. Annually, construction output declined 7.7% compared to the 8.1% drop in the previous month.

U.S. Economic News

The Labor Department released a report showing another unexpected increase in first-time claims for unemployment benefits, with jobless claims remained below the key 500,000 level for the fourth consecutive week.

The report showed that initial jobless claims rose to 480,000 from the previous week's revised figure of 473,000. Economists had been expecting jobless claims to slip to 465,000 from the 474,000 originally reported for the previous week.

The Conference Board is scheduled to release its report on the U.S. leading index for November at 10 AM ET. The consensus estimate calls for a 0.7% increase in the leading indicators index for the month.

The leading economic indicators index continued to increase in the month of October, although the increase by the index was slightly smaller than economists had been anticipating.

The leading indicators index rose 0.3% in October following a 1% gain in September and a 0.4% increase in August. While the index rose for the seventh consecutive month, economists had been expecting a 0.4 percent increase.

The results of the Philadelphia Federal Reserve's manufacturing survey are also due out at 10 AM ET. Economists expect the diffusion index of current activity to show a reading of 16 for December.

Activity in the mid-Atlantic region's manufacturing sector picked up in November by much more than economists had expected. The Philly Fed said its index of regional activity in the manufacturing sector rose to 16.7 in November from 11.5 in October, with a positive reading indicating growth in the sector. Economists had been expecting a much more modest increase by the index to 12.2.

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General Mills (GIS) may be in focus after it reported second quarter adjusted earnings of $1.54 per share. Revenues fell 2% to $4.08 billion. Analysts estimated earnings of $1.45 per share on revenues of $4.07 billion. The company raised its 2010 earnings estimate to $4.52-$4.57 per share from its previous forecast of $4.40-$4.45 per share.

Cedar Fair (FUN) could see some activity after it announced a deal to be acquired by Apollo Global Management, with the private equity firm offering $11.50 per share in cash for each Cedar Fair limited partnership unit. The deal is valued at $2.4 billion, including the refinancing of the company’s outstanding indebtedness.

Bank of America (BAC) is likely to be in focus over the appointment of internal candidate Brian Moynihan as its CEO after Kenneth Lewis relinquishes office by the year-end.

Apogee Enterprises (APOG) could react to its announcement that it has reported third quarter revenues of $179.8 million, down 25% year-over-year. Earnings from continuing operations fell to 39 cents per share, lower than 63 cents per share in the year-ago period. For 2010, the company expects revenue to decline of 22%-24%. Analysts estimated earnings of 21 cents per share on revenues of $182.46 million.

AutoZone (AZO) is likely to move in reaction to its announcement that its board authorized the buyback of an additional $500 million of the company’s common stock in connection with its ongoing share buyback program.

ABM Industries (ABM) is expected to be in focus after it said its fourth quarter revenues fell to $868 million from $905.8 million in the year-ago period. Net income rose 38.1% to 29 cents per share, while adjusted income from continuing operations climbed to 39 cents per share from 36 cents per share last year. The consensus estimated earnings of 38 cents per share. For 2010, the company expects adjusted income from continuing operations of $1.35-$1.45 per share compared to the $1.49 per share consensus estimate.

Herman Miller (MLHR) may also be in focus after it said its second quarter earnings declined to 17 cents per share from 60 cents per share in the year-ago period. On an adjusted basis, the company reported earnings of 20 cents per share. Revenues fell about 28% to $343.7 million. Analysts estimated earnings of 20 cents per share on revenues of $334.5 million.

Hovnanian Enterprises (HOV) could see weakness after it reported a fourth quarter loss of $3.21 per share compared to a loss of $5.79 per share last year. The recent quarter’s results included pre-tax charges of $146.4 million. Revenues fell to $437.4 million from the year-ago’s $721.4 million. Analysts estimated a loss of $1.40 per share on revenues of $454.1 million.

Paychex (PAYX) may also be in the spotlight after it said its second quarter earnings fell to 35 cents per share from 39 cents per share in the year-ago period. Revenues were down 5% year-over-year to $496.6 million. Analysts estimated earnings of 33 cents per share on revenues of $496.39 million.

The results based on a comScore survey showed that Google (GOOG) still ranks the leader in the online search market, with a market share of 65.6% in November. Microsoft (MSFT), with its recently launched Bing, though remaining in the third position, gained 0.4 percentage points of share to 10.3%. However, Yahoo’s share in the market slipped 0.5 percentage points to 17.5%.

Danaher (DHR) could move to the upside after it said it expects fourth quarter adjusted earnings of $1.05-$1 per share, higher than its earlier estimate of 99 cents to $1.09 per share. The company also raised its 2009 adjusted earnings estimate to $3.46-$3.51 per share compared to its previous estimate of $3.40-$3.50 per share. Analysts estimated earnings of 97 cents per share and full year earnings of $3.46 per share. The company expects 2010 earnings of $3.80-$4.10 per share on core revenue growth of 1%-5%. Wall Street estimates earnings of $3.90 per share.

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