US & World Daily Markets Financial Briefing 18-05-2009

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Major Averages Move Considerably Higher In Early Trading

Stocks have moved significantly higher in early trading on Monday, with the major averages snapping back from a notably lower close in the previous session.

Banking, housing and commercial real estate stocks are posting strong gains, while some weakness has emerged among gold and tobacco stocks.

In the past few minutes, the major averages continue to move higher, challenging their highs for the session. The Dow is currently up 114.21 at 8,382.85, the Nasdaq is up 19.82 at 1,699.96 and the S&P 500 is up 11.56 at 894.44.

Markets Poised to Make a Comeback Even as Uncertainty Lingers

The major U.S. index futures are pointing to a higher opening on Monday. Sentiment seems to have improved, in line with the recent trend of a few up-days and a few down-days. Last week’s losses should bring in bargain hunters, who will be more than glad to take up position at more attractive levels. Today, the markets may derive comfort from home improvement retailers Lowe’s (LOW) earnings and positive guidance. Traders may also look for the results of the homebuilders survey to be released later in the session, especially as the housing sector is showing some sings of approaching a bottom.

The financial space weighed on the markets in the week ended May 15th, as the major averages reversed course and recorded losses for the week. Commodity stocks also saw significant weakness, as negative data weighed on the stocks on the premise that a delay in the economic recovery will impact demand for these commodities.

Last Monday, the markets paused following the strong run up in the past two weeks, with financials leading the way down in reaction to announcements regarding common stock offerings. However, technology stocks showed some resilience, though eventually ending lower. The major averages showed a mixed performance on Tuesday, even as the markets digested positive comments by Federal Reserve Chairman Ben Bernanke about the health of the banks.

Disappointing retail sales performance and an increase in foreclosures generated significant selling pressure in the markets on Wednesday, with the Dow Industrials and the S&P 500 Index ending down in excess of 2% each, while the Nasdaq Composite closed down over 3%. On Thursday, stocks fought their way up after the previous session’s slump, as bargain hunting in the beaten down technology and financial spaces imparted some buoyancy to the markets.

On Friday, the major averages remained below the unchanged line for the better part of the session amid uncertainty over the economic recovery. For the week, the Dow Industrials was down 3.57%, the S&P 500 Index lost 4.9% and the Nasdaq Composite moved down 3.39%.

Among the sector indexes, the KBW Bank Index and the Amex Securities Broker/Dealer Index ended down 16.21% and 9.12%, respectively for the week. The Philadelphia Semiconductor Index lost close to 3%. The Dow Transportation Average confirmed the Dow Industrials’ downward move with an 8.9% decline for the week, while the Dow Jones Utility Average fell 5.9%.

The Amex Oil Index recorded a weekly loss of 7.45% compared to a 10.23% drop by the Philadelphia Oil Service Index. The S&P Retail Index and the Philadelphia Housing Sector Index fell 5.82% and 11.4%, respectively, while the Amex Airline Index lost 10.26%.

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Biovail Corp. said a wholly owned subsidiary has entered into a definitive agreement to acquire worldwide development and commercialization rights to the entire portfolio of tetrabenazine products, including Xenazine/Nitoman, and the associated intellectual property rights held by Cambridge Laboratories (Ireland) Ltd and its affiliates.

The company expects that the acquisition will be immediately accretive to revenues, margins and operating cash flows, and anticipates to be moderately accretive to GAAP earnings per share in 2010.
 
As per the terms of the agreement, Biovail will make a payment of $200 million upon closing of the transaction and will pay an additional $30 million in two tranches over the subsequent 24 months to acquire these worldwide development, manufacturing, and commercialization rights to the tetrabenazine product portfolio.

This includes a controlled-release formulation of tetrabenazine in development for Tourette Syndrome, as well as a tetrabenazine-derived new chemical entity, RUS350 - a next-generation molecule that may enter Phase 2 clinical development in the next 12 months.

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The major markets across the Asia-Pacific region ended mixed on Monday, taking cues from Wall Street, where the major indices ended lower Friday on concerns about the economic outlook. While the markets in Australia, New Zealand, South Korea, and Japan ended lower, the markets in China, Hong Kong, Singapore, Indonesia and Taiwan ended in positive territory. India’s Sensex soared more than 17%, forcing regulators to stop trading for the day as markets cheered the return to power of the ruling Congress party with a clear mandate.

In Tokyo, the benchmark Nikkei 225 Index declined 2.40% or 226.30 points to close at 9,039 and the broader Topix Index of all First Section Issues lost 21.94 points or 2.50% to 860. On the economic front, a report from the Cabinet Office showed that Japanese consumer confidence rose to 33.2 in April from 29.6 in the previous month. Economists had expected the index to rise to 31.

Exporters declined amid concerns about the European economy, which shrank at a faster pace, and the local currency strengthening against the U.S dollar. Canon dropped 4.83%, Sony lost 5.84% and Sharp fell 4.65%. Panasonic declined more than 7.50% after the company forecast a loss for the second straight quarter.

In the banking sector, Mitsubishi UFJ, Japan's biggest bank, declined 3.43%, Mizuho Financial fell 3.80%, Sumitomo Mitsui lost 4.08% and Resona Holdings slipped 3.45%. Brokerage Nomura Holdings lost 5.01%. Oil stocks and trading houses also came under significant selling pressure.

In Sydney, the benchmark S&P/ASX 200 index lost 37.60 points, or 1.00% to 3,736, and the broader All Ordinaries index dropped 37.30 points, or 1.00% to close at 3,722. Mining-related stocks led the declines on lower commodity prices. Index leader BHP Billiton lost 1.32% and its rival, Rio Tinto shed 1.18%.

Retail stocks also ended weaker. David Jones shed 3.51%, Wesfarmers lost 3.53%, Woolworths slipped 0.15%, and Harvey Norman declined 3.93%. Mixed trading was witnessed among banking stocks. While ANZ Bank gained 0.20%, Commonwealth Bank of Australia edged down 0.89% and Macquarie Group lost 3.09%. Westpac Banking declined 4.55% after the stock went ex-dividend. National Australia Bank remained unchanged from previous close.

Energy stocks also showed mixed sentiment. Woodside lost 1.56% and Oil Search declined 1.37%, but Santos edged up 0.50%. On the other hand, gold stocks ended higher following a rise in gold prices in Sydney. Lihir Gold advanced 1.34%, Sino Gold gained 2.92% and Newcrest Mining gained 1.02%.

In Hong Kong, the benchmark Hang Seng Index recouped its early loss and ended in positive territory, with a gain of 1.38% or 232.21 points at 17,023. Property stocks, china-related stocks and financials led the gains in the market.

Among property stocks, New World Development surged up 6.87%, Henderson Land gained 3.49%, Wharf Holdings advanced 6.24%, SHK Properties added 1.59% and Sino Land rose 4.05%. China Unicom advanced 2.57%, China Mobile edged up 0.14%, China Resources gained 1.89%, and China Shinhua added 3.23%.

In the financial space, Bank of China rose 1.39%, Bank of Communications advanced 1.92% and BOC Hong Kong added 0.73%. HSBC Holdings remained unchanged from previous close while Hang Seng Bank gained 1.87%

The benchmark KOSPI Index in South Korea lost 0.36% or 5.05 points to close at 1,387. Financials were mostly higher, with KB Financial Group adding 1.58% and Woori Finance gaining 4.95%. However, Shinhan Financial declined 1.72%

In the auto space, Hyundai Motor gained 1.10% and Kia Motor advanced 4.80%. Ssangyong Motor however remained unchanged from previous close. Technology stocks ended mixed. While Hynix Semiconductor gained 0.75%, LG Display fell 1.70%, and LG Electronics declined 1.36%. Market heavyweight Samsung Electronics recovered its early loss and ended higher by 0.18%.

Among the other major markets, China's Shanghai Composite Index gained 7.52 points, or 0.28% to 2,653, Indonesia's Jakarta Composite Index advanced 3.01% or 52.65 points to 1,804, Singapore's Strait Times Index added 33.14 points, or 1.55% to 2,173, and Taiwan's Weighted Index advanced 88.72 points, or 1.37% to 6,578.

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The major European markets recovered after a weak start and are currently higher, with the French CAC 40 Index and the German DAX Index rising 1.23% and 1.28%, respectively. The U.K.’s FTSE 100 Index is advancing 1.16%.

On the economic front, the Rightmove said that the U.K. house prices rose for the fourth month in a row in May, with the asking prices moving up 2.4% month-over-month. Annually, house prices were down 6.2%, slower than the 7.3% decline recorded in April.

Meanwhile, Eurostat, the statistical arm of the European Union, released the first estimate for the euro area’s trade balance, which showed a surplus of 0.3 billion euros in March compared to a deficit of 2.3 billion euros last year. In February 2009, the trade deficit was 1 billion euros. On a monthly basis, exports rose a seasonally adjusted 1.4% compared to a 0.6% increase in imports.

U.S. Economic Reports

Traders have very little by way of economic news to digest in the unfolding week following a week, where a flurry of reports was released. The Commerce Department’s housing starts report for April, the National Association of Homebuilders’ housing market index for May and the minutes of the April FOMC meeting are likely to be in the spotlight during the week.

Traders may also pay attention to the results of the Philadelphia Fed’s manufacturing survey for May and the Conference Board’s leading indicators for April. Apart from these, some degree of importance may also be attached to the Fed speeches scheduled for the week and the regularly scheduled jobless claims and oil inventory reports.

Housing starts may see a rebound in April, although economists are still not certain that the trough has been reached. According to Wachovia Securities housing starts may hover around the half-million mark till the first half of the year before beginning to slowly climb in the second half of the year.

Positive stock market performance, yield spread and initial claims are likely to have a positive impact on the Conference Board’s leading indicators. However, money supply, index of supplier deliveries and non-defense capital goods orders are likely to act as drags.

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

In March, the housing market index rose 5 points to 14. The March reading was the highest since October. All three sub-indexes improved, with the indexes for present conditions, future sales outlook and prospective buyers traffic rising in the month. Builder confidence has apparently benefited from record low mortgage rates and the advent of the spring season.

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Crude oil futures are rising $1.22 to $57.56 a barrel after the commodity declined $2.29 or 3.9% to $56.34 a barrel in the week ended May 15th.

The commodity began the week with a modest loss, but on Tuesday, it rebounded and rose to a 6-month high around $60-a-barrel before pulling back slightly to close with a modest gain. Tuesday’s advance was premised mainly on the falling value of the dollar.

On Wednesday, crude oil futures fell defying a weekly oil inventory data that showed depletion in crude oil inventories for the recent reporting week.

An EIA global oil demand forecast that saw a downward revision exerted bearish influence on prices. However, on Thursday, oil rose again only to decline by about $2-a-barrel on Friday.

Gold futures are currently receding $1.30 at $933.60 an ounce. In the previous week, the precious metal ended up $16.40 or 1.8% at $931.30 an ounce, adding to the 3% gain it recorded in the earlier week.

The dollar showed a mixed performance in the week ended May 15th, with the greenback declining 3.4% against the yen to 95.07 yen, while it advanced 1.1% against the common currency to $1.3488 a euro.

The yen’s strength in the past week stemmed from the fact that carry traders unwound positions due to equity market weakness, triggering demand for the Japanese currency to repay the yen-denominated loans.

Meanwhile, dismal economic reports from the euro zone region, including GDP data from euro zone, Germany and France, kept sentiment towards the euro subdued.

Currently, the dollar is trading at 95.769 yen and is valued at $1.3491versus the euro.

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Lowe’s is rising in pre-market trading after it raised its 2009 earning per share to $1.13-$1.25 from its earlier estimate of $1.04-$1.20. The company estimates sales to decline by 2% or rise by 1%. Analysts, on average, estimate earnings of $1.11 per share on revenues of $47.16 billion. The company reported first quarter earnings of 32 cents per share, down from 41 cents per share last year, as sales fell to $11.83 billion from $12 billion. The consensus estimates call for earnings of 25 cents per share on sales of $11.63 billion.

AIG is likely to be in focus after it announced that it would accelerate steps to split American International Assurance Company as an independent entity and see a public listing on an Asian stock exchange.

Energizer Holdings may see some weakness after it said it will sell an incremental 1.425 million shares at a price of $49 per share. The company expects to complete the offering by May 2009, while it intends to use the proceeds to acquire the shave preparation business of S.C. Johnson & Son and for general corporate purposes.

Amylin Pharma is likely to move in reaction to its announcement that it has requested its shareholders to vote for its director nominees following the release of a report released by RiskMetrics Grou, which said Amylin did not fire on all strategic pistons and its shares underperformed a relevant index and peer group. Based on the report, Eastbourne urged Amylin shareholders to vote for the nominees of Eastbourne and Carl Icahn.

Triad Guaranty could be in focus after it reported a first quarter loss of $3.68 per share compared to a loss of $10.09 per share last year. Total revenues fell to $50.9 million from $84.3 million last year.

Manitowoc is expected to move in reaction to its announcement that it has decided to sell its Enodis ice machine operations to affiliates of certain funds managed by Warburg Pincus for $160 million. The sale was done to satisfy regulatory conditions to divest the ice business following Manitowoc’s acquisition that was completed on October 27th, 2008.

Dillard’s may also be in focus after it reported that its first quarter sales declined 12% to $1.47 billion. The company reported earnings of 10 cents per share, including a pre-tax gain of $1.5 million, compared to a profit of 4 cents per share last year. Analysts’ estimates, which typically exclude one-time items

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