US & World Daily Markets Financial Briefing 19-01-2010

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Mixed Earnings May Restrain Buying Momentum

The major U.S. index futures are pointing to a mixed opening on Tuesday, with the frail sentiment likely to be disturbed by mixed earnings. Citigroup (C) reported a loss for its fourth quarter, which trailed some estimates. Fears of integration pangs are likely to weigh on the shares of Kraft Foods (KFT). Commodities are extending their slide, as growth concerns are creating uncertainty about demand.

Data from across the Atlantic and Asia were bordering on the negative. Japanese consumer confidence deteriorated further, while in Germany, the Zew economic sentiment fell by much more than estimated. Sentiment on Wall Street may also be dictated by the housing report to be released during the middle of the session.

U.S. stocks reversed course in the week ended January 15th, as economic uncertainty impacted market sentiment. Last Monday, the major averages closed in a mixed fashion after showing volatility throughout the session, as traders expressed apprehension ahead of Alcoa’s (AA) earnings. The Dow Industrials and the S&P 500 Index closed higher, while the Nasdaq Composite gave back some ground.

However, the major averages receded on Tuesday as Alcoa’s disappointing earnings and the Chinese move to tighten lending generated selling pressure. All three of the major averages closed notably lower.

Although stocks showed a lack of direction on Wednesday, they ended higher, encouraged by evidence of strong growth in Asia and Europe and optimism over Intel’s (INTC) earnings. Stocks ended another lackluster session on Thursday modestly higher. However, weighed down by mixed economic and earnings news, the major averages ended Friday’s session with notable losses.

Consequently, for the week, the Dow Industrials ended down 0.08% and the S&P lost 0.78%, while the Nasdaq Composite Index receded 1.26%.

Among the sector indexes, the NYSE Arca Gold Bugs fell 5.16%, the Philadelphia Semiconductor Index receded 6.26% and the Philadelphia Oil Service Index and the S&P Retail Index declined over 2% each. The NYSE Arca Oil Index ended down 1.88%.

Despite the stellar results and positive guidance from Intel, the company’s shares fell over 3% in Friday’s session, apparently due to the fact that the markets have already priced in the news. Some also believe that the pullback reflects caution among investors, as most analysts believe that the company’s margins may have peaked.

Along with Intel, the Philadelphia Semiconductor Index also pulled lower, dropping about 3.50%. The retreat has brought the index closer to a support around 345. If this level is violated to the downside, the index could dip as low as 338. On the other hand, if the index holds support around 345, it could make a run at its near term resistance around 356. The RSI, a momentum indicator, has declined to oversold levels, suggesting a reversal is likely.

The fourth quarter reporting season has got off to a mixed start, with Alcoa’s earnings disappointing the Street, while Intel reported a solid reversal in an indication that the tech sector may lead the recovery this time around. Specifically, the performance of chip companies is considered to be a leading indicators for demand for other assembled technology products.

TSX May Struggle To Sustain Gains At Open; BOC Holds Steady On Rates

Canadian stocks may struggle to sustain gains witnessed in the previous session on Tuesday as falling oil prices may weigh on the resource heavy Bay Street.

Snapping its two-day losing streak, the S&P/TSX Composite Index ended higher on Monday, adding 65.17 points or 056% at 11,750.54. Analysts attribute the previous session's rally to bargain hunting after the main index slid to a 2-weeks low last Friday.

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent. The price of oil was lingering around $78 on concerns over diminishing demand, while the price of bullion edged up $1.10 to $1,131.20.

Financial stocks may be in play after Citigroup Inc., the third largest U.S. bank, announced a $7.6 billion fourth quarter loss or $0.33 per share loss.

Meanwhile, Statistics Canada said Tuesday that the country's composite leading indicator soared 1.5% in December, largely helped by household spending and a surging stock market. Analysts were expecting a 1% growth in the index.

In corporate news, Alexis Minerals Corp. said its bid to acquire Garson Gold Corp. has now resulted in over 90% of Garson shares being tendered to the Offer. The company added that the Garson Gold acquisition gives Alexis a third project area in the prospective Snow Lake Mining Camp in Manitoba.
 
Oil and gas explorer Stealth Ventures Ltd. said Monday that Robert Bell has resigned as Chairman of the Board of Directors and as a Director of the company, effective January 18.

Exploration and mine development company Exeter Resource Corp said it will undertake a spin-out transaction in which the assets of Exeter would be separated into two highly focused companies. Exeter will retain all assets relating to the Caspiche gold-copper discovery, together with approximately $50 million in working capital, and will transfer to a new corporation Cerro Moro and other exploration properties in Argentina and approximately $25 million in working capital.

A group of investors, led by former senator Jerry Grafstein, were reportedly intensifying their bid for the ailing Canwest Global Communications.

Mineral explorer International Tower Hill Mines announced the receipt of new, positive, metallurgical test results from the Sunshine Zone on its Livengood Gold project in Alaska.

Lovitt Resources Inc. announced a non-brokered private placement of up to 1.2 million units for C$0.60 per unit.

In brokerage updates, UBS trimmed Potash Corp. price target to $116 from $120. Macquarie cuts Iteration Energy to an 'Underperform' from a 'Neutral' rating.

Commodity, Currency Markets

Crude oil futures are trading down $0.65 at $77.35 a barrel after receding $4.75 or 5.74% to $78 a barrel in the week ended January 15th. The weakness reflected a lack of conviction that the economic recovery will be smooth enough to trigger a sustainable increase in demand following the release of mixed economic data.

Crude oil declined modestly on Monday and fell sharply on Tuesday, declining by about $1.75 a barrel. Oil fell sharply again on Wednesday in reaction to a bearish weekly oil inventory report. The black gold fell modestly on Thursday and declined yet again on Friday to close on a negative note.

According to CIBC World Markets, the overstretched rally in commodities that was witnessed for most of 2009 could persist into the next quarter or two or at least prevent a sharp reversal of fortune. According to the firm, metal markets are benefiting from the tilt in global growth towards China and other emerging markets. Commodities may also benefit from stimulus-induced government infrastructure spending.

However, the firm cautions about excessive optimism on commodities, saying some of the upside reflects the weakening of the dollar. Given the prospects of the dollar stabilizing and the government infrastructure tapering off towards the end of this year, commodities may witness a soft patch later this year.

Gold futures are currently sliding $3.30 to $1,130.40 an ounce. In the previous week, the black gold fell $8.40 or 0.74% to $1130.50 an ounce.

The dollar finished the week ended January 15th mostly lower, with the greenback retreating about 2% against the yen to 90.80. On the other hand, it gained modestly against the euro, rising 0.2% to $1.4391.

Currently, the dollar is trading at 90.88 yen and is valued at $1.4294 versus the euro.

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Asian Markets End Mixed Ahead Of US Earnings

Mixed trading was witnessed in the Asian markets on Tuesday with the markets in Japan, Australia, South Korea, India and Taiwan ending in negative territory, while China, Hong Kong, Indonesia and Singapore ended in positive territory. Profit taking ahead of earnings in the U.S. and lack of cues from Wall Street, which was closed for trading in the previous session, impacted sentiment across the region, while optimism about sustaining global economic recovery is intact.

In Japan, the benchmark Nikkei 225 Index fell 90.18 points, or 0.8%, to 10,765, while the broader Topix index of all First Section issues shed 7.79 points, or 0.8%, to 950.

On the economic front, results of a monthly survey conducted by the Cabinet Office in Japan revealed that consumer confidence in the country dropped to 37.9 in December from 39.9 recorded in the previous month. The results further noted that households' consumer confidence weakened to 37.6 in December from 39.5 reported for November.

Trading companies, automotive companies and exporters declined as the local currency strengthened against the US dollar. The Japanese Yen strengthened to 90.34 per US dollar during the trading session from 90.79 per US dollar, impacting the corporates deriving export realizations.

Among the trading companies, Mitsubishi Corp., lost 2.59%, Mitsui & Co. slipped 1.19%, Toyota Tsusho Corp. shed 0.85% and Sumitomo Corp. fell 0.95%.

Automakers also ended in negative territory. Honda Motor fell 2.08%, Toyota Motor shed 1.19%, Suzuki Motor slipped 0.59%, Nissan Motor lost 1.59% and Isuzu Motors declined 0.98%.
 
Exporters also ended weaker. Canon Inc. declined 1.42%, Sharp Corp. fell 2.67% and Sony Corp, slipped 0.81%.

Banks also ended in negative territory ahead of key earnings from Citigroup, Goldman Sachs, Bank of America and Morgan Stanley during the course of the week in the U.S. Sumitomo Mitsui Financial lost 3.11%, Mitsubishi UFJ Financial fell 2.41%, Mizuho Financial declined 2.11% and Resona Holdings slipped 0.37%.

Japan Airlines continued to slide lower as the Board prepares for insolvency protection. The stock declined 16.67% amid higher volumes on speculative trading. The other airline company, All Nippon Airways lost 4.21%.

Mixed trading was witnessed among shipping stocks. Mitsui OSK Lines added 0.99% and Kawasaki Kisen Kaisha advanced 0.87%. However, Nippon Yusen ended in negative territory with a loss of 0.58%.

In Australia, the benchmark S&P/ASX Index declined 49.90 points, or 1.02% to close at 4,861, while the All-Ordinaries Index ended at 4,890, representing a loss of 46.50 points, or 0.94%.

On the economic front, data released by the Australian Bureau of Statistics revealed that merchandise exports 7%, or A$1.16 billion, in seasonally adjusted terms during December to A$17.42 billion. The data further noted that while imports value of intermediate & other merchandise goods, capital goods and non-monetary gold rose during the month, imports of consumption goods declined. In absolute terms, imports increased 1% during the month to A$17.66 billion from A$17.55 billion in November.

Banks dragged down the indices on profit taking following recent rally. Disappointing results from JPMorgan on Friday and caution ahead of results from major banks including Citigroup, Bank of America, Goldman Sachs and Morgan Stanley during the course of the week also influenced traders to lock in gains and move to the sidelines. Commonwealth Bank of Australia lost 2.43%, National Australia Bank edged down 0.18% and Westpac Banking shed 1.19%. However, ANZ Bank bucked the weak trend and managed to end in positive territory with a gain of 0.13%. Investment banker Macquarie Group remained unchanged from previous close.

Mining and metal stocks also ended in negative territory. BHP Billiton slipped 0.30%, Rio Tinto shed 0.47%, Fortescue Metals lost 2.27%, Gindalbie Metals plunged 4.20%, Iluka Resources declined 1.69% and Oz Minerals fell 2.11%.

Oil stocks also ended weaker on lower crude oil prices. Woodside Petroleum slipped 1.04%, Santos lost 1.30%, Oil Search declined 2.64% and Origin Energy fell 1.86%.
 
Mixed trading was witnessed among gold stocks. While Lihir Gold added 0.30%, Newcrest Mining slipped 0.36%.

Among the gainers, Computershare soared 8.20% after the world's biggest share registry company raised its earnings per share guidance.

Travel services company, Flight Center, was the other notable gainer, having climbed 7.34% after the company also revised its guidance forecast for the year.

In Hong Kong, the Hang Seng Index end in positive territory with a gain of 217.97 points, or 1.02%, and closed at 21,678. The market, having ended in negative territory in the past five trading sessions, witnessed bargain hunting in late trading session, as traders evinced fresh buying interest at lower levers on increasing confidence that the global economic recovery will be sustained and earnings from US companies will be much better than analysts' expectations. Chinese banks were the major gainers in the market with China Construction Bank climbing 4.07% and ICBC gaining 3.05%.

In South Korea, the KOSPI Index ended in negative territory with a loss of 1.56 points, or 0.09%, at 1,710, as traders locked gains from recent rally and preferred to move to the sidelines ahead of earnings from major companies including Citigroup and IBM later in the day in the U.S. Disappointing results from JP Morgan, weakness in commodities and concerns about sustaining global economic recovery impacted market sentiment. Banks led the declines while technology stocks ended in positive territory on speculation of higher demand.

Caution ahead of earnings from major U.S companies this week, negative cues from Asia and Europe, and reports that India's monthly inflation may touch double digits by March dragged the Indian market sharply lower on Tuesday. After a flat start, the benchmark Sensex moved sideways till mid-session before finally ending near the day's lows at 17,486, down 155 points or 0.88% and the Nifty dropped 49 points or 0.93% to 5,226.

Among other major markets open for trading in the region, Taiwan's Weighted Index ended in negative territory with a loss of 88.82 points, or 1.07% at 8,249. However, Indonesia's Jakarta Composite Index added 23.52 points, or 0.89% to close at 2,666, China's Shanghai Composite Index advanced 9.78 points, or 0.30%, to close at 3,227, and the Strait Times Index in Singapore edged up 0.90 points, or 0.03%, to 2,913.

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The major European averages are trading notably lower across the board, with the French CAC 40 Index and the German DAX Index losing 0.44% and 0.92%, respectively, while the U.K.’s FTSE 100 Index is moving down 0.72%.

In corporate news, Cadbury (CBY) finally agreed to a friendly takeover offer from Kraft Foods. The U.S. company raised its offer for the British confectioner to 840 pence per share, valuing the latter at 11.5 billion pounds. The offer provides for paying 500 per share in cash and the reminder in shares of Kraft.

On the economic report, Germany’s Zew Center for European Economic Research released the results of its January survey, which showed a 3.2 point decline in the economic sentiment index to 47.2. Economists had expected a more modest drop to 50. The index measuring current the economic situation improved 4 points to 56.6.

Eurostat reported that the euro area’s construction output fell 1.1% month-over-month in November compared to a 0.4% drop in October. Annually, construction output declined 8%, steeper than the 6.7% drop in the previous month.

Meanwhile, U.K. consumer price inflation rose to 2.9% year-over-year in November compared to a 1.9% rate in November, with the recent month’s reading climbing to its highest level since March 2009 and also exceeding economists’ estimate of 2.6%. Thus, the inflation rate climbed above the central bank’s target of 2%. On a monthly basis, consumer prices rose 0.6%, bigger than the 0.3% increase expected by economists.

U.S. Economic Reports

Despite the week being abbreviated due to the public holiday on Monday on account of Martin Luther King Day, the week's calendar consists of some key market moving economic data. Among the reports scheduled to be released during the week, the Commerce Department's housing starts report for December, the results of the National Association of Homebuilders' January survey and the Philadelphia Fed's January manufacturing survey may assume prominence.

Traders may also closely watch the Conference Board's leading indicators index for December, the Labor Department's producer price index for December and the weekly jobless claims report for further cues on economic conditions. The public announcement of the upcoming Treasury auctions of 2 year, 5 year and 7 year notes, all due at 11 AM ET on Thursday, may also be of interest to traders, as the appetite for these instruments are an indicator of investor perception of the inflationary environment and growth.

Housing starts are expected to be almost flat in December and consequently, the annual change is expected to creep into positive territory. The muted expectations for housing starts are due to the unseasonably cold weather across the country. Going forward, the housing sector is likely to benefit from a government tax credit, lower home prices and record low borrowing costs.

Producer prices are also expected to be little changed compared to the previous month, as a rise in natural gas and metal prices is believed to have offset the decline in gasoline prices. However, the sharp decline in energy prices in late 2008 is likely to impact the annual comparisons. The core producer price inflation rate is expected at 0.1%, primarily due to the low capacity utilization exerting downward pressure on inflation.

The Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. for November at 9 AM ET. Economists estimate the net long-term flows to be $27.5 billion for the month.

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

In December, builder confidence edged down, with the housing market index receding 1 point to 16, marking the lowest point since June 2009. According to the National Association of Home Builders continued weakness in the economy and job markets weighed on consumers' potential home buying plans. The current sales conditions index eased 1 point to 16 and the index measuring sales expectations slipped 2 points to 26. Meanwhile, the index gauging traffic of prospective buyers remained unchanged for a third straight month.

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Baidu (BIDU) may be in focus after it revealed that its chief technology officer Yinan Li has resigned from the company for personal reasons.

DuPont (DD) is likely to see some activity after it said it will vigorously pursue its anti-trust, license and patent fraud claims in a license agreement dispute. This follows a U.S. District court ruling that the Roundup Ready license agreements between the company and Monsanto (MON) contain an unwritten term that prohibits DuPont from using one of its traits with Monsanto’s Roundup Ready trait. However, the judge ruled that DuPont’s separate anti-trust and patent fraud claims were not impacted and therefore would proceed.

Tyco International (TYC) is likely to move in reaction to its announcement that it has agreed to acquire Brink’s Home Security Holdings, which is currently operating as Broadview Security, for $42.50 per share or $2 billion in cash and stock. Tyco said it would combine Broadview with its ADT security business. Excluding transaction and integration related expenses, the company expects the deal to be accretive to its earnings before special items by about 7 cents per share in the first full year after closing. The accretive impact is expected to rise to 14 cents per share in year two. Additionally, the company expects operational synergies of $150 million.

Separately, the company, updated its guidance for 2010 first quarter earnings from continuing operations before special items, expecting the metric to come in at 63-65 cents per share compared to its earlier estimate of 48-50 cents per share. The company expects revenues of $4.25 billion for the first quarter. Analysts currently estimate earnings of 50 cents per share on revenues of $4.15 billion. The company maintained its 2010 adjusted earnings per share guidance of $2.30-$2.50 per share compared to the consensus estimate of $2.49 per share.

Associated Banc-Corp (ASBC) may also be in focus after it announced that it has closed its previously announced underwritten public offering of 44.84 million shares at $11.15 per share. The company noted that net proceeds from the offering were about $478.3 million.

Earnings

First Horizon National (FHN) reported a net loss available to common shareholders of 32 cents per share compared to a loss of 24 cents per share in the year-ago period. Analysts estimated a loss of 21 cents per share. The company noted that non-performing assets declined 14% sequentially, marking the third consecutive quarterly decline.

Parker Hannifin (PH) said its second quarter sales rose 5.3% to $2.4 billion. The company reported earnings of 64 cents per share, down from 96 cents per share last year. The consensus estimates had called for earnings of 36 cents per share on revenues of $2.25 billion. The company raised its 2010 earnings per share from continuing operations guidance by 44% to $2.40-$2.80 compared to the $2.02 per share consensus estimate.

TD Ameritrade (AMTD) reported that its fourth quarter net revenues fell to $624.62 million compared to $657.93 million last year. The company’s net income was 23 cents per share, lower than 26 cents per share in the year-ago period. Analysts, on average, estimated earnings of 26 cents per share on revenues of $634.05 million.

Citigroup’s fourth quarter results revealed a net loss of 33 cents per share on managed revenues of $7.9 billion. In the year-ago period, the company reported a loss of $3.40 per share. Adjusted for a $6.2 billion after-tax loss associated with TARP repayment and exiting the loss-sharing agreement, the company reported a net loss of 6 cents per share.

Forest Labs (FRX) said its third quarter earnings per share were 69 cents per share and included 3 cents per share restructuring costs and 25 cents per share new product license fee. On an adjusted basis, the company reported earnings of 97 cents per share, lower than $1.03 per share in the year-ago period. Net sales rose 8.4% to $997 million. Analysts estimated earnings of 86 cents per share on revenues of $1.04 billion.

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