US & World Daily Markets Financial Briefing 19-11-2009

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Lingering Labor Market Worries May Drag Stocks Lower

The major U.S. index futures are pointing to a moderately lower opening on Thursday, with stocks likely to see some further downside after ending the previous session modestly lower. The downward momentum for the markets is partly due to the release of a report showing that jobless claims were unchanged last week, hovering above the 500,000 level and pointing to continued weakness in the labor market. Traders may look to cash in on the strong gains posted in recent sessions.

U.S. stocks opened Wednesday’s session lower and languished in negative territory throughout the trading session. While the major averages staged a recovery attempt in the latter part of the trading day, they remained stuck below the unchanged line.

The Dow Industrials ended the session down 11.11 points or 0.1% at 10,426 and the S&P 500 Index receded 0.52 points or 0.1% to 1,110, while the Nasdaq Composite Index fell 10.64 points or 0.5% to 2,193.

The breadth among the Dow components was roughly mixed. Boeing (BA), Hewlett-Packard (HPQ), Intel (INTC), Kraft Foods (KFT), Merck (MRK) and United Technologies (UTX) were among the decliners, while Bank of America (BAC) rallied 3.68%. Home Depot (HD), Wal-Mart (WMT), Pfizer (PFE) also showed strength.

Among the sector indexes, the NYSE Arca Airline Index fell 1.88% and the NYSE Arca Biotechnology Index receded 1.34%. On the other hand, the KBW Bank Index rose 1.36%

The modest weakness in the markets was partly due to the release of a Commerce Department report showing that the rate of housing starts unexpectedly declined in October, although analysts pointed to uncertainty about the first-time home buyer tax credit as a possible reason behind the drop.

Housing starts fell 10.6 percent to an annual rate of 529,000 in October from the revised September estimate of 592,000. The drop surprised economists, who had expected starts to edge up to 600,000 from the previous month's initial estimate of 590,000.

A separate report from the Labor Department showed that consumer prices increased for the third consecutive month in October, with the continued price growth partly due to a notable increase in energy prices.

The consumer price index increased by 0.3 percent in October following an unrevised 0.2 percent increase in September. Economists had been expecting a somewhat more modest increase of 0.2 percent.

Core consumer prices, which exclude food and energy prices, increased by 0.2 percent in October, matching the increase seen in the previous month. The modest increase in core prices came in slightly above economist estimates of a 0.1 percent increase.

Bay Street Stocks Could Back Off Highs

Canadian stocks could give back some recent gains on Thursday morning as commodities are moving lower and U.S. futures are pointing toward a weak open. The market closed at its best level of 2009 yesterday.

Crude oil has slipped 45 cents to $%79.13, gold is down $2 to $1,139.20 and copper is slightly lower at $3.13 per pound.

Manulife Financial Corp. said Wednesday it will raise C$2.5 billion through a common equity offering in a bought deal at C$19.00 per share.

Agrium announced that stockholders of CF Industries Holdings (CF) have tendered about 30 million shares, or 62% of the total outstanding CF shares, into Agrium's offer to buy the company for about US$5.1 billion.
 
Baffinland Iron Mines Corp. announced a bought deal of 20.83 million units at a price of $0.48 per unit for gross proceeds of about $10 million.

In economic news, Canada's leading index rose 0.7% in October. An increase of 0.8% was forecast for October, compared to a 1.1% increase in September.

Wholesale sales edged up 0.2% in September. A decline of 0.5% was expected for September, compared to a 1.4% drop in August.

On Wednesday, the S&P/TSX Composite Index has added 22.69 points or 0.19% to settle at 11,652.69.

Currency, Commodity Futures

Crude oil futures are down $0.53 at $79.05 a barrel after rising $0.44 to $79.58 a barrel in Wednesday’s session. Gold futures are falling $2.90 to $1,138.30 an ounce. In the previous session, the precious metal rose $1.80 to $1,141.20 an ounce.

Among currencies, the U.S. dollar is trading at 88.786 yen compared to the 89.315 yen it fetched at the close of New York trading on Wednesday. The dollar is currently worth $1.4879 versus the euro.

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The markets across Asia ended mixed on Thursday as traders preferred to lock in gains and preferred to move to side lines as fresh concerns about sustaining the pace and magnitude of economic recovery resurfaced yet again on weaker than expected economic data related to housing starts and building permits in the U.S. While the markets in Japan, Hong kong, Taiwan, Indonesia and India in negative territory, the markets in Australia, South Korea, Singapore and China ended in positive territory with modest gains.

In Japan, the benchmark Nikkei 225 Index declined 127.33 points, or 1.3%, to 9549, and the broader Topix index of all First Section issues fell 12.35 points, or 1.5%, to 838.

On the economic front, data released by the Ministry of Economy, Trade and Industry revealed that all-industry activity dropped a seasonally adjusted 0.6% month-on-month in September, compared to the 0.9% increase in the previous month. Economists had expected the index to remain flat in September. On a yearly basis, all industry activity plunged 7.1% in September, faster than the downwardly revised 6.7% decrease in the preceding month.

Separately, the Cabinet Office revealed that the country's leading index was unchanged from its preliminary estimate at 86.4 in September. In August, the leading index stood at 83.2. The coincident index rose to 92.7 in September from 91.2 in the previous month. The reading for September was revised up from 92.5 reported initially. At the same time, the lagging index rose to 84.6 from 84.1 in the preceding month.
 
Light sweet crude oil futures for December delivery ended at $79.47 a barrel in electronic trading, down $0.11 per barrel from previous close at $79.58 a barrel in New York on Wednesday.

Banking stocks led the declines on concerns about equity financing plans of Mitsubishi UFJ Financial. Among the stocks, Mitsubishi UFJ Financial fell 4.13%, Mizuho Financial slumped 6.06% and Sumitomo Mitsui Financial lost 4.56%. Resona Holdings, however, bucked the trend and ended in positive territory with a gain of 0.73%.

Automotive stocks also ended in negative territory on stronger yen. Honda Motor lost 3.52%, Suzuki Motor Corp. fell 3.46%, Toyota Motor Corp. shed 1.69% Mitsubishi Motors slumped 6.87% and Nissan Motor Co. slipped 0.62%.

Exporters also ended sharply lower on strengthening of the local currency against the dollar. Canon Inc. lost 3.18%, Sharp Corp. fell 2.44% and Sony Corp. declined 2.18%.

Mitsubishi Rayon was the major gainer, having surged 29.52% after Mitsubishi Chemicals revealed that it would acquire the former through a tender offer. The stock of Mitsubishi Chemicals declined 5.16%.

Real Estate stocks also ended in negative territory after Japan Real Estate Investment revealed plans to raise 31.8 billion yen through issue of fresh shares. Among the real estate stocks, Mitsubishi Estate declined 2.98%, Sumitomo Realty & Development fell 1.56%, Mitsui Fudosan & Co., slipped 0.29% and Tokyu Land Corp. shed 0.68%.

Shipping related stocks ended weaker. Kawasaki Kisen Kaisha slumped 4.90%, Mitsui OSK Lines declined 1.13% and Nippon Yusen fell 2.66%.

In Australia, the benchmark S&P/ASX200 Index gained 10.20 points, or 0.22% to close at 4,749, while the All-Ordinaries Index ended at 4,768, representing a gain of 8.20 points, or 0.17%.

On the economic front, data released by the Australian Bureau of Statistics revealed that average weekly wage in the country rose 5.2% year-over-year during August, following 6.1% annual increase in July. The data further revealed for the three-month period ended August, weekly wages rose 0.9% over the preceding three months. In the three months to July, wages rose 1.2%.
 
In a separate statement, the Reserve Bank of Australia revealed that total foreign exchange transactions during October declined sharply to A$307 million from A$830 recorded in the previous month of September.

Light sweet crude oil futures for December delivery ended at $79.47 a barrel in electronic trading, down $0.11 per barrel from previous close at $79.58 a barrel in New York on Wednesday.

Metals and mining stocks led the gains in the market which showed signs of fatigue or loss of steam midway through the session. Among metal stocks BHP Billiton gained added 0.62%. Rio Tinto, Fortescue Metals and Iluka Resources recovered early losses and ended unchanged from previous close. Gindalbie Metals, however, bucked the trend and declined 3.68% and Oz Minerals slipped 0.77%.

Oil stocks also ended in positive territory on higher crude oil prices in the international market. Woodside Petroleum gained 1.17%, Santos edged up 0.13%, and Oil Search rose 1.20%. However, Origin Energy bucked the trend and ended lower by 1.17%.

Mixed trading was witnessed among gold related stocks . Lihir Gold gained 1.14% and, Newcrest Mining rose 1.55%. However, Sino Gold Mining slipped 0.62%.

Banking stocks ended in positive territory. ANZ Bank added 0.41%, Commonwealth Bank of Australia advanced 1.49%, National Australia Bank gained 1.08% and Westpac Banking edged up 0.08%.

Retail stocks also ended in negative territory. David Jones shed 1.04%, JB Hi-Fi fell 2.00%, Wesfarmers slipped 0.68% and Woolworths lost 0.42%. Harvey Norman managed to remain unchanged from previous close.

In Hong Kong, the Hang Seng Index ended in negative territory with a loss of 197.17 points, or 0.86% at 22,643, as traders preferred to lock in gains following recent gains and moved to sidelines amid cautious trading. Fresh concerns about the sustainability of global recovery resurfaced yet again after economic data related to housing starts and building permits declined more than expected in the U.S., and the consumer price inflation inched marginally higher. Weak closing in Wall Street on economic data as well as profit taking in other markets also impacted market sentiment.
 
In South Korea, the KOSPI Index ended in positive territory with a gain of 16.57 points, or 1.03% to 1,621, defying the weak closing in Wall Street in the previous session and cautious trading amid other markets in the region. Foreign institutional investors evinced fresh buying interest in blue chip stocks stating that the market is under-valued. Most blue-chip technology stocks led the gains in the market.

Doubts about the pace of global economic recovery, the dollar's rebound against major global currencies, including the rupee, and signs of fatigue after a 75% plus rally since March dragged the Indian market sharply lower on Thursday. The BSE Sensex closed at 16,786, down 213 points or 1.25% and the S&P CNX Nifty fell 66 points or 1.30% to 4,989

Among the other major markets in the region, China's Shanghai Composite Index gained 17.38 points or 0.53% to close at 3,321 and Singapore's Strait Times Index rose 13.75 points, or 0.50% to close at 2,759, However, Indonesia's Jakarta Composite Index declined 15.44 points, or 0.62% to close at 2,469 and Taiwan's Weighted Index shed 6.71 points, or 0.09%, to close at 7,760.

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After ending the previous session little changed, the major European markets are showing notable moves to the downside. The U.K.’s FTSE 100 Index is currently down 0.6 percent, while the French CAC 40 Index and the German DAX Index are down 0.8 percent and 0.7 percent, respectively.

In economic news, Bank of England Monetary Policy Committee member Kate Barker said in an interview with regional paper Shropshire Star that while economic data shows the U.K. economy has technically come out of recession, an actual economic recovery could be a long way off.

Barker said she would regard the U.K. economy as having come out of the recession only when unemployment started to turn.

Meanwhile, the U.K.’s Office for National Statistics said retail sales in the U.K. rose at their fastest pace in seventeen months in October, suggesting that the British economy may exit from recession in the fourth quarter.

The seasonally adjusted volume of retail sales rose 3.4% year-on-year in October. This marks the fastest growth rate since May 2008. Sales grew more than the expected 2.9%. The statistical agency revised September's growth to 2.9% from 2.4%.

U.S. Economic News

The Labor Department released its report on first-time claims for unemployment benefits in the week ended November 14th, showing that initial jobless claims came in unchanged.

The report showed that jobless claims for the week came in at 505,000, unchanged from the previous week's revised figure. Economists had been expecting jobless claims to edge up to 504,000 from the 502,000 originally reported for the previous week.

The Conference Board is scheduled to release its report on leading economic indicators in the month of October at 10 AM ET. The consensus estimate calls for a 0.4% increase in the leading indicators index for the month.

The leading indicators index advanced for the sixth straight month in September, rising 1% following a downwardly revised 0.4% increase in August. Except for the average workweek and building permits, all of the index components contributed positively.

The coincident index remained unchanged in September following a 0.1% advance in the previous month. Meanwhile, the lagging indicators index fell 0.3%.

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 12.2 for November.

The manufacturing index fell to 11.5 in October from 14.1 in September. The new orders index rose 3 points to 6.2, the highest level since December 2007, and the employment index climbed to -6.8 in October from -14.3 in the previous month. However, the inventories index fell 13.7 points to -31.8.

Dallas Federal Reserve Bank President Richard Fisher will deliver the closing address to the Cato Institute's annual monetary policy conference in Washington at 4:45 PM ET.

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Shares of Hot Topic (HOTT) are likely to see some early weakness after the apparel retailer forecast fourth quarter earnings of $0.23 to $0.26 per share on expectations of a high-single-digit decline in comparable store sales. Analysts had been expecting the company to earn $0.30 per share for the quarter.

Hot Topic also reported third quarter earnings of $0.13 per share on revenues of $189.6 million, roughly in line with estimates.

Gymboree (GYMB) is also moving lower in pre-market trading after forecast fourth quarter earnings of $0.95 to $1.03 per share compared to analyst estimates of $1.13 per share.

The company also said it expects a low to mid single digit decrease in comparable store sales. For the third quarter, Gymboree reported earnings of $1.15 per share on net sales of $269.1 million.

Meanwhile, shares of NetApp (NTAP) are moving higher in pre-market trading after the company reported second quarter adjusted earnings of $0.37 per share compared to $0.28 per share in the year ago quarter, coming in above estimates of $0.30 per share.

While the company’s revenue fell to $910 million, it still exceeded the consensus estimate. Looking ahead, the company forecast adjusted third quarter earnings of $0.36 to $0.37 per share compared to analyst estimates of $0.36 per share.

Sears Holdings (SHLD) could also see early strength after the department store operator reported an adjusted third quarter loss of $0.81 per share, narrower than the year-ago loss of $0.90 per share.

The company also said revenues for the quarter fell to $10.19 billion from $10.66 billion in the year ago quarter. Analysts had expected Sears to report a loss of $1.09 per share on revenues of $9.92 billion.

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