US & World Daily Markets Financial Briefing 20-01-2010

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Cloudy Economic Data May Lead Traders to Take Profits

The major U.S. index futures are pointing to a lower opening on Wednesday, with traders likely to use some disappointing economic reports as reason to take profits after yesterday’s scintillating advance. A report released earlier in the day showed a bigger than expected drop in housing starts, while the Labor Department said producer prices rose much more expected. However, core producer prices remained benign, showing no growth in December.

Additionally, moves by China to restrict lending may cool off Chinese growth, which many analysts believe would would upset the Chinese-led global growth. Earnings from some big Wall Street firms were disappointing as well. In reaction to the apprehension, commodities are trading lower, reversing yesterday’s advance.

U.S. stocks opened Tuesday’s session little changed, but they advanced strongly in early trading. Thereafter, the buying momentum slowed and the slope of the ascent flattened out, with the major averages closing at fresh multi-month highs with gains in excess of 1% each.

The Dow Industrials closed up 115.78 points or 1.09% at 10,725 and the Nasdaq Composite rose 32.41 points or 1.42% to 2,320, while the S&P 500 Index advanced 14.20 points or 1.25% to 1,150.

Twenty-six of the thirty Dow components closed higher, with DuPont (DD), 3M Co. (MMM), Pfizer (PFE) and Verizon Communications (VZ) ending with gains in excess of 2% each. AT&T (T), McDonald’s (MCD), Cisco Systems (CSCO), Merck (MRK) and IBM (IBM) also advanced strongly.

Among the sector indexes, the Dow Jones Utility Average rose 1.45%, the NYSE Arca Airline Index gained 1.57% and the Dow Jones U.S. Basic Materials Average advanced 1.82%. The Philadelphia Semiconductor Index moved up 1.79%. Oil, oilfield services, gold, housing financial, disk drive, hardware, software, networking and Internet stocks also gained ground in the session.

The Treasury reported yesterday that foreigners bought a net total of $126.8 billion worth of U.S. securities, notably higher than the $25 billion expected by economists.

Meanwhile, the National Association of Home Builders reported that its housing market index fell to 15 in January 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.

Weaker Commodity Prices May Weigh On TSX At Open

Canadian stocks may struggle out of the gate on Wednesday, as commodity prices turned sharply lower on a stronger US dollar and speculation China is preparing to turn off its lending spigot. The U.S. stock futures also point to a weak opening.

However, Bay Street may take a bit of comfort knowing that economic support measures will remain in place for the foreseeable future. This morning's tame inflation data cemented expectations that the Bank of Canada will hold steady on record low interest rates through mid-2010.

The main index had managed to end marginally higher in the previous session mainly supported by upsurges in gold stocks, which have moved along with the prices of gold. The S&P/TSX Composite Index added a marginal 12.88 points or 0.11% to 11,763.42 on Tuesday.

Statistics Canada said today that consumer price index rose 1.3% in the 12 months to December, after rising 1% in the previous month. The rise was primarily due to gasoline prices, which rose 25.6% year over year in December. The agency noted that December's on-year increase was the largest since February 2009. The inflation came in at less than the widely expected rise of 1.6% and stayed below the central bank's target.

Yesterday, Bank of Canada announced its decision to keep the benchmark interest rate unchanged at 0.25% and hinted that the rate is likely to remain at the current level until the end of the second quarter of 2010.
 
Meanwhile, the price of crude oil slipped back to $78 levels on Wednesday after ending the previous session at above $79, a barrel. The price of bullion eased $7 to $1,132.70 an ounce.

Financial stocks may be under pressure after Bank of America, the largest bank in the U.S., reported a wider-than-expected quarterly loss of $5.2 billion, just after a day Citibank announced a similar not-so-encouraging financial numbers.

In corporate news, full services telecommunications provider Manitoba Telecom Services said it will make a one-time payment of C$43 million in a pension law suit and noted this could take up the total one-time future payment to C$100 million.

Petroleum and natural gas explorer Canadian Superior Energy said it had raised C$59.5 from a non-brokered private placement.

Mineral explorer Trelawney Mining and Exploration announced that it has entered into a mining claim acquisition agreement, which empowers the company the right to acquire a 70% interest in certain patented and unpatented mining claims located in Lizar Township, Ontario.

Information technology provider MacDonald Dettwiler and Associates said it has received a $2.4 million contract from Orbital Sciences Corp. The contract also contains an option to purchase additional units for follow-on operational missions worth at least $4.0 million.

Wireless network service provider International Datacasting Corp. announced that it has been awarded a $5.3 million contract by National Public Radio.

Oil and natural gas producer Monterey Exploration said it would spend $15 million in capital expenditure in first half 2010 and noted that its production is expected to decline modestly and average 1,600 to 1,700 barrels of oil equivalent per day in the same period.

Wireless network service provider Unique Broadband Systems reported first quarter net loss and comprehensive loss of C$0.02 per share, compared to a net income of C$0.01 per share in the prior year quarter.

Communications service provider Look Communications reported first quarter net loss and comprehensive loss of C$0.02 per share, compared to an income of C$0.02 per share in the year ago period.
 
Archangel Diamond Corp. announced the resignation of Tom Beardmore-Gray as President and Chief Executive Officer, effective January 15.

Silver mining company Silver Standard Resources announced that Robert Quartermain has resigned as President and CEO, effective January 19.

In other economic news, Statistics Canada said country's manufacturing sales inched by a less-than-expected 0.1% in November, mainly pressured by a 4.3% slide in transportation industry.

From across the border, the U.S Department of Labor said wholesale prices rose 0.2% in December.

At the same time, the Commerce Department said country's housing start fell by a more-than-expected 4% in December. Meanwhile, the Mortgage Bankers Association said its index of total home loan applications rose 9.1% in the week ended January 15, indicating demand for U.S. home loans rose last week for the third straight week

Commodity, Currency Markets

Crude oil futures are receding $1.39 to $77.63 a barrel after they broke a 5-session losing streak on Tuesday, advancing $1.02 to $79.02 a barrel. The commodity rose on Tuesday despite the dollar strengthening in the session and apparently in reaction to views that demand will improve when growth stabilizes.

Gold futures are sliding $14.20 to $1,125.80 an ounce. In the previous session, gold gained $9.50 to $1,140 an ounce.

On the currency front, the U.S. dollar is weakening to 90.89 yen compared to the 91.1475 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.4138.

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Asian Markets End Weaker On China Concerns

The markets across Asia ended weaker on Wednesday, as traders across markets fretted on anxiety over proposed monetary tightening measures by China in the form of curb on new lending to cool-off economic growth and reign in inflation in the country. After reacting positively to IBM results and positive closing on Wall Street, the Asian markets drifted lower on profit taking amid caution ahead of U.S. earnings.

In Japan, the benchmark Nikkei 225 Index fell 27.38 points, or 0.3%, to 10,737, while the broader Topix index of all First Section issues shed 5.04 points, or 0.5%, to 945.

On the economic front, a report released by the Ministry of Economy, Trade and Industry in Japan revealed that an index measuring tertiary industrial activity in the country declined by a seasonally adjusted 0.2% in November, compared to the previous month, coming in at 96.6. The result came in line with economists' expectations after having registered a 0.5% growth in October.

Separately, a final report released by Japan Machine Tool Builders' Association revealed that machine tool orders surged up 63.4% year-on-year during December, marginally higher than a 62.8% rise projected in an earlier preliminary report. Of the total machine tool orders, domestic orders were up 14.6% while external orders surged up 98.2%, the report noted.

Technical rebound at 10,860 following net sell orders from foreign buyers at this level triggered profit taking. Brokerages, shipping stocks, automotive stocks, trading companies and banking stocks ended in negative territory on profit taking as traders preferred to move to the sidelines ahead of key earnings from US companies including major banks, as well as earnings from domestic corporates later in the month. China's moves to curb fresh lending also impacted market sentiment.
 
Among the brokerage stocks, Nomura Holdings slumped 3.49%, Daiwa Securities group lost 2.43% and Matsui Securities fell 3.68%.

Shipping stocks also ended weaker. Kawasaki Kisen Kaisha plunged 4.02%, Mitsui OSK Lines fell 2.12% and Nippon Yusen slipped 1.46%.

Among automotive stocks, Honda Motor declined 1.36%, Toyota Motor shed 0.85%, Suzuki Motor slipped 0.82%, Nissan Motor fell 1.30% and Mitsubishi Motor lost 1.44%.

Trading companies also ended in negative territory. Mitsubishi Corp. lost 1.54%, Mitsui & Co., fell 2.04%, Sumitomo Corp. declined 1.58%, Itochu Corp. slipped 1.66% and Marubeni Corp. shed 1.26%.

However, Toyota Tsusho Corp. bucked the trend and ended sharply higher with a gain of 5.98% after the company announced that it has secured a long-term source of lithium used in hybrid and electric-car batteries in Argentina.

Banking stocks also ended in negative territory. Sumitomo Mitsui Financial declined 1.36%, Mitsubishi UFJ Financial slipped 0.82%, Mizuho Financial fell 1.08% and Resona Holdings lost 0.94%.

In Australia, the benchmark S&P/ASX Index added 7.00 points, or 0.14% to close at 4,868, while the All-Ordinaries Index ended at 4,895, representing a gain of 5.50 points, or 0.11%.

On the economic front, data compiled by Westpac Bank in association with the Melbourne Institute revealed that the Westpac Bank-Melbourne Institute Consumer Sentiment Index rose to 120 points, or 5.6% on a seasonally adjusted basis in January, from 113.8 recorded in December.

In a separate report, the Department of Education, Employment and Workplace Relations revealed that job vacancies for skilled workers in the country increased 1.1% in trend terms month-on-month during January, following a 1.6% rise in the previous month. The report further noted that vacancies rose for two of the three occupational groups. While vacancies among professionals declined 5.7%, vacancies among associate professionals and trades grew 0.1% and 3.9% respectively, the report revealed.

Light sweet crude oil futures for February delivery ended at $78.29 a barrel in electronic trading, down $0.73 per barrel from previous close at $79.02 a barrel in New York on Tuesday.
 
Mining and metal stocks ended mixed having pared most of the early gains after BHP Billiton reported better-than-expected production numbers for the December quarter, attributing strong Chinese demand as the primary reason. However, news tricking in late session that China might impose curbs on fresh lending to cool-off the rate of growth dampened the spirit slightly.

BHP Billiton added 0.23%, Rio Tinto edged up 0.12%, and Gindalbie Metals gained 1.32%. Iluka Resources remained unchanged from previous close. However, Fortescue Metals slipped 0.58%, Macarthur Coal shed 1.17%, Minara Resources slumped 5.49%, and Oz Minerals shed 0.86%.

Oil stocks ended in negative territory. Woodside Petroleum lost 0.53%, Santos declined 0.51%, Oil Search fell 1.53% and Origin Energy slipped 0.59%.

Gold stocks also ended weaker. Lihir Gold declined 1.80% and Newcrest Mining fell 1.53%.

Banking stocks also ended mixed. ANZ Bank edged up 0.30% and National Australia Bank ended unchanged from previous close. However, Commonwealth Bank of Australia slipped 0.14% and Westpac Banking declined 0.86%.

Retail stocks ended in positive territory. Harvey Norman gained 1.29%, JB Hi-Fi Ltd rose 1.38%, Wesfarmers added 0.16% and Woolworths edged up 0.04%. However, David Jones bucked the trend and ended in negative territory with a loss of 0.79%.

In Hong Kong, the Hang Seng Index slumped 1.81% or 391.81 points, to close at 21,286, dragged down by Chinese banks, following news that mainland China is contemplating curbing new lending by banks to cool-off the recent surge in growth and also reign in inflation threat. Positive closing on Wall Street in the previous session and IBM results were offset by concerns about Chinese move. The major Chinese banks that dragged the market lower include

In South Korea, the KOSPI Index ended in positive territory with a marginal gain of 4.16 points, or 0.24%, at 1,714 as traders evinced fresh buying interest at lower levels in bargain hunting in late trading session after profit taking amid concerns about China's action on global recovery in early trading session. Positive closing on Wall Street in the previous session and results from IBM lifted market sentiment in early session and institutional investors evinced buying interest on technology stocks.
 
The Indian market ended a volatile session lower, weighed by weak global cues on fears related to lending curbs in China. Greece's debt woes and the dollar's strength versus major global currencies also dented sentiment, but better-than-expected December-quarter earnings from bluechip companies helped to limit the losses. The benchmark Sensex finished at 17,474, down 12 points or 0.07% and the Nifty dropped by 4 points or 0.08% to 5,222.

Among other major markets open for trading in the region, Indonesia's Jakarta Composite Index ended in positive territory with a marginal gain of 1.20 points, or 0.04% to close at 2,667. However, Taiwan's Weighted Index ended in negative territory with a loss of 28.07 points, or 0.34% at 8,221, China's Shanghai Composite Index slumped 95.02 points, or 2.93%, to close at 3,152 and the Strait Times Index in Singapore declined 19.79 points, or 0.68%, to 2,893.

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The major European averages are trending lower on Wednesday, with the French CAC 40 Index and the German DAX Index declining 1.15% and 0.82%, respectively, while the U.K.’s FTSE 100 Index is receding 0.95%.

On the economic front, the Office for National Statistics reported that the number of people seeking jobseekers’ allowance fell by 15,200 in December compared to the previous month. The unemployment rate for the three-month period from September to November was 7.8%, the same as for the previous three months period ended in October. However, average earnings, excluding bonuses, was 424 pounds per week in November and the regular pay for the three months ended November rose 1.1% year-over-year, the smallest increase on record.

Meanwhile, Germany's Federal Statistical Office announced that Germany’s producer price index fell 5.2% year-over-year in December, slower than the 5.9% decline in the previous month. Economists expected a decrease of 5.1%. On a monthly basis, producer prices edged down 0.1% in December compared to a 0.2% increase in November.

The minutes of the Bank of England’s January Monetary Policy Committee showed that policymakers unanimously decided to continue with the asset purchase program totaling 200 billion pounds using central bank reserves.

U.S. Economic Reports

New residential construction showed a notable decrease in the month of December, according to a report released by the Commerce Department, with the data likely to add to recent concerns about the sustainability of the recovery in the housing market.

The report showed that housing starts fell 4% to an annual rate of 557,000 in December from the revised November estimate of 580,000. Economists had been expecting starts to edge down to 572,000 from the 574,000 originally reported for the previous month.

The Labor Department reported a modest increase in producer prices in the month of December that came as a surprise to economists, as food prices showed a notable increase offsetting a drop in energy prices.

The producer price index edged up by 0.2% in December following an unrevised 1.85 increase in November. Economists had been expecting prices to come in unchanged after the sharp jump in the previous month.

Excluding the changes in food and energy prices, core producer prices were unchanged in December after increasing by 0.5% in the previous month. Core producer prices had been expected to edge up by 0.1%.

Earnings

Bank of America (BAC) reported that its fourth quarter net loss widened to 60 cents per share from 48 cents per share in the year-ago period. Revenue net of interest expense on a fully-taxable equivalent basis rose 59% year-over-year to $25.4 billion. Analysts estimated a loss of 53 cents per share on revenues of $26.84 billion.

Morgan Stanley’s (MS) fourth quarter net income from continuing operations was 93 cents per share compared to a loss of $1.26 per share last year. The recent quarter’s results reflected preferred dividends and the repurchase of TARP capital. Net revenues rose to $23.4 billion from $18.2 billion last year.

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IBM receded in Tuesday’s after hours session despite reporting fourth quarter earnings of $3.59 per share compared to $3.27 per share last year. Total revenues rose 1% to $27.2 billion. Analysts estimated earnings of $3.47 per share on revenues of $26.96 billion. For the full year 2010, the company estimates earnings of at least $11 per share compared to the $9.88 per share consensus estimate. The company had earlier projected earnings between $10 and $11 per share.

SRA International is likely to gain ground after it announced that the FDA has awarded the company the Mission Accomplishment and Regulatory Compliance Services Integration contract. The company noted that the single-award indefinite delivery, indefinite quantity contract has a total ceiling of $98 million over a five-year period of performance.

Cree, Inc. could be in focus after it reported that its second quarter revenues rose 35% year-over-year to $199.5 million. On a non-GAAP basis, the company reported earnings of 38 cents per share compared to 20 cents per share last year. Analysts estimated earnings of 30 cents per share on revenues of $186.81 million. For the third quarter, the company expects non-GAAP earnings of 41-44 cents per share on revenues of $215 million to $225 million. The consensus estimates call for earnings of 28 cents per share on revenues of $189.81 million.

CSX Corp. declined in Tuesday’s after hours session after it reported fourth quarter earnings from continuing operations of 77 cents per share, lower than 92 cents per share last year. The Street estimated earnings of 76 cents per share. Revenues fell 12% to $2.3 billion, slightly shy of the $2.39 billion consensus estimate. For the full year, the company expects earnings from continuing operations of $2.87 per share, while analysts estimate earnings of $2.85 per share.

Charles Schwab also came under selling pressure in Tuesday’s after hours session after it announced that it has commenced an underwritten public offering of 26.3 million shares. Separately, the company reported fourth quarter earnings of 14 cents per share on revenues of $986 million. In the year-ago period, the company reported earnings of 27 cents per share on revenues of $1.28 billion. Analysts estimated earnings of 15 cents per share on revenues of $993.45 million.

Sirius XM is expected to see buying interest after it reported that it ended 2009 with 18.77 million subscribers following the addition of 257,028 subscribers on a net basis in the fourth quarter. The company also said it expects to generate a positive cash flow of over $100 million for 2009.

Rambus advanced strongly in Tuesday’s after hours session after it said it has reached an agreement with Samsung Electronics, settling all claims between them regarding licensing Rambus’ patent portfolio covering all Samsung semiconductor products. As part of the agreement, Samsung will invest $200 million in Rambus stock and also pay an initial $200 million payment and a quarterly payment of $25 million for the next 5 years.

Intermune could move to the downside after it announced an offer of 5 million shares in an underwritten public offering. The company noted that it would sell all shares issued.

CACI International may move in reaction to its announcement that it has signed an agreement to buy SystemWare, Inc. The company did not reveal the financial terms of the deal but said the deal is expected to be closed by February 1, 2010.

Prosperity Bancshares is likely to be in focus after it announced the signing of a definitive agreement to buy the three Texas retail bank branches of U.S. Bank. Prosperity said it would pay about $420 million in deposits as well as purchase certain loans and other assets attributable to the branches.

PPD, Inc. may see weakness after it said it expects 2010 revenues in the range of $1.31 billion to $1.43 billion and earnings per share in the range of $1-$1.12. The company also said it is taking necessary steps to complete the spin-off of its compound partnering business and therefore has not included contribution from this business in the calculation of earnings for the third and fourth quarters of 2010. Analysts currently estimate earnings of $1.28 per share on revenues of $1.31 billion.

CIT Group could be in focus after it announced the appointment of Peter Tobin as acting CEO. The company noted that Tobin would replace Jeffrey Peek, whose resignation as Chairman and CEO was effective January 15th, 2010.

Blyth could gain ground after it announced the payment of $1 per share as a special cash dividend to its shareholders of record as of February 2nd, 2010.

Adtran could also be in focus after it reported that its fourth quarter sales rose 11% year-over-year to $124.23 million. The company’s earnings per share rose to 29 cents per share from 27 cents per share in the year-ago period. Analysts estimated earnings of 27 cents per share on revenues of $120.47 million.

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