US & World Daily Markets Financial Briefing 21-12-2009

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Upbeat Corporate News May Generate Buying Interest

The major U.S. index futures are pointing to a higher opening on Monday, as some upbeat corporate news has generated some positive sentiment going into the second last week of the year. While traders may react positively to some merger-and-acquisition news, trading activity may be somewhat subdued ahead of the Christmas Day holiday on Friday.

U.S. stocks closed mixed for the second straight week in the week ended December 18th, as a rising dollar and falling commodity prices amid continued uncertainty over the economy’s course kept sentiment subdued. Some positive earnings surprises released during the later half of the week served as a saving grace for the markets.

Last Monday, the Abu Dhabi government emerged as a knight in shining armor, agreeing to fund the beleaguered Dubai World in a bid to help the latter survive its debt crisis. The major averages closed moderately higher in the session. On Tuesday, the markets ended with moderate losses after economic reports released during the day revealed a surge in wholesale price inflation and a slowdown in the rate of expansion in manufacturing activity.

The FOMC statement did little to improve sentiment in the markets on Wednesday, as a lack of surprise in the statement and the Fed’s commentary that the deterioration in the labor market is abating, which was generally construed as a signal that growth momentum is picking up, generated selling pressure in the markets. The major averages ended the day mixed.

Economic worries were aggravated on Thursday following the release of the weekly jobless claims report, which showed an unexpected increase in the number of individuals filing for unemployment benefits. Consequently, the major averages all ended with declines over 1%. On Friday, amid volatility associated with a quadruple witching day, stocks advanced. Encouraged by positive tech earnings, the Nasdaq Composite climbed 1.45%, while the S&P 500 Index and the Dow Industrials closed moderately higher.

For the week, the Dow Industrials and the S&P 500 Index fell 1.36% and 0.36%, respectively, while the Nasdaq Composite Index rose 0.98%.

Among the sector indexes, the KBW Bank Index slipped 2.13% compared to a 3.16% decline by the NYSE Arca Gold Bugs Index. The S&P Retail Index and the NYSE Arca Airline Index both lost over 1%. On the other hand, the Philadelphia Oil Service Index gained 3.49%, the Philadelphia Housing Sector Index rose 2.50% and the Philadelphia Semiconductor Index climbed 2.86%.

Most analysts believe that 2010 will be a difficult year for the markets, given the kind of advances the major averages have made in 2009. The Dow is up 17.70% in the year-to-date period, with the index rising 56.6% from its March lows of 6,594. Therefore, caution should be the ‘watch word’ as we move into 2010.

Bay Street Stocks Could Head Higher In Early Trading

Canadian stocks could see moderate strength in early Monday morning trading as oil prices are higher ahead of the OPEC meeting. Stocks in Europe are moving in positive territory and U.S. futures are pointing upward.

Crude oil prices are up 50 cents to $73.51 per barrel as signs point toward the Organization of Petroleum Exporting Countries leaving output alone at its meeting this week.

In metal trading, gold has gained $7.20 to $1,117.50 per ounce, silver has added 9 cents to $17.395 per ounce and copper is slightly higher at $3.146 per pound.

Agrium announced that it has extended the expiration date of its offer to acquire CF Industries Holdings (CF) for US$45.00 in cash plus one Agrium share per CF share until midnight ET on January 22.

Dioro Exploration NL said that its directors recommended Dioro shareholders take no action in relation to the Ramelius's revised offer until directors have considered certain developments. Ramelius increased its offer on Friday.

Bank of Nova Scotia will meet Canadian regulators on Monday to resolve allegations of improper sale of asset backed commercial papers in 2007.

In a latest deal in merger space, mining companies Ontex Resources and Roxmark Mines announced shareholders' approval of their merger plans.
 
Gold producer New Dawn Mining reported wider loss in fiscal 2009 at $0.13 per share, as against $0.09 recorded in the previous year.

The Ontario Teacher Pension Plan said it would sell its 15% stake in security systems provider Alarm Force Industries to a private equity firm for $6 per share.

On the economic front, Canadian retal sales rose 0.8% in the month of October, according to data released on Monday morning. The rise, which was in-line with expectations, was the eighth in 10 months. Revised data showed a 1.1% increase in September.

Excluding autos, retail sales rose 0.2%, less than the 0.4% projected by experts and the 1% hike in the prior month.

Later in the week, traders will look for gross domestic product data from both sides of the border.

On Friday, the S&P/TSX Composite Index slipped 9.66 points or 0.08% to settle at 11,463.40. For the week, the market finished up about 40 points amid choppy trading.

Commodity, Currency Markets

Crude oil futures are edging up $0.17 to $73.53 a barrel after advancing $3.49 or 5% to $73.36 a barrel in the week ended December 18, breaking a 3-week losing streak.

Crude oil extended its losing streak to a ninth straight session last Monday, dipping moderately. The sell-off of oil led to bargain hunting on Tuesday, as the commodity rose over $1.10 a barrel.

Bullish inventory data released on Wednesday supported the commodity on Wednesday, with oil rising close to $2-a-barrel. On Thursday, oil rose modestly, and it finished the week with a gain on Friday.

The black gold could see some volatility in the run up to the OPEC meeting due to be held in Angola on Tuesday and the release of the weekly oil inventory report on Wednesday. OPEC is unlikely to alter production quotas, with the members likely to be discouraged from cutting output due to poor compliance to the production cuts announced earlier.

Gold futures, which edged down $9.10 or 0.5% to $1,110.80 an ounce in the previous week, are currently rising $3.70 or 0.81% to $1,115.20 an ounce. In the week ended December 18th, the precious metal saw weakness after the dollar strengthened in the run up to the Fed meeting and even after, as the Fed signaled that firings are slowing down.

Among the currencies, the U.S. dollar advanced against the yen as well as the euro last week, with the greenback gaining 1.56% against the yen to 90.4955 and 2% against the euro to $1.4335, reaching its strongest level in 3 months. Increasing optimism about the U.S. economy supported the dollar in the past week, and the subsequent strengthening of the dollar led to the unwinding of bearish bets by traders.

Currently, the dollar is trading at 90.5430 yen and is valued at $1.433 against the euro.

Danske Bank is of the view that the U.S. dollar strength is temporary, brought about by the year-end unwinding of short-funded carry positions. The firm cautioned that a permanent strengthening of the greenback would have implications for the real economy, for investors and for policy choices down the road.

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Most Asian markets closed Monday’s session lower, with the exception of the Japanese, Chinese and Taiwanese markets. Trading volume remained muted, as traders expressed apprehensions over incremental problems at financial firms and a lack of clear signals concerning a sustainable recovery.

Japanese’s Nikkei 225 average opened moderately higher and moved sideways for the rest of the session to close up 41.42 points or 0.41% at 10,184. The domestic market received some support from the trade data that showed a bigger-than-expected surplus in November.

Financial, auto, electronic and electrical exporters, utility, trading houses, construction and real estate stocks came under selling pressure. However, resource stocks gained ground in the session.

The Ministry of Finance reported that Japan’s nominal exports fell 6.2% year-over-year in November. Economists had estimated a slightly steeper 6.5% drop. The nation posted a trade surplus of 373.9 billion yen compared to economists’ estimate for a surplus of 344.5 billion yen. On a monthly basis, exports rose 4.9% in November, faster than the 4.1% increase in October.

A report released by the Ministry of Economy, Trade and Industry showed that its all industry index fell 1.2% month-over-month in October. Economists had estimated a mere 1% increase for the month.

Australia’s All Ordinaries opened unchanged, but it rose in early trading and managed to hold above the unchanged line till late trading. Thereafter, the index dipped below the unchanged line to close down 12.40 points or 0.27% at 4,660.

Consumer staple stocks served as a drag, with energy, telecommunication and financial stocks also showing modest weakness. On the other hand, material and healthcare stocks saw some buying support. Among mining stocks, BHP Billiton, Newcrest Mining, Lihir Gold and Fortescue advanced, while Rio Tinto receded. Among the four major banks, ANZ, Commonwealth Bank and Westpac showed weakness, while National Australia Bank edged up in the session.

Hong Kong’s Hang Seng Index opened lower and languished below the unchanged line, closing near the lows of the session. The index closed down 227.78 points or 1.08% at 20,948. Thirty-three of the index components closed the session lower, with property stocks declining sharply. Utility and China-related stocks also came under selling pressure.

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The major European averages opened higher on Monday and have seen some further upside over the course of the trading day. The U.K.’s FTSE 100 Index is currently up 1.21%, while the French CAC 40 Index and the German DAX Index are up 1.04% and 0.74%, respectively.

U.S. Economic Reports

The unfolding week's economic calendar is relatively light due to the truncation of the week by the Christmas holiday. Some key economic reports such as the existing and new home sales reports for November, the revised reading of the Reuters/University of Michigan's consumer sentiment index for December and the Commerce Department's durable goods report are scheduled to be released during the week.

Additionally, traders may closely watch the personal income and outlays report for November, the weekly jobless claims report for the week ended December 19th and the Bureau of Economic Analysis' final third quarter GDP estimate.

Existing as well as new home sales are likely to show improvement in November, although one cannot be too complacent about a continued upturn in the sector. In the months ahead, home sales could slow, as the impact of the first time homebuyer credit fades away.

Meanwhile, durable goods orders could rebound in November from the previous month's slide. That said, transportation orders are likely to show weakness, as orders received by Boeing declined to 9 in November from 14 in October. However, orders outside of the transportation sector could see strength.

The personal income and outlays report for November is likely to reveal that consumption was strong, as consumers dipped into savings to do holiday shopping. Broad based retail sales growth for the month supports the expectations. Personal income may also show an improvement, given solid gains in hours worked and average hourly earnings.

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Sanofi-Aventis (SNY) is likely to be react to its announcement that it has entered into a definitive agreement to acquire all outstanding shares of Chattem (CHTT) for $93.50 per share or $1.9 billion.

City National Corp. (CYN) may be in focus after it announced that its wholly-owned subsidiary City National Bank has acquired all banking operations of Capital Bank in a purchase and assumption agreement with the FDIC. City National will acquire about $3.4 billion in assets and about $2.2 billion of deposits, including $500 million of core deposits as of September 2009. The deal was struck after Capital Bank was ordered to close down by the California Department of Financial Institutions.

Kraft Foods (KFT) could react to its announcement that it has filed a definitive proxy statement with the SEC with respect to seeking shareholder approval for issuing additional shares in connection with its offer for U.K. confectioner Cadbury. The shareholder meeting is scheduled to be held on February 1st.

Terex (TEX) is likely to see some activity after it announced a deal to sell its mining business to Bucyrus International (BUCY) for $1.3 billion in cash. The deal is expected to close in the first quarter of 2010.

Earnings

Walgreen (WAG) reported that its first quarter sales rose 9.5% to $16.4 billion. The company’s net earnings rose to 49 cents per share from 41 cents per share in the year-ago period. The recent quarter’s results included charges of 3 cents per share. Analysts estimated earnings of 48 cents per share on revenues of $16.30 billion.

ConAgra’s (CAG) second quarter earnings rose to 54 cents per share from 37 cents per share in the year-ago period. The company reported income from continuing operations of 55 cents per share, higher than 38 cents per share in the year-ago period. Sales declined 3% year-over-year to $3.25 billion. The consensus estimates called for earnings of 47 cents per share on revenues of $3.33 billion.

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