US & World Daily Markets Financial Briefing 23-07-2012

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Stocks Regain Ground But Continue To See Substantial Weakness

After moving sharply lower at the open, stocks have regained some ground over the course of morning trading on Monday but continue to see significant weakness. While the major averages have bounced off their worst levels, they remain firmly in negative territory.

Renewed concerns about the financial situation in Europe contributed to sell-off seen at the start of trading, with traders worried about developments in Spain and Greece.

Disappointing Spanish economic data added to concerns that Spain could require a full bailout, while Germany's Der Spiegel reported that the International Monetary Fund does not want to provide Greece with any additional financing.

Steel stocks continue to see substantial weakness in late morning trading, although they have climbed off their lows for the session. After hitting a nearly one-month intraday low in early trading, the NYSE Arca Steel Index has regained some ground but remains down by 3.1 percent.

Considerable weakness also remains visible among airline stocks, as reflected by the 3.1 percent loss being posted by the NYSE Arca Airline Index. The loss extends a recent downward move by the index, which has fallen to its lowest intraday level in well over a month.

Software, internet, healthcare, and gold stocks also continue to see significant weakness on the day, moving to the downside along with most of the major sectors.

The major averages currently continue to post steep losses but remain well off their lows. The Dow is down 155.15 points or 1.2 percent at 12,667.43, the Nasdaq is down 57.15 points or 2 percent at 2,868.15 and the S&P 500 is down 19.83 points or 1.5 percent at 1,342.83.

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TSX Down As Commodities Dip On Euro Worries; Nexen Jumps - Canadian Commentary

Canadian stocks were lingering deep in the red Monday morning as commodities moved down amid renewed worries over the euro zone debt situation after Spanish 10-year bond yields surged to new highs, surpassing the 7 percent-mark.

The S&P/TSX Composite Index dived 151.18 points or 1.30 percent to 11,471.73, a day after snapping its five-session winning streak.

The Diversified Materials Index was the major loser, dipping nearly 4 percent. First Quantum Minerals , Inmet Mining and Teck Resources were down around 4 percent each.

The price of Crude oil was paring recent gains Monday morning after China's central bank hinted that its economy will continue to decline over the third quarter of this year. Last week, oil settled sharply higher on geopolitical issues as traders viewed the tension build-up in the Middle East between Iran and Israel, and in Syria, could possibly disrupt oil supplies from the region. Oil prices were also supported by a weakening dollar and lower U.S. Crude stockpiles. Crude for September delivery lost $2.98 to $88.85 a barrel.

In the oil patch, Baytex Energy Corp. , Imperial Oil and Canadian Natural Resources were down over 3 percent each

The price of gold was moving lower Monday morning amid worries over the euro zone financial situation after Spanish 10-year bond yields surged to new euro area highs. gold for August was down $7.30 to $1,575.50 an ounce.

Among gold plays, Barrick gold lost 2 percent, while Goldcorp. and Agnico-Eagle Mines were slipping around 1 percent each.

Building construction company Churchill Corp. (CUQ.TO) dived nearly 30 percent after reporting preliminary revenue estimates for 2012 second quarter between C$292 million and C$298 million.

Meanwhile, Nexen Inc. skyrocketed over 50 percent to C$26.53. Chinese oil major CNOOC Ltd. (CEO) said it would acquire Nexen Inc. for $27.50 per share in cash.

Upstream oil and gas company Talisman Energy (TLM.TO) soared over 6 percent after it said it would divest a 49 percent equity interest in Talisman's UK North Sea business, Talisman Energy (UK) Ltd. to Sinopec International Petroleum Exploration and Production Corp. for $1.5 billion.

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European Markets Lower On Debt Worries

The European markets are lower on Monday, as economic concerns once again dampened investor sentiment with fresh round of worries originating from Greece and Spain. Concerns about cooling growth in China added to the woes, and the Asian markets ended firmly in the red.

Spain's Valencia and Murcia Regions have asked for financial aid, leading to speculation that a sovereign bailout may be necessary. The yield on 10-year Spanish government bonds climbed to 7.46 percent, touching a new euro-era record.

The Spanish government cut its economic forecast on Friday. The government now expects the economy to shrink 0.5 percent in 2013, in contrast to its earlier forecast for a growth of 0.2 percent. The country sees recession extending into next year as it adopts more austerity measures.

Meanwhile, Greek Prime Minister Antonis Samaras warned that the country is facing economic hardship similar to what the U.S. faced in the 1930s.

The International Monetary Fund has signaled that it may not participate in further economic assistance for Greece, heightening the risk that the country may run out of cash by September, Germany's Der Spiegel reported Sunday citing unidentified EU officials.

The European Central Bank said Friday that the marketable debt instruments issued or fully guaranteed by the Greek government would become ineligible for use as collateral by July 25. Liquidity needs may be addressed by the relevant national central bank in line with existing Eurosystem arrangements.

In an interview to broadcaster ARD on Sunday, German Vice Chancellor Philipp Roesler said if Greece does not meet the obligations, then there can be no more payments. A Greek exit from the Eurozone has long ago lost its horror, he added.

The euro Stoxx 50 index of eurozone bluechip stocks is declining 2.05 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, is retreating 1.79 percent.

The German DAX is falling 1.66 percent and the French CAC 40 is losing 2.03 percent. The UK's FTSE 100 is retreating 1.76 percent and Switzerland's SMI is dropping 1.06 percent.

In Frankfurt, Commerzbank is retreating 6 percent and Deutsche Bank is declining 5.4 percent. Berenberg initiated Deutsche Bank with a "Sell" rating.

Allianz is declining 3.7 percent and Infineon Technologies is dropping 3.6 percent.

Volkswagen, BMW and Daimler are losing between 1.7 percent and 1.2 percent.

Bayer said the addition of cancer drug Tarceva to standard therapy Nexavar in a Phase III trial in patients with Hepatocellular carcinoma did not improve overall survival than Nexavar alone. The stock is marginally down.

Fuchs Petrolub is declining over 4 percent. Cheuvreux cut the stock to "Underperform" from "Outperform."

Hugo Boss is falling 1.3 percent. UBS initiated the stock with a "Buy" rating.

In Paris, BNP Paribas, Societe Generale and Credit Agricole are declining between 7 percent and 5.7 percent. Insurer Axa is falling 4.9 percent.

Renault is losing 2.4 percent. Peugeot is modestly down.

Veolia Environnement is declining 4.4 percent. EDF is losing 4.1 percent.

In London, Anglo American and Antofagasta are declining around 3.8 percent each. BHP Billiton is losing 3.3 percent.

African Barrick gold is declining 5.7 percent. The firm reported a Sharp decline in pre-tax profit for the first half of the year, reflecting the planned lower production and a 12 percent increase in gold price, amid higher costs. Petropavlovsk is declining around 5 percent.

Barclays is dropping 3.5 percent, Lloyds Banking is losing 2.9 percent and Royal Bank of Scotland is retreating 4.3 percent.

Insurer Aviva is declining 5.5 percent. Evraz is retreating 6.5 percent.

Groupe Eurotunnel reported a higher profit for its first half and expects a jump in traffic due to the Olympics games. The stock is climbing over 8 percent. Groupe Eurotunnel shares are falling over 6 percent in Paris.

XP Power is adding 6.5 percent. The critical power control components maker expects higher results in its second half, even though first-half results were hurt by softened demand amid weak market. The company also announced increased order take in the first half and a higher dividend.

Philips is climbing over 6 percent in Amsterdam after reporting a profit for the second quarter.

Julius Baer is up 1.1 percent in Zurich. The firm posted a higher profit for its first half.

Credit Suisse is declining 2.5 percent. Berenberg initiated the stock with a "Sell" rating.

Banco Popular Espanol is declining 6.3 percent in Madrid and Bankinter is dropping 5.6 percent. Bankia is losing 4.7 percent.

Across Asia/Pacific, Australia's All Ordinaries retreated 1.7 percent and China's Shanghai Composite index fell 1.3 percent. Hong Kong's Hang Seng and Japan's Nikkei 225 declined 3 percent and 1.9 percent, respectively.

In the U.S., futures point to a lower open on Wall Street. In the previous session, stocks lost ground, hurt by worries about Europe and lingering concerns about the global economy. The Dow Jones Industrial Average fell 0.9 percent, the Nasdaq slipped 1.4 percent and the S&P 500 dropped 1 percent.

In the commodity space, Crude for September delivery is losing $2.64 to $89.19 per barrel and August gold is falling $11.1 to $1571.7 a troy ounce.

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Spanish Bailout Fears Weigh On Asian Stocks

Asian stocks fell sharply on Monday, as investors fretted about debt woes in Europe and slowing economic expansion in China. Europe's debt woes intensified after Spain's Valencia and Murcia Regions asked for financial aid and Greek Prime Minister Antonis Samaras warned the country is facing economic hard times like that which the U.S. faced in the 1930s.

With a review of Greece's progress in meeting bailout conditions remaining still unfinished, the International Monetary Fund said it was no longer willing to extend aid payments to Greece, heightening the risk that the country may become insolvent as early as September.

It is already clear to the troika, comprising the European Union, IMF and the European Central Bank, that Greece will not reach the 120 percent deficit target under the fiscal adjustment program, Germany's Der Spiegel magazine reported, citing unidentified European Union officials.

There were also reports that the European Central Bank will stop accepting Greek sovereign bonds as collateral for refinancing operations pending a review by Greece's international lenders tomorrow.

Crude prices were down over 4 percent, copper futures fell about 3 percent and the euro extended losses to hit a fresh two-year low against the dollar.

Japanese shares fell for a second consecutive session as a jump in Spanish long-term borrowing costs to record highs stoked concerns that Europe's debt crisis is escalating. The benchmark Nikkei average ended 1.9 percent lower at a six-week low, while the broader Topix index finished 1.8 percent lower. The euro's renewed weakness against the yen weighed on exporters, dragging shares of companies like Sony and Ricoh down 7 percent and 4 percent, respectively.

Growth-sensitive stocks also came under heavy selling pressure, with China-linked Komatsu down 3.3 percent and trading house Mitsubishi Corp. falling 2.5 percent. Automaker Suzuki Motor fell almost 4 percent after a section of workmen at its Maruti Suzuki plant in India went on a rampage last week. Domestic-demand driven railway companies such as Central Japan Railway and Japan Railway rose modestly on defensive buying.

China's Shanghai Composite index fell 1.3 percent to a more than 3-year low after Song Guoqing, an academic member of the People's Bank of China monetary policy committee, forecast that China's economic growth may slide to 7.4 percent in the third quarter. Hong Kong's Hang Seng index tumbled 3 percent, with Europe's largest lender HSBC Holdings, retreating 5 percent on renewed worries over debt problems in Spain and Greece.

Australian shares tumbled on growing concerns that the European debt crisis is worsening. Renewed speculation about a full-scale Spanish sovereign bailout raised concerns of a contagion risk from the region, pulling down the benchmark S&P/ASX 200 index and the broader All Ordinaries index down about 1.7 percent each. Big miner BHP Billionaires fell 2.6 percent, and Rio Tinto shed 3.5 percent, while smaller rival Fortescue slumped 7.1 percent. In the banking sector, Commonwealth, ANZ, NAB and Westpac fell between 0.7 percent and 1.3 percent.

Energy stocks also fell sharply following steep gains last week on higher oil prices. Woodside Petroleum lost 1.4 percent, while Santos and Oil Search tumbled about 3 percent each. Leighton ended 1.9 percent lower despite winning a $2.3 billion coal mine contract.

Woolworths bucked the downward trend to end a percent higher after the retail giant reported a stronger-than-expected 1.3 percent rise in same-store food and liquor sales in the fourth quarter. Rival Wesfarmer edged up 0.2 percent, but David Jones retreated 2.5 percent and Myer Holdings plunged 4.6 percent.

Producer price inflation in Australia accelerated at a faster-than-expected pace in the June quarter, mainly due to an increase in output costs for some agriculture produces and petroleum refining, data released by the Australian Bureau of Statistics showed. Prices for commodities at the final stage of production rose 0.5 percent quarter-over-quarter.

South Korea's Kospi average retreated 1.8 percent, as escalating fears over Europe dragged down exporters and banks. Tech shares Samsung Electronics and SK Hynix fell 2-4 percent, while Woori Finance Holdings lost 3.3 percent. OCI tumbled 3.5 percent after China initiated an anti-dumping probe on polysilicon imports.

New Zealand shares ended largely unchanged with a positive bias despite extremely weak regional cues. The benchmark NZX-50 index rose a marginal 0.05 percent, as gains in Freightways and Diligent Board Member Services offset losses in Australian dual-listed Goodman Fielder, which fell after it warned of more write-offs in the 2012 financial year.

Express package and information management company Freightways and software firm Diligent Board Member Services both rose about 1.8 percent each, while shares of Goodman Fielder slumped 6.1 percent post its disappointing trading update. Auckland International Airport gained 1.2 percent after it flagged an 11 percent increase in international arrivals in June year-over-year.

Elsewhere, India's benchmark Sensex was last trading down 1.4 percent, Indonesia's Jakarta Composite index was down 1.8 percent, Malaysia's KLSE Composite lost 0.4 percent, Singapore's Straits Times was losing 1.3 percent and the Taiwan Weighted average shed 1.9 percent.

On Wall Street, shares fell notably on Friday, weighed down by worries about Europe and amid lingering concerns about the outlook for the global economy. Investors also digested the latest batch of quarterly results from tech giants Microsoft and Google. The Dow fell 0.9 percent, the tech-Nasdaq slid 1.4 percent and the S&P 500 dropped a percent.

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U.K. Recession Likely Deepened In Q2 

The U.K. economy is likely to have contracted for the third time in the second quarter, sinking deeper into the double-dip recession.

Economists forecast a 0.3 percent decline in gross domestic product in the second quarter, following a 0.2 percent fall in the first quarter.

Two consecutive contractions plunged the nation into its first double-dip recession since 1970s in the previous quarter.

The Office for National Statistics is slated to release the first estimate of GDP on July 25. The GDP figure will be based only on the output side of the economy namely production, services and construction, without taking into account the expenditure side.

IHS Global Insight economist Howard Archer says the economy will achieve growth in the third quarter and will continue expanding in the fourth quarter this year. However, tight fiscal policy and significant problems for consumers are expected to continue to limit economic activity.

The economy will receive a limited boost from the staging of the Olympic Games. Ernst & Young ITEM Club also sees the economy returning to a growth path in the coming six months on higher consumer spending.

The widening budget deficit in June has raised concerns about the ability of the government to bring down its budget deficit to the GBP 120 billion target over the current fiscal year.

The Institute for Public Policy Research reportedly urged the government to borrow more and implement temporary tax cuts as current austerity measures are dampening activity. It said the economy will lose GBP 165 billion in output by 2015.

The International Monetary Fund has urged the British government to reduce the pace of fiscal consolidation if growth fails to gather momentum.

The Bank of England expanded its quantitative easing by GBP 50 billion early this month and policymakers even examined the merits of easing interest rate below 0.50 percent. The central bank also introduced measures to boost lending.

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