US & World Daily Markets Financial Briefing 23-09-2009

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Stocks May Hold Ground on Positive Profit Outlook

The major U.S. index futures are pointing to a modestly higher opening on Wednesday. As reflected by the futures, trading may show a lack of direction, as traders stay on the sidelines ahead of the announcement of Fed rate decision. That said, encouraging earnings and positive commentary on future outlook by technology companies such as Xilinx (XLNX) and Seagate Technologies (STX) should trigger sector specific buying and also support the broader market on hopes that the economy may be slowly limping back to normalcy.

While a strong overseas lead helped U.S. stocks open higher on Tuesday, the release of a housing report generated some selling pressure, which led the major U.S. averages to pare back their gains in early trading. However, stocks advanced thereafter due to the reemergence of buying interest and topped out by early afternoon.

Consequently, the Dow Industrials ended up 51.01 points or 0.52% at 9,830, the Nasdaq Composite Index gained 8.26 points or 0.39% to close at 2,146 and the S&P 500 Index closed up 7 points or 0.66% at 1,072.

Twenty of the thirty Dow components ended the session higher, with JP Morgan Chase (JPM) (up 4.31%), Caterpillar (CAT) (up 3.58%), Bank of America (BAC) (up 2.09%) and Alcoa (AA) (up 2.30%) leading the advance. Microsoft (MSFT), Hewlett-Packard (HPQ), General Electric (GE) and Disney (DIS) also showed notable gains. On the other hand, Cisco Systems (CSCO), Kraft Foods (KFT), AT&T (T), Merck (MRK) and Home Depot (HD) were among the decliners.

Among the sector indexes, the Dow Jones U.S. Basic Materials Average rose 1.92%, the KBW Bank Index gained 2.30% and the NYSE Arca Securities Broker/Dealer Index advanced 2.44%. However, the NYSE Arca Airline Index fell 2.06%. While the Philadelphia Oil Service Index moved up 2.30%, the NYSE Arca Oil Index rose 2.30% and the NYSE Arca Gold Bugs Index gained 2.45%. Technology stocks also rose notably, with most of the indexes in the sector rising about 1% each.

Fed Meets Amid Signs of Stabilization

The Federal Reserve Open Market Committee is scheduled to make an announcement regarding the near-term direction of monetary policy at 2:15 PM ET following the end of its 2-day monetary policy committee meeting. Economic data released during the inter-meeting period has continued to suggest improvement, with the latest manufacturing and housing reports coming in better than expected, while inflation data has shown that inflationary pressures remain subdued. While acknowledging these developments, the Fed is likely to reiterate in its post-meeting policy statement that rates will be kept at exceptionally low levels for an extended period.

The FOMC may also announce the updated Fed forecasts, which are mostly likely to have been nudged up to reflect recent positive data. Danske Bank expects GDP to grow 4.6% quarter-over-quarter in the fourth quarter and 4% in the first quarter of 2010. Following this, the firm expects a moderation in growth in mid-2010.

With green shoots sprouting, the Fed’s next preoccupation is likely to be on exit strategies. The central bank has to wind down its liquidity programs, which many expect will happen automatically as conditions in the money market normalize. The liquidity programs that are in place now are scheduled to run through March or June 2010. Thereafter, the Fed has to tighten outright either in terms of selling back mortgage backed securities, agency or treasury securities or by increasing the fed funds target rate and the interest paid on excess reserves.

At its August meeting, the FOMC decided along the expected lines and maintained the fed funds rate unchanged. In its post-meeting policy statement, the Fed noted that economic activity is leveling out, an improvement from its previous opinion that the pace of contraction is slowing. There weren't any major changes to the references the committee made towards other measures.

Regarding its Treasury securities purchasing program, the central bank said the committee would gradually slow the pace of these transactions. The central bank anticipates the full amount of $300 billion to be purchased by the end of October. The FOMC reiterated its commitment to retain interest rates at exceptionally low levels for an extended period.

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Toronto Stocks On Pause Ahead Of Fed Rate Decision

Bay Street stocks could see little direction in early trading on Wednesday as traders awaited the U.S. Federal Reserve's interest rate decision this afternoon. Gold and oil have slipped slightly, but retained most of yesterday's notable gains.

The Fed decision is due at 2:15 p.m. ET. Rates are expected to remain unchanged near zero, but close attention will be paid to the accompanying statement.

In commodities, crude oil has slipped 12 cents to $71.43 per barrel, while gold is off 90 cents to $1,014.60. Copper has seen a more notable loss, dropping 7.45 cents to $2.79 per pound.

UEX Corp. announced that Stephen Sorensen, its president and chief executive officer, will retire, effective November 1. Sorensen will also resign as a director of the company.
 
AGF Management Limited reported its third quarter earnings declined 45.7% to C$0.25 per share from C$0.46 per share in the third quarter of last year.

Bank of Montreal has received preliminary approval to incorporate in China, according to the Globe and Mail.

Yesterday, the S&P/TSX Composite Index surged 161.12 points or 1.41% to settle at 11,585.73, its best level in almost a year. The market had declined in three straight sessions after rising in 10 of 11.

Currency, Commodity Futures

Crude oil futures are slipping $0.45 to $71.31 a barrel after the November futures ended Tuesday’s session up $1.83 at $71.76 a barrel. The API inventory report released Tuesday after the markets closed showed that crude oil stockpiles rose by 276,000 barrels per day in the week ended September 18th. Gasoline stockpiles rose by 3.8 million barrels, while distillate fuel inventories declined by 1.9 million barrels. Following the release of the report, oil was trading weaker in Asian.

After rising $11.60 to $1,015.50 an ounce in the previous session, gold futures are easing $1.50 to $1,014 an ounce.

The sustainability of the firmer demand for commodities that was witnessed for most of August depends on whether demand from China can keep ticking, the global economy can continue to relay optimism about growth and the production curtailment put in place earlier is adhered to.

On the currency front, the U.S. dollar is trading at 91.327 yen compared to the 91.1035 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is currently valued at $1.4780 compared.

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Asian Markets Drift Lower Ahead Of Fed Statement

The major Asian markets, open for trading, ended in negative territory on Wednesday as traders preferred to lock in gains and move to sidelines ahead of Fed statement in the U.S. Rise in commodity prices and weaker dollar however attracted buying interest in resource stocks and limited the losses in the markets. The markets in Japan and Indonesia were closed for public holidays. The Australian market ended higher led by mining stocks and Singapore's Strait Times Index ended flat. The other markets in India, Hong Kong, China, South Korea and Taiwan ended in the negative territory.

In Australia, the benchmark S&P/ASX200 Index gained 1.51% or 70.40 points to close at 4,734, while the All-Ordinaries Index ended at 4,741, representing a gain of 69.90 points, or 1.50%.

On the economic front, the Department of Employment and Workforce Relations revealed that job vacancies for skilled workers in the country climbed 1.2% in September following a 1% rise in the previous month. However, on an annual basis, skilled vacancies remain 50.4% down.

Mining stocks advanced following rise in commodity prices in the international market on Tuesday. In addition, positive statement from the Asian Development Bank about the Indian and Chinese economies also lifted the sentiment. BHP Billiton added 0.92%, Rio Tinto gained 2.29%, Iluka Resources rose 4.42%, Minara Resources advanced 5.61%, and Oz Minerals climbed 1.71%.
 
Oil stocks also ended in positive territory on higher crude oil prices. Woodside Petroleum surged up 5.09%, Santos edged up 0.46%, Oil Search gained 3.16% and Origin Energy rose 2.60%.

Gold stocks also gained on higher prices in the bullion market. Lihir Gold gained 2.67%, Newcrest Mining climbed 1.99% and Sino Gold Mining rose 1.41%.

Banks also ended higher on increasing optimism about global recovery. ANZ Bank added 1.07%, Commonwealth Bank of Australia rose 2.31%, National Australia Bank gained 2.68% and Westpac Banking Corp. advanced 1.36%.

In Hong Kong, the Hang Seng Index drifted lower and ended with a loss of 105.69 points, or 0.49%, at 21,596, on traders preferred to lock-in gains following recent rally and move to the sidelines ahead of the Fed statement in the U.S., as the buying interest seems to be losing steam and the markets look for further direction. Buying interest in select resource stocks on higher commodity prices limited the losses. Banks and property stocks were the major losers.

In South Korea, the benchmark KOSPI Index ended in negative territory with a modest loss of 7.41 points, or 0.43% at 1,711, as institutional investors preferred to lock - in gains following a smart rally in the past few days which saw the index rise above the psychological 1,700-mark in the previous session. Buying interest on select stocks from foreign institutional investors limited the losses.

Aggressive profit taking in frontline stocks after a 5-day rally dragged the Indian market down in the last hour of trading. Weak Asian cues, shuffling of positions on account of derivatives expiry on Thursday and caution ahead of the U.S. Federal Reserve's rate-setting announcement also weighed on sentiment. The BSE Sensex finished at 16,719, down 167 points or 0.99% and the S&P CNX Nifty fell 50 points or 1% to 4,970.

Among the other major markets in the region, China's Shanghai Composite Index declined 1.89% or 54.83 points to close at 2,843 and Taiwan's Weighted Index declined 92.27 points, or 1.24% to 7,377. The Indonesian market is closed for public holiday and Singapore's Strait Times Index ended largely flat with a minor gain of 0.31 points, or 0.01% at 2,686.

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After a nervous opening on Wednesday, the major European averages spiked sharply in early trading, although they have come off their highs. Currently, the French CAC 40 Index, the German DAX Index and the U.K.’s FTSE 100 Index are rising 0.34%, 0.27% and 0.53%, respectively.

On the economic front, a report released by the French National Institute for Statistics and Economic Studies showed that the French business sentiment indicator rose to 85 in September from an upwardly revised reading of 79 for August. Economists had expected the index to come in at 81.

Another report released by the agency showed that consumer spending in France rose 1% month-over-month in August compared to the 1.2% decline in the previous month. Economists had estimated a 0.3% increase for the month. Annually, consumer spending was down 1.3% following a 0.5% increase in July. Consumer spending on textile goods declined by 3.8% on a monthly basis, steeper than the 3% decline in June, while spending on durable goods fell 0.7%.

Eurostat said today that the euro area’s industrial new orders rose by 2.6% month-over-month in July, slower than the 4% growth in June. The increase was bigger than the 2% growth estimated by economists. Excluding volatile transportation orders, industrial new goods orders rose 3.1%.

U.S. Economic News

The Energy Information Administration is scheduled to release its weekly petroleum inventory report at 10:30 AM ET.

Crude oil stockpiles fell by 4.7 million barrels to 332.8 million barrels in the week ended September 11th, although inventories remained above the upper limit of the average range.

Gasoline stockpiles rose by 0.5 million barrels and remained near the upper limit of the average range, while distillate inventories increased by 2.2 million barrels. Stockpiles of distillate fuels remained above the upper boundary of the average range. Refinery capacity averaged 86.3% over the four weeks ended September 11th compared to 85.6% in the previous week.

Earnings

General Mills (GIS) reported first quarter net sales of $3.52 billion, up 1% year-over-year. On an adjusted basis, the company’s earnings per share rose 33% to $1.28 per share. Analysts estimated earnings of $1.03 per share on revenues of $3.49 billion. The company raised its adjusted earnings per share guidance for 2010 to $4.40-$4.45 from its previous estimate of $4.20-$4.25 per share, while analysts estimate earnings of $4.26 per share.

AutoZone (AZO) said its fourth quarter earnings per share rose 14.2% to $4.43. The company’s sales were up 1% to $2.2 billion. The consensus estimates called for earnings of $4.45 per share on revenues of $2.23 billion.

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AMR Corp. is likely to react to its announcement that it has priced its offering of 48.48 million shares at $8.25 per share compared to its closing price of $8.44 per share on Tuesday. The company also announced that it has priced its offering of $400 million worth 6.25% convertible senior notes due 2014. The company expects the offerings to generate net proceeds of $770.5 million, which it plans to use for general corporate purposes.

Peer U.S. Airways may recede after it announced its intention to sell 26.32 million shares to Citi (C), which is serving as the underwriter for the offering. The company expects the sale to be completed on September 28th, 2009.

Seagate Technology is likely to move to the upside after it raised its first quarter revenue guidance, with the company now expecting revenues to come in or above the high-end of its guidance range of $2.4 billion to $2.6 billion. The company attributed the positive outlook to strong demand for hard drives. Analysts estimate revenues of $2.54 billion.

Financial Federal could be in focus after it announced that its fourth quarter net income fell to 35 cents per share from 49 cents per share in the year-ago period. Analysts estimated earnings of 37 cents per share for the quarter.

Barrick Gold may also see some activity after it announced that it has completed the sale of its silver production from four of its mines to Silver Wheaton (SLW) for $625 million. The deal includes the sale of 25% of the life-of-mine silver production from the Pascua-Lama project and the equivalent of 100% of silver production from the Lagunas Norte, Pierina and Veladero mines.

H.B. Fuller may see buying interest after it announced that its third quarter net income climbed to 72 cents per share from 44 cents per share last year. The recent quarter’s results included a gain of 24 cents per share. On an adjusted basis, the company reported earnings of 48 cents per share, notably higher than the consensus estimate of 36 cents per share. Revenues fell 13% to $315.3 million, although it came almost in line with the $315.5 million expected by economists.

Freddie Mac could react to its announcement that it has appointed Ross Kari as its CFO, effective October 12th. Kari had earlier served as CFO of Fifth Third Bancorp.

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