US & World Daily Markets Financial Briefing 23-11-2009

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Stocks Seeing Initial Strength Amid Dollar Weakness

Stocks moved sharply higher at the start of trading on Monday, with the major averages all moving to the upside after turning in a mixed performance last week. The initial strength was partly due to some weakness in the value of the U.S. dollar.

With commodities prices moving higher amid the drop in the value of the dollar, resource stocks are helping to lead the way higher. Gold stocks are posting particularly large returns, as the price of the precious metal jumps more than $20 an ounce.

Significant strength has also emerged in a variety of other sectors, reflecting broad based buying interest. Health insurance, commercial real estate, electronic storage, and airline stocks are turning in some of the best performances.

Shortly, trading could be impacted by the release of the National Association of Realtors' report on existing home sales in the month of October. Economists expect existing home sales to rise to an annual rate of 5.70 million from 5.57 million in September.

In corporate news, the race to acquire UK-based confectionery maker Cadbury (CBY) seems to be heating up, with Kraft Foods (KFT) reportedly considering an increase in its bid o $16.3 billion. Hershey (HSY) and Nestle have also shown interest in Cadbury.

Meanwhile, Tyson Foods (TSN) reported a fourth quarter net loss of $1.22 per share, compared to net income of $0.13 per share last year. Excluding a goodwill impairment charge, the company earned $0.28 per share compared to analyst estimates of $0.26 per share.

The major averages have seen some further upside in the past few minutes, reaching new highs for the young session. The Dow is currently up 128.48 at 10,446.64, the Nasdaq is up 32.20 at 2,178.24 and the S&P 500 is up 17.20 at 1,108.58.

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Gold up for sixth day in a row

Though the US dollar showed signs of recovery on Friday, investors banked on the trend being short lived and piled into gold, pushing the price of the yellow stuff up for the sixth session in a row.

The December futures contract rose $4.90 to hit $1,146.80 an ounce on Friday afternoon on the Comex division of the New York Mercantile Exchange, having shown weakness in the morning session.

Friday’s closing value was below the all-time high price of $1,153.40 an ounce hit on Wednesday.

Silver, by contrast, was out of favour with the December futures contract sliding 1.5 cents to $18.44 an ounce, but the price of copper hardened, with the March contract climbing 2.8 cents to $3.134 a pound in New York trading.

The price of crude oil dipped for the second day in a row as the greenback clawed back some recent losses against the euro. The price of oil usually moves contra to the direction of the US currency.

Crude oil for December fell 74 cents to $76.72 on its last day of trading. The more actively traded January contract eased $0.58 to $77.47 a barrel.

With the removal of the dollar as a reason for the price of oil to rise investors looked to the demand situation to see which way the price might move, and the consensus seems to be that demand is recovering, but only slowly.

On Wednesday, the US Energy Deparment said daily fuel demand in the US in the preceding four weeks had been 4.1% down on levels seen in the corresponding period of 2008.

Gasoline futures moved higher, however, after US refiner Valero Energy said it is shutting down its refinery in Delaware City, tipping 550 workers on to the dole.

The closure was in response to the tribulations suffered by the US motor manufacturing industry. The refinery has been losing $1m a day this year.

Dollar lower on Bullard comments

The US dollar slipped back in early Asia trading after St.Louis Fed President Bullard said he supported extending the central bank’s purchases of mortgage- backed securities beyond the first quarter of next year.
Even though these comments were nothing new, and he was merely repeating comments made last week, investors sought to lock in profits after 3 days of dollar gains in thin trading, with Japan closed for a public holiday.
The dollar index slipped back 30 points against a basket of currencies.

Sterling has started the week in the same vein it ended last week, on a slightly heavy note.

EURUSD - the Euro has started the week on a slightly firmer note on the back of a weaker dollar after closing slightly softer on Friday.
It is currently-trading just below the trend line linking last weeks highs at 1.4970, a break of which could well target a re-test of the 1.5060/70 highs from October.
A break here would then target the 1.5290 resistance area.
The key support level remains around the 1.4805/10, the lows of the last 2 weeks and the 50 day moving average which has support this up trend since May.

GBPUSD - remains fairly well supported on the back of a weaker dollar. Last weeks lows of 1.6460 remain the key barrier to a test of 1.6300, while any rallies could extend towards 1.6680, and even 1.6740.

EURGBP - Euro continues to gain ground against a weaker pound, and looks set to test the November highs and key resistance at 0.9070. A break here would target further sterling weakness and a test of 0.9270. The Euro should find support around 0.9000 and below that at 0.8970.

USDJPY - continues to remain on the weak side with down trend resistance from the 27th October highs at 89.70. While this level remains intact the October lows at 88.00 remain the short-term target, a break of which would then target the 87.10 lows of August.

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The markets across Asia, open for trading, ended in positive territory on Monday led by commodity related stocks following rise in commodity prices in the international market. The market in Japan is closed for a public holiday. Volumes were relatively less as traders await more cues on global economy and more economic data from the U.S. for further direction.

In Australia, the benchmark S&P/ASX200 Index advanced 31.20 points, or 0.67% to close at 4,717, while the All-Ordinaries Index ended at 4,739, representing a gain of 32.50 points, or 0.69%.

On the economic front, data released by the Australian Bureau of Statistics revealed that the sale of new motor vehicles in Australia were up a seasonally adjusted 3.3% year-on-year in October, coming in at 81,122 vehicles. In the previous month, the sales declined 2.0%. On a monthly basis, new auto sales gained 3.7% in October following a 2.9% gain in September.

Retail stocks led the gains in the market after Mr Gerry Harvey of Harvey Norman, told the reporters on Sunday that he expects record sales in the upcoming Christmas season. "Our sales this year are going to be an absolute record, this is going to be the biggest Christmas we have ever had, we are going to break all records." Following the comments, the stock of Harvey Norman surged up 5.19%. Other retail stocks also ended in positive territory. David Jones advanced 2.30%, JB Hi-Fi Ltd rose 3.60%, Wesfarmers climbed 1.71% and Woolworths added 0.29%.

Among mining stocks, Rio Tinto surged up 3.59% after stating that it expects record iron ore volume for the year. In addition, rival company BHP Billiton stated it is unlikely to submit another bid for Rio Tinto, which also lifted sentiment. BHP Billiton advanced 1.07%. Among other metals and mining stocks, Fortescue Metals added 0.71%, Iluka Resources surged up 5.00%, Murchison Metals climbed up 3.59% and Oz Minerals edged up 0.39%.

Oil related stocks ended in negative territory with minor losses. Santos Ltd slipped 0.07%, Oil Search shed 0.17% and Origin Energy fell 0.25%. However, Woodside Petroleum bucked the trend and edged up 0.04%.

Gold related stocks ended in positive territory. Lihir Gold rose 3.35%, Newcrest Mining gained 3.24% and Sino Gold Mining added 0.13%.

Mixed trading was witnessed among the banking stocks. ANZ Bank added 0.69% and Commonwealth Bank of Australia edged up 0.08%. However, National Australia Bank slipped 1.01% and Westpac Banking Corp. shed 0.21%. Investment banking company Macquarie Group added 0.19%.

In Hong Kong, the Hang Seng Index ended in positive territory with a gain of 1.41% or 315.55 points, at 22,721, following rise in commodity prices in the international market and positive trading across other markets in the region. All the components in the index, except 5 stocks, ended in positive territory. Banks, resource stocks and china-related stocks led the gains. Among the banks, Bank of Communications rose 2.19%, ICBC or Industrial and Commercial Bank of China, climbed up 3.26% and China Construction Bank surged up 4.08%.

In South Korea, the KOSPI Index ended flat with a marginal loss of 1.55 points, or 0.10%, at 1,619, as profit taking in blue-chip stocks by domestic and foreign institutional investors offset the gains in retail stocks. The markets opened in positive territory on positive cues from other markets in the region, but drifted into the negative territory as traders, especially foreign institutional investors, preferred to lock in gains and move to sidelines awaiting further direction on global economic recovery.

The Indian market showed a notable gain on Monday, lifted by market heavyweight Reliance Industries after it made a preliminary, non-binding cash offer to buy a controlling stake in U.S-based bankrupt chemicals maker LyondellBasell. The stock ended up 3.31% on a heavy volume of 12.6 lakh shares. Strong global cues, especially a rally in European stocks and the U.S index futures, also helped improve sentiment, while weakness in the telecom, realty and IT space restricted large returns. The BSE Sensex finished at 17,180, up 158 points or 0.93%, and the S&P CNX Nifty rose 51 points or 1.01% to 5,104.

Among the other major markets in the region, China's Shanghai Composite Index gained 30.32 points or 0.92% to close at 3,339, Singapore's Strait Times Index rose 36.34 points, or 1.32% to close at 2,798 and Taiwan's Weighted Index edged up 4.18 points, or 0.05%, to close at 7,687. However, Indonesia's Jakarta Composite Index bucked the trend and ended lower with a loss of 5.95 points, or 0.24% at 2,481.

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Europe’s leading exchanges are adding to this morning’s gains in midday dealings, with strong commodities leading the way.

Though the US dollar showed signs of recovery, investors banked on the trend being short lived and piled into gold, pushing the price of the yellow stuff up.

Miners are sharply higher, including Xstrata, Rio Tinto and Randgold Resources.

Energy shares are also in demand, with Royal Dutch Shell, Total and Eni on the rise.

Across the markets, the German DAX is up 90 points at 5,754 with the French CAC rising 63 points to 3,793. The Swiss market is 106 points higher at 6,384.

Renault is leading the way in Paris after Credit Suisse upped its stance on the French carmaker to ‘outperform’ from ‘underperform’.

Confectionery company Cadbury has hit a new high on reports that Swiss foods giant Nestle is considering entering the bid battle for the company while US processed foods company Kraft is said to be preparing to lift its bid for Cadbury if a rival bidder emerges.

In economic news, the 16-nation eurozone’s service sector grew at its fastest pace in two years in November, new figures showed this morning.

Markit's eurozone flash service purchasing managers index rose to 53.2 from 52.6 in October. Meanwhile, the flash manufacturing index rose to 51.0 from 50.7 in October, its highest since March 2008.

CAC 40 - Risers
Renault (RNO) € 33.31 +4.13%
Vallourec (VK) € 117.25 +3.62%
ArcelorMittal SA (MT) € 26.19 +3.58%
Dexia (DEXB) € 5.38 +3.37%
Saint Gobain (SGO) € 37.96 +3.01%
BNP Paribas (BNP) € 57.91 +2.97%
Accor (AC) € 36.19 +2.65%
LVMH (MC) € 73.43 +2.47%
Credit Agricole (ACA) € 14.40 +2.31%
EADS (EAD) € 13.01 +2.24%

CAC 40 - Fallers
Alcatel-Lucent (ALU) € 2.43 -1.34%
ST Microelectronics (STM) € 5.53 -0.82%
Danone (BN) € 41.03 -0.64%

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Mobile phone gaming is becoming a hot growth area in China, and China Techfaith Wireless Communication Technology Ltd. (CNTF) may be well-positioned to benefit from this nascent market.

Most recently, the company signed deals to provide game content services to Chinese mobile phone branding companies aigo, Doov, AMT, QiGi and Flyfot through its wholly-owned gaming subsidiary 798 Entertainment Ltd, formerly known as One Net Entertainment Ltd.

The game content provided by 798 Entertainment will be built into the mobile phones of these companies, in exchange for a service fee to China Techfaith.

In addition to the built-in games, mobile phone users can also download and play other 798 mobile phone games free of charge. However, the users will be charged additional fees for purchase of accessories for the games.

TechFaith is targeting the mobile gaming market through its website www.798uu.com, and the online PC gaming market through www.798game.com. The company is planning a launch of 16 multiplayer online role-playing games or MMORPGs for mobile gamers on www.798uu.com.

Essentially, the company is engaged in the development and production of mid to high-end handsets and tailor made handsets, but began to add handsets with interactive online gaming to its portfolio, after expanding into the mobile and PC online gaming market in January 2008.

The mobile gaming market is evolving rapidly due to wider mobile adoption, benefiting from expanded mobile access to the Internet and reduced data access costs.

The number of mobile gamers has increased from about 55 million in 2005 to about 183 million in 2008, mainly due to new mobile gamers in China and India, according to market research firm Research and Markets.

An August report from Research and Markets estimates the global mobile gaming market to grow at a 16.6% CAGR or Compound Annual Growth Rate to $18 billion in 2014 from $6.9 billion in 2008.

In a vote of confidence, One Net Entertainment, the company's gaming subsidiary, received a $20 million investment in May this year, from venture capital firm IDGVC Partners and Hong Kong-based Infiniti Capital Ltd. The investment is in the form of convertible debt and common equity.

China Techfaith has grown its revenues from $80.8 million in 2006 to $208.9 million in 2008 and turned to a profit last year. For the most recent second quarter, the company posted cash of $2.58, which represents 78% of the stock's Friday closing price of $3.3.

Insiders are bullish about the stock, owning 50.11% of the company's outstanding float. High insider ownership generally denotes confidence in the stock.

During the third quarter, China Techfaith announced the launch of G6, the mobile phone for sports lovers. The G6 will double as a mobile gaming platform as well as a remote control for PC gaming with advanced motion sensors. The phone will let users play table tennis, tennis, bowling, golf, and car racing.

China Techfaith reports third quarter results on Nov 23, after the market close. In the year-ago period, the company reported net income of $0.45 million or $0.01 per American Depositary Share or ADS on revenues of $50.8 million.

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