US & World Daily Markets Financial Briefing 25-11-2009

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Promising Data Likely to Help Return of Buying Momentum

The major U.S. index futures are pointing to a higher opening on Wednesday. Upbeat economic reports, including the jobless claims report that showed a dip in claims below the 500,000 mark, and the personal income and outlays report that showed a stronger-than-expected increase in personal spending should help traders shed some of their inhibition and get back to the buying ways. Traders may also stay tuned to the new home sales report to be released shortly after the markets open.

The major averages opened Tuesday’s session modestly lower, as traders expressed concerns over the revised third quarter GDP report that showed that growth was slower than initially estimated. Stocks saw further downside in early trading and remained below the unchanged line for the better part of the session to close modestly lower.

The Dow Industrial retreated from its 1-year high and settled down 17.24 points or 0.16% at 10,434. The Nasdaq Composite Index receded 6.83 points or 0.31% to 2,169, while the S&P 500 Index ended down 0.59 points or 0.05% at 1,106.

Nineteen of the thirty Dow components ended the session lower, with Pfizer (PFE), JP Morgan Chase (JPM), Hewlett-Packard (HPQ), Bank of America (BAC), Boeing (BA) and Alcoa (AA) declining sharply. On the other hand, telecom stocks advanced strongly for the second straight session, with Verizon (VZ) and AT&T (T) rising 1.72% and 1.19%, respectively.

Among the sector indexes, the Dow Jones Transportation Average fell 0.83% and the Philadelphia Housing Sector Index declined 1.63%. The NYSE Arca Securities Broker/Dealer Index and the KBW Bank Index moved down 1.31% and 0.65%, respectively. The NYSE Arca Computer Hardware Index receded 1.39% compared to a 1.06% retreat by the NYSE Arca Software Index. However, the NYSE Arca Biotechnology Index rallied 2.71%.

On the economic front, the Bureau of Economic Analysis released its revised third quarter GDP report, showing downwardly revised growth of 2.8%. Excluding government spending, all major components of GDP were revised unfavorably. Personal spending and fixed investment growth were revised lower and the drag from inventory depletion was now more severe than initially estimated. Additionally, net trade was revised to be a bigger drag on growth.

The S&P/Case-Shiller survey showed that house prices declined at a slower year-over-year rate of 9.36% in September, although the decline was still steeper than the 9.10% decline expected by economists. On a monthly basis, house prices rose 0.33%, marking the fifth straight month of growth. Nine of the twenty cities showed monthly gains.

The Conference Board’s survey revealed that its consumer confidence rose to 49.7 in November from 48.7 in October. Economists had estimated a decline by the index to 47.3. While the expectations index rose 1.5 points, the present situation index edged down 0.1 points. Consumers’ assessment on the job market was still pessimistic, with the respondents saying that jobs were plentiful falling to its lowest level since February 1983, while those who said jobs were hard to get to rose to its highest level since May 1983.

The minutes of the FOMC meeting indicated that there has not been much change in the economic outlook since September. The minutes showed that the committee members believed that the recovery will continue and will gradually strengthen over time. At the same time, the members are of the view that the unemployment rate will remain quite elevated and the level of inflation will remain below rates consistent with the Fed’s objectives over longer term.

Bay Street Stocks May Follow U.S. Markets Higher

Canadian stocks could move back into positive territory in early trading on Wednesday morning. Higher U.S. futures and another surge in gold prices could provide a spark.

Gold has rallied another $16.90 to extend a record high to $1,183.00. Copper has added 1.95 cents to $3.1755 and crude oil is up 36 cents at $76.46 per barrel.

In corporate news, Constellation Software Inc. announced that Trapeze ITS is reducing its workforce by around 110 employees, primarily at the company's main office in Neuhausen, Switzerland.

Silver Wheaton Corp. appointed George Brack to its Board.
 
LM Ericsson Telephone Wednesday said it will buy certain assets of GSM/GSM-R business of Canadian network solutions company Nortel Networks for a purchase price of US$70 million.

Across the border, the U.S. Labor Department revealed that initial jobless claims dropped 35,000 last week to a level of 466,000. This was the first reading below 500,000 since early January.

Yesterday, the S&P/TSX Composite Index dropped 84.39 points or 0.72% to finish the day at 11,539.63.

Currency, Commodity Futures

Crude oil futures are rising $0.33to $76.35 a barrel after declining $1.54 to $76.02 a barrel on Tuesday. Gold futures are currently moving up $16.30 to $1,183.70 an ounce. In the previously session, the precious metal rose $2.70 to $1,167.40 an ounce.

On the currency front, the Australian dollar strengthened in the Asian trading today in reaction to comments from Reserve Bank of Australia Deputy Governor Ric Battelino, which suggested that the growth upswing in Australia will continue for years. Additionally, the currency gained some strength from positive construction data.

Currently, the U.S. dollar is trading at 87.546 yen compared to 88.4995 yen it fetched at the close of New York trading on Tuesday. The greenback is currently valued at $1.5066 versus the euro, weaker than yesterday’s $1.4969, with the common currency slipping below the psychological resistance of $1.50 level.

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Asian stocks ended Wednesday’s trading mostly higher, as positive economic reports from the region reinforced growth hopes and led to some buying in the markets.

Japan’s Nikkei 225 average, which showed a lack of direction throughout the session ended with a gain of 40.06 points or 0.43% at 9,441, breaking a 5-session losing streak.

Auto, utility, electronics and heavy equipment makers showed firm buying interest. However, financial stocks retreated for the second straight day, while real estate, electric machinery makers, resource stocks, retailers, homebuilders and dry bulk carriers also saw substantial weakness.

In economic news, Japan’s Ministry of Finance reported that Japan’s trade balance showed a surplus of 807.1 billion yen in October compared to a deficit of 75.2 billion in the year-ago period and a surplus of 525.3 billion yen in September. October’s surplus marked the biggest in about 19 months. Exports fell 23% year-over-year to 5.309 trillion yen, slower than the 31% drop in the previous month. Imports fell 35.6%. On a monthly basis, exports rose 2.5%, with the improvement coming about due to exports to Asian economies.

A separate report released by the Bank of Japan showed that the corporate service price index declined 2.2% year-over-year in October. The decline was slower than the 3.2% drop in the previous month.

Australia’s All Ordinaries remained above the unchanged line for most of the session, barring brief weakness in early trading. Buying interest picked up in late trading, with the index closing near the highs of the session. At the close of trading, the index was up 32.80 points or 0.70% at 4,741.

Material and healthcare stocks led the rally, which most sectors participated in, barring consumer discretionary and industrial stocks. In the mining space, BHP Billiton rose sharply, while Newcrest Mining, Lihir Gold and Rio Tinto receded. Among the four major banks, ANZ, NAB and Westpac rose, while Commonwealth Bank declined. Media company News Corp. also showed modest weakness.

Hong Kong’s Hang Seng Index, which saw some strength in early trading, declined in early afternoon trading and showed weakness until recovering in the late session. The index closed down 188.66 points or 0.84% at 22,612. Thirty-four of the index components ended the session higher, with some mainland banking stocks coming under selling pressure.

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The major markets in Europe are trading higher, with the buying momentum picking up following the release of strong U.S. economic data. The French CAC 40 Index and the German DAX Index are rising 1% and 0.65%, respectively, while the U.K.’s FTSE 100 Index is advancing 0.74%.

In corporate news, U.K.-based platinum refiner Johnson Matthey reported that its underlying first-half pre-tax profit fell to 114.4 million pounds from 144.9 million pounds in the year-ago period. The company said it expects its full year results to come in line with market expectations.

Meanwhile, London Stock Exchange said its first-half earnings fell to 49.3 million pounds from 81.7 million pounds in the year-ago period, as revenues fell 9.2% to 310.9 million pounds.

In economic news, the Office for National Statistics reported that the U.K. economy contracted at a sequential rate of 0.3% in the third quarter, revised down from the 0.4% GDP decline estimated initially. The year-over-year decline in third quarter GDP was revised to a decline of 5.1% from a 5.2% drop estimated earlier.

The GfK Institute released the results of its consumer confidence survey for December, which showed that its forward - looking consumer confidence index declined to 3.7 in December from 4 in the previous month. The indicator measuring propensity to buy rose slightly to 26.3 points in November. Meanwhile, income expectations fell 6.7 points to 6.2 points and economic expectations slipped around 8 points to 0.9 points.

U.S. Economic News

Orders for goods meant to last for at least three years unexpectedly decreased in the month of October, according to a report released by the Commerce Department on Wednesday, although the report also showed a notable upward revision to pace of order growth in September.

The report showed that orders for durable goods fell 0.6 percent in October following a revised 2.0 percent increase in September. Economists had expected orders to increase by 0.5 percent compared to the 1.0 percent increase originally reported for the previous month.

The Bureau of Economic Analysis released its personal income & outlays report for October, which showed that personal income rose 0.2% and personal spending climbed 0.7%. Economists expected a 0.1% increase in personal income and 0.5% growth in personal spending.

The PCEI, excluding food and energy, rose 1.4% from a year-ago in October, slower rate than the 1.3% rart in the previous month.

The U.S. Labor Department revealed that initial jobless claims, a key measure of layoffs, dropped 35,000 last week to a level of 466,000.

This was the first reading below 500,000 this early January. Continuing claims fell 190,000 to a level of 5.423 million, the 10th consecutive week of declines.

The Reuters/University of Michigan's final report on the consumer sentiment index for November is scheduled to be released at 9:55 AM ET. The index s expected to be upwardly revised to 67 from the mid-month reading of 66. In October, the index came in at 70.6.

The Commerce Department is also due to release its new home sales report for October at 10 AM ET. The consensus estimate calls for an increase in new homes sales to 404,000.

New home sales fell 3.6% to a seasonally adjusted 402,000 in September from the previous month's 417,000, with the September figures representing a 3-month low. On a more negative note, sales for the previous months were revised down by a net of 26,000.

The months of supply remained unchanged at 7.5 months, as new home inventories dropped to their lowest level since November 1982. The median price of a new home declined 9.1% year-over-year to $204,800, although it was up 2.5% compared to the previous month.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended November 20th at 10:30 AM ET.

Crude oil inventories rose by 0.9 million barrels in the week ended November 13th to 336.8 million barrels- a level slightly above the upper limit of the average range. However, distillate fuel inventories and gasoline inventories fell by 0.3 million barrels and 1.7 million barrels, respectively. Both distillate and gasoline stockpiles remained above the upper limit of the average range. Refinery capacity utilization averaged 80.4% over the four weeks ended November 13th compared to 80.8% in the previous week.

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Deere & Co. (DE) is also likely to be in focus after it reported fourth quarter adjusted earnings of 23 cents. On a reported basis, the company posted a loss. Net sales declined to $5.33 billion from the year-ago’s $7.4 billion. Analysts estimated earnings of 3 cents per share on revenues of $4.44 billion.

Tiffany (TIF) may also react to its announcement that its third quarter net earnings remained flat at 35 cents per share. The company’s adjusted net earnings from continuing operations were 33 cents per share. Net sales fell to $598.21 million from $616.5 million in the year-ago period. Analysts estimated earnings of 24 cents per share on revenues of $573.75 million. The company raised its 2009 earnings from continuing operations guidance in above the consensus estimate.

Tivo (TIVO) is expected to be in focus after it reported that its third quarter net revenues fell to $56.86 million from $64.45 million in the year-ago period. The company reported a loss of 6 cents per share, reversing from a profit of 98 cents per share last year. Analysts expected a loss of 6 cents per share on revenues of $49.68 million. For the fourth quarter, the company expects service and technology revenues in the range of $43 million to $45 million and a net loss in the range of $13 million to $15 million.

J. Crew (JCG) may rally after it said its third quarter earnings rose to 67 cents per share from 30 cents per share last year, as revenues rose 14% to $414.1 million. Analysts estimated earnings of 58 cents per share on revenues of $408 million. For the fourth quarter, the company expects earnings of 37-42 cents per share, surrounding the 41 cents per share consensus estimate.

Blue Coat Systems (BCSI) is likely to react to its announcement that it reported a profit of 19 cents per share for its second quarter compared to a loss of 1 cent per share last year. The company’s adjusted earnings were 29 cents per share, ahead of the 26 cents per share consensus estimate. Revenues rose to $120.4 million from $119 million last year, and exceeded the $120.1 million consensus estimate. The company guided third quarter adjusted earnings of 31-36 cents per share on revenues of $121 million to $126 million. The consensus estimates had called for earnings of 30 cents per share on revenues of $125 million.

Coldwater Creek (CWTR) may see weakness after it reported a loss of 37 cents per share for its third quarter compared to a loss of 1 cent per share in the year-ago period. On an adjusted basis, the company reported a loss of 4 cents per share, even as revenues rose to $266.7 million from the year-ago’s $228.5 million. Analysts estimated a loss of 3 cents per share on revenues of $232.2 million.

Microsoft (MSFT) could see some activity after it announced that its CFO Chris Liddell will leave the company at the end of 2009. The company also named Peter Klein, who is currently serving as CFO of its Business Division, as its CFO.

Consolidated Edison (ED) may react to its announcement that it will receive an additional $45 million in smart grid stimulus funding from the U.S. Energy Department. The company noted that the award is in addition to the $136 million announced in October.

Halliburton (HAL) could be in focus after it announced that a major reduction in activity from its primary customer in Mexico would hurt its fourth quarter earnings by 2 cents per share.

McCormick (MKC) is likely to see buying interest after it announced that its board has approved an increase in its quarterly dividend by 8.3% to 26 cents per share.

General Dynamics (GD) may move to the upside after it said the U.S. Army TACOM Life Cycle Management Command has awarded the company a $2.2 billion contract for 724 Light Armored Vehicles for a Foreign Military Sale. The company noted that deliveries would begin in April 2011.

Nvidia (NVDA) could react to its announcement that the assigned patent examiner at the U.S. Patent and Trademark Office has rejected all 17 claims in three Rambus (RMBS) patents that the company has asserted against Nvidia in the International Trade Commission.

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