US & World Daily Markets Financial Briefing 28-06-2010

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Stocks Mostly Lower In Mid-Morning Trading

Stocks are mostly on the downside in mid-morning trading on Monday amid some caution ahead of this week's slew of first-tier economic data leading up to Friday's June jobs report. Meanwhile, the day's consumer income and spending data has seen little market reaction.

Before the opening bell, the Commerce Department said personal income increased by 0.4 percent in May following an upwardly revised 0.5 percent increase in April. Economists had expected income to increase by 0.5 percent compared to the 0.4 percent growth originally reported for the previous month.

At the same time, the Commerce Department said that personal spending edged up by 0.2 percent in May after increasing by less than 0.1 percent in the previous month. The modest increase in spending came in just above economists' estimates for a 0.1 percent increase.

Further, the results of the G20 summit this past weekend have also been a non-moving event for stocks. A broad consensus on reducing government deficits by half before 2013 emerged, although additional details regarding the implementation of the measures have yet to be hammered out.

On the corporate front, BP Plc (BP) revealed its latest cleanup projection for the oil spill in the Gulf of Mexico is now $2.65 billion, an increase of $300 million from estimates released last week. The company is now in the process of drilling a relief well in its latest effort to curb the leaking oil.

Apple Inc. (AAPL) announced that it sold over 1.7 million of its iPhone 4 unit in just three days after its launch on June 24th. Apple CEO Steve Jobs was quoted as saying that the iPhone 4 is the firm's "most successful product launch ever".

Meanwhile, Honda Motor Co., Ltd. (HMC) said that its worldwide production for the month of May grew 42.8 percent from the prior year and reported an 18 percent increase in Japanese Domestic Market sales. Toyota Motor Corp. (TM) reported that its worldwide production jumped by 27 percent from the year-ago period.

The major averages have all seen choppy movement in recent dealing and are currently seeing modest losses. The Dow is down 1.21 points or less than 0.1 percent at 10,142.60, the Nasdaq is down 4.66 points or 0.2 percent at 2,218.82 and the S&P 500 is down 0.94 points or 0.1 percent at 1,075.82.

Sector News

Steel stocks are some of the markets' worst performers in the early going, contributing to a 1.4 percent slide by the NYSE Arca Steel Index. The drop has the index on target for a two and a half week closing low.

Natural gas, housing and commercial real estate stocks are also seeing notable weakness, although selling remains relatively tame.

Meanwhile, tobacco and gold stocks are posting strong gains, with the NYSE Arca Tobacco Index and the NYSE Arca Gold Bugs Index up by 1.7 percent and 1.4 percent, respectively. The tobacco index has climbed to a one-week intraday high and the gold index has reached a six-week intraday high.

Stocks Driven By Analyst Comments

Williams-Sonoma (WSM) is notably higher after being upgraded by analysts at Wells Fargo from Market Perform to Outperform. The stock has gained 2.1 percent, bouncing off of a three-month closing low set on Friday.

EastGroup (EGP) is also on the upside following an upgrade by Robert W. Baird from Neutral to Outperform. The broker also raised its target on the stock from $38 to $40. Shares are currently up by 1.4 percent, setting a one-week intraday high.

On the other hand, MEMC Electronic (WFR) is trading lower after being rated as a new Sell at Goldman Sachs. The stock has lost 1 percent, setting a three week intraday low and heading back towards a five and a half-year low set earlier this month.

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TSX Poised For A Mixed Open Monday As Traders Await More Clues On Economy

Toronto stocks may witness a mixed open Monday as commodities pare previous session's large gains and varied cues from the global equity markets.

Banks could be in focus after the G20 failed to agree on a specific global tax on financial institutions. G20 leaders agreed in Toronto to reduce government deficits by half before 2013.

Elsewhere, the European markets were trading higher, presumably on a technical pull back after four days of downtrend. Meanwhile, the Asian markets closed on a mixed note. The markets in Australia, Japan, and China ended in red, while those in India, Hong Kong, Indonesia, Taiwan, South Korea and Singapore ended in positive terrain, albeit with modest gains.

On Friday, the S&P/TSX Composite Index added 37.67 points or 0.32% to 11,707.85.

The price of crude oil edged down as fears of storm Alex hitting Gulf of Mexico eased. Crude for August was down $0.68 to $78.18 a barrel.

The price of gold was little changed, holding on to its $10 gain in previous session. Gold for August delivery eased $1.50 to $1,254.70 an ounce.

In international M&A news, Noble Corp. said it will acquire privately held Frontier Drilling for $2.16 billion in cash. It also has signed $4 billion in separate agreements for two ultra deep water projects with Shell subject to closing the deal with Frontier.


In corporate news, Boyd Group Income Fund said it will acquire True2Form Collision Repair Centers Inc. for $18 million, a U.S. company with 37 shops in four states.

Gold mining company Lihir Gold said it would cease trading its shares on the Toronto Stock Exchange from July 12, due to low take-up of its shares in Canada. LGG shareholders currently on the TSX can have their holdings transferred to the Australian register or to ADRs quoted on NASDAQ.

Wood and wood by-products company Goodfellow Inc. reported higher third-quarter net income of $0.45 per share, compared with $0.24 per share in the same quarter last year.

Information technology services provider CriticalControl Solutions said it intends to complete a non-brokered private placement for gross proceeds of $2.34 million consisting of 3.9 million shares at $0.60 per share.

Spider Resources said it received a superior takeover proposal from Cliffs Natural Resources Inc. Cliff hiked its offer to C$0.19 per share from the recently increased offer of C$0.165 per share. Earlier this month, Cliffs has proposed to increase its cash take-over offer for Spider to C$0.165 per share from its original offer of C$0.13 per share. Cliffs may reduce its ownership position in KWG by selling shares into the market from time to time.

In economic news from the U.S., a report from the Commerce Department showed that personal income increased by 0.4% in May following an upwardly revised 0.5% increase in April. Economists were expecting income to increase by 0.5% compared to the 0.4% growth originally reported for the previous month. Also, the report revealed that personal spending edged up by 0.2% in May after increasing by less than 0.1% in April. The modest increase in spending came in just above economists' estimates for a 0.1% increase.

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Mixed trading was witnessed among the major markets in Asia on Monday, with traders preferring to adopt a wait-and-watch attitude awaiting more cues on global economic recovery. The markets in Australia, Japan, and China ended in negative territory, while the markets in India, Hong Kong, Indonesia, Taiwan, South Korea and Singapore ended in the green with modest gains. Traders await more details related to the modus operandi of reducing government deficits by half before 2013 , a decision agreed upon by the members in the G20 summit in Toronto over the weekend.

In Japan, the benchmark Nikkei 225 Index dropped 43.54 points, or 0.45%, to 9,694 while the broader Topix index of all First Section issues was down 6.50 points, or 0.75%, to 861.

On the economic front, a report released by the Ministry of Economy, Trade and Industry revealed that retail sales in the country were up 2.8% on year in May. That was well below analyst expectations for a 4.8% annual increase following the 4.9% spike in April. Sales from large retailers declined 4.0% on year, the data showed - again worse than forecasts for a 2.9% annual contraction after the 3.6% fall in the previous month. On a monthly basis, retail sales fell 2.0% - sharply lower than estimates for a 0.1% decline after the 0.5% increase in April.

Shipping stocks were among the major losers in the market on uncertainty about the global economic recovery. Mitsui OSK Lines declined 3.17%, Kawasaki Kisen Kaisha lost 2.60% and Nippon Yusen fell 2.05%.

Large banks also ended in negative territory following news that Mizuho Financial intends to raise capital through a large issue of 6 billion of fresh shares in the market to meet capital adequacy requirements. The stock of Mizuho Financial declined 2.61% on large volume. Among other banks, Sumitomo Mitsui Financial lost 1.88%, Mitsubishi UFJ Financial slipped 0.96%, and Resona Holdings lost 2.26%.

Real estate stocks also ended weaker on concerns about global economic recovery. Mitsui Fudosan fell 1.28%, Sumitomo Realty & Development lost 1.80%, Tokyu Land Corp. shed 1.24%, Heiwa Real Estate slipped 0.93% and Mitsubishi Estate declined 0.46%.

Mixed trading was witnessed among trading companies on stronger yen. Mitsubishi Corp. fell 2.09%, Mitsui & Co., lost 1.94%, Itochu Corp. plunged 2.65%, Sumitomo Corp. slipped 1.37% and Marubeni Corp. was down 2.67%. However, Toyota Tsusho Corp. bucked the trend and ended in positive territory with a gain of 1.04%.

In Australia, the benchmark S&P/ASX200 Index slipped 28.50 points, or 0.65% and closed at 4,384, while the All-Ordinaries Index ended at 4,410, representing a loss of 29.70 points, or 0.67%.

Mixed trading was witnessed among the mining and metal stocks. BHP Billiton declined 0.80%, Rio Tinto shed 1.44%, Gindalbie Metals fell 2.07%, Iluka Resources lost 1.66%, Macarthur Coal edged down 0.41%, Murchison Metals was down 1.86%, Minara Resources plunged 3.65%, and Oz Minerals declined 1.00%. However, Fortescue Metals bucked the trend and ended with a gain of 1.38%.

Gold stocks also ended weaker. Lihir Gold shed 0.68% and Newcrest Mining was down 0.22% during the session.

Mixed trading was witnessed among oil and energy stocks as well. Santos Ltd slipped 0.31%, ROC Oil Co declined 1.49% and Origin Energy shed 0.66%. However, Woodside Petroleum remained unchanged from previous close and Oil Search managed to end in positive territory with a gain of 0.35%.


Banks ended in the red on concerns about global economic recovery. ANZ Bank slipped 0.80%, Commonwealth Bank edged down 0.10%, National Australia Bank lost 1.13% and Westpac Banking also fell 1.10%. Investment banker Macquarie Group declined 1.39%.

Telecom giant Telestra also ended in the red with a loss of 0.30%.

In Hong Kong, the benchmark Hang Seng Index ended in positive territory with a modest gain of 35.89 points, or 0.12%, at 20,727, lifted by selective buying at late trading session on positive futures in US and European markets, on optimism about sustaining global economic recovery and getting more details about the modus operandi of reducing Government deficits by 2013, as agreed in the G20 summit. Weak or cautious trading across other markets in the region following lack of direction or fresh cues impacted fresh buying.

After last week's flat close, the Indian market rose sharply on Monday notwithstanding mixed Asian cues and the differences of opinion on key issues at the G20 summit in Toronto. A pullback in European stocks following a four-day retreat and higher U.S index futures obviously helped lift sentiment. Closer home, the government's path-breaking decision over the weekend to free petrol prices and hike kerosene, diesel and cooking gas prices also raised expectations of more reforms in the coming months. The BSE Sensex closed up almost 200 points or 1.14% at 17,774 and the 50-share Nifty rose by 64 points or 1.22% to 5,333.

Among the other major markets open for trading, China's Shanghai Composite Index ended in negative territory with a loss of 17.54 points, or 0.69%, at 2,535. However, Taiwan's Weighted Index added 26.08 points, or 0.35%, to close at 7,501, Indonesia's Jakarta Composite Index added 8.71 points, of 0.30%, to 2,956 and Singapore's Strait Times Index advanced 18.35 points, or 0.64% to close at 2,870.

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The major European averages are trading on a mixed note on Monday after showing some volatility earlier in the session. The markets declined in each of the past four sessions. The French CAC 40 Index and the German DAX Index are rising 0.76% and 0.71%, respectively, while the U.K.’s FTSE 100 Index is receding 0.10%.

In corporate news, Standard Chartered Bank said in its trading update that its performance in the first half of the year was strong due to a better performance by its consumer banking and wholesale banking client businesses. The company said its revenues rose from the previous six-month period, although remaining flat with the year-ago period.

U.K. homebuilder Tailor Wimpey said its private sales rate for the year-to-date period is almost flat with the year-ago period at 0.58 sales per site per week. Citing the ongoing political and economic uncertainty, the company said it would run the business on a cautious basis.

On the economic front, a survey conducted by Hometrack showed that U.K. house prices edged up 0.1% month-over-month in June. On a year-over-year basis, house prices rose 2.1%, slower than the 2% rate in May.

The number of houses coming up for sale increased in June due to the speculation over changes to the capital gains tax and the abolition of Home Information Packs. Hometrack expects market conditions to remain subdued in the months ahead, with prices likely to track sideways at best, but with the distinct possibility of small monthly declines.

U.S. Economic Reports

After a week marred by worries over a setback to the economic recovery, traders now turn their attention to the unfolding week, which has in its calendar two key jobs reports, auto sales and consumer confidence and manufacturing readings.

The Labor Department's non-farm payrolls report for June, the ADP private employment report, the Conference Board's consumer confidence index for June, the National Association of Realtors' pending home sales index for May and the results of the Institute for Supply Management's manufacturing survey and the ISM-Chicago's regional manufacturing survey are in the spotlight.

The Bureau of Economic Analysis' personal income and spending report for May, the S&P Case-Shiller house price index for April, auto sales for June, the weekly jobless claims report, the construction spending report for May and the factory goods orders report for May round up the other economic events of the week.

Non-farm payrolls are expected to show a contraction for June, reflecting a pullback in government hiring following a surge in the previous month due to census-related hiring. While the hours worked could continue to improve, the unemployment rate is likely to edge up one-tenth of a percentage point, remaining elevated at 9.8%.

The ISM's manufacturing survey is expected to show that the headline purchasing managers' index declined slightly from fairly robust levels. Regional manufacturing surveys for June offered opinions that were less positive than in May and the recovery in industrial production is expected to moderate due to reduced support from the inventory cycle. However, even at the reduced level, the index is likely to point towards a high rate of activity growth.

Meanwhile, the Conference Board's consumer confidence index could see some modest weakness in June, as consumers react to the end of census-related hiring by the government and recent stock market weakness. That said, economists expect the index to show further improvement in the next few months, given the fact that its current level is extremely low compared to its historical average.

The Bureau of Economic Analysis said earlier today that personal income rose 0.4% month-over-month in May, in line with economists’ estimate, but slightly slower than the 0.5% pace in the previous month.

On the other hand, personal spending rose 0.2% after stagnating in the previous month. Economists had expected an unchanged reading. Spending on durable goods rose 0.8% and the spending on services increased 0.5%.

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Valspar (VAL) could be in focus after it announced that it has agreed to buy Australian paint manufacturer Wattyl Limited for 142 million Australian dollars and assume existing debt. The latter had sales of 381.4 million Australian dollars in 2009.

Bristol-Myers Squibb (BMY) and Astra Zeneca (AZN) could see some activity after the companies said a 52-week Phase 3b study in adults with type 2 diabetes revealed that the addition of ONGLYZA 5 mg to existing metformin therapy achieved the primary objective of demonstrating non-inferiority compared to the addition of titrated glipizide to existing metaformin therapy in reducing glycosylated hemoglobin levels.

Cliff Natural Resources (CLF) is expected to move in reaction to its announcement that it has increased its cash take over offer for Spider Resources to C$0.19 per share from C$0.13 per share. Cliff Natural also noted that the board of Spider has determined that the revised offer is a superior proposal compared to the amended terms of the proposed merger with KWG Resources.

Jacob’s Engineering (JEC) may also be in focus after it said it would record a pre-tax charge of about $94 million, including a cash payment of $62 million, in the quarter ending July 2nd, 2010. The charge is related to an unfavorable judgment from an Administrative Tribunal in France relating to a waste incineration plant project in France.

Public Storage (PSA) could also see some activity after it announced that its VP and COO, Mark Good, has decided to return to the San Francisco Bay area to pursue new business prospects. Good is expected to leave by the end of the year.

PACCAR (PCAR) may move in reaction to its announcement that it has completed the renewal of its $2 billion credit facility with leading banks and financial institutions. The renewal includes a $1 billion facility expiring in June 2011 and a $1 billion facility expiring in June 2013.

Currency, Commodity Markets

Crude oil futures for August delivery are trading down $0.47 at $78.39 a barrel after advancing 2.2% to $78.86 a barrel in the week ended June 25th, marking a third straight week of gains. Last week, the commodity climbed to its highest level since early May.

Oil began the week on an upbeat note last Monday, extending the gains from the previous week. The commodity remained afloat along with the equity markets, which declined only after the oil market closed.

Crude oil futures retreated on Tuesday amid the equity market weakness and extended their weakness into Wednesday’s session, weighed down by a bearish oil inventory report and a reduction in risk appetite. However, oil rebounded on Thursday, rising modestly, despite the pullback in equities.

The black gold received solid support on Friday from the news of the agreement on the financial reform bill, the report showing an increase in consumer sentiment and the threat of a tropical storm brewing in the Caribbean. A barrel of oil rose by over $2-a-barrel to close the week higher.

Gold futures are moving down $1.90 to $1,254.30 an ounce. In the previous week, the precious metal rose $2.10 or 0.17% to $1,256.20 an ounce.

Among currencies, the U.S. dollar weakened against the yen, but it gained some ground against the euro. The greenback settled the week down 1.62% against the yen at 89.2302, while it edged up 0.18% against the euro to $1.2369.

The U.S. dollar is trading at 89.244 yen and is valued at $1.2329 versus the euro.

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