US & World Daily Markets Financial Briefing 28-09-2009

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Deal News Reviving Hopes of Sustained Recovery

The major U.S. index futures are pointing to a higher open on Monday, with sentiment getting a lift from the a few deals announced during the day. After some lackluster data weighed on the averages in the previous week, the deal announcements have come as a welcome relief, reinforcing corporate America’s faith in profit growth. Commodity prices have turned higher, encouraged by the positive sentiment. That said, caution may prevail as traders look ahead to the week’s key reports that include the September non-farm payroll employment report to be released on Friday.

U.S. stocks receded in the week ended September 25th after two weeks of gains. Stocks across the board experienced selling pressure, with the weakness emanating from a retreat in the prices of commodities and the release of some disappointing economic readings that cast doubts on the recovery.

Last Monday, U.S. stocks declined closed mixed, as lower commodity prices and a negative lead from the overseas markets weighed on the averages. However, the major averages rebounded on Tuesday.

Despite a Fed decision-induced rally in the mid-session on Wednesday after showing nervousness for the better part of the morning, stocks receded in a late hour sell-off. Stocks declined on Thursday and also on Friday following the release of disappointing reports.

Consequently, the Dow Industrials closed the week ended September 25th down 1.58% compared to a 2.24% decline by the S&P 500 Index and a 1.97% drop by the Nasdaq Composite Index.

Among the sector indexes, the NYSE Arca Gold Bugs Index receded 6.21% for the week and the Philadelphia Housing Sector Index was off 9.32%. While the Dow Jones Transportation Average fell 4.30%, the NYSE Arca Biotechnology Index, the NYSE Arca Securities Broker/Dealer Index, the Philadelphia Oil Service Index and the NYSE Arca Biotechnology Index all closed down over 3%.

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Bay Street stocks could hover near the unchanged mark in early trading after posting notable losses last week. Markets in Europe are in the green, while U.S. futures are little-changed.

Commodities are also mixed on the NYMEX. Crude oil has added 36 cents to move at $66.38 per barrel in electronic trading. Gold has added $3.40 to $995.00 per pound, while copper has lost 3.9 cents to $2.701 per pound.

Celestica said it will exercise its option to redeem all of its outstanding 7.875% Senior Subordinated Notes due 2011.

Cardiome Pharma Corp. said that it will extend the term of its modified "Dutch Auction" tender offer for up to US$27.5 million of its common shares commenced on September 1.

Sprott Resource Corp. announced its subsidiary, Acquireco, has agreed to acquire Auriga Energy in a stock deal. Under the terms, each shareholder of Auriga will receive 0.3 of an Acquireco common share and 0.0979 of an SCP common share for each Auriga share held.
 
Paramount Gold and Silver Corp. said that allegations made by Klondex Mines Ltd. regarding the termination of the proposed merger, are misleading and incorrect.

Canadian Hydro Developers announced it plans to acquire an Ontario offshore wind prospect from Wasatch Wind, according to reports.

Bombardier Transportation has received a US$4 billion deal for 80 high-speed trains from China's railway ministry.

On Friday, the S&P/TSX Composite Index fell 73.37 points or 0.65% to settle at 11,212.39. The market dropped in four of five sessions last week.

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Asian Markets Drift Lower On Concerns About Recovery

The major Asian markets ended in negative territory on Monday taking cues from Wall Street where the major averages ended with modest losses on Friday on weak economic data raising concerns about sustainability of the economic recovery. Soft commodity prices and lack of economic data also impacted sentiment as traders preferred to move to the sidelines looking for direction.

In Japan, the benchmark Nikkei 225 Index ended at 10,010, representing a loss of 256.46 points, or 2.50%, while the broader Topix index of all first section stocks fell 19.83 points, or 2.2%, to 903.

Following the strengthening of the local currency against the US dollar, automakers and exporters declined sharply dragging the overall indices lower amid fresh concerns that company profits will be negatively impacted.

Automakers which get more than 40% of their total revenue from exports led the declined on stronger local currency. Honda Motor slumped 4.97%, Toyota Motor lost 3.77%, Suzuki Motor shed 2.80%, Nissan Motor fell 5.07%, Mitsubishi Motor declined 4.52% and Isuzu Motors plunged 5.42%.

Trading companies also ended in negative territory. Mitsubishi Corp. lost 5.04%, Mizuho & Co,. Fell 5.03%, Itochu Corp. slumped 5.31%, Toyota Tsusho Corp. shed 2.19% and Sumitomo Corp. declined 2.69%.

Shipping lines also ended sharply weaker. Mitsui O.S.K. Lines slumped 5.44%, Kawasaki Kisen Kaisha plunged 7.30% and Nippon Yusen KK fell 3.33%.
 
Nomura Holdings continued its downslide further and lost another 5.37% while Daiwa Securities shed 2.37%.

Major banks also ended in negative territory. Sumitomo Mitsui Financial declined sharply by 4.37%, Mizuho Financial fell 2.27% and Mitsubishi UFJ Financial lost 2.02%.

In Australia, the benchmark S&P/ASX200 Index declined 0.76% or 35.90 points to close at 4,677, while the All-Ordinaries Index also ended at 4,677, representing a loss of 37.90 points, or 0.80%.

On the economic front, Glenn Stevens, Governor of the Reserve Bank of Australia, in his opening statement to the Senate Economics References Committee, said that the recession in Australia was mild in comparison to the recession seen in the 1970s, and in the early 1980s and 1990s, and was also better than outcomes seen in other countries. He further noted that the country's medium term prospects remain good, with the various policy measures being effective in supporting domestic demand.

Broad-based selling was witnessed among all sectors as traders preferred to move to the sidelines awaiting fresh triggers to lift the sagging confidence about recovery.

Gold stocks ended sharply weaker following drop in bullion prices. Lihir Gold declined 4.07%, Newcrest Mining slumped 5.42% and Sino Gold Mining fell 3.85%.

Metals and mining stocks ended weaker. BHP Billiton declined 1.20%, Rio Tinto fell 2.22%. Fortescue Metals shed 2.49%, Gindalbie Metals slipped 1.14%, Iluka Resources dropped 1.03% and Mincor Resources edged down 0.42%.

Energy stocks also ended in negative territory. Woodside Petroleum declined 1.15%, Santos lost 1.53% and Oil Search slumped 4.32%. Origin Energy also ended weaker with a loss of 0.80%.

Mixed trading was witnessed among the banks. While ANZ Bank gained 2.22% and National Australia Bank added 0.59%, Commonwealth Bank of Australia slipped 0.51% and Westpac Banking edged down 0.27%.
 
In Hong Kong, the Hang Seng Index ended in negative territory with a loss of 435.99 points, or 2.07% at 20,588.41 with almost all the components of the Index, except one, posting losses from the previous close. Weak closing in Wall Street on Friday and weakness across the markets in the region amid concerns about the sustainability of recovery led the traders book profits and move to the sidelines awaiting fresh triggers.

In South Korea, the benchmark KOSPI Index ended in the negative territory with a loss of 15.93 points, or 0.94% at 1,676, as investors offloaded shares of banks and automakers, mirroring the losses in Wall Street on Friday amid weak economic data that raised concerns that the recovery might hit road blocks. Weak closing amid other markets in the region also impacted sentiment.

The stock market in India is closed for a public holiday.

Among the other major markets in the region, China's Shanghai Composite Index declined 75.32 points or 2.65% to close at 2,764, Indonesia's Jakarta Composite Index ended at 2,398, representing a loss of 46.76 points, or 1.91%, Singapore's Strait Times Index fell 1.24% or 32.92 points, to close at 2,629, and Taiwan's Weighted Index lost 60.61 points, or 0.83% to close at 7,285.

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After opening mixed on Monday, the major European averages saw weakness in the morning before recovering by the mid-session. The German market has received strong support from election results.

Germany’s DAX Index is rallying 1.57%, while the French CAC 40 Index and the U.K.’s FTSE 100 Index is advancing 0.88% and 0.79%, respectively.

On the economic front, a report released Sunday showed that house prices in the U.K rose for the second straight month. Property website Hometrack reported that the U.K.’s house prices rose 0.2% month-over-month in September following a 0.1% increase in the previous month. Nevertheless, annually, house prices were still down 5.6%, a slowdown from 6.7% drop in the previous month.

In corporate news, U.K. homebuilding products company Wolseley reversed to a loss, reflecting the still fragile housing market conditions in the U.K. Notwithstanding the predicament, the stock is up over 6% in early trading. Drug makers are also higher in the U.K. on hopes of seeing further consolidation in the industry. Earlier in the day, U.S. based Abbott Labs (ABT) said it would buy Solvay’s Pharma operations in a deal valued at $6.6 billion in cash.

U.S. Economic Report

The non-farm payroll employment report for September is likely to headline the economic data of the unfolding week. Traders may also closely watch the speeches of Fed officials, the S&P Case-Shiller home price index for July, the initial jobless claims report for the latest reporting week, the Conference Board's consumer confidence index for September, the results of the ISM's national survey and the ISM-Chicago's regional survey.

Apart from these, some degree of importance may also be attached to the Bureau of Economic Analysis' final second quarter GDP report as well as the personal income and outlays report, the factory goods orders report for August and the weekly crude oil inventory report.

The pace of decline in non-farm payroll employment is likely to moderate further in September, although the rate of decline in job losses continues to be painfully slow. Jobless claims have not improved adequately enough to support a rebound in job market conditions. The unemployment rate is likely to edge up further towards the 10% level. According to Meny Grauman of CIBC World Markets, it will take a longer time for the job market to find a bottom.

The continued improvement in the manufacturing sector is likely to be reflected by the ISM's manufacturing survey. The manufacturing index is expected to hold above the 50 cut-off mark, aided by inventory replenishments.

Incentive-induced auto sales growth is likely to have bolstered personal spending August, while personal income is likely to reflect the lingering weakness in the job market and the reawakening of retail demand in some pockets. That said, the sustainability of consumer demand is in question, as income stagnates. The savings rate may have dropped further, as people used up savings to buy new cars in August. However, lower new vehicle prices are likely to have restrained inflation, with the core PCE deflator expected to show a small 0.1% gain, rendering the annual increase to 1.3%.

The consumer confidence index of the Conference Board is likely to show an improvement, although it may remain way off its long-run norm of 95. The employment measure of the survey may be closely watched to gauge the jobless rate for September.

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Abbott Labs is likely to see some weakness after it said that it would buy the pharmaceutical business of Belgium-based Solvay for $7.6 billion or 4.5 billion euros. Abbott already holds the marketing rights of Solvay’s Trilipix and TriCor drugs.

Fidelity National Financial may be in focus after it said it has sold Fidelity National Capital to Winthrop Resources Corp. , a subsidiary of TCF Financial Corp. The company noted that the total net proceeds from the transaction were about $20 million.

Johnson & Johnson is likely to react its announcement that it has bought an 18% stake in Crucell NV for $450 million. The deal is expected to pave the way for better collaboration in the development of a universal flu vaccine.

Xerox could also be in focus after it announced that it would buy Affiliated Computer Science in a cash and stock deal valued at $63.11 per share or $6.4 billion. Affiliated Computer Services shareholders will receive $18.60 per share in cash and 4.935 Xerox shares for each ACS share they own.

Currency, Commodity Markets

Crude oil futures for November delivery are trading up $0.21 at $66.23 a barrel after the commodity snapped its winning run and declined for the week ended September 25th, when it fell 8.4% to $66.02 a barrel, dragged down by the dollar’s strength and on concerns over a supply glut.

Last Monday, the October futures, which expired, closed sharply lower, receding over $2-a-barrel. The November futures, in their first day of trading as the front-month contract, rose by over $1.75-a-barrel, as traders picked up the commodity on bargain hunting.

Abundant stockpiles revealed by the EIA’s weekly inventory report pushed the price of commodity lower on Wednesday, when it fell by over $2.75-a-barrel. Oil fell yet again on Thursday, receding by over $3-a-barrel before recovering marginally on Friday but still closing lower for the week.

Gold futures are trading up $3.30 at $994.90 an ounce. In the previous week, gold fell $17.60 or 1.74% at $992.70 an ounce.

The U.S. dollar ended the week ended September 25th on a mixed note, with the greenback declining 1.8% against the yen to 89.64 yen, while it rose 0.2% against the euro to $1.4689.

Currently, the U.S. dollar is trading at 89.65 yen and is valued at $1.4655 versus the euro.

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