US & World Daily Markets Financial Briefing 29-03-2010

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Stocks Seeing Moderate Strength In Mid-Morning Trading

Stocks are up by moderate margins in mid-morning trading on Monday, as the markets are seeing buying interest amid some general economic optimism, news of a pickup in consumer spending and dollar weakness. The major averages are all in positive territory, looking to extend their upside for a fifth straight week.

On the economic front today, the Commerce Department reported that personal income was flat in February following an upwardly revised 0.3 percent increase in January. Economists had expected income to edge up by 0.1 percent, matching the increase originally reported for the previous month.

At the same time, the Commerce Department said that personal spending increased by 0.3 percent in February after rising by 0.4 percent in the previous month. The increase in spending came in line with economist estimates.

"Assuming a further 0.2 percent real gain (or thereabouts) in March, then spending in 1Q10 will be in the range of 2.5-3.0 percent, a little stronger than we are currently forecasting, and stronger than implied currently by most measures of consumer confidence," said Rob Carnell, chief international economist at ING.

In corporate news, Ford Motor Co. (F) revealed on Sunday that it has entered into a definitive agreement to sell Volvo Car Corp. and related assets to China-based car manufacturer Zhejiang Geely Holding Group Co. Ltd for a total value of $1.8 billion.

The deal is expected to close in the third quarter of 2010 and Ford would continue to provide support for Volvo, without retaining any ownership, in order to facilitate a smooth transition.

Additionally, Vodafone Group (VOD) is discussing a possible merger with Verizon Communications (VZ), according to the Sunday Telegraph, with the deal seen as means to the resolution of a disagreement over the mutually owned Verizon Wireless division.

Also out of the telecommunications sector today, the EU approved Cisco Systems' (CSCO) acquisition of Tandberg, which would form the world's largest videoconferencing equipment company. Cisco originally acquired the Norwegian video conferencing firm for 19 billion Norwegian crowns or roughly $3.34 billion in December.

In other news, Greece announced an issue of seven-year bonds aimed at generating money to help the country pull out of its debt crisis. The bond auction is the first since the European Union and the International Monetary Fund pledged to help the embattled nation late last week.

The major averages have all seen choppy movement in recent dealing, hovering in positive territory. The Dow is up 30.08 points or 0.3 percent at 10,880.44, the Nasdaq is up 9.77 points or 0.4 percent at 2,404.90 and the S&P 500 is up 4.22 points or 0.4 percent at 1,170.81.

Sector News

Steel stocks are some of the morning's best performers, boosting the NYSE Arca Steel Index by 2 percent. With the advance, the index has resumed its upward move, reaching its highest intraday level in nearly three months.

Cliffs Natural Resources Inc. (CLF) is one of the steel sector leaders, posting a gain of 3.2 percent and setting its best price in roughly eighteen months.

Natural gas, oil service and gold stocks are also moving higher, as the U.S. dollar is under pressure versus its major counterparts in currency trading.

Meanwhile, some banking stocks are sliding on the day, contributing to a 0.5 percent retreat by the Kbw Bank Index. The retreat is taking the index further away from the more than one-year closing high set last week.

Stocks Driven By Analyst Comments

Precision Castparts (PCP) is moving higher after being upgraded at Goldman Sachs from Neutral to Buy with a $153 price target. The stock has gained 2.3 percent, breaking out to its best intraday price in nearly two years.

Companhia Vale do Rio (VALE) is also advancing after receiving an upgrade by Canaccord Adams from Hold to Buy. Shares are currently up by 1.8 percent, re-approaching this month's roughly twenty-month intraday high.

On the other hand, Molson Coors Brewing (TAP) is moving lower following a downgrade at Deutsche Bank from Buy to Hold. The stock is down by 2.2 percent, sinking to its lowest price in nearly a month's time.

Crude oil futures are moving up $0.64 to $80.64 a barrel after the commodity dipped 1.2% in the week ended March 26th.

Oil began the week on a positive note, as it rode on the weakness of the dollar on Monday and rose again, albeit modestly, on Tuesday amid the strength in equity markets, which increased risk appetite.

However, the commodity receded by over $1-a-barrel on Wednesday after the dollar strengthened and the weekly oil inventory report showed abounding crude oil stockpiles. Oil edged down slightly on Thursday and fell again on Friday to close the week on a negative note.

Gold futures are currently rising $7.50 to $1,112.90 an ounce. In the previous week, the precious metal fell $2.20 or 0.20% to $1,105.40 an ounce.

The U.S. dollar moved higher against the yen as well as the euro in the week ended March 26th, with the dollar surging up 2.18% against the yen over the week to settle at 92.5175 yen. The yen received a hit from some weak economic reports that reduced hopes of the Bank of Japan raising interest rates anytime soon.

The dollar gained 0.9% against the euro to $1.3410 despite the euro gaining in the last session of the week on short covering. Risk aversion and the non-resolution of the Greek crisis weighed on the euro for much of the week.

Currently, the greenback is trading at 92.49 yen and is worth $1.3448 versus the euro.

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The major Asian markets closed on a mixed note on Monday, as traders reacted to the mixed close on Wall Street last Friday amid hopes that the recovery underway can be sustained. The Australian, the Indian and the Chinese markets closed higher, while the Japanese and South Korean markets lost ground.

Japan’s Nikkei 225 average opened lower and remained below the unchanged line throughout the session, although it cut back most of its losses in late trading. The index closed down 9.90 points or 0.09% at 10,987.

Utility, electronics, pharma, real estate, paper and financial stocks saw weakness, while auto stocks showed mixed sentiment. On the other hand, auto parts retailer Clarion jumped 7.11%. Retail, resource and electrical machinery stocks also advanced.

On the economic front, the Ministry of Economy, Trade & Industry reported that Japan’s retail sales rose 4.2% from a year earlier to 10.40 trillion yen in February, accelerating from the revised 2.3% increase in January. Analysts had predicted a more moderate 1.6% increase. This marks the second straight month in which retail sales have registered growth and the biggest spike recorded in 13 years.

Australia’s All Ordinaries moved about in a lackadaisical fashion before closing marginally higher. The index settled up 2 points or 0.04% at 4,907. Material stocks showed some strength, helping to offset some of the negativity in consumer staple and energy stocks.

Hong Kong’s Hang Seng Index opened higher and moved sideways for the rest of the session to close up 184.32 points or 0.88% at 21,237. Most financial stocks, barring HSBC Holdings advanced. Property and China-related stocks also gained.

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After a positive start on Monday, aided by the release of a few positive economic reports, the major European averages are trading on the opposite side of the unchanged line. While the German DAX Index is moving up 0.51%, the French CAC 40 Index and the U.K.’s FTSE 100 Index are receding 0.13% and 0.12%, respectively.

On the economic front, a survey done by the European Commission showed that euro zone’s economic sentiment rose to 97.5 in March from 95.9 in February, while economists had estimated a more modest increase to 97. The consumer confidence index remained unchanged at –17, in line with expectations.

U.S. Economic Reports

The non-farm payrolls report for March due on Friday is likely to be the main economic event of the unfolding week, given the importance of the jobs market in sustaining the pace of the current economic recovery. Ahead of the report, traders are likely to glean some clues on how the labor market fared in the month from ADP's private sector employment report. The spotlight is also likely to be on the weekly jobless claims report, which has shown some moderation in recent weeks despite being at elevated levels.

Other economic reports that could elicit some market reaction are the results of the manufacturing surveys of the Institute for Supply Management and the ISM-Chicago, the Conference Board's consumer confidence survey and the S&P Case-Shiller house price index. The Commerce Department's factory goods orders report, monthly auto sales, a Fed speech and announcements concerning the treasury auctions of 30-year bonds, 3-year notes, 10-year notes and 10-year treasury inflation protected securities round up the other economic events of the week.

Citing a temporary boost from census hiring, underlying job growth and a rebound from blizzard-related weakness, Danske Bank predicts strong payroll additions. That said economists at State Street Global Advisors are skeptical over whether the labor market has made a turn to recovery yet, notwithstanding the signs of recovery elsewhere in the economy. The firm highlights the initial claims for unemployment insurance as a cause of concern, as they remain stubbornly above 400,000. Economists believe that a return to positive job growth is a necessary condition for the economy to set itself on a trajectory leading to a sustainable recovery.

The ISM's manufacturing report is expected to show a rebound in March following its slump in February. The regional manufacturing surveys released for the month were mostly positive. A resurgence in exports and inventory rebuilding could continue to lend support to manufacturing activity. Consumer confidence is also expected to show a rebound after a surprisingly sharp setback in February, with the stock market rally and incremental signs of an economic recovery being the catalysts. That said, consumer confidence isn't likely to improve significantly until job additions kick in.

BMO Capital Markets expects auto sales to come in at a 12 million unit-annualized rate in March. According to the firm's estimate, the upturn could cement a 3% increase in real consumer spending in the first quarter and also point to some momentum heading into the second quarter.

The Bureau of Economic Analysis reported that personal income remained unchanged in February compared to the previous month, while economists had estimated a 0.1% increase. Compensation edged up 0.1% and supplements to wages and salaries rose 0.2%. While proprietor’s income edged down 0.6%, while rental income fell 0.8%.

At the same time, personal spending grew 0.3%, in line with expectations, with spending on goods as well as services rising 0.3%. Spending on non-durable goods rose 0.7%, helping to offset the 0.4% decline in spending on durable goods.

At the same time, personal spending rose by 0.5% in January after rising by an upwardly revised 0.3% in the previous month. The increase exceeded economist estimates for 0.4% growth.

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Sinopec (SNP) is expected to see some activity after it said its revenues fell 10% to 1.35 trillion yuan in 2009. The company’s earnings rose to 61.29 billion yuan from 28.45 billion yuan in the year-ago period. Separately, the company said it has agreed to buy deepwater oil assets in Angola for $2.46 billion.

Ford Motor (F) may move in reaction to its announcement that it has entered into a definitive agreement to sell Volvo Car Corp. and related assets to Zhejiang Geely Holding Group for $1.8 billion. The consideration will be paid in the form of a note in the amount of $200 million and the remainder in cash. Ford expects the deal to close in the third quarter of 2010.

Apollo Group (APOL) is expected to be in focus after it reported that its second quarter net revenues rose 23.1% year-over-year to $1.07 billion. Excluding special items, the company reported income from continuing operations of 84 cents per share, higher than 79 cents per share in the year-ago period. Analysts estimated earnings of 81 cents per share on revenues of $1.07 billion.

The company’s board also authorized a $500 million increase in its share repurchase program. For the third quarter, the company estimates net revenues of $1.3 billion and adjusted earnings of $1.55 per share. The consensus estimates call for earnings of $1.45 per share on revenues of $1.28 billion.

Avnet (AVT) is also likely to be in focus after it said it has entered into a definitive agreement to buy Bell Microproducts in an all cash merger for $7 per share, which equates to an equity value of about $252 million and a transaction value of about $594 million, including $342 million of Bell’s indebtedness.

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