US & World Daily Markets Financial Briefing 29-05-2009

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Fledgling Signs of ‘Green Shoots’ May Keep Buying Interest Alive

The major U.S. index futures are pointing to a higher opening on Friday. Economic numbers seem to be doing the trick, with a number of positive reports released world over reinforcing the recovery theme. Japan’s industrial production showed a strong rebound and India’s fourth quarter economic growth, despite the slowdown, had come in better than expectations. The dollar’s weakness is propping up commodities, with oil and gold skyrocketing to new multi-month highs.

Even as the global markets are relishing the confirmation of the recovery in works, fears and skepticism lurk in the minds. Traders may also stay tuned to the results of the ISM-Chicago purchasing managers’ survey and the Reuters/University of Michigan’s consumer sentiment index.

U.S. stocks opened Thursday’s session higher following the release of a report showing a bigger-than-expected increase in durable goods orders. However, the major averages trimmed their gains and showed directionless trading until the afternoon in reaction to a lukewarm housing market report. Encouraging results from the Treasury’s 7-year note auction and advancing commodity prices brought buyers back into the market, resulting in a rebound in equities in afternoon trading.

The Dow Industrials ended the session up 103.78 points or 1.25% at 8,404 and the S&P 500 Index moved up 13.77 points or 1.54% to 907, while the Nasdaq Composite closed at 1,752, representing a gain of 20.71 points or 1.20%.

Twenty-six of the thirty Dow components ended the session higher, with JP Morgan Chase (JPM) (up 5.74%), American Express (AXP) (up 3.40%) and Bank of America (BAC) (up 3.57%) leading the gains. Caterpillar (CAT), General Motors (GM), Home Depot (HD) and Citigroup (C) were among the decliners.

Among the sector indexes, the Amex Oil Index and the Philadelphia Oil Service Index gained 3.15% and 4.3%, respectively. The Amex Gold Bugs Index moved up 4.15%, while the Amex Securities Broker/Dealer Index and the KBW Bank Index rose over 2.5% each. In the technology space, disk drive stocks saw modest weakness, while most other sub-sector stocks moved higher.

Among the reports released yesterday, the durable goods orders report showed only superficial strength, as the inner details pointed towards a still-frail economy. The headline durable goods orders rose 1.9% month-over-month in April, while the month-ago reading was revised down to show a 2.1% decline from the 0.8% drop initially estimated. Shipments of non-defense capital goods orders, excluding aircrafts, were down 1.5% in April, suggesting that investment in machinery and equipment will subtract from GDP growth.

Meanwhile the weekly jobless claims report showed that initial claims for unemployment benefits fell by 13,000 in the week ended May 23rd even as continuing claims rose to a fresh record of 6.79 million.

In a separate report, the Commerce Department said that new home sales came in at a seasonally adjusted annual rate of 352,000 in April compared to the March rate of 351,000. Inventories measured in months of supply fell to 10.1 in April from 10.6 in March, while in absolute terms, new home inventories declined by 13k to 297,000, marking the lowest level since May 2001. The median sale price of new homes was down 1.9% year-over-year, but it was up 3.7% month-over-month.

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Toronto Stocks Could Add To Multi-Month High

Canadian stocks could see strength in the early going on Friday morning, adding to yesterday's gains. More earnings from the financial sector and gross domestic product data from the U.S. will be in focus.

Energy stocks may receive a boost from crude oil, which is up 93 cents to $66.01 in electronic moves. Other commodities are also higher, with gold up $12.30 to $975 per ounce and copper up 4.5 cents to $2.182.

Royal Bank of Canada reported adjusted second-quarter earnings for the quarter were C$950 million or C$0.63 per share, compared to C$928 million or C$0.70 per share in the prior year quarter. The other five big banks reported earnings earlier this week.

Meanwhile, Scotiabank does not expect to make more acquisitions while the recession lasts, according to Bloomberg.

Héroux-Devtek Inc. announced that its fourth quarter net income amounted to C$6.4 million or C$0.20 per share, compared to C$6.5 million or C$0.20 per share in the same quarter of last year.
 
The Canadian Press reported Fiat will not attend a meeting with German government regarding its offer for Opel. Fiat is in competition with Magna International for the deal.

In economic news, Stats Canada reported the nation's balance on current account transactions with the rest of the world on a seasonally adjusted basis was a $9.1 billion deficit in the first quarter of 2009. Economists expected a deficit of $10.5 billion.

In the U.S., the Commerce Department reported gross domestic product fell 5.7 percent in the first quarter compared to the advance estimate of a 6.1 percent decrease. Economists had been expecting the pace of contraction to be revised to 5.5 percent.

On Thursday, the S&P/TSX Composite Index rose 250.21 points or 2.46% to end at 10,392.37. This was the best close since early October.

Crude oil futures are rising $1.16 at $66.24 a barrel after advancing $1.63 to $65.08 a barrel in Thursday’s session, when the commodity advanced in reaction to the weekly oil inventory report that showed that crude oil stockpiles fell by 5.4 million barrels in the week ended May 22nd to 363.1 million barrels. Notwithstanding the decline, inventories were still above the upper boundary of the average range.

Distillate inventories edged up by 0.3 million barrels and were above the upper bound of the average range for this time of the year. However, gasoline stockpiles fell by 0.6 million barrels and were below the lower limit of the average range. Refinery capacity utilization averaged 84% in the four weeks ended May 22nd compared to 83.4% in the previous week.

Some of the upside in oil prices yesterday could also be attributed to OPEC comments suggesting improvement in oil demand in response to the global economic recovery that appears to be underway. Earlier, the cartel decided to leave its output quota unchanged.

Gold futures are currently rising $12 to $975.20 an ounce. In the previous session, the precious metal gained $8 to $963.20 an ounce. Among the currencies, the dollar is moving down versus the yen to 95.751 compared to yesterday’s 96.8548. Against the euro, the dollar is currently valued at $1.4098.

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The markets across the Asia-Pacific region that were opened today ended in positive territory, led by resource stocks on higher commodity prices. A positive closing on Wall Street on easing concerns about rising bond yields, higher oil prices, and surprisingly strong industrial output data from Japan helped the markets advance as hopes of a recovery resurfaced yet again.

Japan’s Nikkei 225 Average opened higher at 9,472 compared to its previous close at 9,451, mirroring the gains on Wall Street. However, weak economic data related to consumer prices raised fears that the country might move into deflation. After moving near the unchanged line amid volatile trading in the forenoon session, the index advanced following the release of better-than-expected industrial output data, raising hopes that a revival in exports might help the country come out of recession.

Rising commodity prices also supported the upside, with the Nikkei 225 index finally ending at the day's high of 9,522, representing a gain of 71.11 points, or 0.75%. The broader Topix Index of all first section issues edged up 2.32 points, or 0.26%, to close at 898.

In economic news, Japan's industrial output jumped 5.2 percent in April from the previous month, marking the second straight month of growth as companies continue to restock after a heavy run-down of inventories late last year.

Unemployment rate rose to 5.0% in April from 4.8% in March, the Ministry of Internal Affairs and Communications said Friday. The figure broke above the 5% level for the first time since the 5.1% figure logged in November 2003. The number of jobless rose by 710,000 year on year to 3.46 million, marking the sixth straight monthly increase, with the figure for men increasing 0.4 percentage points to 5.3% and the figure for women shrinking 0.1 percentage points to 4.6%.

Additionally, according to a release from the Internal Ministry, Japan's core consumer price index slipped 0.1% year on year to 100.7 in April.

Inpex, the leading oil exporter in the country, soared 6.34%, Showa Shell advanced 3.97% and Nippon Oil added 0.35%. The shares of Kumiai Chemical Industry surged more than 22% after brokerage Nomura Securities upgraded the credit rating of the company by one notch to 3 out of 3.

Shipping stocks advanced following a sharp rise in sea cargo rates. Kawasaki Kishen gained 6.42%, Mitsui OSK Lines advanced 5.42% and Nippon Yusen rose 5.31%. On the other hand, financial stocks ended weaker. Mitsuibishi UFJ shed 4.12%, Mizuho Financial lost 1.30%, Resona Holdings edged down 0.35% and Sumitomo Mitsui declined 1.34%.

Retail stocks ended mixed after the release of a weaker household spending report. Seven & I Holdings slipped 1.71%, and J Front Retailing lost 0.76%. Fast Retailing, bucked the trend, however, and advanced 2.92%.

After opening unchanged from its previous close at 3,754, Australia's All Ordinaries Index surged sharply higher to 3,780 in initial trading, led by banks. The index continued its northward march following the release of better-than-expected industrial production data from Japan before closing at 3813, with a gain of 59.40 points, or 1.58%. The benchmark S&P/ASX 200 Index followed a similar trend and ended at 3,818, a gain of 62 points, or 1.65%.

Commodity stocks led the market advance. A measure of six commodities traded on the London Metals Exchange rose 1.3% on Thursday. Among the commodities, copper prices advanced 1.8%, while nickel and zinc added 0.8% and 1%, respectively. Banking stocks advanced as concerns about high yields eased, while gold stocks also moved higher, helped by higher bullion prices.

In Hong Kong, the Hang Seng Index ended in positive territory, led by property and resource stocks. The market opened higher at 18,028 compared to its previous close at 17,885, and after a brief retreat below the unchanged line on short covering, reversed back above the unchanged line and continued to move northward to the day's high of 18,271. Profit taking late in the session trimmed some of the gains, with the index ending at 18,171, up 286 points, or 2.60%.

PetroChina advanced 2.07% and CNOOC, the largest offshore oil firm in China, gained 4.19%. Among financial stocks, Hang Seng Bank gained 6.94% and Bank of Communications added 1.13%. Bank of China advanced 7.74% on huge volumes after Deutsche Bank AG, in a note to investors, advised to buy Bank of China on expectations that the bank's entry into the international yuan settlement business will increase the earnings potential. BOC Hong Kong soared more than 10%. All other major financials, except HSBC Holdings, ended in positive territory.

In South Korea, the benchmark KOSPI Index ended in positive territory amid volatile trading, as foreign institutional investors picked up select stocks. Resource, steel and automotive stocks posted gains. The index closed at 1,396, up 3.72 points, or 0.27%.

Automotive stocks advanced on hopes of gaining more market share should GM file for bank-ruptcy. Hyundai Motor gained 2.21% and Ssangyong Motor added 1.33%. Kia Motors, however, lost 2.05%.Steel stocks ended mixed. While POSCO, the numero uno steel manufacturer in the country, advanced 3.45%, Hyundai Steel shed 2.60%.

The markets in China and Taiwan were closed for public holidays.

In India, the Sensex ended in positive territory following the release of better than expected GDP numbers for the fourth quarter and fiscal year 2008-09. Buying interest in heavily weighted stocks at the start of a new derivative series and a continued surge in mid cap and small cap stocks imparted buoyancy to the markets. The BSE Sensex closed at 14,625, up 329.34 points, while the Nifty gained 111.85 points to close at 4,449.

Among the other major markets open for trading in the region, Indonesia's Jakarta Composite Index gained 13.95 points or 0.73% to close at 1,917, while the Strait Times Index in Singapore added 36.11 points, or 1.57% to close at 2,329.

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The major European markets are moving higher on Friday on the support lent by resource stocks. While the French CAC 40 Index is rising 1.20% and the German DAX Index is advancing 0.62%, the U.K.’s FTSE 100 Index is gaining 1.71%.

In corporate news, water treatment company Severn Trent said its adjusted earnings for the year ended March 2009 fell to 92.4 pence per share from 97.1 pence last year. The company’s adjusted profit on a pre-tax basis was 273.5 million pounds, exceeding the 269 million pound-forecast by analysts. Turnover also declined to 1.64 billion pounds from last year’s 1.55 billion pounds.

On the economic front, a report released by GfK NOP showed that the U.K.’s consumer confidence remained unchanged at –27 in May, while economists had expected an improvement to –25. Meanwhile, the Nationwide Building Society released a report showing a 1.2% month-over-month increase in U.K. house prices in May. The increase came on the back of a 0.3% decline in April. Economists had estimated a 0.9% decline. Annually, house prices fell 11.3% compared to the 15% decline in the previous month and the 13.7% drop expected by economists.

A report released by the German Federal Statistical Office showed that German retail sales fell 0.8% in real terms in April compared to the previous year. Upon adjusting for calendar and seasonal variations, April retail sales rose 0.5% from the previous month. Economists had estimated a 0.5% monthly decline, but a 0.3% annual decline.

Eurostat released its flash estimate of consumer price inflation that showed that the region’s annual inflation remained flat at 0.6% in May. The inflation rate was higher than the 0.2% rate expected by economists.

U.S. Economic Reports

The preliminary estimate showed that the U.S. GDP shrank at a 5.7% rate in the first quarter compared to a 6.3% GDP decline in the previous quarter. The contraction was worse than the 5.5% decline expected by economists, but not as worse as the advance estimate of a 6.1% decline. On a year-over-year basis, the first quarter GDP declined by 2.5% compared to 0.8% decline in the fourth quarter.

The decline in fourth quarter GDP compared to the previous quarter reflected negative contributions from exports, private inventory investment, equipment and software, non-residential structures and residential fixed investment. The weakness was offset to some extent by positive contributions from personal consumption expenditures. Imports, which are a deduction from GDP calculations, declined. Personal consumption rose 1.5%, revised down from the 2.2% growth estimated earlier. However, the sore spot was inventories, which deducted 2.8% off growth.

The results of the Institute for Supply Management-Chicago's business survey for May are scheduled to be released at 9:45 AM ET. Economists expect the business barometer index based on the survey to come in at 42.

The business barometer based on the survey surged up to its best reading in seven months in April, with the index rising to 40.1 in April from 31.4 in March. New orders, order backlogs and production showed a resurgence, although they all continued to indicate contraction zone. The index of production rose 5.4 points to 4.1 compared to an 11.2-point increase in the new orders index to 42.1.

Suggesting better times ahead, the index of order backlogs jumped 15.6 points to 21.3, while the inventories index slid 4.3 points to 30.6. The employment index improved 3.7 points to 31.8.

The Reuters/University of Michigan's final report on the consumer sentiment index for May is scheduled to be released at 10 AM ET. Consumer confidence is expected to rise in the month, with economists forecasting an increase in the index to 68 from the mid-month reading of 67.9.

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Dell moved higher in Thursday’s after hours session after it reported that its first quarter earnings declined to 15 cents per share from 38 cents per share in the year-ago period. On an adjusted basis, the company reported earnings of 24 cents per share. Sales fell 23% to $12.3 billion. Analysts estimated earnings of 22 cents per share on revenues of $12.6 billion for the quarter.

J. Crew Group could surge higher in reaction to its first quarter earnings, which fell to 32 cents per share from 48 cents per share in the year-ago period yet beat the 10 cents per share consensus estimate. Revenues rose 1.5% to $345.8 million, above the consensus estimate of $322.1 million.

Marvell Technology may see weakness after it reported a first quarter loss of 6 cents per share compared to net income of 11 cents per share last year. On an adjusted basis, the company reported earnings of 5 cents per share, lower than 24 cents per share last year. Revenues fell to $521.4 million from $804.1 million last year. Analysts estimated earnings of 5 cents per share on revenues of $517.4 million.

Jamba could move to the downside after it reported a 13% decline in first quarter revenues to $88.9 million. The company reported a loss of 19 cents per share, wider than the year-ago loss of 12 cents. The consensus estimates had called for a loss of 11 cents per share on revenues of $87.92 million.

Take-Two Interactive is likely to react to its announcement that it has priced $120 million worth of its 4.375% convertible senior notes due 2014. The company also said it has increased the size of the proposed offering to $120 million from the $100 million it had planned initially. The company said it would use a portion of the net proceeds to pay the cost of the convertible note hedge transactions.

Affiliated Computer Services and Novell could be in focus after they announced that they will launch a strategic partnership under which Novell will outsource part of its internal IT operations to ACS and also make use of Affiliated’s SAP consulting applications development and maintenance system and integration as part of a $135 million 5-year contract. Meanwhile, ACS will purchase at least $30 million worth of Novell products in the first three years of its partnership. Separately, Novell announced that its adjusted second quarter earnings were 8 cents per share, exceeding the 6 cents per share consensus estimate. Revenues were down 9% to $215.6 million.

AIG is also likely to be in focus after it said it has completed the sale of its prime real estate holding in Tokyo to Nippon Life Insurance Company for $1.2 billion in cash. SUPERVALU could see some strength after it announced that its board has approved a 1.45% increase in its annual dividend to 70 cents per share. The company’s board also adopted a new annual repurchase program authorizing the company to purchase up to $70 million worth of its common stock.

Gilead Sciences  is likely to move in reaction to its announcement that its Marketing Authorization Approval for regadenoson has been validated by the European Medicines Agency. Regadenoson is an investigational pharmacologic stress agent for radionuclide myocardial prefusion imaging.

Xilinx may see some weakness after it announced that it has received an adverse judicial ruling from the U.S. Court of Appeal for the Ninth Circuit related to a dispute with the IRS over the cost sharing agreement it has with its Irish subsidiary. The company clarified that the ruling will neither have any impact on the operational direction of the company nor on the future earnings of the company.

Kilroy Realty Corp. is also likely to be in the spotlight after it announced that it has commenced a public offering of 6 million shares of common stock.

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