US & World Daily Markets Financial Briefing 29-09-2009

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Strong Gains of Yesterday May Make Traders Cautious

The major U.S. index futures are pointing to a modestly lower opening on Tuesday, with the sentiment reflecting caution after the strong rally witnessed in the previous session. Commodity prices are showing slight weakness, as the markets await with anticipation a couple of reports on housing market and consumer confidence. At the best, the markets may show some degree of consolidation around the current levels as they wait for further evidence pointing towards a return to sustainable

U.S. stocks opened Monday’s session higher, as traders were encouraged by a steady trickle of merger-and-acquisition news that kept trickling in, reminding investors that there is salvation ahead. After a steady advance in early trading, the major averages began moving sideways to end the session notably higher.

The Dow Industrials ended the session up 124.17 points or 1.28% at 9,789, not far off the multi month closing high of 9,830 reached last Tuesday. While the Nasdaq Composite advanced 39.82 points or 1.90% to 2,131, the S&P 500 Index closed at 1,063, representing a gain of 18.60 points or 1.78%.

Twenty-eight of the thirty Dow components closed higher, with American Express (AXP) (up 4.05%), Cisco Systems (CSCO) (up 4.38%), Boeing (BA) (up 3.01%), Bank of America (BAC) (up 3.73%), DuPont (DD) (up 2.96%), Disney (DIS) (up 2.21%), General Electric (GE) (up 2.38%), JP Morgan (JPM) (up 2.66%), Travelers Co. (up 2.95%) and Merck (MRK) (up 2.50%) leading the gains. On the other hand, IBM (IBM) slid 1.45% and Kraft (KFT) ended modestly lower.

Resource stocks were on a roll, with the Dow Jones U.S. Basic Materials Average climbing 2.27%, the NYSE Arca Oil Index rising 1.89% and the Philadelphia Oil Service Index gaining 2.21%. In the financial space, the NYSE Arca Securities Broker/ Dealer Index and the KBW Bank Index moved up 3.33% and 2.84%, respectively. Aided by the M&A wave, the NYSE Arca Biotechnology Index rallied 1.80%.

The S&P Retail Index and the Philadelphia Housing Index ended up over 1.70% each. The Philadelphia Semiconductor Index, the NYSE Arca Disk Drive Index, the NYSE Arca Computer Hardware Index, the NYSE Arca Internet Index and the NYSE Arca Networking Index all rose over 2%, while the NYSE Arca Software Index gained 1.44%.

From mid-September, the Dow Industrials has been broadly bouncing in the 9,674-9,854 range and since mid-July, the index has been supported adequately by its 50-day moving average, which is currently at 9,403. Volume has tapered off from the spike that was witnessed when the markets began rallying from their multi-year lows in March. The momentum indicator of the relative strength index is currently in the overbought zone, which does not provide much leeway for the continuation of the uptrend.

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Bay Street stocks could see slight weakness in early Tuesday trading as commodities and global stocks are a little lower. Traders are looking forward to key U.S. data later in the week.

Crude oil for November has dropped 74 cents to $66.10 per barrel. Gold is down $5.50 to $988.60 an ounce and copper is off 1.9 cents to $2.708 per pound.

U.S. consumer confidence is due at 10 a.m. ET but the big news is later in the week. Wednesday will bring the final second quarter gross domestic product data as well as the ADP employment report. The big Labor Department jobs report is coming on Friday.
 
Among the corporate news that will be in focus on Bay Street, Children's television program provider DHX Media posted income of C$375,000 or C$0.01 per share, compared to a loss of C$1.03 million or C$0.03 per share in the previous year.

Pacrim International Capital reported a net loss for the fiscal year 2009 of C$456,273 or C$0.01 per share, compared to a net loss of C$1.2 million or C$0.02 per share for the fiscal year 2008.

On Monday, Toronto stocks finished higher for just the second time in seven sessions, following the lead of U.S. and European markets. The S&P/TSX Composite Index gained 126.33 points or 1.12% to end at 11,338.72.

Currency, Commodity Futures

Crude oil futures are trading down $0.54 at $66.30 a barrel after rising $0.82 to $66.84 a barrel on Monday. Gold futures, which rose $1.40 to $994.10 an ounce in the previous session, are trading down $4.70 at $988.30 an ounce.

On the currency front, the U.S. dollar is trading at 89.917 yen after it strengthened to 90.1862 yen on Monday. At the same time, the greenback is trading at $1.4555 versus the euro.

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Asian Markets Surge On Wall Street Gains

The major Asian markets ended in positive territory on Tuesday taking cues from Wall Street where the major averages ended higher following spurt in M&A activities involving Abbott Laboratories, Johnson & Johnson and Xerox Corp., raising hopes about recovery. The weakening of the Japanese yen against the dollar also lifted market sentiment.

In Japan, the benchmark Nikkei 225 Index ended at 10,100, representing a gain of 90.68 points, or 0.91%, while the broader Topix index of all first section stocks added 1.16 points, or 0.13%, to close at 904.

On economic news, the Cabinet Office revealed that Consumer prices declined 2.2% year-over-year in August, further triggering fears of deflation. The result matched forecasts exactly following the 2.2% annual fall in July. However, on a monthly basis, inflation was up 0.3%.

Nomura Securities, which has declined in the past few trading sessions, led the gains. The stock advanced 4.44%. Among other securities, Daiwa Securities Group climbed 1.98% and Matsui Securities edged up 0.55%.

Trading companies also edged higher following a rebound in the local currency. Mitsui & Co. gained 2.95%, Mitsubishi Corp advanced 1.73%, Sumitomo Corp. climbed 2.99% and Marubeni Corp. rose 2.27%.

Banking stocks also ended in positive territory. Sumitomo Mitsui Financial added 2.18%, Mizuho Financial climbed 2.33% and Resona Holdings rose 1.14%.
 
Mixed trading was witnessed among the automotive stocks. Honda Motor gained 1.12% and Nissan Motor advanced 3.28%. Toyota Motor remained unchanged from previous close. However, Suzuki Motor slipped 0.96% and Mitsubishi Motor edged down 0.68%.

In Australia, the benchmark S&P/ASX200 Index advanced 1.62% or 75.70 points to close at 4,753, while the All-Ordinaries Index ended at 4,747, representing a gain of 70.30 points, or 1.50%.

On the economic front, the Australian Government reported a smaller-than-expected budget deficit of A$27.1 billion for fiscal 2008-09. Releasing the report, Wayne Swan. Treasurer to the Government, said that the deficit amounted to 1.3% of Australia's gross domestic product for the year ended June 30, smaller than the A$32.1 billion forecast by the Treasurer's office in May.

In a separate statement, Anthony Richards, Head of Economic Analysis Department at the Reserve Bank of Australia, said that house prices in the country may rise too fast hurting low income households' ability to buy homes. Richards also acknowledged the resilience of the Australian housing market, saying that it was "increasingly clear" that the country had avoided a housing market crisis seen in some other countries over the past two years.

Banks led the gains on increasing confidence about recovery prospects following gains in Wall Street in the previous session. ANZ Bank gained 1.64%, Commonwealth Bank of Australia rose 2.08%, National Australia Bank climbed 2.03% and Westpac Banking advanced 1.26%.

Metals and mining stocks ended higher following rise in commodity prices in the international market on Monday. BHP Billiton rose 2.40%, Rio Tinto gained 1.74%, Minara Resources surged up 5.98% and Mincor Resources climbed 2.54%.

Oil stocks also ended in positive territory on higher crude oil prices. Woodside Petroleum edged up 0.19%, Santos rose 1.90% and Oil Search gained 2.42%. Origin Energy climbed 1.31%.

Retail stocks also gained on recovery hopes. David Jones added 0.35%, Harvey Norman advanced 1.91%, JB Hi-Fi climbed 2.19%, Wesfarmers rose 1.53% and Woolworths gained 1.28%.
 
Airline stocks also gained after Qantas Airways reported a 6% rise in passenger numbers during August. The stock gained1.43%. Another airline, Virgin Blue climbed up 2.41%.

In Hong Kong, the Hang Seng Index ended sharply higher with a gain of 424.76 points, or 2.06%, at 21,013, taking cues from Wall Street where the major averages ended in positive territory following surge in M&A activities involving Abbott Laboratories, Xerox Corp. and Johnson & Johnson. Positive trading in other Asian markets in the region following the weakening of the yen against the dollar also lifted market sentiment. All the components of the Index, excluding three, ended in the positive territory with gains.

In South Korea, the KOSPI gained 14.50 points, or 0.87% to close at 1,690, following Wall Street gains where the major indices ended higher on increasing optimism about recovery following a resurgence in M&A activities involving companies such as Johnson & Johnson, Xerox Corp and Abbott Laboratories. Institutional investors picked up blue-chip stocks in banking and technology space on increasing hopes of a global recovery.

Fresh spell of buying by foreign funds amid strong global cues and a favorable report on core sector output for August lifted the Indian market sharply higher. IT stocks outperformed the broader market on expectations a recovery in the global banking sector would unfreeze discretionary spending. The BSE Sensex finished at 16,853, up 160 points or 0.96% and the S&P CNX Nifty rose 48 points or 0.97% to 5,007.

Among the other major markets in the region, China's Shanghai Composite Index bucked the trend and ended in negative territory with a loss of 8.98 points, or 0.33% at 2,755. However, all the other markets ended in positive territory. Indonesia's Jakarta Composite Index gained 46.00 points, or 1.92% to close at 2,444, Singapore's Strait Times Index rose 1.34% or 34.06 points, to close at 2,663, and Taiwan's Weighted Index surged up 145.37 points, or 2.00% to close at 7,430.

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The major European markets are moving lower on Tuesday after the previous session’s sharp gains. The major averages in the region opened slightly higher, but they lost momentum as the session progressed. Currently, the French CAC 40 Index is declining 0.48% and the German DAX Index is moving down 0.22%, while the U.K.’s FTSE 100 Index is declining 0.34%.

In corporate news, Vodafone announced that it would market Apple’s (AAPL) iPhone in the U.K. and Ireland in early 2010. Orange, which was recently bought by France Telecom (FTE), has also reached an agreement with Apple to market the gadget.

French bank BNP Paribas announced today that it would raise 5.1 billion euros through a rights offering to help the company repay the bailout money it received from the government. The company also said it will pay a dividend of 226 million euros on the non-voting shares allotted to the government for the seven months it held the share.

On the economic front, the U.K. Office of National Statistics released its revised second quarter GDP report that showed that the U.K.’s economy contracted at a revised 0.6% rate sequentially, slightly better than the 0.7% drop estimated initially. Annually, the GDP decline was 5.5%, unchanged from the initial estimate. Output of production industries fell 0.5%, with manufacturing output falling 5.1%.

Meanwhile, German consumer prices were down 0.3% in September from the prior year after staying flat in August, a preliminary report from the Federal Statistical Office showed. Economists expected a 0.1% drop. On a monthly basis, consumer prices dipped 0.4% in September, while economists expected a 0.2% drop.

U.S. Economic News

The S&P/Case-Shiller home price index, which tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S., is scheduled to be released at 9 AM. Economists expect a 14.20% year-over-year decline in the 20-city composite house price index for July.

Dallas Federal Reserve Bank President Richard Fisher is scheduled to give a status report on the economy to the Texas Christian University Business Network of Dallas at 9:50 AM ET.

The Conference Board is scheduled to release its consumer confidence report for September at about 10 am ET. The report, which is based on a survey of 5,000 U.S. households, is expected to show that the consumer confidence index rose to 57 in September.

In August, the consumer confidence index rose to 54.1 from 47.4 in July. Economists had expected a more modest increase to 47.9. The bulk of the improvement was in the expectations index, which jumped 10 points, while the present situations index rose merely 1.6 points.

Philadelphia Federal Reserve Bank President Charles Plosser is due to speak on the Fed's role in the economy at the Lehigh Valley Economic Outlook in Easton, Pennsylvania at 7 PM ET.

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Walgreen reported that its fourth quarter sales rose 7.6% to $15.7 billion. The company’s net earnings were 44 cents per share, including the impact of 3 cents in costs and 7 cents in savings associated with the company’s rewiring for growth initiatives. In the year-ago period, the company reported earnings of 45 cents per share, including a benefit of 5 cents per share. Analysts’ estimates, which typically exclude one-time items, call for earnings of 39 cents per share on revenues of $15.68 billion.

Toll Brothers may be in focus after it announced the preliminary results of a previously announced tender offer for up to $150 million worth of senior notes. The company noted the maximum aggregate principal amount of the notes was increased to $200 million from $150 million due to an amendment to the terms of the tender offer.

PartnerRe may also see some activity after it announced that it has entered into definitive agreements amending the previously announced acquisition structure of Paris Re Holdings. The move towards a merger vote instead of an exchange is expected to expedite PartnerRe’s acquisition of Paris Re.

Technitrol is likely to react to its announcement that its Chairman and CEO James Papada will retire no later than March 31st, 2010. The company noted that its board has initiated a formal search for a successor.

Palm is expected to be in focus after it announced that it has closed its previously announced public offering of common stock. The company revealed that 23 million shares were sold in the offering at a price of $16.25 per share. The offer generated net proceeds of about $359.9 million.

Delta Air Lines may see some buying interest after it announced that it has closed $2.1 billion of financing transactions, which will help the company address its 2010 debt maturities and further strengthen its liquidity position.

Silicon Image may see weakness after it announced the resignation of its president and CEO Steve Tirado. The company also announced the appointment of CFO Hal Covert as president and COO, effective immediately. Separately, the company also announced that it expects third quarter revenues of $37 million to $39 million, lower than its earlier guidance of $44 million to $46 million. The company attributed the downside to the effect of product transition and customers’ shift in production from high-end products to mid-range and low range products.

U.S. Airways could also be in focus after it announced that it has closed its previously announced common stock offering. The airline also noted that Citigroup, which served as the underwriter for the offering, has exercised its over-allotment option to purchase an additional 2.7 million shares. The company issued 29.02 million shares and received about $137.3 million in net proceeds.

Onyxx Pharma may react to its announcement that it has begun enrolling patients for the Phase I trials of its tumor drug candidate ONX 0801. The study will evaluate safety and pharmacokinetics of ONX 0801 in patients with advanced solid tumors.

Sequenom tumbled in Monday’s after hours session after it announced that it has terminated the employment of its president and CEO Harry Stylli and its senior vice president Elizabeth Dragon, effective immediately following the completion of an independent investigation by a special committee related to the test data and results from its non-invasive prenatal test for Trisomy 21. The committee found that the company failed to put in place adequate protocols and controls for the conduct of studies in the Trisomy 21 program and certain employees failed to provide adequate supervision.

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