US & World Daily Markets Financial Briefing 30-06-2010

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Stocks Mostly Higher After In-Line Chicago PMI

Stocks are largely on the upside in mid-morning trading on Wednesday as traders digest an in-line reading on manufacturing activity in the Chicago area following some calming news out of the European banking sector and disappointing private employment figures for June.

A short time ago, the Institute for Supply Management - Chicago said that manufacturing activity in the Chicago-area continued to expand in the month of June, although the report showed a slowdown in the pace of growth.

The ISM-Chicago said its business barometer slipped to a reading of 59.1 in June from 59.7 in May, although a reading above 50 continues to indicate growth. The drop was roughly in line with the expectations of economists, who had expected the barometer to dip to a reading of 59.0.

Peter Boockvar, equity strategist at Miller Tabak, said, "Following the soft U.S. economic data over the past month, we'll take an in line number at a good level as manufacturing remains the bright spot in the spotty economic recovery."

Some optimism may also be due to news that the European Central Bank will lend €131.9 billion to banks for three months, much less than analyst expectations that banks would borrow more than €200 billion.

A revival in activity on the M&A front may also be helping to drive stocks higher. Celgene Corp. (CELG) announced that it has entered into an agreement to acquire Abraxis BioScience Inc. (ABII). The deal values Abraxis BioScience at about $2.9 billion, with the buyout entitling Abraxis shareholders to both cash and Celgene stock.

Further, Sanofi-Aventis (SNY) has agreed to purchase TargeGen, a privately held biopharmaceutical company developing treatments of certain forms of leukemia, lymphoma and other hematological malignancies and blood disorders. The deal is worth $560 million.

In other news on the M&A front, Boeing Co. (BA) announced that it has entered into an agreement to acquire combat technology developer Argon ST Inc. (STST) for $34.50 per share or about $775 million in cash.

However, the upside is being limited by a report from private payroll processor ADP (ADP) showing that non-farm private employment increased by 13,000 jobs in June following an upwardly revised increase of 57,000 jobs in May. Economists had expected an increase of about 61,000 jobs compared to the addition of 55,000 jobs originally reported for the previous month.

While the increase in private employment in June marked the fifth consecutive monthly increase, ADP noted that the increases in the five months have averaged a modest 34,000.

The major averages have seen choppy movement in recent trading, with the Dow bouncing back and forth across the unchanged line. The Dow is currently up 6.50 points or 0.1 percent at 9,876.80, while the Nasdaq is up 9.02 points or 0.4 percent at 2,144.21 and the S&P 500 is up 2.36 points or 0.2 percent at 1,043.60.

Sector News

Airline stocks are posting strong gains in mid-morning trading, resulting in a 3 percent advance by the NYSE Arca Airline Index. With the gain, the index is bouncing off of a one-month closing low set in the previous session.

Oil service and gold stocks are also helping to buoy the markets, with gains of 1.9 percent and 1.1 percent being shown by the Philadelphia Oil Service Index and the NYSE Arca Gold Bugs Index, respectively. The indices are partially offsetting yesterday's sharp retreat.

Trucking, banking, biotechnology and commercial real estate stocks are also notably higher, while health insurance and computer hardware stocks are seeing modest losses, liming the fragile advance by the broader markets.

Stocks Driven By Analyst Comments

NextEra Energy (NEE) is trading higher after being upgraded by analysts at Oppenheimer from Perform to Outperform. The stock has gained 1.6 percent, bouncing off of its worst closing level in nearly three months.

Provident Financial Services, Inc. (PFS) is also on the upside following an upgrade at Stifel Nicolaus from Sell to Hold. Shares are currently up by 1.4 percent, recovering from a three-week closing low set in the previous session.

On the other hand, Hudson City Bancorp (HCBK) is under pressure after FBR Capital downgraded the stock from Outperform to Market Perform. The broker also lowered its target on the stock from $15 to $14. The stock is down by 1.7 percent, setting a one-month intraday low.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region closed mostly lower on Wednesday. Japan's benchmark Nikkei 225 Index fell by 2 percent and Hong Kong's Hang Seng Index declined by 0.6 percent.

Meanwhile, the major European markets are seeing modest strength. The U.K.'s FTSE 100 Index and the German DAX Index are up by 0.1 percent and 0.3 percent, respectively, while the French CAC 40 Index is up by 0.5 percent.

In the bond markets, treasuries are little changed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.961 percent, posting a loss of less than one basis point.

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TSX May Struggle To Recover, Canadian Economy Stalls

Bay Street stocks may struggle to move up Wednesday morning amid mixed cues from the commodities markets and economy. While commodities started recovering from yesterday's slump, discouraging economic data from the U.S., Canada's largest trading partner, may weigh on the sentiment.

However, value buying at lower levels after a huge fall in the previous session, might help stocks in early trading. On Tuesday, the S&P/TSX Composite Index plummeted 343.18 points or 2.96% to 11,263.83, levels not seen since early February.

Meanwhile, Canada said its GDP was unchanged in April, after rising in the past seven months.

Meanwhile, the euro and European equities recovered as European banks borrowed less from the ECB than previously feared. BP Plc gained around 9% after JP Morgan published a report hinting that Exxon Mobil Corp may bid for the company.

The price of crude oil edged up in morning deals ahead of weekly inventories data from the EIA. Crude for August moved up $0.49 to $76.43 a barrel.

The price of gold eased, losing $3.1 to $1,239.30 an ounce.

In corporate news, steel company Gerdau Ameristeel and Gerdau S.A. said that they will take Gerdau Ameristeel private at $11.00 cash per share or for a total sum of $1.6 billion.

Specialty retailer West 49 Inc. said Billabong International Ltd. has agreed to acquire all of its outstanding common shares and preferred shares for cash at C$1.30 per share.

Bombardier Transportation, the rail division of Canadian transportation solutions provider Bombardier Inc, said that it has received $101 million orders from the Delhi Metro Rail Corp. Ltd. of India.

Aviation maintenance services provider Vector Aerospace said it, through a wholly-owned subsidiary, has been awarded a $30 million new customer contract for overhaul and repair services on the Rolls-Royce T56 engine.

Energy company Paramount Resources said it acquired Redcliffe Exploration Inc. and an indirect wholly- owned subsidiary of Paramount.

Fiberglass reinforced pipes making company Hanwei Energy Services slipped to loss in the fifteen months ended March 31, reporting net loss of C$1.08 per share versus a net profit of C$0.12 per share in the twelve months ended December 31, 2008.

Waste management companies IESI-BFC Ltd. and Waste Services, Inc. said that the Canadian Competition Bureau will not challenge their merger proposed in early November 2009 as the companies have agreed to sell commercial waste collection assets in five Canadian markets. The merged entity will trade under the symbol "BIN" on the New York as well as TSX.

Natural gas and oil royalty trust Daylight Energy said it will divest certain gas assets n Eastern Alberta for $100 million in cash and $25 million in equity.

Gold miner Avnel Gold Mining reported a first quarter narrower net loss of C$0.03 per share, compared to a net loss of C$0.04 per share in the year-ago quarter. The company also said it would privately place up to 31.01 million units at C$0.20 per unit to raise about C$6.20 million.

In economic news, Statistics Canada said the country's GDP was unchanged in April after seven consecutive monthly increases, official data revealed Wednesday. Economists were expecting the Canadian economy to grow 0.2% in April. A large decline in retail trade and smaller declines in manufacturing and utilities were offset by increases in mining and wholesale trade.

From the U.S., the Automatic Data Processing, Inc. released a report showing that private sector employment increased by much less than expected in the month of June. ADP said that non-farm private employment increased only by 13,000 jobs in June following an upwardly revised increase of 57,000 jobs in May. Economists were expecting an increase of about 61,000 jobs compared to the addition of 55,000 jobs originally reported for the previous month.

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Asian Markets End In Negative Territory

The markets across Asia, except India and Indonesia, ended in negative territory amid concerns about a moderation in the global economic recovery. A steep decline on Wall Street in the previous session on concerns about growth in the Chinese and US economies impacted market sentiment. Caution ahead of key economic data later during the week has kept most of the traders on the sidelines.

In Japan, the benchmark Nikkei 225 Index lost 188.03 points, or 1.96%to 9,383, while the broader Topix Index of all First Section issues shed 10.77 points, or 1.26% to 841.

On the economic front, a report released by the Ministry of Land, Infrastructure, Transport and Tourism revealed that housing starts in the country declined 4.6% year-on-year in May, reversing the 0.6% rise in April. Economists were expecting an annual growth of 5% for May. Annualized housing starts in May stood at seasonally adjusted 737,000 compared to 793,000 in April. Consensus forecast was for 810,000.

In a separate report, the Ministry of Health, Labor and Welfare revealed that total cash earnings of employees in Japanese establishments with five or more employees edged down 0.2% year-on-year to JPY 267,721. The report further noted that contractual cash earnings rose 0.4% annually in May. Scheduled earnings were down 0.1% while non-scheduled earnings were up 10.3%. Special cash earnings slumped 23.6%.


Almost all the 33 sectors in the index ended in negative territory on concerns about sustaining global economic recovery, especially in China and the US. The benchmark Nikkei ended at a 7-month low as traders awaited more data related to global economic recovery.

In Australia, the benchmark S&P/ASX200 Index fell 44.20 points, or 1.02% and closed at 4,302, while the All-Ordinaries Index ended at 4,328, representing a loss of 45.80 points, or 1.05%.

On the economic front, experts in housing industry opined that Australia's housing market has continued to cool in May suggesting that the real estate market is transitioning towards a lower and more sustainable growth path. The RP Data - Rismark hedonic home value index showed that Australian capital cities recorded their second consecutive month of single digit annualized growth. National city dwelling values were up 0.6% in May, following a 0.2% increase in April. On a seasonally adjusted basis, capital city values were up 0.5%. "This second consecutive month of single-digit annualized gain sends a signal that the double-digit growth rates recorded since January 2009 are behind us," said Tim Lawless, RP Data's director of research. "The signposts have been in the market for several months now with lower auction clearance rates, fewer housing finance commitments, and weakening consumer confidence."

A report released by the Department of Education, Employment and Workplace Relations revealed that job vacancies for skilled workers in Australia decreased a seasonally adjusted 7.7% month-on-month in June after the 4.8% rise in the previous month. On a yearly basis, the skilled vacancy index was up 16.9%, slower than the 26.6% increase in the preceding month. In trend terms, the skilled vacancies index slid by 0.3% on a monthly basis. Vacancies fell for two of the three occupational groups, namely, associate professionals and professionals. Vacancies in trade increased by 0.6% over the month.

In a separate report, the Housing Industry Association revealed that new home sales were down a seasonally adjusted 6.4% in May compared to April. Detached home sales fell by 5.9% while sales in the volatile multi-unit sector dropped 11.6%. HIA chief economist Harley Dale said sales activity had flattened out in recent months. "There is no sustained upward momentum in new home sales in 2010 because higher interest rates and concerns over the threat of further rate hikes are dampening demand," he said.


Banks ended in negative territory on concerns about global economic recovery. ANZ Bank fell 1.19%, Commonwealth Bank lost 1.50%, National Australia Bank slipped 0.51% and Westpac Banking edged down 0.09%. Investment banker Macquarie Group plunged 2.52%.

In Hong Kong, the benchmark Hang Seng Index ended in negative territory with a loss of 119.91 points, or 0.59%, and closed and 20,129, as traders remained on the sidelines waiting for more cues on sustaining global economic recovery. Sharp decline in Wall Street in the previous session on renewed concerns about global economic recovery impacted market sentiment. Weak trading across other markets in the region also impact market sentiment.

A slight rebound in European stocks and expectations about the upcoming first-quarter reporting season helped the Indian market end Wednesday's session sharply higher near the day's high. The major gainers were heavyweight Reliance Industries, diversified business conglomerate ITC, car maker Maruti Suzuki and telecom operator Reliance Communication. The 30-share BSE Sensex slipped about a percent in early trading, tracking subdued Asian cues owing to economic recovery concerns and growing jitters over banks' funding conditions in Europe. Subsequently, with a positive trend in Europe lifting investor sentiment, the Sensex rose to a high of 17,725 before closing up 167 points or 0.95% at 17,701. The 50-share Nifty closed up 56 points or 1.07% at 5,312.

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After yesterday’s rebound, European stocks are languishing in the red on Tuesday. The French CAC 40 Index and the German DAX Index are trading down 2.64% and 2.16%, respectively, while the U.K.’s FTSE 100 Index is moving down 2.16%.

On the economic front, French statistical agency INSEE reported that France’s consumer confidence index fell to –39 in June from –38 in May, reaching its lowest level since April 2009.

The results of survey done by European Commission showed that the euro area’s economic sentiment index rose to 98.7 in June from 98.4 in May. Economists had expected a reading of 98.1

U.S. Economic Reports

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 3.4% year-over-year increase in the 20-city composite house price index for April. In March, the index rose 2.35%.

The Conference Board is scheduled to release its consumer confidence report for June 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 fell to 62 in June.

In May, the consumer confidence index rose to 63.3 from 57.7 in April, with the latest month's reading the highest since March 2008. The upside reflected the improvement seen in consumers’ appraisal of the labor market, with those saying jobs were hard to get falling 1.2 points to the lowest since January 2009. The expectations index climbed 7.9 points to 85.3, its highest level since August 2007, while the current conditions index rose 1.4 points, reaching its highest level since December 2008.

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Boeing (BA) may be in focus after Argon ST (STST) said it has entered into an agreement to be acquired by Boeing for $34.50 per share or about $775 million, net of cash.

Celgene (CELG) is likely to move in reaction to its announcement that it has signed an agreement to buy Abraxis BioScience (ABII). According to the terms of the merger agreement, each share of Abraxis will be converted into the right to receive an upfront payment of $58 in cash and 0.2617 share of Celgene common stock.

Lubrizol (LZ) could see some buying interest after it said its board has approved an expansion of its share repurchase program. The newly approved program combined with its existing program allows the company to buy up to 7.2 million of its shares, effective immediately.

Sealy Corp. (ZZ) may be in focus after it said its second quarter net sales rose 6.1% year-over-year to $316.5 million. The company reported adjusted earnings of 2 cents per share. Analysts estimated earnings of 2 cents per share on revenues of $319.86 million.

Merck (MRK) is likely to see some activity after it said it has prevailed in all respects in a trial of claims brought by the State of Louisiana related to Vioxx. The judge ruled that Merck’s marketing of a gastrointestinal benefit was consistent with the conclusion of their clinical trials.

General Mills (GIS) is also likely to be in focus after it said its fourth quarter net sales fell 2% year-over-year to $3.6 billion. On an adjusted basis, the company reported earnings of 41 cents per share compared to 43 cents per share last year. Analysts estimated earnings of 41 cents per share on revenues of $3.55 billion. For 2011, the company expects earnings per share of $2.46-$2.48, below the $2.30 per share consensus estimate.

Monsanto (MON) may also move in reaction to its announcement that its third quarter net sales fell to $2.96 billion from $3.16 billion in the year-ago period. The company’s ongoing earnings per share declined to 81 cents per share from the year-ago’s $1.25 per share. Analysts estimated earnings of 80 cents per share on revenues of $3.17 billion.

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