US & World Daily Markets Financial Briefing 30-10-2009

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Consumer Worries May Stall Market Momentum

The major U.S. index futures are pointing to a lower opening on Friday. After a robust GDP report catalyzed a strong upward move on Wall Street on Thursday, some traders may be looking to take some money off the tables for want of more evidence on how the economy is faring. Earlier in the day, the Commerce Department said consumer spending, the lynchpin component of GDP, which showed resurgence in the third quarter on the artificial boost provided by the government, declined in September.

The data portends more weakness ahead, as consumer shy away due to a lack of purchasing power, which has been marred by the bleeding job market. In reaction to the report, the commodities are also pulling back. Now, the markets are likely to turn their attention to the consumer sentiment report to be released shortly after the markets open.

U.S. stocks rebounded nicely on Thursday, bouncing back from the weakness witnessed in the past few sessions, as traders relished the advance third quarter GDP data that showed a stronger than expected GDP growth. The markets also received support from some positive earnings from companies such as Motorola and Procter & Gamble. The major averages opened higher and advanced steadily throughout the session, although some degree of consolidation was witnessed going into the close.

The Dow Industrials jumped 199.89 points or 2.05% to close at 9,963, the Nasdaq Composite Index gained 37.94 points or 1.84% at 2,098 and the S&P 500 Index advanced 23.48 points or 2.25% to 1,066.

Twenty-nine of the thirty Dow components advanced in the session, with Merck the lone decliner. Alcoa (up 8.97%), American Express (up 5.11%), Boeing (up 3.37%), Bank of America (up 4.80%), Caterpillar (up 5.18%), Disney  (up 3.12%), Hewlett-Packard (up 3.03%), JP Morgan Chase (UP 3.91%) and Procter & Gamble were among the notable gainers.

Among the sector indexes, the Dow Jones U.S. Basic Materials Average climbed 4.05% and the NYSE Arca Airline Index gained 2.67%. The S&P Retail Index moved up 2.48% compared to a 2.56% advance by the Philadelphia Housing Sector Index. The NYSE Arca Securities Broker/Dealer Index and the KBW Bank Index moved up 3.16% and 4.10%, respectively. While the NYSE Arca Oil Index rose 2.29%, the Philadelphia Oil Service Index rallied 3.03% and the NYSE Arca Gold Bugs Index jumped 5.25%.

In the technology space, the Philadelphia Semiconductor Index, the NYSE Arca Disk Drive Index, the NYSE Arca Computer Hardware Index and the NYSE Arca Networking Index all recorded gains in excess of 2%.

On the economic front, the Bureau of Economic Analysis' advance estimates revealed that the U.S. economy expanded by 3.5%, ahead of the 3.2% growth expected. That said, nominal GDP rose 4.3% compared to the 4.6% growth expected by economists. Personal consumption climbed 3.4%, benefiting from a 22.3% surge in spending on durable goods. Residential construction, with help from the first time homebuyer's credit added 0.5 percentage points to GDP. Inventories, although declining from the previous quarter, fell at a slower rate and therefore added 0.94 percentage points to GDP. On the other hand, net trade served as a drag, as imports rose at a faster rate than exports.

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Toronto Stocks Turn Lower As Commodities Fall

Canadian stocks turned back to the downside on Friday, continuing recent volatile movement, as commodities dragged the resource sectors into the red.

The S&P/TSX Composite Index is down 119.30 points or 1.07% to move at 10,951.95.

The gold index is down 2% while materials stocks are off 1.9%. Agnico-Eagle Mines has plunged 5%, New Gold is down 3.6% and Yamana has lost 3.5%.

Centerra Gold is down 0.4% after the company reported its third-quarter net earnings were US$20.2 million, 20% higher than US$16.9 million in the previous year. Earnings per common share for the recent quarter grew 15% to US$0.09 from US$0.08 a year ago.

Eldorado has dropped 2.1%, although the company reported its third-quarter net income was US$30.15 million or US$0.08 per share, compared with US$17.04 million or US$0.05 per share last year.

Mining stocks are down 1.9%, giving back some of yesterday's gains. HudBay has lost 3.1% and Inmet is down 2.1%.

Financials are down 1.3%. Toronto-Dominion has dropped 2.1%, Bank of Montreal is down 1.7% and CIBC has dropped 1.6%.

Fairfax Financial has added 3.4% after the company reported its net earnings increased to US$562.4 million, or US$30.88 per share, from US467.6 million, or US$25.27 per share in the year-ago quarter.

Energy stocks have also lost 1.3%. Canadian Natural Resources has dropped 2.4%, Suncor is down 1.6% and Canadian Oil Sands has dropped 1.5%.

Imperial Oil has added nearly 1% after the company reported its third quarter profit fell to C$547 million from C$1.38 billion in the year-ago period. On a per share basis, net income decreased to C$0.64 from C$1.57. Operating revenues declined to C$5.54 billion from C$9.47 billion.

Tim Hortons has dropped 1.6% after the company announced third quarter net income attributable to Tim Hortons of C$61.18 million or C$0.34 per share, compared to C$78.76 million or C$0.43 per share last year.

Domtar Corp. has surged 12.4% after the company reported net earnings of US$183 million or US$4.24 per share for the third quarter, compared to US$43 million or US$1.00 per share for the third quarter of 2008.

GLG Life Tech Corp. has added 6.1% after the company said its third-quarter net income after income taxes and non-controlling interests was C$1.39 million compared with a loss of C$0.95 million in the comparable period. The company reported an earnings per share of C$0.02 versus a loss per share of C$0.01 for the quarter.

Cogeco Cable has dropped 4.3% after the company said its fourth-quarter net income increased to C$46.57 million or C$0.96 per share from C$31.86 million or C$0.65 per share in the prior year period.

On the economic front, real gross domestic product decreased 0.1% in August after being unchanged in July, according to data released Friday morning by Statistics Canada.

Economists were expecting Canada's economy to grow a modest 0.1%, as the nation attempts to emerge from the worst global economic downturn in decades.

Currency, Commodity Futures

Crude oil futures are edging down $0.64 to $79.23 a barrel after surging up $2.41 to $79.87 a barrel on Thursday. Just when it looked like the commodity rally, built on the back of a weaker dollar and increasing risk appetite, was losing steam, the GDP report came as a shot in the arm.

Danske Bank believes that commodities prices will have a final leg higher over the next three months, as the global recovery continues and the dollar continues to weaken. The firm expects oil to touch $90 a barrel before the year-end, although it does not expect the higher levels to be sustained during 2010.

The firm's views sound logical, given our expectations that strong growth in the third quarter could moderate in the fourth quarter and taper further going into 2010, posing a threat of another soft patch in 2010, as the effects of stimulus measures fade away.

Gold futures are currently moving down $4.40 to $1,042.70 an ounce. In the previous session, the precious metal climbed $16.60 to $1,047.10 an ounce.

Among currencies, the U.S. dollar is trading at 91.085 yen compared to 91.4068 yen it fetched at the close of New York trading on Thursday. The dollar is currently trading at $1.4796 versus the euro compared to yesterday's 1.4822.

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Most Asian markets advanced on Friday, tracking the positive cues from Wall Street, where stocks advanced on the better than expected GDP data.

Japan's Nikkei 225 average recovered from a 3-day slump, with the index opening higher and advancing for the rest of the session to close up 143.64 points or 1.45% at 10,035. The upside came amid the announcement of the Bank of Japan's monetary policy decision and the release of a slew of economic data from the region.

Most sectors found buying interest, with the exception of utility and paper stocks and select pharma and financial stocks. Some heavy equipment makers also moved to the downside.

Sony closed 2.8% higher ahead of its results, which revealed a second quarter loss of 26.3 billion yen compared to a profit of 26.3 billion yen in the year-ago period. Revenues fell 20% to 1.66 trillion yen. The company also narrowed its loss estimate for the year ending March 2010 to 95 billion yen from its earlier estimate of a 120 billion yen loss.

The Bank of Japan's Monetary Policy Board announced following its two-day meeting that it is keeping its key interest rate unchanged at 0.1%. In the post meeting policy statement, the central bank said the bank would maintain the extremely accommodative financial environment for some time by holding interest rates at current low levels.

The bank also said its special funds supplying operations would remain in effect until the end of March 2010, while outright purchases of commercial paper and corporate bonds will expire at the end of 2009. Separately, the bank upgraded its assessment of domestic economic conditions.

Among the economic reports, the consumer price inflation report released by the Ministry of Internal Affairs and Communications showed a 2.3% year-over-year decline in core consumer prices in September, a tad smaller than the 2.4% drop estimated by economists. Meanwhile, a separate report released by the agency showed that the jobless rate fell to 5.3% in September from 5.5% in August. Economists had expected the rate to come in at 5.7%. Household spending in Japan rose a real 1% year-over-year in September, helped by the stimulus measures enacted by the government, another report by the Ministry revealed today.

Australia's All Ordinaries opened unchanged, but it advanced in early trading before moving sideways. The index ended the day up 71.70 points or 1.57% at 4,647. A majority of the sectors, with the exception of the defensive healthcare sector, advanced.

Hong Kong's Hang Seng Index opened notably higher and showed a gradual advance in the morning before giving back some of its gains. At the close of trading, the index was up 487.88 points or 2.29% at 21,753. Thirty-nine of the forty-two index components advanced in the session.

Notwithstanding an upbeat earnings report from bellwether Samsung Electronics, South Korea's Kospi, which traded above the unchanged amid volatility for most of the session, retreated in a late session sell-off. The index closed down 5.16 points or 0.33% at 1,581. Samsung reported that its third quarter net income more than tripled to 3.72 trillion Korean Won, helped by a solid contribution from its semiconductor segment.

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After seeing a steep sell-off in the morning on Friday, the major European markets have cut back the losses. Currently, the French CAC 40 Index is receding 0.40% and the U.K.'s FTSE 100 Index is moving up 0.14%, while the German DAX Index is declining 0.70%.

In corporate news, Alcatel-Lucent reported a loss of 182 million euros for its third quarter, wider than the year-ago loss of 40 million euros. Sales declined 9.3% year-over-year to 3.69 billion euros. The company reiterated its guidance of reported break-even results on an operating basis.

Sanofi-Aventis said its third quarter net income rose to 1.42 billion euros from 1.33 billion euros a year-earlier, as sales rose 8% to 7.4 billion euros. The company raised its full year guidance, attributing the positive outlook to higher sales from its swine flue vaccine.

In economic news, French statistical agency, the INSEE reported that French producer prices fell 0.3% month-over-month in September following 0.4% growth in the previous month. Annually, producer prices declined 8.1%, a smaller drop than the 8.5% decline in the previous month. The monthly and annual price trends came in line with expectations.

Meanwhile, the GfK NOP said its consumer confidence index for the U.K. rose three points to -13, marking the highest score since January 2008. The results of another survey released by the Nationwide said U.K. house prices rose 0.4% in October compared to the previous month, while economists had forecast 0.6% growth. House prices have been increasing since May.

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Las Vegas may be in focus after it reported a loss of 19 cents per share for its third quarter compared with a loss of 9 cents per share last year. On an adjusted basis, the company reported earnings of 3 cents per share. Revenues rose 3% to $1.14 billion. Analysts estimated a loss of 10 cents per share on revenues of $1.17 billion. Separately, reports suggested that the company has received approval for listing shares of its Macau casino business on the Hong Kong Exchange.

MetLife traded lower in Thursday's after hours session despite reporting operating earnings of 87 cents per share, in line with the consensus estimate. Revenues slipped 1% to $12.41 billion.

Chip equipment maker KLA-Tencor is likely to see some activity after it reported first quarter adjusted earnings of 15 cents per share compared to 32 cents per share last year. Revenues fell to $347.7 million from the year-ago's $532.5 million. The consensus estimates has called for earnings of 2 cents per share on revenues of $333.3 million.

Meanwhile, chipmaker Maxim Integrated reported a decline in its first quarter earnings to 13 cents per share from 21 cents per share last year. Revenues declined 10% year-over-year to $449.2 million. The Street had estimated earnings of 12 cents per share on revenues of $438.4 million. For the second quarter, the company expects revenues of $450 million to $465 million compared to the $454.8 million consensus estimate.

BMC Software is also likely to be in focus after it reported second quarter adjusted earnings of 66 cents per share, ahead of the 58 cents per share consensus estimate. Revenues declined 1% year-over-year to $461.8 million, while analysts estimated revenues of $462.7 million.

Manitowoc could come under selling pressure after it reported a third quarter loss of 4 cents per share on an adjusted basis, wider than the consensus estimate for a loss of 8 cents per share. Sales declined 20% year-over-year to $881.5 million, with the decline primarily reflecting the poor performance of its crane business.

Merck is expected to react to its announced that it has received clearance from the U.S. Federal Trade Commission, the Swiss Competition Commission and the Canadian Competition Bureau for its impending acquisition of Schering-Plough. Merck expects to close the deal in the fourth quarter of 2009.

Priceline.com may see some buying interest after S&P announced that the company would replace Schering-Plough in the S&P 500 Index. Freeport McMoran Copper & Gold, which will replace Schering-Plough in the S&P 100 Index, could also gain ground.

McAfee is expected to recede after it reported third quarter revenues of $485.3 million, below the mean analysts' estimate of 486.6 million. The company's adjusted earnings were 62 cents per share, exceeding the mean analysts' estimate of 53 cents per share. The company guided fourth quarter revenues of $505 million to $525 million and adjusted earnings of 61-65 cents per share. The consensus estimates call for earnings of 63 cents per share on revenues of $506.7 million.

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