US & World Daily Markets Financial Briefing 30-11-2009

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Bargain Hunting May Helps Stocks Regain Some Ground

The major U.S. index futures are pointing to a modestly higher opening on Monday following the substantial weakness that was seen last Friday. Traders may look to pick up stocks at reduced levels after the Central Bank of the United Arab Emirates said on Sunday that it would extend additional funds for local and foreign banks to cope with the financial crisis resulting from the failure of Dubai World.

Following the comments, the markets across Asia reversed trend and surged up on optimism that the crisis will not jeopardize recovery prospects for the world economy.

U.S. stocks finished the week ended November 27th mostly lower after the Dubai World debt crisis and a few cloudy economic readings generated selling pressure in the markets.

Last Monday, the major closed with gains in excess of 1%, as positive commentary on growth by the National Association of Business Economics and encouraging economic readings from Europe encouraged traders. However, stocks recoiled on Tuesday following the release of the revised third quarter GDP report, which showed that growth was slower than initially estimated.

The major averages rose modestly on Wednesday, as traders digested positive jobs and personal spending data, although the upward move lacked conviction. Following the Thanksgiving Day holiday on Thursday, stocks retreated sharply on Friday, as traders pressed the panic button following the eruption of news concerning a debt crisis at Dubai World.

For the week ended November 27th, the Dow Industrials and the Nasdaq Composite fell 0.08% and 0.35%, respectively, while the S&P 500 Index was nearly unchanged for the week.

Among the sector indexes, the Philadelphia Housing Sector Index and the KBW Bank Index fell 1.99% and 1.44%, respectively. The NYSE/Arca Securities Broker Dealer Index declined 4.17%. Meanwhile, the Dow Jones Utility Index and the NYSE/Arca Biotechnology Index rose 1.04% and 2.23%, respectively.

Bay Street Stocks Look To Bounce Back After GDP Report

Toronto stocks will look to recover some recent losses on Monday as traders consider data showing the Canadian economy expanded in the third quarter, the first quarterly gain since the third quarter of 2008.

Canada's real gross domestic product increased 0.1% in the third quarter, according to data released Monday by Statistics Canada. Real GDP was up 0.4% in September.

U.S. futures saw weakness, hurt by discouraging retail sales on Thanksgiving weekend. U.S. markets were also in the red.

On the corporate front, EnCana Corp. said it has completed its transaction to split into two companies: Cenovus Energy and EnCana Corp.

Thomson Reuters announced that it has acquired the business of ASSET4 AG, a Swiss-based company. Terms of the agreement were not disclosed.
 
Com Dev International said its fourth-quarter revenues are projected to range between C$56 million and C$58 million. The company anticipates net loss to be less than C$1 million for the quarter.

Canadian National Railway Company locomotive engineers went on strike over the weekend after talks broke off on Friday. CNR rejected a binding wage arbitration offer yesterday, according to reports.

On the commodity front, crude oil has edged up 7 cents to $76.04 per barrel and copper is little changed near $3.13 a pound. Gold dropped $7.50 to $1,171.70 per ounce.

The S&P/TSX Composite Index declined 27.61 points or 0.24% on Friday to finish at 11,464.41. The index dropped about 135 points for the week.

Currency, Commodity Futures

Crude oil futures are edging up $0.01 to $76.06 a barrel after the commodity receded $1.42 or 1.83% to $76.05 a barrel in the week ended November 27th.

Last Monday, the commodity edged up modestly. However, impacted by the downward revision to third quarter GDP, crude oil declined along with equities to end down over $1.50-a-barrel on Tuesday.

Nonetheless, oil snapped back its losses and advanced by close to $2-a-barrel on Wednesday amid the release of the weekly oil inventory report. Risk aversion drove oil prices lower on Friday after the break on Thursday, with crude oil declining by $1.91-a-barrel, culminating in a week of losses.

Gold futures, which advanced $28.70 or 2.5% to $1,175.50 an ounce last week, are falling $2.60 to $1,172.90 an ounce.

On the currency front, the U.S. dollar declined against the euro and the yen in the week ended November 27th. The greenback lost 2.65% against the yen to 86.533 yen, while it declined 0.85% against the euro to $1.4988 a euro.

Currently, the U.S. dollar is trading at 86.57 yen and is valued at $1.5029 versus the euro.

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Stocks markets across the Asia-Pacific region rebounded on Monday, snapping back the sharp losses posted last Friday. Banking stocks helped to lead the way higher after the Central Bank of the United Arab Emirates stated that it would extend assistance to banks affected by the financial crisis in Dubai.

In Japan, the benchmark Nikkei 225 Index advanced 264.03 points or 2.91% to 9,346, while the broader Topix index of all First Section issues advanced 28.93 points, or 3.57%, to 840.

On the economic front, a preliminary report released by the Ministry of Economy, Trade and Industry revealed that industrial output in the country rose 0.5% month-on-month in October. The growth was slower than analyst expectations for a 2.5% increase following the 2.1% increase in September. On an annual basis, output fell 15.1% compared to an 18.4% contraction in the previous month.

In a separate report, the Ministry of Health, Labor and Welfare revealed that total cash earnings of wage earners in Japan dropped 1.7% year-on-year in October, slower than the revised 1.8% fall in the previous month and the 2.7% decrease in August. The report further noted that contractual cash earnings were down 1.7% annually in October compared to the 2.1% fall in the preceding month.

The Ministry of Land, Infrastructure, Transport and Tourism revealed that housing starts dropped 27.1% year-on-year in October, slower than a 37% drop in the previous month. Economists expected a 33.5% drop for the month. The housing starts have now been declining continuously since December last year.

Almost all the stocks across the board ended in positive territory, led by banking and automotive stocks. All the major banks surged sharply higher. Sumitomo Mitsui Financial surged up 8.78%, Mizuho Financial soared 9.46%, Mitsubishi UFJ Financial climbed 8.56% and Resona Holdings gained 5.72%.

Automotive stocks also ended sharply higher on expectation that the recent Dubai crisis might not jeopardize growth prospects. Toyota Motor rose 4.24%, Honda Motor advanced 1.50%, Mitsubishi Motor surged up 4.46%, Nissan Motor gained 3.47% and Suzuki Motor climbed 2.86%.

In Australia, the benchmark S&P/ASX200 Index surged up 129.20 points, or 2.83% to close at 4,701, while the All-Ordinaries Index ended at 4,715, representing a gain of 118.30 points, or 2.57%.

On the economic front, a report released by the Melbourne Institute and TD Securities revealed that the unofficial monthly inflation gauge in the country increased at a faster pace in November. As per the report, prices measured on the inflation gauge rose 2.1% year-on-year in November, falling within the Reserve Bank of Australia's target range of 2% to 3%. This follows a 1.2% increase in the inflation gauge in October.

Banks and mining stocks led the gains as fears about the Dubai financial crisis faded. Among the major banks, ANZ Bank rose 4.53%, Commonwealth Bank of Australia gained 4.35%, National Australia Bank surged up 5.96% and Westpac Banking climbed 4.37%. Investment banker Macquarie Group also soared 5.87%.

Metals and mining stocks also ended higher on expectation that recovery prospects will not be dented by the recent Dubai crisis. Among mining stocks, BHP Billiton gained 2.25%, Rio Tinto surged up 4.54%, Fortescue Metals climbed 4.99%, Gindalbie Metals advanced 2.21%, Iluka Resources rose 4.36% and Oz Minerals increased 3.39%.

In Hong Kong, the Hang Seng Index recovered smartly from Friday's loss and ended in positive territory with a gain of 687.00 points, or 3.25%, at 21,821. Bargain hunting at lower levels following sharp drop of more than 1,000 points on Friday lifted the market higher, with banks leading the way.

Additionally, South Korea’s KOSPI Index advanced 31.10 points, or 2.04%, to close at 1,556, recovering smartly from the sharp decline in the previous session. Traders evinced fresh buying interest on banking shares on bargain hunting. Technology, automotive and commodity stocks also ended higher.

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Energy and financial shares fall

Europe’s main markets continued to be jittery, with energy and financial stocks among the main fallers, as investors are keeping a watchful eye on the situation in Dubai.

Across the markets, the Dax is 57 points lower in Frankfurt at 5,629, while the Cac is 41 points down at 3,681. The Swiss market has dropped 70 points to 6,267.

Stocks in the United Arab Emirates suffered record one-day losses on Monday as investors got their first chance to react to last week’s debt default scare.

The savage slump reflected pent-up selling pressure following the Eid holiday, which has seen markets closed since state-owned Dubai World threatened to default on its debt.

Dubai’s leading index tumbled more than 7%, its worst day in over a year, with the National Bank of Abu Dhabi plunging about 10%, but an 8.3% plunge on the Abu Dhabi exchange was its biggest single-day decline ever.

In Europe, oil producers are among the main fallers.

Royal Dutch Shell, Eni and Total dropped as fears about the potential impact of any debt default by Dubai slammed oil prices Friday, temporarily sending them down over 7% to their lowest in seven weeks.

The January contract ended the session down $1.91 at $76.05 a barrel, with traders also worried that crude’s recent rally is unjustified due to strong supplies and weak demand.

Financials are also on offer, with Credit Agricole, Commerzbank, UBS and Zurich Financial in the red.

Elsewhere in the sector, Bank of Ireland is to join the National Asset Management Agency (NAMA) asset acquisition programme.

The bank’s announcement follows hot on the heels of a similar announcement on Monday by its fellow Irish bank, Allied Irish Banks (AIB).

The sector has also been hit my press reports claiming that thirty global financial institutions are said to have been selected for cross-border supervision by regulators.

The Financial Times reported on Monday that a number of major insurers are included in the list, such as Axa, Aegon, Allianz, Aviva, Zurich and Swiss Re, as well as 24 banks from the UK, continental Europe, North America and Japan.

In economic news, consumer prices in the 16-country eurozone rose in November for the first time in seven months, according to official figures out Monday.

Price inflation rose by 0.6% year-on-year after falling 0.1% in October, European Union statistics office Eurostat said. Economists were looking for a 0.4% gain.

CAC 40 - Risers
France Telecom (FTE) € 17.42 +0.55%
Carrefour (CA) € 32.56 +0.51%
Essilor International (EI) € 38.94 +0.48%
Renault (RNO) € 32.29 +0.39%

CAC 40 - Fallers
Credit Agricole (ACA) € 13.65 -2.71%
Alstom (ALO) € 46.62 -2.68%
Alcatel-Lucent (ALU) € 2.26 -2.59%
Technip (TEC) € 45.38 -2.38%
Michelin (ML) € 50.80 -2.35%
Accor (AC) € 35.42 -2.03%
Veolia Environnement (VIE) € 22.38 -1.84%
AXA (CS) € 15.91 -1.82%
Lafarge (LG) € 54.70 -1.81%
GDF Suez (GSZ) € 28.03 -1.80% 

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Novartis (NVS) may gain ground after it reported that the FDA approved the sale of its Agriflu for seasonal flu subtypes A and B in people aged 18 years and older. Novartis is required to do more tests to show the efficacy of Agriflu, with the FDA expediting the approval of the drug.

Theravance (THRX) is also likely to react to its announcement that the FDA has issued a complete response letter for its NDA filing for its nosocomial pneumonia drug Telavancin. The company is required to submit additional data and analyses to support an evaluation of all-cause mortality as the primary efficacy endpoint.

GlaxoSmithKline (GSK) may react to reports that it would substantially cut prices of its drugs in developing economies. The reduction would mean that prices in these economies will be lees than two-thirds of prices in Western nations.

U.S. Economic News

The unfolding week's economic calendar is pretty busy, with a few key first-tier reports such as the Labor Department's monthly non-farm payroll report for November and the results of the ISM's manufacturing and services survey for November due to be released during the week. Traders may also closely watch speeches by Federal Reserve officials and President Barack Obama.

The ISM-Chicago's manufacturing index for November, the Commerce Department's construction spending report for October, the National Association of Realtors' pending home sales index for October, the factory goods orders report for October and the revised third quarter productivity & costs report may also be on the radar of traders. Additionally, the Beige Book is likely to be scanned to find out anecdotal evidence of how the economic recovery is panning out in different Federal Reserve districts.

After the strong rise in October, the ISM's manufacturing index isn't expected to advance significantly. The employment index's outsized gains in October are unsustainable and therefore, it is likely to retreat from the previous month's level. The regional surveys released thus far do not offer much hope for a substantial increase in the national manufacturing index.

However, the ISM’s non-manufacturing index could see an improvement following October's mild retreat, which positioned the index barely in the expansion zone. Improvement in underlying retail sales trends and the housing market should lead to greater demand for services.

The decline of the weekly jobless claims below the 500,000 level for the first time since October 2008 bodes well for the monthly non-farm payroll employment report. The job losses should continue to ease, in line with the recent trend. Meanwhile, the unemployment rate is expected to tick up slightly.

The results of the Institute of Supply Management-Chicago's business survey for November are scheduled to be released at 9:45 AM ET. Economists expect the business barometer index based on the survey to come in at 53.3.

In October, the business barometer index rebounded into expansionary territory, rising to 54.2 compared to 46.1 in September. The production index climbed 16.7 points to 63.9, marking the biggest gain in 13 months. Meanwhile, the new orders index surged up 15.1 points to 61.4, its highest reading since June 2007. The backlog of orders index rose 5.2 points but still remained in contraction zone at 41.9.

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