US & World Daily Markets Financial Briefing 01-02-2011

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Stocks See Initial Strength On Upbeat Earnings News

Stocks have shown a notable move to the upside in early trading on Tuesday, with traders reacting positively to the latest batch of earnings news. The major averages have climbed firmly into positive territory, further offsetting the steep losses posted last Friday.

Electronic storage stocks are turning in some of the market's best performances early on, driving the NYSE Arca Disk Drive Index up by 1.8 percent. Imation (IMN) is leading the sector higher after reporting its fourth quarter results and unveiling its corporate strategy.

Most of the other major sectors have also moved to the upside in early trading, with housing, gold, transportation, and networking stocks posting notable gains.

In earnings news, Pfizer (PFE) said its adjusted fourth-quarter income came in at $0.47 per share, down year-over-year but above analyst estimates of $0.46 per share. Revenues for the quarter totaled $17.56 billion, topping expectations for $16.97 billion for the quarter.

Pfizer forecast full year 2011 adjusted earnings of $2.16 to $2.26 per share on revenues of $66 billion to $68 billion. Analysts had expected earnings of $2.30 per share on revenues of $66.8 billion

Shipping giant United Parcel Service (UPS) posted adjusted fourth-quarter earnings of $1.08 per share, exceeding expectations for $1.05 per share. Total revenue increased 8.4 percent to $13.42 billion from $12.38 billion in the comparable period, while analysts estimated revenues of $13.40 billion.

UPS expects to top its previous peak earnings level with 2011 earnings in a range of $4.12 to $4.35 per share, an increase of 16 percent to 22 percent over adjusted 2010 results. Analysts project 2011 earnings of $4.18 per share.

Farm commodities firm Archer Daniels Midland (ADM) reported second-quarter net earnings of $1.14 per share, beating projections for $0.79 per share. Net sales came in at $20.93 billion, well above the $17.42 billion forecast on Wall Street.

On the economic front, the Institute for Supply Management will release the results of its survey on national manufacturing activity for the month of January at 10:00 a.m. ET. Economists expect the index to show a reading of 57.5, down from 58.5 in the previous month.

At the same time, the Commerce Department will release its construction spending report for the month of December. Economists project construction spending to edge up by 0.2 percent following a 0.4 percent increase in November.

The major averages have pulled back off their highs for the session in the past few minutes but remain firmly positive. The Dow is up 60.28 points or 0.5 percent at 11,952.21, the Nasdaq is up 23.06 points or 0.9 percent at 2,723.14 and the S&P 500 is up 10.22 points or 0.8 percent at 1,296.34.

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TSX Poised For Flat Open

Toronto stocks may open flat Tuesday after big rally in energy stocks in the previous session. Commodities were mixed. While oil pared recent gains, gold and copper were edging up.

Moreover, profit taking at higher levels, with the main index hovering near its 27-month peak, might weigh on trader sentiment during the session.

Meanwhile, the Canadian dollar moved back above parity with its U.S. counterpart.

U.S. stock futures were pointing to a higher open

On Monday, the S&P/TSX Composite Index advanced 114.41 points or 0.85% to 13,551.99, near its 27-month high.

The price of crude oil moved down, paring recent gains as traders look to the latest developments in Egypt. Crude for March was down $1.07 to $91.12 a barrel.

Meanwhile, the price of gold edged up amid a weak U.S. dollar, with gold for April edging up $3.40 to $1,337.90 an ounce..

In corporate news from Canada, multinational specialty pharmaceutical company Valeant Pharmaceuticals said it would acquire PharmaSwiss S.A, a privately-owned branded generics and over-the-counter pharmaceutical company, for 350 million euros.

BP Plc reported fourth-quarter profit of $5.66 billion versus $4.38 billion in the previous year. The company announced that it plans to resume the payment of quarterly dividends, which were suspended in June 2010 following the oil spill in the Gulf of Mexico.

Lender Scotiabank said it completed the acquisition of Dundee Wealth.

International asset management technology and services company Pure Technologies said its full-year revenue for 2010 is expected to be more than 50% of its 2009 revenue of $31.7 million.

Mineral properties miner Canarc Resource said it will not be proceeding with the purchase of the Relief Canyon gold mine assets from Firstgold Corp. for $11 million as previously announced.

Electronics manufacturing services company Adeptron Technologies announced that it has appointed Trent Carruthers as CEO.

Oil and gas explorer Waldron Energy said it plans capital budget of $27 million for 2011, mainly to be spent on drilling and natural gas projects in Alberta.

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European Markets Trading In Positive Territory

The major markets open for trading in the European region are trading in positive territory Tuesday afternoon as worries about the political unrest in Egypt has eased off substantially. Positive cues from Asian trades, where the major Asian markets, barring the Indian market, ended in the positive territory, and increasing optimism about US economic recovery is lifting market sentiment.

On the economic front, survey results released by Markit Economics revealed Tuesday that Eurozone manufacturing activity strengthened to a nine-month high in January, indicating that manufacturing continued to act as a strong driver of economic growth. The latest survey found narrowing divergence in the performance of peripheral countries. At the same time, input price inflation reached a new peak at the start of 2011. The Final Eurozone Manufacturing Purchasing Managers' Index (PMI) rose to a nine-month high of 57.3 in January, from 57.1 in December and above the earlier flash estimate of 56.9. The indicator remained above the 50.0 no-change mark, signaling growth for 16 consecutive months.

The UK's manufacturing sector growth jumped to a record-high in January, helped by strong expansion in new orders, survey data from Markit Economics showed Tuesday. The seasonally adjusted Markit/Chartered Institute of Purchasing & Supply Purchasing Managers' Index for the manufacturing sector rose to a record-high of 62 in January from an upwardly revised reading of 58.7 in December.

The number of unemployed in Germany fell more than expected in January to the lowest level since the reunification. The seasonally adjusted number of unemployed dropped by 13,000 to 3.135 million in January, latest data from the Labor Agency showed Tuesday. Economists had forecast a decline of 10,000. The seasonally adjusted jobless rate eased to 7.4% from 7.5%. Meanwhile, the agency revised down December's increase in the unemployment figure to 1,000 from 3,000.

French producer price inflation accelerated in December, latest data from the statistical office Insee showed Tuesday. The Producer Price Index (PPI) for the domestic market rose 5.4% year-on-year in December, much faster than 4.5% in the previous month. Economists were looking for an increase of 5%. Domestic market producer prices rose 1% over the previous month, after a 0.4% gain in November. That also exceeded the consensus forecast for a 0.6% increase. Prices for manufacturing products grew 5.3% year-on-year and 1.1% monthly.

In the UK the FTSE 100 opened at 5,862.94, the same as previous close. After a brief pause in early trading, the indices continued their northward march and are presently gaining more than 55 points, or around 1.00%.

Mining and resource stocks are leading the gains in the market. Among the major miners, Antofagasta is surging more than 4.5%. All the major miners are registering gains ranging between 1.5% to 3.5%.

Among the losers, BAE Systems is losing more than 1.7% while British Airways is down more than 1.50%.

Financial stocks are trading in positive territory.

In Germany, the DAX index began trading at 7,094.56 compared to previous close 7,077.48, taking positive cues from Asian trading on easing Egypt concerns and increasing optimism about sustaining global economic recovery.

Among the major gainers, Allianz is gaining more than 2.0%, followed by technnology stocks led by Infineon Technologies with a gain in excess of 2.21%.

Financials are also advancing, while automakers are slightly trading weaker. Both Daimler and Volkswagen are losing 0.2% and 0.5% respectively.

In France, the CAC 40 index opened at 4037 compared to the previous close at 4005 in the previous session and is presently advancing higher on optimism about easing Egypt concerns.

Alcatel Lucent is gaining more than 1.5%, followed by handsome gains from financials including BNP Paribas and Societe Generale.

Technip is leading the technology stocks with a gain in excess of 2.5% while Total is gaining more than 2.20%.

Across Asia/Pacific, all the major markets in the region, except the Indian market, ended in positive territory, lifted by major gains in Wall Street in the previous session. Easing unrest in Egypt and optimism about US corporate earnings lifted the market sentiment across the region.

In the U.S., futures point to a extension of gains for the second successive session on optimism about US economic recovery.

In commodities, crude for March delivery is declining $0.69 to $91.55 per barrel and February gold is losing $1.50 to $1335 a troy ounce.

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Indian Market Sees No Respite From Sell-off

India's benchmark index Sensex extended its recent losses on Tuesday, ending sharply lower, with realty, auto, capital goods, oil/gas and FMCG stocks bearing the brunt of the selling.

After yesterday's upbeat data on the core infrastructure industries output, data released today showed that India's exports rose 36.4 percent to $22.5 billion in December on an annual basis, the highest in 33 months.

Also, India's manufacturing sector activity continued to expand in January, the latest survey from Markit Economics showed. The HSBC Markit Purchasing Managers' Index, based on a survey of 500 companies, edged up to 56.8 in January from 56.7 in December, led by higher growth of both new business and output.

The latest reading indicated a marked expansion of the Indian manufacturing sector at a pace that was stronger than the long-run series average. This has been the 22nd consecutive month that the key index of manufacturing in Asia's third-largest economy has shown a reading above 50 that divides growth from contraction.

Elsewhere, a closely-watched Chinese manufacturing index released today came in below expectations at 52.9 in January versus 53.9 in the previous month.

Notwithstanding the recent improvement in domestic economic activity and positive global cues today following upbeat data on U.S. factory output and consumer spending, the BSE Sensex closed 306 points or 1.67 percent lower, with 27 of its components losing ground. Sterlite Industries (up 0.64 percent) and Hindalco (up 0.20 percent) advanced owing to higher base metal prices on the LME. Mortgage lender HDFC also closed in positive territory with a 0.36 percent gain.

The 50-share Nifty, which saw some modest gains early in the session, fell by 89 points or 1.61 percent, weighed by heavy selling by foreign funds amid mounting inflation worries and better investment opportunities elsewhere in other high-growth markets. A jump in oil prices in recent sessions amid the continuing political unrest in Egypt also sparked caution among investors.

After showing some resilience in early trading, the BSE mid-cap and small-cap indexes succumbed to selling pressure before ending down 1.63 percent and 1.44 percent, respectively. In the broader market, declining shares outpaced gainers in the ratio of 2:1.

Tata Motors (down nearly 7 percent ) led the decliners among heavyweights followed by Jindal Steel (down 4.34 percent), Jaiprakash Associates (down 4.32 percent), Larsen & Toubro (down 3.66 percent), Reliance Communication (down 3.47 percent), Reliance Infrastructure (down 2.92 percent), ICICI Bank (down 2.61 percent) and Reliance Industries (down 2.57 percent).

Tata Motors said that it has registered 15 percent increase in its January vehicle sales this year. Maruti Suzuki slipped a percent and TVS Motor plunged 5 percent despite posting higher vehicle sales for January.

ACC declined 1.44 percent after reporting a modest 10 percent rise in cement output for January. Tata Communications slipped 3 percent on posting a consolidated loss of Rs.197.41 crore for the quarter ended December. Property developer DLF eased 1.38 percent after its quarterly profit dipped marginally. Godrej Properties ended down 2 percent after it launched a 35-acre realty project.

Bucking the downward trend, Radico Khaitan rose 1.08 percent on reporting a 78 percent rise in its quarterly net profit. Steel Strips Wheels gained 0.24 percent on bagging an export order from European car maker Renault. NALCO added 2 percent after its board approved a liberal 1:1 bonus issue and a stock-split proposal.

DB Realty advanced half a percent on the buzz that it will soon sell a 10 percent stake in a redevelopment project in suburban Mumbai for Rs. 450 crore to private equity firm Starwood Capital. Ballarpur Industries edged up 0.16 percent amid reports that it will raise up to $400 million through an initial public offering of its Netherlands-based unit on the London Stock Exchange.

On the global front, the other Asian markets posted modest gains on Tuesday, led by resource shares, and European stocks advanced after two days of negative trading, as positive economic data from the U.S. indicating progress in the economic recovery and higher oil and metal prices amid a weakening dollar helped offset geopolitical concerns linked with Egypt. The Dow futures also pointed to a higher open on Wall Street Tuesday following solid gains in the previous session.

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Dollar Hammered As Global Inflation Concerns Mount

The dollar dropped to a fresh 2-month low against a basket of major currencies on Tuesday amid expectations that central bankers outside the U.S. will tighten monetary policy in response to rising prices.

The European Central Bank suspended its emergency purchases of euro zone government bonds last week, having already expressed concerns about the pace of inflation, which reached 2.4 percent in January.

With China and India also among the nations expected to raise rates, the Federal Reserve's determination to keep accommodative measures in place is likely to buck the global trend.

As the interest rate gap between the U.S. and the rest of the world widens, the dollar may weaken over the course of the year.

Tuesday morning, the dollar slipped to $1.3774, its lowest since November 21. The buck has dropped almost nine cents in the past three weeks.

Versus the sterling, the dollar slipped to a two and a half month low of $1.6150, accelerating losses after the release of data showing that U.K. manufacturing rose at a record pace in January.

The seasonally adjusted Markit/Chartered Institute of Purchasing & Supply Purchasing Managers' Index for the manufacturing sector rose to a record-high of 62 in January from an upwardly revised reading of 58.7 in December.

Meanwhile, the dollar tumbled to a monthly low of Y81.40 versus the yen, edging closer to November's 15-year low of Y80.23.

Looking at today's economic calendar from the U.S., results of the manufacturing survey of the Institute for Supply Management for the month of January will be released at 10:00 am ET. Economists expect the index to show a reading of 57.5 for January.

At the same time, the Commerce Department will release its construction spending report for the month of December. Economists project that construction spending increased 0.2% for the month.

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