US & World Daily Markets Financial Briefing 01-11-2010

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Stocks Posting Strong Gains After ISM Data

Stocks are posting notable gains in mid-morning trading on Monday, boosted by an unexpected jump in both U.S. and Chinese manufacturing activity. Among second tier economic data from the U.S., construction spending rose and consumer income and spending was mixed.

The major averages have pulled back off their best levels of the day in recent trading but remain firmly positive. The Dow is up 109.96 points or 1 percent 11,228.45, the Nasdaq is up 20.70 points or 0.8 percent at 2,528.11 and the S&P 500 is up 10.54 points or 0.9 percent at 1,193.80.

With both new orders and production making significant gains, the Institute for Supply Management released a report showing that economic activity in the U.S. manufacturing sector unexpectedly expanded at an accelerated rate in the month of October.

The ISM said its index of activity in the manufacturing sector rose to 56.9 in October from 54.4 in September, with a reading above 50 indicating growth in the sector. The increase came as a surprise to economists, who had expected the index to edge down to a reading of 54.0.

At the same time, the Commerce Department said that construction spending increased by 0.5 percent in September following a revised 0.2 percent decrease in August. Economists had expected spending to decrease by 0.7 percent compared to the 0.4 percent increase originally reported for the previous month.

Earlier, the Commerce Department released a separate report showing that personal income edged down by 0.1 percent in September following a revised 0.4 percent increase in August. Economists expected income to rise by 0.2 percent.

The report also revealed that personal spending increased by 0.2 percent in September after rising by a revised 0.5 percent in the previous month. September's increase was short of expectations for a 0.4 percent increase.

Optimism in pre-market dealing came as traders looked to two key reports showing an unexpected pickup in Chinese manufacturing activity in October.

A report from the China Federation of Logistics and Purchasing revealed an increase in manufacturing activity that marked the 20th straight month of expansion for the sector, while a separate, private sector PMI measured by HSBC also saw an increase for the month.

Sector News

Railroad stocks are among the morning's strongest percentage gainers, with the Dow Jones Railroads Index posting a gain of 1.8 percent. The advance has lifted the index to an all-time intraday high.

Natural gas, commercial real estate, steel and oil service stocks are also markedly higher in the early going. Notably, the Philadelphia Oil Service Index is up by 1.4 percent, setting a six-month intraday high.

The advance by the oil service index comes as the price of crude oil is up by $2.20 or 2.7 percent to $83.63 a barrel.

Strength among computer technology, trucking and healthcare provider stocks is also helping to drive the major averages higher.

Stocks Driven By Analyst Comments

Gilead Sciences (GILD) is trading higher after being upgraded at RBC Capital Markets to an Outperform rating based on its recent acquisitions. Shares are currently up by 1.9 percent after setting a six-month intraday high in earlier trading.

CapitalSource (CSE) is also on the upside following an upgrade at Citi from Hold to Buy. The broker also raised its price target from $6 to $8. The stock is up by 3.9 percent after reaching its highest intraday level in two years earlier.

On the other hand, Anworth Mortgage Asset Corp (ANH) is under pressure after being downgraded at Credit Suisse to Neutral from Outperform. The broker also lowered its price target on the stock from $8 to $7. The stock is posting a loss of 2.4 percent, slipping to its worst intraday price in two months.

Other Markets

Overseas, stock markets in the Asia-Pacific region ended mostly higher on Monday. Hong Kong's Hang Seng Index gained 2.4 percent and India's BSE 30 Index rose by 1.6 percent, while Japan's benchmark Nikkei 225 Index bucked the uptrend, sliding by 0.5 percent.

Meanwhile, the major European markets are seeing varied gains. The U.K.'s FTSE 100 Index and the German DAX Index are up by 0.7 percent and 0.5 percent, respectively, while the French CAC 40 Index is up by 0.4 percent.

In the bond markets, treasuries have given up their earlier gains and are little changed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.610 percent, posting a loss of less than one basis point.

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TSX Gains Amid US, China Manufacturing Data

Toronto stocks were hovering near their 2-year peak Monday morning as commodities prices moved up after China reported a surge in manufacturing activity in October. Meanwhile, latest report from the U.S. also revealed better-than-expected manufacturing growth.

The S&P/TSX Composite Index was up 56.22 points or 0.44% to 12,732.46, after gaining nearly 1% in the previous session.

The Diversified Metals Index gained 1.40%. First Quantum Minerals, Thompson Creek Metals and Taseko Mines gathered over 2% each.

The price of crude oil moved back above $83. Reports from China revealed that factories ramped up production in October. The official purchasing managers' index (PMI) rose to 54.7 in the month from 53.8 in September and the HSBC PMI climbed to 54.8 from 52.9. Crude for December was up $2.02 to $83.45 a barrel.

In the oil patch, Celtic Exploration moved up over 3%. Suncor Energy, NuVista Energy and Pacific Rubilaes Energy were up over 2% each.

In the financial space, NBC, TD Bank and Onex Corp. gained around 1% each.

Commercial and residential real estate company Morguard Real Estate Investment Trust  edged up over 0.50% after reporting improved third quarter Funds From Operations of $17.8 million or $0.30 per unit compared to $12.4 million or $0.22 per unit last year.

Solar photovoltaic products and solutions provider Day4 Energy gained nearly 3%. The company said it acquired ACI ecoTec GmbH in an all stock transaction of up to 9.18 million common shares. As part of the transaction, Day4 issued 5.40 million common shares at $0.90 per share and the balance is subject to certain earnout provisions.

Toromont Industries edged up 0.50% after its subsidiary Enerflex Ltd. said it received $193 million orders from QGC PTY Ltd. of Brisbane, Australia for the delivery of multiple gas compressor units and process equipment

Meanwhile, gold stocks moved down tracking weakness in the price of bullion. Gold for December edged down $3.20 to $1,354.40 an ounce.

Barrick Gold, Agnico-Eagle Mines and Goldcorp gave in over 1% each.

Helix BioPharma surrendered close to 6% after reporting a wider full year net loss of $14.47 million or $0.24 per share compared to $14.10 million or $0.27 per share last year.

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European Markets Mixed In Afternoon Trade

The European markets are trading mixed on Monday afternoon. Miners lifted the UK's FTSE 100, while carmakers saw upside on the German DAX. However, the French CAC 40 erased its early gains. Strong manufacturing data from China buoyed most Asia markets, which influenced sentiment.

Crude for December delivery is rising $0.62 at $82.05 per barrel and December gold is adding $2.2 an ounce at $1359.8.

In economic news, UK manufacturing growth accelerated unexpectedly in October from a ten-month low, data from Markit Economics showed. The Markit/Chartered Institute of Purchasing and Supply Purchasing Managers' Index for the manufacturing sector rose for the first time since May to 54.9 from 53.5 in September. Economists were expecting the index reading to drop to 53.

Meanwhile, the average selling price for a home in the U.K. was down 0.9% on month in October standing at 156,200 pounds, property web site Hometrack said. That follows a 0.4% monthly fall in September and represents the fourth straight month of decline. It also marks the sharped drop in 21 months.

The UK's FTSE 100 opened at 5,675, and touched a high of 5,733 in a session where the index remained in positive territory. After opening higher at 6,637, the German DAX lost much of those gains later, but remained above the flat line. The French CAC 40 opened above the unchanged line at 3,865. However, the index saw heavy selling and erased those gains.

The FTSE 100 is currently adding 0.08% and the DAX is gaining 0.20%, while the CAC 40 is losing 0.32%.

Detection equipment maker Smiths Group is leading the gainers in London by adding 2.7% as the recent failed cargo bomb attempts have led to increased fears about security.

Miners Kazakhmys, Xstrata, Randgold Resources, Lonmin, Antofagasta, Eurasian Natural Resources, BHP Billiton and Rio Tinto are adding between 2.3% and 0.8%.

Among lenders, Royal Bank of Scotland and Lloyds Banking Group are adding 2.1% and 1.7%, respectively.

Outsourcing services provider Serco Group is declining about 8%. The company, which was asked by the government to lower prices, reportedly withdrew letters requesting rebates from suppliers.

Fluid and pollution equipment maker Weir Group is losing 2.8% after stating that for the second half it now targets profit before tax and intangibles amortisation to be broadly in line with the first half. Retailers Marks & Spencer and Next are down about 1.5% each.

Automakers are leading the rally in Germany. BMW is gaining 2.5%, Daimler is adding 0.6% and truck maker MAN is rising 2.1%. However, Volkswagen is down 2.2%.

Deutsche Bank is losing 0.9% and Commerzbank is down 0.06%.

Banks are leading the decliners in Paris. Societe Generale is losing 1.4% and BNP Paribas is slipping 0.5%. Natixis and Credit Agricole are losing about 0.3% each.

Oil and gas services firm Technip is gaining 1.6% and drugmaker Sanofi-Aventis is rising 1.2%. EADS, the maker of Airbis, is gaining 0.8%.

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Indian Market Rises On Strong Global Cues

The Indian market closed Monday's session sharply higher, with strong global cues, an upbeat report on manufacturing and quarterly earnings that were in line with expectations underpinning sentiment. Rate-sensitive banking and realty stocks led the gainers ahead of Reserve Bank of India's credit policy announcement tomorrow, while oil/gas, FMCG and IT stocks finished with modest gains.

The 30-share BSE Sensex rose to a high of 20,610 before paring some of its early gains to finish up 323 points or 1.61% at 20,356, with 26 of its components edging higher. Meanwhile, trading was halted for two-and-half hours between 12.00 and 2.30 pm on the BSE to rectify a technical glitch.

The broader Nifty rose by about 100 points or 1.66% to 6,118, while the BSE mid-cap and small-cap indexes added 1.69% and 1.21%, respectively. The market breadth was extremely positive, with gaining shares outpacing declining ones by 1859 to 1028 shares on the BSE.

Among frontliners, private sector lender ICICI Bank climbed almost 6% on a brokerage upgrade. Utility vehicles manufacturer Mahindra & Mahindra rallied 4.65% on reporting a 34% rise in its monthly vehicle sales.

Jaiprakash Associates (up 3.62%), HDFC (up 3.16%), DLF (up 3.10%), HDFC Bank (up 3.04%), Larsen & Toubro (up 2.91%), Bharti Airtel (up 2.59%), Reliance Communication (up 2.23%) and SBI (up 1.42%) were the other prominent gainers. ACC added 3.06% on reporting a 13.6% rise in cement shipments for October.

On the flip side, Maruti Suzuki fell 2.74% on a brokerage downgrade. Hero Honda Motors (down 1.37%), NTPC (down 0.92%) and Reliance Industries (down 0.25%) also ended in the red.

ONGC advanced 1.14% after it reportedly sought government approval for a two-for-one stock split. TVS Motor soared 6.22% on posting a 48% rise in its vehicle sales for October. Tecpro Systems jumped 10.40% on winning two new orders worth Rs.1978 crore from Andhra Pradesh Power Generation Corporation.

Steel Strips Wheels rose marginally on bagging an order to export a minimum of 5 lakh steel wheel rims over three years. Puravankara Projects fell 2.22% on disappointing results.

On the macro front, the central bank will take into consideration the recent fall in inflation numbers seen during September before increasing key interest rates further to contain inflation, media reports quoted finance minister Pranab Mukherjee as saying today on the sidelines of a conference of state finance secretaries.

In other economic news, government data released today showed that India's merchandise exports rose 23.2% in September from a year earlier, while another report on manufacturing as revealed by the seasonally adjusted HSBC Purchasing Managers' Index, posted expansion for the 19th straight month in October.

Elsewhere, most Asian stocks advanced on Monday, as data showing a pick up in China's manufacturing activity to a six-month high in October and strong export data out of South Korea boosted sentiment.

Crude prices rose, gold gained and the dollar fell, as investors looked ahead for possible new monetary stimulus from the U.S. Federal Reserve. The Fed is expected to unveil a new round of bond purchases, also known as quantitative easing, at this week's policy-setting meeting on November 2-3 to bolster the economy.

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Dollar Staggers As Pivotal Week Kicks Off With Flurry Of Data

The dollar struggled for direction Monday morning, staying near its yearly lows versus a basket of major currencies, as a hectic week was set to begin with a trio of economic reports from the US.

The data is unlikely to sway the Federal Reserve one way or the other on the question of quantitative easing. With last week's GDP figures showing the economy growing only 2 percent at a time of very high unemployment, the Fed is widely expected to announce another round of asset purchases on Wednesday.

And while this tranche of QE is expected to be smaller than the $2 trillion outlay made back in 2009, and more gradual, the Fed's willingness to crank up the printing presses has hurt the dollar badly over the past two months.

The Fed's decision will come the day after US voters go to the polls for mid-term elections. It is likely that Republicans in opposition to the Obama administration will capitalize on voter frustration and re-take the House of Representatives.

The Senate is also in play, but most pundits say the Democrats will preserve a small majority there.

Later in the week, the monthly payrolls report from the government will gauge the pace of recovery in the jobs market.

The dollar touched a new 2-week low against the sterling, slipping to 1.6089. A move to $1.6110 would take the buck to its lowest since January.

The dollar was steady near $1.4000 against the euro, after losing some ground overnight. In October, the dollar hit an 8-month low near $1.4150.

An overnight rally against the yen quickly fizzed out, leaving the buck near last night's 15-year low of Y81.22. A record low of Y79.80 set back in 1995 is within sight.

The US Bureau of Economic Analysis will release its personal income & outlays report for September at 8.30 a.m. ET. Economists expect the report to reveal that personal income rose 0.5% and personal spending increased 0.4% in the month.

At 10.00 a.m. ET, the results of the manufacturing survey of the Institute for Supply Management, which are based on data compiled from purchasing and supply executives nationwide, will be released. Economists expect the index to show a reading of 54 for October, slightly lower than 54.4 reported for September.

The Commerce Department will release its report on construction spending for September at 10.00 a.m ET. Economists predict that construction spending increased 0.4% during the month, following an unexpected 0.4% increase in the month of August.

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