US & World Daily Markets Financial Briefing 01-12-2009

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Buying Interest Re-emerges As Concerns About Dubai Crisis Wane

After ending the previous session modestly higher, stocks could see some further upside in early trading on Tuesday, with the major U.S. index futures currently indicating a notably higher open for the markets. The upward momentum comes amid easing concerns about the financial crisis in Dubai after Dubai World said it has initiated restructuring talks with major banks. Economic data is also likely to be in focus, with a slew of data due to be released a half-hour after the start of trading.

U.S. stocks opened Monday’s session modestly lower, although they turned higher in early trading, encouraged by solid manufacturing data from the Mid-western region. However, the major averages declined after some early strength and traded with modest losses for the better part of the remainder of the session only to surge higher in late trading. Consequently, the major averages ended the day with modest gains.

The Dow Industrials ended the session up 34.92 points or 0.34% at 10,345, the Nasdaq Composite Index advanced 6.16 points or 0.29% to 2,145, and the S&P 500 Index closed up 4.14 points or 0.38% at 1,096.

For November, the Dow Industrials advanced 6.51%, although it ended the month off the 1-year high of 10,464 reached on November 25th. The S&P 500 Index advanced 5.74% for the month, compared to a 4.87% gain by the Nasdaq Composite Index.

On Monday, the breadth among the Dow components was even, with 15 stocks advancing, while the remaining 15 declined. Financials rebounded strongly after Friday’s rout, with American Express (AXP), Bank of America (BAC) and JP Morgan Chase (JPM) rising more than 2.40% each. Caterpillar (CAT) gained 1.64%, Travelers Co. (TRV) rose 1.43% and 3M Co. (MMM) moved up about 1% each. On the other hand, Home Depot (HD) and Alcoa (AA) were the worst decliners, dropping 0.91% and 1.11%, respectively.

Among the sector indexes, the Dow Jones Utility Average gained 0.93%, the NYSE Arca Airline Index rallied 3.44% and the Philadelphia Oil Service Index advanced 0.83%. The KBW Bank Index and the NYSE Arca Securities Broker/Dealer Index gained 3.35% and 2.38%, respectively.

On the economic front, the ISM-Chicago’s manufacturing survey revealed that manufacturing activity in the region expanded to its highest level since December 2007. The business barometer index rose to 56.1 in November from 54.2 in October, while economists had expected a slight decline in the index to 53. The new orders index rose 1.4 points to 62.8, its highest level since May 2007, while the order backlogs index rose 4.6 points to 46.5. However, the production index fell 6.3 points. Notwithstanding a 3.6-point increase in the employment index, it remained below the ‘50’ cut off mark at 41.9, while the inventories index rose 2.7 points to 34.9.

Gold Approaches $1,200 On Weaker Dollar

Gold surged to within a few cents of $1,200 on Tuesday morning as the dollar saw further weakness against the euro.

December-dated gold rose to $1,195.80 per ounce, up $14.70 on the session. Prices earlier reached a record intraday high of $1,199.30.

The dollar drifted lower against the euro, approaching last week's 16-month low. The greenback also slipped versus the pound. The buck fell as the Reserve Bank of Australia has raised the benchmark interest rates for the third straight time, as expected.

Traders turned toward riskier currencies amid restructuring talks between Dubai World and major banks that have eased worries over the Dubai credit crisis.
 
At 10 a.m. ET, traders will watch for the release of construction spending data, the ISM manufacturing report and pending home sales data.

Construction spending is expected to decline 0.4% in October, compared to a rise of 0.8% in September.

Institute for Supply Management manufacturing index is expected to come in at 54.8 in November, compared to 55.7 in October.

Pending home sales data is expected to show a decline of 0.5% for October. This is compared to a 6.1% rise in September.

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After showing a strong upward move in the previous session, stock markets across the Asia-Pacific region saw some further upside on Tuesday, as concerns about the Dubai financial crisis eased substantially after Dubai World initiated restructuring talks with major banks.

Trading was also impacted by news that the Reserve Bank of Australia increased interest rates for the third time to 3.75% and that the Bank of Japan held an emergency meeting to discuss policy issues.

In Japan, the benchmark Nikkei 225 Index gained 226.65 points or 2.43% to 9,572, while the broader Topix index of all First Section issues advanced 17.82 points or 2.1% to 858.

On the economic front, the Policy Board of the Bank of Japan unanimously decided to keep its key interest rate unchanged at 0.1% in an unscheduled monetary policy meeting.

The central bank also decided to further enhance easy monetary conditions by introducing a new fund-supplying operation to encourage a further decline in longer-term interest rates. It decided to lend commercial banks three-month funds at a 0.1% fixed-rate.

Banking stocks ended in positive territory. Mitsubishi UFJ Financial gained 3.11%, Mizuho Financial advanced 1.85%, Resona Holdings surged up 4.33% and Sumitomo Mitsui Financial rose 1.58%. Brokerage houses and automotive stocks also ended higher.

In Australia, the benchmark S&P/ASX200 Index advanced 17.70 points or 0.38% to 4,719, while the All-Ordinaries Index ended at 4,733, representing a gain of 17.60 points, or 0.37%.

On the economic front, the Australian central bank hiked its key interest rate for the third time in a row. The Reserve Bank of Australia's Board, led by Governor Glenn Stevens, raised the overnight cash rate by 25 basis points to 3.75%, in line with expectations.

In a statement following the announcement, Stevens said, "With the risk of serious economic contraction in Australia having passed, the Board has moved at recent meetings to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker."

Mixed trading was witnessed among the bank stocks, as markets shrugged off the anticipated interest rate hike by the RBA. Mining and metal stocks also turned in a mixed performance on the day.

Among oil stocks, Woodside Petroleum gained 1.13%, Santos rose 1.49% and Oil Search Ltd climbed 2.98%. However, Origin Energy bucked the trend and ended in negative territory with a loss of 0.38%.

In Hong Kong, the Hang Seng Index extended its gains for the second day with a gain of 291.65 points or 1.34% and closed at 22,113. Of the 42 index components, 39 stocks ended in positive territory amid average volumes, led by banks and china-related companies.

Additionally, South Korea’s KOSPI Index ended in positive territory, closing up 14.12 points, or 0.91% at 1,570, as institutional investors evinced fresh buying interest in select blue-chip stocks following easing of fears related to Dubai financial crisis. Banking and technology stocks led the gains.

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The major European markets are also moving to the upside after ending the previous session notably lower. The U.K.’s FTSE 100 Index is currently up 1.7 percent, while the French CAC 40 Index and the German DAX Index are up 2 percent and 1.9 percent, respectively.

In economic news, a report from the Nationwide Building Society showed that U.K. house prices increased for the seventh month in a row in November, as the labor market held up better than expected, House prices rose 0.5% in November, the same as in October, while economists were expecting an increase of 0.4%. The average cost of a typical house in November was 162,764 pounds.

Additionally, the seasonally adjusted jobless rate for the euro area remained stable at 9.8% in October, matching economists' expectations, the Eurostat reported Tuesday. The statistical office revised the unemployment rate for September from 9.7%. The number of persons unemployed increased 134,000 from September.

A separate report from Germany’s Federal Statistical Office showed that German retail sales rose in October after two months of declines. Retail sales in real terms increased a seasonally and calendar adjusted 0.5% month-on-month in October, compared to a 0.2% decline in the preceding month. Economists had expected an increase of 0.4%.

U.S. Economic News

The results of the Institute for Supply Management’s manufacturing survey, which are based on data compiled from purchasing and supply executives nationwide, are due out at 10 AM ET. Economists expect the index to show a reading of 55.0 for November.

The manufacturing index rose to 55.7 in October from 52.6 in September, while economists had forecast a more modest 0.4-point increase to 53. The October reading represented its highest level since April 2006.

Notwithstanding the improvement in the headline number, the new orders index fell by more than 2 points to 58.5 and the order backlogs index remained flat at 53.5. On the other hand, the production index rose to its highest level since July 2004, coming in at 63.3. Meanwhile, the employment index rose 7 points to 53.1, the first time the index was above the '50' cut-off mark since July 2008.

The Commerce Department's construction spending report to be released at 10 AM ET is expected to show a 0.5% decline in spending for October.

The September report revealed a 0.8% month-over-month increase in construction spending. The increase was unexpected, as economists had expected a 0.2% decrease for the month.

Public construction spending rose 1.5% and private construction spending increased by a more modest 0.5%. In the private category, a 2.4% climb in spending on single-family home construction offset a 4.1% decline in multi-family housing construction and a 1.8% drag from private non-residential construction spending.

Data on Pending Home Sales, which is a leading indicator of housing market activity released by the National Association of Realtors, is due out at 10 AM ET. A pending sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale. The index is expected to edge down 1% in October.

In September, the pending home sales index rose 6.1% month-over-month, with the increase reflecting homebuyers’ scramble to take advantage of the $8,000 first time homebuyers tax credit. Economists had expected a 0.1% decrease for the month.

Philadelphia Federal Reserve Bank President Charles Plosser is scheduled to deliver a speech on the economic outlook to a seminar in Rochester at 12:20 PM ET.

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Shares of Staples (SPLS) are moving higher in pre-market trading after the office supplies retailer reported third quarter adjusted earnings that fell to $0.39 per share from $0.42 per share in the year-ago quarter but came in above analyst estimates of $0.38 per share. The company also reported better than expected sales for the quarter, while it forecast fourth quarter earnings in line with analyst expectations.

Diedrich Coffee (DDRX) could also see some early strength after Peet's Coffee & Tea (PEET) increased its offer to acquire the company to $32.50 per share from the $32 per share offered last week. Diedrich said its board of directors would analyze the offer from Peet’s as well as an offer from Green Mountain Coffee Roasters (GMCR) to determine if the Green Mountain offers continues to be a superior proposal.

In other news, General Electric (GE) announced that it has entered into an agreement with Vivendi SA whereby GE will acquire the 20 percent stake in NBC Universal held by Vivendi for a consideration of $5.8 billion. The successful completion of this deal with Vivendi will pave the way for GE to sell the controlling interest in NBC Universal to Comcast (CMCSA).

Shares of Guess? Inc. (GES) are also likely to be in focus after the apparel maker reported third quarter earnings of $0.69 per share on total net revenues of $522.8 million. Analysts had been expecting the company to earn $0.51 per share on revenues of $482.57 million. Guess also forecast fourth quarter earnings of $0.77 to $0.80 per share compared to analyst estimates of $0.69 per share.

On the other hand, shares of Netlist (NLST) are under pressure in pre-market trading after chipmaker Inphi Corp. filed a patent infringement lawsuit against the server and storage systems maker. Inphi said its lawsuit alleges that Netlist’s DDR3 Registered memory modules infringes on Inphi patents related to memory interface technologies used in enterprise server and storage applications.

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