US & World Daily Markets Financial Briefing 02-06-2009

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Stocks Move Back To The Upside After Seeing Early Weakness

After a lackluster start to Tuesday’s session, stocks came to life as traders reacted to an encouraging report from the housing sector. The major averages have all moved into positive territory, posting moderate gains in mid-morning trading.

With homebuyers responding to very favorable market conditions, including record low mortgage interest rates, a report released by the National Association of Realtors showed that pending home sales increased by much more than expected in the month of April.

The report showed that the pending home sales index rose 6.7 percent to 90.3 in April from a reading of 84.6 in March. Economists had been expecting a much more modest increase by the index of about 0.5 percent.

Later today, trading could be impacted by the release of reports on May auto sales from the major automakers, especially given the backdrop of General Motors' insolvency filing.

A day after GM filed for insolvency, the auto giant announced that it has entered into a memorandum of understanding with a buyer for its Hummer brand.

In other corporate news, financial services provider JP Morgan Chase (JPM) said Monday that it plans to raise around $5 billion in common equity as part of its effort to repay $25 billion of the capital it received from the federal bailout fund.

American Express (AXP) also revealed that it has commenced a public offering of $500 million of its common stock. Part of the funding is expected to go to a repurchase of $3.4 billion of preferred shares issued to the U.S. Treasury as part of the Capital Purchase Program.

Meanwhile, Barclays said Monday that Abu Dhabi government-owned International Petroleum Investment Co., or IPIC, has revealed its intention to sell 1.3 billion shares of Barclays. IPIC intends to use the money from the sale to buy energy assets as raw materials prices rebound.

In other news, shares of DeVry (DV) are moving higher after Standard & Poor's announced that the education company would replace General Motors in the S&P 500. Devry is currently posting a 4.7 percent gain.

The major averages are currently posting notable gains, although they have pulled back off their best levels of the day. The Dow is currently up 44.11 at 8,765.55, the Nasdaq is up 12.01 at 1,840.69 and the S&P 500 is up 4.69 at 947.56.

Sector News

Housing stocks are turning in some of the day’s best performances, bolstered by the day’s data from the housing sector. Subsequently, the Philadelphia Housing Sector Index is up by 1.8 percent, partly offsetting some of its recent losses.

The index is being led higher by shares of Standard Pacific (SPF), which are up by 4.3 percent on the session. With the advance, the stock reached its best intra-day level in nearly seven months earlier in the session and looks to finish at its best level of the year.

Transportation stocks are also enjoying another strong outing, along with health insurance, steel, and gold stocks. The gains by gold stocks come as the price of the precious metal is up more than $2 an ounce.

Meanwhile, semiconductor stocks are sliding, as reflected by the 1.1 percent retreat being shown by the Philadelphia Semiconductor Index. With the decline, the index is backing off of its best closing level in nearly eight months.

Banking, commercial real estate, and natural gas stocks are also treading on the downside in mid-morning trading.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region finished largely mixed. Japan's benchmark Nikkei 225 Index edged up by 0.3 percent, while Hong Kong's Hang Seng fell 2.6 percent.

The major European markets are also turning in a mixed performance. The French CAC 40 Index and the German DAX Index are up by 0.2 percent and 0.1 percent, respectively, while the U.K.'s FTSE 100 Index is sliding, down by 1.0 percent.

In the bond markets, treasuries have ceded some of their earlier gains but remain in positive territory. Subsequently, the yield on the benchmark ten-year note is trading at 3.696 percent, a drop of 1.9 basis points on the day.

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Bay Street Stocks May Slip Away From Multi-Month High

Toronto stocks may give back some of the recently-seen gains on Tuesday morning. Bay Street's main index closed the previous session at an eight-month high.

Energy stocks could give back some of the recent gains as crude oil has dropped 82 cents to $67.76 per barrel on the NYMEX. Gold has inched up $4 to $984.00 per ounce and copper is down 2.6 cents to $2.293.

In corporate news, Magna International may not be done with acquisitions. According to the National Post, the auto parts maker might look into buying General Motors' Saturn unit, after already agreeing to buy Opel.

MKS Inc. announced that its fourth quarter net income decreased to US$2.0 million or US$0.04 per share, from US$4.7 million or US$0.09 per share in the fourth quarter of fiscal 2008.
 
IMAX Corp. disclosed the pricing of its public offering of 9.8 million common shares at $7.15 per share. Gross proceeds from the offering are expected to be approximately $70.1 million.

In the healthcare sector, QLT Inc.revealed positive twelve-month primary analysis results from the Phase II RADICAL study in patients with wet age-related macular degeneration.

Centrica said it reached an agreement with Canadian Superior Energy under which Centrica could acquire a 45% interest in gas development Block 5(c), located off the south east coast of Trinidad, for US$142.5 million in cash.

On Monday, the S&P/TSX Composite Index surged 233.99 points or 2.25% to finish at 10,604.06. The market received a boost from rising copper and crude oil prices as well as a better-than-forecast gross domestic product report from Canada.

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Most stock markets Asia-Pacific region ended with slender gains amid increasing optimism about an economic recovery. Positive sentiment generated in the auto space following the insolvency filing by General Motors and better-than-expected economic data offset the weakness triggered by the geopolitical tensions surrounding North Korea's belligerent stance on nuclear tests and profit taking ahead of the release of a few key U.S. economic reports later in the week.

Japan’s Nikkei 225 Average opened higher by nearly 100 points at 9,775 compared to its previous close at 9,678, mirroring the gains on Wall Street. While the index gave back some ground in early trading, it was able to remain firmly positive amid strength among exporters, who benefited from a weaker yen.

Nevertheless, profit taking in late trading ahead of the release of key economic numbers in the U.S over the course of the week trimmed the gains. The benchmark index finally ended the session at 9,704, up 26.56 points, or 0.27%. The broader Topix Index of all first section issues gained 1.04 points, or 0.10% to close at 914.

On the economic front, the Bank of Japan revealed that the monetary base in the country rose 7.9% year-over-year in May to 94.91 trillion yen, which was a tad lower than analysts' expectation for an 8% annual increase.

In the export space, Canon gained 0.97% and Sony Corp. advanced 4.26%. Automakers also advanced, with Honda Motor gaining 2.17%, Toyota Motor adding 0.79% and Nissan Motor Co. moving up 1.71%.

Shipping stocks, which had rallied in recent sessions, declined on profit taking. Kawasaki Kisen lost 2.16%, Mitsui OSK Lines shed 2.92% and Nippon Yusen fell 1.67%.

Financial stocks ended mixed. Mitsuibishi UFJ gained 0.81%, and Mizuho Financial edged up 0.45%. However, Resona Holdings lost 0.75% and Sumitomo Mitsui shed 1.59%. Oil stocks also ended mixed. While Inpex, the leading oil exporter in the country, edged up 0.37%, Showa Shell lost 1.04% and Nippon Oil declined 1.52%.

Australia's All Ordinaries Index opened unchanged from its previous close at 3,888 and immediately surged past the psychological 3,900-mark, with resource stocks lending support. A decision by the RBA to leave interest rates unchanged and better-than-expected new building approvals data also influenced market movement. The index finally ended the trading session near the day's high at 3,948, up 60.20 points, or 1.55%. The benchmark S&P/ASX 200 Index followed a similar trend and ended up at 3,955, representing a gain of 60.30 points, or 1.56%.

In a significant development, the Reserve Bank of Australia decided to leave its key interest rate unchanged as expected for the second consecutive month. Governor Glenn Stevens said monetary policy has now eased significantly. Market and mortgage rates are at very low levels by historical standards and business loan rates stayed below average. Although much of the effects are yet to be realized, fiscal steps are supporting demand.

Resource stocks led the gains in the market on higher commodity prices. BHP Billiton advanced 2.69%, Iluka Resources rose 3.16%, Orica gained 5.75%, Oz Minerals added 4.44% and Rio Tinto increased 4.03%. Among gold stocks, Sino Gold added 0.47%, and Newcrest Mining rose 0.47%. However Lihir Gold bucked the trend and shed 0.30%.

Woodside Petroleum gained 2.00%, Santos added 0.34% and Oil Search advanced 1.22%. In a statement, Woodside Petroleum stated that it is planning to retain at least 50% equity in the second and third stages of its Pluto LNG development at Karratha in Western Australia.

Banking stocks ended mixed following the decision of the RBA to leave interest unchanged. ANZ Bank slipped 1.30% and Westpac Banking lost 0.95%, but Commonwealth Bank added 0.47% and National Australia Bank gained 1.24%.

In Hong Kong, the Hang Seng Index ended sharply lower, as traders preferred to take profits following a recent rally. News that North Korea is planning to launch a medium-range missile also impacted trading despite the positive outlook for a global recovery.

PetroChina declined 3.6%, while CNOOC, the largest offshore oil firm in China, slipped 1.6%, on profit taking. Among financials, Industrial and Commercial Bank of China, or ICBC, shed 4.11% following news that Goldman Sachs sold its shares at a discount to raise HK$14.8 billion. HSBC Holdings lost 3.88% and Commercial Bank fell 3.46%. All other financial stocks also ended in negative territory.

In South Korea, the benchmark KOSPI Index ended in negative territory on geopolitical concerns following the news that North Korea is planning to test a medium range missile shortly. Early buoyancy in the market on the positive closing on Wall Street and hopes of am economic recovery fizzled out on the nuke threat and late-day selling dragged the indices into red. The benchmark KOSPI Index ended the session with a loss of 2.25 points or 0.16% at 1,413.

Mixed trading was witnessed among financial stocks. KB Financial, which controls Kookmin Bank, edged up 0.82%, but Shinhan Financial lost 2.30% and Woori Finance shed 2.98%.

Automotive stocks ended mixed following the news of GM filing for insolvency in the U.S. on Monday. While Hyundai Motor slipped 0.7%, Kia Motor advanced 1.64% and Ssangyong Motor edged up 0.54%.

Daewoo Engineering and Construction took the spotlight, posting a gain in excess of 14% after parent company Kumho Asiana Group revealed that it would sell the unit if it could not find new investors before the end of July.

The Indian market showed strength amid volatility, with the BSE Sensex closing up with 34.28 points, or 0.23% at 14,875, while the broader Nifty shed 4.65 points or 0.10% to close at 4525.

Among the other major markets in the region, China's Shanghai Composite Index added 3.02 points, or 0.11% to close at 2,724, and Indonesia's Jakarta Composite Index ended nearly flat at 1,999. However, the Strait Times Index in Singapore shed 4.25 points or 0.18% to close at 2,376 and the Taiwan Weighted Index edged down 5.02 points, or 0.07% to close at 6,949.

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The major European markets are trading lower, as weakness is visible in the markets following their recent advances. The French CAC 40 Index is down 0.72% compared to a 0.23% decline by the German DAX Index. The U.K.’s FTSE 100 Index is currently down 1.17%.

In corporate news, Barclays (BCS) announced that Abu Dhabi’s International Petroleum Investment Company sold about 1.3 billion shares in the bank at 267 pence per share each. The bank had raised about 7 billion pounds from investors in the Middle East as it tried to sidestep a government investment.

On the economic front, Eurozone's jobless rate stood at 9.2% in April, up from 8.9% in the previous month, a report from Eurostat revealed today. Economists were looking for a rate of 9.1%. The April rate was the highest rate since September 1999. A year ago, the jobless rate was 7.3%.

U.S. Economic Reports

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 on Tuesday. 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 likely to have risen 0.5% in the month.

The pending home sales index for March rose 3.2% month-over-month, with the gains more pronounced in the high foreclosure areas of the South and the West. At the same time, the Northeast and the Midwest showed declines.

Crude oil futures are trading down $0.45 at $68.13 a barrel after advancing $2.27 to $68.58 a barrel in Monday’s session. Gold futures, which receded $0.30 to $980 an ounce yesterday, are currently rising $3.70 to $983.70 an ounce.

On the currency front, the U.S. dollar is trading at 95.73 yen, weaker than the 96.587 yen it fetched at the close of New York closing on Monday. Against the euro, the dollar is trading at $1.4219 compared to yesterday’s $1.4160.

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Pepsi Bottling Group could gain ground after it raised its second quarter and full year earnings guidance. The company raised its full year earnings estimate by 10 cents to $2.30-$2.40 per share, with the company attributing the revision to an improvement in carbonated soft drink performance in the U.S., decreased foreign currency volatility and continued commodity cost deflation. The company also raised its second quarter earnings per share guidance by 5 cents to 70-74 cents per share. Analysts estimate earnings of 70 cents per share for the second quarter and $2.25 per share for the full year.

Cameron International may be in focus after it announced that it will acquire NATCO Group in an all stock transaction valued at $780 million. NATCO shareholders will receive 1.185 shares of Cameron common stock for each of NATCO’s 20.3 million shares outstanding.

Sun Trust Banks is likely to react to its announcement that it has priced its $1.4 billion offering of 108 million shares at $13 per share. Continental Airlines may react to its announcement that its load factor for May was 80.9%, about 0.3 percentage points below 81.3% in May 2008. Traffic fell 9% compared to an 8.8% decline in capacity.

DeVry could move to the upside after S&P announced that DeVry will replace General Motors in the S&P 500 Index. Meanwhile, DeVry’s place in the S&P MidCap 400 Index will be taken up by Aaron’s (AAN), which is a constituent of the S&P SmallCap 600 Index. Cbeyond is to take Aaron’s place in the S&P SmallCap 600 Index.

Pfizer could see some weakness after it announced that it has decided to stop studies on its breast cancer drug, Sutent. The company indicated that the decision to pull the plug on the study is due to late stage trial results that revealed that Sutent in combination with chemotherapy drug Paclitaxel is not found superior to an Avastin-Paclitaxel combination. However, the company said it is continuing to test this drug in combination with others for other indications.

Marsh & McLennan is likely to move in reaction to an announcement that it has decided to sell its subsidiary Kroll Government Services to private equity firm Veritas Capital. The financial terms of the deal were not disclosed. American Express could also be in focus after it said it has commenced a public offering of $500 million of its shares. The company said it would use the capital raised through the equity offering for general corporate purposes, including the partial funding of a repurchase of $3.4 billion of preferred shares issued to the Treasury under the Capital Purchase Program. Meanwhile, J P Morgan Chase said it intends to raise $5 billion in equity to satisfy the criteria for fully redeeming the TARP preferred capital before the end of June.

EMC is expected to see some weakness after it announced that it has offered to buy Data Domain through an open tender offer. The deal values each of Data Domain shares at $30 and trumps the cash and stock offer made by NetApp by 20%.

Altera may also be in focus after it announced that it reaffirms its previous revenue guidance for the second quarter that calls for sequential sales growth of 2%-7%.

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