US & World Daily Markets Financial Briefing 03-02-2011

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Stocks Turning In Another Lackluster Performance Early On

After showing a lack of direction throughout the previous session, stocks are turning in another lackluster performance in early trading on Thursday. The major averages are once again lingering near the unchanged line after ending the previous session nearly flat.

The choppy trading comes as traders have largely shrugged off a bigger than expected drop in weekly jobless claims, as they continue to look ahead to the release of the Labor Department's monthly employment report on Friday.

The report showed that initial jobless claims fell by 42,000 to 415,000 from the previous week's revised figure of 457,000. Economists had been expecting jobless claims to slip to 425,000 from the 454,000 originally reported for the previous week.

Reflecting the impact of the holidays and a series of massive winter storms, the jobless claims data has shown considerable volatility in the past few weeks.

With earnings season nearing the finish line, Merck (MRK) reported adjusted fourth-quarter net income of $0.88 per share, a nickel better than expected. Sales came in at $12.09 billion, beating estimates for $11.52 billion. Meanwhile, Merck's full-year 2011 earnings guidance missed estimates.

Visa Inc. (V) reported first-quarter net income of $1.23 per share, edging out estimates for $1.21 per share. Revenues rose to $2.23 billion from $1.96 billion, in-line with analyst projections.

Yum! Brands Inc. (YUM) posted adjusted fourth-quarter earnings of $0.63 per share, which topped expectations for $0.60 per share. Total revenues of $3.56 billion beat forecasts for $3.50 billion.

Most of the major sectors are showing only modest moves in early trading, although notable weakness is visible in the housing sector. Radian Group (RDN) is leading the sector lower after reporting a steep fourth quarter loss as a result of a tax charge.

While oil, brokerage, and health insurance stocks are also seeing some weakness, modest strength is visible among electronic storage and transportation stocks.

The major averages are currently posting modest losses, off their lows for the young session. The Dow is down 16.99 points or 0.1 percent at 12,024.98, the Nasdaq is down 1.79 points or 0.1 percent at 2,747.77 and the S&P 500 is down 1.78 points or 0.1 percent at 1,302.25.

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TSX Poised For Mixed Open

Bay Street stocks may open flat Thursday amid mixed cues from the commodities market. Global equity markets were mostly lower amid escalating tensions in Egypt, with European stocks lingering in the red.

The European Central Bank today held its key interest at a record low 1 percent for the 21th consecutive month.

U.S. stock futures were pointing to a lower open amid weekly jobless claims report.

On Wednesday, the S&P/TSX Composite Index edged down 32.33 points or 0.24 percent to 13,680.29, snapping its 3-day winning streak.

The price of crude oil moved back near its 27-month high as violence in Egypt worsened, cementing speculation that supplies through the Suez Canal will be disrupted. Crude for March was up $0.43 to $91.29 a barrel.

The price of gold was little changed as the U.S dollar steadied ahead of a host of economic releases from the U.S. Gold for April edged up $3.0 to $1,335.10 an ounce.

In corporate news from Canada, application software developer Open Text reported improved second quarter net income of $37.1 million or $0.64 per share compared to $21.2 million or $0.37 per share last year. Excluding special items, adjusted income was $70.5 million or $1.21 per share compared to $50.1 million or $0.87 per share a year ago. Analysts were expecting the company to report earnings of $1.06 per share for the quarter.

South Africa focused uranium and gold miner First Uranium reported a wider third quarter loss of $18.11 million or $0.10 per share, compared to a loss of $14.43 million or $0.09 per share in the prior year quarter.

Oil transportation company Enbridge Inc. reported improved fourth quarter earnings of C$326 million or C$0.86 per share compared to C$300 million or C$0.80 per share last year. On an adjusted basis, earnings stood at C$238 million or C$0.64 per share for the latest quarter.

Multinational specialty pharmaceutical company Valeant Pharmaceuticals said its subsidiary, Biovail Laboratories International SRL, would acquire all U.S. and Canadian rights to non-ophthalmic topical formulations of Zovirax® from GlaxoSmithKline for $300 million.

ArcelorMittal and Nunavut Iron Ore Acquisition Inc. increased their stake in Baffinland Iron Mines to 67 percent.

In economic news from south of the border, the U.S. Labor Department said that initial jobless claims fell by 42,000 to 415,000 in the week ended January 29 from the previous week's revised figure of 457,000. Economists were expecting jobless claims to slip to 425,000 from the 454,000 originally reported for the previous week.

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European Markets Trading Lower

The major European markets are trading weaker Thursday afternoon amid escalating tensions in the streets of Cairo in Egypt. Reports of gunfiring and stray incidents of violent processions were also reported in tense situation.

On the economic front, results of a survey revealed that Eurozone private sector activity expanded more than initially estimated in January at the fastest pace in nine months, boosting hopes of a strong growth at the start of 2011. Although, growth was led by Germany and France, peripheral nations started showing improvement. The Final Eurozone Composite Output Index rose to 57 from 55.5 in December, survey results from Markit Economics showed Thursday. The flash estimate for January was 56.3. While, growth in business activity reached a nine-month high, incoming new orders rose to the greatest extent since August 2007.

Eurozone retail sales unexpectedly dropped in December, casting doubt over recent signs of consumer revival in the currency bloc. Retail sales decreased by 0.6% month-on-month in December following the revised 0.3% decline in November, the Eurostat said Thursday. Economists had forecast 0.5% increase on the back of an expected rise in Christmas sales. "December's fall in euro-zone retail sales will add to fears that the region's modest consumer revival is already stuttering to a halt," Capital Economics economist Ben May said.

Spanish service sector continued to contract for the sixth consecutive month in January, but the rate of decline was the slowest in the current sequence, survey results from Markit Economics showed Thursday. The headline seasonally adjusted business activity index rose to 49.3 in January from 46.2 in December, still indicating contraction of the sector by staying below the no-change mark of 50. Falling sales were the main factor behind the reduction, largely offsetting the boost provided by new product releases during the month. New businesses continued to fall, reflecting fragile demand.

In the UK the FTSE 100 opened at 6,000, the same as previous close, but slipped lower on concerns about the tense situation in Egypt. The index is presently losing around 0.40%.

Resource related stocks are trading weaker. Mining stocks BHP Billiton, Xstrata, Anglo American and Rio Tinto are losing between 0.3% to 0.9%.

BP is losing more than 1.4% while MAN Group is down more than 1.3%.

In Germany, the DAX index opened slightly weaker at 7,176 compared to previous close at 7,183 and is presently trading weaker on tense developments across Cairo. The index is presently losing 0.15%

Among the losers, DF Lufthansa is down 0.7%, while Henkel is losing 0.6%. Fresensius is trading weaker while METRO is down 1%.

In France, the CAC 40 index opened at 4056 compared to the previous close at 4068in the previous session and is presently trading in the red amid Egypt concerns. The index is presently losing more than 40 points.

Alcatel Lucent is losing more than 1.5%. Financials are also trading in the negative territory including BNP Paribas and Societe Generale.

Across Asia/Pacific, most of the markets were closed for the Lunar New Year Celebrations. Only the markets in Australia, Japan and India functioned while the other markets remained closed. Mixed trading was witnessed in these markets.

In the U.S., futures point to a tepid start ahead of slew of economic data and corporate earnings. Key economic data related to jobs report, slated for release on Friday, also might impact market sentiment.

In commodities, crude for March delivery is gaining $1.12 to $91.95 per barrel and February gold is losing $2.50 to $1332 a troy ounce.

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Indian Market Ends On A Buoyant Note

After failing to capitalize on an early surge in the previous session, the Indian market kept rising throughout the day before closing near the day's high on Thursday, as investors believed the recent sell-off was overdone in view of the strong underlying fundamentals of the Indian economy.

Adding to recent upbeat reports related to infrastructure output, exports, auto sales and manufacturing PMI, data released today showed that business activity in India's services sector grew at a faster pace in January compared to the previous month, boosted by new orders and expectations of solid growth. The HSBC Markit Business Activity Index rose to 58.1 in January from 57.7 in the previous month, with a reading above 50 indicating expansion.

Besides, a statement from the UPA alliance partner DMK that former telecom minister Raja's arrest will not jeopardize its alliance with the Congress triggered hectic short covering. AIADMK chief J Jayalalitha said in a statement that the arrest of Raja in connection with the 2-G Spectrum scam is a delayed action. The Congress is possibly using the arrest as a pressure tactic to get a better deal from the DMK during seat-sharing talks for the forthcoming Tamil Nadu Assembly Elections, she noted.

Meanwhile, investors largely shrugged off data showing higher food and fuel inflation for the week ended January 22. Traders also discounted weak European cues ahead of the European Central Bank's rate-setting meeting later in the day and Friday's key U.S. jobs report which is expected to shed more light on the pace of recovery in the world's largest economy.

After a tepid start, the benchmark 30-share Sensex rose steadily till the end of the session before closing up 359 points or nearly 2 percent, with 29 of its components advancing. Bajaj Auto (down 0.51 percent ) closed subdued, a day after reporting an 18 percent rise in its January vehicle sales.

The 50-share Nifty climbed 95 points or 1.74 percent, while the BSE mid-cap and small-cap indexes gained 1.09 percent and 1.21 percent, respectively. In the broader market, gaining shares outpaced decliners in the ratio of 1.7:1.

High-beta realty stocks led the gainers for a second straight session. DLF led the gainers, rising 7.42 percent, HDIL jumped 6.37 percent, Orbit Corp rallied 4.80 percent, Indiabulls Real Estate gained 4.36 percent and Godrej Properties rose 3.71 percent.

Telecom giant Bharti Airtel added 5.12 percent, extending its gains for a second consecutive session. In the auto pack, Tata Motors climbed 4.08 percent, Hero Honda Motors added 2.79 percent and Mahindra & Mahindra closed up 0.66 percent. Heavyweight Reliance Industries rose 2.40 percent.

Metal stocks such as Jindal Steel, Tata Steel, Sterlite and Hindalco gained between one percent and five percent. Public sector lender SBI rallied 3 percent, while private sector lenders ICICI Bank and HDFC Bank rose around 2 percent each.

Ambuja Cements advanced 3.13 percent after reporting a 4 percent rise in its consolidated net profit for the twelve months ended December 2010. Whirlpool of India soared 6.21 percent on posting a 49 percent rise in its quarterly net profit.

Micro-irrigation systems maker Jain Irrigation gained 2.66 percent on bargain hunting after recent sharp losses. Heavily-battered Hindustan Construction Company jumped 4.22 percent on bagging a Rs.345-crore EPC contract. Other construction stocks such as Simplex Infrastructure, PBA Infrastructure and Pratibha Industries rose by 4-5 percent on bargain hunting after underperforming the broader market in the past month.

Sugar stocks such as Bajaj Hindusthan, Balrampur Chini, Dhampur and Shree Renuka Sugars climbed between 3 percent and 9 percent, as sugar prices rose at the National Commodity Derivatives Exchange on rising demand.

Jet Airways added 3 percent on a Wall Street Journal report that it has delayed a share sale to next financial year. BF Utilities hit the 20 percent upper circuit limit on the back of a favorable court verdict related to a expressway project.

State-run oil marketing companies such as HPCL and IOC drifted lower as crude prices rose above $91 a barrel amid escalating tensions in Egypt.

Elsewhere, Japan's Nikkei average, which posted its biggest rise in two months in the previous session, dropped 0.25 percent today, as concerns over the mounting protests in cities throughout Egypt and less than inspiring corporate earnings dampened investor sentiment.

New Zealand's NZX-50 eased marginally after dismal jobs data underlined the tepid state of the economy. However, Australia's S&P/ASX 200 index rose 0.5 percent boosted by resource stocks. Most other stock exchanges in the region were closed today for the Lunar New Year holidays.

Meanwhile, turmoil in Egypt took center stage again as violent clashes broke out between pro- and anti-government demonstrators in Cairo Wednesday night, in which five people were killed and over 800 were wounded.

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Dollar Holding Ground Ahead Of Jobless Claims

The dollar was steady Thursday morning in New York, as traders braced for a slew of economic data including the government's latest figures on initial jobless claims.

This morning's weekly claims data is a key prelude to Friday's pivotal monthly employment report.

The dollar has been pressured by the major European currencies over the past few weeks, as the specter of inflation raised the likelihood of interest rate hikes from the European Central Bank and Bank of England.

This as the U.S. Federal Reserve remains focused on boosting employment and propping up the broader economy with record low interest rates and massive bond purchases.

The dollar was slightly higher versus the euro in early dealing, holding at $1.3746 compared to this week's 3-month low near $1.3860.

The dollar was holding its ground against the sterling near $1.62. A move to $1.63 would take the buck to its lowest in 13 months.

There was little changes seen against the yen, as the dollar wobbled near Y81.80. In November, the dollar hit a 15-year low of 80.22 and his since struggled to recover.

Looking at today's economic calendar from the U.S., the Labor Department will release its customary jobless claims report for the week ended January 30th at 8:30 a.m. ET. Economists expect a decline in claims to 425,000..

The Labor Department is also scheduled to release its preliminary fourth quarter non-farm productivity and unit labor costs at 8:30 s.m. ET. Economists expect productivity growth to come in at 2.3% for the quarter.

The Commerce Department will release its report on factory goods orders for December at 10.00 a.m. ET. Economists estimate factory good orders for the month to decline by 0.4%.

The ISM is scheduled to release the results of its non-manufacturing survey at 10 AM. The non-manufacturing index is likely to show a reading of 57 for January.

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