US & World Daily Markets Financial Briefing 04-10-2010

Stocks Lackluster After Upbeat Pending Home Sales Data

Stocks are showing a lack of direction in mid-morning trading on Monday, even after the release of some better than expected news on the health of the housing market.

The major averages have all seen choppy movement in recent dealing, lingering near the flat line. The Dow is currently down 9.23 points or 0.1 percent at 10,820.45, the Nasdaq is down 9.86 points or 0.4 percent at 2,360.89 and the S&P 500 is down 2.51 points or 0.2 percent at 1,143.73.

With attractive affordability conditions inspiring some buyers to return to the housing market, the National Association of Realtors released a report showing that pending home sales increased by much more than expected in the month of August.

NAR said its pending home sales index rose by 4.3 percent in August following a revised 4.5 percent increase in July. The index had been expected to edge up by 1.0 percent compared to the 5.2 percent increase originally reported for the previous month.

At the same time, the Commerce Department released a separate report showing that factory orders fell by 0.5 percent in August following an upwardly revised 0.5 percent increase in July. Economists had expected orders to fall by 0.4 percent compared to the 0.1 percent increase originally reported for the previous month.

In corporate news, drug maker Sanofi-Aventis (SNY) has made a hostile, $18.5 billion bid for biotechnology giant Genzyme Corp. (GENZ). The offer comes in at $69 per share, a 38 percent premium over Genzyme's share price of $49.86 recorded on July 1st.

Sector News

Gold stocks are among the worst performers in the early going, with the NYSE Arca Gold Bugs Index posting a 2 percent loss. The index is pulling back off a well over two-year closing high, as the price of gold is down by $1.80 to $1,316.00 an ounce.

Steel stocks are also seeing heavy selling, dragging the NYSE Arca Steel Index down by 1.4 percent off of Friday's five-month closing high.

Oil service, brokerage and health insurance stocks are also under pressure, while electronic storage and banking stocks are mitigating some of the pullback, seeing moderate gains.

Stocks Driven By Analyst Comments

Watson Pharmaceutical (WPI) is on the upside after analysts at Argus raised their rating on the stock from Hold to Buy. The stock has gained 0.6 percent, offsetting some recent downside, although it remains rangebound.

Penn National Gaming Inc. (PENN) is also trading higher after Merriman upgraded shares from Neutral to Buy. The stock is currently up by 2.5 percent and is on target for its best closing price in five months.

On the other hand, Microsoft (MSFT) is trading lower after a downgrade at Goldman Sachs to Neutral. Shares are down by 1.9 percent and on target for their lowest close in three weeks.

Other Markets

Overseas, stock markets in the Asia-Pacific region ended mostly higher on Monday. Hong Kong's Hang Seng Index gained 1.2 percent, while India's BSE 30 Index inched up by 0.2 percent. Meanwhile, Japan's benchmark Nikkei 225 Index slid by 0.3 percent.

The major European markets remain down by varied margins. The U.K.'s FTSE 100 Index is down by 0.2 percent, while the French CAC 40 Index and the German DAX Index are down by 0.4 percent and 0.8 percent, respectively.

In the bond markets, treasuries are modestly higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.495 percent, posting a loss of 3.1 basis points.

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Canadian Market Reports

TSX Poised For A Cautious Start Monday

Bay Street stocks are poised for a mixed open Monday amid flat commodities prices. Also, traders await a slew of economic data from the U.S., Canada's largest trading partner, to get clues on the strength in the recovery of the world's largest economy.

On Friday, the S&P/TSX Composite Index edged down 5.58 points or 0.04% to 12.363.08.

The price of crude oil was little changed near its 2-month high as traders were cautious ahead of a slew of economic data due out this week from the U.S. Crude for November edged up $0.09 to $81.67 a barrel.

The price of gold was steady around its record high amid a mixed dollar. Gold for December eased $1.30 to $1,316.50 an ounce.

In corporate news from Canada, bitumen producer UTS Energy said it would be acquired by Total E&P Canada Ltd for approximately C$1.5 billion or C$3.08 per share. UTS shareholders received 0.1 common shares of SilverBirch Energy Corp. for each share held.

Energy focused investment trust Enerplus Resources Fund said it divested its100% working interest in the Kirby oil sands lease for C$405 million and closed the sale of certain non-core assets for C$158.5 million.

Integrated transport services provider CN Rail. said Friday that it has reached tentative labor contract settlement with train conductors union in Canada.

Junior mineral exploration company Opawica Explorations said it has privately placed 6.05 million units for $605,000.

ST Acquisition Corp., controlled by members of the Stronach Family, said it intends to acquire any or all of the Class A Subordinate Voting Shares and Class B Shares of real estate company MI Developments Inc. for $13.00 per share in cash.

Renewable energy company Etrion Corp. said it acquired a 33 megawatt solar power plant from US-based SunPower Corp for about 49 million euros.

Industrial rubber products maker AirBoss of America Corp. said it's subsidiary AirBoss-Defense received $7.20 million order from the US Military, in addition to its last month's $15 million orders.

Mineral explorer Conway Resources Monday said it completed a non-brokered private placement of common and flow-through common shares of C$658,750.

African Diamonds Plc said precious metal miner Lucara Diamond will acquire it for C$82 million.

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Asia

Asian Markets End In Positive Territory

Asian markets open for trading on Monday, except the Japanese market, ended the session in positive territory, but off the day's highs on optimism about sustaining global economic recovery. Positive cues from the Wall Street over the weekend on Friday and higher commodity prices lifted market sentiment. The Chinese market was closed for a holiday and the Japanese markets ended weaker on stronger yen and caution ahead of BOJ meeting.

In Australia, the benchmark S&P/ASX200 Index gained 46.10 points, or 1.01%, and closed at 4,625 points, while the All-Ordinaries Index ended at 4,678, representing a gain of 43.70 points, or 0.94%.

On the economic front, a report released by the TD Securities in association with the Melbourne Institute revealed that the gauge of inflation in the country revealed that consumer prices had risen past the top end of the Reserve Bank of Australia's 2%-3% target range in September. As per the report, the inflation gauge rose to 3.2% from 3% reported in the previous month. On a monthly basis, consumer prices rose 0.1% after the 0.2% increase in the previous month.

Banks and financial institutions led the gains in the market on optimism about sustaining economic recovery. ANZ Bank advanced 0.72%, Commonwealth Bank of Australia gained 1.26%, National Australia Bank climbed 1.80% and Westpac Banking Corp. was up 1.70%. Investment banking company Macquarie Group increased by 0.80%.

Resource related stocks also advanced on higher commodity prices. BHP Billiton advanced 1.37%, Rio Tinto gained 1.31%, Fortescue Metals rose 1.14%, Gindalbie Metals added 0.54%, Iluka Resources climbed 1.66%, Macarthur Coal was up 1.44%, Mincor Resources surged up 2.90% and Oz Minerals increased by 1.37%. Murchison Metals, however, bucked the trend and ended in negative territory with a sharp loss of 2.98%.

Oil-related stocks also ended in positive territory on higher crude oil prices in the international market. Woodside Petroleum climbed 1.51%, Santos Ltd advanced 0.94%, Oil Search Ltd added 0.64% and Origin Energy was up by 0.69%. ROC Oil Ltd remained unchanged from previous close.

The leading gold mining company Newcrest Mining ended in positive territory with a gain of 1.80%.

In Japan, the benchmark Nikkei 225 Index dropped 23.17 points, or 0.25%, to 9,381, while the broader Topix index of all First Section issues was down 7.23 points, or 0.87%, to 823.

On the economic front, a report released by the Ministry of Health, Labor and Welfare revealed that cash earnings of laborers at Japanese companies remained unchanged year-over-year at 274,332 yen in August. On the other hand, contractual earnings rose 0.5% annually to 262,551 yen. The report further noted that scheduled earnings edged down 0.1% while non-scheduled earnings rose 10.8%. Special cash earnings decreased 10.7%. Cash earnings increased in manufacturing by 3.3% and in information and communications by 4.2%. Earnings in medical, healthcare and welfare fell 4.1%.

Securities stocks ended in negative territory. Daiwa Securities declined 1.83%, Mizuho Securities Co., plunged 3.72%, Matsui Securities fell 1.74% and Nomura Holdings was down 2.90%.

Large banks also ended in negative territory amid concerns about the strengthening of the local currency and anticipation of fresh measures from the Bank of Japan to arrest the strength of the local currency against the dollar. Mizuho Financial Group plunged 5.88%, Sumitomo Mitsui Financial Group declined 2.90%, Mitsubishi UFJ Financial Group fell 2.55% and Resona Holdings was down 3.84%.

Real estate related stocks also ended weaker on stronger local currency. Sumitomo Realty & Development slipped 0.81%, Mitsubishi Estate Co. shed 0.86%, Tokyu Land Corp. plunged 2.57%, Tokyo Tatemono Co., fell 2.45% and Heiwa Real Estate was down 1.00%. Mitsui Fudosan, however, bucked the trend and ended in positive territory with a gain of 0.48%.

Shipping related stocks also slipped into negative territory on stronger local currency. Nippon Yuesen slipped 0.89%, Kawasaki Kisen Kaisha fell 2.30% and Mitsui OSK lines declined 1.55%.

The Indian market pared most of its initial gains to end modestly higher on Monday. Buoyed by sustained flows of foreign capital and positive economic data from the U.S. and China, the 30-share BSE Sensex rose to a fresh 33-month high of 20,707 earlier in the session. However, as the session progressed, stocks pared considerable gains, as investors took profits tracking weak global markets.

The Sensex finished up 31 points or 0.15% at 20,476, with 14 of its components closing firm. The broader Nifty rose by 16 points or 0.26% to 6,159 and the broader indexes such as the BSE small-cap and mid-cap indexes gained 0.33% and 0.69%, respectively.

The market in China was closed for a holiday.

Among the other markets in the region, Jakarta Composite Index in Indonesia gained 22.38 points, or 0.63%, to 3,570, the Strait Times Index in Singapore advanced 26.55 points, or 0.85%, to close at 3,157, and Taiwan Weighted Index edged up by 1.92 points, or 0.02%, to close at 8,246.

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European Market Updates

French Stocks Decline In Afternoon Trade

The French market is declining in afternoon trading Monday, ignoring firm cues from most Asian markets. Car manufacturers and construction-related stocks were lower as re-emergence of economic worries hurt investor confidence.

Crude for November delivery is adding $0.25 at $81.83 per barrel, while gold is lower by $3.0 at $1314.8 an ounce.

In economic news, Eurozone Investor Confidence for October improved to 8.8 from September's 7.6, Sentix said. Growth is robust, despite prophecies of doom, the think tank said. Economists were looking for a score of 8. Meanwhile, Eurozone producer prices rose 3.6% year-over-year in August, slowing from the 4% increase in the previous month, Eurostat said. Economists had expected the inflation rate to ease to 3.7%.

In the U.K., the Markit / Chartered Institute of Purchasing & Supply construction purchasing managers' index rose to 53.8 from 52.1 in August. The unexpected rise was led by higher activity in the commercial and civil engineering sectors.

The CAC 40 opened below the flat line at 3,689 and witnessed busy selling. The index is currently falling 0.75%.

Car manufacturer Peugeot is leading the losers by falling 3.5% and peer Renault is retreating 3.4%. Chipmaker STMicroelectronics is retreating 2.25% and insurer Axa is down 1.65%.

Water utility Suez Environnement, engineering group Alstom and department stores operator PPR are losing about 1.6% each.

Drugmaker Sanofi-Aventis is losing 0.2% after beginning a tender offer for U.S. biotechnology company Genzyme.

Among lenders, Societe Generale is losing 1.1%, BNP Paribas is sliding 0.44% and Credit Agricole is falling 0.3%. Natixis is climbing 1.1%.

Hotel group Accor, computer services firm Cap Gemini, Schneider Electric, gas utility GDF Suez, building materials maker Saint-Gobain, grocery retailer Carrefour, cement giant Lafarge and water utility Veolia Environnement are making notable losses.

Tire firm Michelin is advancing 1.6%, while luxury goods firm LVMH and Airbus maker EADS are gaining about 0.2% each.

Elsewhere in Europe, the UK's FTSE 100 is declining 0.24% and the German DAX is sliding 0.94%.

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Stocks in Focus

Coca-Cola is likely to be in focus after it announced that it has completed the acquisition of the North American operations of Coca-Cola Enterprises and the sale of its Norway and Sweden bottling operations to CCE. Coca-Cola also noted that it expects to generate operational synergies of at least $350 million per share over the next four years and $150 million in systems savings.

UPS may react to its announcement concerning a general rate increase averaging 5.9%, covering non-contractual shipments in the U.S., Canada and Mexico. The company noted that the rate adjustment takes effect on October 18th, 2010 and applies to minimum charge, LTL rates and accessorial charges.

WD-40 Company is likely to see some buying interest after it announced an increase in its regular quarterly dividend by 8% to 27 cents per share, payable on October 29th, 2010 to stockholders of record on October 14th, 2010.

Genzyme and Sanofi-Aventis may react to an announcement from Sanofi-Aventis that it has launched an $18.5 billion hostile bid for Genzyme. The action follows an earlier offer Sanofi made to Genzyme that was subsequently rejected by the company.

Micorsemi Corp. is likely to see some activity after it announced a deal to buy Actel Corp. for $20.88 per share through a cash tender offer. The total transaction value is about $430 million, net of Actel’s projected cash balance at closing.

U.S. Economic Reports

The monthly non-farm payrolls report takes the spotlight in the unfolding week. Along with it, traders may also focus on the National Association of Realtors' pending home sales report, the weekly jobless claims report and the Institute for Supply Management's non-manufacturing index for September.

The Commerce Department's factory goods orders for August, the Federal Reserve's consumer credit report for August, the wholesale inventories report for August and announcements concerning the treasury auctions of 3-year and 10-year notes and 30-year bonds round up the other economic events of the week.

The non-farm payrolls report is likely to show that payrolls remained unchanged in September, as the government sector may have seen more job losses in the wake of the elimination of temporary workers hired for Census. Going by the weekly jobless claims numbers, which showed a decline in September compared to the previous month, the private sector may have continued adding jobs.

The non-manufacturing index of the ISM is expected to remain little changed in September. Activity in the service sector may have taken a hit by the payback phenomena of the homebuyers' tax credit. Retail sales have not picked up significantly. However, the Beige Book said that non-manufacturing activity is still on an upward trend.

The Commerce Department is due to release its report on factory goods orders for August at 10 AM ET. Economists expect factory good orders for the month to decline 0.4%.

In July, factory goods orders edged up 0.1% following two consecutive months of declines. Meanwhile, durable goods orders, which make up the bulk of factory goods orders, fell 1.3% month-over-month in August. Economists had estimated a 1.4% drop in durable goods orders. Excluding transportation orders, new orders increased 2%.

Transportation equipment orders fell 10.3%, primarily dragging down the headline number. Capital goods order, excluding aircraft, rose 4.1% following a 5.3% drop in the previous month.

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 increase by 1% in August.

In July, the pending home sales rose 5.2% month-over-month compared expectations for an unchanged reading. Pending home sales had declined in the previous two months. All four regions showed monthly growth.