US & World Daily Markets Financial Briefing 04-11-2010

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Stocks Sharply Higher In Mid-Morning Trading

Stocks are up by notable margins in mid-morning trading on Thursday, as traders are reacting to the Federal Reserve's plan to buy up $600 billion in bonds over the next eight months in order to stimulate the economy. The reaction has overshadowed a jobless claims report that showed the weekly figure moving back above the 450,000 mark.

The major averages have moved to the upside in recent trading, with the Dow and the S&P 500 rising to new highs for the session. The Dow is currently up 170.41 points or 1.5 percent at 11,385.54, the Nasdaq is up 32.05 points or 1.3 percent at 2,572.32 and the S&P 500 is up 15.96 points or 1.3 percent at 1,213.92.

Earlier, the Labor Department reported that initial jobless claims rose to 457,000 from the previous week's revised figure of 437,000, the lowest level in roughly three months. Economists had expected jobless claims to edge up to 445,000.

Commenting on the data, Peter Boockvar, equity strategist at Miller Tabak, said, "Because last week's drop in initial claims was not followed thru this week, the labor market still remains lackluster but hopefully averaging below 450k can be a new baseline."

"With the U.S. election now past and details from the Fed on the pace and amount of their asset purchases now out, we'll see how corporate America's hiring policies change and we hope of course for the better," Boockvar added.

In news out of the retail sector, October comparable store revenues largely increased by more than expected. Target (TGT) reported same-store sales that rose by 1.7 percent, while Macy's (M) said its same-store sales increased by 2.5 percent and Costco (COST) said same-store sales picked up by 6 percent.

As earnings season is winding down, French telecommunications equipment maker Alcatel-Lucent (ALU) reported third quarter profit and revenues that just edged out Wall Street expectations after currency translation, although its quarterly margins were of concern to analysts.

After the markets closed Wednesday, News Corp. (NWS) posted a first quarter profit of $0.30 per share, topping forecasts by six cents, while its quarterly revenues just beat analyst forecasts.

Telecommunications giant Qualcomm Inc. (QCOM) reported fourth quarter earnings and revenues that beat Wall Street projections while issuing first quarter and full year 2011 earnings guidance above expectations.

Sector News

Gold stocks are among the morning's strongest percentage gainers, with the NYSE Arca Gold Bugs Index up by 3.4 percent. The advance has lifted the index to an all-time intraday high.

The strength in the gold sector comes as the price of the precious metal has surged up by $38.30 or 2.9 percent to $1,375.90 an ounce.

Telecom, steel and oil service stocks are also posting strong gains, along with healthcare provider, housing and defense stocks.

Telecom stocks are being helped by Qualcomm's strong earnings report, driving the NYSE Arca Telecom Index up by 3.3 percent to a two-year intraday high.

Oil service stocks are helping to boost the Philadelphia Oil Service Sector Index up by 1.8 percent as the price of oil is up by $1.44 or 1.7 percent to $86.13 a barrel.

Stocks Driven By Analyst Comments

Real estate management firm Jones Lang Lasalle (JLL) is on the upside after being upgraded from Neutral to Buy by analysts at Goldman Sachs, which cited recent valuation as a reason for the ratings change. The stock has gained 5.2 percent, extending its recovery from the two-month closing low set in late October.

On the other hand, Career Education (CECO) is trading lower following a downgrade from Outperform to Sector Perform at RBC Capital Markets. The stock is posting a loss of 4 percent and is currently on pace for its worst close in two years.

Other Markets

Overseas, stock markets in the Asia-Pacific region ended notably higher on Thursday. Japan's benchmark Nikkei 225 Index gained 2.2 percent, while Hong Kong's Hang Seng Index advanced by 1.6 percent.

The major European markets are also seeing strong gains. The U.K.'s FTSE 100 Index is up by 1.9 percent, while the German DAX Index and the French CAC 40 Index are both up by 1.8 percent.

In the bond markets, treasuries are seeing sharp gains. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.476 percent, posting a loss of 14.3 basis points.

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TSX Logs Triple Digit Gain On Fed QE2

Canadian investors reacted positively to the latest move by the Federal Reserve to pump in more money into US economy. Buying was seen across sectors Thursday morning, with commodities stocks turning in particularly strong performances.

The Federal Reserve said late Wednesday that it would buy the bonds at a rate of about $75 billion a month through the middle of next year. Meanwhile, the ECB today held steady on rates to help economic growth and the Bank of England kept its emergency stimulus program unchanged at $324 billion, and its key rates at 0.5%, as widely expected.

The S&P/TSX Composite Index surged 232.29 points or 1.83% to 12,903.41, its fresh 2-year peak.

The price of crude oil advanced Thursday morning as traders hoped for faster economic growth after the Federal Reserve announced plans to inject $600 billion into the economy. Crude for December moved up $1.54 to $86.23 a barrel.

In the oil patch, Crew Energy and Petrobakken Energy were up around 3% each.

Integrated oil firm Suncor Energy surged over 8% after reporting improved third quarter net earnings of C$1.022 billion or C$0.65 per share compared to C$929 million or C$0.69 per share a year ago.

Independent energy company Canadian Natural Resources added over 3%. The company reported lower third quarter net earnings of C$580 million or C$0.53 per share, compared to C$658 million or C$0.61 per share last year. The company said that prior-year per common share amounts have been restated to reflect a two-for-one common share split in May 2010. The company declared a quarterly cash dividend of C$0.075 per share.

The price of gold was heading toward a record high as the U.S. dollar plummeted versus a basket of currencies following the Federal Reserve's monetary easing measures. Gold for December surged $41.40 to $1,379.00 an ounce.

Among gold stocks, Alamos Gold and Kirkland Lake Gold rose nearly 7% each.

International gold miner Yamana Gold Inc. rose close to 6% after reporting third-quarter adjusted net earnings of $118.9 million, or $0.16 per share. Analysts were expecting the company to report earnings of $0.14 per share for the quarter.

Kinross Gold swung to profit in third quarter, reporting net earnings of $346.9 million or $0.44 per share compared with net loss of $21.5 million or $0.03 per share in a year ago period. Adjusted net earnings were $123.6 million, or $0.16 per share, up from $1.7 million or breakeven per share in the year ago quarter. Analysts were expecting the company to report earnings of $0.16 per share. The stock was up nearly 2%.

In the base-metals space, Equinox Minerals added nearly 8%. Inmet Mining and Lundin Mining gained over 4% each.

In the Financial sector, Bank of Montreal, Canadian Western Bank and RBC rose over 1% each.

Insurer Manulife Financial soared over 8%. The company reported a much wider third quarter net loss of C$947 million, or C$0.55 per share compared with a loss of C$172 million, or C$0.12 per share in the year-before period. Nonetheless, net loss came in much narrower-than consensus estimates for a loss of C$0.73 per share.

Peer insurer Sun Life Financial said it swung to profit in third quarter, reporting net income of C$453 million or C$0.79 per share, compared to a loss of C$140 million or C$0.25 per share in a year ago. The company announced a quarterly dividend of C$0.36 per common share. The stock gained nearly 3%.

Communications services provider BCE Inc. moved up over 1%. The company reported lower third quarter net earnings of C$528 million or C$0.70 per share compared to C$558 million or C$0.72 per share in the year ago quarter. Analysts were expecting the company to report earnings of $0.77 per share in the quarter.

Meanwhile, Potash Corp. slipped over 4% after the Canadian government blocked the BHP's $130 per share takeover bid saying that the proposed transaction is not likely to provide a "net benefit" to the country.

Multinational specialty pharmaceuticals company Valeant Pharmaceuticals shed over 3% after reporting third quarter net loss of $207.88 million or $1.27 per share, compared to profit of $40.36 million or $0.25 per share last year. The company also announced that its board has approved $1.5 billion securities repurchase program and said that it may buy its convertible notes, senior notes and/or common shares.

In economic news from south of the border, the U.S. Commerce Department said that initial jobless claims rose to 457,000 in the week ended October 30 from the previous week's revised figure of 437,000. Economists had expected jobless claims to edge up to 445,000 from the 434,000 originally reported for the previous week.

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Morning's gains consolidated

Market Movers
techMARK 1,752.56 +0.03%
FTSE 100 5,847.08 +1.71%
FTSE 250 11,004.22 +1.18%

Since the Bank of England’s noon announcement extinguished the small hopes of Britain joining the US in reviving its quantitative easing programme, leading shares have marked time.

Miners are still doing particularly well on hopes that the Fed’s stimulus measures will help sustain the global economic recovery. ENRC, Kazakhmys and Xstrata are all up 5% or more.

Mining giant BHP Billiton is enjoying a similar sort of boost, after yesterday evening’s announcement that the Canadian government has blocked the Anglo-Australian firm’s proposed $38.6bn takeover of fertiliser giant Potash.

Even the miners trail in the wake of Man Group, which is the pick of the blue-chips after the hedge fund manager reported its first quarter of positive institutional flows in more than two years.

Man saw funds under management in the three months to September 30 rise to $40.5bn (£25.2bn) from $38.5bn ‘due to strong investment performance and favourable FX movements.’

In other sectors, Anglo-Dutch household goods giant Unilever is higher after making some optimistic noises about future price trends. Underlying price growth in the third quarter was negative at -1.2%, though this represented an improvement on previous quarters, and the trend is expected to continue for the remainder of 2010. For the first nine months of 2010 price growth was negative at -2.1%.

Third quarter turnover at the Knorr soup and Dove soap group was up 13.2% at €11.55bn from €10.20bn a year earlier, ahead of some market forecasts of €11.35bn.

Supermarket Morrisons is missing out on the fun after a rise in sales failed to impress. In a brief statement, the company said total sales excluding fuel were up by 2.8%, with like-for-like sales up by 1.3%.

Rolls-Royce is also an exception after Aussie airline Qantas grounded its fleet of new Super Jumbo Airbuses after an engine exploded. Rolls made the engine in question.

Insurer RSA Group maintained top line momentum in the third quarter despite challenging trading conditions. Net written premiums in the first nine months of 2010 totalled £5.53bn, up 10% from £5.03bn the year before. With exchange rate fluctuations stripped out the rise was 7%.

Old Mutual's planned disposal of its US hedge fund Harbinger Capital is on track with completion expected at the end of this year, the South African life group reiterated today.

Telecoms giant BT is firmer after it said changes to its pension scheme rules will reduces the IAS [International Accounting Standards] 19 accounting valuation of the scheme's liabilities by around £2.9bn. The change has been prompted by the government’s decision to switch to using the Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI) as the basis for determining the rate of inflation for the statutory revaluation and indexation of occupational pension rights.

Telecoms group Cable & Wireless Communications saw a dip in profits in the year to September 30 against what it described as a ‘mixed economic backdrop’ across the exotic regions it serves. Pre-tax profits fell to $204m from $223m even as revenues rose to $1.16m from $1.13m. The shares take a tumble on fears that the dividend may not be sustainable.

Engineering firm Invensys said it was reassured by the government’s commitment to invest in infrastructure such as the London Underground and the Crossrail project as it posted higher revenues, though profits were impacted by contract implementation costs. In the half year to September 30, pre-tax profits fell to £75m from £88m over the same period the previous year as revenues climbed to £1.16bn from £1.07bn.

News Corporation’s attempt to take complete ownership of satellite broadcaster BSkyB suffered a setback after Business Secretary Vince Cable referred it to industry regulator Ofcom to decide if it is against the public interest.

In the FTSE 250, oil and gas group Melrose Resources is strong after it announced its first production from gas fields off the Bulgarian coast. Sector peer Kenmare Resources is flavour of the day after Bank of America Merrill Lynch initiated coverage of the stock with a “buy” recommendation.

No-frills airline easyJet said it carried 4.6m passengers in October, up 8.6% from the same period last year. The October load factor increased to 88.2% from 86.8% in 2009, making 87.1% for the rolling 12 months.

Meggitt, the maker of components for planes and other equipment, expects the recent defence review to have a ‘minimal impact’ on 2011 revenues.

First quarter like-for-like sales at pub chain JD Wetherspoon increased 1.6% while total sales in the period rose 7.3%.

International Hotel Group Millennium & Copthorne nearly doubled profits in the third quarter as it took advantage of improved economic conditions to lift room rates.

Shares in Tate & Lyle sweetened after the food ingredients company more than doubled profits on sales that were boosted by higher corn prices. Pre-tax profits in the six months to September 30 climbed to £104m from £45m on sales that rose to £1.35bn from £1.3bn.

Speciality pharmaceuticals developer BTG reported an interim operating profit even though lower milestone payments meant that revenues fell in the six months to September 2010.

Shares in telecom equipment tester Spirent moved up towards a 12-month high as it reported trading since July has exceeded its expectations.

Housebuilders are in demand after house prices staged a surprise rebound in October according to the latest monthly figures from mortgage lender Halifax, though the longer-term trend remains downwards. Taylor Wimpey, Barratt Developments and Persimmon all charge ahead, dwarfing the gain achieved by sector peer, Redrow , which had its annual general meeting today.

Redrow chairman Steve Morgan said: “"Like for like private home sales in the financial year to date are some 9% up on the same period last year at £133m, which has been achieved on 6% fewer reservations.”

Shares in Charter International fell sharply after the industrial engineer announced the full year earnings outcome will be at the lower end of analysts’ forecasts.

Waste management firm Shanks revealed a 2% increase in interim pre-tax profit despite difficult trading conditions.

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Indian Market Rallies After Fed Decision

The Indian market rose to a fresh 34-month high on Thursday, as the U.S. Federal Reserve' s decision to embark on a second round of quantitative easing, by buying $600 billion in government debt over eight months, fueled demand for riskier assets. Strong listing gains from Coal India IPO and data showing easing food inflation also boosted investor sentiment.

Consistent buying in heavyweight stocks like SBI, Tata Motors, ONGC, Reliance Industries, Sterlite Industries and Hindalco lifted the 30-share BSE Sensex up 428 points or 2.09% to a 52-week high of 20,894, about 300 points below its all-time high of 21,206 recorded in January 2008. The broader Nifty rose by 121 points or 1.97% to 6,282.

Mid-cap and small-cap stocks, however, posted modest gains, underperforming the frontline stocks. The BSE mid-cap index rose 0.83%, while the small-cap index added 0.66%. On the BSE, gaining shares outpaced declining ones by 1545 to 1393 shares. Sector-wise, financials, IT, metals, auto and energy stocks were among the prominent gainers.

The market will remain closed tomorrow to celebrate the Hindu festival of Diwali. However, there will be a special one hour "Muhurat' trading session in the evening between 6 pm and 7 pm IST, to mark the beginning of the Samavat Year 2067.

Coal India rose nearly 40% to Rs.341.90 on its debut compared to its initial public offering price of Rs.245 per share. Other mining-related stocks like Ashapura Minechem (up 2.50%), GMDC (up 19%) and NMDC (up 2.76%) also rallied.

Tata Teleservices closed up half a percent after it launched 3G services in Maharashtra. Confidence Petroleum hit the 5% upper circuit limit after it tied up with a Chinese company to develop gas meters and energy meters business in India.

GTL Infrastructure rose 2.34% on reports that it will raise up to Rs 3,500 crore by issuing fresh shares and selling treasury stock. Shares of Aurobindo Pharma advanced 2.44% after the drug maker reported a 92% jump in consolidated net profit for the quarter ended September. Engineers India slipped 0.23% after reporting a modest 14% rise in quarterly net profit.

On the macro economic front, India's annual food inflation for the week ended October 23 fell to 12.85% from 13.75% in the previous week, the third consecutive week of decline, as prices of vegetables like potato and onion eased due to improved supplies, official data released today showed. The fuel price inflation for the week also moderated to 10.67% from 11.25% in the previous week.

In other economy-related news, Chief Economic Adviser to the Finance Ministry Kaushik Basu said today that current capital inflows into the country are large but still not at a level that the government should be worried about.

Elsewhere, the other Asian markets climbed on Thursday, lifting the MSCI Asia Pacific index up by about 1.7% to a more than two-year high, as the much-anticipated U.S. Federal Reserve's announcement on quantitative easing suggested that capital inflows into emerging markets will likely continue.

Crude futures for December delivery rose sharply to near $86 a barrel in late Asian trading Thursday, as a bullish inventory report, the Fed's pledge to purchase $600 billion in long-term bonds and the subsequent weakening in the dollar boosted the commodity's appeal as an alternate investment.

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Dollar Falls Further After QE2

If, as some critics charge, the Federal Reserve is hoping to debase the dollar, the early returns on its latest shot of stimulus are in: the move is working.

The dollar came under heavy pressure versus most major currencies Thursday morning, dropping to a 10-month low against the euro and coming within a hair of parity against its Canadian counterpart.

Many analysts point out that a number of nations are in race to weaken their currencies in order to give exporters a competitive advantage.

Yesterday, the U.S. Federal Reserve revealed that it intends to expand its asset purchase program by $600 billion. As was widely expected, the Fed also decided to leave interest rates unchanged at a record low.

The dollar dropped to $1.4263 versus the euro for the first time since mid-January, and has fallen near 25 cents from a 4-year peak set back in June. The European Central Bank is expected to keep its key interest rate on hold at one percent this morning.

The dollar also extended its 10-month low versus the sterling, touching $1.6205. The Bank of England kept its kept interest rate unchanged at 0.5 percent.

On the flip side, the dollar has fallen no further versus the yen, even after the Fed warmed up the printing presses. The buck was steady near Y81, having touched a 15-year low near 80.20 earlier this week.

The Labor Department will release its customary report on weekly jobless claims for the week ended October 30 at 8.30 a.m. ET. Economists expect that jobless claims come in at 445,000 for the week, slightly higher than 434,000 reported for the previous week.

The data is considered a key prelude to tomorrow's pivotal monthly jobs report.

The Labor Department will also release a preliminary report on third quarter non-farm productivity and unit labor costs. Economists expect productivity growth of 1% for the quarter.

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