US & World Daily Markets Financial Briefing 05-01-2010

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Stocks Could Pause After Recent Run up

The major U.S. index futures are pointing to a marginally lower opening on Tuesday. Although stocks have been running up in anticipation of a sustainable economic recovery, recent gains expose the averages to the risk of profit taking. With a few key economic reports scheduled to be released over the rest of the week, traders may prefer to stay on sidelines. That said, the pending home sales data and the price of resources could impact sentiment in today’s session.

After economic optimism fueled by positive data points from Asia and Europe contributed to a strong opening on Wall Street on Monday, the major averages climbed further in early trading due to encouraging domestic manufacturing data. Thereafter, the buying interest waned and the major averages consolidated, ending the day at 15-month highs.

The Dow Industrials ended the session up 155.91 points or 1.50% at 10,584, the Nasdaq Composite Index rose 39.27 points or 1.73% to 2,308 and the S&P 500 Index closed 17.89 points or 1.60% higher at 1,133.

Twenty-seven of the thirty Dow components ended the session higher, with Alcoa (AA), Bank of America (BAC), Cisco Systems (CSCO), JP Morgan Chase (JPM), Pfizer (PFE) and United Technologies (UTX) posting notable gains.

Among the sector indexes, the Dow Jones U.S. Basic Materials Average rose 3.52%, the NYSE Arca Oil Index climbed 3.02%, the Philadelphia Oil Service Index rallied 3.87% and the NYSE Arca Gold Bugs Index gained 3.47%. The Philadelphia Housing Sector Index moved up 2.13% compared to a 2.96% advance by the NYSE Arca Securities/Broker Dealer Index and a 2.27% gain by the KBW Bank Index.

In the technology space, the NYSE Arca Disk Drive Index gained 4.45% and the NYSE Arca Computer Hardware Index, the Philadelphia Semiconductor Index and the NYSE Arca Software Index all rose over 1%, while the NYSE Arca Networking Index climbed 2.32%.

On the economic front, the Institute for Supply Management’s manufacturing survey showed that conditions in the sector improved in December. The manufacturing index rose to 55.9 in December from 53.6 in November, climbing to its highest level since April 2006. Economists had expected a more modest improvement. While the new orders index surged up 5 points to 65.5, the order backlogs index declined 2 points. The production index rose 2 points to 61.8. Inventories were still lean, as the inventories index rose 2 points but remain below the cut-off mark of ‘50’ at 43.4. The employment index was above the ‘50’ mark for the second straight month, advancing 1.2 points to 52.

Meanwhile, the Commerce Department’s construction spending report showed a 0.6% month-over-month decline in spending. Private construction spending fell 0.7% compared to a more modest 0.4% slippage in public construction spending. In the private category, non-residential construction spending remained unchanged, while multi-family construction spending declined 4.1%, offsetting a 1.3% increase in single-family construction spending.

Steam May Run Out On Bay Street Rally Tuesday

Toronto stocks may struggle to extend their recent gains on Tuesday and are likely to move in a narrow range at the open. The prices of commodities are also pausing for a breather, after a good run up on Monday. The U.S. stock futures also point to a slack opening, as they were narrowly mixed.

In the commodities markets, gold edged up a marginal $3 to $1120 an ounce, while oil was trading almost flat ahead of API inventory data. NYMEX crude oil was changing hands at $81.72, gaining a fractional $0.21.

The Canadian market had a nice run in the previous session as widespread buying lifted the main index to a 15-month high. Oil and gold prices had moved higher on encouraging manufacturing data from the U.S. and China. The S&P/TSX Composite Index ended Monday at 11,866.90, gaining 120.79 points or 1.03%.

In corporate news, Credit Suisse raised Potash Corp. rating to Outperform with a price target of $129, citing demand pickup among farmers.

In brokerage update, Morgan Stanley initiated coverage of Research in Motion with an Overweight rating.
 
Health care provider Shoppers Drug Mart Corp. said it has advised its shareholders not to respond to an unsolicited below market "mini-tender" offer from TRC Capital Corp. to purchase up to 2 million common shares.

Networking solutions provider RuggedCom Inc. said it has received purchase orders worth over $2.1 million for a wind power application in China.

Forest product dealer Acadian Timber said it would pay one time dividend of 1.7 cents a share on January 29 and start paying 5 cents a share beginning next quarter.

Elsewhere in a major restructuring deal, Nestle announced plans to buy the North American frozen pizza business from Kraft Food for $3.7 billion. Notably yesterday Nestle said it got an offer from drug maker Novartis AG to buy the rest of Alcon Inc. from it for $28 billion.

Statistics Canada reveled Tuesday that rising oil and metal prices helped Canada's Industrial Product Price Index and Raw Material Price Index to gain 1.0% and 2.2%, respectively, in November.

Traders will also be keen on getting clues from data from across the border. The U.S. Commerce Department's report on Factory Orders and the National Association of Realtors' data on Pending Home Sales are due later today.

Commodity, Currency Markets

Crude oil futures are receding $0.16 to $81.35 a barrel after surging up $0.54 to $81.51 a barrel on Monday. Gold futures, which climbed $22.10 to $1,118.30 an ounce in the previous session, are currently moving up an incremental $1.80 to $1,120.10 an ounce.

On the currency front, the U.S. dollar is trading at 91.755 yen compared to the 91.5055 yen it fetched at the close of New York trading on Monday. Against the euro, the greenback is currently valued at $1.4424.

After the late-year strength of the dollar, the currency has pulled back in the New Year, as risk appetite has increased on hopes of the global economy seeing a full economic recovery this year.

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Asian Markets End In Positive Territory

The markets across Asia ended in positive territory but well off the highs in the second trading session on Tuesday, encouraged by the sharp gains on Wall Street in the previous session. Higher commodity prices also lifted market sentiment with resource stocks leading the gains.

In Japan, the benchmark Nikkei-225 Index added 27.04 points, or 0.3%, to 10,682, while the broader Topix index of all First Section issues was added 3.82 points, or 0.4%, to 920.

On the economic front, the Bank of Japan revealed that the monetary base in the country rose 5.2% year-over-year during December, following an year-over-year rise of 3.8% in the month of November. The central bank further noted that banknotes in circulation were down an annual 0.3%, while coins in circulation fell 0.7% on year. The current account balance was up 53.6%, including a 47.4% annual increase in reserve balances.

In a separate statement, the the Japan Automobile Dealers Association said auto sales increased for the fifth consecutive month in December. Domestic sales of new cars, trucks and buses increased 36.5% year-on-year in December. Automobile sales totaled 250,474 units in December, larger than 183,549 recorded in December 2008. However, for the calendar year 2009, automobile sales declined 9.1% to 2.92 million vehicles
 
Commodity related stocks led the gains on higher commodity prices in the international market. Impex, the oil exploration company, rose 1.82%. Nippon Oil Corp. surged up 7.39% and Nippon Mining Holdings soared 7.25%. Showa Shell climbed 1.84%.

Among trading companies, Mitsubishi Corp. advanced 2.50%, Mitsui & Co. climbed 2.85%, Itochu Corp. rose 2.45%, Marubeni Corp. gained 2.66%, Sumitomo Corp. added 1.24% and Toyota Tsusho Corp. edged up 0.43%.

Banks also ended in positive territory after Sumitomo Mitsui Financial announced that it would raise only 800 million yen to replenish the capital, lower than earlier expection of capital raising in excess of 1 trillion yen. The shares of Sumitomo Mitsui Financial advanced 1.45%. Among other large banks, Mizuho Financial rose 1.23% and Mitsubishi UFJ Financial added 0.22%, on relatively large volumes. However, Resona Holdings bucked the trend and ended in negative territory with a loss of 0.21%.

Automotive stocks ended in negative territory, offsetting the early gains in the market partly, following strengthening of the local currency against the US dollar. Toyota Motor Corp. declined 2.19%, Suzuki Motor fell 1.78%, Honda Motor slipped 0.79%, Hino Motors shed 0.93% and Mitsubishi Motor declined 1.53%.

In Australia, the benchmark S&P/ASX Index advanced 48.00 points, or 0.98% to close at 4,924, while the All-Ordinaries Index ended at 4,839, representing a gain of 49.70 points, or 1.02%.

On the economic front, survey results released by Australia's Housing Industry Association revealed a modest increase in new home sales for the month of November, reversing the unexpected slump in October. The results revealed that new homes sales rose 0.3% during November from October.

Mining and metal stocks led the gains on higher commodity prices. BHP Billiton added 0.46%, Fortescue Metals gained 2.45%, Gindalbie Metals surged up 6.48%, Iluka Resources rose 3.62%, Macarthur Coal climbed 3.00%, Oz Minerals soared 5.00% and Rio Tinto advanced 1.91%.

Oil stocks also ended in positive territory after crude oil prices surpassed the $81 a barrel mark in the international market. Woodside Petroleum advanced 0.93%, Santos gained 1.47%, Oil Search added 0.33% and Origin Energy climbed 2.80%.

Gold stocks also gained on higher bullion prices. Lihir Gold gained 1.52% and Newcrest Mining rose 2.00%%.
 
Banking stocks also advanced on increasing optimism about global recovery. ANZ Bank added 0.48%, Commonwealth Bank of Australia gained 1.51%, National Australia Bank rose 1.28% and Westpac Banking Corp. advanced 0.83%. Investment banker Macquarie Group climbed 1.93%.

Retail stocks were the laggards in the market having ended mixed after Harvey Norman was downgraded by JP Morgan. David Jones fell 1.32%, Harvey Norman slumped 2.94%, JB Hi-Fi fell 2.19% and Woolworths slipped 0.60%. However, Wesfarmers bucked the trend and ended in positive territory with a gain of 1.31%.

In Hong Kong, the Hang Seng Index ended sharply higher with a gain of 456.30 points, or 2.09%, at 22,280, primarily led by resource related stocks on higher commodity prices in the international market. Positive closing on Wall Street in the previous session on increasing optimism about economic recovery also lifted market sentiment with risk appetite returning to the market. As many as 37 of the 42 components in the index ended in positive territory. Aluminum Company of China or CHALCO surged up 9.08%, while CNOOC climbed 5.72% and PetroChina soared 5.92%.

In South Korea, the KOSPI Index ended in negative territory with a marginal loss of 5.52 points, or 0.33%, at 1,69, as traders preferred to lock in gains following recent gains and move to sidelines awaiting further data. Automotive stocks were the major draggers in the market on strengthening local currency, Korean Won, as a stronger local currency reduces the export sales realizations in local currency on conversion. Liquidity concerns related to Kumho Asiana Group also impacted market sentiment.

A return in risk appetite amid improving corporate earnings outlook along with a rally in the U.S and the European markets overnight lifted the Indian market notably higher on Tuesday. Metal stocks outperformed tracking gains among their global peers on the back of higher commodity prices, followed by high-beta realty and telecom stocks, but profit taking in the auto sector limited large gains in the frontline indexes. The benchmark Sensex finished at 17,686, up 128 points or 0.73% and the Nifty rose by 46 points or 0.87% to 5,278.

Among other major markets open for trading in the region, Indonesia's Jakarta Composite Index advanced 29.86 points, or 1.16% to close at 2,605, Taiwan's Weighted Index edged up 3.55 points, or 0.04% to close at 8,211, Straits Times Index in Singapore gained 25.73 points, or 0.89%, to close at 2,920, and China's Shanghai Composite Index rose 38.42 points, or 1.18%, to close at 3,283.

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The European markets have recovered after showing weakness in morning trading on Tuesday. Currently, the French CAC 40 Index is rising 0.13% compared to a 0.34% decline by the German DAX Index. Meanwhile, the U.K.’s FTSE 100 Index is advancing 0.37%.

On the economic front, French statistical agency INSEE reported that French consumer confidence fell for the first time in four months in December. The seasonally adjusted sentiment indicator decreased to minus 31 in December from minus 30 in November. Economists had expected a reading of minus 30. Most sub-indexes measuring future expectations showed weakness.

The seasonally adjusted unemployment rate in Germany based on ILO standards came in at 7.6% in November, down from 7.7% in October, but it was up from 7.1% in the previous year, data released by the Federal Statistical Office showed. The number of unemployed individuals amounted to a seasonally adjusted 3.26 million in November, up 200,000 persons or 6.5% from the previous year.

A CIPS/Markit survey showed that the U.K.’s construction purchasing managers’ index came in at 47.1 in December, indicating a contraction in activity for the 22nd straight month. New orders in the construction sector decreased in December, with respondents citing reduced budgets among clients, while employment levels in the construction sector were cut again.

A flash estimate released by Eurostat reported that the euro area’s inflation rose at an annual rate of 0.9% in December compared to a 0.5% rate in the previous month. The inflation rate came in line with the expectations of economists.

U.S. Economic Reports

Individual automakers are scheduled to release their monthly U.S. sales results for December on Tuesday. The data will reveal the unit sales of domestically produced cars and light duty trucks, including sports utility vehicles and mini-vans, during the month.

The Commerce Department is due to release its report on factory goods orders for November at 10 AM ET. Orders for manufactured goods are likely to have increased 0.5% in the month.

Durable goods orders, which make up the bulk of factory goods orders, rose 0.2% month-over-month in November, with the increase helped a 3.7% surge in orders for computers and electronic products. Excluding transportation, orders climbed 2%. Shipments of durable goods rose 0.3%, but unfilled orders fell 0.7% and inventories edged down 0.2%. On a positive note, shipments as well as new orders of non-defense capital goods orders rose during the 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 show a decline of 2% for November.

The pending home sales index rose 3.7% month-over-month in October to its highest level in about three and a half years. Economists had estimated a 1% drop. Barring the West, where the index fell 11.2%, the remaining three regions saw strong gains. Annually, the index was up 28.6%.

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GenCorp. (GY) could be in focus after its subsidiary Aerojet said it has been selected to provide the MK 125 warhead for Raytheon Missile Systems’ (RTN) family of Standard Missile programs. The company also noted that deliveries would begin in 2010.

Atrion Corp. (ATRN) could move to the upside after the firm’s board declared a special dividend of $6 per share on its outstanding common stock. The company said the dividend would be payable on January 29th, 2010 to stockholders of record at the close of business on January 19th, 2010.

Continental Airlines (CAL) and UAL (UAUA) may see some activity in reaction to their announcements of monthly traffic results. Continental reported a 3.1 percentage point year-over-year increase in its load factor for December to 83%. Meanwhile, UAL’s subsidiary United Airlines reported that its December load factor rose 2.5 points to 81.9%, as traffic remained flat and capacity fell 3.1%.

Alcon (ACL) is expected to react to an announcement from the company’s independent director committee over Novartis’ (NVS) offer. The committee expressed displeasure at the Swiss drug giant’s attempts to circumvent the protections established by the company to protect the interest of minority shareholders. The committee also said it would inform Alcon shareholders of its formal position once it completes its evaluation.

Reinsurance Group of America (RGA) could also be in focus after it said it has finalized the acquisition of the U.S. and Canadian group life, accident and health reinsurance business from ING Reinsurance, which is a subsidiary of ING Groep. The company noted that the acquisition was effective January 1st.

General Dynamics (GD) may move to the upside after it announced that its subsidiary General Dynamics Land Systems has been awarded a contract by the U.S. Army Tank and Automotive Command to build 140 M1A1 SA tanks for Iraq. The deal is valued at $198 million. The company also noted that the completion date of the contract is May 31st, 2011.

Oracle (ORCL) may see some activity after it announced a deal to buy product data quality solutions provider Silver Creek. The company did not divulge the terms of the deal.

Brightpoint (CELL) is expected to see weakness after it announced preliminary results for the fourth quarter, expecting adjusted non-GAAP income from continuing operations of 13-18 cents per share. Analysts estimate earnings of 19 cents per share for the quarter.

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