US & World Daily Markets Financial Briefing 07-07-2010

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Stocks Up By Solid Margins In Mid-Morning Trading

Stocks are seeing solid buying interest in mid-morning trading on Wednesday, as the lure of bargain prices following last week's weakness has attracted some capital amid a light day on the economic front. The major averages are all in positive territory, attempting to build on yesterday's modest gains.

Later today, some market watchers may look to see if Minneapolis Federal Reserve Bank President Narayana Kocherlakota offers any clues on the U.S. economy as he speaks at a meeting in Montreal at 3:30 p.m. ET.

In the Asian banking sector, Agricultural Bank of China, which priced its initial public offering of common shares on Tuesday, expects to mop up in excess of $19 billion in the international market in what could be the largest ever IPO in the global markets.

In corporate news, Toyota Motor Corp. (TM) revealed that it would recall 138,874 of its Lexus vehicles in the U.S. due to faulty engine valve springs that could break and cause the engine to fail abruptly while running.

Family Dollar Stores Inc. (FDO) reported third-quarter earnings and revenues that were largely in-line, while the firm's fourth-quarter earnings forecast was lower than expected, sending shares lower.

The major averages have all seen some choppy movement and slipped from their session highs in recent dealing. Nonetheless, the Dow remains up 81.06 points or 0.8 percent at 9,824.68, the Nasdaq is up 18.55 points or 0.9 percent at 2,112.32 and the S&P 500 is up 9.52 points or 0.9 percent at 1,037.58.

Sector News

Banking stocks are among the morning's strongest performers, as reflected by the 2.3 percent advance by the KBW Bank Index. The advance is lifting the index further off of a recent four and a half month closing low.

State Street (STT) is helping to lead the banking sector higher after forecasting second quarter earnings above analyst estimates. Shares of State Street are currently up by 10.3 percent, moving further off the more than one-year closing low it set last Friday.

Railroad stocks are also seeing notable gains, resulting in a 1.6 percent gain by the Dow Jones Railroads Index. The index is climbing further off last Friday's four-month closing low.

Considerable strength is also visible among electronic storage, oil, semiconductor and internet stocks, while some of today's upside in the markets is being held back by losses by biotechnology stocks. The NYSE Arca Biotechnology Index is down by 1.3 percent, setting a five-month intraday low.

Stocks Driven By Analyst Comments

Synchronoss Tech (SNCR) is trading higher after being upgraded at Wedbush from Neutral to Outperform. The broker also raised its target on the stock from $21 to $22. The stock has gained 3.7 percent, bouncing off of a four-month closing low set on Tuesday.

VeriSign (VRSN) is also on the upside after analysts at Oppenheimer upgraded shares from Perform to Outperform. The stock is up by 4.4 percent, recovering from a two-month closing low set in the previous session.

Other Markets

In overseas trading, stocks across the Asia-Pacific region moved back to the downside on Wednesday. Hong Kong's Hang Seng Index fell by 1.1 percent, while Japan's benchmark Nikkei 225 Index lost 0.6 percent.

Meanwhile, the major European markets have reversed course and are on the upside by varied margins. The U.K.'s FTSE 100 Index and the German DAX Index are up by 0.2 percent and 0.3 percent, respectively, while the French CAC 40 Index is up by 0.9 percent.

In the bond markets, treasuries are seeing modest weakness amid the gains on Wall Street. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.955 percent, posting a gain of 2.3 basis points.

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TSX Poised For A Mixed Open

Canadian stocks are poised for a flat open Wednesday amid mixed cues from the commodities markets. While energy stocks are likely to get support from firm crude oil prices and $1.5 billion merger deal in oil patch, gold stocks may continue to lose shine along with drifting gold price.

Concerns over global economic growth continued to weigh on sentiment, with the main index lingering near its 8-month low.

Elsewhere, most Asian markets were down after the U.S. ISM said its index of activity in the service sector fell to 53.8 in June from 55.4 in May, belying economists expectations for a much more modest decrease to a reading of 55.0.

Meanwhile, European stocks were lingering in red, pressured by sell-offs in banks and mining stocks. In economic news from the region, data from the Customs Office revealed that the French trade deficit increased to EUR 5.5 billion in May from EUR 4.25 billion in April. Economists were expecting the shortfall to narrow to EUR 3.9 billion. Meanwhile, German factory orders fell for the first time in five months in May.

On Tuesday, the S&P/TSX Composite Index gained 107.67 points or 0.97% to 11,200.17, after settling the previous session at its 2010 low.

The price of crude oil edged up ahead of weekly inventories data from the API, after falling for the past seven sessions. Crude for August was up $0.75 to $72.73 a barrel.

Meanwhile, the price of gold continued to move down near its 6-week low. Gold for August was down $2.90 to $1,192.20 an ounce, after surrendering $12 in the previous session.

In corporate news, bitumen producer UTS Energy Corp. said it will be acquired by Total E&P Canada Ltd., a subsidiary of French energy company Total SA. Shareholders of UTS would receive cash consideration of $1.5 billion or $3.08 per share and shares in a new, publicly-traded exploration and development company, SilverBirch Energy Corp. Cash consideration to be received by UTS shareholders represents a 46% premium to its closing price on July 6, 2010 of $2.11 per share.

Airlines services provider Air Canada reported June total traffic of 4.8 billion revenue passenger miles, compared to 4.2 billion revenue passenger miles last year. System load factor for the month rose to 84.7% from 80.9% in the year-ago period.

Specialty printing paper maker PM Catalyst Paper said it is permanently closing its Elk Falls paper mill near Campbell River, British Columbia in September. The company noted that the associated asset impairment charge, including severance costs, is estimated at $302 million and will reflect in the second quarter results.

Food products company Colabor Group reported higher second-quarter net earnings of C$0.20 per share, compared to C$0.12 per share in the year ago quarter.

Agriculture and construction equipment dealer Rocky Mountain Dealerships said it will sell $28.5 million convertible unsecured subordinated debentures.

Bio-technology company BioMS Medical Corp. said it has changed its name to Medwell Capital Corp. On Thursday, July 8, Medwell will begin trading under the new symbol 'MWC'.

MAX Minerals said it closed the acquisition of Varenna Energy Ltd, an oil and gas explorer, by issuing about 11.33 million shares to the shareholders of Varenna, in exchange for all of the issued and outstanding shares of Varenna.

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Asian Markets Slip On Concerns About Global Recovery

Asian markets ended the trading session in negative territory on Wednesday amid concerns about sustaining global economic recovery. Positive closing on Wall Street in the previous session, but off the highs, failed to enthuse the market participants as they preferred to stay on the sidelines for want of more cues on global economy ahead of the start of earnings season as early as next week in the US.

In Japan, the benchmark Nikkei 225 Index dropped 58.39 points, or 0.63% to 9,280, while the broader Topix index of all First Section issues was down 5.73 points, or 0.68%, at 841.

On the economic front, a report released by the Ministry of Finance in Japan revealed that official reserve assets in the country increased US$8.92 billion to US$1.05 trillion at the end of June. As per the report, foreign currency reserves totaled US$995.67 billion, up from US$987.64 billion at the end of May, and Special Drawing Rights increased to US$19.79 billion in June from US$19.73 billion at the end of the previous month.

Exporters and Electric Machinery makers led the declines as the local currency strengthened against the US Dollar and the Euro. Fanuc Ltd declined 2.33%, Tokyo Electron Ltd shed 1.89%, Kyocera Corp. slipped 1.25%, Sony Corp. fell 1.89%, Advantest Corp. lost 1.39%, TDK Corp. was down 0.51%, and Canon Inc, edged down 0.45%.

All Nippon Airways declined 2.77%.

Securities stocks also ended weaker on global economic concerns. Nomura Holdings plunged 3.27%, Matsui Securities shed 1.16%, Daiwa Securities Group declined 1.14% and Mizuho Securities lost 1.49%.

Shipping stocks also dropped on concerns about impact of global economic recovery on sea transportation. Mitsui OSK Lines lost 2.05%, Kawasaki Kisen Kaisha plunged 3.04% and Nippon Yusen fell 2.15%.

Major banks also slipped on global economic concerns. Resona Holdings was down 3.46%, Mitsubishi UFJ slipped 0.96%, Sumitomo Mitsui Financial shed 0.69% and Mizuho Financial lost 1.40%.

In Australia, the benchmark S&P/ASX200 Index slipped 21.50 points, or 0.50% and closed at 4,255, while the All-Ordinaries Index ended at 4,278, representing a loss of 21.90 points, or 0.51%.

On the economic front, a report released by the Australian Industry Group revealed that its performance of Construction Index declined 6.8 points, to a reading of 46.4, in June, following three straight months of expansion. A reading below 50.0 indicates contraction while a reading above 50.0 signals expansion.

A report released by the Department of Education, Employment and Workplace Relations revealed that the country's leading employment indicator improved for the third consecutive month in July. As per the report, the indicator stood at minus 0.599, up from minus 0.832 in June. Commenting on the report, the department noted, "However, it is still too early to confirm that a renewed quickening in the pace of employment growth above its long-term trend rate of 1.9% per annum is in prospect, because the Indicator has risen for fewer than six consecutive months."

Gold related stocks led the decline following sharp drop in gold prices in the international market. Lihir Gold fell 1.90% and Newcrest Mining lost 1.99%.

Banks also ended in negative territory on concerns about global economic recovery. ANZ Bank slipped 1.30%, Commonwealth Bank fell 1.31%, National Australia Bank lost 1.32% and Westpac Banking was down 0.75%. Investment banking company Macquarie Group was down 2.18%.

Among pharmaceutical stocks, Sigma Pharmaceuticals was the star performer, having surged 13.92% after revealing that it has received an offer from Aspen Pharmacare to be acquired for A$648 million.


Mixed trading was witnessed among mining and metal stocks. BHP Billiton advanced 0.75%, Fortescue Metals added 0.25%, Iluka Resources climed 2.53%, Minara Resources surged up 7.58%, Oz Minerals gained 1.47% and Rio Tinto was up by 1.14%. However, Gindalbie Metals slipped 1.55%, Macarthur Coal shed 1.64%, Mincor Resources lost 2.34%, and Murchison Metals was down 2.33%.

In Hong Kong, the benchmark Hang Seng Index ended in negative territory with a loss of 227.05 points, or 1.13%, at 19,857, taking cues from other neighboring markets in the region amid concerns about global economic recovery. Positive closing on Wall Street in the previous session, well off the highs, failed to enthuse market participants as they await more cues on the health of the global recovery. Caution ahead of earnings next week in the US also impacted market sentiment with as many as 40 of the 42 components ending in negative territory.

Lingering concerns about the strength of the U.S. economic recovery weighed on the Indian market Wednesday. The benchmark 30-share Sensex ended down 143 points or 0.81% near the day's lows at 17,471, while the 50-share Nifty fell by 48 points or 0.91% to 5,241. The small-cap and mid-cap indexes on the BSE closed on a flat note, outperforming the frontline indexes. In the broader market, decliners outnumbered gainers by 1540 to 1346 shares. Oil/gas, metal, banking, realty and auto stocks bore the brunt of the selling, while telecom and IT stocks saw selective buying.

Among the other major markets open for trading, China's Shanghai Composite Index ended in positive territory with a gain of 11.69 points, or 0.49%, at 2,421. However, Singapore's Strait Times Index declined 6.99 points, or 0.24% to close at 2,861, Taiwan's Weighted Index slipped 14.02 points, or 0.19%, to close at 7,534, and Indonesia's Jakarta Composite Index declined 8.60 points, or 0.30%, and closed at 2,902.

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Market struggles despite BP rally

Market Movers
FTSE 100 4,923.90 -0.83%
techMARK 1,567.85 -0.66%
FTSE 250 9,420.57 -0.85%

A cautious update from Marks & Spencer and weak banking shares are weighing on the market despite good showings from BP and Sainsbury's.

M&S reported a 3.6% rise in UK like-for-like sales in the first quarter, but is cautious about the outlook for consumer confidence and spending. Like for like sales in general merchandise, which includes clothing, were up 6.0% in the 13 weeks ended 3 July, with like for like sales growth in food of 1.5%.

Other retail plays have also fallen back, with Burberry currently the worst performer, down more than 4%.

Banks have joined the fray, falling ahead of news on Europe-wide bank stress tests, expected today. Lloyds and HSBC are struggling.

There are pockets of buyer resistance. Shares in BP continue to rise on talk of Middle East investment and possible capping of the leaking Gulf of Mexico well. Chief executive Tony Hayward is said to be Abu Dhabi today meeting with representatives of one of the world’s largest sovereign wealth funds.

Supermarket chain J Sainsbury is up at a two-month high Wednesday on growing speculation that former suitor, the Qatar Investment Authority, is stake building. Talk is the Qataris are ready to up their interest in Britain’s third-largest food retailer to 29.9% ahead of a cash offer pitched at 500p a share.

Anglo-Swiss mining titan Xstrata has given the green light to a huge investment in a brownfield expansion to the Tintaya copper mine in southern Peru. The Xstrata board has approved a $1.47bn investment to develop the Antapaccay copper project, located around 10 kilometres from the Tintaya open pit mine which is expected to be exhausted in 2012.

Tullow Oil can proceed with the $1.5bn acquisition of a 50% stake in two big oil fields in Uganda from Heritage Oil after the government there gave approval after months of wrangling. Tullow exercised its first refusal rights over blocks 1 and 3A in the Albert Basin in Uganda after Heritage agreed to sell the stakes to Eni of Italy.

Aquarius Mining is lower after five people died yesterday at its Marikana platinum mine when a shaft collapsed.

Storage firm Big Yellow Group enjoyed a “robust” quarter with a particularly “strong” June. Annualised store revenue, for the 51 wholly owned stores, rose 9% to £59.8m at 30 June 2010. Total store revenue was £14.4m for the quarter, up 10% from the same quarter last year.

Private equity leviathan 3i said its investments are stabilising or improving while the pipeline of investment opportunities looks promising. Investment in the second quarter of 2010 totalled £105m, compared to £79m in the second quarter of 2009.

Enterprise software giant Autonomy has licensed its Intelligent Data Operating Layer (IDOL) software to Kraft Foods, the US processed foods giant which last year bought up UK confectionery firm Cadbury. Financial details of the deal were not disclosed.

South African bank Investec has received a number of approaches from parties interested in acquiring its Rensburg Fund Management (RFM) subsidiary. The business was acquired as part of the takeover of Rensburg Sheppards in June.

Carillion said the coalition government’s cuts on the Building Schools for the Future programme will not have a "material impact" on the group’s orders.

Engineer Smiths has agreed a ten-year plan with its trustees to reduce the £655m deficit in its two main pension funds.

Sales are on the rise at Booker, the cash and carry wholesale group, with demand for fresh produce particularly strong.

Paper and plastic packaging firm DS Smith is to buy Otor, a corrugated packaging company based in France.

Greeting cards retailer Clinton Cards said total sales since its last statement in May have been weaker than expected.

Support services firm Cape anticipates performance for the year ending 31 December 2010 will be ahead of its previous expectations thanks to favourable exchange movements.

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Hologic (HOLX) could see some activity after it said it has agreed to buy privately held, Canada-based Sentinelle Medical, a provider of Magnetic Resonance Imaging breast coils, tables and visualization software. The company noted that the purchase price will be $85 million, plus a 2-year contingent earn out.

AMR Corp. (AMR) is likely to be in focus after its subsidiary American Airlines reported a load factor of 86.8% for June, up 1.6% year-over-year. Traffic rose 3.2% compared to a 1.3% increase in capacity. Meanwhile, American Eagle, AMR’s regional carrier, reported a 0.9 point-year-over-year drop in its load factor for June. Traffic rose 5.3%, slower than the 6.5% increase in capacity.

Family Dollar (FDO) may also be in focus after it reported that its third quarter net income rose to 77 cents per share from 62 cents per share in the year-ago period. Sales climbed 8.4% year-over-year to $1.997 billion. The consensus estimates called for earnings of 76 cents per share on revenues of $2 billion. For the fourth quarter, the company expects earnings of 46-51 cents per share and for the full year, earnings are estimated at $2.53-$2.58 per share. Analysts estimate earnings of 53 cents per share for the quarter and $2.59 per share for the year.

U.S. Economic Reports

Minneapolis Federal Reserve Bank President Narayana Kocherlakota is scheduled to speak on taxing risk at the Society for Economic Dynamic meeting in Montreal at 3:30 PM ET. Additionally, Richmond Federal Reserve Bank President Jeffrey Lacker is due to speak to Hampton Roads business leaders in Norfolk, Virginia, at 7:15 PM ET.

Currency, Commodity Markets

Crude oil prices are moving up $0.14 to $72.12 a barrel after declining $0.16 to $71.98 a barrel on Tuesday, with the commodity extending its losing streak to six sessions. Gold futures, which slid $12.60 to $1,195.10 an ounce in the previous session, are currently falling an incremental $8 to $1,187.10 an ounce.

On the currency front, the U.S. dollar is trading at 87.245 yen compared to the 87.52 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.2568 compared to yesterday’s $1.2626.

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