US & World Daily Markets Financial Briefing 07-09-2010

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Stocks Moderately Lower In Mid-Morning Trading

Stocks are posting moderate losses in mid-morning trading on Tuesday, as traders are cashing in on last week's gains amid a lack of first-tier news on the economic front.

The major averages have come off of their session lows in recent dealing but remain firmly in the red. The Dow is down 78.25 points or 0.8 percent at 10,369.68, the Nasdaq is down 15.18 points or 0.7 percent at 2,218.57 and the S&P 500 is down 9.63 points or 0.9 percent at 1,094.88.

On the corporate front, Coca-Cola Enterprises, Inc. the largest bottler of Coca-Cola (KO) beverages, raised its earnings outlook for full-year 2010 despite sluggish U.S. sales.

Coca-Cola Enterprises now expects full-year earnings in a range of $1.78 to $1.82 per share. Earlier, the company had estimated earnings in the range of $1.73 to $1.77 per share.

The markets are also digesting a series of management changes at a number of major firms.

U.K.- based lender HSBC Holdings said its board agreed for Stephen Green to step down as chairman before the end of the year in order to accept Prime Minister David Cameron's invitation to become Minister of State for Trade and Investment in January 2011.

Beckman Coulter, Inc. a provider of biomedical testing products, said that its chairman, president and CEO Scott Garrett has resigned, effective September 6th. Robert Hurley was named the company's interim President and CEO.

Barclays Plc also named Robert Diamond as its CEO, effective next year. Diamond will succeed John Varley, who intends to step down as CEO and from the Barclays Boards and the Group Executive Committee on March 31, 2011.

Additionally, Oracle Corp. revealed that Mark Hurd has been appointed as its co-president. Hurd, formerly of Hewlett Packard, was removed from his post of CEO at HP after sexual harassment allegations against him became public.

Sector News

Banking stocks are among the morning's weakest performers, with the KBW Bank Index falling by 2.4 percent. The decline is pulling the index down off of the three-week closing high set last Friday.

Airline stocks are also markedly lower, dragging the NYSE Arca Airline Index down by 1.7 percent. The index is falling from the two and a half week closing high set at the end of last week.

Selling pressure is also driving oil stocks down by notable margins, resulting in a 2 percent drop by the NYSE Arca Oil Index. The move comes as the price of oil has fallen by $1.02 to $73.58 a barrel.

Housing, defense and networking stocks are also down, while gold stocks are among few groups seeing strong upside. The NYSE Arca Gold Bugs Index is up by 1.4 percent, as the price of gold has risen $6.80 to $1,257.90 an ounce.

Stocks Driven By Analyst Comments

NiSource (NI) is trading lower after analysts at KeyBanc Capital Markets lowered their rating on the stock from Buy to Hold. Shares are currently down by 1.6 percent, falling from the fourteen-month closing high set on Friday.

On the other hand, Celadon Group is trading higher after Stifel Nicolaus boosted its rating on the stock from Hold to Buy. The stock is currently up by 1 percent after reaching its best intraday price in nearly a month in earlier trading.

Other Markets

Overseas, stock markets in the Asia-Pacific region turned in a mixed performance on Tuesday. Japan's benchmark Nikkei 225 Index fell by 0.8 percent, while Hong Kong's Hang Seng Index moved up by 0.2 percent.

Meanwhile, the major European markets are notably lower. The French CAC 40 Index is down by 1.3 percent, while the German DAX Index and the U.K.'s FTSE 100 Index are down by 1 percent and 0.9 percent, respectively.

In the bond markets, treasuries are showing moderate gains. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.643 percent, posting a loss of 6.3 basis points.

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TSX May Struggle To Extend Gains Amid Weak Global Cues

Toronto stocks may struggle to extend gains Tuesday morning amid falling commodities prices and weak cues from the global equity markets. Traders might turn cautious ahead of Wednesday's interest rate decision by the Bank of Canada. Economists predict an even chance for the central bank to hike rates.

Also, profit taking after the main index gathered nearly 600 points or 5% in the past eight sessions might pressure stocks.

However, gold stocks may be in play as the bullion prices were moving towards their all-time high of $1,265 an ounce.

While Asian markets ended mixed, taking cues from Wall Street gains Friday, European equities were dipping after an industry group said that Germany's 10 largest banks, including Deutsche Bank AG, may have to raise as much as $134 billion in order to meet the new capital regulations.

On Friday, the S&P/TSX Composite Index added 33.82 points or 0.28% to 12,144.92, gaining for an eighth day to record its longest winning streak in 6 months. The Toronto Stock Exchange remained closed on Monday due to Labor Day holiday.

The price of crude oil moved down amid falling equities, with crude for October slipping $1.33 to $73.27 a barrel.

The price of gold was recovering from early morning losses eased amid weak equities, with gold for December delivery adding $8.00 to $1,259.10 an ounce.

In corporate news from Canada, private equity investment and asset management company Onex Corp. said it would, through its affiliate Onex Partners III, L.P., acquire the remaining 75% of interest in ResCare, Inc. for about $340 million. ResCare is the leading U.S. provider of in-home care, job training and education support services to individuals with developmental and intellectual disabilities.

Convenience store operator Alimentation Couche-Tard today recommended Casey's General Stores Inc.'s (CASY) shareholders to elect eight new independent nominees to their board. Last Wednesday, Couche-Tard said it has increased its tender offer to acquire Casey's General Stores by $0.50 to $38.50 per share.

Meanwhile, CASY recommended its shareholder to vote against Couche-Tard's revised offer and added it has received a 'preliminary proposal' from a 'strategic third party' at $40 per share in cash.

Air Canada said its consolidated traffic for August increased 7.1% to 5.50 billion RPMs, or revenue passenger miles, from 5.13 billion RPMs last year. Total capacity, measured in available seat miles rose 7% to 6.33 million from 5.92 million in the previous year's comparable month. Overall load factor, a measure of efficiency, remained unchanged at 86.8%.

Rival WestJet reported a 8.2% increase in August traffic to 1.44 billion revenue passenger miles or RPMs from 1.33 billion RPMs last year. Capacity in August grew by 11.3% to 1.75 billion available seat miles from 1.57 billion ASMs a year earlier. However, load factor for the month of August decreased to 82.2% from 84.5% in the previous year.

Exploration and development company Marathon PGM Corp. said it would be acquired by Stillwater Mining Co. for C$3.55 per share or about C$118 million. Stillwater will exchange 0.112 common shares and C$1.775 in cash for each outstanding share of Marathon PGM. Shares of Maratha closed Friday at C$1.880.

A development stage exploration company Northern Platinum said its shareholders have approved the acquisition of the company by mineral explorer Prophecy Resource.

Infrared thermal imaging and night vision systems maker Cantronic Systems said it won a C$3.9 million contract to install video surveillance systems for Haicheng City in China's Liaoning province.

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Asian Markets End Mixed In Cautious Trading

Asian markets open for trading on Tuesday ended mixed with the markets in Australia, Japan, South Korea and Taiwan ending in negative territory, while the markets in China, Hong Kong, India, Indonesia, and Singapore ended in positive territory with modest gains. The traders exercised caution awaiting more cues on global economic recovery after fewer than expected job losses in the US eased fears of double dip recession. The strengthening of the Japanese yen against the US dollar worried investors while sharp drop in crude oil prices also impacted market sentiment.

In Japan, the benchmark Nikkei 225 Index fell 75.32 points, or 0.8%, to 9226 while the broader Topix Index of first section issues slid 3.79 points, or 0.5%, to 835.

In economic news, the Bank of Japan maintained its key interest rate at near-zero at the end of its two-day policy meeting. In a unanimous vote, the policy board of the central bank, led by Governor Masaaki Shirakawa decided to leave the uncollateralized overnight call rate unchanged at 0.10%.

As many as 28 sectors of the total 33 sectors in the market ended in negative territory on stronger local currency against the US dollar and sluggish trading across the markets in the region.

Steelmakers were the gainers in the market bucking the weak trend among other sectors. JFE Holdings gained 2.43% and Nippon Steel rose 2.41%.

Exporters and machinery stocks declined on stronger yen.

In Australia, the benchmark S&P/ASX200 Index slipped 2.30 points, or 0.05%, and closed at 4,573 points, while the All-Ordinaries Index ended at 4,613, representing a loss of 2.70 points, or 0.06%.

On the economic front, the Reserve Bank of Australia decided to leave the cash rate unchanged at 4.5%, in line with expectations. The central bank broadly retained its economic assessment, saying the Australian economy had been growing at around trend pace, boosted by commodity exports and strong investment. The apex bank noted that the the headline CPI will likely remain just above the 3% target ceiling through mid-2011 due to the impact of tobacco tax changes.

Light sweet crude oil futures for October delivery ended at $73.69 a barrel in electronic trading, down $0.91 per barrel from previous close at $74.60 a barrel in New York on Friday.

Banks ended in positive territory following the decision of the apex bank to stay pat on the interest rates. ANZ Bank added 0.42%, Commonwealth Bank of Australia advanced 0.44%, National Australia Bank rose 0.49% and Westpac Banking climbed 1.10%. However, investment banking company Macquarie Group bucked the trend and ended in negative territory with a loss of 2.21%.

Mining and metal stocks ended in negative territory. BHP Billiton slipped 0.29%, Rio Tinto lost 0.87%, Fortescue Metals shed 0.20%, Gindalbie Metals lost 1.60%, Iluka Resources fell 0.82%, Macarthur Coal was down 1.88%, Mincor Resources declined 1.90% and Oz Minerals decreased by 1.85%.

Mixed trading was witnessed among oil related stocks on weak crude oil prices. Woodside Petroleum slipped 0.18%, ROC Oil Ltd lost 2.60%, Oil Search Ltd shed 0.50% and Origin Energy edged down 0.06%. However, Santos Ltd bucked the trend and ended in positive territory with a gain of 0.39%.

The Indian market ended Tuesday's choppy session modestly higher, shrugging off weak global cues. Capital goods, IT and metal stocks led the gainers, while realty, healthcare, banking and auto stocks came under selling pressure, limiting the upside. The 30-share BSE Sensex ended off the day's high at 18,645, up about 85 points or half a percent, while the broader Nifty rose by 27 points or 0.5% to 5,604.

Among the other major markets open for trading, China's Shanghai Composite Index added 2.11 points, or 0.08%, to 2,698, Singapore's Strait Times Index advanced 1.51 points, or 0.05%, to 3,036, and Jakarta Composite Index in Indonesia gained 13.74 points, or 0.43%, to 3,231. However, Taiwan's Weighted Index bucked the trend and ended in negative territory with a loss of 6.55 points, or 0.08%, to 7,884.

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The major European markets are trading lower, with the French CAC 40 Index and the German DAX Index moving down 1.21% and 0.72%, respectively, while the U.K.’s FTSE 100 Index is receding 0.83%.

A report released by the German Federal Ministry of Economics and Technology showed that German factory orders fell by 2.2% month-over-month in July after recording a revised 3.6% increase in June. Economists had expected 0.5% growth.

U.S. Economic Reports

The unfolding week has a very light economic calendar, with the jobless claims report to be released on Thursday the sole economic report of any significance. Traders may also closely watch the Beige Book due to be released on Wednesday. The Commerce Department's trade balance report and wholesale inventories report, the Federal Reserve's consumer credit report and the Treasury auctions of 3-year and 10-year notes and 30-year bonds round up the other economic events of the week.

If the Beige Book, which gives anecdotal evidence of economic conditions since the last FOMC meeting, shows further deterioration, then it may prompt the Fed to announce quantitative easing.

The trade deficit isn't likely to improve significantly, as oil imports are expected to have increased both in volume and value terms. The muted outlook for exports also does not hold much promise.

Stocks in Focus

AMR (AMR) is likely to be in focus after it said that its American Airline unit reported an August load factor of 84.6%, down 0.1 points year-over-year. The airline’s traffic rose 3.1% and its capacity increased 3.2%.

Beckman Coulter (BEC) may see some activity after it announced the resignation of its president and CEO Scott Garrett, effective September 6th, 2010. The company announced the appointment of Robert Hurley as interim President and CEO while also saying that it has initiated a search for a successor.

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Dollar Stuck Near 1995 Lows Against Yen

The dollar continued to hover around a 15-year low versus the yen but eked out gains versus the euro Tuesday morning in New York, as traders returned to their desks following the Labor Day weekend.

Stocks rose on Friday after better-than-expected jobs data, but momentum has not carried over into this week. Stocks are down around the world this morning amid renewed fears about the European banking system.

A report in the Wall Street Journal suggested that recent stress tests on the region's banks were not rigorous enough to be taken seriously.

Absent any key economic data until Wednesday afternoon, the buck may struggle to gain any traction against the yen until later in the week.

The Federal Reserve is due to release its Beige Book, a compilation of anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts, at 2 PM ET Wednesday.

The dollar was again testing its worst levels since 1995 versus the yen, slipping to 83.80 in very early dealing. Two weeks ago, the dollar hit a 15-year low of 83.58.

The Bank of Japan maintained its key interest rate at near-zero at the end of its two-day policy meeting on Tuesday. It also promised to take more policy actions if judged necessary to kick start the deflation-ravaged economy.

Still, the markets have considered the BoJ's recent moves far too tepid to either bolster the economy or stop the yen from rising further.

Germany's factory orders declined 2.2% in July from the prior month, the Federal Ministry of Economics and Technology said on Tuesday. Economists were expecting factory orders to rise 0.5%.

The dollar rose to 1.2750 versus the euro, up a penny from Monday morning. The pair has been unable to sustain any direction for the past month.

The buck bounced back and forth near 1.5360 versus the sterling, having edged higher over the past few weeks.

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