US & World Daily Markets Financial Briefing 07-12-2010

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Stocks See Initial Strength Amid Optimism About Tax Cuts

Stocks showed a notable move to the upside at the start of trading on Tuesday, as traders reacted positively to news of an agreement on an extension of the Bush tax cuts. The major averages all climbed firmly into positive territory after ending the previous session mixed.

The initial strength in the markets came after President Barack Obama said that he has come to an agreement with Congressional Republicans on a tentative framework for the extension of the Bush tax cuts, which are due to expire at the end of the year.

The agreement would extend all of the tax cuts for two years, extend unemployment benefits for the long-term jobless for 13 months, and reduce payroll taxes for all workers for a full year.

Amid a light day on the economic front, the U.S. Federal Reserve will release its monthly consumer credit report for October at 3:00 p.m. ET. Economists expect the consumer credit report to show a decline of $2.3 billion.

In economic news from around the globe, the Reserve Bank of Australia decided to maintain its key lending rate at 4.75 percent as expected, with the bank calling the rate "appropriate" for the current economic outlook.

The Bank of Canada also left interest rates unchanged, with its overnight rate remaining at 1.0 percent today. BoC officials indicated that rate hikes would be carefully considered amid the ongoing debt contagion in Europe and struggling exports.

Electronic storage stocks are seeing significant strength in early trading, while housing, energy, semiconductor, and banking stocks  are also posting notable gains. Most of the other major sectors have also moved to the upside.

While the major averages have not seen much follow-through on their initial upward move, they are holding on to strong gains. The Dow is up 81.55 points or 0.7 percent at 11,443.74, the Nasdaq is up 25.54 points or 1 percent at 2,620.46 and the S&P 500 is up 10.99 points or 0.9 percent at 1,234.11.

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TSX May Extend Gains On US Tax Cuts; BoC Holds Rate Steady

Bay Street stocks may open higher Tuesday morning as traders digest the Bank of Canada's interest rate decision. Meanwhile, commodities prices were firm amid a weak U.S. dollar and cues from global equity markets were encouraging, with European stocks recording decent gains in morning deals amid buying in resource stocks.

The Bank of Canada today left its interest rates unchanged at 1% and noted that the economic recovery is proceeding at a moderate pace, although economic activity in the second half of 2010 appears slightly weaker than its October projections. U.S. stock futures were pointing to a higher open after the U.S. president Barack Obama announced an agreement with Republicans to extend the Bush-era tax cuts for two years, renewed unemployment benefits and granting a 1-year reduction in Social Security taxes.

On Monday, the S&P/TSX Composite Index extended gains for a sixth session to hit a fresh 2-year peak at 13,276.01, adding 97.06 points or 0.74%.

The price of crude oil broke above the psychological barrier at $90 amid a weak U.S. dollar. Crude for January was up $1.21 to $90.59 a barrel.

The price of gold advanced to a fresh record high amid safe haven buying. Gold for February gained $13.90 to $1,430.00 an ounce.

According to media reports, lender TD Bank is in talks to buy auto lender Chrysler Financial Corp. in a deal worth almost $6 billion to $7 billion.

In corporate news from Canada, BMO Financial Group reported higher fourth-quarter net income of C$739 million or C$1.24 per share compared to C$647 million or C$1.11 per share last year. Cash net income for the latest quarter amounted to C$748 million or C$1.26 per share versus C$655 million or C$1.13 a year ago. Analysts were expecting the bank to report earnings of C$1.21 per share this quarter. The bank left its dividend unchanged at $0.70 per share.

Canadian Western Bank said its fourth-quarter net income rose 29% to C$39.11 million or C$0.48 per share from C$30.36 million or C$0.39 per share a year earlier. Cash earnings per share improved to C$0.49 from C$0.39 in the prior year period.

Oil and gas focused trust Baytex Energy Trust said it plans C$325 million capital expenditure in 2011, up from C$235 million in 2010. This budget is designed to generate an average production rate of 47,000 to 48,000 boe/d in 2011, as compared to current guidance range of 44,250 to 44,500 boe/d in 2010. Further, it approved a monthly dividend of C$0.20 per share, an increase of 11% from the current monthly trust distribution of C$0.18 per unit.

IP-based datacasting solutions provider International Datacasting Corp., reported third quarter net income of C$856,578 or C$0.01 per share compared to C$98.597 or breakeven per share last year

Internet communications services provider Look Communications slipped in to the red in 2010, reporting full year net loss of C$8.3 million or C$0.06 per share compared with a net income of C$45.5 million or C$0.24 per share last year.

Mobile equipment dealer Strongco Corp. said it would raise about C$7.6 million through a rights offering.

Venture capital firm Matrix Asset Management said it would establish regular quarterly dividends on the common shares and declared a quarterly dividend of $0.015 per share.

Previous metals miner GlobeStar Mining said that Perilya Ltd. has obtained necessary approval from the Chinese government to acquire it for $1.65 in cash per common share.

High speed motors and generators manufacturer Turbo Power Systems said it has won GBP 2 million orders from Chiltern Railways, the British train operating company.

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Stocks Rise In France

The French market is rallying in afternoon trading Tuesday, taking cues from the UK and Germany. Construction stocks , banks and carmakers are witnessing upside.

On the economic front, German factory orders grew 1.6% month-on-month in October, following a 4% fall in September, the Federal Ministry of Economics and Technology said. Economists were looking for a 1.9% rise for October.

UK industrial output dipped 0.2% in October from September, following a 0.4% rise in September, the Office for National Statistics said. Economists were expecting a monthly growth of 0.3%.

The CAC 40 opened higher at 3,760 and has been making steady gains for most of the session. The index is currently adding 1.99%.

Building materials maker Saint-Gobain is adding 4.4%. Cement giant Lafarge is up 3.5%. Builder Vinci is adding 2.2% and Bouygues is up 1.25%.

Power generation firm Alstom is surging 4.3% after signing a contract with the Chinese government.

Lenders BNP Paribas and Societe Generale are adding 2.2% and 1.2%, respectively. Credit Agricole is moderately higher and Natixis is modestly up.

Peugeot and Renault are rising 3.4% and 3%, respectively.

Elsewhere in Europe, the UK's FTSE 100 is climbing 1.26% and the German DAX is adding 1.12%.

Major markets had a mixed closing in Asia/Pacific. Australia's All Ordinaries added 0.77%, China's Shanghai Composite Index gained 0.65% and Hong Kong's Hang Seng rose 0.82%. However, India's BSE Sensex and Japan's Nikkei 225 ended down 0.23% and 0.26%, respectively.

In the U.S., futures point to a higher open on Wall Street. In the previous session, the Nasdaq rose 0.1%, while the Dow fell 0.2% and the S&P 500 slid 0.1%.

Crude for January delivery is trading up $1.24 at $90.62 a barrel and February gold is adding $11.3 at $1427.4 an ounce.

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Indian Market Drifts Lower

Continued selling in heavyweight banking shares along with realty, public sector, FMCG and consumer durable stocks dragged the Indian market lower on Tuesday. Reports about a further delay in the introduction of a Goods and Services Tax (GST) also weighed on sentiment to some extent, while some selective buying in oil/gas, metal and IT sectors at lower levels limited the downside.

Banking stocks witnessed broad-based sell-off for a second straight session on concerns that a rise in deposit rates without a commensurate increase in lending rates would put pressure on their net interest margins. Union Bank of India, Bank of India, Axis Bank, Yes Bank, IDBI Bank and ICICI Bank fell about 4% each. State Bank of India lost nearly 3% after the state-run lender hiked its deposit rates by up to 150 basis points.

High-beta realty stocks also extended their recent losses. Indiabulls Real Estate and D B Realty tumbled about 4.5% each, Parsvnath Developers and DLF lost around 3% each and Ackruti City fell 1.6%.

In the auto sector, Maruti Suzuki (up 1.61%) and Mahindra & Mahindra (up 1.09%) advanced on reports that car prices would go up in January. However, Tata Motors, which is addressing the issue of dwindling sales of its small car, Nano, ended down nearly 2%.

Bharti Airtel (up 1.07%) and Idea Cellular (up 0.10%) led the gainers in the telecom sector after data released by telecom regulator TRAI revealed that the companies have the largest number of active subscribers.

Among metal stocks, aluminum maker Hindalco gained 2.51%, Tata Steel added 0.73% and Sterlite Industries posted a modest 0.29% gain. In the oil/gas sector, heavyweight Reliance Industries and state-run ONGC rose about a percent each.

Infosys (up 0.71%), Wipro (up 0.91%), Hero Honda Motors (up 0.76%) were the other prominent gainers in the Sensex pack. On the flip side, Jaiprakash Associates along with HDFC Bank, Hindustan Unilever, TCS, Reliance Communication, ITC and HDFC closed in the red.

The benchmark 30-share Sensex moved in a range of 20,008-19,824 before finally ending down 47 points or 0.23% at 19,935. The broader Nifty lost 16 points or 0.26%.

Second-line stocks extended their recent losses amid renewed investor concerns over manipulation and price rigging. The BSE mid-cap and small-cap indexes ended down 1.04% and 1.70%, respectively. In the broader market, declining shares outpaced gaining ones by 2037 to 881 shares.

Hindustan Construction Company rose 1.89% after it signed a pact with VINCI Construction Grands Projects of France to jointly work on identified power, water, transportation and infrastructure projects in India and abroad. Welspun Corp edged up 0.65% on bagging new overseas contracts worth Rs 1,670 crore.

Jyoti Structures slipped 0.16% after it decided to invest up to $12 million for setting up a unit for manufacturing lattice steel towers in the United States of America. Shipping Corporation of India shed 0.73% after it set the issue price of its upcoming follow-on public offering at Rs.140 a share.

In economic news, India on Tuesday raised its economic growth forecast to 8.75% in the current fiscal year from previously estimated 8.5% and 7.4% last fiscal year. The country's gross domestic product (GDP) will grow at about 8.75% in FY11, which could vary +/- 0.35% from the projected figure, the government said in its mid-term economic review tabled in parliament on Tuesday.

The government expects its fiscal deficit to remain within its budgeted range of 5.5% of GDP this fiscal year, while the average WPI inflation is seen at 8.98%, nearly double the central bank's target of 5.50% by March.

Elsewhere, most Asian stocks rose, the euro held steady and European stocks advanced on Tuesday, as firmer oil and metals prices and a move by the United States Treasury to sell its remaining shares in Citigroup boosted sentiment.

Also, an agreement between President Barack Obama and opposition Republicans to extend expiring tax cuts for all Americans and to extend unemployment benefits for the long-term jobless for 13 months offset worries about potential tightening of monetary conditions in China and lingering European debt worries.

Trading in the U.S. index futures suggested that the Dow futures could rise 52 points at the opening bell on Tuesday.

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Dollar Slumps As Obama, GOP Agree To Extend Tax Cuts

The dollar was generally weaker Tuesday morning, even after a meeting of European finance ministers produced no new measures to deal with the EU's deepening credit crisis.

The long-term US fiscal outlook has gotten murkier, with the White House striking a deal with Congressional Republicans to extend Bush-era tax cuts in return for the extension of unemployment benefits.

While some have called on the US to reduce spending and raise tax to deal with budget shortfalls, neither party seems truly inclined to cut spending or raise revenues.

The dollar slipped to $1.3375 versus the euro, down about a penny from yesterday's level. The buck has been unable to sustain gains from earlier in December, when its hit a 2-month peak near $1.2970.

European finance ministers approved an aid package for Ireland this morning, and said a fund to backstop euro-area debt is sufficient to deal with any contagions effects from Spanish and Portuguese debt.

Ireland will unveil its sweeping austerity budget after a vote in Parliament today. The 2011 budget is expected to cut €6-billion.

Against the sterling, the dollar dropped to a 2-week low of $1.5821.

The dollar hit a 3-week low of Y82.33 versus the yen, edging near a recent 15-year low of 80.22.

The Bank of Canada will make its latest interest rate decision this morning. The dollar was little changed just above parity against the loonie ahead of the rate call.

On the economic front in the US, the Federal Reserve will release its monthly consumer credit report for October at 3.00 p.m. ET. Economists expect the Consumer credit report to show the outstanding consumer credit to decline by $2.3 billion.

In other major economic news, the Reserve Bank of Australia decided to maintain its key lending rate unchanged at 4.75% as expected.