US & World Daily Markets Financial Briefing 08-12-2010

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Stocks See Early Strength But Buying Interest Subdued

Stocks have moved mostly higher in early trading on Wednesday, although buying interest has remained relatively subdued. The major averages have all climbed into positive territory after turning in a mixed performance in each of the two previous sessions.

The early strength may be partly due to optimism about President Barack Obama's agreement with Republicans on an extension of the Bush tax cuts. Nonetheless, traders appear to be staying on the sidelines amid a lack of significant economic news.

Banking stocks have shown a notable move to the upside, while early strength is also visible among oil service and semiconductor stocks. On the other hand, airline stocks have come under pressure, adding to the losses posted in the previous session.

Shortly, the energy sector may be impacted by the release of the Energy Information Administration's oil inventory report for the week ended December 3rd, due out at 10:30 a.m. ET. Ahead of the report, the price of oil is down $0.05 at $88.64 a barrel.

In corporate news, membership warehouse club operator Costco Wholesale Corp. (COST) reported better than expected first quarter profit growth, mainly reflecting an improved comparable sales performance. Revenues increased from last year, beating analyst estimates.

Men's Wearhouse (MW) said that its third quarter profit rose 31 percent from last year, as sales jumped by 19 percent. The company's quarterly earnings, excluding items, firmly topped analyst expectations.

Additionally, Home Depot (HD) raised its 2010 earnings guidance, saying it now expects earnings of $1.97 per share compared to its previous estimate for earnings of $1.94 per share. The home improvement retailer also forecast 2.3 percent sales growth in 2010 and 2.0 to 2.5 percent sales growth in 2011.

Semiconductor firm Texas Instruments (TXN) narrowed its earnings and revenue outlook for the fourth quarter of fiscal year 2010 in a mid-quarter update. Both earnings  and revenue for the quarter are expected to come in-line with Street estimates.

Fortune Brands (FO) also announced an initiative to break off its divisions into three businesses. The firm will spin off its home and security businesses along with its golf products business, while the core firm will continue as a publicly-traded company focused solely on distilled spirits.

The major averages have seen some further upside in the past few minutes, rising to new highs for the young session. The Dow is currently up 18.43 points or 0.2 percent at 11,377.59, the Nasdaq is up 11.34 points or 0.4 percent at 2,609.83 and the S&P 500 is up 4.18 points or 0.3 percent at 1,227.93.

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TSX May Extend Losses Amid Weak Commodities

Canadian stocks  may open lower Wednesday amid falling commodities prices as the U.S. dollar held steady versus a basket of currencies. Speculation that China might hike its interest rates again as early as next week also pressured commodities.

U.S. stock futures were pointing to a flat open.

On Tuesday, the S&P/TSX Composite Index snapped its 6-day winning streak, losing 25.34 points or 0.19% to 13,250.67.

The price of crude oil moved down for a second session, retreating from its 26-month high hit in the previous session. Crude for January moved down $0.22 to $88.47 a barrel as traders await cues from the official inventories data due out from the EIA later during the session.

The price of gold slipped back below $1,400 after advancing to a fresh intraday high of $1,432.50 in the previous session. Gold for February was down $19.40 to $1,389.60 an ounce.

In corporate news from Canada, CI Financial Corp. said that its wholly owned subsidiary, CI Investments Inc., would sell C$300 million of debentures due 2016 and plans to use a portion of it to pay for the acquisition of Hartford Investments Canada Corp.

Leading dollar stores operator Dollarama Inc. reported third-quarter net income of C$31.34 million or C$0.42 per share, up from C$1.14 million or C$0.02 per share last year. Normalized net earnings were C$31.34 million, compared to C$23 million in the same quarter last year.

Airplanes and train making company Bombardier Inc. announced that Bombardier Aerospace received $155 million firm orders for five midsize Learjet 85 and two large cabin Challenger 605 jets, for principal operation in Germany by Munich-based Jet Air Flug.

Renewable energy company BIOX Corp. slipped into the red in fourth quarter, reporting net loss of C$2.96 million or C$0.07 per share compared to income of C$0.61 million or C$0.03 in the year ago quarter.

Biotechnology company QLT Inc. said it would repurchase up to 3.62 million common shares, representing 10% of the public float, over the next 12 months on the NASDAQ Stock Market and the Toronto Stock Exchange.

Metals miner Halo Resources said it would privately place 3.65 million units to HudBay Minerals Inc. at a price of $0.50 per unit to raise $1.83 million. Upon completion, HudBay would hold up to 9.9%, assuming full exercise of the Warrants by HudBay.

In economic news, Canada Mortgage and Housing Corporation said the seasonally adjusted annual rate of housing starts rose 11% to 187,200 units in November, up from a rate of 167,800 in October. Economists were expecting a modest increase to a rate of 173,000 starts. Looking ahead into 2011, CMHC said housing starts will gradually become more closely aligned to demographic demand, which is currently estimated at about 175,000 units per year.

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French Market Moderately Higher

The French market is rising in afternoon trading Wednesday, bucking the trend shown by other major economies in the region. Sentiment was influenced by a better-than-expected industrial sentiment data.

The French industrial sentiment climbed in November to 107 from a revised 104 in October, survey data from the Bank of France showed. Economists had forecast a reading of 103.

Meanwhile, French trade deficit shrank more than expected to EUR 3.4 billion in October from EUR 4.4 billion in September, the country's customs office said. Economists had expected the deficit to fall to EUR 4.2 billion.

German exports dropped 1.1% month-on-month to EUR 83.3 billion in October following a 3% increase in September, belying expectations for no change, figures released by statistical office Destatis showed.

After a weak start at 3,790, the CAC 40 index witnessed some volatile trading. The index moved into positive territory towards the end of the forenoon session and is currently adding 0.56%.

Insurer Axa is gaining 2.9%, thus topping the gainers. Power transmission firm Alstom and EADS, the maker of Airbus, are each adding 2.3%.

Lenders Societe Generale and BNP Paribas are rising 1.4% and 1.1%, respectively. Natixis is adding 0.05%, while Credit Agricole is marginally lower.

Those making notable gains include tire firm Michelin, commodity chemicals company Air Liquide, cement giant Lafarge, drugmaker Sanofi-Aventis and Suez Environnement.

Among carmakers, Peugeot is rising 1.4% and Renault is down 0.24%.

Oil & gas services firm Technip is declining 1.2%. Retailer Carrefour and cosmetics giant L'oreal are moderately declining.

Elsewhere in Europe, the UK's FTSE 100 is losing 0.03% and the German DAX is dropping 0.14%.

Across Asia/Pacific, most major markets ended in the red. Australia's All Ordinaries slipped 0.50% and China's Shanghai Composite Index retreated 0.95%. Hong Kong's Hang Seng and India's BSE Sensex declined 1.4% and 1.2%, respectively. However, Japan's Nikkei 225 gained 0.9%.

In the U.S., futures point to a mixed open on Wall Street. While the Dow and S&P 500 futures are in the red, the Nasdaq 100 futures is in the green. In the previous session, While the Dow inched down 0.03%, the Nasdaq rose 0.14% and the S&P 500 inched up 0.05%.

In commodities, crude for January delivery is dropping $0.40 at $88.29 per barrel and gold is losing $21.8 at $1387.2 an ounce.

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Indian Market Ends In The Red

A broad-based selling across all sectors dragged the Indian market sharply lower on Wednesday, as a rebound in the dollar index following significant gains in U.S. Treasury yields overnight pressured commodities and spurred further year-end profit taking in emerging markets like India. Data showing selling by foreign funds on Tuesday and worries of a fuel price hike also dampened investor sentiment to some extent.

The other Asian markets turned in a mixed performance on Wednesday, with the Chinese market losing a percent and Hong Kong down 1.5% on worries over the Chinese policy on controlling inflation. South Korea's KOSPI index slipped 0.35%, as news of North Korea's artillery firing weighed on sentiment and investors moved to the sidelines ahead of Bank of Korea's interest rate meet tomorrow.

However, Japan's Nikkei average ended 0.9% higher after hitting a seven-month high earlier in the session, boosted by the yen's retreat against the dollar in the wake of Obama's announcement of a deal with Republicans to extend tax cuts.

With investor enthusiasm over tax cuts fading, European stocks edged lower in early trading, while the Dow futures cut initial losses.

Back home, the benchmark 30-share Sensex ended down 238 points or 1.2% at 19,696, with heavyweight banking, metal, auto and realty stocks leading the losses.

Banking stocks came under renewed selling pressure for a third consecutive session amidst concerns of pressure on their net interest margins. Metal stocks fell sharply, as a strong dollar reduced the investment appeal of commodities.

Oil explorers like Reliance Industries and Cairn India fell about a percent after crude futures lost ground in thin Asian trading Wednesday. High-beta realty stocks were subdued on concerns over demand for residential and commercial properties  in a scenario where interest rates are rising. Auto stocks eased on reports of fuel price hike by state-run oil companies.

Among frontline shares, Maruti Suzuki, Infosys, Reliance Industries, Larsen & Toubro, Hero Honda Motors, Mahidnra & Mahindra, Sterlite, SBI, Hindalco, HDFC, Tata Steel, DLF, HDFC Bank, Jaiprakash Associates and Reliance Communication fell by 1%-3%.

The broader Nifty lost 73 points or 1.22%, while the BSE mid-cap and small-cap indexes ended down 2.21% and 3.22%, respectively. On the BSE, the market breadth was extremely negative, with 2319 decliners versus 595 gainers.

In stock-specific action, shares  of packing firm Uflex plunged over 16% on the news of the imprisonment of its CMD Ashok Chaturvedi in Noida land scam. Packaging material manufacturers like Polyplex Corporation (down 5%) and Jindal Poly Films (down 3.37%) tumbled after the Supreme Court banned the sale of gutkhas and pan masalas in plastic sachets from March 1, 2011.

Ruchi Soya (down 27%), K S Oils (down 14.69%) and Karuturi Global (down 10%) slumped on insider-trading charges. Airline stocks  like Kingfisher, Jet Airways and Spicejet fell between 2% and 7% as concerns grew over government intervention on cartelisation and price fixing.

On the flip side, ONGC added a percent after it convened a board meet next week to consider giving a special dividend. Automaker Tata Motors also bucked the downward trend to end with a modest 0.25% gain. State-run oil marketing companies like BPCL, HPCL and IOC rose between 1% and 3% on reports of a hike in petrol and diesel prices by Rs.2 per litre.

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Dollar Mixed As Markets Weigh Tax Cut Agreement

The dollar was mixed against other majors on Wednesday, as markets considered the Obama administration's deal to extend Bush-era tax breaks in return for another year of unemployment benefits.

While low taxes and more government spending may provide a lift to the floundering economic recovery, many are warning that the nation faces the wrath of bond markets unless it grapples with runaway deficits.

Europe has been forced to deal with its debt problems this year, as the specter of defaults in Ireland, Greece, Spain, and Portugal threatened the viability of the euro.

The dollar was steady near $1.32 versus the euro this morning. After hitting a 10-month low near $1.4300 in October, the buck improved to $1.2960 as Europe prepared a rescue of Irish debt late in November.

German exports recorded a surprise fall in October, suggesting the rising euro and waning global demand are starting to hurt firms in Europe's largest economy. Belying expectations for no change, exports dropped 1.1% month-on-month.

The dollar dropped against the sterling, hitting $1.5795.

British manufacturers expect production to rise solidly in the next three months on the back of strengthening demand at home and abroad, results of the latest monthly industrial trends survey conducted by the Confederation of British Industry showed Wednesday.

Meanwhile, the dollar rose to Y84.10 against the yen, staying away from a recent 15-year low of Y80.22.

U.S. mortgage applications declined slightly last week, following a huge drop the week before, according to a closely watched housing survey, according to the Mortgage Bankers Association's latest survey.

For the week ending December 3, the Market Composite Index, a measure of mortgage loan application volume, decreased 0.9 percent on a seasonally adjusted basis from one week earlier.