US & World Daily Markets Financial Briefing 09-09-2009

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Markets May Look to Commodity Prices to Help Sustain the Rally

The major U.S. index futures are pointing to almost flat opening on Wednesday, with the trend reflecting the cautious mood among traders, especially after three consecutive sessions of gains. Today’s economic calendar is too light to give any meaningful direction to the markets. However, commodity prices may once again be the focus, with the dollar’s continued slide offering support to them.

U.S. stocks advanced for the third straight session on Tuesday, as optimism generated by a rally in commodity prices and the global market rally contributed to buoyancy in the markets. The major averages opened higher and stayed above the unchanged line throughout the session despite seeing some degree of volatility.

The Dow Industrials ended up 56.07 points or 0.59% at 9,497 and the Nasdaq Composite rose 18.99 points or 0.94% to close at 2,038, while the S&P 500 Index advanced 8.99 points or 0.88% to 1,025.

Twenty-three of the thirty Dow components ended the session higher, with Alcoa (AA) (up 3.45%), Chevron (CVX) (up 2.20%), General Electric (GE) (up 4.54%) and Exxon Mobil (XOM) (up 2.12%) advancing strongly in the session. On the other hand, Kraft Foods (KFT) slumped 5.87% amid its attempts to takeover U.K. confectioner Cadbury (CBY). Pfizer (PFE) and Travelers Co. (TRV) fell over 1% each.

Among the sector indexes, the NYSE Arca Oil Index and the Philadelphia Oil Service Index rallied 2.10% and 3.16%, respectively, while the Dow Jones U.S. Basic Materials rose 2.07%. The S&P Retail Index and the Philadelphia Housing Sector Index ended up 1.34% and 1.53%, respectively. The NYSE Arca Securities Broker/Dealer Index gained 2.13%.

In the technology space, the Philadelphia Semiconductor Index advanced 2.25%, the NYSE Arca Disk Drive Index rallied 3.15%, the NYSE Arca Networking Index advanced 1.81% and the NYSE Arca Computer Hardware Index moved up 1.73%.

On the economic front, the results of the Treasury’s 3-year note auction were fairly positive, with the yield at 1.487% and the bid-to-cover ratio at 3.02, its best since November 2008. The level of indirect bidders accounted for 54.2% of the total.

The Federal Reserve’s consumer credit report showed that consumer credit fell by $21.6 billion to $2.47 trillion, a bigger decline compared to the $4 billion drop expected by economists. The previous month’s decline was revised to $15.5 billion from the initially estimated $10.3 billion drop. Both revolving as well as non-revolving credit declined.

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Bay Street Stocks Look To Extend Rally

Canadian stocks will look to build on an 11-month high in early trading on Wednesday. Stocks around the globe are continuing to see strength.

Bay Street stocks rallied again on Tuesday after a three-day holiday weekend. The S&P/TSX Composite Index rose 87.83 points to 11,105.30, the best close since October 1, 2008.

Gold continued to hover around the $1,000 per ounce mark in early trading, while copper was flat at $2.95 a pound. Crude oil rose 67 cents to $71.77 per barrel.

In corporate news, Barrick Gold announced a bought deal public offering for gross proceeds of about US$3.0 billion, representing 81.2 million common shares of Barrick at a price of US$36.95 per share.

Evertz Technologies Limited posted first quarter net income of C$17.1 million or C$0.23 per share, compared to C$21.4 million or C$0.29 per share in the year-ago quarter.
 
MKS reported its first-quarter net income more than doubled to $1.41 million or $0.14 per share from $619 thousand or $0.06 per share in the same period last year.

ADF Group Inc. reported second-quarter net earnings of C$1.8 million or C$0.05 per share, compared to C$4.1 million or C$0.11 per share in the year-ago quarter.

Bellus Health Inc. said it will raise an aggregate of C$9.69 million from a rights offering and issue a total of 52.36 million common shares at a price of C$0.185 per share.

MethylGene Inc. said Otsuka Pharmaceutical has extended its funded research collaboration with MethylGene for development of novel, small molecule, kinase inhibitors for the local delivery and treatment of ocular diseases for an additional six months.

In economic news, Canada Mortgage and Housing Corp. reported Canadian housing starts rose more than 12% in August to 150,400. Starts were expected to inch up to 135,000, up from 134,000 in July.

Crude oil futures are trading up $0.69 at $71.79 a barrel after the commodity rose $3.08 to $71.10 a barrel in Tuesday’s session. Yesterday’s strength came about due to the dollar’s weakness, which declined against most other currencies following a rally in gold prices. Oil may see some volatility in today’s session amid the OPEC meeting and also ahead of the American Petroleum Institute’s oil inventory report due to be released after the markets close today and Thursday’s EIA oil inventory report.

Gold futures, which rose $3.10 to $999.80 an ounce in the previous session, are currently up $0.30 at $1,000.10 an ounce. The upsurge in gold reflects inflation fears, as excessive liquidity pumped into the system to bring about some stabilization in the financial sector is expected to stoke inflation.

Among currencies, the U.S. dollar is trading at 92.275 yen compared to the 92.3252 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is currently valued at $1.4563 compared to yesterday’s $1.4478

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Most Asian markets reversed course on Wednesday and ended lower, as the strength in the domestic currencies hurt exporters from the region. The declines were led by Hong Kong, where the Hang Seng Index fell over 1%.

Japan’s Nikkei 225 average opened lower and traded with a modest loss in the morning before selling pressure intensified in the afternoon. The index closed down 81.09 points or 0.78% at 10,312.

A majority of the stocks declined in the session. The strengthening yen hurt export stocks such as automakers and electrical and electronics machinery makers. Financial shares also saw weakness. However, oil companies advanced.

Japan’s Cabinet Office reported that the leading index rose for the fifth straight month, advancing to 83 in July from 80.9 in June. Economists had expected a reading of 81.9 for the month. While the coincident index rose 1 point to 89.6, the lagging index fell to 1.7 points to 82.4.

Australia’s All Ordinaries surrendered the gains it notched up in morning session and receded into negative territory, falling to an intra-day low of 4,511 in late afternoon trading. Thereafter, the index recouped most of its losses to close nearly flat at 4,527. Energy stocks bore the brunt of the selling pressure.

The major bank stocks were mixed, with ANZ and Westpac receding, while Commonwealth Bank and National Australia Bank advanced. Among miners, BHP Billiton, Rio Tinto and Newcrest Mining rose modestly. On the other hand, Fortescue ended down and Lihir Gold ended flat.

The Australian Bureau of Statistics said today that Australia’s retail sales unexpectedly fell in July compared to the previous month, marking the second straight month of declines. Retail sales fell a seasonally adjusted 1%, dragged by a drop in sales of household goods.

Hong Kong’s Hang Seng Index languished in negative territory throughout the session, with the index ending near the lows of the session. At the close of trading, the index was down 218.77 points or 1.04% at 20,851.

Thirty of the forty-two index components ended the session lower, with China-related and financial stocks leading the market lower. However, Sino Land, Esprit Holdings, Li & Fung and China Overseas showed some buying interest.

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After three days of advances, the major European markets are moving to the downside, with the French CAC 40 Index and the German DAX Index receding 0.63% and 0.90%, respectively, while the U.K.’s FTSE 100 Index is moving down 0.79%.

On the economic front, the Nationwide Building Society said the U.K.’s consumer confidence index rose to 63 in August compared to economists’ expectations of 62, with the index reaching its highest reading in a year. A report released by the British Retail Consortium showed that shop prices in the U.K. edged down 0.1% year-over-year in August following a 0.5% increase in July. The rate of growth in food prices slowed for the fifth straight month.

Consumer prices in Germany were unchanged in August compared to the same month a year ago, a report released by the German Federal Statistical Office showed. In July, the annual inflation rate was –0.5%. On a monthly basis, consumer prices rose 0.2% after prices came in unchanged in the previous month.

U.S. Economic Reports

Chicago Federal Reserve Bank President Charles Evans, a FOMC voting member, is due to speak at 8 AM ET. At 1:55 AM ET, Dallas Federal Reserve President Richard Fisher is due to speak

The Federal Reserve is due to release its Beige Book, which is a compilation of anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts, at 2 PM ET. The report is normally released about two weeks before the monetary policy meeting is held.

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Palm may react to its announcement that it has launched its Pixi handset. The handset will be made available in the U.S. during the holiday selling season through Sprint Nextel (S). At the same time, the company also slashed the price of its Pre smart phone launched in July by $50-$150, including two rebates and a 2-year service contract.

Zale may be in focus after it announced that it is postponing its earnings release previously scheduled for Wednesday, September 9. The company said the delay was in order to finalize a review of accounting for prepaid advertising costs.

FuelCell Energy is likely to see some activity after it reported third quarter revenues of $23 million, lower than $27.9 million last year. The company reported a net loss applicable to common shareholders of 21 cents per share compared to a loss of 39 cents per share in the year-ago period. Analysts estimated a loss of 24 cents per share on revenues of $28.02 million.

El Paso Electric may react to its announcement that it has appointed George Williams as its Senior Vice President and COO, effective October 5th. Williams will replace Frank Bates, who will continue to serve as the company’s president until his retirement in March 2010. Another stock that could be in the spotlight over an executive change is Mylan Labs (MYL), which said its CFO Jolene Varney would leave the company after being in office for a little over three months.

Barrick Gold may also be in focus after it announced an offering of 81.2 million shares of its common stock at a price of $36.95 per share, which would generated gross process of approximately $3.0 billion. The company said it would use $1.9 billion of the net proceeds to eliminate all of its fixed priced gold contracts within the next 12 months and about $1 billion to eliminate a portion of its floating spot price gold contracts. The company said it would record a charge of $5.6 billion to its earnings in the third quarter due to the change in the accounting treatment for the contracts.

Coca-Cola Enterprises is also expected to react to its announcement that it is reaffirming its 2009 adjusted earnings guidance at the high-end of its earlier guidance range of $1.44-$1.49 per share. The company noted that business trends are slightly favorable. Additionally, the company said it expects to generate free cash flow of at least $650 million.

Pep Boys receded in Tuesday’s after hours session after it reported that its second quarter revenues fell 2% to $488.9 million. However, the company’s earnings rose to 15 cents per share from 10 cents per share last year. Analysts estimated earnings of 14 cents per share on revenues of $502.5 million.

Ameren may see weakness after it announced that it plans to offer 19 million shares in a public offering. The company expects to use the net proceeds to invest in its rate-regulated utility subsidiaries in the form of equity capital contributions and for general corporate purposes. Meanwhile, Cree (CREE) said it commenced a common stock offering of 11 million shares.

Altera could move to the upside after it raised its third quarter sales guidance, citing quarter-to-date performance and broad improvement in market conditions. The company now expects sales to be flat or rise 3% compared to its earlier prediction of a 1%-5% sales decline.

National Instruments is also likely to see activity after it reaffirmed its third quarter sales guidance of $158 million to $168 million. The company raised the low end of its earnings guidance, with the company currently expecting an adjusted profit of 11-17 cents per share.

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