US & World Daily Markets Financial Briefing 09-11-2009

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Traders May Relish Assurance of Continuation of Stimulus Measures

The major U.S. index futures are pointing to a higher opening on Monday, with the sentiment reflecting optimism that was evident in the rest of the global markets. In reaction to G20 finance’s ministers’ declaration that stimulus measures won’t be removed anytime soon-a proposition, which will nurture the nascent recovery, commodities are rallying. Stocks are also likely to savor the announcement, although a lack of major catalysts could lead to some indecision and traders remaining at bay in anticipation of further proof for the solidification of the recovery.

U.S. stocks snapped a 2-week losing run in the week ended November 6th, as traders focused on data suggesting an improvement in economic conditions and in the process overlooked some less optimistic economic data. A rally in commodity prices also generated buying interest in the commodity space, supporting the market upside to some extent.

Last Monday, aided by positive manufacturing, housing and construction reportS, the major averages closed moderately higher. On Tuesday, positive sentiment generated by deal news was offset to some extent by apprehension ahead of the announcement of the Fed decision, resulting in a mixed close by the major averages. While the Dow Industrials closed modestly lower, the Nasdaq Composite Index and the S&P 500 Index ended on a positive note.

U.S. stocks had another mixed session on Wednesday amid the Fed’s interest rate decision, which did not spring any surprise, and the release of the results of the ISM’s services sector survey, which showed a slower rate of expansion in the non-manufacturing sector. While the Dow and the S&P 500 Index closed modestly higher, the Nasdaq Composite Index ended marginally lower.

On Thursday, stocks shed all inhibitions and rose solidly, aided by a positive weekly jobless claims report and productivity data. The Dow Industrials reclaimed the 10,000 level, ending up more than 2%, while the other two major averages also ended with notable gains. The major averages, which showed a lackluster performance throughout Friday’s session in reaction to weak employment data, closed modestly higher.

For the week, the Dow Industrials, the S&P 500 Index and the Nasdaq Composite Index all ended up more than 3% each.

Among the sector indexes, the NYSE Arca Biotechnology Index and the Dow Jones Transportation Average closed up 8.47% and 6.62%, respectively. The NYSE Arca Airline Index rallied 7.14% compared to the 13.12% gain by the NYSE Arca Gold Bugs Index. The Philadelphia Housing Sector Index advanced 5.71% for the week, while the NYSE Arca Oil Index and the Philadelphia Oil Service Index gained 2.86% and 3.84%, respectively.

Toronto Stocks Look To Add To Last Week's Rally

Bay Street stocks could see some early strength on Monday with commodities moving notably higher. U.S. futures are also pointing higher after world financial leaders agreed to stick with current stimulus plans at the latest G20 meeting over the weekend.

Gold continued to extend its record highs, rising $12.30 to $1,108 per ounce. Copper added 3.65 cents to $2.989 per pound and crude oil added $1.08 to $78.51.

On the corporate front, Ensign reported its third-quarter net income plummeted to C$16.90 million or C$0.11 per share from C$72.07 million or C$0.47 per share in the previous year. In the second quarter, the company's net income was C$13.21 million or C$0.09 per share.

Quadra Mining reported third quarter earnings of US$14.7 million or US$0.15 per share, compared to US$20.77 million or US$0.31 per share last year.
 
Angiotech Pharmaceuticals reported third quarter net loss of US$7.8 million or US$0.09 per share, compared to net loss of US$622.38 million or US$7.31 per share last year.

CGI Group reported that its fourth- quarter net earnings from continuing operations were C$82.55 million or C$0.27 per share, compared to C$75.26 million or C$0.24 per share in the same quarter last year.

AutoCanada Income Fund reported its third quarter net earnings of C$5.10 million or C$0.256 per share, compared to restated net loss of C$38.32 million or C$1.892 per share in the same period last year.

On Friday, the S&P/TSX Composite Index rose 69.72 points or 0.62% to settle to 11,250.42. The market gained more than 300 points on the week, moving off of a two-month low.

Currency, Commodity Futures

Crude oil futures are trading up $0.81 at $78.30 a barrel after the commodity rose $0.43 or 0.56% to $77.43 a barrel in the week ended November 6th. Last Monday, oil rose by over $1-a-barrel and surged up by about $1.50-a-barrel on Tuesday. The commodity gained yet again on Wednesday, although moderately, amid the release of a bullish inventory report, which showed a draw down in crude oil, distillate and gasoline stockpiles.

The black gold retreated moderately on Thursday and fell further on Friday after the Labor Department’s monthly non-farm payroll report showed a spike in the jobless rate, raising doubts over a recovery in the making.

Meanwhile, gold futures, which rose $55.30 or 5.32% to a fresh high of $1,095.70 an ounce last week, are rising further and are currently up $13.80 at $1,109.50 an ounce.

On the currency front, the U.S. dollar weakened against the yen, ending the week down 0.24% at 89.876 yen. The dollar also declined against the euro, dropping 0.9% to $1.4847 a euro, as the weak jobs report gave room to the thinking that the Fed may have to keep interest rates low for an extended period due to the wobbly nature of the economy.

Currently, the U.S. dollar is trading at 89.914 yen and is valued at $1.4984 versus the euro.

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Indian Market Extends Winning Run

Strong global cues, Prime Minister Manmohan Singh's statement on proposed legislative changes in the insurance and pension sectors, and the appreciating rupee on the back of continued weakness of the dollar against major currencies, lifted the Indian market sharply higher on Monday.

Globally, European and Asian stocks advanced notably after finance ministers of G-20 countries pledged to keep stimulus measures intact for the time being and Friday's weak U.S. jobs data reinforced hopes that interest rates will remain low for some more time.

A report from the Labor Department showed that the U.S unemployment rate surpassed 10 percent last month for the first time since 1983. The Dow futures are currently up by 78 points, pointing towards a positive opening on Wall Street Monday morning.

Back home, banking stocks outperformed the broader market on hopes the government would push for long-stalled reforms in the financial sector. Allahabad Bank and Canara Bank surged up over 7% each, Axis Bank rallied 6.63%, SBI advanced over 5%, ICICI Bank gained 4.72% and HDFC Bank added over 4%.

Metals, realty and oil/gas stocks also showed notable gains, while telecom stocks came under significant selling pressure. Bharti Airtel tumbled nearly 4% amid reports it is not seeking new acquisitions, while Reliance Communication fell over 2%. FMCG player Hindustan Unilever slipped 0.71% on a brokerage downgrade.
 
The BSE Sensex opened higher at 16,191 and rose steadily throughout the session before closing near the day's high at 16,499, up 340 points or 2.11% and the S&P CNX Nifty rose 102 points or 2.13% to 4,898. Likewise, the BSE mid-cap index moved up 1.97% and the small-cap index by 2.16%. The market breadth on the BSE was extremely positive, with 1996 gainers versus 756 decliners.

Larsen & Toubro advanced 1.51% on wining a contract worth Rs 1635 crore for building a coal-fired plant in Madhya Pradesh. Fedders Lloyd Corporation hit the 5% upper circuit limit on receiving an overseas order. Ahluwalia Contracts (India) added 1.18% on winning various new contracts worth Rs.242 crore.

In the IT sector, Infosys gained 0.73%, TCS edged up 0.35% and Wipro rose 0.63%, underperforming the broader market amid a stronger rupee.

Jubilant Organosys rose over 2% on reports it will exit its non-core businesses by March. Plethico Pharmaceuticals surged up 7.43% after its U.S subsidiary Natrol launched a new product ' Natrol Immune Boost' for the wellness of body's immune system.

Reports said that Tata Motors will shut its commercial vehicle manufacturing plant in Pune for three days due to shortage of a critical engine component. However, the stock ended up nearly 2%.

Punj Lloyd gained 1.70% after it forayed into the solar utility space. Sundaram Brake Linings added 1.94% after the company revealed its expansion plans.

State-run firms were in the spotlight after the government announced its decision to divest stakes in all profit making public sector enterprises. NMDC(up 6.81%), SAIL(up 4.76%), REC(up 4.29%) and Hindustan Copper (up 3.47%) were some of the prominent gainers.

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The major European markets are advancing on Monday, with sentiment remaining upbeat following an assurance from the finance ministers of the G-20 nations that the stimulus measures would be kept in place until the global economy shows definitive signs of a return to sustainable economic growth.

Currently, the French CAC 40 Index and the German DAX Index are rising 1.36% and 1.55%, respectively, while the U.K.’s FTSE 100 Index is moving up 1.61%.

On the economic front, the Federal Statistical Office for Germany reported that Germany’s trade surplus rose to 10.6 billion euros in September from 8.1 billion euros in the previous month. Imports rose 5.8%, while exports fell 2.8%. In September 2008, the surplus was 15.30 billion euros. On a calendar and seasonally adjusted basis, the surplus was 9.8 billion euros. The current account balance showed a surplus of 9.4 billion euros in September compared to a 4.4 billion euro surplus in August.

A separate report released by the Federal Ministry of Economics and Technology said that Germany’s industrial production rose 2.7% month-over-month in September following 1.8% growth in August. On a year-over-year basis, industrial output declined 12.9%, a smaller decline compared to the 16.5% drop in the previous month.

U.S. Economic News

After the spate of economic reports released during the week ended November 6th, which impacted trading in the equity as well as the forex markets, the markets now turn their attention to the unfolding week, which has a very light economic calendar. Trader interest is likely to be muted, given the 'Veterans Day' public holiday that intersperses the week and the absence of first-tier economic data.

The trade balance report for September, the weekly jobless claims report and the preliminary report of the Reuters/University of Michigan's consumer sentiment survey are likely to be on the radar of the market participants. Apart from these reports, the markets may also stay focused on the results of the Treasury auctions of 3-year notes (due at 1 PM ET on Monday), 10-year notes (due at 1 PM ET on Tuesday) and 30-year bonds (due at a PM ET on Thursday).

The trade balance report for September is expected to show a widening of the deficit, mainly nudged up by a spike in the oil import bill, which in turn reflects an increase in volumes and not prices. IHS Global Insight said it expects both export and import volumes to rise, emphasizing the fact that the declines in August were a temporary interruption of a new upward trend.

The consumer sentiment index generated based on the Reuters/University of Michigan's survey is not expected to see substantial improvement in November, as the volatility in the equity markets and the ongoing job losses should have offset some of the optimism generated by steadily climbing house prices and hopes of an economic revival. According to BMO Capital Markets, current confidence levels equate to a modest growth in spending.

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Northrop Grumman (NOC) is likely to gain ground after it announced that it has agreed to sell its TASC government consulting unit to private equity firms Kohlberg Kravis Roberts and General Atlantic Partners for $1.65 billion. The company said it expects to use the proceeds from the deal to buy back shares.

East West Bancorp. (EWBC) could also be in focus after it announced that it has acquired the banking operations of San Francisco, California-based United Commercial Bank in a FDIC-assisted transaction. East West, the subsidiary of East West Bancorp., will receive $10.4 billion in assets, including $7.7 billion in loans, and assume $9.2 billion in liabilities.

GlaxoSmithKline (GSK) and XenoPort (XNPT) may react to their announcement that the FDA has extended its original PDUFA goal date for the review of its NDA for GSK 1838262 to February 9th, 2010 from the original review date of November 9th, 2009 due to the nodal agency determining that a Risk Evaluation and Mitigation Strategy was necessary for the drug candidate.

Freddie Mac (FRE) could react to its announcement that it reported a third quarter loss of $1.94 per share after paying $1.3 billion in preferred dividends to the U.S. government compared to a loss $19.44 per share in the year-ago period. Total revenues fell to $3.38 billion from the year-ago’s $7.47 billion.

Earnings

Dish Network Corp. (DISH) reported that its third quarter revenues fell 1.5% to $2.89 billion. The company’s net income attributable to common shareholders was 18 cents per share, lower than 20 cents per share last year. The consensus estimates had called for earnings of 44 cents per share on revenues of $2.93 billion.

Rockwell Automation’s (ROK) fourth quarter revenues fell 28% year-over-year to $1.074 billion, although increasing 6% sequentially. The company’s adjusted earnings were 37 cents per share. Analysts estimated earnings of 27 cents per share on revenues of $1.05 billion. For 2010, the company expects earnings of $1.25-$1.75 per share on revenues of $4.1 billion to $4.4 billion. The consensus estimates call for earnings of $1.58 per share on revenues of $4.32 billion.

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