US & World Daily Markets Financial Briefing 10-01-2011

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Stocks See Early Weakness Amid Renewed Debt Concerns

Stocks have shown a notable move to the downside in early trading on Monday, as traders shrug off news on the merger and acquisition front in light of renewed European debt concerns. The major averages have all fallen firmly into negative territory after seeing some strength last week.

The early weakness is partly due to renewed concerns about government debt in Portugal, which is facing increased pressure to seek financial help from the European Union and the International Monetary Fund.

Concerns about European debt have largely overshadowed the news on the M&A front, which is typically seen as a sign of corporate optimism.

In M&A news, electric utility Duke Energy Corp. (DUK) has agreed to buy smaller rival Progress Energy Inc. (PGN) in an all-stock deal worth over $13 billion.

Progress Energy shareholders will receive 2.6125 shares of Duke Energy for each Progress Energy share they hold, valuing Progress Energy at $46.48 per share.

Chemical giant DuPont (DD) also announced that it will buy Danish food company Danisco for $5.8 billion in cash.

Housing stocks are seeing considerable weakness, as traders cash in on some of the recent strength in the sector. Utilities, oil service, and biotech stocks are also posting notable losses, while most of the other major sectors are showing more modest moves to the downside.

The major averages have climbed well off their lows for the young session in the past few minutes but remain in the red. The Dow is down 47.76 points or 0.4 percent at 11,627.00, the Nasdaq is down 8.60 points or 0.3 percent at 2,694.57 and the S&P 500 is down 4.55 points or 0.4 percent at 1,266.95.

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French Market Notably Lower

The French market is notably lower in afternoon trading Monday, dragged down by banks and construction stocks. Sentiment was influenced by weak cues from Asia, where most major markets ended lower, as well as the re-emergence of European sovereign debt worries.

In economic news from Europe, the average price of a home in the UK fell a seasonally adjusted 1.3% month-on-month in December to a little over 162,400 pounds, in contrast to analyst expectations for a 0.4% increase, Halifax said.

French manufacturing output rose for the first time in three months in November, led by a surge in coke and refined petroleum products. Manufacturing output grew 2.2% month-on-month in November following declines of 0.9% and 0.2% in October and September, respectively. Total industrial production went up 2.3% month-on-month, reversing a 0.8% decline in October.

Meanwhile, an indicator of Eurozone investor confidence rose to 10.6 in January from 9.7 in December, latest survey data from Sentix showed. However, the reading was less than a score of 11.8 economists had forecast.

The CAC 40 index opened below the flat line at 3,850 and has been moving in the range of 3,797-3,853. The index is currently losing 1.49%.

Credit Agricole is leading the decliners by falling 3.4%. Societe Generale, BNP Paribas and Natixis are sliding between 2.7% and 1.6%.

REIT Unibail Rodamco is declining 2.6% and cement giant Lafarge is falling 2.1%. Builders Bouygues and Vinci are down 2% and 1%, respectively. Building construction maker Saint-Gobain is losing 1.2%.

Insurer Axa is falling 3% and machinery & equipment firm Alstom is falling 2.5%. Those making notable losses include hotel group Accor, drugmaker Sanofi-Aventis, carmaker Peugeot, oil giant Total, department stores operator PPR and France Telecom.

Elsewhere in Europe, the UK's FTSE 100 is declining 0.43% and the German DAX is dropping 0.95%.

Across Asia/Pacific, major markets ended mostly lower. China's Shanghai Composite Index lost 1.64%, Hong Kong's Hang Seng retreated 0.67% and India's BSE Sensex declined 2.38%. The Japanese market was closed for a holiday. However, Australia's All Ordinaries added 0.14%.

In the U.S., futures point to a slightly lower open on Wall Street. In the previous session, the Dow fell 0.2%, the Nasdaq slid 0.2% and the S&P 500 declined 0.2%.

In commodities, crude for February delivery is adding $0.96 to $88.99 per barrel and gold is losing $3.0 to $1365.9 a troy ounce.

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Indian Market Extends Losses On Panic Selling

The Indian market fell sharply on Monday, extending its 4% loss last week, as investors gripped by panic sold shares across sectors. Investors have been reducing positions since last week on worries that the Reserve Bank of India might hike its policy rates in the upcoming review policy meet on January 25 to check soaring inflation.

Besides, a weak trend across global markets today following disappointing U.S. jobs data and speculation that Portugal may follow Greece and Ireland in seeking bailout weighed on sentiment to some extent. Data showing heavy selling by foreign institutional investors last week also prompted investors to remain on the sidelines.

The benchmark Sensex saw a free fall to end near the day's low at 19,224, down about 470 points or 2.38%, while the 50-share Nifty lost 142 points or 2.40% to end at 5,763. The BSE mid-cap and small-cap indexes fell between 2% and 3% and in the broader market, declining shares outpaced gaining ones in the ratio of 3.45:1. Sector-wise, realty, capital goods, consumer durables, banking and oil/gas stocks bore the brunt of the selling.

In the 30-share Sensex pack, HDFC Bank, BHEL and HDFC led the declines, losing about 5% each, followed by Hindalco Industries (down 4.44%), Jaiprakash Associates (down 4.18%), Bajaj Auto (down 4.07%), Hero Honda Motors (down 3.68%), Larsen & Toubro (down 3.53%), DLF (down 3.33%), ICICI Bank (down 3.22%) and Reliance Industries (down 3.18%).

On the positive side, software exporter Infosys gained a percent ahead of its third-quarter results due on Thursday. Telecom operator Bharti Airtel also ended marginally higher.

Artson Engineering advanced 3.70% on winning a Rs.32-crore order from Cairn Energy India. Patni Computer Systems ended up 0.82% after iGate said it agreed to buy a majority stake in the IT services company. G M Breweries added nearly 3% on posting strong quarterly results. Sree Rayalaseema Alkalies & Chemicals fell 1.65% on reporting a 16% fall in its third-quarter net profit.

On the global front, the other Asian markets closed mostly lower on Monday, after weaker-than-expected non-farm payrolls data from the United States raised fresh concerns about economic recovery. The Japanese market was closed for a public holiday.

European stocks also retreated ahead of euro-zone government bond auctions this week and the Dow futures slipped before Alcoa's fourth-quarter results scheduled to be released after the Wall Street close on Monday. Other big names that will report earnings this week include JP Morgan and Intel.

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Euro Pauses After 4-Month Low Versus Dollar

The euro halted a four-day decline against the dollar Monday morning, but was unable to take back much of its steep recent losses amid lingering concerns that Europe's sovereign debt crisis is about to spiral out of hand.

The European Central Bank was said to be buying Portuguese bonds this morning, providing temporary relief after the interest rate premium on Lisbon's sovereign debt rose sharply last week.

France and Germany are reportedly pressuring Portugal to seek financial aid from the EU and IMF, hoping to head off a crisis that may threaten the viability of the euro monetary union.

Greece and Ireland have already been rescued, but bond vigilantes continue to pressure Europe's weakest members.

The euro dropped to a 4-month low of $1.2873 versus the dollar late last night in New York, and was very slightly improved at $1.2913 this morning.

The single currency lost 5 cents last week, losing ground on Friday even after a disappointing US jobs report.

The euro hit a monthly low of Y106.93 versus the yen, and was little changed at 107.14 in more recent deals. In 2010 the euro hit a 9-year low of 105.41.

As the euro has weakened, the Swiss franc has become a fashionable asset. The euro was down to CHF 1.2530 against its safe haven rival, near a record low of CHF 1.24 set earlier this month.

In economic news, an indicator of euro area investor sentiment rose to 10.6 in January from 9.7 in December, latest survey data from Sentix showed Monday. However, the reading was less than a score of 11.8 economists had forecast.

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