US & World Daily Markets Financial Briefing 11-08-2009

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Stocks May Pause Ahead of Data and Fed Decision

The major U.S. index futures are pointing to a lower opening on Tuesday, with the unprecedented gains notched up since the major averages hit their lows in late March making traders wary. The Asian markets set a positive tone to the day’s trading even amid the release of mixed economic news from the region, while after a positive start the European markets are languishing currently. An economic report released earlier in the day showed that productivity rose at its fastest pace in six years, reflecting a reduction in the hours worked.

The key reports scheduled to be released in the coming days and the FOMC announcement due for Wednesday may keep buying interest subdued, both in terms of movement in volumes.

U.S. stocks closed moderately lower on Monday, as profit taking along with a lack of any major catalysts kept sentiment in the markets subdued. The major averages opened the session lower, although they cut some of their early losses in late morning trading. However, selling pressure intensified, dragging the indexes to their intra-day lows by early afternoon trading. Thereafter, stocks trimmed some of their losses, although they still closed lower for the session.

The Dow Industrials ended down 32.12 points or 0.34% at 9,338 and the S&P 500 Index receded 3.38 points or 0.33% to 1,007, while the Nasdaq Composite Index fell 8.01 points or 0.40% to 1,992.

Nineteen of the thirty Dow components ended the session lower, with Alcoa (AA) (down 2.38%), Cisco System (CSCO) (down 2.48%), 3M Co. (MMM) (down 2.73%) and Travelers Co. (TRV) (down 2.19%) leading the declines. On the other hand, Bank of America (BAC) rose 1.58%, Intel (INTC) gained 1.41%, Johnson and Johnson (JNJ) advanced 1.37%, McDonald’s (MCD) moved up 1.94% and Merck (MRK) closed up 1.66%.

Among the sector indexes, the Dow Jones Transportation Average fell 1.03%, confirming the Dow’s downward move, and the Dow Jones U.S. Basic Materials Index lost 1.66%. At the same time, the NYSE Arca Gold Bugs Index fell 2.48%. The NYSE Arca Airline Index slipped 2.47%, while the NYSE Arca Securities Broker/Dealer Index declined 1.29%. The S&P Retail Index and the Philadelphia Housing Sector Index fell 1.99% and 3.74%, respectively.

In the technology space, the Philadelphia Semiconductor Index ended down 1.20% and the NYSE Arca Networking Index fell 1.35%, while the NYSE Arca Disk Drive Index gained 2.48%.

Following the weak start by the equity markets on Monday, the CBOE Volatility Index, which is a fear gauge, rose sharply in early trading, rising to 25.82, before slipping back from that level and closing up about 1%. Does that forebode tough times ahead? The index has come off significantly from the historical highs it hit in late October 2008, as traders digest signs of an economic stabilization on the horizon. The tapering off of the reporting season leaves the markets with few catalysts to move them. August will most likely be a month of consolidation or a correction, given the run up we have witnessed since late March this year.

Riskier assets have been showing positive momentum, as traders brace for a ‘V’ shaped recovery. The positive data as well as expectations for a strong rebound in the third quarter have led traders to discount a 25 basis point interest rate hike by January 2009. Aided by a spike in car production, which alone is estimated to add up to about 4 percentage points to GDP, Morgan Stanley expects third quarter GDP growth to range between 3%-4%.

A reduced rate of inventory liquidation and better-than-expected gains in housing and construction may also add to growth. That said, the GDP growth foreseen for the third quarter is unlikely to be sustained. Auto sales, which received a temporary boost from the ‘cash-for-clunkers’ program, may suffer from a payback phenomena and subsequently trend lower.

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Canadian stocks could see a flat open on Tuesday morning, following the lead of the U.S. and European markets. Commodity prices also lingered near the flat-line.

Crude oil is up 34 cents to $70.94 per barrel, erasing yesterday's modest losses. Gold has added $2.20 to $9949.10 per ounce and copper is up 2.35 cents to $2.794.

Cardiome Pharma Corp. reported second quarter net loss of C$1.4 million or C$0.02 per share, compared to a net loss of C$18.1 million or C$0.28 per share last year.

Paladin Labs Inc. reported that its second quarter net income was C$27.73 million or C$1.71 per share, compared to C$2.60 million or C$0.17 per share in the year ago quarter.

Cascades Inc. reported second quarter net earnings of C$30 million or C$0.30 per share, compared to net loss of C$25 million or C$0.25 per share last year.

Wesdome Gold Mines Ltd reported second-quarter net income of C$7.82 million, compared to C$763 thousand in the same quarter of last year.
 
Iamgold Corp. reached a deal with Avnel Gold Mining Limited and has the option to acquire up to an initial 51% interest in Avnel's 80% interest in Societe d'Exploitation de Mines d'Or de Kalana in Mali, West Africa.

Crew Energy Inc. said its second-quarter funds from operations or FFO declined to C$20.03 million or C$0.27 per share from C$34.10 million or C$0.58 per share in the year-ago period.

Rona reported its second-quarter net earnings and comprehensive income, including unusual items, slid to C$60.80 million from C$76.62 million last year.

The seasonally adjusted annual rate of Canadian housing starts decreased to 132,100 units in July from 137,800 units in June, according to Canada Mortgage and Housing Corporation.

On Monday, the S&P/TSX Composite Index fell 91.66 points or 0.84% to settle at 10,793.67, falling for just the second in seven sessions for the main index. Weakness in the healthcare and gold sectors contributed to the decline.

Gold Prices Hover Below $950

Gold prices were basically flat in early Tuesday morning trading as traders await the Federal Reserve's next move. The dollar remained near its overnight levels against other majors, limiting the precious metal's hedge appeal.

December-stamped gold rose to $948.10 per ounce, up $1.20 on the session. Prices traded between $952 and $946 through the morning.

The Federal Open Market Committee's two-day meeting begins today, with the rate decision expected to be revealed Wednesday. The central bank is widely expected to keep the fed funds futures rate unchanged.

However, the Fed's commentary on growth and inflation and any additional information on quantitative easing measures have the potential to move the markets.

As for Tuesday's economic data, a Labor Department report showed that productivity increased by 6.4 percent in the second quarter compared to a downwardly revised 0.3 percent increase in the first quarter. Economists had expected productivity to increase by 5.5 percent.
 
Meanwhile, unit labor costs fell by 5.8 percent in the second quarter following a revised 2.7 percent decrease in the first quarter. The steep drop in costs exceeded the expectations of economists, who had expected a 2.5 percent drop.

Wholesale inventory data is expected at 10 a.m. ET. A drop of 0.9% is expected for June, compared to a decline of 0.8% in May.

The dollar recovered a modest slide versus the euro and moved back toward a near-term high. The greenback was also steady versus the pound.

Elsewhere in metals, silver dropped 1.5 cents to $14.34 per ounce, while copper added 1.35 cents to $2.784. Crude oil rose 60 cents to $70.66 per barrel.

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Indian Market Snaps 3-day Losing Streak

Short covering at lower levels helped the Indian market end a volatile session modestly higher on Tuesday. Favorable Asian cues for the second straight day and Finance Minister Pranab Mukherjee's talk that FY10 growth would be above 6% despite deficient monsoon rains, also offered some support.

The BSE Sensex moved in a range of 15,219-14,864 before finishing at 15,075, up 65 points or 0.43% and the S&P CNX Nifty rose 34 points or 0.76% to 4,471.

On the BSE, the small-cap index advanced 0.55% and the mid-cap index by 1.10%, outperforming large-caps. The market breadth was fairly positive, as gainers outnumbered losers by 1356 to 1282, with 95 stocks closing unchanged.

Stock-wise, while auto, realty and metal stocks led the market higher after recent losses, public sector stocks closed on a subdued note. IT, consumer durable, capital goods, FMCG and banking stocks, meanwhile, ended with modest gains.

Among the top gainers, Tata Motors surged up 6.81%, Mahindra & Mahindra rallied 3.55%, Hindalco advanced 3.38%, Maruti Suzuki rose 3.23% and Bharti Airtel ended up 2.23%. Tata Power, Tata Steel, Sun Pharma, Hindustan Unilever, SBI, ACC, ITC and Reliance Industries were the other prominent gainers.

On the other hand, Jaiprakash Associates fell 2.64%, HDFC eased 1.11%, NTPC declined 0.88%, ONGC gave off 0.70%, Wipro shed 0.64% and ICICI Bank edged down 0.38%. Hero Honda Motors, Infosys, Grasim, Reliance Infrastructure, DLF, HDFC Bank and BHEL also ended in the red.
 
Tata Motors jumped nearly 7% on reports that it has secured a debt facility of £75 million for its Jaguar and Land Rover operations. Satyam Computer Services rose 2.01% after the Supreme Court dismissed a petition by Satyam investors seeking compensation for losses suffered because of an alleged fraud.

GMR Ferro Alloys & Industries edged down 0.20%, while GMR Industries climbed 9.76% and the flagship GMR Infrastructure rose 1.24% on reports the group is considering listing its global holding company on the London Stock exchange

IDBI Bank advanced nearly 2% after it lowered the interest rates on its domestic deposits by up to 50 basis points across various maturities.

Ranbaxy Laboratories soared 6.17% and Natco Pharma jumped 19%, while Cipla ended down 0.48% on speculation that the government will allow drug makers to sell low cost anti-flu medicine Tamiflu directly to the consumers in the next two weeks.

Ranbaxy Laboratories said that it has received final approval from the U.S.Food and Drug Administration to make and sell sumatriptan succinate tablets, used to treat migraine.

Bharat Forge rallied 7% on reports that it may close an unviable plant in Europe. Voltas added 4.43% on reports that it is contemplating setting up a subsidiary company in Saudi Arabia.

Gammon Infrastructure Projects was locked at the 5% upper circuit limit after its board approved a 5-for-1 stock split. Consolidated Construction Consortium rose 2.17% after bagging a contact worth Rs. 431 crore.

Tata Steel advanced 1.57% on reports that it has cut prices of long steel products by up to Rs.1,500 a tonne to match prevailing market rates. Tech Mahindra rallied over 7% on reports a joint venture of the company has bagged a multi-million dollar overseas contract.
 
Gujarat NRE Coke said that its Australian arm Gujarat NRE Minerals is in the final stages of commissioning its longwall mining at NRE Wongawilli Mine in New South Wales. The stock closed up over 1%.

On the BSE, Reliance topped the traded value chart with a turnover of Rs 831.11 crore, followed by ICICI Bank (Rs 681.19 crore), Jaiprakash Associates (Rs 627.79 crore), Tata Motors (Rs 612.13 crore) and Tata Steel (Rs 578.88 crore).

Unitech topped the volume chart with trades of over 64.16 million shares, followed by Suzlon (56.78 million), Ispat Industries (47.3 million), GVK Power & Infrastructure (35.28 million) and IFCI (35.18 million).

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The major European averages have surrendered their early gains and are trading lower, with the French CAC 40 Index, the German DAX Index and the U.K.’s FTSE 100 Index receding 0.30%, 0.48% and 0.42%, respectively.

On the economic front, the Royal Institution of Chartered Surveyors said a large proportion of U.K. real-estate agents and surveyors indicated a housing market improvement in July. The net price balance of surveyors reporting rising rather than falling prices was at a seasonally adjusted minus 8% in July, the best outcome since August 2007. In June, it was minus 18%.

Another housing market survey showed that the drop in the U.K. house prices slowed in June. U.K. house prices dropped 10.7% in June from a year earlier, slower than the 12.7% fall in the preceding month, the Department of Communities and Local Government said Tuesday. Economists expected a 12% drop.

Meanwhile, the U.K. Office of National Statistics said the U.K. trade deficit widened to 2.2 billion pounds in June from May's revised shortfall of 1.9 billion pounds. However, the trade balance was below the expected deficit of 2.3 billion pounds.

U.S. Economic Reports

The U.S. Labor Department is also scheduled to release its preliminary report on second quarter non-farm productivity and unit labor costs at 8:30 AM. Economists expect a 5.5% increase in non-farm productivity, but a 2.5% decline in unit labor costs.

Preliminary estimates released by the Labor Department showed that second quarter non-farm productivity rose at a 6.4% quarter-over-quarter rate, but unit labor costs fell 5.8%. The consensus estimates had called for a 5.5% increase in non-farm productivity, while unit labor costs were estimated to have declined by 5.8%.

The improvement in productivity reflected an 7.6% drop in hours, while output declined 1.7%. Hourly compensation rose 0.2% quarter-over-quarter.

The Commerce Department is due to release its wholesale inventories report at 10 AM ET. Economists expect wholesale inventories at the end of June to show a 0.9% decline.

In May, wholesale sales edged up 0.2% month-over-month to $311.3 billion, while annually, sales were down 19.9%. The monthly sales growth was aided by an increase in sales of non-durable goods. Wholesale inventories at the end of May were down 0.8% compared with the previous month. The inventories to sales ratio for May 2009 was 1.29 compared to 1.12 in the year-ago period.

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McDermott International could move to the upside after it reported second quarter earnings of 40 cents per share, which exceeded the 37 cents per share consensus estimate. Revenues fell 13% to $1.56 billion. Analysts estimated revenues of $1.59 billion.

Fluor Corp. is likely to move in reaction to its second quarter results, which showed that earnings fell to 93 cents per share compared to $1.12 per share last year, which included a gain of 27 cents per share. Revenues fell 8% to $5.29 billion. The consensus estimates had called for earnings of 91 cents per share on revenues of $5.81 billion. The company said it maintains its 2009 earnings per share estimate of $3.80-$4 per share, while analysts estimate earnings of $3.81 per share.

VMware is likely to be in focus after it announced a deal to buy SpringSource for $362 million in cash and stock. The deal also includes the assumption of $58 million in uninvested stock and options. The acquisition is expected to close in the third quarter of 2009.

Sprint Nextel could react to its announcement that it has priced a $1.3 billion underwritten public offering of 8.375% senior notes due 2017. The company expects the sale to close on August 13th, 2009, while it intends to use the net proceeds from the offering for general corporate purposes.

Tellabs may gain ground after it announced that it would repurchase up to $200 million worth or 8% of its common shares under an existing authorization, previously announced on November 8th, 2007. Another company that announced a share repurchase program was Laboratory Corp. (LH), which said it would buy up to $250 million worth of shares.

Ryder System is expected to react to its announcement that it has commenced a cash tender offer to repurchase up to $100 million aggregate principal amount of certain of its outstanding notes.

Bunge could see weakness after it announced that it has commenced an underwritten public offering of 10 million shares. The company said it would use the proceeds to repay outstanding indebtedness and for other general corporate purposes.

Immucor may also be in focus after it said it has submitted the formal 30 working day response to the FDA action announced on June 26th, 2009. The company clarified that the response details its remediation plans and timeliness to correct the deficiencies outlined by the FDA.

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