US & World Daily Markets Financial Briefing 12-01-2011

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Positive News From Portugal Leads To Early Strength For Stocks

Stocks showed a notable move to the upside at the start of trading on Wednesday, as traders reacted to news of strong demand for a Portuguese bond auction. The major averages all moved higher at the open, although buying interest has waned since then.

The initial strength came after the Portuguese government sold 1.25 billion euros, or approximately $1.6 billion, in notes scheduled to mature between 2014 and 2020, relieving some short-term concerns about the country's ability to pay its mounting debt.

Spain, another source of financial concern in Europe, will make a bond offering tomorrow. The results of this week's bond auction may show that investors are willing to take a risk on sovereign debt, but only at a high rate of return.

Back in the U.S., the day's economic data has had little impact on sentiment in light of the news out of the euro zone.

With the price of fuel imports to the U.S. showing another substantial increase in the month of December, the Labor Department released a report showing another notable increase in total import prices. The report also showed a moderate increase in total export prices.

In corporate news, insurer American International Group, Inc. (AIG) said it has reached a deal to sell its 97.57 percent interest in its Taiwan life insurance unit Nan Shan Life Insurance Company Ltd. to Taiwan's Ruen Chen Investment Holding Co. Ltd. for $2.16 billion in cash.

Chevron Corp. (CVX) said after the close on Tuesday that it expects its fourth-quarter earnings to be higher compared to the previous quarter.

Engineering and manufacturing company ITT Corp. (ITT) also announced that its board has approved a plan to split the company's businesses into three distinct, publicly-traded companies. The company intends to execute the plan before the end of 2011, with each company expected to be listed on the NYSE.

Banking stocks have shown a strong upward move amid easing concerns about European financial stability, resulting in a 1.5 percent gain by the KBW Bank Index. Defense and energy stocks are also seeing early strength, while most of the other major sectors are showing more modest moves.

The major averages have pulled back off their highs for the young session but currently remain in positive territory. The Dow is up 54.87 points or 0.5 percent at 11,726.75, the Nasdaq is up 8.11 points or 0.3 percent at 2,724.94 and the S&P 500 is up 6.36 points or 0.5 percent at 1,280.84.

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TSX May Extend Gains Amid Positive Global Cues

Canadian stocks may extend gains at the opening bell Wednesday, as a relatively successful bond auction by Portugal defused market worries over the sovereign debt situation in the region, at least temporarily.

Portugal managed to sell around $1.62 billion of debt in its first bond auction this year, indicating the country is less likely to need a financial bailout soon.

Cues from the global equity markets were also positive, with most Asian markets ending higher and European stocks hovering in positive territory.

Meanwhile, commodities prices were flat, with gold holding above $1,380 an ounce and crude steady above $91 a barrel.

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

On Tuesday, the S&P/TSX Composite Index snapped its 5-day losing streak to surge 155.94 points or 1.18% to 13,401.05, registering its first gain in 2011.

The price of crude oil moved up as traders await cues from the official weekly inventories data from the EIA, due out later during the session. Analysts expect crude oil inventories to drop by 1.4 million barrels, while gasoline stocks are seen rising by 2.1 million barrels. Crude for February was up $0.54 to $91.65 a barrel.

The price of gold was steady above $1,380 amid a firm U.S. dollar. Gold for February edged down $2.30 to $1,382.00 an ounce.

In corporate news from Canada, auto parts maker Magna International said it expects full-year 2011 consolidated total sales to be between $25.6 billion and $27.1 billion.

Sports wear retailer Lululemon Athletica raised its fourth-quarter earnings forecast to a range of C$0.55 to C$0.57 per share, from the earlier range of C$0.46 to C$0.48 per share.

Consolidated Thompson Iron Mines said it would be acquired by mining and natural resources company Cliffs Natural Resources for C$17.25 per share in cash representing a transaction value of about C$4.9 billion.

Transportation services provider Student Transportation said it acquired Ridge Road Express, Inc. The acquisition will add over 320 vehicles, annualized revenues of around $16 million and six new locations for the company.

Uranium miner Vena Resources said it plans to complete a first phase four hole 1,850 metre diamond drill campaign at the Esquilache project this quarter.

Airplanes and trains making company Bombardier Inc. said it obtained euro 362 million orders from Deutsche Bahn AG for the delivery of 137 latest-generation coaches and locomotives.

Canadian Pacific Railway said it plans to invest between C$950 million and C$1.05 billion for capital projects in 2011.

Base-metals explorer Strategic Metals said it will transfer its Silver Range and Mint projects and about C$17 million in cash to Silver Range Resources Ltd., a wholly-owned subsidiary, in return for Silver Range shares and warrants.

In economic news from Canada, Statistics Canada said its New Housing Price Index rose 0.3% in November following a 0.1% advance in October. Economists expected new home prices to match October's small increase.

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French Market Rises, Led By Banks

The French market is notably higher in afternoon trading Wednesday, led by banks and construction stocks, as economic worries eased with the bond auction in Portugal. Sentiment was also influenced by positive cues from Asia.

In economic news, the French current account deficit widened to EUR 4.2 billion in November from a revised EUR 2.8 billion in October, data released by Bank of France showed. The trade deficit increased to EUR 4.5 billion from EUR 3.5 billion, while the surplus on services account fell to EUR 0.2 billion from 0.7 billion.

The German economy expanded at its strongest pace since reunification in 2010, helped by trade and investment, the Federal Statistical Office said. The increase in the price-adjusted gross domestic product was 3.6%. In 2009, GDP had slumped by 4.7%. Upon calendar adjustment, the GDP growth rate was 3.5% in 2010 compared to the prior year's 4.7% contraction.

"Looking ahead, the recovery will - at a somewhat lower pace - continue this year," said ING Bank NV's Carsten Brzeski. "With an expected GDP growth rate of 2.7%, the German economy will remain Eurozone's growth engine," the economist added.

Meanwhile, Eurozone factory output rose 7.4% year-on-year, following an upwardly revised 7.1% growth in October, Luxembourg-based statistical office Eurostat said. The figure exceeded expectations for an increase of 5.9%.

The UK's seasonally adjusted deficit on trade in goods widened to GBP 8.7 billion in November from GBP 8.6 billion in October, data from the Office for National Statistics showed. The expected shortfall was GBP 8.35 billion.

The CAC 40 index opened at 3,871 and rose sharply in early trade. The index has since maintained those gains and is currently adding 1.60%.

Societe Generale is leading the gainers by adding 4.9%. BNP Paribas and Credit Agricole are rising 3.4% and 3.3%, respectively. Natixis is advancing 2.3%.

Alcatel Lucent is gaining 3.4% and gas utility GDF Suez is rising 2.5%. Insurer Axa is up 2.3%. Veolia Environnement and Suez Environnement are higher by 2.4% and 1.1%, respectively.

Building materials maker Saint-Gobain is climbing 2.4%. Builders Bouygues and Vinci are rising 1.4% and 1%, in that order. Cement giant Lafarge is declining about 2% reportedly on an analyst downgrade.

EADS is up 1.9% after Airbus announced a record order for 180 aircraft from Indian carrier IndiGo. Drugmaker Sanofi-Aventis, metal fabrication firm Vallourec, hotel group Accor, utility EDF, chipmaker STMicroelectronics and chemical firm Air Liquide are making notable gains.

Carmakers Renault and Peugeot are falling. Tyre firm Michelin, cosmetics giant Loreal and luxury goods conglomerate LVMH are moderately down.

Elsewhere in Europe, the UK's FTSE 100 is advancing 0.46% and the German DAX is gaining 1.34%.

Across Asia/Pacific, major markets ended in positive territory. Australia's All ordinaries gained 0.35%, China's Shanghai Composite Index added 0.56% and Hong Kong's Hang Seng climbed 1.54%. Japan's Nikkei 225 and India's BSE Sensex gained 0.02% and 1.76%, respectively.

In the U.S., futures point to a slightly higher open on Wall Street. In the previous session, the Dow gained 0.3%, the Nasdaq moved up 0.3% and the S&P 500 rose 0.4%.

In commodities, crude for February delivery is falling $0.02 to $91.11 per barrel, ahead of the weekly inventory data from the Energy Information Administration, and gold is sliding $4.8 to $1379.5 a troy ounce.

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Indian Market Snaps Six-day Fall

Snapping a six-day decline, the Indian market bounced back sharply, with major indices ending near their respective session's high on Wednesday, even as government data showed the nation's industrial output had fallen to an 18-month low in November.

After opening firm on positive global cues, the benchmark 30-share Sensex pared all its early gains and slipped into the red, hitting an intra-day low of 19,049 at noon, after the release of IIP report.

Soon, it clawed its way back above the 19,500 level and closed with a 338-point or 1.76% gain at 19,534, thus recovering close to 500 points from the day's low. Likewise, the 50-share Nifty witnessed a sharp rebound from the intra-day low to end up 109 points or 1.90% at 5,863.

The BSE mid-cap and small-cap indexes rose by 1.68% and 1.42%, respectively. In the broader market, gaining shares outpaced decliners in the ratio of 1.74:1.

India's industrial output in November rose a slower-than-expected 2.7% from a year earlier, sharply lower than a revised 11.3% expansion in October, due to poor patronage by consumer non-durables, intermediate goods, manufacturing and power sectors, the Central Statistics Office said. Economists were expecting an annual growth of 6.7%.

The cumulative growth in industrial production for the period April-November stood at 9.5% over the corresponding period of the previous year.

Planning Commission Deputy Chairman Montek Singh Ahluwalia said the government is not worried about the slowdown. " It reflects month-to-month volatility. We are on track to achieve the targeted GDP growth of over 8.5% in the currency fiscal year, " he said.

Also, the wild swings in monthly industrial growth makes a strong case for continuation of stimulus measures in the upcoming Budget, analysts said. As far as monetary policy is concerned, the Reserve Bank of India may still raise rates, albeit modestly, on January 25, as inflation could pose a serious problem if it starts to spread beyond food.

Finance minister Pranab Mukherjee, meanwhile, refused to buy the argument that the decline in industrial growth is due to high base effect and promised to take corrective steps to increase output in the remaining three months.

In stock-specific action, IT bellwether Infosys, which releases its third-quarter results on Thursday, closed up 1.37%. TCS rallied 3.28%, but Wipro slipped 0.18%. Bharti Airtel advanced 2.74% after it tied up with SBI for mobile banking and reports said the country's top mobile operator will launch its 3G mobile services soon.

SBI ended up 2% after the state-run lender denied a television channel report that the Central Bureau of Investigation has searched its offices in a case related to the 2G spectrum allocation issue. Private sector lender ICICI Bank climbed 4.47% and HDFC Bank advanced 2.77%.

Metal stocks such as Hindustan Zinc, Hindalco Industries, JSW Steel and Sterlite Industries rose between 2.5% and 6.5%, as a retreat in the dollar spurred demand for commodities. Tata Steel fell sharply early in the session on equity dilution worries before ending 0.26% higher.

In the auto sector, Tata Motors climbed nearly 5%, Ashok Leyland advanced 3.62%, Mahindra & Mahindra added 2.11% and Hero Honda Motors gained 1.92%, while Maruti Suzuki (down 0.39%) and Bajaj Auto (down 1.52%) ended in the red.

Pfizer jumped 5% on strong earnings. Debutant Shekhawati Poly-Yarn closed at Rs.47.50, after hitting an intra-day high of Rs.69.70. The stock was up over 58% compared to its initial public offering price of Rs.30 a share.

Elsewhere, the other stock markets across Asia advanced on Wednesday, the euro made thin gains and oil and metal prices strengthened after pledges of support from China and Japan helped ease concerns about Europe's funding crisis.

Hong Kong's Hang Seng rose 1.54%, China's Shanghai Composite average gained 0.56% and South Korea's KOSPI edged up 0.32%. Japan's Nikkei average rose to an eight-month high before paring gains and ending on a flat note.

European stocks gained for a second day ahead of a crucial Treasury bill sale by Portugal, while trading in the U.S. index futures suggested that the Dow could rise 64 points at the opening bell on Wednesday.

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Dollar Firms Ahead Of Export Prices, Beige Book

The dollar took back some overnight losses versus other major currencies on Wednesday, as traders braced for a busy day on the economic with one eye on developments in Europe.

Across the Atlantic, a successful Portuguese bond auction eased concerns that the European debt crisis is about to intensify.

Spain will make a bond offering tomorrow. The results of this week's bond auction may show that investors are willing to take a risk on sovereign debt, but only at a high rate of return.

The dollar slipped to $1.3020 versus the euro in very early dealing, but was back to $1.2970 approaching 8 am ET. The pair has shown little direction this week, after the dollar hit a 4-month peak of $1.2873.

Eurozone industrial production grew at a faster pace in November, exceeding expectations, official data revealed Wednesday.

Factory output rose 7.4% year-on-year, following an upwardly revised 7.1% growth in October, the Luxembourg-based statistical office Eurostat said. Economists were looking for an increase of 5.9%.

The buck also continued its run of choppy trading versus the yen, edging back to Y83.35 from Y83.

On the flip side, the dollar found no relief against its Canadian counterpart, with the greenback dropping to a fresh 2-year low C$0.9860.

Looking ahead, traders will focus on US export & import price data for December, slated for release at 8:30 a.m. ET

Import prices rose 1.3% in November following a 1.0% increase in October. Export prices, on the other hand, surged up by 1.5% in November after rising by 0.8% in the previous month.

At 10.30 a.m. ET, the Energy Information Administration will release its weekly petroleum inventory report for the week ended January 7th.

At 2.00 p.m. ET, the Federal Reserve will release its Beige Book, a compilation of anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts.

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