US & World Daily Markets Financial Briefing 12-06-2009

You can now manage your positions directly from your web browser, whether you use PC or Mac.  Test-drive VT Trader™ Web with your free practice account! Click Here

Exuberance Over a Quick Economic Rebound May Prove to be Irrational

The major U.S. index futures are pointing to a lower opening on Friday, with the markets finding themselves locked in a lackluster narrow trading range ever since the onset of June. Strong recovery signals continue to emerge from developing economies such as China and India. Recent datapoints from Japan are encouraging as well. That said, caution regarding the economic outlook was exemplified by a forecast issued by World Bank, which said the global economies are set to contract at a faster-than-anticipated rate in 2009.

That said, the outlook brightens as we move towards 2010. The IMF has reportedly raised its global growth forecast for 2010 to 2.4% from 1.9% estimated earlier. The turnaround may be spearheaded by the developing nations, which are seeing conditions improve, while the U.S. may lag behind. The stimulus-induced boost to consumer spending in the U.S. seemed to have lost steam, as was clearly evident by yesterday’s retail sales report.

Inventory replenishment and stabilization in housing market conditions and trade to some extent could support growth. All said and done, the markets may exercise a lot of caution amid this fluid environment and may well be range bound or undergo some correction following the recent run up that has not been adequately supported by fundamentals.

U.S. stocks opened Thursday’s session higher, aided by a drop in weekly jobless claims and an increase in retail sales for May. Although the major averages exhibited some volatility, they remained above the unchanged line throughout the session. The indexes hit the day’s highs in the afternoon, encouraged by the results of an auction of $11 billion worth of 30-year bonds, with the bid-to-cover ratio at 2.68 and the yield at 4.720%.

Thereafter, some selling set in, dragging the major averages off their highs. The Dow Industrials ended up 31.90 points or 0.37% at 8,771 and the Nasdaq Composite rose 9.29 points or 0.50% to 1,862. The S&P 500 Index closed at 945, representing a gain of 5.74 points or 0.61%.

Twenty-one of the thirty Dow components ended the session higher, with Bank of America (BAC) (up 8.26%) and Alcoa (AA) (up 6.35%) leading from the front. Pfizer (PFE), AT&T (T), Merck (MRK) and Chevron (CVX) were among the other notable gainers. On the other hand, American Express (AXP) and Boeing (BA) declined more than 3% each. McDonald’s (MCD) and Wal-Mart Stores (WMT) also showed some weakness.

Among the sector indexes, the KBW Bank Index climbed 2.55% and the NYSE Arca Securities Broker/Dealer Index gained about 1%. The Dow Jones Utility Average gained 2.15% compared to a 2.74% advance by the Philadelphia Oil Service Index and a 2.59% rise by the NYSE Arca Biotechnology Index. On the other hand, the S&P Retail Index receded 1.8% and the Philadelphia Housing Sector Index fell 1.24%.

In the technology space, the NYSE Arca Disk Drive Index and the NYSE Arca Computer Hardware Index ended up about 1% and 2.63%, respectively, while the Philadelphia Semiconductor Index slid by over 1% on profit taking after the previous session’s gains.

The major averages have been locked in a narrow, lackluster phase since early June. The S&P 500 Index has to break out of this 928-953 trading range to make an attempt to top the 1,000 level. However, if the index breaks below the 872 level, then it could go into a correction mode and fall back towards the 806 level. According to the research team at S&P, corrective price action is overdue for financial and consumer discretionary sectors, since leadership from financial and consumer discretionary stocks since the March bear bottom has waned of late.

Although the KBW Bank Index is trading within the up-trending channel that has been in place since early March this year, it has been going about a consolidation motion since mid-May, a little before the broader market began moving sideways. Unlike the major averages, the index is still trading below its 200-day moving average, which is currently at 42.3 on a daily chart.

The 36.60 and 39.20 band should be violated if we are to see any meaningful price action. On the downside, the other support levels are its 50-day moving average of 35.50 and 31.25. Meanwhile, the index may find strong resistance around the 46.50 area.

On the economic front, retail sales for May rose 0.5% month-over-month in May, in line with expectations, and rising after two months of declines. Excluding autos, retail sales were also up 0.5%, better than the expected increase of 0.2%. However, sales after auto and gasoline were stripped rose an anemic 0.1%. These number reinforce the view that consumers are still on guard, given the intensity of the economic damage we have been seeing in the current downcycle, with the gains reflecting spending on gasoline and autos, which received a shot in the arm from the magnanimous discounts thrown out by a battered industry.

Meanwhile, the jobless claims report for the recent reporting week presented a mixed picture. First time claims fell to 601,000 from the upwardly revised reading of 625,000 for the previous week. On the flip side, continuing claims surged up to another fresh record after the previous week’s pause. That said, initial jobless claims are more of a leading indicator and the fact that they have been declining in recent weeks should bring some cheer to the markets.

The Commerce Department said business inventories dipped 1.1% month-over-month in March compared to the expected decline of 1%, with the drop spearheaded by a depletion of auto inventories. The March reading was revised down to a decline of 1.3%. Business sales fell by a lesser magnitude, dropping 0.3% month-over-month. Accordingly, the business inventories to sales ratio declined to 1.43.

Get our Daily Trade Signals and Grain Newsletter along with a copy of the CBOT Introduction to Agricultural Futures and Options Book for Free! The grain trading professionals at MF Global can guide you in the right direction with your trading. Click here to Get your Free Grain Trading Kit Today

Toronto stocks could give back some of the recent rally in early Friday trading as commodity prices are down across the board. Bay Street's main index finished the previous session at an eight-month high.

Crude oil has lost $1.61 to $71.07 per barrel in electronic trading, while gold has dropped $22.90 to $939.10 an ounce and copper has slipped 6.8 cents to $2.37 per pound.

In corporate news, Patheon reported that its second quarter loss was US$3.2 million or US$0.035 per share, compared to a loss of US$8.0 million or US$0.088 a share last year.

Cascades Inc. announced that it has reached an agreement with Atlantic Packaging Products Ltd. to acquire its tissue business for about C$60 million.

COM DEV International reported net income for the second quarter of C$4.9 million or C$0.07 per share, compared to C$2.0 million or C$0.03 per share in the year-ago quarter.
 
Brick Brewing reportedly agreed to changed the label on its Red Baron beer to settle a copyright and trademark dispute with Labatt Brewing Co.

Across the border, a Labor Department report showed that import prices rose 1.3 percent in May following a revised 1.1 percent increase in April. The continued increase in prices was largely due to an 8.3 percent increase in petroleum import prices.

Additionally, the Labor Department said that export prices rose 0.6 percent in May after edging up 0.4 percent in the previous month. A 3.6 percent increase in the prices of agricultural exports contributed to the moderate increase.

On Thursday, the S&P/TSX Composite Index gained 116.13 points or 1.09% to settle at 10,714.11. This marked the best finish since October 3.

Crude oil futures are easing $1.35 to $71.33 a barrel after rising $1.35 to $72.68 a barrel in Thursday’s session. Gold futures, which rose $7.30 to $962 an ounce, are currently down $14.80 at $947.20 an ounce.

On the currency front, the U.S. dollar is trading at 98.27 yen, stronger than the 97.635 yen it fetched at the close of New York trading on Thursday. Against the euro, the greenback is trading at $1.3963 a euro.

Click Here

The markets across the Asia-pacific region ended higher on Friday on increasing optimism about global economic recovery. Positive economic data from China and Japan lifted sentiment, although profit taking ahead of the weekend limited the gains.

Japan’s Nikkei 225 Average opened sharply higher at 10,088 compared to its previous close of 9,981, and continued to advance further on recovery hopes. A positive closing on Wall Street Thursday and better than expected industrial production data lifted the market, as the index firmly traded about the psychological 10,000-mark. The index finally closed at 10,136, representing a gain of 154 points, or 1.54%. The broader Topix Index of all first section issues also advanced to 951, with a gain of 9.49 points, or 1.05%.

On the economic front, the Ministry of Economy, Trade and Industry said Japan's industrial production grew 5.9% month-on-month in April, revised up from the preliminary estimate of 5.2%. On a yearly basis, production plunged 30.7% in April. In a separate statement, the Cabinet Office revealed that consumer confidence in the country improved to 36.3 in May from 33.2 logged in the previous month, higher than economists' mean expectation of 34.0 for the month.

Brokerages led the gains in the market. Nomura Securities surged up more than 5% after Merrill Lynch raised its rating of the stock to "buy" from "neutral" anticipating better profits on increasing trading volumes. Daiwa Securities advanced 4.11%.

Retail stocks also advanced after an economic report in the U.S revealed that retail sales rose 0.5% in May, raising hopes of a revival in demand. Among the retail stocks, Seven & I Holdings gained 4.62%, and Aeon Co. soared more than 8.5%.

Shipping stocks also moved to the upside after the benchmark Baltic Dry Index, a measure of commodity cargo costs, rose for the first time in six days in London. Among the major stocks, Kawasaki Kisen advanced 3.2%, Mitsubishi OSK Lines gained 1.43% and Nippon Yusen rose 2.16%.

Australia’s All Ordinaries Index opened slightly lower at 4,045 compared to its previous close at 4,047 and moved higher on positive cues from Wall Street. However, profit taking at higher levels ahead of the weekend trimmed the gains, with the index retreating back to the unchanged line in the morning session. Despite the choppiness thereafter, positive economic data from China helped the market to end with a gain of 14.80 points or 0.37%at 4,062. The benchmark S&P/ASX 200 Index followed a similar trend and ended higher at 4,062, a gain of 15.00 points or 0.37%.

Metal stocks advanced following the better than expected economic data from China on expectations of increased demand from the third's largest economy in the World. The Statistics Bureau in China revealed that retail sales in the country rose 15.2% in May.

Oz Minerals surged up more than 17% after the shareholders of the company approved a proposal to sell its assets to China MinMetals Corp. Mincor Resources gained 2.99% following the rise in zinc prices in the International market. However, mining and gold
In Hong Kong, the Hang Seng Index opened sharply higher at 19,035 compared to its previous close of 18,791, and continued to rise briefly to 19162. However, profit taking at higher levels amid valuation concerns dragged the indices down below the unchanged line in the afternoon session. Positive economic data from mainland China helped the markets stage a recovery, led by china-related stocks and the index finally ended with a gain of 98.65 points, or 0.52%, at 18,890.

In South Korea, the benchmark KOSPI Index ended in positive territory on positive cues from Wall Street. The Kospi Index ended with a gain of 0.65% or 9.20 points at 1,429. Hynix Semiconductor rose 0.39% and LG Electronics gained 2.08%. The country's leading steel maker POSCO advanced 3.22% percent amid reports of increases in steel prices in China and the U.S.

In India, the stock market ended in the negative territory despite an unexpected increase in industrial production. The BSE Sensex fell173.53 points or 1.13% to close at 15,238, and the broader Nifty Index shed 1.17% or 54.30 points to close at 4,583.

Among the other major markets in the region, China's Shanghai Composite Index ended lower by 53.56 points or 1.91% at 2,744., Strait Times Index of Singapore lost 4.74 points or 0.20% to close at 2,377, and Taiwan’s Weighted Index slipped 1.81% or 119.14 points to close at 6,448. However, Indonesia's Jakarta Composite Index ended in positive territory with a gain of 1.36 points or 0.06%, at 2,091.

Come Into the LIVE Online Trading Session and Watch Us Make at Least 1 Point ($500 - $2000 a Day). The LIVE Trading Session is Completely FREE! - Sign Up Now here!

The major European markets are trading lower on Friday, with the French CAC 40 Index and the German DAX Index receding 0.60% and 0.99%, respectively, while the U.K.’s FTSE 100 Index is moving down 0.48%. The resource space is seeing weakness following its recent gains.

On the economic front, the INSEE reported that the French consumer price index dropped 0.3% year-on-year in May after rising 0.1% in April. The decline was bigger than the 0.2% drop predicted by economists and was led by a 17.1% decrease in energy prices. On a monthly basis, the consumer price index rose 0.2%.

Elsewhere, Eurostat said in a report that the Eurozone’s industrial production dropped a seasonally adjusted 1.9% month-on-month in April compared with a 1.4% drop in March. Economists were looking for a decline of 0.4%. Annually, industrial production declined 21.6% after falling 19.3% in March.

Separately, Germany's Federal Statistical Office said German wholesale prices dropped 8.9% year-over-year in May compared to the 8.1% drop in the previous month. This was the steepest annual decline since December 1986. Economists had expected a decline of 9% for May. A year earlier, wholesale prices were up 8%.

U.S. Economic Reports

A report released by the U.S. Labor Department showed that import prices rose 1.3% month-over-month in May compared to a downwardly revised 1.1% growth in the previous month. The increase reflected an 8.3% increase in petroleum import prices, while non-petroleum import prices were up a mere 0.2%. On a year-over-year basis, import prices were down 17.6%.

Export prices rose at a 0.6% rate in May compared to a downwardly revised 0.4% growth in April. Agricultural export prices climbed 3.6% compared to 0.3% growth in export prices of non-agricultural commodities. On a year-over-year basis, export prices declined 6.5%.

The Reuters/University of Michigan's preliminary report on the consumer sentiment index for June is scheduled to be released at 10 AM ET. Consumer confidence is expected to edge up to 69.5 from the previous month's 68.7.

Here are 10 simple Dos and Don’ts any investor can follow which may contribute to potential for success in trading futures. This FREE guide can provide some of the basic principles that traders inherently live by.

Click Here to Request Your Free Guide!

National Semiconductor (NSM) receded in Thursday’s after hours session after it reported a loss of 28 cents per share for its fourth quarter compared to a profit of 34 cents per share in the year-ago period. Sales fell to $280.8 million from last year’s $462 million. Analysts estimated a loss of 38 cents per share on revenues of $273 million.

Rambus (RMBS) could be in focus after it said the European Commission has agreed to drop its anti-trust probe into the company if it agrees to reduce the royalty rates for its DRAM memory chip patents.

Marshall & llsley (MI) could see some weakness after it said it has priced its public offering of 87 million shares at $5.75 per share. The company expects to raise net proceeds of $480 million. The company also said it intends to use the proceeds for general corporate purposes, while also supporting its subsidiaries with capital.

Alaska Airlines (ALK) may also be in focus after it announced that its board has approved a stock repurchase program to buy up to $50 million of its common stock. The company said it intends to finance the purchase through cash on hand.

Barclays (BCS) and BlackRock (BLK) are likely to react to their announcement that BlackRock has agreed to acquire Barclays Global Investors, the asset management arm of U.K.-based financial services provider Barclays plc. for $13.5 billion. The deal also includes iShares, Barclays' exchange traded fund platform.

Actel (ACTL) may show weakness after it lowered its revenues and gross margin outlook for the second quarter, attributing the lowered opinion to lower-than-expected shipments of radiation-tolerant devices to the satellite market. The company now expects a 5%-9% sequential decline compared to its earlier estimate for a 1% to 7% decline. The company also lowered its gross margin guidance to 57%-58% from its earlier estimate of 59%.

Nabors (NBR) is expected to be in focus after it announced the appointment of Larry Heidt as the Chairman of Nabors Wells Services Ltd. , effective June 15th, 2009. Principal Financial Group (PFG) may also be in focus after it said it has decided against participating in the U.S. Treasury’s Capital Purchase Program despite the Treasury granting approval in the middle of May.

CB Richard Ellis (CBG) could move to the downside after it said it has completed the sale of Class A common stock under its at-the-market offering program announced yesterday. The company said its stock sales generated gross proceeds of about $50 million.

On the other hand, Progressive Corp. (PGR) may gain ground after it said its board authorized the buyback of up to 50 million shares. Altera (ALTR) could move in reaction to the news that its CFO Tim Morse is leaving the company to join Yahoo (YHOO), effective July 1st.

UTStarcom (UTSI) is also likely to be in focus after saying it will eliminate about 2,300 jobs worldwide or about 50% of its workforce by the end of the year in a bid to trim costs.

Our informative 24”x36” wall chart explores 40 years of historical market data on Crude Oil, Gold and S&P500 markets, and includes historical event call-outs. It’s a great trading and analytic tool for professional and beginner traders.

Sign up here to receive your chart today!

Investors Hub Services