US & World Daily Markets Financial Briefing 12-10-2010

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Stocks Mostly Negative But Off Worst Levels

After seeing a sharp slump at the outset of the session, stocks have seen a partial recovery but remain mostly lower in mid-morning trading on Tuesday. The move comes ahead of the release of the minutes of the latest Federal Reserve meeting and as traders digest the day's limited corporate news.

The major averages have moved roughly sideways in recent trading, lingering in negative territory. The Dow is down 58.96 points or 0.5 percent at 10,951.38, the Nasdaq is down 6.39 points or 0.3 percent at 2,395.94 and the S&P 500 is down 5.15 points or 0.4 percent at 1,160.17.

The markets are currently awaiting the minutes of September's Federal Open Market Committee meeting, which are slated for a 2:00 p.m. E.T release.

The language in the minutes will be key in light of recent optimism regarding additional quantitative easing measures and as traders look for hints regarding the direction of the economy amid a largely tepid recovery.

In corporate news, Pfizer Inc. (PFE) and King Pharmaceuticals Inc. (KG) announced a definitive merger agreement, with Pfizer agreeing to purchase King for $3.6 billion in cash or $14.25 per share. The offer represents a premium of about 40 percent over King's closing price on Monday.

Auto parts specialist Johnson Controls Inc. (JCI) also revealed that it expects to report fiscal 2011 earnings in a range of $2.30 to $2.45 per share, reflecting an increase between 17 percent and 25 percent compared to 2010.

On average, 19 analysts polled by Thomson Reuters expect Johnson Controls to earn $2.37 per share for the year, with estimates ranging between $2.10 and $2.85 per share. Sales are forecast to grow around 9 percent to $37 billion, while analysts expect revenues of $36.27 billion.

Tyco International Ltd. (TYC), a diversified manufacturer, said that it has appointed Frank Sklarsky as the company's executive vice president and chief financial officer, effective December 1st. Sklarsky succeeds Christopher Coughlin, who will advise the company on certain projects until his retirement in 2011.

Building materials firm Fastenal Co. (FAST) reported third quarter earnings that edged out estimates by a penny, while its quarterly revenues topped forecasts by nearly $10 million.

Semiconductor giant Intel (INTC) is scheduled to report its quarterly results after the close of trading.

Sector News

Railroad stocks are among the morning's worst performers, driving the Dow Jones Railroads Index down by 1.7 percent. The loss is pulling the index down off of its best closing level in just over two years, set on Monday.

Steel, gold and oil stocks are also down by notable margins, reflecting weakness among resource stocks. The NYSE Arca Steel Index and the NYSE Arca Oil Index are down by 1.8 percent and 1.4 percent, respectively, pulling back off of recent five-month closing highs.

Defense, utility and housing stocks are also trading lower, while modest upside among tobacco and health insurance stocks is helping to offset some of the early weakness.

Stocks Driven By Analyst Comments

Synaptics (SYNA) is trading lower after being downgraded by analysts at Collins Stewart from Buy to Hold. The stock is down by 2.6 percent, sinking to its lowest intraday price in nearly a year in earlier trading.

On the other hand, Warner Chilcott (WCRX) is trading higher after receiving a new Buy rating from analysts at Citigroup. The stock is posting a 3.4 percent gain, climbing to a one-month intraday high.

Other Markets

Overseas, stock markets in the Asia-Pacific region ended mostly lower following reports that China has raised reserve requirements for six large commercial banks. Nikkei 225 Index declined by 2.1 percent, while Hong Kong's Hang Seng Index fell by 0.4 percent.

The major European markets also remain under pressure. The U.K.'s FTSE 100 Index and the German DAX Index are both down by 0.5 percent, while the French CAC 40 Index is down by 1 percent.

In the bond markets, treasuries are seeing modest upside. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.365 percent, posting a loss of 1.6 basis points.

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TSX May Struggle To Sustain Gains

Bay Street stocks may open lower Tuesday, as commodities prices eased after China curbed lending to cool off its economy. Also, renewed uncertainty that the Federal Reserve will go through with another round quantitative easing might weigh on trader sentiment.

Commodities prices may come under further pressure amid unconfirmed report that China raised the reserve requirements for some banks by 0.50% to 17.50%

On Friday, the S&P/TSX Composite Index advanced to a fresh 2-year high of 12,535.59, adding 89.66 points or 0.72%. The market remained closed on Monday for Thanksgiving day.

The price of crude oil edged down amid renewed uncertainty that the Federal Reserve will go through with another round quantitative easing. Crude for November edged down $0.10 to $82.11 a barrel.

Meanwhile, the OPEC in its monthly review released today upwardly revised its world oil demand growth estimate for 2010 to 1.3%, citing stronger than expected stimulus led economic growth in the first half of this year.

The price of gold moved down amid recovering U.S. dollar, with gold for December was down $2.40 to $1,352 an ounce.

In yet another twist to the take over bid for Potash Corp., Canadian pension fund Ontario Teachers' Pension Plan is considering a rival bid to Australian mining giant BHP Billiton's hostile $40 billion takeover bid for Canadian fertilizer maker Potash.

Research In Motion has obtained additional time from the Indian government to come up with a solution to allow security agencies to monitor its BlackBerry services.

In corporate news from Canada, oil and gas firm Talisman Energy and Statoil ASA have agreed on a 50:50 joint-venture to acquire 97,000 net acres of high-quality, liquids rich Eagle Ford shale properties from Enduring Resources for $1.325 billion.

International energy company TransAtlantic Petroleum said it closed its previously announced public offering of 30.36 million shares at $2.80 per share for a gross proceeds of about $80.6 million.

Base-metals explorer Breakwater Resources said it had entered into a new three-year contract with its employee of mines at Chile, ending a week-long strike.

Precious metals explorer Kingsman Resources announce that diamond drilling program on its Luxor Molybdenum Project, British Columbia will begin on or about October 15.

Energy company 3P International Energy said it raised up to C$5 million by issuing 12.5 million shares at C$0.40 per share.

Precious metals explorer Canterra Minerals said it has appointed David Clarke as CEO and President of the company.

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French Market Moderately Lower

The French market is falling in afternoon trading Tuesday, as weak cues from most Asian economies influenced sentiment in Europe, ahead of the Fed minutes from the U.S.

Crude for November delivery is trading lower by $0.20 at $82.01 a barrel and December gold is declining $5.2 at $1349.2 an ounce.

In economic news, Germany's wholesale price index rose 7.6% year-on-year in September, following a 6.4% gain in August, the Federal Statistical Office said. That was the fastest increase so far this year and exceeded economists' forecast of an increase of 6.3%.

Meanwhile, Statistical office Destatis said the consumer price index in Germany rose 1.3% year-on-year, up from the 1% rate recorded in August, led by higher prices for energy and food. The increase is in line with preliminary estimate and also matched economists' expectations.

UK consumer price annual inflation remained at 3.1% in September, matching economists' expectations, data from the Office for National Statistics showed. However, it continues to stay above the central bank's 2% target.

The U.K. house prices increased 8.3% year-on-year in August, the Department of Communities and Local Government said. Economists were expecting an 8.1% increase. Month-on-month, house prices rose a seasonally adjusted 0.7%.

The British Retail Consortium said U.K. retail sales in September rose 0.5% on a like-for-like basis compared to a year ago, following a 1% expansion in August. Meanwhile, U.K. house prices continued to fall in September as supply continued to outstrip demand, reports said citing a survey of real estate agents and surveyors released by The Royal Institution of Chartered Surveyors.

The CAC 40 opened lower at 3,738 and has remained in negative territory. The index is currently falling 0.83%. Gas utility GDF Suez is falling 2.7% and electric utility EDF is down 2.5%. Power transmission firm Alstom is slipping 2.3%.

Among banks, Natixis is losing 2.2% and Credit Agricole is down 0.9%. Societe Generale and BNP Paribas are each losing 1.1%.

Heavy construction firms Bouygues and Vinci are down 1.6% and 1.1%, respectively.

Those making notable losses include oil giant Total, drugmaker Sanofi-Aventis, insurer Axa, water utility Suez Environnement and cosmetics giant Loreal.

Tire firm Michelin is adding 2.2%. EADS, the maker of Airbus, and hotel group Accor are each advancing 0.7%. Elsewhere in Europe, the UK's FTSE 100 is sliding 0.38% and the German DAX is losing 0.19%.

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Indian Market Ends Lower On IIP Data

The Indian market fell notably on Tuesday as disappointing industrial production data and weak global cues dampened investor sentiment.

India's industrial output grew at a much slower rate of 5.6% in August compared to the revised figures of 15.2% in the previous month and 10.6% in the year-ago period, with a decline in capital goods output adding to the base effect, government data released on Tuesday showed.

While economists cautioned against reading too much into month-over-month variation, some analysts expressed concern that the deceleration in the industrial output may affect FII inflows, albeit temporarily.

The 30-share BSE Sensex fell to a low of 20,107 in the mid-session before recouping some of its loss to end down about 140 points or 0.67% at 20,203, with 22 of its components drifting lower.

Among the prominent decliners, Hindustan Unilever BHEL, Reliance Industries, Reliance Infrastructure, ACC, HDFC, Jaiprakash Associates, Larsen & Toubro, Jindal Steel, Hindalco Industries and DLF ended down between 1% and 2%.

The broader Nifty fell by 45 points or 0.73% to 6,091 and the BSE mid-cap index eased half a percent, while the small-cap index closed unchanged. The market breadth on the BSE was negative, with 1792 decliners versus 1160 gainers, in contrast with a strong breath in early trading.

Sector-wise, realty, capital goods, metal, consumer durable and FMCG stocks bore the brunt of the selling, while select information technology, telecom and healthcare stocks found modest support.

IT bellwether Infosys edged up 0.12% ahead of its Q2 earnings on October 15. Tata Motors rose 0.61% after it successfully completed a $750-million share sale issue. Reliance Communication gained 1.06% on fund-raising reports.

Mahindra & Mahindra (up 1.31%), TCS (up 0.89%), ICICI Bank (up 0.65%), Hero Honda Motors (up 0.17%) and Cipla (up 0.15%) also closed in the green.

Tata Teleservices rallied 3.45% after it proposed to launch 3G services in all the nine circles for which it won the spectrum by Diwali. Sparsh BPO Services was locked at the 10% upper circuit limit following the company's decision to delist shares.

Agro Dutch Industries rose 1.66% after the company said it had bagged the approved supplier status from a U.S. firm for supplying its mushrooms. Confidence Petroleum India rose 1.38% on bagging new contracts from Steel Authority of India and IOCL. Shipping Corporation of India added 1.79% on reports that it will increase freight rates for European markets from November.

Tata Steel, SAIL and Ispat Industries lost between 1% and 2% after South Korean steel maker POSCO cut its annual profit forecast by 7%. NTPC gave off a little over a percent after it reportedly received show cause notice from the government to explain delays in developing the Chatibariatu and Kerandari blocks in Jharkhand and Dulanga in Orissa. Sintex Industries fell 2.34%, a day after it reported second-quarter results in line with expectations.

Goa Carbon climbed 4% after it turned in a second-quarter net profit of Rs.2.9 crore versus a loss of Rs 5.1 crore in the year-ago period. Jindal Poly Films advanced 2.25% after it fixed October 25 as the record date for a 1:1 bonus issue.

Newly-listed Tecpro Systems closed at Rs. 407.85 on the first day of its debut, up about 15% over its initial public offering price of Rs. 355 a share. However, Cantabil Retail ended down about 22% on listing versus its IPO price of Rs.135 a share.

Globally, most Asian stocks fell on Tuesday, with exporters leading the decline in Japanese stocks, as the yen rose against the dollar despite warnings of possible intervention from the Japanese government and China's central bank reportedly raised reserve requirements for six large commercial banks.

However, China's Shanghai Composite average rose 1.23% to close at a five-month high amid expectations of further quantitative easing by the U.S. Fed.

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 Dollar Gains On Euro Ahead Of Fed Minutes

The dollar continued to firm up versus the euro and sterling Tuesday morning, improving from 8-month lows ahead of the release of the minutes of the last Federal Reserve meeting on interest rates.

Still, the buck failed to rally from a 15-year low versus the yen, and hovered near last week's record low against the Swiss franc.

The minutes of the recent FOMC meeting held on September 21 slated for release at 2.00 p.m. E.T. The language and the outlook of the Federal Reserve will be closely watched given expectations for quantitative easing measures in November.

Conflicting signals from Fed officials over the last few days have hinted that further asset purchases are being hotly debated on the FOMC.

The dollar was stuck near Y81.90 versus the yen, as Japan's consumer confidence weakened for a third consecutive month in September. Overall consumer sentiment fell to 41.4 in September from 42.5 in August, data showed Tuesday. A reading below 50 suggests pessimists outnumber optimists.

Deflation concerns continue to plague the Japanese economy, and efforts to drive down the value of the yen have so far flopped.

In other economic news from overseas, UK annual inflation held steady as widely expected in September. Consumer price annual inflation was 3.1% in September, unchanged from August, data from the Office for National Statistics showed Tuesday.

Versus the sterling, the dollar advanced to 1.5793 before leveling off.

The buck rose to 1.3790 versus the euro, up another penny from last week's 8-month low of 1.4025

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