US & World Daily Markets Financial Briefing 12-11-2010

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Stocks Still Down After Upbeat Consumer Sentiment Reading

Stocks remain moderately lower in mid-morning trading on Friday, with concerns about potential monetary policy tightening in China overshadowing an improvement in U.S. consumer sentiment.

The major averages have moved to the downside in recent dealing, with the Nasdaq and the S&P 500 falling to new sessions lows. The Dow is down 53.96 points or 0.5 percent at 11,229.14, the Nasdaq is down 15.28 points or 0.6 percent at 2,540.24 and the S&P 500 is down 9.19 points or 0.8 percent at 1,204.35.

Sentiment among American consumers saw a notable improvement in the month of November, according to a report released a short time ago by Reuters and the University of Michigan.

The consumer sentiment index rose to a reading of 69.3 in November from the final October reading of 67.7. Economists had been expecting the index to increase to a reading of 69.0.

Nonetheless, selling pressure remains after a report released earlier this week showing Chinese consumer price growth at its sharpest level in roughly two years and new limits on foreign corporate property holdings added to the likelihood of further policy tightening by the Chinese government.

The news spooked the Chinese markets and has caused consternation in equity markets worldwide.

With earnings season coming to a close, department store operator JC Penney (JCP) posted third quarter net income of $44 million or $0.19 per share. On average, analysts expected the company to report earnings of $0.17 per share.

JC Penney's net sales for the quarter remained relatively flat with last year at $4.2 billion, coming roughly in-line with estimates for revenues of $4.22 billion. The company's fourth quarter and full-year forecasts were in-line with estimates.

Homebuilder DR Horton Inc. (DHI) reported that its fourth-quarter net loss narrowed to $0.03 per share, while analysts had forecast a loss of $0.04 per share. Homebuilding revenue totaled $925.7 million, firmly topping projections for revenues of $854.03 million for the quarter.

On Thursday, media giant Walt Disney Co. (DIS) said that its fourth quarter profit fell 7 percent from last year, hurt by the adverse impact of the timing of the recognition of previously deferred revenues at ESPN and the effect of one fewer week of operations.

Graphics chipmaker Nvidia Corp. (NVDA) said that its third-quarter profit declined by 21 percent from last year due to lower revenues and higher expenses. Looking ahead, the company forecast fourth-quarter revenue above analysts' expectations.

Sector News

Oil service, gold, steel and natural gas stocks are seeing some of the heaviest selling amid concerns about China's level of demand being lowered by prospective tightening measures.

Notably, the NYSE Arca Steel Index is down by 2.1 percent, moving further away from the seven-month closing high set earlier this month.

The weakness among gold and oil stocks also comes as the price of gold is down $18 at $1,385.30 an ounce and the price of crude oil has dropped $1.64 to $86.17 a barrel.

Telecommunications, defense, housing and banking stocks are also under pressure, contributing to the downside in today's session.

Meanwhile, some strength is visible among semiconductor stocks following Nvidia's quarterly results. Nvidia is up by 7.9 percent, setting a six-month intraday high.

Stocks Driven By Analyst Comments

Geokinetics (GOK) is trading higher after being upgraded by Howard Weil from Market Perform to Market Outperform. The broker also raised its target on the stock from $6 to $11. The stock is up by 0.6 percent after setting a six and a half month intraday high.

On the other hand, Dril-Quip (DRQ) is under pressure after being downgraded at CapitalOne Southcoast from Add to Neutral. The stock is down by 3.3 percent, slipping from an all-time closing high set on Thursday.

Constellation Brands (STZ) is also moving lower after Standpoint Research lowered their rating on shares of the alcoholic libations maker from Buy to Hold. The stock is posting a loss of 1.9 percent, falling from the two-year closing high set yesterday.

Other Markets

In overseas trading, stock markets in the Asia-Pacific region ended sharply lower on Friday. Japan's benchmark Nikkei 225 Index fell by 1.4 percent and Hong Kong's Hang Seng Index declined by 1.9 percent.

Meanwhile, the major European markets are mixed. While the German DAX Index and the U.K.'s FTSE 100 Index are up by 0.2 percent and 0.1 percent, respectively, the French CAC 40 Index is down by 0.6 percent.

In the bond markets, treasuries are seeing moderate weakness. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.691 percent, posting a gain of 4.3 basis points.

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TSX May Dip At Open Amid Falling Commodities

Bay Street stocks are poised for a lower opening Friday as commodities tumbled on China rate hike concerns. Cues from the global equity markets were also discouraging with most Asian market ending lower, with China's composite index shedding over 5%, and European stocks lingering in the red.

The price of copper fell from a record high and oil pulled back from its 2-year peak as China may attempt to curb inflation by further tightening its monetary policy. Meanwhile, leaders from the G20 nations have failed to arrive at a consensus about trade and currency manipulation.

On Thursday, the S&P/TSX Composite Index edged down 7.90 points or 0.06% to 12,934.74.The price of crude oil moved back from its 2-year peak amid speculation that China will resort to further monetary tightening measures to curb inflation. Crude for December was down $1.50 to $86.31 a barrel.

The price of gold slipped below the $1,400-mark, with gold for December shedding $15.0 to $1,388.30 an ounce.

In corporate news from Canada, gold-focused royalty company Franco-Nevada reported higher third quarter net income of $18.0 million or $0.16 per share compared to $12.3 million or $0.11 per share in the previous year. On an adjusted basis, net income was $14.8 million or $0.13 per share, compared to $7.3 million or $0.07 per share last year. Analyst were expecting the company to report earnings of $0.12 per share for the quarter.

Fertilizer company Migao Corp Com NPV reported a decline in second quarter net income at $8.3 million or $0.16 per share from $9.6 million or $$0.21 per share in the year-ago period.

Renewable energy company Algonquin Power & Utilities reported lower third quarter profit of C$1.5 million or C$0.02 per share from C$13.1 million or C$0.17 per share for the third quarter of prior year. On an adjusted basis, net earnings fell to C$0.9 million or C$0.01 per share from C$7.2 million or C$0.09 per share last year.

Retail property operator Scott's Real Estate Inv Trust reported a wider third quarter net loss of $458,000 or $0.065 per share compared with a net loss of $156,000 or $0.031 per share a year ago.

Real estate properties company MI Developments reported lower third quarter net income of $8.2 million or $0.18 per share, compared to $28.0 million or $0.60 per share for the year-ago quarter. The company declared a dividend of $0.10 per share on its Class A subordinate voting shares and Class B shares.

Packaging products company Cascades Inc. reported lower third-quarter net earnings of C$30 million or C$0.31 per share compared to C$34 million or C$0.35 per share in the previous year. The company declared a quarterly dividend of $0.04 per share.

Broadcasting technology services provider Miranda Technologies reported third-quarter net income of C$6.63 million or C$0.30 per share, up from C$1.07 million or C$0.05 per share last year.

Wireless broadband communications services provider TeraGo Inc. reported a narrower third quarter net loss of C$1.45 million or C$0.13 per share compared to a net loss of C$1.72 million or C$0.15 per share last year.

Stevia extracts supplier GLG Life Tech Corp. posted third quarter net income of C$1.8 million or C$0.07 per share, compared to C$1.4 million or C$0.07 per share in the same period last year. Analysts expected the company to report earnings of $0.03 per share. For the fiscal year 2010, the company guides revenues in the range of C$65 million to C$70 million.

Wood products company Stella-Jones said it third-quarter net earnings grew to C$12.22 million or C$0.77 per share from C$8.32 million or C$0.65 per share a year ago. The acquisition of Tangent Rail Corp., effective April 1, 2010, contributed sales of around C$41.2 million.

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French Market Loses In Afternoon Trade

The French market is falling in afternoon trading Friday, as Irish debt worries and speculation that China may intervene to cool its economic growth dampened risk appetite. Construction stocks were mostly lower, while banks gained.

In economic news, French economic growth slowed slightly more than expected in the third quarter, figures released by Insee showed. Gross domestic product increased at a slower pace of 0.4% sequentially in the third quarter, following a 0.7% expansion in the second quarter.

Germany's economy recorded a sharp slowdown during the last quarter, in line with analyst expectations. Statistical office Destatis said the economy grew 0.7% between July and September, over three times slower than the 2.3% expansion in the preceding quarter.

The Eurozone economy expanded 0.4% quarter-on-quarter in the third quarter, flash estimates from Eurostat revealed. Gross domestic product growth slowed from 1%, while economists were expecting the sequential growth rate to ease to 0.5%.

Meanwhile, Eurozone industrial output dropped unexpectedly in September as all of the region's industrial groups marked declines in production. Seasonally adjusted industrial production fell by 0.9% month-on-month in September in contrast to an expected 0.2% increase.

The CAC 40 opened lower at 3,797 and has remained in negative territory throughout the session. The index is currently losing 1.12%.

Integrated oil & gas firm Total is losing 3.5%, thus topping the decliners. Steel giant Arcelor Mittal and telecom equipment maker Alcatel Lucent are sliding 2.7% and 1.6%, respectively.

Cement giant Lafarge and airplane maker EADS are losing 1.3% each. Carmaker Peugeot is down 1.1% and Renault is losing 0.8%.

Lenders are witnessing the upside. Natixis is rising 2.1% and Credit Agricole is advancing 0.9%. Societe Generale and BNP Paribas are moderately rising.

Elsewhere in Europe, the UK's FTSE 100 is dropping 0.28% and the German DAX is sliding 0.09%.

Crude for December delivery is down $1.57 at $86.24 per barrel and gold is declining $14.8 at $1388.5 an ounce.

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Indian Market Tumbles On Weak IIP, Irish Debt Woes

The Indian market fell sharply for a second consecutive session on Friday, as disappointing industrial production data, Irish debt woes and a slide in commodity prices amid concerns that China might raise interest rates weighed on sentiment. Also, investors eagerly awaited fresh news from the ongoing G20 meeting in Seoul.

India's industrial output growth slowed unexpectedly in September, nearly halving to 4.4% from the 8.2% in the corresponding month last year, as growth in capital goods production, manufacturing, mining and electricity all slowed from a year earlier, data released today by the Central Statistical Organization showed. The 4.4% annual growth lagged the previous month's upwardly revised 6.92% growth as well, raising worries that industrial activity could be faltering.

Expressing concerns over the massive decline in industrial growth, finance minister Pranab Mukherjee said, "We need to analyze why this is happening."

In the 30-share Sensex pack, only two stocks - two-wheeler manufacturer Hero Honda Motors and mortgage lender HDFC- bucked the downward trend to end modestly higher.

Among the prominent decliners, metals stocks like Sterlite, Jindal Steel, Tata Steel and Hindalco fell between 2.31% and 4.72%, as copper prices dropped by the daily limit in Shanghai. In the banking sector, SBI led the decliners with a 4.55% loss, while ICICI Bank fell nearly 3% and HDFC Bank shed 1.65%.

Property developer DLF gave off 5.46%, utility vehicles manufacturer Mahindra & Mahindra lost 4.75%, infra firm Jaiprakash Associates shed 3.76%, FMCG player Hindustan Unilever ended down 2.43% and heavyweight Reliance Industries declined 1.87%.Bharti Airtel led the declines in the telecom sector with a 3.59% loss. Reliance Communication ended down 3.52%.

The Sensex ended down 432 points or 2.10% at 20,157 after falling to an intra-day low of 20,108 earlier in the session. Intense selling across the board dragged the broader Nifty index down by about 125 points or 2% to 6,072, while the BSE mid-cap and small-cap indexes ended down around 2.5% each. In the broader market, declining shares outpaced gaining ones by 2263 to 753 shares.

Elsewhere, the other Asian markets fell sharply on Friday, as the U.S. dollar fell, commodity prices eased and technology bellwether Cisco Systems Inc's weak outlook as well as heightened European sovereign debt worries fueled a bout of risk aversion. The euro dropped to a six-week low versus the dollar on continued worries over Europe's public debts.

Investors were also worried at the prospects of further tightening policies by Beijing after data released yesterday showed China's consumer prices jumped 4.4% from a year earlier in October, the fastest pace in two years.

China's benchmark Shanghai Composite, which covers both A and B shares, closed 5.16% lower at 2,985, its biggest drop in more than 14 months, dragged down by financial and resource sectors, on speculation that the government would introduce further measures to rein in consumer prices and soaring housing costs. European stocks also fell sharply in early trading on debt fears and the Dow futures were

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Dollar Stable As G20 Urges Market-Determined Currency Trade

The dollar was steady on Friday, holding on to this week's gains as the G20 outlined an agreement to unleash domestic demand in surplus countries.

With the White House saying this will support strong global growth and support a robust recovery in the US, the dollar continued to reverse its steep early losses from the past few months.

G20 members said they should refrain from competitive devaluation of currencies, but resisted US efforts to specifically push China on its currency, which the White House says is artificially weak. This gives Chinese exporters a big advantage over US manufacturers.

Commodity prices slumped and US stocks were poised for a sharply lower open this morning, as risk aversion bolstered the safe haven dollar.

Meanwhile, the debt crisis in Ireland continued to spook investors, and became a distraction to European leaders gathered in Seoul for the G20 Summit.

The dollar was stuck near $1.3700 against the euro as traders assessed headlines coming out of the G20 Summit in Seoul. Earlier this month, the dollar touched a 10-month low near $1.43.

Eurozone economic growth moderated more than forecast in the third quarter reflecting slowdown in all its major economies as many of them are undergoing fiscal squeeze.

The economy expanded 0.4% quarter-on-quarter in the third quarter, flash estimates from European Union statistical office Eurostat showed Friday.

The dollar was slightly weaker versus the yen, easing to Y81.90. Yesterday the buck hit a monthly high of Y82.78.

The buck was steady near $1.61 against the sterling, and briefly ticked above C$1.01 against its Canadian counterpart.

Currency and trade compromises came out of Seoul, as world leaders acknowledged the need for export-reliant nations to bolster domestic demand. However, the G20 agreed that measures to control their massive capital inflows should be "carefully designed."

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