US & World Daily Markets Financial Briefing 13-09-2010

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Stocks are up by notable margins in mid-morning trading on Monday, as the markets are reacting to fresh banking regulations and another spike in merger-and-acquisition activity. The strength in the markets has lifted the major averages to their best intraday levels in a month.

The major averages have been moving sideways in recent trading, hovering near their session highs. The Dow is currently up 92.03 points or 0.9 percent at 10,554.80, the Nasdaq is up 33.98 points or 1.5 percent at 2,276.46 and the S&P 500 is up 12.59 points or 1.1 percent at 1,122.14.

The banking sector has been spearheading the day's gains after the Basel Committee on Banking Supervision's new requirements for bank capital reserves were less stringent than some had expected, despite a tripling of reserve requirements.

The impact of the new regulations has also been lessened as most financial firms have already raised substantial reserves in the wake of the global economic crisis.

The day's M&A news has also helped to boost market sentiment. Car rental company Hertz Global Holdings Inc. (HTZ) raised its takeover offer for rival Dollar Thrifty Automotive Group Inc. (DTG) to about $50 per share, trumping a rival bid from Avis Budget Group Inc. (CAR).

Dollar Thrifty's board has accepted the new Hertz offer, which is higher than an earlier $41 per share offer made by Hertz in April.

Additionally, Hewlett-Packard (HPQ) is set to continue its buying spree and has agreed to acquire security software maker ArcSight, Inc. (ARST) for $43.50 per share, or an enterprise value of $1.5 billion.

LabCorp (LH) also announced a definitive deal to acquire Genzyme Genetics, the genetic testing unit of biopharmaceutical firm Genzyme Corp. (GENZ), for $925 million in cash. The transaction is expected to close before the end of the year.

Meanwhile, the influx of economic data remains light today, with only the Treasury Department's August budget on tap for 2:00 p.m. ET. Economists estimate a deficit of $95.0 billion for the month, slightly narrower than the deficit of $103.6 billion reported for July.

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A positive reaction to new global banking rules and strong economic data from Europe and Asia helped Toronto stocks move higher in mid-morning deals Monday.

Bank stocks rose after the Basel III accords gave more transition period for lenders to comply with new capital rules. Under the new rules, Tier 1 capital - the mandatory reserve- will be raised from the present 4% to 4.5% by 2013 and to 6% by 2019.

The S&P/TSX Composite Index gained 50.81 points or 0.42% to 12,147.90, after adding over 60 points in the previous session.

The Financials Index rose 1.24%, with RBC (RY.TO), Bank of Montreal (BMO.TO) and Scotiabank (BNS.TO) gaining close to 2% each.

Insurers, Manulife Financial (MFC.TO) and Sun Life Financial (SLF.TO) gathered nearly 2% each.

Base metals stocks were in the limelight on upbeat Chinese industrial data. Inmet Mining (IMN.TO), Teck Resources (TCK_B.TO) and Thompson Creek Metals (TCM.TO) advanced close to 5% each.

The price of crude oil extended previous session's gains amid firm global equities. Crude for October was up $1.26 to $77.71 a barrel.

In the oil patch, NAL Oil & Gas Trust (NAE_UN.TO) rose 3.54%. Petrobakken Energy (PBN.TO) gained 2.34%.

Energy company Athabasca Oil Sands (ATH.TO) added 2.41%. The company said it would acquire Excelsior Energy Ltd. (ELE.V) for C$144 million. Excelsior's shareholders will receive either a C$0.36 cash or 0.0347 of a common share of Athabasca for each share held. Shares of Excelsior moved up nearly 3% to C$0.370.

Department stores chain Sears Canada (SCC.TO) gained over 6% as investors welcomed the company's decision to pay a special dividend of C$3.50 per share in September.

IP-based data-casting solutions provider International Datacasting (IDC.TO) soared nearly 8% after it turned to profit in second quarter, reporting net income of C$ 0.23 million or $0.01 per share compared to a loss of C$ 2.97 million or C$ 0.05 per share a year ago.

Meanwhile, gold stocks were trading weaker amid flat bullion prices and profit taking after recent run-up. The price of gold was almost flat after easing from its near its all-time high in the previous session. Gold for December edged up $0.60 to $1,247.10 an ounce.

Alamos Gold (AGI.TO) and Aurizon Mines (ARZ.TO) slipped close to 3% each.

Goldcorp (G.TO) eased 0.42%. The gold miner announced commercial production at its Mexican mines, reporting a combined 30-day average throughput rate in excess of 70,000 tonnes per day.

Iamgold (IMG.TO), Kinross Gold (K.TO) and Kirkland Lake Gold (KGI.TO) were other notable losers.

Gold mining company Centamin Egypt (CEE.TO) plunged over 8% after revising down its 2010 production guidance by around 20% to a range of 160,000-170,000 ounces of gold.

In economic news, the European Commission in its latest interim forecast report released today revised up its Eurozone real gross domestic product forecast to 1.7% this year, almost double from the 0.9% projected in May.

Over the weekend, China said industrial production in August rose 13.9% year-over year, from a 13.4% gain in July and noted its retail sales increased 18.4% in August from a year ago.

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Asian markets open for trading on Monday, the first day of the new trading week, ended in positive territory on optimism about global economic recovery. Positive closing in Wall Street on Friday lifted market sentiment. Banks led the gains welcoming the new set of rules released by the International Basle Committee on capital requirements.

In Japan, the benchmark Nikkei 225 Index gained 82.65 points, or 0.89%, to 9,322, while the broader Topix index of all First Section issues was up 3.93 points, or 0.47%, to 838.

Better-than expected economic data in China, optimism about global economic recovery and slight weakness in the local currency led the market gains during the session.

Machinery stocks were the major gainers in the session. Daikin Industries gained 1.96%, Komatsu Ltd advanced 1.31%, Hitachi Construction increased 1.19%, Kuboto Corp increased 0.94% and Chiyoda Corp. climbed 1.19%.

Large banks advanced following the release of new norms for capital by the International Basle Committee. Sumitomo Mitsui Financial gained 1.85%, Mizuho Financial Trust rose 1.54% on huge volumes and Mitsubishi UFJ Financial climbed 1.99%. Resona Holdings, however, bucked the trend and ended in negative territory with a loss of 0.92%.

Among the major electric machinery stocks, Fanuc Ltd advanced 1.55%, Tokyo Electron surged up 2.41%, Advantest Corp. climbed 2.54% and Kyocera Corp. rose 1.83%. .

Shipping transport stocks ended higher. Kawasaki Kisen Kaisha climbed 2.21%, Mitsui OSK Lines edged up 0.18% and Nippon Yusen rose 1.98%.

In Australia, the benchmark S&P/ASX200 Index gained 54.60 points, or 1.20%, and closed at 4,615 points, while the All-Ordinaries Index ended at 4,654, representing a gain of 53.50 points, or 1.16%.

On the economic front, a report released by the Australian Bureau of Statistics revealed that the total value of owner-occupied housing commitments excluding alterations and additions increased a seasonally adjusted 2.3% in July from June. At the same time, the value of total personal commitments fell 0.7%. Fixed lending commitments fell 1.2%, while revolving credit commitments fell 0.3%. The Bureau further noted that commercial finance commitments increased 8.2% in July. Lease finance commitments climbed 3.2%.

Mining and metal stocks led the gains on optimism about global economic recovery. BHP Billiton climbed 1.58%, Fortescue Metals surged up 3.33%, Gindalbie Metals soared 5.46%, Iluka Resources gained 2.52%, Macarthur Coal added 0.90%, Mincor Resources zoomed up 10.67%, Minara Resources was higher by 7.95%, Rio Tinto rose 1.41%, Oz Minerals gained 1.81% and Murchison Metals was higher by 5.75%.

Oil related stocks also ended higher. Woodside Petroleum advanced 1.03%, Santos Ltd gained 1.48% , Oil Search Ltd surged up 3.72% and Origin Energy rose 1.04%. However, ROC Oil Ltd remained unchanged from previous close and

Banks ended in positive territory following the release of new rules for capitalization by the International Basle Committee. ANZ Bank advanced 1.27%, Commonwealth Bank gained 1.58%, National Australia Bank climbed 2.23% and Westpac Banking rose 1.96% Investment banking company Macquarie Group was higher by 2.35%

The Indian market rose for a fifth straight session Monday, enthused by data showing robust industrial output for July, positive economic reports from the U.S. & China and the announcement of Europe's Basel III norms for banks that were less stringent than feared. Having surged past the psychological 19,000 points level in early trading, the 30-share BSE Sensex strengthened further in the afternoon session before finally closing up about 410 points or 2.17% higher at 19,208. Twenty six of its components closed higher. Frenzied buying in large-cap stocks lifted the broader Nifty by around 120 points or 2.13% to 5,760, a fresh 32-month high.

Among the other major markets open for trading, China's Shanghai Composite Index ended in positive territory with a gain of 25.11 points or 0.94%, at 2,688, Singapore's Strait Times Index rose 44.53 points, or 1.47%,to 3,067 and Taiwan's Weighted Index surged up 201.19 points, or 2.55%, to close at 8,091.

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Europe 

The major European markets are also advancing Monday, with the French CAC 40 Index and the German DAX Index rising 1.13% and 0.79%, respectively, while the U.K.’s FTSE 100 Index is gaining 1.03%.

U.S. Economic Reports

The markets will be bombarded with a slew of key economic data this week after the lull of the past week. The Commerce Department's retail sales report, the weekly jobless claims report, the results of the New York and Philadelphia Federal Reserves' manufacturing surveys for September, the Reuters/University of Michigan's preliminary consumer sentiment index and the Federal Reserve's industrial production report are among the closely watch reports of the week.

Traders may also pay attention to the consumer and producer price inflation reports for August. The Commerce Department's business inventories report for July, the Treasury Budget for August and the treasury international capital flows data round up the other economic events of the week.

Retail sales for August may see a stabilizing influence form higher gasoline prices, although auto sales could have fallen slightly, in line with the lower unit sales reported by the automakers. 

Going by the results of the national and some regional manufacturing surveys, industrial production is expected to remain firm in August due to a more favorable assessment of production. Additionally, high summer temperatures may have driven up energy production, supporting the headline industrial production number. 

Meanwhile, producer prices may have received a boost from higher food and metal prices in August. However, BMO Capital Markets expects the annual rate to ratchet back to 3.1%. The firm noted that sufficient slack exists in the industrial sector to keep a firm lid on finished goods prices. Inflation at the retail level could also be lifted by higher food prices. 

The Treasury Budget, a monthly account of the surplus or deficit of the federal government is due to be released at 2 PM ET. The budget is considered an indicator of budgetary trends and the thrust of fiscal policy. Economists estimate a deficit of $95 billion for August.

Stocks in Focus 

Lam Research (LRCX) is likely to be in focus after it announced that its board has approved the repurchase of up to $250 million worth of its common stock. The company noted that the program is effective immediately.

Williams-Sonoma (WSM) is also expected to see some activity after it announced board approval for a new $65 million stock repurchase program. 

Hertz (HTZ) may move in reaction to its announcement that the board of Dollar Thrifty (DTG) has agreed to amend its merger agreement with Hertz. The amended agreement provides for Hertz to purchase Dollar Thrifty at a price of $50 per share, including $43.60 in cash and 0.6366 of a share of Hertz stock, higher than the $41 per share it offered in April. Dollar Thrifty was also being pursued by Avis Budget (CAR), whose latest offer was to buy the former at $40.75 per share.

Hewlett-Packard (HPQ) is also in focus after the PC maker announced a deal to buy anti-virus security software maker ArcSight (ARST) for $43.50 per share or an enterprise value of $1.5 billion. The company expects the deal to close by the end of the calendar year.

Laboratory Corp. of America (LH) may also see activity after it entered into a definitive agreement to buy Genzyme Genetics, a business unit of Genzyme (GENZ) in a cash transaction valued at $925 million.

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The euro strengthened against other major currencies on Monday, as an accord hammered out by financial authorities further restored faith in the global banking system.

The Basel III agreement forces banks to set aside more capital to cope with the sort of meltdown that nearly toppled the entire financial system in 2008. However, the reforms will be phased in over the next eight years as a concession to concerns about bank lending during the current economic malaise.

European Central Bank President Jean-Claude Trichet assured that the new rules will "eliminate uncertainty in a large area which is a major contribution in consolidating the global economy."

Bank stocks rose around the world, and the euro rose accordingly on increased risk appetite.

Elsewhere, Greece Prime Minister George Papandreou on Sunday ruled out new austerity measures, expressing confidence of achieving the goal as planned by the end of this year.

The euro jumped to a weekly high of 1.2840 versus the dollar, moving to the upper end of a monthly trading range between 1.2600 and 1.2950.

The single currency also gained on the yen, rising to Y107.92. With the advance, the euro stayed away from an 9-year low of Y105.41 set back in August.

The euro extended its four-day win streak against the sterling, hitting 0.8335.

Economic recovery in the euro area is picking up, particularly in Germany, the European Commission said Monda. The aggregate growth figure masks uneven developments across member states, but was revised upwards to 1.7 percent from an initial prediction of 0.9 percent expansion.

The economic newsflow picks up later this week with a slew of data from the United States.