US & World Daily Markets Financial Briefing 14-09-2009

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Stocks May Pause Ahead of Week’s Key Reports

The major U.S. index futures are pointing to a lower opening on Monday following a slide in Asia and a lackluster performance witnessed in the European markets currently. The prices of commodities are moving lower after seeing solid strength in the previous week. Against the backdrop, traders may prefer to stay on the sidelines, as they wait for more clues on economic conditions from the slew of economic reports to be released later in the week.

U.S. stocks closed the holiday-shortened week ended September 11th on a positive note, rebounding from the previous week’s losses, as fairly positive economic reports and a rally in commodity prices kept the markets afloat for much of the week.

Following Monday’s Labor Day public holiday, traders focused on the optimism reflected in the rest of the global markets and a rise in commodity prices and ended Tuesday’s session moderately higher. The buying momentum extended into Wednesday’s session, and as the major averages advanced yet again, as recovery hopes remained intact.

On Thursday, the markets benefited from positive corporate outlook and positive economic data, with the major averages ending higher in the session. However, the major averages snapped their 5-session winning streak on Friday, as the price of oil moved lower, bringing the equity markets down along with it.

During the week ended September 11th, the Dow Industrials gained 1.71%, while the Nasdaq Composite Index and the S&P 500 Index advanced 3.08% and 2.6%, respectively.

Among the sector indexes, the NYSE Arca Airline Index climbed 9.01% and the Philadelphia Oil Service Index rose 5.25% for the week. The NYSE Arca Oil Index, the NYSE Arca Gold Bugs Index, the NYSE Arca Securities Broker/Dealer Index and the Philadelphia Semiconductor Index all ended up over 3%. The Philadelphia Housing Sector Index posted a weekly gain of 2.81%.

Post-Lehman Healing

Although the global economies have come a long way from the dire straits that prevailed in the immediate aftermath of the Lehman insovency, things are still not shipshape. Inventory build up, the lingering impact of the benevolent stimulus measures and the thawing of credit market could play a role in putting bring the economy back on growth track after it showed a negative performance in the previous four quarters.

Solid evidence of an improvement came in the form of the manufacturing PMI readings, housing data and a rebound in industrial production. However, consumer spending, which has thus far been a weak link in growth, has to pick if economy is expected to see sustainable growth. Danske Bank is of the view that a recovery in the job market, an early investment cycle and strong growth in Asia will help to sustain the upturn.

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Bay Street Stocks Could See Early Weakness

Canadian stocks could pare recent gains in early Monday morning trading as global equities are seeing moderate weakness. Commodities are also in the red in the early going.

Crude oil is down 56 cents to $68.73 per barrel after hitting above $70 late last week. Gold slipped more than $7 to move below the $1,000 mark and copper dropped 4.85 cents.

In corporate news, Patheon said its third-quarter net loss narrowed to US$6.0 million or US$0.106 per share from US$14.0 million or US$0.154 per share in the prior year period.
 
Thomson Reuters announced that its Tax & Accounting business has agreed to acquire the Abacus Enterprise suite of products and related business operations from Deloitte LLP. The terms of the transaction were not disclosed.

In telecommunications news, Nortel Networks has agreed to sell its Enterprise Solutions division to Avaya for about $900 million.

On Friday, the S&P/TSX Composite Index climbed 98.23 points or 0.88% to finish at 11,253.23. This was the best finish since October 1.

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Asian Markets Slip On Profit Taking, Valuation Concerns

The Asian markets ended in negative territory on Monday morning as traders preferred to lock in gains, taking cues from Wall Street where the major averages ended marginally weaker on Friday. Sharp drop in commodity prices, strengthening of the Japanese currency against the dollar and concerns about valuation also impacted market sentiment as traders preferred to move to the sidelines .

In Japan, the benchmark Nikkei 225 Index ended at 10,202, representing a loss of 242.37 points, or 2.32%, while the broader Topix index of all first section stocks shed 16.36 points, or 1.72% to 934..

On the economic front, a report from Ministry of Economy, Trade and Industry showed that industrial production grew 2.1% month-on-month in July, revised up from the initial estimate of 1.9%. Annually, production was down 22.7%. Capacity utilization rose by a seasonally adjusted 3.9% in July, larger than the 2.3% increase seen in June. On an unadjusted basis, production capacity dropped 0.1% from June and declined 2% annually.

Light sweet crude oil futures for October delivery ended at $68.18 a barrel in electronic trading, down $1.11 per barrel from previous close at $69.29 a barrel in New York on Friday.

Banking stocks led the declines on concerns about the stability of the global financial sector one year after the Lehman Brothers collapse. Comments by economist Joseph Stiglitz that the banking sector is worse than the earlier period before the collapse also impacted the market sentiment.
 
Among the banks, Mitsubishi UFJ Financial lost 1.65%, Mizuho Financial lost 1.96%, Resona Holdings shed 1.92% and Sumitomo Mitsui Financial declined 1.35%.

Automakers declined following the strengthening of the local currency against the US dollar as a stronger yen reduces the sales realization from exports in terms of local currency and dents profits. Toyota Motor fell 2.60%, Honda Motor lost 2.97%, Isuzu Motor declined 3.00%, Mitsubishi Motor shed 1.24% and Nippon Motor Co. slumped 4.07%.

Canon, maker of digital cameras, declined 3.36%. Konica Minolta Holdings fell 3.41%, Kuboto Corp. lost 4.43% and Sony Corp. shed 2.41%.

Trading companies also ended in negative territory on valuation concerns and profit taking. Toyota Tsusho Corp. slumped 3.52%, Mitsubishi Corp. lost 1.30%, Mitsui & Co., fell 1.46% and Sumitomo Corp. shed 1.81%.

In Australia, the benchmark S&P/ASX200 Index declined 1.41% or 65.00 points to close at 4,531, while the All-Ordinaries Index ended at 4,536, representing a loss of 60.20 points, or 1.31%.

On the economic front, a report released by the Australian Bureau of Statistics revealed that housing finance for owner occupation, which excludes alterations and additions, dropped a seasonally adjusted 1.7% month-on-month in July. Owner occupied housing commitments decreased to A$16.88 billion from A$17.18 billion in the preceding month. At the same time, personal finance fell 0.8% to A$6.85 billion and commercial finance decreased 1% to A$25.86 billion. However, lease finance rose 30% to A$436 million, all in seasonally adjusted terms.

Banking sector led the declines after Treasurer Wayne Swan said that the unemployment rate in the country, presently at 5.8%, might climb higher. Drop in financial stocks in the U.S. amid concerns about the stability of the financial sector one year after the collapse of Lehman Brothers also impacted market sentiment.

ANZ Bank lost 2.95%, Commonwealth Bank of Australia fell 1.95%, National Australia Bank shed 3.24% and Westpac Banking declined 1.75%.

Metals and mining stocks also ended weaker following drop in commodity prices in the international market.

BHP Billiton declined 1.20%, Fortescue Metals lost 1.88%, Gindalbie Metals slumped 5.50%, Iluka Resources shed 3.82%, Mincor Resources fell 3.23%, Oz Minerals slipped 0.89% and Rio Tinto eased 1.99%.
 
Telecommunication stocks ended weaker on profit taking. Telstra Corp. declined 2.11% and Singapore Telecommunications slipped 0.39%.

Mixed trading was witnessed among oil stocks. Santos lost 3.65%, Oil Search fell 3.66% and Origin Energy slipped 0.73%. However, Woodside Petroleum bucked the trend and advanced 0.52%.

Retail stocks also ended mixed. David Jones gained 0.75%, Harvey Norman rose 2.00% and Wesfarmers, owner of Coles, added 0.47%. However, Woolworths bucked the trend and slipped 0.70%.

Gold stocks also witnessed mixed trading. While Lihir Gold managed to remain unchanged from previous close, Newcrest Mining lost 0.70% and Sino Gold Mining gained 0.85%.

In Hong Kong, the Hang Seng Index ended in negative territory with a loss of 229.22 points, or 1.08% at 20,932, as traders preferred to lock-in gains following recent rally. Valuation concerns, stronger yen, fall in commodity prices also impacted market sentiment as traders preferred to move the sidelines ahead of key economic data slated for release during the course of the week. As many as 35 out of the 42 components in the Index ended in negative territory.

In South Korea, the benchmark KOSPI Index declined 16.79 points, or 1.02% to close at 1,635, dragged down by technology related stocks as investors preferred to lock-in gains following recent rally in the market. Weak trading across other markets in the region, excluding China, on valuation concerns and worries about the global financial sector also impacted market sentiment.

The Indian market ended a lackluster session modestly lower on Monday, mirroring the weak global cues. Profit taking after a 6-day rally also weighed on large-caps, while second-line stocks bounced back following last week's under performance. The BSE Sensex ended at 16,214, down 50 points or 0.31% and the S&P CNX Nifty fell 21 points or 0.43% to 4,809.

Among the other major markets in the region, China's Shanghai Composite Index gained 36.95 points or 1.24% to close at 3,027. However, the other markets ended in negative territory on profit taking, valuation concerns. Indonesia's Jakarta Composite Index lost 33.24 points, or 1.38% to close at 2,383, Taiwan's Weighted Index declined 1.09% or 80.19 points to close at 7,257 and Singapore's Strait Times Index ended in negative territory with a loss of 41.29 points, or 1.54% at 2,640.

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The major European markets are moving to the downside on Monday after posting robust gains last week. The French CAC 40 Index and the German DAX Index are receding 0.95% and 1.21%, respectively, while the U.K.’s FTSE 100 Index is moving down 0.60%.

Mining and oil stocks are leading the way lower, as commodity prices have begun to pull back. In Germany, Deutsche Telekom is leading the sliding, with automakers, utility, chemical and transport stocks also coming under selling pressure. On the other hand, consumer good stocks are seeing strength. Among French stocks, carmakers and financial stocks are declining sharply. On the other hand, diversified media company, Vivendi and retailer Carrefour are advancing.

On the economic front, Eurostat reported that the euro zone’s industrial production slipped 0.3% in July from the previous month compared to the revised 0.2% drop in June. The decline matched economists' expectations.

Annually, industrial output was down 15.9% in July, while economists were looking for a 16.7% drop.

A separate report released by Eurostat showed that the number of employed persons in the euro area fell by a seasonally adjusted 0.5% quarter-over-quarter in the second quarter. The decline follows a 0.7% decline in the previous quarter.

U.S. Economic Reports

After a week of relative calm, traders will be flooded with a spate of economic data that could help them gain more clarity on the economy's course. The Commerce Department's retail sales report for August, the results of the New York Federal Reserve's and Philadelphia Federal Reserve's manufacturing surveys for September and the Federal Reserve's industrial production report for August may be closely watched by traders.

Additionally, a couple of housing market reports scheduled to be released in the week may also be on traders' radar. The Commerce Department will release its housing starts report for August and the National Association of Homebuilders is due to release the housing market index for September. Also on tap are the August producer and consumer price inflation reports, the Commerce Department's business inventories report for July, speeches by Fed officials and the regularly scheduled weekly jobless claims and crude oil inventory reports.

Retail sales are likely to continue to benefit from the cash-for-clunkers program in August. That said, retail sales excluding autos is the number that should be watched to know the pulse of consumers, as the temporary benefit from the cash-for-clunkers program may be missing in the coming months due to the expiry of the program. The August reading is also likely to have received some support from back-to-school sales.

Industrial production is also likely to have received support from autos and therefore, it may rise for a second straight month. The ISM's manufacturing index rose above the '50' cut-off level, reflecting strong auto production. This bodes well for industrial output, although utility output may serve as a drag, given the unseasonably cool weather that may have reduced demand for air conditioning.

Recent housing market data have shown an increase in builder confidence and a reduction in new home inventory levels. This bodes well for housing starts, which remain on track for another month of growth or a flat performance following the steep correction they have undergone in the recent down cycle.

Federal Reserve Board Governor Elizabeth Duke is due to speak on regulatory reform at an AICPA National Banking Conference in Washington at 8:35 AM ET. Richmond Federal Reserve Bank President Jeffrey Lacker is scheduled to addresses the Risk Management Association's Charlotte Area Chapter on financial regulation in Charlotte at North Carolina at 12:30 PM ET. Also scheduled to speak on the day is San Francisco Federal Reserve President Janet Yellen, who will be addressing the Certified Financial Analysts of San Francisco at 3:50 PM ET.

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Forest Labs (FRX) could be in focus after it said ceftaroline, its treatment for community-acquired pneumonia in hospitalized patients, which was evaluated in two global multi-center Phase III studies, showed positive trial results. Ceftaroline, when intravenously administered, met the primary endpoints of non-inferiority in patients with moderate to severe community-acquired pneumonia in the trials.

Sanofi-Aventis (SNY) and Regeneron Pharma (REGN) could see weakness after it announced the discontinuation of the Phase III trials that evaluated aflibercept plus gemcitabine versus placebo plus gemcitabine for the first-line treatment of metastatic pancreatic cancer. The decision is based on an interim analysis carried out by an Independent Data Monitoring Committee that determined that the addition of aflibercept to gemcitabine did not demonstrate statistically significant improvement in the primary endpoint.

Deutsche Telekom (DT) and Sprint (S) may react to reports that the German telecom operator is considering a deal to combine its T-Mobile USA business with Sprint Nextel in a bid to compete effectively against AT&T (T) and Verizon (VZ).

EMC Corp. is also likely to be in focus after a Wall Street Journal said that it may be close to announcing the hiring of head of Intel’s (INTC) core chip business to run its storage products operations and some smaller software units.

Currency, Commodity Futures

Crude oil futures are moving down $0.41 to $68.88 a barrel after the commodity posted a gain, in the week ended September 11th. After rallying for most of the week, gold gave back most of its gain by the end of the week to close up merely $1.27 or 1.87% at $69.29 a barrel.

On Tuesday, the first trading session of the week, oil surged up over $3-a-barrel, as the dollar weakened in reaction to positive economic data that cemented recovery hopes. The commodity edged up modestly on Wednesday amid OPEC’s decision to leave output quotas unchanged at its Vienna meeting. The commodity rose yet again on Thursday before receding by over $2.50-a-barrel on Friday.

Gold futures are moving down $6.80 to $99.60 an ounce. In the previous session, the precious metal advanced $9.70 or 0.97% to $1,006.40 an ounce.

Among currencies, the dollar came under severe selling pressure in the week ended September 11th, as encouraging economic data reduced the appeal of the safe haven. The dollar fell 2.47% against the yen before settling the week at 90.71 yen. Against the euro, the dollar posted a weekly loss of 1.9% to $1.4571.

Currently, the U.S. dollar is trading at 91.08 yen and is valued at $1.4559 versus the euro.

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