US & World Daily Markets Financial Briefing 15-04-2009

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Stocks See Initial Weakness Amid Renewed Economic Concerns

Stocks moved lower at the start of trading on Wednesday, with the major averages seeing some further downside after ending the previous session firmly in the red. Renewed concerns about the outlook for the economy contributed to the initial weakness in the markets.

After posting steep losses in the previous session, financial stocks are helping to lead the way lower once again, pulling back further off their recent highs. Airline stocks are also moving notably lower after SkyWest (SKYW) issued a first quarter earnings warning.
 
While semiconductor, steel, and electronic storage stocks are also seeing early weakness, strength among railroad, gold, and natural gas stocks is helping to limit the downside for the markets.

In the past few minutes, the major averages have edged up off their lows for the young session, although they continue to post notable losses. The Dow is currently down 40.30 at 7,879.88, the Nasdaq is down 16.65 at 1,609.07 and the S&P 500 is down 4.09 at 837.41.

Twenty-six of the thirty Dow components ended lower, with American Express (AXP) (down 9.92%), JP Morgan Chase (JPM) (down 8.90%), Bank of America (BAC) (down 8.44%) and General Electric (GE) (down 5.11%) leading the slide. On the other hand, General Motors (GM) rallied 4.09% and Citigroup (C) advanced 5.53%.

Among the sector indexes, the Amex Securities Broker/Dealer Index declined 4.96% compared to an 8.14% drop by the KBW Bank Index. The S&P Retail Index and the Philadelphia Housing Sector Index fell 2.82% and 3.85%, respectively. The Amex Airline Index ended the session down 3.76%. In the technology space, the Amex Internet Index and the Amex Disk Drive Index lost close to 2% each.

Retail sales declined in March compared to expectations of an increase, according to a Commerce Department report. Most of the categories showed month-over-month declines, including motor vehicles and parts despite unit auto sales rising for the month. Economists attributed the slump to the abatement of incentives to push sales. However, the consolation is that private consumption hadn’t been a significant drag on first quarter GDP due to a solid showing in the first two months of the year. That said, Commerezbank believes that the ongoing deterioration of the labor market, which impacts wage growth, and the need for private households to pay down debt will restrain consumption for the time being.

Meanwhile, the Labor Department said producer prices fell 1.2% month-over-month in March and core producer prices remained flat. The decline was mainly due to a drop in energy and food prices.

Another report released by the Commerce Department showed that business inventories at the end of February were down 1.3% compared to the previous month, a slightly bigger drop compared to expectations for a 1.2% decline. Meanwhile, business sales edged up 0.2%. Annually, business inventories at the end of February declined 3.5%, while business sales for the month were down 13% compared to the previous year. The total business inventories to sales ratio was 1.43 in February compared to 1.29 in the year-ago period.

According to Commerzbank, the U.S. economy will continue to shrink until late 2009, which would make the current recession one of the longest. The bank expects GDP to shrink by 4% in 2009 and the unemployment rate to rise to 11% by the year-end.

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Bay Street Looking For Clearer Picture Of US Economy

Canadian stocks will look to start another winning streak Wednesday morning ahead of a pivotal round of economic data from the US.

Toronto stocks dropped modestly on Tuesday and closed lower for the first time in five sessions. Mining stocks returned some recent gains, while crude oil dragged energy stocks into the red.

The S&P/TSX Composite Index has lost 54.00 points or 0.58% to move at 9,231.62. The drop took stocks away from a three-month closing best.

Sun Century Petroleum Corp. announced that it intends to commence a public offer to acquire Masters Energy Inc. (MSY.TO) at a price of C$1.85 per common share in cash.

Air Canada (AC-A.TO) and TAP Portugal announced that they have entered a codeshare agreement that will create more travel options and better connections for customers travelling between Canada and Portugal.
 
As per the agreement TAP and Air Canada have begun offering code-share flights between Canada and Portugal via selected points.

Energy stocks may struggle as the price of oil fell fro its early highs to move back below the $50 a barrel mark.

The US consumer price index for March is scheduled to be released at 8:30 AM ET on Wednesday. The index is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The consensus estimates call for 0.2% growth in the consumer price index and a 0.1% rise in the core consumer price index that excludes food and energy.

The results of the New York Federal Reserve's empire state manufacturing survey, which elicits response from 200 manufacturing executives in New York state, is slated to be released at 8:30 AM ET on the same day. The headline general business conditions index for April is expected to come in at -35.

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The major European markets are trading lower on Wednesday, with the French CAC 40 Index and the German DAX Index receding 0.65% and 0.32%, respectively, while the U.K.’s FTSE 100 Index is moving down 0.31%.

In corporate news, UBS (UBS) reported that it expects a loss attributable to shareholders of 2 billion Swiss francs for the first quarter due to losses amounting to 3.9 billion Swiss francs on previously disclosed illiquid risk positions, credit loss expenses and valuation adjustments on the last positions transferred to a fund controlled by the Swiss National Bank. The company also said it expects to reduce its workforce to 67,500 in 2010 from 76,200 at the end of March.

Netherlands-based semiconductor equipment maker ASML reported a tumble in first quarter sales to 183.63 million euros from 919.21 million euros in the year-ago period. The weakness reflected a collapse in demand for semiconductor equipment as customers went through inventory corrections and production capacity adjustments. The company reported a loss 27 euro cents per share compared to a profit of 33 euro cents per share last year.

On the economic front, the German Federal Statistical Office reported that German wholesale prices declined 8% year-over-year in March. On a monthly basis, wholesale prices fell 0.9%.

A house price survey report released by the U.K.’s Royal Institute of Chartered Surveyors showed that a balance of 73% of surveyors reported a drop in house prices in March compared to a balance of 78% in February and a 77% balance expected by economists.

U.S. Economic Reports

The Labor Department’s consumer price inflation report showed that consumer prices fell 0.1% in March following a 0.4% increase in February. Core consumer prices, excluding food and energy, rose 0.2%, the same pace as in the previous month. Economists had expected a 0.1% increase in both consumer prices and core consumer prices.

Transportation prices had the largest downward influence on the headline number, as it declined 1.1% in March, reversing the 1.9% gain in the previous month. Apparel prices eased 0.2% following a 1.3% advance in February. Prices of other goods and services also rose at a faster pace of 2.7% in March.

The New York Fed’s survey showed that manufacturing conditions in New York deteriorated in April, but at a much slower rate than in recent months. The general business conditions index climbed 24 points to –14.7 in April. Economists expected a modest improvement in the index to -35.

The new orders index jumped 41 points to a reading just below zero, while the shipment index rose 25 points. The employment indexes remained negative despite an improvement. The future indexes improved significantly, with the future general business conditions, new orders and shipment indexes rising sharply to levels not seen since September of last year.

The Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. for February at 9 AM ET.

The industrial production report of the Federal Reserve is due out at 9:15 AM ET. Economists estimate that industrial production declined 0.9% in March, while capacity utilization is expected to come in at 69.6%.

The industrial production report for February showed a 1.4% drop in industrial output. Although auto production rose 10.2% following 4 months of declines, a drop in the output in computer manufacturing, utilities and products, excluding defense, offset the gain. Capacity utilization continued to decrease, with the current rate of utilization being 10 percentage points below the average of 1972-2008.

The National Association of Homebuilders' is scheduled to release the results of their survey on homebuilders' confidence at 1 PM ET.

The housing market index remained unchanged at 9 in March, according to a report released by the National Homebuilders Association. The index was about 1 point above the record low of 8 in December and January. The index gauging current sales conditions held steady at 7 and the index gauging sales expectations in the next six months also remained at a record low of 15. However, the index gauging traffic of prospective buyers declined 2 points to 9.

The Federal Reserve is due to release its Beige Book, which is a compilation of anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts, at 2 PM ET. The report is normally released about two weeks before the monetary policy meeting is held.

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The major markets across the Asia-Pacific region ended mixed on Wednesday following a weaker closing on Wall Street, where the major indices declined on disappointing retail sales data and a weak producer prices report. While the markets in Australia, South Korea, Taiwan and Japan ended lower, the markets in China, Hong Kong and Singapore recouped their early losses and ended in positive territory on expectations that China might announce another stimulus plan to help revive the economy, which is already showing signs of recovery.

In Tokyo, the benchmark Nikkei 225 Index declined 1.13% or 99.72 points to close at 8,743 and the broader Topix Index of all First Section Issues lost 8.17 points or 0.97% to close at 835.

Exporters declined after the local currency strengthened against the U.S dollar to less than 99 yen per U.S. dollar. Canon dropped 2.57%, Sony lost 4.31% and Sharp fell 2.99%.

In the banking sector, Mitsubishi UFJ, Japan's biggest bank, declined 2.98%, Mizuho Financial fell 2.04%, Sumitomo Mitsui lost 2.45% and Resona Holdings edged down 1.64%. Brokerage Nomura Holdings lost 7.73% on profit taking.

Among exporters, construction machinery manufacturer Komatsu Ltd. said Tuesday that it would close down two domestic factories and a facility operated by a subsidiary to deal with ongoing tepid demand. The company's stock fell 5.62%.

In the oil sector, Inpex eased 0.55%, Nippon Oil lost 1.52% and Showa Shell fell 1.21%. Among trading houses, Mitsubishi Corp. ended down 0.66% and Itochu slipped 0.53%, but Sumitomo Corp. gained 0.64%.

In Australia, the benchmark S&P/ASX 200 index lost 5.4 points, or 0.14% to close at 3,748, and the broader All Ordinaries index dropped 4 points, or 0.11% to 3,694.

Banking stocks ended weaker. Commonwealth Bank of Australia edged down 0.82%, ANZ Banking Group lost 1.81%, and National Australia Bank fell 3.07%. Macquarie Group slipped 1.43%, while Westpac Banking bucked the trend and edged up 0.17%.

In the resources sector, index leader BHP Billiton advanced 1.51% and Rio Tinto gained 1.08% ahead of its annual general meeting in London later today. Gold-related stocks ended mixed following a decline in gold prices in Sydney. Lihir Gold lost 0.33%, but Sino Gold advanced 5.31% and Newcrest Mining gained 1.31%.

Energy stocks declined on lower oil prices. Woodside lost 1.12%, Santos edged down 0.59%, and Oil Search fell 0.75%.

Hong Kong’s benchmark, Hang Seng Index recovered early losses and ended in positive territory with a gain of 0.57% or 88.46 points to close at 15,670.

Resource stocks and china-related stocks advanced, while mixed trading was evident among financial stocks.

Aluminum Corporation of China, or CHALCO, rose 7.18%, PetroChina advanced 2.19% and CNOOC gained 3.30%. China Unicom advanced 6.44%, China Mobile gained 4.80%, China Resources soared 8.99%, and China Shinhua added 3.61%.

Toy maker Li & Fung declined more than 10% on weak retail sales data in the U.S. Li & Fung is the biggest supplier of clothing and toys to Wal-Mart (WMT).

South Korea’s benchmark, the KOSPI Index lost 0.7% or 9.54 points to close at 1,333. Financial and auto stocks ended lower, while technology stocks revealed mixed sentiment.

Among the other major markets, China's Shanghai Composite Index gained 8.88 points, or 0.35% at 2,536, Indonesia's Jakarta Composite Index advanced 1.49% or 23.40 points to 1,594 and Singapore's Strait Times Index added 8.97 points, or 0.47% at 1,906. Taiwan's Weighted Index, however, lost 17.49 points, or 0.30% at 5,875.

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Gold Prices Little-Changed As Traders Consider Slew Of Data

Gold prices were little-changed in early trading on Wednesday morning. Investors sifted through a full slate of economic news as well as the latest from earnings season.

May-dated gold prices fell to $891.20, down 80 cents for the session. Prices hit as low as $886.20 earlier in the session.

The dollar was mixed in trading versus other major currencies on Wednesday in New York. The greenback hit a three-month low against the sterling but climbed away from a near-term low against the euro.

The Labor Department said its consumer price index edged down 0.1 percent in March following a 0.4 percent increase in February. The modest decrease came as a somewhat of a surprise to economists, who had expected prices to edge up 0.1 percent.
 
Excluding food and energy prices, the core consumer price index rose 0.2 percent for the third consecutive month. Economists had been expecting a 0.1 percent increase in core prices.

The Mortgage Bankers Association revealed that its market index of mortgage application volume fell 11 percent on a seasonally adjusted basis for the week of April 10th. The Market Composite Index was 1113.2 compared to 1250.6 in the previous week.

Gold prices dropped to $892 per ounce, down $3.80 for the session, giving back some of its gains from Monday.

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