US & World Daily Markets Financial Briefing 16-03-2010

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Stocks Turning In Another Lackluster Performance In Morning Trading

Stocks are seeing another choppy outing in mid-morning trading on Tuesday, as the markets await the latest interest rate announcement and economic forecast from the Federal Reserve. The major averages are currently lingering near the flat line, looking for direction.

While the Fed is widely expected to leave interest rates unchanged when it makes its announcement this afternoon, traders will be keeping a close eye on the language of the statement, looking for any changes to the forecast that rates will remain "exceptionally low" for an "extended period."

Ahead of the announcement, the markets have been digesting news from the Commerce Department, which reported a notable decrease in new residential construction in February due to the impact of severe snowstorms across the country.

Housing starts fell 5.9 percent to an annual rate of 575,000 in February from the revised January estimate of 611,000. Economists had expected housing starts to fall to 570,000 from the 591,000 originally reported for the previous month.

Also on the economic front today, the Labor Department released a report showing a modest decrease in import prices in the month of February, with fuel prices under pressure. The report also showed a drop in export prices.

The major averages have moved to the upside in recent trading and are currently posting modest gains. The Dow is up 8.84 points or 0.1 percent at 10,650.99, the Nasdaq is up 5.15 points or 0.2 percent at 2,367.36 and the S&P 500 is up 3.16 points or 0.3 percent at 1,153.67.

Sector News

Even as the markets are showing only modest moves, gold stocks are seeing notable strength, driving the NYSE Arca Gold Bugs Index up by 2.6 percent. The index has offset some recent losses but remains rangebound.

The advance by gold stocks comes as gold for April delivery is up by $18.40 to $1,123.80 an ounce, with some traders moving their money into the relative safety of gold ahead of the interest rate announcement.

Steel stocks are also advancing, helping the NYSE Arca Steel Index to post a 1.3 percent gain in mid-morning trading. Despite the advance, the index continues to move in a range.

Trucking, semiconductor, and airline stocks are also on the rise, while some weakness is visible among biotechnology and electronic storage stocks.

Stocks Driven By Analyst Comments

Despite the lack of direction being shown by the broader markets, Starbucks (SBUX) is posting a strong gain after an upgrade at UBS from Neutral to Buy. The stock has gained 3.3 percent, reaching its best intraday price in nearly two and a half years.

On the downside, Cheesecake Factory (CAKE) is falling after Piper Jaffray downgraded the stock from Neutral to Underweight. Shares are currently down by 0.7 percent, moving further off of the two and a half year set posted last week.

Brinker International (EAT) is also moving lower after being downgraded at Piper Jaffray from Neutral to Underweight. The stock has dipped by 1.8 percent, falling further away from its recent one and a half year high.

Bay Street May Open Higher On Positive Economic Data, Commodities

Canadian stocks are likely to move higher at open Tuesday as commodities prices ticked higher amid easing worries over the Greece situation. Encouraging Canadian manufacturing sales data and productivity levels may help lift sentiment. Moreover, bank stocks may continue to build on their last session's late rally.

However, gains may be capped as traders will look to a crucial interest rate decision from the U.S. Federal Reserve, which could guide the direction of the prices of commodities.

European ministers worked out a strategy for emergency loans to Greece, in case the country's $6.6 billion tax hikes and wage cut plans fail.

The U.S. stock futures also point to a marginally higher open On Monday, the S&P/TSX Composite Index closed almost flat, losing 5.02 points or 0.04% to 12,008.80, after closing the previous session at its calendar year high of 12,013.82.

The price of oil edged up $0.52 to $80.32 a barrel and bullion was up $7.3 to $1,112.7 an ounce.

Airlines stocks may be in play after German Air Berlin Plc said it will cut back its orders for Boeing aircraft by $1.7 billion, to adapt to market conditions.
 
In the airlines space, commercial aircraft and rail equipments maker Bombardier Inc. priced its offering of $1.5 billion new Senior Notes, which will be partly used to fund the repurchase of up to $1.0 billion of its currently outstanding notes.

Airlines operator WestJet Airlines announced the resignation of its President and CEO Sean Durfy effective April 1.

In other corporate news, mineral explorer First Quantum Minerals swung to profit in its fourth-quarter reporting net earnings of $2.67 per share, compared to a loss of $7.19 in the year ago quarter. Further, the company expects its 2010 production to increase to 385,000 tonnes of copper and 240,000 ounces of gold.

Energy sector services provider Pulse Seismic reported fourth quarter net income of C$0.01 per share, compared to a loss of C$0.03 per share in the prior year period.

Oil and natural gas firm Serica Energy Plc turned to profit in fourth-quarter reporting net income of $0.11 per share, compared to a loss of $0.16 per share in the prior year quarter.

Natural gas explorer ProspEx Resources slipped to loss in the fourth quarter reporting net loss of C$0.02 per share, compared to net earnings of C$0.01 per share in the prior year quarter.

Gold explorer Kinross Gold has entered into an agreement with Underworld Resources to offer 0.141 of a Kinross common share, plus C$0.01 in cash for each common share of Underworld.

Intermediate gold producer Alamos Gold reported improved fourth quarter earnings of $0.18 per share, compared to $0.10 per share in the same period a year ago.

Photovoltaic energy product maker Day4 Energy turned to profit in its fourth-quarter, reporting net income of C$0.02 per share compared to a loss of C$0.79 per share last year.

Life sciences company MDS Inc. slipped into the red in its first-quarter, reporting loss $0.36 a share versus a profit of $0.03 a share in the previous year. Analysts were expecting the company to report a loss of $0.01.

Medical services provider Northstar Healthcare reported a narrower net loss for the fourth quarter at $0.95 per share, compared to a net loss of $5.45 per share in the year-ago period.
 
Commercial forest plantation operator Sino-Forest reported fourth quarter net income of $0.49 per share, down from $0.51per share in the same quarter a year earlier.

In economic news, Statistics Canada said manufacturing sales in the country rose for the fifth month by 2.4% to $44.6 billion in January, rising for the fifth straight month. Primary metal manufacturers led the gains, adding 8.5% from December.

In other report, labor productivity in Canadian businesses were up 1.4% in the fourth quarter, increasing for the first time since the third quarter of 2008. Economists were expecting the productivity to grow by 0.7% after dropping 0.2% in December.

From the U.S., the Commerce Department said housing starts fell in February, mainly due to record snowfalls in some parts of the country. Housing starts dipped 5.9% to an annual rate of 575,000 in February from the revised January estimate of 611,000. Economists were expecting housing starts to fall to 570,000 from the 591,000 originally reported for the previous month.

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Indian Market Ends On Buoyant Note

Shrugging off a weak spell in early session, the Indian market bounced back sharply to end near the day's high on Tuesday, helped by firm buying in index heavyweights. Market heavyweight Reliance Industries led the gainers with a 4% gain, along with metal, capital goods, auto, IT and power stocks, while public sector, FMCG and banking stocks remained a little bit subdued.

Encouraging advance tax payments from corporations and hopes of strong January-March quarter earnings buoyed up sentiment to a significant extent. Additionally, European stocks rose sharply in early trading Tuesday, triggering some short covering.

The 30-share Sensex rose by 218 points or 1.27% to 17,383 and the Nifty ended up by 69 points or 1.35% at 5,198. On the BSE, the mid-cap index rose over a percent and the small-cap index advanced 1.28%. Gainers outpaced decliners by 1816 to 1028.

Tata Steel rallied nearly 3% on reports it may raise product prices in the coming months. Larsen & Toubro, Mahindra & Mahindra, Sun Pharma, Hindalco, Tata Motors and Tata Power rose over a percent each.

On the flip side, telecom giant Bharti Airtel fell 1.60%, cement maker ACC dropped 1.26% and private sector lender HDFC Bank ended down 0.36%.

NMDC which announced an issue price of Rs.300 a share for its follow-on public offering fell over 3%, extending Monday's steep fall.
 
Strides Arcolab soared over 4% after it proposed to acquire a minority stake in Australia's Ascent Pharmahealth. Hindustan Construction Company, which is acquiring a controlling stake in realty firm Karl Steiner AG, gained 2%.

Jet Airways advanced 3% after posting strong growth in passenger traffic for fifth consecutive month in February. Madhucon Projects said its overseas arm has been granted a new coal mining permit for exploration of 30,970 hectares in South Sumatra, Indonesia. The stock ended up over 3%.

IVR Prime Urban Developers climbed 4.5% after the apex court of Andhra Pradesh approved a scheme of amalgamation of IVR Strategic Resources & Services and IVRCL Water Infrastructures with the company.

Nucleus Software Exports (up 3.54%), NIIT Technologies ( up 0.47%) and ARSS Infrastructure Projects (up 5%) gained on winning new contracts. Radico Khaitan jumped over 4% after launching a qualified institutional share placement to raise about USD 40-75 million.

Elsewhere, Asian stocks ended mixed on Tuesday as investors held back ahead of the Fed's assessment of conditions in the world's largest economy. Investors also awaited the outcome of the Bank of Japan's two-day policy meeting where the central bank is expected to relax its existing ultra-loose monetary policy. The Fed's interest rate announcement, due at 2:15 pm ET is likely to garner attention, more so for its language than its result, as the Fed is widely expected to keep rates unchanged.

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Meanwhile, European stocks got off to a positive start, with all three of the key averages in the region showing moderate to modest gains. On the economic front, the results of the Zew economic sentiment survey showed that its economic sentiment index for Germany came in at 44.5 in March compared to 45.1 in the previous month. Economists expected a decline in the index to 43.5.

The revised inflation report from Eurostat showed that the euro area's inflation rose at an unrevised rate of 0.9% in February compared to the year-earlier. The monthly inflation rate was also left unrevised at 0.3%.

In another encouraging development, European finance ministers outlined a strategy for extending emergency loans to debt-ridden Greece in case the nation fails to bring about financial discipline through its austerity measures.

U.S. Economic Reports

The Commerce Department reported that housing starts declined by 5.9% month-over-month to 575,000 in February from an upwardly revised reading of 611,000 for January. Economists had expected housing starts to decline to 570,000 from the 591,000 estimated previously for January.

Single-family housing starts fell at a 0.6% monthly rate. On a year-over-year basis, housing starts edged up 0.2%. Meanwhile, building permits, an indicator of future housing activity, fell 1.6% to 622,000.

The Labor Department said import prices fell 0.3% month-over-month in February compared to the 1.3% increase in January. On a year-over-year basis, import prices declined 12.7%. The monthly drop was due to a 1.9% fall in the prices of petroleum imports, while non-fuel import prices edged up 0.2%.

Meanwhile, export prices declined 0.5% on a monthly basis, with agricultural and non-agricultural export prices declining 3.8% and 0.2%, respectively. Export prices had declined for the first time in 5 months. Annually, export prices were down 4.5%.

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ChinaEdu (CEDU) is likely to be in focus after it said it has signed an exclusive technology and service agreement with Huazhong Normal University and an exclusive collaborative alliance agreement with Jiangxi Normal University.

Kroger (KR) could react to the news that it is recalling Kroger California Seasoning Blend Garlic Powder and Kroger Special Seasoning Blend Lemon Pepper sold in its retail stores. The company said the recall follows information from a supplier of an ingredient in the product may have been contaminated with Salmonella.

First American Corp. (FAF) could also be in focus after it said it has executed a letter of intent to acquire minority ownership of First American CoreLogic. First American Corp. earlier held 82% ownership in CoreLogic.

Boston Scientific (BSX) may see some activity after it said a study revealed that its Taxus Express stent significantly reduced ischemia-driven target lesion revascularization at one year and binary in-stent restenosis at 13 months in diabetic patients experiencing a heart attack compared to an otherwise identical bare-metal control stent. The company also said it has submitted an application to the FDA, requesting an expansion of the indications for use of the Taxus Express and Taxus Liberte stents to include patients experiencing heart attacks. The announcement comes close on the heels of the company’s decision to recall all of its implantable heart defibrillators as it did not notify regulators of manufacturing changes.

Limited Brands (LTD) may gain ground after it announced a special dividend of $1 per share to its shareholders. The company also said its board has authorized the buyback of $200 million worth of shares.

Microchip Technology (MCHP) moved higher in Monday’s after hours session after it raised its guidance for the fourth quarter based on strong bookings and sales activities in the quarter-to-date period. The company now expects sequential sales growth of 8% compared to its earlier estimate of 3%-7% growth and non-GAAP earnings of 42 cents per share, higher than its earlier forecast of 39-41 cents per share. Analysts estimate earnings of 36 cents per share on sales of $264 million.

Eli Lilly (LLY) may see some activity after it said it would acquire a worldwide license for the potential commercialization of Acrux’s experimental underarm testosterone solution. The NDA for the product is currently under regulatory review by the FDA for testosterone deficiency in men. The agreement provides for Acrux to receive an upfront payment of $50 million plus $3 million on the transfer of manufacturing assets. Acrux is also eligible to receive a further $87 million upon the FDA granting marketing authorization and up to $195 million in potential commercial milestone payment. Eli Lilly said it expects to incur a charge of 3 cents per share in the first quarter for the transaction.

Arthocare (ATHC) rose sharply in Monday’s after hours session after it reported that its fourth quarter revenues rose 15% to $92.5 million, exceeding the $82.40 consensus estimate. The company reported income of 21 cents per share compared to a loss of $1.10 per share last year.

Watson Pharma (WPI) is likely to react to its announcement that the U.S. FDA has approved the ANDA for Diltiazem Hydrochloride Extended-Release tablets, the generic equivalent to Biovail Laboratories’ (BVF) Cardizem. Watson expects to launch the product immediately.

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