US & World Daily Markets Financial Briefing 16-09-2009

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Positive Comments May Help Markets Retain Buying Momentum

The major U.S. index futures are pointing to a higher opening on Wednesday, as traders are increasingly warming to the idea of seeing an end to one of the severest recession the economy has ever experienced. Oil is showing some weakness ahead of the inventory report to be released after the markets open. However, most other commodities are maintaining a positive bias on hopes that imminent growth may perk up demand. Commentaries from chipmakers suggest a pick up in demand, brightening the profit outlook. That said, the run up without any major correction may keep traders wary.

U.S. stocks showed a lack of direction in morning trading on Tuesday session despite the release of fairly positive economic data, including stronger than expected retail sales growth and a better than expected manufacturing sector reading. Nevertheless, buying interest picked up after the mid-session, encouraged by Federal Reserve Chairman Bernanke’s comments that the recession may be over.

The Dow Industrials ended up 56.61 points or 0.59% at 9,683 and the Nasdaq Composite advanced 10.86 points or 0.52% to 2,103, while the S&P 500 Index gained 3.29 points or 0.31% to end at 1,053.

Among the thirty Dow components, seventeen ended higher, while the rest closed lower. Alcoa (AA) surged up 8.11% and Caterpillar (CAT) jumped 6.01%, leading the Dow’s advances, while American Express (AXP) (up 2.15%), Boeing (BA) (up 2.16%), DuPont (DD) (up 2.70%) and General Electric (GE) (up 4.23%) were among the other notable gainers. However, Pfizer (PFE), Exxon Mobil (XOM) and JP Morgan Chase (JPM) saw considerable declines.

Among the sector indexes, the Dow Jones U.S. Basic Materials Average rose 2.52% and the NYSE Arca Airline Index climbed 3.81%. The Philadelphia Oil Service Index moved up 1.55% compared to a 3.02% rally by the NYSE Arca Gold Bugs Index. The KBW Bank Index ended up 1.44% and the Philadelphia Housing Sector Index advanced 2.14%.

In the technology space, the NYSE Arca Disk Drive Index gained 1.52%, the NYSE Arca Computer Hardware Index rose 1.01%, the NYSE Arca Networking Index added 1.32% and the NYSE Arca Internet Index ended up 1.05%.

On the economic front, retail sales rose a better-than-expected 2.7% month-over-month in August. Excluding autos, sales rose 1.1%, notably higher than the 0.4% growth expected by economists, suggesting that the strength extended much beyond autos, the sales of which jumped 10.6%. Gasoline was another category that saw strength and showed a 5.1% surge in sales. Most other categories also showed sales increases, except furniture and building materials, which saw sales drops of 1.6% and 1.2%, respectively.

So, the key take-away from the report that the cash-for-clunkers induced auto sales did not lead to consumers avoiding the purchaseof other goods. Nevertheless, retail sales were still 5.9% below year-ago levels.

The producer price inflation report showed that higher gasoline prices led to a spike in the headline producer price inflation rate, which rose 1.7% month-over-month in August. Gasoline prices jumped 23%. The core producer price index rose 0.2%, slightly bigger than the 0.1% growth expected by economists.

Manufacturing activity is picking up momentum, as reflected by the results of the Empire State manufacturing survey. The business conditions index rose about 4 points to 18.9 in September, with the reading now at its highest level since November 2007. The new orders index rose 6.5 points to 19.8, while the shipment index fell by 9 points following increases in the two of the previous months. The future business conditions index rose 4 points, cementing expectations of a pick up in manufacturing activity.

The Commerce Department’s business inventories report showed a 1% month-over-month decline in business inventories for July. Business sales rose 0.1%. Consequently, the business inventories to sales ratio was 1.36 compared to 1.38 in the month-ago period.

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Toronto Stocks Look To Extend Rally As Gold Continues To Rise

Bay Street stocks could rise again on Wednesday with metal prices seeing notable strength in the early going. Toronto's main index has gained in nine of 10 sessions.

Gold for December delivery has rallied another $13.20 to move at $1,019.50 per ounce and copper has gained 6.75 cents to $2.9125 a pound. Meanwhile, crude oil has slipped 26 cents to $70.67 ahead of the U.S. government's inventory report.

On the economic front, Canadian manufacturing sales increased 5.5% to $41.4 billion in July, building on the 2.2% increase in June, according to data released Wednesday by Statistics Canada. Excluding the motor vehicle assembly and motor vehicle parts industries, manufacturing sales increased 2.1%.
 
Harry Winston Diamond Corp. announced Diavik Diamond Mines Inc.'s decision to cancel a winter production shutdown, originally planned for December 1 through January 11 at the Diavik mine in Canada's Northwest Territories.

Midway Energy said it has entered into an agreement to acquire all of the issued and outstanding shares of a private company for $22.5 million.

Canadian stocks rallied again on Tuesday to extend the best closing level for the main index since last October. The S&P/TSX Composite Index jumped 163.79 points or 1.44% to finish at 11,495.83.

Crude Oil Prices Little-Changed Ahead Of EIA Report

Crude oil prices hovered near the unchanged line in early Wednesday trading ahead of the Energy Information's inventory report.

Light sweet crude for October rose to $71.04, up 11 cents on the session. Prices reached as high as $71.31 after earlier hitting as low as $70.14.

The EIA's inventory data is coming at 10:30 a.m. ET. Experts are expecting crude supplies to drop by 3 million barrels in the week ended September 11.

The American Petroleum Institute reported on Tuesday afternoon that crude stockpiles jumped 631,000 barrels in the recent week. The API also revealed gasoline stocks rose 1.35 million barrels.
 
Last week's EIA data showed crude oil inventories decreased by 5.9 million barrels in the week ended September 4. Experts were looking for a decline of 1.8 million barrels. Total motor gasoline inventories increased by 2.1 million barrels.

Oil prices rallied $2.07 on Tuesday as Ben Bernanke's statement that the recession is "technically over." Also on Tuesday, the Organization of Petroleum Exporting Countries increased its 2009 forecast to 84.05 million barrels a day, up 140,000 barrels from the previous outlook but down 1.8% from last year.

On the economic front, the Labor Department said its consumer price index rose 0.4 percent in August after coming in unchanged in July. The price growth came in slightly above the consensus estimate of economists, who had expected 0.3 percent growth.

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Asian Markets Surge Ahead On Wall Street Gains, Bernanke Comments

The Asian markets ended in positive territory on Wednesday as optimism about recovery prospects in global economy got a boost when Fed Chairman Ben Bernanke declared that the recession is technically over. Positive economic data and modest closing in the US on Tuesday lifted the market sentiment across the markets in Asia and fresh buying interest returned to the markets.

In Japan, benchmark Nikkei 225 Index ended at 10,271, representing a gain of 53.15 points, or 0.50%, while the broader Topix index of all first section stocks declined 1.09 points, or 0.1%, to 931.43

Exporters advanced following better than expected economic data in the U.S and Bernanke's declaration that the recession is "technically over", on increasing confidence that demand for its products in the US will pick up. Canon, office equipment manufacturer, gained 4.23%, and Sony Corp. rose 2.23%.

Automakers also ended in positive territory on hopes of higher demand for its products in the U.S. Honda Motor gained 0.54%, Hino Motors rose 1.18%, Isuzu Motors advanced 2.08% and Nissan Motor climbed 2.60%.

Banks ended in the negative territory following comments from the incoming new finance minister that he would consider a loan moratorium of three years for small and medium businesses. Mitsubishi UFJ Financial slipped 0.75%, Mizuho Financial fell 1.52% and Sumitomo Mitsui Financial lost 1.93%.

In Australia, the benchmark S&P/ASX200 Index surged up 2.42% or 110.10 points to close at 4,650, while the All-Ordinaries Index ended at 4,653, representing a gain of 105.60 points, or 2.32%.
 
On the economic front, latest survey results released by the Westpac Bank and the Melbourne Institute revealed that prospects for economic growth in Australia improved in July, but still remain "tepid" for the second half of 2009.

Light sweet crude oil futures for October delivery ended at $70.83 a barrel in electronic trading, down $0.10 per barrel from previous close at $70.93 a barrel in New York on Tuesday.

Almost all the stocks across the sectors ended in positive territory, with the mining stocks and banks accounting for about 70% of the total gains during the session.

Among banks, ANZ Bank gained 3.35%. Commonwealth Bank of Australia rose 4.06%, National Australia Bank climbed 3.20% and Westpac Banking advanced 3.15%.

Metals and mining stocks advanced following rise in commodity prices in the international market.
BHP Billiton advanced 1.96%, Fortescue Metals added 0.99%, Gindalbie Metals climbed 3.66%, Iluka Resources increased .27%, Mincor Resources rose 3.88% and Rio Tinto ascended 2.02%.

Oil stocks also ended sharply higher as crude oil prices clawed back above $70 a barrel mark in the international markets. Woodside Petroleum surged up 4.78%, Santos gained 1.90%, Oil Search rose 2.40% and Origin Energy advanced 1.67%.

Telstra Communications, which shed more than 4.2% in the previous session following Government's proposal to break the company, rebounded and surged up 4.18% on huge volumes.

Gold-related stocks gained more than 4% each following rise in bullion prices in the bullion market. Lihir Gold rose 4.65%, Newcrest Mining gained 4.45% and Sino Gold Mining climbed 4.01%.

In Hong Kong, the Hang Seng Index surged up 2.57% or 563.55 points to close at 21,402, taking cues from Wall Street, where the major indices ended in positive territory lifted by better than expected economic data and Ben Bernanke's comments. Positive sentiment in other markets and higher commodity prices also lifted market sentiment with all the 42 components, except one, ending in positive territory. Banks were the major gainers with huge volumes as fresh money returned to the market on increasing optimism about global recovery.
 
In South Korea, the benchmark KOSPI Index gained 29.93 points, or 1.81%, to 1,683, taking cues from Wall Street where the major averages ended higher following positive economic data and comments from Ben Bernanke who said that the recession in the country was technically over. Fresh buying interest from institutional investors on US gains and positive trading across the other markets in the region lifted market sentiment.

As robust advance tax payments by firms raised expectations, the Indian market extended its rally to close at a near 16-month high. A signal from the central bank that an easy monetary policy will prevail for some more time and firm global cues on the back of better-than-expected retail and manufacturing data from the U.S., also helped boost sentiment. The BSE Sensex finished at 16,677, up 223 points or 1.35%, while the S&P CNX Nifty rose 66 points or 1.36% to 4,958.

Among the other major markets in the region, China's Shanghai Composite Index lost 34.02 points or 1.12% to close at 3,000. All the other markets ended in positive territory with gains. Indonesia's Jakarta Composite Index added 19.25 points, or 0.80% to close at 2,439, Taiwan's Weighted Index advanced 1.28% or 93.98 points to close at 7,440, and Singapore's Strait Times Index rose 36.02 points, or 1.37% to close at 2,674.

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The major European markets are trading higher on Wednesday, with the French CAC 40 Index and the U.K.’s FTSE 100 Index rising 1.4% and 1.5%, respectively, while the German DAX Index is up 0.9%.

In corporate news, French oil giant said Total said it is lowering its full year production forecast, with the company now expecting flat oil and natural gas production, a scale back from his earlier estimate for higher production.

On the economic front, the Office for National Statistics showed that the U.K. claimant count rate was 5% of the workforce in August, up from 4.9% in July. The rate matched the consensus forecast. The number of people claiming Jobseeker's Allowance benefits increased by 24,400 to 1.61 million. Economists were looking for a monthly increase of 25,000.

Meanwhile, the final consumer price inflation report for the euro zone released by Eurostat confirmed the preliminary estimate, which showed that consumer prices fell 0.2% year-over-year in August compared to the 0.7% drop recorded in July. Core inflation, which excludes food and energy prices, remained at 1.3% in August, unchanged from the previous month.

U.S. Economic Reports

On the economic front, the Labor Department said consumer prices rose 0.4% month-over-month in July after remaining unchanged in June. The increase was slightly bigger than the 0.3% increase expected by economists. On an annual unadjusted basis, consumer prices showed a 1.5% drop.

Core prices, which exclude the volatile food and energy sectors rose 0.1%, in line with expectations. Energy prices rose 4.6% and costs of transportation services rose 0.6%.

The Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. for July 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 rose 0.6% in August, while capacity utilization is expected to come in at 69%.

Industrial production rose for the first time in October 2008 in July, rising 0.5% month-over-month, with the bulk of the gain coming from a 20.1% surge in auto production. Higher auto production propelled industrial production, which surged up 1%. If auto production is stripped off, manufacturing output was up a mere 0.2%. Capacity utilization edged up four-tenths of a percentage point to 68.5%. The unseasonably cool weather led to a 2.4% drop in utility output.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended September 11th at 10:30 AM ET.

In the week ended September 4th, crude oil stockpiles fell by 5.9 million barrels to 337.5 million barrels. Inventory levels remained above the upper boundary of the average range.

Meanwhile gasoline inventories increased by 2.1 million barrels and remained above the upper limit of the average range. Distillate fuel stockpiles rose by 2 million barrels, remaining above the upper boundary of the average range. Refinery capacity utilization averaged 85.6% over the four weeks ended September 4th compared to 84.7% in the previous week.

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

In August, the index measuring builder confidence rose 1 point to 18 and is currently at its highest level since June 2008. The index measuring sales expectations in the next six months rose 4 points and the index of prospective buyer traffic increased 3 points, while the current sales conditions index remained unchanged.

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Adobe Systems could be in the spotlight after it reported adjusted earnings of 35 cents per share for its third quarter compared to the 34 cents per share consensus estimate. Revenues declined 21% year-over-year to $697.5 million, exceeding the mean analysts’ estimate of $686.2 million. For the fourth quarter, the company expects adjusted earnings of 33-39 cents per share on revenues of $690 million to $740 million. Analysts estimate earnings of 37 cents per share on revenues of $719.2 million. The company also said it would buy web analytic company Omniture for $21.50 per share or $1.8 billion.

Genworth Financial is likely to react to its announcement that it has priced its public offering of 48 million of its Class A common shares at $11.75 per share, which is a small discount to its Tuesday’s closing price of $12.05.

Newmont Mining may also be in focus after it announced that it has priced its public offering of $2 billion of senior notes. The company expects the offering to close on September 18th, 2009.

NetScout Systems could see some buying interest after Standard & Poor’s announced that the company will replace Bankrate in the S&P SmallCap 600 Index after the close of trading on Wednesday, September 23rd. Bankrate is being acquired by Apax Partners.

Actel Corp. is likely to be in focus after it said it expects third quarter revenues to be in the range of flat to down 3%, which represents a narrowing of its earlier guidance range of a 2% decline to 4% growth. However, the company maintained its gross profit margin forecast of 56%-57%.

Fidelity National Financial could see weakness after Fitch said it is downgrading the issuer default rating on the company by two notches to B+ from BB with a negative ratings outlook. The issuer financial strength rating for the company’s title subsidiaries was lowered by one notch to BBB-.

Stanley Furniture may trade lower after it said its third quarter loss and sales will be worse than in the second quarter, with sales likely to have been impacted by softer demand for wood furniture in Stanley’s price range. Additionally, disruption caused by the shifting of one-third of its production of its Young America products to its own domestic manufacturing plants and $900,000 of accelerated depreciation related to warehouse consolidation impacted the bottom line.

However, Rambus could gain ground after it raised its third quarter revenue guidance, citing higher variable royalty payments due to an increase in semiconductor shipments to OEMs following a sharp correction earlier this year. The company now expects sales of $27 million to $28 million compared to its earlier estimate of $22 million to $25 million.

Rogers may also move to the upside after it raised its third quarter guidance, attributing the optimism to better-than-expected sales of high-performance foams for mobile phones and other devices. The company expects third quarter earnings of 22-28 cents per share on revenues of $74 million to $77 million. Earlier, the company had predicted earnings of 5-15 cents per share on revenues of $68 million to $73 million. Analysts estimate earnings of 16 cents per share on revenues of $73.20 million.

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