US & World Daily Markets Financial Briefing 17-08-2009

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Equity traders see red

Market Movers

• Dow Jones 30: 9,143.12, down 178 (-1.91%)
• S&P 500: 982, down 21 (-2.18%)
• NASDAQ Composite: 1,937, down 47 (-2.40%)

As expected, traders’ price screens are a sea of red in early trading in the US with the 30-share Dow Jones industrial average unable to sport a single share on the rise.

Signs that the Obama administration may be prepared to backtrack on its plans to set up a government-run alternative to private healthcare provision has boosted the medical insurance companies, with the likes of Coventry Healthcare, Aetna, Humana, Wellpoint, Unitedhealth and Ims Health all in demand.

Reports suggest that Republican opposition to the medical insurance companies having to compete against a government-run alternative may have prompted a rethink, with the Obama administration now contemplating that competition could be provided by mutual societies rather than the government.

Home improvement retailer Lowes is the biggest loser in early trading after a dismal trading update which saw second-quarter earnings come in below market estimates and like-for-like sales disappointing. Sector peer Home Depot fell in sympathy.

Fears that the US consumer will go on strike have hit the metals companies such as Alcoa, US Steel, Steel Dynamics and A K Steel.

S&P 500 - Risers

1. CIT Group Inc. (CIT) $1.61 +14.18%
2. Coventry Hlth Care (CVH) $23.81 +5.35%
3. Aetna Inc. (AET) $29.77 +5.27%
4. Humana Inc. (HUM) $36.50 +5.22%
5. Wellpoint Inc. (WLP) $54.53 +4.48%
6. Cigna Corp. (CI) $30.07 +4.32%
7. Unitedhealth Group (UNH) $29.16 +3.92%
8. Ims Health Inc. (RX) $13.30 +2.86%
9. Quest Diagnostc (DGX) $54.45 +1.34%
10. Laboratory Corp. (LH) $69.24 +1.29%

S&P 500 - Fallers

1. Lowe's Companies (LOW) $20.61 -9.72%
2. Developers Diversified Reality (DDR) $7.51 -9.52%
3. Manitowoc Co. (MTW) $6.28 -8.05%
4. Genworth Financial (GNW) $7.62 -7.97%
5. A K Steel Holdings Corp. (AKS) $19.05 -7.93%
6. Marshall & Ilsley (MI) $6.72 -7.44%
7. United States Steel (X) $42.98 -6.85%
8. Peabody Energy Corp. (BTU) $33.87 -6.69%
9. Lincoln Natl Corp. (LNC) $22.65 -6.60%
10. Tenet Hlthcre Corp. (THC) $4.46 -6.48%

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Bay Street stocks are likely to see weakness in early trading as global stocks and commodities are notably lower. Overall concerns about the economic recovery has weighed on the markets.

Crude oil has dropped $1.41 TO $66.10 in electronic trading, extending its recent weakness. Gold has plunged $14.20 to $934.50 and copper has dropped 6.8 cents to $2.783 a pound.

There is a little bit of corporate news for traders to chew on. Agrium (AGU.TO) said it extended the expiration date of its offer to acquire CF Industries Holdings (CF) for $40 in cash plus one Agrium share per CF share until midnight ET on September 22.

Allen-Vanguard (VRS.TO) said its third-quarter net loss was C$99.2 million or C$0.91 per share, compared to a net loss of C$36.6 million or C$0.34 per share in the year-ago quarter.

Canadian Zinc Corp. (CZN.TO) reported a second quarter net loss of $722,000 compared to a loss of $1.129 million in the year ago quarter.

On the economic front across the border, the New York Fed said its general business conditions index rose to 12.1 in August from a negative 0.6 in July, with a positive reading indicating an expansion in the manufacturing sector. Economists had been expecting the index to increase more modestly to 3.0.

On Friday, the S&P/TSX Composite Index added 22.45 points or 0.2% to finish at 10,840.01. The index had dropped below 10,750 earlier in the day.

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Asian Markets Slump On Concerns About Economic Recovery

The Asian markets ended in negative territory on concerns that the prospects of recovery might hit a roadblock following continued weakness in consumption spending in the world's largest economy, the U.S, the consumer sentiment index unexpectedly declined, economic data released on Friday in New York revealed. Sharp decline in commodity prices and strengthening of the greenback also weighed on market sentiment.

In Japan, the benchmark Nikkei 225 Index slumped 328.72 points, or 3.10% to close at 10,269, while the broader Topix index of all first section stocks was down 23.98 points, or 2.46%, to 950.

On the economic front, a preliminary report released by the Cabinet Office revealed that the economy expanded by 0.9 percent in the second quarter of 2009, roughly in line with analyst expectations for a 1.0% increase following a revised 3.1% contraction in the first quarter. The report further noted that on an annualized basis, GDP was up 3.7% - roughly in line with forecasts for a 3.9% gain following the 14.2% contraction in the previous three months. Nominal GDP was down 0.2% on quarter and 0.7% annualized.

Exporters, automakers, trading companies and banks declined on concerns about economic recovery. The strengthening of the local currency against the US dollar also weighed on market sentiment.

Trading companies declined following sharp drop in commodity prices in the international market on Friday. Mitsubishi Corp., declined 3.61%, Sumitomo Corp. lost 3.33%, Mitsui & Co. fell 4.17% and Toyota Tsusho Corp. 3.83%. Sony Corp., which makes Vaio brand computers, declined 4.05%.

Automakers also ended weaker. Toyota Motor Corp., shed 2.67%, Honda Motor lost 3.85%, Nissan Motor fell 3.43% and Mazda Motor slumped 5.01%.

Realty stocks also ended weaker following news that investment in housing declined 9.5% during the second quarter. Sumitomo Realty and Investment slumped 5.84%, Mitsui Fudosan fell 4.57% and Mitsubishi Estate lost 4.26%.

Among precision equipments, Konica Minolta Holdings lost 3.17%, Citizen Holdings fell 3.97% and Ricoh Co., declined 3.87%.

In banking space, Mitsubishi UFJ Financial lost 2.64%, Mizuho Financial Group fell 3.39%, Resona Holdings shed 1.35% and Sumitomo Mitsui Financial declined 3.61%.

In Australia, the benchmark S&P/ASX200 Index lost 72.60 points, or 1.63%, to close at 4,388, and the All-Ordinaries Index ended at 4,398, representing a loss of 67.00 points, or 1.50%.

Metals and mining stocks declined following drop in commodity prices in the international market on Friday.

BHP Billiton declined 2.95%, Gindalbie Metals shed 1.70%, Minara Resources slumped 7.58%, Rio Tinto fell 4.82% and Oz Minerals lost 5.60%. Fortescue Metals, however, bucked the trend and gained 2.92% after announcing that it has agreed to sell 20 million tonnes of iron ore to its customers in China at 35% to 50% discount in prices that prevailed in 2008-09 season.

The largest steelmaker in the country, Bluescope Steel, slumped 6.97% after the company reported that it slipped to a loss of $393 million for the first half of 2009 compared to profit in the corresponding period last year. The steelmaker attributed lower prices and drop in revenue as primary reasons for the loss.

Mixed trading was witnessed among oil stocks following sharp drop in crude oil prices in the international market. Woodside Petroleum lost 1.43% and Santos fell 1.63%. However, Oil Search added 0.36% and Origin Energy advanced 0.92%.

Banks declined sharply on renewed concerns about growth prospects. ANZ Bank lost 2.36%, Commonwealth Bank of Australia fell 3.66%, National Australia Bank declined 2.66% and Westpac Banking shed 2.16%.

Mixed trading was witnessed among the gold stocks. While Newcrest Mining managed to end in positive territory with a gain of 1.72%, Lihir Gold slipped 1.54% and Sino Gold Mining slipped 0.87%.

In Hong Kong, the Hang Seng Index ended lower 20,137, down 756.26 points or 3.62%, taking cues from other Asian markets that slumped on concerns about growth prospects. Lower commodity prices also weighed on market sentiment. All the 42 components of the index ended in the negative territory, with property stocks, commodities and banks leading the slump.

In South Korea, the benchmark KOSPI Index fell 44.35 points, or 2.79%, to close at 1,547. Concerns about global recovery following weak consumer sentiment numbers for August in the U.S and falling Chinese stocks helped large investors unwind the stocks on profit taking.

In India, broad-based sell-off in global markets on concerns about the pace of global economic recovery, worries about a slowdown in the domestic economy due to deficient monsoon rains dragged the market sharply lower below support levels. The benchmark BSE Sensex ended at 14,785, down 627 points or 4.07% and the S&P CNX Nifty plummeted 192 points or 4.20% to 4,388.

Among the other major markets in the region, China's Shanghai Composite Index slumped 176.34 points, or 5.79%, to 2,871, Singapore's Strait Times Index lost 85.53 points, or 3.25% to close at 2,546 and Taiwan's Weighted Index shed 137.71 points, or 1.95% to close at 6,932.

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The FTSE 100 had a good lunch-time session, trimming the morning’s losses, but it remains firmly in the red, with miners leading the way down.

Concerns grow about the health of the US economy are weighing on mining companies. With consumers reticent to play their part in a demand-led recovery investors are baling out of mining stocks such as Anglo American, Rio Tinto, Xstrata, Antofagasta and Vedanta.

Fresnillo is also down after the silver miner saw revenue slide in the first half of 2009 by 10.7% from a year earlier to $378.9m, as the realised silver price over the period dropped 21.9% to $13.92. Earnings before interest, tax, depreciation and amortisation eased 4.1% to $203.4m.

Insurers, with their reliance on buoyant stock markets, are feeling the heat as a wave of selling washes over global markets. Old Mutual and Prudential are both sharply lower, but Aviva is a riser after HSBC upgraded the stock from ‘underweight’ to ‘neutral’.

Also out of favour as a result of the collapse of equity markets is bourse operator London Stock Exchange, wealth management company St. James’s Place and asset manager BlueBay.

Shares in Johnson Matthey were down after UBS cuts its rating for the specialty chemicals firm to "sell" from "neutral" as it downgrades all UK specialty chemicals stocks by one notch on valuation and share price performance grounds.

Pre-tax profit halved at Michael Page in the first half, but the recruitment firm said the rate of decline in the UK and the Asia Pacific region has slowed. The group also said that it will continue to ‘adjust’ its headcount in response to market conditions. In the last twelve months Michael Page cut staff by a third, largely through natural attrition.

Shaftesbury warned that demand for offices continues to fall, though the London's West End-focused property firm said demand for retail, restaurant and residential accommodation continues to be healthy.

Investment trust Witan narrowed pre-tax losses to £8.77m in the six month ended 30 June compared with a loss of £139.32m last time.

Oil and gas exploration and production firm Hardy Oil & Gas reported a first half pre-tax loss of $5.4m compared with a profit of $9.7m the year before.

Aberdeen-based Venture Production today announced the discovery of gas on trend with the producing Bains field and 10 kilometres north east of the Morecambe South production complex in the East Irish Sea.

Oil explorer Heritage Oil said it has completed the testing of the Miran West-1 discovery in the Kurdistan region of Iraq. The company said it achieved a flow rate of 3,640 barrels of oil per day (bopd) from a single reservoir interval, though the company estimates that a flow rate of between 8,000 and 10,000 bopd will be achievable when the well goes into production. Attempts to test deeper formations were made but the initial drilling operations had damaged the formations too badly for this to be possible.

Housebuilder Barratt Developments is friendless on rumours that it is planning a major rights issue to alleviate its debt worries.

Speciality pharmaceuticals company BTG is to receive a $7m milestone payment from one of its partners.

Construction and regeneration group Morgan Sindall said its affordable housing division has been confirmed as a preferred partners for a £35m regeneration scheme in Skipton, North Yorkshire.

Shares in mining exploration and mineral investment company Red Rock shot up after the company said it may acquire a controlling interest in the Migori Gold Project in Kenya.

Marine electronics group Raymarine confirmed recent press speculation that it is in potential takeover talks with US navigation equipment specialist Garmin and other parties.

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Dollar, yen make headway

The dollar rose against the euro but weakened against the Japanese yen on Friday following a weaker than expected consumer sentiment report.

The Reuters/University of Michigan consumer sentiment index fell to 63.2 at the start of August from July’s figure of 66.0. The data follows US retail sales figures out Thursday, which revealed a surprise decline last month. As a result there was little risk appetite on Friday.

The dollar index, which measures the US currency against six others, rose to 78.904 from 78.390 the previous session.

The yen advanced against the dollar, sterling and the euro as investors sought out safe haven currencies. The dollar fell around 1% on Friday to 94.42 yen while the euro fell 1.3% to 134.52 yen. Sterling fell over 1% to 156.14 yen.

Otherwise the euro was little moved by data showing consumer prices in the eurozone fell a record 0.7% year on year in July. On Thursday the euro was boosted by data showing the French and German economies both unexpectedly grew in the quarter from April to June.

Sterling retreated against the dollar, down 0.4% on the day but the pound remained little changed against the euro at 86.13p.


Crude retreats as data disappoints

A weaker than expected consumer sentiment report sparked concern about the timing and strength of an economic recovery and sent crude oil futures around $3 lower on Friday.

US light crude oil for September delivery dropped $3.01 to close at $67.51 a barrel in New York after slumping to an intraday low of $67.12 a barrel.

A disappointing day among US equities and a stronger dollar also pressured demand for oil after the September contract hit a six-week high on Thursday.

The University of Michigan's index of consumer sentiment for August fell to 63.2 against expectations of a rise to 68.5 from July's final reading of 66.0.

The Consumer Price Index was released before the open and was unchanged, as expected, following a 0.7% rise in June. Core CPI, without food and fuels, rose as expected by 0.1%.

Among precious metals COMEX gold for December delivery declined $7.80 to settle at $948.70 an ounce in New York as disappointing economic data reduced the precious metals appeal as a hedge against inflation.

The stronger dollar also clipped demand for the yellow metal while silver for September delivery fell 26.5 cents to $14.722 an ounce.

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