US & World Daily Markets Financial Briefing 17-09-2009

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Sharp Run up May Leave Traders Wary Even In The Face of Upbeat Data

The major U.S. index futures are pointing to a mixed opening on Thursday despite the release of fairly upbeat economic reports, which showed a rise in housing starts to a 9-month high and an unexpected decline in initial jobless claims. Recent buying momentum built on the back of recovery hopes has taken the averages to their highest levels in a year and the run up exposes the markets to the risk of a correction.

The prices of commodities are showing a modest decline, although chances of a sharp near term pullback are remote, given the dollar’s weakness. The markets may also track the results of the Philadelphia survey as they look for more confirmation that could support expectations that things may be really turning around.

U.S. stocks opened higher on Wednesday, but saw some apprehension in early trading. Thereafter, firming recovery hopes, supported to some extent by positive economic readings, sparked off a scintillating rally on Wall Street, with the major averages topping out in late trading and closing with gains in excess of 1% each.

At the close of trading, the Dow Industrials was up 108.30 points or 1.12% at 9,792, rising for the third straight session and reaching its best level since October 6th, 2008. Meanwhile, the S&P 500 Index rose 16.13 points or 1.53% to end at 1,069, representing a nearly 1-year high, and the Nasdaq Composite advanced 30.51 points or 1.45% to 2,133.

Among the thirty Dow components, twenty-four ended higher and two stocks closed unchanged, while the remaining four closed in negative territory. General Electric (GE) (up 6.25%), Alcoa (AA) (up 3.43%), American Express (AXP) (up 3.43%), Bank of America (BAC) (up 2.74%), DuPont (DD) (up 2.26%), Home Depot (HD) (up 2.37%), IBM (IBM) (up 2.07%), McDonald’s (MCD) (up 2.71%) and JP Morgan Chase (JPM) (up 3.38%) were among the notable gainers. On the other hand, Verizon (VZ) and Merck (MRK) fell 1.90% and 1.62%, respectively.

Among the sector indexes, the Dow Jones U.S. Basic Materials Average rose 2.06%, the NYSE Arca Airline Index climbed 1.40% and the Dow Jones Utility Average gained 1.46%. The resource space was on a roll, as reflected by the 2.17% gain by the NYSE Arca Oil Index, the 3.08% surge by the Philadelphia Oil Service Index and the 2.93% advance by the NYSE Arca Gold Bugs Index. The S&P Retail Index and the Philadelphia Housing Sector Index gained 2.33% and 3.84%, respectively.

While the NYSE Arca Securities Broker/Dealer Index moved up 2.04%, the KBW Bank Index rallied 4.03%. The Dow Jones Transportation Average did not confirm the Dow’s upward move and edged down 0.02%. In the technology space, the NYSE Arca Computer Hardware Index rose 1.34%, the NYSE Arca Networking Index gained 2.21% and the NYSE Arca Internet Index advanced 4.10%, while the NYSE Arca Software Index fell 1.04%.

On the economic front, the Labor Department’s consumer price inflation report showed a 0.4% monthly increase in the headline index, a touch more than what economists had expected. A 9.1% jump in gasoline prices was responsible for much of the upside. Food prices edged up by 0.1%. The core consumer price index was up one-tenth of a percentage point compared to the previous month and rose 1.4% year-over-year.

U.S. industrial output rose for the second straight month in August, according to a report released by the Federal Reserve. Industrial output rose 0.8% month-over-month in August compared to the 0.6% growth expected by economists. Manufacturing production climbed 0.6% and still rose 0.4% excluding motor vehicle/part production, which jumped 5.5%. Capacity utilization came in at a better-than-expected 69.6%.

The National Association of Home Builders released the results of its builder confidence survey, which showed that the housing market index rose for the third straight month in September, rising 1 point to 19. While the index measuring current sales conditions rose 2 points to 18, the index gauging sales expectations fell a point to 29. At the same time, the index measuring traffic of prospective buyer traffic rose a point to 17.

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Canadian Stocks May Take A Breather After Recent Surge

Bay Street stocks could see little change at the open on Thursday after rising in 10 of the last 11 sessions. Markets in Europe are hovering near the unchanged line while U.S. futures are pointing a little lower.

Commodities are modestly lower after seeing notable strength yesterday. Crude oil is down 47 cents to $72.04 per barrel, gold has lost $2 to $1,018.20 per ounce and copper has dropped 3.6 cents to $2.9005 a pound.

In corporate news, YM BioSciences announced the approval of nimotuzumab for marketing in Mexico.
 
MDS Inc. announced that it has appointed Steve West, President of MDS Nordion, as its Chief Operating Officer. The company said that Stephen DeFalco, President and Chief Executive Officer, intends to step down from his position following the successful completion of strategic transactions.

Canadian network solutions provider Nortel Networks Corp. said Wednesday that the U.S. Insolvency Court and the Ontario Superior Court of Justice approved the sale of Enterprise Solutions Division to Avaya, a privately-held telecommunications company.

On the economic front, data revealed the composite leading index rose by 1.1% in August, after a 0.6% gain in July, according to data released Thursday by Stats Canada. The increase was the largest since April 2002.

Currency, Commodity Futures

Crude oil futures are trading down $0.39 at $72.12 a barrel after jumping $1.58 to $72.51 a barrel on Wednesday, when a weak dollar amply helped the black gold. The price increase was partly due to the EIA report, which showed that crude oil stockpiles fell by 4.7 million barrels to 332.8 million barrels in the week ended September 11th, although inventories remained above the upper limit of the average range.

Gasoline stockpiles rose by 0.5 million barrels and remained near the upper limit of the average range, while distillate inventories increased by 2.2 million barrels. Stockpiles of distillate fuels remained above the upper boundary of the average range. Refinery capacity averaged 86.3% over the four weeks ended September 11th compared to 85.6% in the previous week.

After rising $13.90 to $1,020.20 an ounce in the previous session, gold futures are seeing some weakness and are trading at $1,017.70 an ounce, down $2.50. Although gold looks poised to test its all time high reached in March 2008, it is less likely that the gain is sustained, as higher gold prices will trim jewelry demand and perk up production, which are both negatives. Therefore, gold is poised to see a correction when the dollar can no longer offer support to the precious metal.

The dollar is strengthening to 91.39 yen compared to 90.9292 yen at the close of New York trading on Wednesday. Currently, the U.S. dollar is valued at $1.4705 versus the euro.

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Asian Markets Extend Gains On Positive US Economic Data

The Asian markets continued to extend gains and ended in positive territory on Thursday as ewll buoyed by better than expected economic data in the U.S which further reinforced that the world's largest economy is on the mend and showing signs of recovery. Higher commodity prices and sharply higher closing in the Wall Street also lifted market sentiment.

In Japan, the benchmark Nikkei 225 Index ended at 10,444, representing a gain of 173.03 points, or 1.68%, while the broader Topix index of all first section stocks rose 8.09 points, or 0.9%, to 940.

On the economic front, the Bank of Japan, or BoJ, decided to leave the key interest rate unchanged as expected to support recovery and raised its economic assessment. The Policy Board of the BoJ decided by a unanimous vote to maintain the uncollateralized overnight call rate at 0.1%. The last change in the rate was a 0.1% cut in interest rates at the December 2008 meeting.

Light sweet crude oil futures for October delivery ended at $72.50 a barrel in electronic trading, down $0.01 per barrel from previous close at $72.51 a barrel in New York on Wednesday.

Increasing confidence about the recovery in the US market, the biggest export market for Japanese goods and services, helped exporters post gains in the market. Advantest Corp. surged up 5.24%, Sony Corp rose 2.42% and TDK Corp climbed 4.14%.
 
Steelmakers advanced led by JFE Holdings following reports in the press that the company might consider reopening a mill as early as October following surge in orders for the alloy. JFE Holdings soared 4.95%, Pacific Metals surged up 4.67%, Nippon Steel rose 4.13%, Sumitomo Metal Industries gained 2.64% and Kobe Steel advanced 3.09%.

Trading companies also ended higher following rise in commodity prices in the international market. Mitsubishi Corp. gained 2.80%, Mitsui & Co., rose 3.02%, Sumitomo Corp. advanced 2.17% and Toyota Tsusho Corp. edged up 0.35%. Impex Corp. climbed 3.51% following rise in crude oil prices.

Banking stocks ended in negative territory on concerns about earnings. Sumitomo Mitsui Financial slumped 5.34%, Mitsubishi UFJ Financial lost 1.90%, Mizuho Financial fell 1.54% and Resona Holdings shed 1.63%.

In Australia, the benchmark S&P/ASX200 Index advanced 1.39% or 64.50 points to close at 4,715, while the All-Ordinaries Index ended at 4,714, representing a gain of 61.20 points, or 1.32%.

On the economic front, data released by the Australian Bureau of Statistics revealed that merchandise imports in the country decreased in original terms in August, falling A$1.21 billion or 7% to A$15.50 billion compared to a revised A$16.72 billion in the previous month. Imports of machinery & transport equipment, mineral fuels, lubricants & related minerals, and chemicals & related products, all recorded significant decreases in August.

Mining and metal stocks led the gains following rise in commodity and oil prices in the international market on Wednesday. BHP Billiton gained 1.51%, Rio Tinto rose 2.19%, Gindalbie Metals added 1.01%, Iluka Resources advanced 1.26%, and Oz Minerals climbed 3.98%.

Banks stocks continued to gain strength on increasing confidence that the worst for the market and the economy is over and such lower depths will not be seen for some more time to come. ANZ Bank edged up 0.09%, Commonwealth Bank rose 1.89%, National Australia Bank gained 1.72% and Westpac Banking climbed 1.30%.

Gold stocks also advanced on higher bullion prices in the international market. Lihir Gold gained 0.95%, Newcrest Mining added 0.77% and Sino Gold Mining rose 1.79%.

Telstra Communications, which was in the news during the past two days in connection with the Government's proposal to break the entity into more than one unit, gained 0.62% after an analyst said that the proposal will not impact the entity's ratings.
 
Mixed trend was witnessed among oil and energy space. Woodside Petroleum rose 1.53% and Oil Search gained 1.41%. However, Santos bucked the trend and ended lower by 0.45% and Origin Energy slipped 0.39%.

In Hong Kong, the Hang Seng Index continued its northward march and ended higher by 1.71% or 365.59 points to close at 21,769, extending the gains on fresh buying interest in the market as optimism about global recovery gains a leg-up with yet another round of positive economic data in the U.S that resulted in the major averages recording sharp gains and extending the gains for the third succesive day. As many as 35 of the 42 components in the index ended in positive territory with major gains led by banks, resource and property related stocks.

In South Korea, the benchmark KOSPI Index gained 12.14 points, or 0.72%, to 1,695, taking cues from Wall Street where the major averages ended higher following another round of positive economic data lifting the market sentiment. Foreign institutional investors evinced fresh buying interest in select blue-chip stocks on increasing optimism that the global economy is on the recovery path. Positive trading across other markets in the region also lifted the sentiment.

The Indian market pared most of its early gains on Thursday and managed to end in positive territory as traders preferred to lock in gains after the inflation rate pulled back into the positive territory. The BSE Sensex ended at 16,711, up 34 points or 0.20% from its previous close and the S&P CNX Nifty rose 7 points or 0.14% to 4,966.

Among the other major markets in the region, China's Shanghai Composite Index gained 60.55 points or 2.02% to close at 3,060, Indonesia's Jakarta Composite Index climbed 17.63 points, or 0.72% to close at 2,457, and Taiwan's Weighted Index rose 0.50% or 37.06 points to close at 7,477. Singapore's Strait Times Index, however, bucked the overall market trend and ended nearly flat with a marginal loss of 1.82 points, or 0.07%, at 2,673.

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The major European markets opened higher on Thursday, although stocks are having difficulty maintaining the buying momentum. The French CAC 40 Index is rising 0.35% compared to a 0.40% gain by the German DAX Index, while the U.K.’s FTSE 100 Index is advancing 0.57%.

U.K. retailer Kingfisher reported that its first half profits rose 37% to 201 million pounds, as revenues climbed 7.3% to 5.5 billion pounds. The company noted that the strength was mainly due to a solid performance by its B&Q unit.

On the economic front, Eurostat, the statistical agency of the European Commission, reported that the euro area’s construction output declined by a bigger than expected 2% in July compared with the previous month. Economists had estimated a more modest 1.1% drop for the month. In June, output was down 0.3%. On an annual basis, the output of the construction sector fell 10.8% in the euro area.

A separate report released by the agency showed that the euro area's trade balance showed a surplus of 12.6 billion euros on a seasonally adjusted basis in July compared to a deficit of 3.5 billion euros in the year-ago period. Economists had expected the surplus to come in at a much more modest 1.1 billion euros. On a monthly basis, exports rose a seasonally adjusted 4.1%, while imports eased 0.3%.

The U.K.’s retail sales remained flat in August, a report released by the U.K. Office for National Statistics showed. On a yearly basis, retail sales volume climbed 2.1%. Economists were looking for 0.1% monthly growth and an annual increase of 2.7%.

U.S. Economic Reports

The Commerce Department said housing starts rose 1.5% month-over-month in August to 598,000 from an upwardly revised reading of 589,000 in July. Economists had expected housing starts to have risen to 583,000 from the initially estimated reading of 581,000 for July.

Single-family starts rose 3%, while starts of buildings with five units or more were 115,000. Annually, housing starts slumped 37.7%. Building permits fell 2.7% month-over-month to 579,000.

First time claims for unemployment declined in the week ended September 12th, with the decrease following an downward revision to previous week's initial jobless claims.

Jobless claims fell to 545,000 from the previous week's revised figure of 557,000. Economists had been expecting jobless claims to rise to 555,000 from the 550,000 originally reported for the previous week. The four-week average declined 8,750 to 563,000 and continuing claims for the week ended September 5th fell 129,000 to 6.23 million.

The results of the Philadelphia Federal Reserve's manufacturing survey are due out at 10 AM ET. Economists expect the diffusion index of current activity to show a reading of 8.0 for September.

The region's business activity index rose to 4.2 in August from -7.5 in July. The reading marked the highest level since November 2007 and the first positive reading since October 2008. The new orders index rose 6 points to 4.2 and notwithstanding a 5 point-increase, the backlog orders index was at -9.3. Suggesting that inventory correction may have been over, the inventories index rose to 0.3 from -15.4, while the employment index surged up 12.4 points to -12.9. The 6-month outlook index rose 5 points.

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Oracle may see weakness after it reported that its first quarter sales declined 5% to $5.05 billion, missing the consensus estimate of $5.25 billion. On an adjusted basis, the company reported earnings of 30 cents per share, in line with the average analysts’ estimate. The company estimates second quarter adjusted earnings of 35-36 cents per share on flat to 3% revenue growth. Analysts estimate earnings of 36 cents per share on revenues of $5.72 billion.

Synovus is likely to be in focus after it said it has priced its offering of 150 million shares at $4 per share, which is at a discount to its closing price of $4.43 on Wednesday. The company expects the offer to generate gross proceeds of $650 million. Meanwhile, Gilmcher Realty said it has priced its public offering of 26.67 million shares at $3.75 per share compared to the $3.97 per share it closed at on Wednesday.

Protective Life could come under selling pressure after rating agency Fitch downgraded its Issuer Default Rating on the company to ‘BBB-’ from ‘BBB.’ Fitch also downgraded the Insurer Financial Strength rating of the company’s life insurance subsidiaries to ‘A’ from ‘A+’, with the rating outlook being Negative. The company attributed the downgrade to its concerns regarding the statutory capitalization of its primary life insurance subsidiaries.

Apogee could be in focus after it reported that its second quarter revenues fell 23% year-over-year to $187.4 million. However, the company’s earnings from continuing operations rose to 46 cents per share from 43 cents per share last year. Analysts estimated earnings of 24 cents per share on revenues of $186.29 million. The company lowered its 2010 revenue guidance to a decline of 20%-25%, citing shifting of the timing for new orders into fiscal 2011.

Prudential Financial is likely to move in reaction to its announcement that Nippon Life Insurance has agreed to buy $500 worth of 10-year exchangeable surplus note issued by Prudential. The notes carry an option to be converted into common stock of Prudential after 5 years.

Earnings

FedEx said its first quarter earnings declined to 58 cents per share from $1.23 per share in the year-ago period. Revenues declined 20% year-over-year to $8 billion. The consensus estimates called for earnings of 58 cents per share on revenues of $8.24 billion. The company reiterated its profit estimate for the second quarter at 65-90 cents per share, while analysts estimate earnings of 83 cents per share. Additionally, the company said it would raise shipping rates by 5.9% in 2010.

Pier 1 Imports said it reported a loss 17 cents per share for its second quarter compared with a loss of 34 cents per share last year. Sales fell 11% to $286.7 million. Analysts estimated a loss of 22 cents per share on revenues of $281.9 million.

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