US & World Daily Markets Financial Briefing 17-11-2009

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Wall Street May Give Back Ground As Traders Cash In On Gains

After showing a strong upward move in the previous session, stocks may give back some ground in early trading on Tuesday, with the major index futures currently indicating a modestly lower open. The downward momentum for the markets comes as traders are likely to cash in on the recent strength in the markets, which have risen to their best levels in over a year. Some strength in the value of the U.S. dollar may also put pressure on stocks. Traders are also digesting a report on producer price inflation and will be presented with data on industrial production and capacity utilization.

Catalyzed by strong economic readings, U.S. stocks opened Monday’s session higher and rose sharply in early trading. While buying interest waned after the first hour of trading, the major averages managed to remain firmly in positive territory, ending the session at their best closing levels in over a year.

The Dow Industrials advanced 136.49 points or 1.33% to 10,407 and the Nasdaq Composite ended up 29.97 points or 1.38% at 2,198. The S&P 500 Index broke through its psychological resistance of 1,100 and closed 15.82 points or 1.45% higher at 1,109.

Twenty-six of the thirty Dow components ended the session higher, with Alcoa (AA) (up 3.26%), Boeing (BA) (up 3.55%), Exxon Mobil (XOM) (up 2.70%), Merck (MRK) (up 2.15%), Kraft Foods (KFT) (up 2.68%), Intel (INTC) (up 2.07%), General Electric (GE) (up 2.17%), Caterpillar (CAT) (up 2.76%) and American Express (AXP) (up 2.70%) spearheading the advance.

Among the sector indexes, the Dow Jones Transportation Average, the NYSE Arca Airline Index, the Dow Jones U.S. Basic Materials Average and the Philadelphia Housing Sector Index all gained over 2%. While the NYSE Arca Oil Index moved up 1.68%, the Philadelphia Oil Service Index rallied 3.34% and the NYSE Arca Gold Bugs Index jumped 3.36%.

In the technology space, the Philadelphia Semiconductor Index ended up 1.99%, while the NYSE Arca Disk Drive Index, NYSE Arca Computer Hardware Index, the NYSE Arca Software Index and the NYSE Arca Networking Index rose over 1% each.

Early strength in stocks came following news from the Commerce Department that retail sales increased by 1.4 percent in October following a revised 2.3 percent decrease in September. Economists had expected sales to increase by 0.9 percent compared to the 1.5 percent decrease originally reported for the previous month.

Excluding a 7.4 percent increase in auto sales, retail sales increased by a much more modest 0.2 percent in October compared to a 0.4 percent increase in the previous month. The ex-auto sales growth came in below economist estimates of a 0.4 percent increase.

Additionally, Federal Reserve Chairman Ben Bernanke reassured the markets that a number of accommodative policies, including near-zero interest rates, would remain in effect for an extended period. He also noted that the Fed is attentive to the declining U.S. dollar, but will continue to focus on its objective of maximum employment and price stability.

”Our commitment to our dual objectives, together with the underlying strengths of the U.S. economy, will help ensure that the dollar is strong and a source of global financial stability,” Bernanke said.

Canadian Stocks May Struggle To Extend Recent Gains

Canadian stocks will look to keep a winning streak intact on Tuesday, but early signals are pointing to a lackluster open amid renewed concerns about the US consumer.

The S&P/TSX Composite Index ended Monday up 104.58 points to 11,512.26, bolstered by soaring resource stocks as commodity prices rose.

Tuesday morning, a number of key retailers will be in focus.

Across the border, Home Depot Inc., the world's largest home improvement retailer, posted a decline in third-quarter profit, reflecting bleak housing and home improvement markets.

Here in Canada, the nation's biggest grocery chain are expected to post earnings of 62 cents a share.
 
Agrium Inc. announced that it has signed a proposed Consent Agreement with the the US Federal Trade Commission relating to Agrium's proposed acquisition of CF Industries Holdings Inc. (CF).

Also on the merger front, Anvil Mining Limited announced that a special meeting of shareholders will be held on December 11, 2009 to approve its previously announced transaction with Trafigura Beheer B.V.

While stocks may be due for a down day, the near-term outlook for global shares appears bright. Yesterday, Fed chief Ben Bernanke reassured the markets that a number of accommodative policies, including near-zero interest rates, would remain in effect for an extended period.

He also noted that the Fed is attentive to the declining U.S. dollar, but will continue to focus on its objective of maximum employment and price stability.

The loonie lost ground to the US dollar Tuesday morning, hitting a weekly low of near C$1.0600.

Currency, Commodity Futures

After showing a strong upward move in the previous session, the price of oil is giving back some ground in early trading. Crude for December delivery is currently down $0.28 at $78.62 barrel after ending Monday’s trading up $2.55 at $78.90 a barrel.

The price of gold is also moving back to the downside after ending Monday’s trading up $22.50 at a record closing high of $1,139.20 an ounce, with gold for December delivery currently down $7.50 at $1,131.70 an ounce.

On the currency front, the U.S. dollar is trading at 89.33 yen compared to the 89.06 yen it was worth at the New York session close on Monday. Against the euro, the greenback is currently valued at $1.4884.

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Asian Markets End In Negative Territory On Profit Taking

The markets open for trading across Asia-Pacific region ended in negative territory on Tuesday, despite opening in positive territory on Wall Street cues, as traders preferred to lock in gains from recent rally and move to sidelines awaiting further cues about global economy. Bearish comments about US banks from Meredith Whitney and comments from Fed Chairman Ben Bernanke about maintaining lower interest rates for an extended period of time impacted market sentiment.

In Japan, the benchmark Nikkei 225 Index declined 61.25 points, or 0.63%, to 9,730, and the broader Topix index of all First Section issues fell 3.42 points, or 0.40%, to 857.

On the economic front, data released by the Ministry of Economy, Trade and Industry revealed that the index measuring tertiary industry activity in the country fell 0.5% during September to a score of 96.4. Economists expected the index to nudge higher by 0.2% after having increased 0.3% during August.

Airline stocks declined after a major shareholder in Japan Airlines, Tokyu Corp, said that it is considering unloading part of its shareholdings in the beleaguered airline company. Following news, the stock declined 3.77%. The other airline company, All Nippon Airways slipped 0.85%.

Continuing strength in the local currency, the Japanese yen, which briefly slipped below the 89 yen mark, also impacted the market sentiment.
 
Mixed trading was witnessed among the automotive stocks. Toyota Motor added 0.52% and Honda Motor remained unchanged at previous close. However, other automotive stocks declined sharply. Mitsubishi Motors declined 3.10%, Suzuki Motor slipped 1.61%, Nissan Motor shed 0.92% and Mazda Motor fell 2.99%.

Banking stocks also ended mixed. While Mitsubishi UFJ Financial gained 1.46% and Resona Holdings advanced 1.01%, Sumitomo Mitsui Financial slipped 0.66%, and Mizuho Financial fell 1.16%.

Chemical stocks ended in negative territory. Shin-Etsu Chemical declined 1.69%, Kao Corp. fell 1.72%, Nissan Chemical Industries lost 2.55% and Mitsui Chemicals slipped 0.62%.

Property stocks managed to end in positive territory. Mitsubishi Estate gained 2.01%, Mitsui Fudosan advanced 1.83%, Heiwa Real Estate climbed 2.82% and Sumitomo Realty & Development edged up 0.45%.

In Australia, the benchmark S&P/ASX200 Index slipped 25.80 points, or 0.54% to close at 4,729, while the All-Ordinaries Index ended at 4,750, representing a loss of 23.60 points, or 0.49%.

On the economic front, minutes of the RBA meeting held on November 3 revealed that the MPC is strongly inclined to increase the interest rates, but fell short of hinting at the timing of the rate hikes. The minutes showed the Monetary Policy Committee felt "conditions in the global and Australian economies were significantly better than expected earlier in the year," with the board concluding that "it remained prudent, over time, gradually to reduce the degree of monetary accommodation."

Banking stocks led the decline following bearish comments about US banks by banking analyst Meredith Whitney. ANZ Bank declined 1.31%, Commonwealth Bank of Australia fell 2.45% and Westpac Banking lost 2.33%. However, National Australia Bank remained unchanged from previous close. Investment banking company Macuarie Group slipped 0.81%.

Among other stocks in financial sector, AMP Limited shed 1.72% and AXA Asia Pacific lost 2.50%.

Metals and mining stocks ended mixed. BHP Billiton gained 1.00%, Rio Tinto advanced 0.71%, and Oz Minerals added up 0.39%. However, Fortescue Metals slipped 0.47%, Gindalbie Metals fell 0.52% and Iluka Resources edged down 0.29%.

Oil stocks ended in negative territory. Woodside Petroleum lost 1.00%, Santos slipped 0.91%, Origin Energy shed 0.42% and Oil Search edged down 0.17%.

Mixed trading was witnessed among gold stocks. While Lihir Gold lost 0.86% and Newcrest Mining shed 0.45%, Sino Gold Mining bucked the trend and edged higher with a gain of 0.13%.

In Hong Kong, the Hang Seng Index ended in negative territory with a loss of 29.83 points, or 0.13% at 22,914 as traders took the opportunity to lock in gains following recent rally in the market. Positive closing in Wall Street where the major averages ended in positive territory lifted the market in early session, but lack of purchasing power, bearish comments on US banks by banking analyst Meredith Whitney and concerns about economic data impacted trading. As many as 29 of the 42 components in the index ended in negative territory.

In South Korea, the KOSPI Index also ended in negative territory with a loss of 6.49 points, or 0.41% at 1,586, as foreign institutional investors and domestic traders offloaded stocks on profit taking following recent gains. Weak trading cues across the other markets in the region, which opened strongly in the early session taking cue from Wall Street, also impacted trading in Seoul. Volume of trading was relatively thin as traders preferred to stay in the sidelines awaiting further directions.

The Indian market ended a volatile session on a flat note Tuesday as investors stayed on the sidelines amid weak global cues. The benchmark BSE Sensex, which hovered in negative territory throughout the session, fell to as low as 16,883 in the afternoon before finishing at 17,051, up 18 points or 0.11%, and the S&P CNX Nifty rose by 4 points to 5,062. Gains in IT stocks were offset by declines in realty, oil/gas and public sector stocks.

Among the other major markets in the region, China's Shanghai Composite Index added 7.84 points or 0.24% to close at 3,283 and Indonesia's Jakarta Composite Index added 5.11 points, or 0.21% to close at 2,474. However, Singapore's Strait Times Index declined 18.90 points, or 0.68% to close at 2,765, and Taiwan's Weighted Index shed 59.47 points, or 0.76%, to close at 7,733.

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The major European markets are also moving back to the downside after trending higher in recent sessions. The U.K.’s FTSE 100 Index is currently down 0.6 percent, while the French CAC 40 Index and the German DAX Index are down 0.5 percent and 0.4 percent, respectively.

In economic news, a report released by the U.K.’s Office for National Statistics showed that annual British consumer price inflation increased in October for the first time in eight months, driven by fuel prices.

The report showed that annual inflation rose to 1.5% in October from a five-year low of 1.1% in September. Inflation stood slightly above the expected rate of 1.4%. Still, inflation remained below the central bank's 2% target for the fifth month in a row.

Consumer prices were up 0.2% month-on-month in October, faster than the consensus forecast of 0.1%.

Additionally European Central Bank President Jean-Claude Trichet said in an interview with French newspaper Le Monde that the present key interest rates are considered to be appropriate for the euro area. Further, Trichet said the central bank would progressively unwind non-standard measures.

U.S. Economic News

With food and energy prices showing notable increases, the Labor Department released a report on Tuesday showing a modest increase in producer prices in October, although core prices unexpectedly showed a moderate decline.

The Labor Department said its producer price index rose 0.3 percent in October following an unrevised 0.6 percent decrease in September. Economists had been expecting prices to increase by a somewhat more significant 0.5 percent.

At the same time, core producer prices, which exclude food and energy prices, fell 0.6 percent in October after slipping by 0.1 percent in the previous month. The decrease came as a surprise to economists, who had expected core prices to edge up by 0.1 percent.

Additionally, the Federal Reserve’s industrial production report is due out at 9:15 AM ET. Economists estimate that industrial production rose 0.4% in October, while capacity utilization is expected to come in at 70.8%.

In September, industrial production rose by 0.7%, while economists had expected a mere 0.2% increase. The previous month's reading was also revised up to show industrial production growth of 1.2% compared to the 0.8% growth estimated initially.

Capacity utilization rose 0.6 percentage points to 70.5%, marking the highest reading since February. The strong reading was made possible by an 8.1% increase in the output of motor vehicle and parts as auto plants ramped up to fill depleted inventory levels.

Richmond Federal Reserve Bank President Jeffrey Lacker is due to speak on the economic outlook to the Virginia House Appropriations Committee in Richmond at 10 AM ET

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 declined to 18 in October from 19 in September. Economists had estimated a reading of 20 for the month. While the present conditions index fell 1 point, the future expectations declined 2 points. The index measuring prospective buyer traffic fell 3 points.

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Shares of Home Depot are likely to be in focus after the home improvement retailer reported third quarter earnings that fell to $0.41 per share from $0.45 per share in the year-ago quarter but still came in above analyst estimates of $0.36 per share. The company’s net sales for the quarter fell 8.0% to $16.4 billion compared to expectations for a decrease to $16.27 billion. Looking ahead, Home Depot forecast full year adjusted earnings of $1.55 per share compared to analyst estimates of $1.52 per share.

Discount retailer Target also released its third quarter results, reporting earnings that rose to $0.58 per share from $0.49 per share in the same quarter last year, exceeding analyst estimates of $0.50 per share. While Target also reported sales that came in slightly above estimates, the company said it remains cautious about the fourth quarter due to the current and projected economic environment and expectations for a highly promotional holiday season.

Retailers Saks and Dillard’s have also recently reported their third quarter results, with both companies unexpected reporting a quarterly profit compared to a loss in the year-ago quarter. Subsequently, shares of Both Saks and Dillard’s are showing notable strength in pre-market trading.

Outside of the retail sector, shares of CapitalSource are moving sharply higher in pre-market trading after the company said it has agreed to sell substantially all of its healthcare net lease portfolio to Omega Healthcare Investors. CapitalSource said expected net proceeds include $280 million cash and $51 million worth of OHI stock. The company also said its founder and current CEO John K. Delaney will assume the new Company officer role of Executive Chairman.

On the other hand, shares of SunPower are likely to see some early weakness after the company announced that based upon an internal review of its Philippine manufacturing operations, it believes there may have been unsubstantiated accounting entries made in the first three quarters of 2009.

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