US & World Daily Markets Financial Briefing 17-11-2010

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Stocks Mostly Higher In Mid-Morning Trading

Stocks are largely on the upside in mid-morning trading on Wednesday, as support for financially troubled Ireland from major European powers has prompted some relief buying in the markets. Meanwhile, a mixed batch of data out of the U.S., including a sharper than expected drop in housing starts, has seen little market reaction.

The major averages have seen some upside in recent dealing, reaching news highs for the session. The Dow is currently up 14.42 points or 0.1 percent at 11,037.92, the Nasdaq is up 15.41 points or 0.6 percent at 2,485.25 and the S&P 500 is up 5.10 points or 0.4 percent at 1,183.44.

Overseas, European finance ministers have begun discussions on extending financial assistance to Ireland, which is now being talked about as the next possible debt casualty after Greece.

In U.S. economic news, the Commerce Department reported that housing starts fell 11.7 percent to an annual rate of 519,000 in October, much steeper than the pullback to 600,000 forecast by economists. The report also showed that building permits rose 0.5 percent to an annual rate of 550,000 in October, short of expectations for a rate of 570,000.

Commenting on the data, Chris Low, chief economist at FTN Financial, said, "Housing permits were stable in October, with little change in single- or multi-family filings, suggesting the drop in starts was a fluke likely to reverse next month."

"Even if it does, however, we do not look for starts to make a material economic contribution at all next year as there is still an enormous overhang of existing supply to work through before new construction makes much sense in most of the country," he added.

A separate report from the Labor Department showed that its consumer price index rose by 0.2 percent in October, less than the expected 0.3 percent increase. Meanwhile, the core consumer price index, which excludes food and energy prices, came in unchanged for the third consecutive month.

In earnings news, traders are looking to quarterly results from a number of key retailers, with Target Corp. (TGT) posting third-quarter earnings of $0.74 per share, above forecasts for $0.68 per share for the period. Total revenues came in at $15.61 billion, in-line with estimates.

BJ's Wholesale Club Inc. (BJ) reported third-quarter income that topped estimates, while its revenues fell short of projections. Guidance for 2010 net income was boosted above expectations.

Teen apparel retailer Hot Topic (HOTT) revealed third quarter earnings that were short of estimates while reporting revenues were better than expected.

In other corporate news, General Motors increased the size of its initial public offering by 31 percent to 478 million shares from the 365 million shares announced earlier.

Recently, the auto giant raised the price range to $32.00 to $33.00 per share from the previously estimated price range of $26.00 to $29.00 per share. The sale is scheduled to commence Thursday.

Sector News

Telecom stocks are seeing a strong outing in the early going, driving the NYSE Arca Telecommunications Index up by 1.8 percent. Qualcomm (QCOM) is turning in a particularly strong performance, posting a gain of 3.4 percent as it rebounds from recent weakness.

Qualcomm's gain comes after its fiscal year earnings results and its announcement of chip production that will enable it to expand market share. The chip is expected to help with the transition from 3G to LTE technology.

Gold stocks are also trading notably higher, even as the price of gold is slightly lower on the day. The NYSE Arca Gold Bugs Index is currently up by 1.7 percent, while the price of gold is down by $1.20 to $1,337.20 an ounce.

Electronic storage, oil service, internet and semiconductor stocks are also moving higher, while some weakness is visible in the banking sector. The KBW Bank Index is down by 0.8 percent, offsetting some of the upside in other market segments.

Stocks Driven By Analyst Comments

First Solar (FSLR) is trading lower after being downgraded to Neutral from Outperform at Credit Suisse. The broker also lowered its price target on the stock from $155 to $127.50. The stock is down by 4.3 percent after setting a two and a half month intraday low in earlier trading.

Meanwhile, Akamai Technologies (AKAM) is on the upside following an upgrade at Maxim Group from Hold to Buy. The stock is up by 3.6 percent, bouncing off of the one-month closing low set on Tuesday.

General Cable (BGC) is also trading higher after being upgraded at KeyBanc Capital Markets from Hold to Buy. Shares are seeing a gain of 4.7 percent, moving back up to the six-month closing high set earlier this month.

Other Markets

In overseas trading, stock markets in the Asia-Pacific region ended mostly lower on Tuesday. Hong Kong's Hang Seng Index declined by 2.2 percent and India's BSE 30 Index slid by 2 percent, while Japan's Nikkei 225 Index bucked the downtrend and gained 0.2 percent.

Meanwhile, the major European markets are up by varied margins. While the German DAX Index and the French CAC 40 Index are up by 0.4 percent and 0.9 percent, respectively, the U.K.'s FTSE 100 Index is up by 0.2 percent.

In the bond markets, treasuries are modestly higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.814 percent, posting a loss of 3.3 basis points.

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TSX Edges Down At Open Wednesday Amid Weak Commodities

Toronto stocks extended losses at open Wednesday amid marginal selling across a variety of sectors. The S&P/TSX Composite Index was down 43.00 points or 0.34% to 12,559.23.

The Diversified Metals Index slipped 0.70%, with First Quantum Minerals and Inmet Mining easing close to 1% each.

In the financial space, Bank of Montreal, Scotiabank and RBC  moved down around 1% each. In the oil patch, Crew Energy, Cenovus Energy and Nexen Inc. were down over 1% each. In the IT space, MacDonald Dettwiler lost over 2%, while BlackBerry maker Research In Motion edged up 0.25%.

Debutant Frontier Rare Earths Ltd. was trading at C$3.10. The company had made its initial public offering at 17.65 million units at C$3.40 each.

Food and drug retailer Loblaw Companies was down 1.3% even after reporting a 13% growth in its third-quarter net earnings.

Meanwhile, gold stocks were marginally higher. Aurizon Mines and Jaguar Mining gained over 1% each.

Commodities

The price of crude oil continued to drift lower Wednesday morning as traders await the official inventories data from the EIA.

Light Sweet Crude Oil (WTI) futures for December delivery were down $0.72 to $81.62 a barrel, its three-week low. Yesterday, oil slipped to a 2-week low amid a firm U.S. dollar and waning risk appetite.

Tuesday after the markets close, the API said crude oil inventories unexpectedly fell by 7.7 million barrels and gasoline stocks dipped 1.7 million barrels last week. Analysts were expecting crude oil inventories to increase by 400,000 barrels and gasoline stocks to dip by 1.6 million barrels last week.

Meanwhile, the U.S. dollar remained firm near its 7-week high versus the euro, amid growing concerns about euro zone sovereign debt crisis, and hovering around its 2-week high against sterling. The buck bounced back near parity with the Swiss Franc and was near its one-month high versus the yen.

Today's focus will be on the official U.S. crude oil inventories data from the EIA, due out later during the session. Analysts expect crude oil inventories to fall by 100,000 barrels and gasoline stocks are seen dipping by 600,000 barrels last week.

Traders will also look to the data on inflation, housing starts and building permits due out from the U.S. later today. Economists expect a 0.3% increase in the headline consumer price index and a 0.1% increase in the core consumer price index. Housing starts are expected to decline to 600,000.

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The French stocks are rising in afternoon trading Wednesday as hopes of a solution to Ireland's sovereign debt influenced sentiment. Construction stocks and carmakers are witnessing upside and banks are mostly higher.

In economic news, Eurozone's construction output dropped a seasonally adjusted 2.1% on a monthly basis in September, following a 0.4% fall in August, Eurostat said. Output had decreased 3.5% in July.

The number of people claiming jobless benefits in the U.K. fell unexpectedly in October. The Office for National Statistics said the claimant count decreased by 3,700 to 1.47 million last month. Economists had expected a 4,500 rise.

Meanwhile, minutes of the Bank of England's meeting in November showed that policy makers left key interest rate unchanged and maintained the size of quantitative easing at GBP 200 billion by a split vote. Seven members of the Monetary Policy Committee including Governor Mervyn King voted in favor of the proposition to maintain the bank rate at 0.5% and size of quantitative easing at GBP 200 billion.

The CAC 40 opened below the flat line at 3,754. The index turned positive shortly and is currently adding 0.53%.
Building materials maker Saint-Gobain is rising 1.7%, and steel giant ArcelorMittal is adding 1.4%. Utility EDF is rising 1.3%.

Drug maker Sanofi-Aventis gained 1.4%, echoing the Northward movement of pharma stocks elsewhere in Europe.Heavy construction firms Vinci and Bouygues, cement giant Lafarge and Schneider Electric are moderately higher.

Banks Societe Generale, BNP Paribas and Credit Agricole are gaining between 1% and 0.2%. However, Natixis is losing 0.7%. Carmakers Renault and Peugeot are moderately rising.Those on the losing side include oil & gas services firm Technip, insurer Axa and hotel group Accor.

Elsewhere in Europe, the UK's FTSE 100 is losing 0.20% and the German DAX is adding 0.29%.

Investors continue to adopt a wait and see approach, biding their time until the Irish debt situation becomes clearer.

UK economic news has been good, but not amazingly so. There was an unexpected fall in unemployment in October and a widely-anticipated three-way split in views on the Bank of England’s Monetary Policy Committee (MPC) when it last met.

The number of Jobseekers’ Allowance claimants fell by 3,700 in October to 1.4654m, the first drop since July.

The Bank of England's interest rate setting committee, the MPC, was split three ways again this month, though a large majority still voted for no change in either the level of interest rates or the size of the current quantitative easing programme. Andrew Sentance again wanted a quarter-point rise in interest rates while Adam Posen voted for an increase in the stimulus package to £250bn.

Credit checking firm Experian is a star performer after it saw improving trends across all regions in the first half of its financial year. Revenue from continuing activities in the six months to 30 September was up 8% at constant exchange rates, while organic revenue growth was 7%. Total group revenue improved to $2bn from $1.9bn the year before. Profit before tax fell to $283m from $316m.

Derivatives broker ICAP is another in demand after first half underlying revenue rose 2%. Total turnover in the half year to September rose by 9% to £867m, but profits tumbled from £150m to £116m after one-off charges. Underlying profits rose by 2% to £183m with operating profits up 9% at £197m

Utility group Centrica said it had a strong third quarter, with operating profit forecasts for 2010 “slightly” ahead of current market expectations, though earnings per share will likely match estimates. British Gas, which last week announced a 7% hike in bills for both electricity and gas, is still doing well. The number of residential energy accounts on supply is up 270,000 since the start of the year, while services accounts have jumped 181,000.

BHP Billiton is to increase its spending on its iron ore mine operation at Pilbara, Western Australia by $635m. The investment comes a month after BHP and Rio Tinto abandoned plans to merge their Pilbara operations in the face of regulatory, customer and shareholder objections.

Rolls-Royce provided a welcome distraction from its aeroplane engine woes today, announcing the first order for its new ‘wave-piercing’ boat to the Norwegian shipping group Farstad.

Business publisher Informa saw continuing growth and recovery in its three main divisions in the first 10 months of 2010. The company said it is trading in line with management expectations and is seeing encouraging renewals and forward bookings for next year.

Chip designer Imagination Technologies is building up its war chest to fund an acquisition spree, starting with HelloSoft, a US voice over internet protocol (VOIP) operator. Imagination is paying a maximum of $47m for Hellosoft, a company that has technology patents that are complementary to Imagination's. The final consideration is dependent on the performance of Hellosoft over the next three years.

The coalition government’s strategic defence review is broadly neutral for military decoy flares and mine detection firm Chemring, which today uncovered a 42% increase in revenue for the fourth quarter. In 2011, the UK will only represent 15% of group revenue, it said.

Premier Foods, the Hovis bread, Bisto gravy and Branston pickle group, has received approaches for its East Anglian canning operations, which could lead to a sale of the unit. The company said back in August that it was “open minded” about disposals as long as they deliver shareholder value and speed up the reduction of average net debt/EBITDA.

That was not the only M&A-related action in the food sector for investors to digest. Irish ready made meals supplier Greencore and Goodfellas pizza and Fox’s biscuits group Northern Foods have agreed a 50:50 merger that will save £40m a year. The new company will trade as Essenta Foods when the deal completes, expected during the second quarter of 2011. Over 30% of Greencore and almost 12% of Northern’s shareholders have already backed the move.

Mother and baby retailer Mothercare produced a 22% surge in half yearly profit and increased its dividend as global sales continued to flourish compared to a weaker UK performance. For the 28 weeks ended 9 October 2010 underlying pre-tax profit increased to £12.2m. Group sales were up 2.5% at £397.1m.

Fashion chain Ted Baker's sales soared by over a fifth in the past three months as wholesale sales powered forward and UK business held up well.

Housebuilder Barratt Developments has had a weaker than expected autumn selling season, though new site openings will drive a “limited” increase in volume growth for the full year.

SIG, a supplier of insulation and construction products, said it is confident of reaching full year profit expectations and posted a modest rise in second half sales.

Engineer Morgan Crucible's profits this year are expected to be in "in the top half of analyst forecasts" after strong sales since the half year.

Plant hire specialist Speedy Hire has grown UK revenue, volume and average hire rates for the third quarter in a row following a further increase in the three months to 30 September, and October was up 5% on the year before.

Entertainment content owner and distributor Entertainment One saw underlying earnings increase by a third in the first half and said the second half has started off well.

Texas-focused oil explorer Pantheon Resources' loss for the year to September fell to £2.54m, from £3.05m last year, which included impairment charges of £1.4m for the abandonment of the Vision Rice University number 1 well.

Ethanol producer GTL Resources is doing well after more than doubling interim pre-tax profit to $6.2m from $2.5m last year on revenue up 2% to $109.2m.

Record company and music publisher Chrysalis piped up to remind us that it will also be a beneficiary of the deal to put Beatles songs on iTunes, as the Fab Four’s legendary producer George Martin is one of its clients.

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Asian Markets Trade Lower On Wall Street Cues

Tracking cues from Wall Street where stocks declined sharply overnight amid growing concerns about debt worries in the euro zone and an imminent rate hike by China, Asian stock markets are mostly trading notably lower on Wednesday. A few markets in the region have come off early lows with investors going in for some bargain hunting, but the mood remains extremely cautious amid fears of a setback to the global economic recovery.

With investors going on a selling spree across the board, all the sectoral indices are down in negative territory in the Australian market. The benchmark S&P/ASX 200 index, which dropped down to 4,623.5, is currently down 65.3 points or 1.4% at 4,635. The broader All Ordinaries index is down 67.8 points or 1.4% at 4,715.

Energy, mining, financial, industrial and consumer discretionary stocks are among the prominent losers in Wednesday's trading. Stocks from healthcare and utilities sections are also mostly trading lower.

Among key bank stocks, ANZ Bank, National Bank of Australia and Westpac are down 1.3%-1.8%, while Commonwealth Bank of Australia is down with a modest loss. Bendigo & Adelaide Bank is losing about 1% and Bank of Queensland is trading 0.5% lower, while Macquarie Group is down with a loss of 0.8%.

In the mining space, BHP Billiton is down almost 2%, Rio Tinto is losing nearly 3%, Newcrest Mining is down with a loss of 2.1% and Fortescue Metals is trading lower by about 2.7%.

Bluescope Steel, Iluka Resources, Riversdale Mining, Incitec Pivot, Orica and Onesteel are also trading weak.

Macarthur Coal Ltd shares are bucking the trend and trading modestly higher. The company expects its first-half profit to triple in fiscal 2011 on a year earlier, on the back of demand growth and a tightening market. It said its first-half net profit after tax is forecast to be in a range of A$115 million to A$125 million, based on 2.5 million-2.7 million tonnes of sales. In 2009-2010 Macarthur made a first half profit of A$39.6 million, and made a full year profit of A$125.1 million.

Among energy stocks, Woodside Petroleum, Santos and Oil Search are trading lower by 2.1%-2.4%, while Origin Energy is down 1.8% from its previous closing price.

Shares of Ausenco Ltd are up by over 12%. The company says it has returned to growth, with a profit expected for the second half of 2010. The company said full-year revenues were now anticipated in a range of A$480 million to A$520 million, while underlying net profit after tax would probably be between nil and A$3 million.

On the economic front, wages in Australia increased a seasonally adjusted 1.1% in the September quarter, while the number of job vacancies in November declined 1%. The Australian Bureau of Statistics reported Wednesday that hourly wages rose 1.1% in Q3. In trend terms, which further smooth the seasonally adjusted data, wages were up 1%. The increase follows a 0.8% rise in Q2. Wages were 3.5% higher than they were one year ago, the Statistics Bureau said.

Meanwhile, the Department of Education, Employment and Workplace Relation reported that its index of skilled job vacancies decreased 1% in November to 44.5 points. The index is 5.9% higher than in November 2009.

A leading indicator of the Australian economy continued to rise in September, although the pace of growth slowed again, new figures showed on Wednesday. The Westpac-Melbourne Institute Leading Index rose 4.6% on an annualized basis in September, easing from the 5.8% gain in August, but well above the long term trend of 3.1%. This is sixth consecutive month in which the growth rate of the leading index has slowed. The annualized leading index gives an indication of how the economy will perform in the next three to nine months. Meanwhile, the coincident index, a measure of current conditions, grew 4.8% - the same pace of growth as in August.

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In the currency market, the Australian dollar opened lower amid worries over Ireland's sovereign debt. In early trades, the Aussie was quoting around US$0.9764, down notably from Tuesday's close of US$0.9855. The Australian dollar is trading at 0.9779 to the U.S. dollar.

The Japanese stock market is also trading weak with investors pressing sales in several front line stocks following a setback on Wall Street overnight. However, after a steep fall in early trades, the market has recovered some lost ground subsequently with a few stocks rebounding from their lows, thanks to a weaker yen.

The benchmark Nikkei 225 index, which plunged to 9,693 in early trades, was down 51.01 points or 0.52% at 9,746.09 at the end of the morning session.

Shares from steel, non-ferrous metals, precision instruments, securities, oil and marine transport sections are mostly trading weak. Insurance stocks are finding good support, while mining, gas and retail stocks are exhibiting a mixed trend. Automobile and bank stocks are also trading mixed.

Mitsubishi Materials, Toho Zinc, Nisshin Steel, Showa Shell, Sumco Corp., Credit Saison, Nissan Chemical Industries, Trend Micro, Sumitomo Realty, Hino Motors, Mitsui & Co., Nippon Light Metals and Pacific Metals are trading notably lower.

Mazda Motor is gaining over 3.5%. Yokohama Rubber, CSK Corp., Bridgestone Corp., Mizuho Trust & Banking, Nippon Express, Ebara Corp., Mitsubishi UFJ Financial, Resona Holdings and Mizuho Financial are up with impressive gains.

In the currency market, the U.S. dollar traded at the lower 83 yen level in early deals in Tokyo. The yen is trading at 83.34 to the U.S. dollar.

The South Korean market started off on a highly negative note but has rebounded into positive territory now thanks to some firm buying at lower levels in a few blue chip stocks.

Technology and bank stocks are exhibiting a mixed trend. Automobile stocks are trading firm, while oil and steel stocks are down in negative territory.

The benchmark KOSPI index, which declined to 1,875.3 in early trades, is currently up 1.9 points or 0.1% at 1,901.

Among automobile stocks, Ssangyong Motor and Hyundai Motor are up 3% and 2.3% respectively, while Kia Motor is trading with a modest gain.

Among bank stocks, Korea Exchange Bank is gaining nearly 3%. Woori Finance is down with a loss of 2%, while KB Financial and Shinhan Financial are down with modest losses. Hana Financial Group shares are up by over 2%.

In the technology space, LG Electronics is gaining 4.8% and LG Display LCD is up 0.7%, while Samsung Electronics and Hynix Semiconductor are trading lower by 0.8% and 1.2% respectively.

Among shipping stocks, Hyundai Heavy Industries and STX Pan Ocean are up 1.3% and 1% respectively and Daewoo Shipbuilding is up 3.6%. Samsung Heavy Industries, however, is down in negative territory with a marginal loss.

Steel stocks Hyundai Steel and POSCO are down 1.6% and 0.6% respectively. Oil stocks SK Holdings and S-Oil are also down with notable losses. KEPCO is trading flat.

Telecommunications stocks are trading weak, while airliners are trading mixed.

Among other markets in the Asia-Pacific region, Shanghai, Hong Kong, New Zealand and Taiwan are trading notably lower. Malaysia, Singapore and Indonesia are all closed in observance of Hari Raya Haji, while the Indian market is closed for Bakri-Eid. Markets across the region ended mostly lower on Tuesday.

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