US & World Daily Markets Financial Briefing 17-12-2010

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Stocks Turning In A Lackluster Performance In Early Trading

Stocks are showing a lack of direction in early trading on Friday, with traders shrugging off some upbeat earnings news amid a light day on the economic front. The major averages are turning in a mixed performance after they all ended the previous session firmly in positive territory.

The choppy trading comes despite better than expected quarterly results from leading technology firms Oracle (ORCL) and Research in Motion (RIMM) as well as news that the House has passed the extension of the Bush tax cuts.

Database giant Oracle reported 21 percent year-over-year growth in new software license revenues and better-than-expected second quarter earnings. Following the earnings release, FBR Capital Markets raised its price target on Oracle $36 and also upwardly revised its forward estimates for the company.

Additionally, Research In Motion reported 58 percent year-over-year earnings growth for its third quarter to $1.74 on 40 percent revenue growth to $5.5 billion, as it sold 14.2 units of its Blackberry smart phones. The company also issued upbeat guidance for its third quarter.

Some traders may be staying on the sidelines due to the relatively quiet day on the economic front, with only the Conference Board's report on leading economic indicators on tap for the day.

Economists expect the Conference Board's leading indicators index to show a 1.2 percent month-over-month increase in November following a 0.5 percent increase in October. The index has risen in each of the past four months.

Meanwhile, on a negative note, close on the heels of warning Spain and Greece of possible credit downgrades, Moody's reduced its credit rating on Ireland to Baa1 from Aa2 while maintaining its outlook at 'negative.'

The action is likely to re-ignite the simmering sovereign debt worries even as EU leaders have agreed on treaty changes to establish a permanent crisis mechanism in 2013.

Most of the major sectors are showing only modest moves, although early strength is visible among banking stocks after BMO Financial (BMO) agreed to acquire Marshall & Ilsley (MI) in a deal valued at approximately $4.1 billion.

The major averages are currently stuck on opposite sides of the unchanged line, with the Nasdaq posting a modest gain. The Nasdaq is up 3.06 points or 0.1 percent at 2,640.37, while the Dow is down 18.77 points or 0.2 percent at 11,480.48 and the S&P 500 is down 1.20 points or 0.1 percent at 1,241.67.

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TSX Poised For Mixed Open

Canadian stocks may struggle for direction at open Friday amid flat commodities prices and a host of M&A activity in the region. Encouraging earnings reports from BlackBerry maker Research In Motion might help lift sentiment among IT stocks.

However, large gains may be capped amid lingering worries over the euro zone debt situation after rating agency Moody's Investor Service downgraded Ireland's rating by five notches, from Aa2 to Baa1, citing the nation's troubled banks.

Spain's central bank said today the bad loans ratio for the country's banks and financial institutions rose to 5.66% in October, its highest in 14 years. The bank said that of total loans of 1.83 trillion euro, bad debts accounted for 103.7 billion euro in October, up from 101.3 billion euro in September. Notably, Moody's placed Spain's Aa1 rating on review for a possible downgrade Wednesday.

Meanwhile, EU leaders agreed last night to set a permanent mechanism to offer financial aid to debt-stricken countries, 'if indispensable", to prop up the common currency.

U.S. stock futures were pointing to a flat open.

The S&P/TSX Composite Index ended as a loser for a third session Thursday, shedding 47.85 points or 0.36% to 13.181.23.

The price of crude oil was under selling pressure despite the flow of positive economic data from the U.S. Crude for January was down $0.15 to $87.55 a barrel.

The price of gold was trading flat after falling in the past two sessions, eroding just over 2%. Gold for February edged up $3.40 to $1,374.40 an ounce.

In corporate news from Canada, BlackBerry maker Research In Motion reported a 45% jump in its third quarter profits at $911.1 million or $1.74 per share, up from $628.4 million or $1.10 per share in the year-ago quarter. Analysts were expecting the company to report earnings of $1.64 per share for the quarter. During the quarter, smartphone shipments soared by 40% to 14.2 million devices over a year earlier. RIM guides earnings of $1.74 to $1.80 per share, and revenue of $5.5 billion to $5.7 billion for the subsequent quarter. . Street expects earnings of US$1.61 per share on revenue of US$5.47 billion for the quarter.

Integrated oil firm Suncor Energy said it would spend C$6.7 billion in capital expenditure in 2011 and targeting 10% growth in its oil sands production to reach more than one million barrels of oil equivalent per day by 2020.

Energy focused trust Enerplus Resources Fund said its capital expenditure in 2011 would increase by over 25% to C$650 million with 65% projected to be invested in oil projects. For 2012, capital expenditures are expected to be around C$675 million. Further the company guided production growth of 10% - 15% over the next two years, exiting 2012 in the range of 86,000 - 90,000 BOE/day.

Energy company Niko Resources declared a third quarter dividend of C$0.06 per share.

In the M&A patch, Bank of Montreal said it would acquire Marshall & Ilsley Corp. in a stock-for-stock transaction, or an aggregate amount of approximately $4.1 billion Each outstanding share of M&I will be exchanged for 0.1257 shares of Bank of Montreal.

Base-metals miner First Quantum Minerals said it would acquire Antares Minerals Inc., through its subsidiary, in exchange of 0.07619 of a common share or a C$6.35 cash per each share of the latter or a combination of both cash and stock.

Gold miner Fronteer Gold said its subsidiary, Aurora Energy Resources Inc, would divest its 100% of the uranium assets to Paladin Energy Ltd. in exchange of 52.1 million common shares of Paladin valued at C$260.87 million.

Multi-family apartments operator Killam Properties Inc. said it acquired Meadowland Manor, a 105-unit apartment building in Newfoundland for $7.15 million. This acquisition marks the completion of $115.1 million in apartment acquisitions in 2010, in-line with its goal of completing between $100 million and $150 million in acquisitions during the year, the company said.

Oil and gas explorer Ithaca Energy and its wholly owned unit, Ithaca Energy Ltd., announced the acquisition of certain UK North Sea gas interests from GDF Suez E&P UK Ltd. for about $10.5 million.

Oil and gas drilling equipment maker Trinidad Drilling said it has closed the private placement of $450 million of 7.875% senior notes due January 2019.

Vision care products company Coastal Contacts reported higher fourth quarter net income of C$1.4 million or C$0.02 per share, compared with C$0.6 million or C$0.01 per share a year earlier.

Contract drug manufacturer Patheon Inc. slipped in to the red in fourth-quarter, reporting net loss of $1.8 million or $0.014 per share, compared to profit of $4.6 million or $0.050 per share last year.

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French Market Reverses Early Gains

The French market erased its early gains and dipped into negative territory in afternoon trading Friday, dragged by banks and car manufacturers. Sentiment was impacted by weak cues from Asia/Pacific and worries about the eurozone debt crisis even as political leaders have gathered in Brussels to find a solution to the problem.

On the economic front, German business confidence rose unexpectedly to 109.9 in December, a monthly survey from Ifo institute said. Economists had expected the index to fall to 109 from 109.3.

In the U.K., the Nationwide consumer confidence index, which gauges the mood among more than 1,000 Britons, fell to 45 in November from 52 in October, belying expectations for no change, as the government's spending review further eroded morale. This was the lowest level since March 2009.

Meanwhile, the Bank of England warned that the sovereign debt woes of the eurozone pose risks to the UK banking system. The bank also called for a "comprehensive" solution to the eurozone crisis, rather than a country-by-country approach.

Despite a low direct exposure to European sovereign debt, owing to weaker than expected growth in the eurozone, the banks faced credit risks from the possibility of losses on lending to households and companies in the region, the central bank said in its bi-annual Financial Stability Report.

The CAC 40 index opened above the flat line at 3,901. Despite making gains in early trade, the index dipped into negative territory in the afternoon session and is currently losing 0.12%.

Car manufacturer Peugeot is leading the decliners by falling 1.5%. Peer Renault is slipping 0.9%.

Lenders Credit Agricole, Natixis, BNP Paribas and Societe Generale are down 1.4% to 0.14%.

Other notable losers include life insurer Axa, lens maker Essilor International, department stores operator PPR and tire firm Michelin.

Drugmaker Sanofi-Aventis, cement giant Lafarge, chipmaker STMicroelectronics, hotel group Accor and chemical firm Air Liquide are moderately down.

Steel manufacturer ArcelorMittal is gaining 2.2% and computer firm Cap Gemini is adding 1.9%. Oil & gas services firm Technip is rising 1.1%.

Elsewhere in Europe, the UK's FTSE 100 is losing 0.32% and the German DAX is retreating 0.55%.

Across Asia/Pacific, major markets mostly closed lower. Australia's All Ordinaries dipped 0.32%, China's Shanghai Composite lost 0.16% and Japan's Nikkei 225 trimmed 0.07%. However, Hong Kong's Hang Seng gained 0.20%. The Indian market was closed for a local holiday.

In the U.S., futures point to a lower open on Wall Street. In the previous session, the Dow rose 0.4%, the Nasdaq advanced 0.8% and the S&P 500 climbed 0.6%.

In commodities, crude for January delivery is trading down $0.62 at $87.08 and February gold is flat at $1371 a troy ounce.

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Firm Open Predicted For Thai Shares

The Thai stock market has finished lower now in two straight sessions, declining nearly 8 points or 0.8 percent along the way. The Stock Exchange  of Thailand finished just below the 1,030-point plateau, and now analysts are expecting the market to halt its slide when it kicks off trade on Friday.

The global forecast for the Asian markets is modestly positive, thanks to better than expected economic data from the United States. Steel and property stocks are likely to provide support, while gold miners could decline on profit taking following a recent rally. The European markets finished mixed but little changed and the U.S. bourses ended modestly higher - and the Asian markets are also expected to track mostly to the upside.

The SET finished modestly lower on Thursday, dragged lower by selling among the energy producers.

For the day, the index shed 5.87 points or 0.57 percent to finish at 1,029.60 after trading between 1,024.39 and 1,033.69. Volume was 4.092 billion shares worth 42.167 billion baht. There were 218 decliners and 157 gainers, with 126 stocks finishing unchanged.

Among the actives, PTT Aromatic plunged 4.88 percent and PTT Chemical retreated 0.68 percent.

The lead from Wall Street is fairly optimistic as stocks staved off an early lack of direction and moved up by solid margins over the course of Thursday's session, with traders reacting to improvements in jobless claims levels, housing starts and Philadelphia area manufacturing activity.

On the economic front, the Labor Department said that initial jobless claims in the week ended December 11 fell to 420,000 from the previous week's revised figure of 423,000. Economists had expected jobless claims to edge up to 425,000.

Separately, the Commerce Department said that housing starts rose 3.9 percent to an annual rate of 555,000 in November, while economists had forecast housing starts to rise to 545,000.

Meanwhile, building permits, an indicator of future housing demand, fell 4.0 percent to an annual rate of 530,000 in November. Expectations had called for permits to edge up to 560,000.

The Philadelphia Federal Reserve also said its diffusion index of current activity rose to 24.3 in December from 22.5 in November, with a positive reading indicating growth in regional manufacturing activity. Economists had been expecting the index to fall to a reading of 13.0. Nonetheless, the report's details raised some concerns, as it showed a notable acceleration in the pace of price growth and a slower rate of job growth.

Aside from the day's economic headlines, a federal insider trading probe led to the arrest of three employees of leading technology companies as well as an executive for an "expert-networking" firm, according to the Justice Department.

Second-quarter results from shipping giant FedEx also garnered market attention, with the firm posting net income of $1.16 per share, well below the $1.31 projected for the quarter. The company reported revenues that rose 12 percent to $9.63 billion but still fell short of estimates of $9.70 billion.

The major averages saw choppy movement in late-session dealing, ending near their best levels. The Dow rose 41.78 points or 0.4 percent to 11,499.25, the NASDAQ advanced by 20.09 points or 0.8 percent to 2,637.31 and the S&P 500 climbed by 7.64 points or 0.6 percent to 1,242.87.

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Dollar Wobbles As EU Looks To Secure Euro

The dollar continued to struggle for direction on Friday, with many traders likely to the coming new year for further clues about the health of major economies, particularly the US and Europe.

The buck has crept only slightly higher in the past few weeks, despite deepening concerns that the European monetary union may not survive the sovereign debt crisis gripping the region.

Having already bailed out Greece and Ireland, European leaders agreed last night to set a permanent mechanism to offer financial aid to other debt-stricken countries, 'if indispensable", to prop up the common currency.

The deal is expected to provide a safety net to Spain, whose borrowing costs have spiked higher this week amid default concerns.

Earlier today, Moody's Investor Service downgraded Ireland's rating by five notches, from Aa2 to Baa1, citing the nation's troubled banks. Spain was put on warning for a downgrade earlier in the week.

Things appear to be looking up a bit in the US, but with no end in sight to the Federal Reserve's accommodative monetary policy, the buck has wobbled in December.

Yesterday's economic data showed improvement in manufacturing and further stabilization in the jobs market, with jobless claims edging back toward 400,000.

After some initial weakness this morning, the dollar snapped back against the euro, rebounding to $1.3250. The pair has bounced back and forth near that level for the past few weeks.

The dollar drifted slightly lower against the yen, down to Y83.80 from a 3-month high near Y84.50.

The buck stayed above parity against its Canadian counterpart, and held its modest weekly gains against the sterling to trade at $1.5570.

Looking ahead to today's economic data for the US, the Conference Board is scheduled to release its leading economic indicators index at 10 am ET. Economists expect the index to show a 1.2% month-over-month increase following a 0.5% increase in the previous month. The index had rise in each of the four previous months.