US & World Daily Markets Financial Briefing 19-10-2009

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Sentiment Upbeat Ahead of Housing Report

The major U.S. index futures are pointing to a higher opening on Monday, with sentiment improving after Friday’s hiccup. A host of factors, including M&A deals, earnings optimism and a rally in commodity price, may help to keep sentiment upbeat. Traders may view positively the news emerging from China that said growth in the dragon country topped the 7% rate in the first three quarters of the year. Markets may also closely track the results of the National Association of Homebuilders’ builder confidence survey and comments from Federal Reserve Chairman Bernanke, due later in the day.

U.S. stocks closed higher for a second straight week in the week ended October 16th, as positive earnings and guidance prodded traders to buy stocks. The week saw the Dow climb above the psychological benchmark level of 10,000 before pulling back and ending slightly below the level. Commodity stocks rallied, helped by a strong upward move in commodity prices.

Last Monday, earnings helped the major averages moved mostly higher. The Dow Industrials and the S&P 500 Index advanced moderately, while the Nasdaq Composite closed slightly lower. On Tuesday, profit taking amid the release of mixed earnings reports led to a mixed close on Wall Street, with the Dow Industrials and the S&P 500 Index receding, while the Nasdaq Composite advanced.

However, the major averages advanced strongly on Wednesday, rising more than 1.45% each, thanks to strong earnings and a fairly positive retail sales report that showed strong underlying retail sales growth. Despite staying below the flat line for much of Thursday’s session, the markets recovered in late trading, as oil continued to surge, lifting oil stocks and as a couple of reports released during the day, including the weekly jobs report and the New York Fed’s manufacturing survey, turned in encouraging results.

On Friday, negative reaction to earnings released by General Electric (GE) and Bank of America (BAC) led to a sell-off in the markets, which have shown a strong run up in recent sessions.

For the week, the Dow Industrials and the S&P 500 Index rose 1.33% and 1.51%, respectively, while the Nasdaq Composite advanced 0.82%.

Among the sector indexes, the NYSE Arca Oil Index and the Philadelphia Oil Service Index posted weekly gains of 4.78% and 4.25%, respectively, while the NYSE Arca Gold Bugs Index rose 3.22%. The Dow Industrials ended the week up 3.80% and the Dow Jones Utility Average, the NYSE Arca Airline Index, the S&P Retail Index and the NYSE Arca Biotechnology Index all gained over 1% for the week. On the other hand, the Philadelphia Semiconductor Index fell 1.11%.

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Metals Could Lead Toronto Stocks Higher

Canadian stocks could see some strength on Monday morning, following strength seen overseas. Investors are showing some optimism ahead of some key U.S. earnings reports this week.

Metal-related stocks could rise in the early going. Gold prices are up $2.70 to $1,054.20 per ounce and copper has gained 7.25 cents to $2.918 a pound.

Lundin and HudBay could rise after each stock was upgraded to Outperform from Neutral at Credit Suisse Group.

Zincore Metals appointed Jorge Benavides as President and chief executive officer, effective immediately. Agrium said it has entered into an agreement with Terra Industries to sell a portion of Agrium's Carseland nitrogen facility to Terra, conditional on the closing of Agrium's proposed acquisition of CF Industries Holdings.

QLT said it has restructured its agreement with Novartis Pharma AG to simplify the relationship, under which it will receive exclusive U.S. rights to the Visudyne patents to sell and market Visudyne in the U.S.

On Friday, the S&P/TSX Composite Index inched up 0.25 point to finish at 11,504.76. The index finished up about 80 points on the holiday-shortened week and remained near a three-week high.

Currency, Commodity Futures

Crude oil futures are edging down $0.33 to $78.20 a barrel after advancing for the third straight week in the week ended October 16th. The commodity gained $6.76 or 9.42% in the previous week, as a weaker dollar and positive earnings that supported the recovery theme catalyzed a strong upward move in the price of the commodity.

Last Monday, the commodity gained $1.50-a-barrel and rose close to $1 a barrel on Tuesday, as stronger equity markets offered support. Oil rose again on Wednesday, advancing over $1-a-barrel. Stung by the EIA’s weekly oil inventory report, which revealing a steep drawdown in gasoline inventories, crude oil futures rose by about $2.50-a-barrel on Thursday and continued to advance on Friday despite the pullback in equities.

Gold futures are currently rising $2.40 to $1,053.90 an ounce. In the previous week, the precious metal rose $2.90 or 0.28% to $1,051.50 an ounce. After rallying through the early part of the week ended October 16th, gold saw some weakness mid-week before rebounding in the last session of the week.

The U.S. dollar ended mixed against the yen and euro in the week ended October 16th, with the greenback edging up 1.19% against the yen to 90.891 yen, while it slid 1.32% against the euro to $1.4906.

Currently, the dollar is trading at 90.842 yen and is valued at $1.4923 versus the euro.

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Asian Markets End Higher On Optimism About Recovery

The markets open for trading in Asia ended in positive territory on Monday, on expectations that most of the US companies will report better than expected earnings for the recently concluded quarter. Speculation that China will report about 7% growth in GDP for the first nine months of the year and will achieve its annual GDP target of 8% as well as surge in commodity prices also lifted market sentiment across the region. Profit taking led Australian market to end in negative territory while Japanese market ended mixed. The market in India was closed for a public holiday.

In Japan, the benchmark Nikkei 225 Index slipped 21.05 points, or 0.21%, to 10,237, while the broader Topix index of all first section stocks rose 4.85 points, or 0.54%, to 906.

On the economic front, the Ministry of Economy, Trade and Industry said that an index measuring tertiary industrial activity in the country rose 0.3% to 97.1 in August and beat analyst expectations for a 0.1% monthly increase, following a revised 0.7% increase in July.

Separately, minutes from the September 16 and 17 monetary policy meeting revealed that the Bank of Japan's board members said that there was a decreasing need to emphasize financial conditions as a downside risk. The board added that the positive effects of the crisis measures it had undertaken were beginning to fade, while at the same time drawing attention to the effect that the rising yen was having on the Japanese economy.

The stocks opened weaker on weak cues from Wall Street following disappointing July-September quarter earnings from Bank of America Corp. and General Electric Co. However, firm buybacks in banks and other financial shares lifted the overall market sentiment in late trading session, limiting the overall loss.
 
Among the banking stocks, Sumitomo Mitsui Financial gained 3.13%, Mitsubishi UFJ Financial rose 2.13%, Mizuho Financial advanced 1.73% and Sumitomo Trust & Banking added 1.22%.

Japan Airlines witnessed huge trading volume following reports in the press that the major lenders for the airliner have deemed the Transport Ministry's rehabilitation plan for the airline as unacceptable. Following the news, the stock gained 12%.

Shipping stocks also ended in negative territory. Mitsui O.S.K Lines lost 2.42%, and Nippon Yusen shed 0.56%, while Kawasaki Kisen Kaisha remained unchanged from previous close.

Among the retailers, Fast Retailing was the major loser having lost 3.72% after JP Morgan downgraded the stock to Underweight. Seven & I Holdings shed 0.69% and Aeon Co., lost 1.44%.

In Australia, the benchmark S&P/ASX200 Index declined 43.60 points, or 0.90% to close at 4,793, while the All-Ordinaries Index ended at 4,802, representing a loss of 40.80 points, or 0.84%.

Banking stocks led the declines as traders preferred to lock-in gains following recent rally. ANZ Bank fell 3.38%, Commonwealth Bank of Australia shed 1.39%, National Australia Bank fell 2.22% and Westpac Banking lost 2.45%. Investment bank Macquarie Group declined 1.74%.

Metals and mining stocks also ended in negative territory on profit taking. BHP Billiton shed 0.31%, Rio Tinto slipped 0.42%, Fortescue Metals fell 3.60%, Gindalbie Metals lost 2.62%, Iluka Resources edged down 0.26%, Mincor Resources declined 2.48% and Oz Minerals decreased 0.80%.

Oil stocks also ended weaker on profit taking despite higher crude oil prices in the international market. Woodside Petroleum slipped 0.19%, Santos lost 2.37% and Origin Energy shed 0.73%. However, Oil Search managed to end unchanged from previous close.
 
Gold stocks ended higher. Lihir Gold gained 1.59%, Newcrest Mining rose 1.32% and Sino Gold Mining advanced 0.86%.

Mixed trading was witnessed among property stocks. While GPT Group remained unchanged from previous close and Westfield Group edged higher by 0.68%, StockLand declined 0.74% and Mirvac Group fell 2.45%.

In Hong Kong, the Hang Seng Index recovered the early losses on weak cues from Wall Street and ended in positive territory with a gain of 270.56 points, or 1.23%, at 22,200, on speculation that mainland China will report 7% growth in GDP for the nine-month period and will also affirm its projection of 8% growth in GDP for the full year. As many as 34 of the 42 components in the stock index ended in positive territory with the major gainer being FIH that surged up 9.03%. Resource related stocks also ended sharply higher. PetroChina rose 3.01% and CNOOC surged up 4.19%.

In South Korea, the KOSPI Index ended in positive territory with a gain of 8.71 points, or 0.53%, at 1,649, led by exporters including automotive stocks following the weakening of the local currency, the South Korean Won, against the US dollar. Having opened sharply lower in early trade and further drifted into negative territory on weak US cues, the markets recovered most of the early losses and ended the session with marginal gain. Consumer electronics giant LG Electronics advanced 3.57% and top automaker Hyundai Motor added 1.1%.

Among the other major markets in the region, China's Shanghai Composite Index surged up 61.64 points, or 2.07% to 3,038, Singapore's Strait Times Index edged up 3.58 points, or 0.13% to close at 2,712, Indonesia's Jakarta Composite Index ended flat added 5.12 points, or 0.20% to 2,521 and Taiwan's Weighted Index advanced 36.22 points, or 0.47%, to 7,751.

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The major European markets are trading higher, with the major averages receiving a shot in the arm from the news on Chinese growth. The French CAC 40 Index and the German DAX are rising 1.24% and 1.32%, respectively, while the U.K.’s FTSE 100 Index is advancing 0.68%.

On the economic front, the U.K. property website Rightmove reported that U.K. house prices rose 0.2% year-over-year in October after falling 1.5% in September, with the average property asking price at 230,184 pounds, up from last month's 223,996 pounds. This marked the first increase in fifteen months, with the recovery led by a strong rebound in London.

U.S. Economic News

The housing market is likely to be in focus in the unfolding week, as we get incremental news flow on the sector amid signs of stabilization. Traders may closely watch the Commerce Department's housing starts report for September, the National Association of Homebuilders' housing market index for October and the National Association of Realtors' existing home sales report for September. Additionally, the spotlight will also be on the Fed speeches scheduled to be delivered during the week, including those by Federal Reserve Chairman Ben Bernanke.

The results of the Treasury's 52-week bill auction (due to be announced at 1 PM ET on Tuesday) and details of the upcoming 2-year note auction, 5-year note auction, 5-year TIPS auction and 7-year note auction (all due to be announced at 11 AM ET on Thursday) could also prove market moving. Some degree of attention is also likely to be paid to the Labor Department's jobless claims report, the Conference Board's leading indicators index for September, the Labor Department's producer price index for September and the Federal Reserve's Beige Book.

Notwithstanding a flat trend witnessed in single-family permits in August, housing starts as well as permits may have increased in September, primarily due to new home inventories dropping to their lowest level since 1983.

Going by the pending home sales index, which has risen in each of the past seven months, existing home sales are expected to show an increase in September. Sales are likely to stay afloat, aided by the first time homebuyers' credit. Unless the credit is extended, there will be a risk that the sales gains are reversed in 2010.

Producer prices are likely to have seen a drag from lower gasoline and natural gas prices. Food prices are also expected to show a softening trend. Accordingly, the consensus estimates call for a no change in headline producer prices, although the core reading is likely to have seen an uptick.

The Fed's Beige Book is expected to show cautious optimism, with the report likely to make a note of an improvement in consumer spending, excluding autos, residential real estate and manufacturing. The improvement in financial market conditions may have sown the seed for an eventual recovery in the credit markets. However, the Beige Book is likely to show the continuing turmoil in the commercial real estate market.

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 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.

Bernanke is scheduled to speak at a San Francisco Fed conference on 'Asia and the Global Financial Crisis' in Santa Barbara, California.

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CIT Group may be in focus after it announced that it has amended its debt exchange plan. The company has consented to increase the amount of equity it will offer some of its subordinated bondholders in exchange for their bonds, raise the interest on new debt to be issued by CIT Delaware Funding and include in the exchange program some of the investors holding debt maturing after 2018. The lender is seeking a reduction in its debt owed to its bondholders by $5.7 billion and also an extension in debt maturities.

Nokia is also expected to react to its announcement that the U.S. International Trade Commission has ruled in favor of the company in a lawsuit bought by InterDigital over patent infringement related to UMTS mobile standard.

Deere & Co. may see some activity after it said a U.S. District Court has ruled in favor of the company regarding retiree healthcare benefits. The contention was with regard to the changes Deere made to the benefit plans of about 5,000 of its former employees and their dependents.

Teva Pharma and Mylan Pharma may move in reaction to Teva’s announcement that it has filed a lawsuit against Mylan and Natco Pharma for patent infringement over a generic version of its multiple sclerosis drug, Copaxone. Mylan has submitted an ANDA for the drug.

Procter & Gamble is likely to be in the spotlight after it recommended its shareholders to reject a mini-tender offer by TRC Capital, which has sought to buy 2 million P&G shares at $54.25 a share. The company noted that TRC’s offer is at a discount to its closing price on October 16th as well as on October 7th, when the offer was made.

ITT Corp. is likely to gain ground after it announced that it has been awarded a $19.3 million delivery order by the U.S. Army’s Research Development & Engineering Command Acquisition Center under the OMNI VII contract for AN/PVS-14 night vision molecular devices.

Pfizer could see weakness after a U.S. court handed down one of its unit a penalty of $1.3 billion for promoting its painkiller Bextra, which was withdrawn from the market in 2005 due to safety concerns. This is in addition to the $1 billion plus interest settlement agreement it reached on September 3rd to settle civil allegations over fraudulently promoting and marketing Bextra and three other drugs in its portfolio.

Earnings

Hasbro reported that its third quarter net earnings rose to 99 cents per share from 89 cents per share in the year-ago period. The recent third quarter’s results included a charge of 3 cents per share. Net revenues fell to $1.28 billion from the year-ago’s $1.30 billion. Analysts estimated earnings of 93 cents per share on revenues of $1.32 billion.

Eaton Corp. said its third quarter net income fell to $1.14 per share from $1.87 per share last year. On an adjusted basis, the company’s operating earnings fell to $1.21 per share from $1.95 per share in the year-ago period. Sales fell 23% to $3.03 billion. The consensus estimates had called for earnings of 92 cents per share on revenues of $3.13 billion.

BB&T’s third quarter net income was 23 cents per share, sharply lower than 65 cents per share in the year-ago quarter. Analysts estimated earnings of 22 cents per share. Net interest income rose to $1.23 billion from $1.088 billion last year.

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