US & World Daily Markets Financial Briefing 20-04-2009

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Earnings Worries May Clip Recent Stock Market Rally

Currently, the Dow is down 222.94 at 7,908.39, the Nasdaq is down 54.97 at 1,618.10, and the S&P 500 is down 27.14 at 842.46.

The major U.S. index futures are pointing to a lower opening on Monday. After a stellar run up for six consecutive weeks, the markets may pause, as earnings worries predominate the mind of traders and apprehensions over economic conditions generate some selling pressure. Commodities are receding, which is likely to exert downward pressure on commodity stocks. The markets may also react to the Conference Board’s leading indicators index for March.

U.S. stocks turned in another winning performance in the week ended March 17th, as earnings optimism helped keep sentiment upbeat. The extension of the rally was achieved despite the release of a mixed batch of economic news, which shook the recent optimism over a recovery in economic conditions.

On Monday, the major U.S. averages closed on a mixed note after trading with a negative bias for much of the session amid apprehensions over earnings season. Disappointing retail sales data weighed on the major averages on Tuesday, as the major averages closed notably lower.

Notwithstanding a mixed batch of economic reports and insipid earnings from Intel (INTC), the markets moved to the upside on Wednesday, as the Fed’s Beige Book suggested a slowdown in the pace of contraction. The major averages continued to move higher on Thursday, aided by some positive earnings reports and an unexpected decline in jobless claims report. Despite showing volatility, the markets ended Friday’s session higher to close the week with gains for the sixth straight week.

During the week, the Dow Industrials advanced 0.59% and the Nasdaq Composite rose 1.24%, with the S&P 500 Index outperforming the other two major averaged to end the week up 1.52%.

Danske Bank expects 10%-15% upside for the U.S. markets by the year-end. However, given muted expectations from the reporting season, we could see the major averages flattening out after the recent run up or a correction from current levels in the near term.

Among the sector indexes, the Amex Securities Broker/Dealer Index and the KBW Bank Index gained 7.97% and 10%, respectively for the week. The Philadelphia Housing Sector Index rose 9.33% compared to a 6.81% weekly gain by the Philadelphia Oil Service Index. The Dow Jones Transportation Average gained 3.54% for the week, while the Amex Gold Bugs Index ended down 6.39%.

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Canadian stocks may struggle to build on recent gains Monday

Early signals are pointing to a rough open for Canadian stocks Monday morning after US stocks futures tumbled and European shares pulled back sharply as traders booked profits from a recent rally.

On Friday, Toronto's main index closed with its seventh daily gain in eight sessions. The index posted its best close since January 6. The S&P/TSX Composite Index added 94.28 points or 1.00% to end at 9,437.65.

Financials led the way on Friday and will remain in focus this morning after Bank of America Corp. joined the growing ranks of major banks to beat earnings expectations. Moments ago, the company reported first-quarter 2009 net profit of $4.2 billion.

Energy stocks may suffer after the price of oil dropped almost $3 to $47.55 a barrel on demand concerns.

Elsewhere, news from Silicon Valley may impact tech stocks, as Oracle Corp. announced a definitive agreement to acquire Sun Microsystems Inc. common stock for $9.50 per share in cash. This transaction is valued at approximately $7.4 billion, or $5.6 billion net of Sun's cash and debt.

Meanwhile in Canada, Agrium Inc. said it has sent a letter to CF Industries Holdings Inc. stockholders, urging to withhold votes for CF's three director nominees, namely Stephen Furbacher, David Harvey, and John Johnson, up for election at CF's 2009 Annual Meeting of Stockholders on April 21.
 
Agrium urged CF Industries' stockholders to send a message to CF Industries board that they should engage with Agrium to negotiate a mutually beneficial transaction. Energy Savings Income Fund said it agreed to extend the 30-day exclusivity period with Universal Energy Group, Ltd. regarding potential acquisition of Universal Energy by Energy Savings Income.

Angle Energy Inc. disclosed the closing of a new syndicated banking facility. The banking syndication is lead by the Canadian Imperial Bank of Commerce and includes Alberta Treasury Branch.

The revolving credit facility expands the company's borrowing capacity to $80 mln from the previous level of $70 mlns. Friday, Yukon-Nevada Gold Corp. announced that it has appointed Robert Baldock, to its board, pursuant to the resignation of Lynn Patterson as chairman to the board and as a director of the company, due to health reasons.

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The major European markets are trading lower on Monday. While the French CAC 40 Index and the German DAX Index are down 2.72% and 3.44%, respectively, the U.K.’s FTSE 100 Index is advancing 1.85%.

In corporate news, Swiss investment bank UBS (UBS) said it would sell its Brazilian unit to BTG Investments for about $2.5 billion in cash and assumed liabilities. The sale will help enhance the capital of the bank and reduce its assets.

On the economic front, Rightmove said the average asking price of houses in the U.K. rose 1.8% month-over-month in April to 222,007 pounds, marking the third straight month of increases. Out of the 10 regions surveyed, prices only fell in London.

U.S. Economic Reports

The unfolding week has a very light economic calendar, but in terms of significance, it is still a key week that can shed more light into how the economic environment is panning out. The two housing market reports, namely the existing and new home sales reports for March are likely to be the focus of attention in the week, especially due to the fact that some of the recent housing market readings have come in better than expected. Additionally, traders may keenly watch the durable goods orders report to see if the positive picture painted by recent economic readings has emboldened companies to consider investing in capital goods.

The Conference Board's leading indicators index for March and the regularly scheduled weekly oil inventory and jobless claims reports are the other reports that find their place in the economic calendar of the week. Some degree of importance may also be attached to the Fed speeches scheduled to be delivered during the week.

Durable goods orders are likely to dip following a rebound in February, with the thinking premised on the fact that the Institute for Supply Management's manufacturing index remains below the '50' level. Wachovia Securities believes that the outsized gains in machinery and technology equipment will be reversed. Additionally, the decelerating order bookings for civilian aircraft do not bode well for the headline number. However, motor vehicle orders should see some strength, as auto plants have come back online now.

Existing home sales are most likely to remain flat, as a reduction in mortgage rates and the recent declines in home prices could support sales at current low levels. Research by the National Association of Realtors has shown that about 45% of recent house sales activity was either distress or foreclosure-related sales. If the efforts to modify existing mortgages gain traction in the next few months, reported sales could see sharp declines.

New home sales could continue to be pressured by difficult labor market conditions, economic concerns and mortgage market troubles despite the improvement in affordability we have been seeing of late due to depressed prices. That said, new house inventories should gradually return to more normal levels of the late 1990s, as declines in completions and general building activity reduce house supplies. New home sales for March are most likely to see a small decline, given the fact that homebuilder surveys suggested a slight improvement in builder confidence.

Chicago Federal Reserve President Charles Evans, a FOMC voting member, is scheduled to speak at 9 AM ET.The Conference Board is scheduled to release a report on the U.S. leading index for March at 10 AM ET. The consensus estimate calls for a 0.2% decline in the leading indicators index for the month.

In February, the leading indicators index fell 0.4% month-over-month. The January reading was revised down to show a 0.1% increase from the 0.4% growth reported originally. The largest negative contributors were average weekly initial claims for unemployment insurance, stock prices, the index of consumer expectations and average weekly manufacturing hours. The lagging and the coincident indicators were down 0.1% and 0.7%, respectively.

Atlanta Federal Reserve President Dennis Lockhart, a FOMC voting member, is due to speak at 12:40 PM ET.

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Monday, the major markets across the Asia-Pacific region closed higher, led by China and Hong Kong as the Chinese premier's upbeat assessment that the economy was doing "better-than-expected" helped boost sentiment. But gains were restricted as investors expressed caution ahead of key earning reports from leading U.S. companies.

The Japanese market recovered from its day's lows and closed higher for the third day in a row on bargain hunting amid hopes of an early recovery in the economy. While the benchmark Nikkei 225 index rose 17 points or 0.19% to 8,925, the broader Topix index of all First Section issues on the Tokyo Stock Exchange closed at 848, up 3 points or 0.32%.

Cyclical stocks like iron & steel, nonferrous metals, high-techs and autos provided support, but stocks in the consumer finance, mining and food sectors ended in the red.

Among automakers, Mazda rallied 5.69%, Honda gained 1.59%, Suzuki advanced 3.73% and Toyota added 1.31% but Nissan slipped 0.20%. In the technology space, Advantest rose 0.25% and Kyocera gained 1.01%, while Tokyo Electron fell 0.47% and Fujitsu declined 0.96%.

Toshiba Corp tumbled 4.82% on reports that it will raise $5 billion in capital as early as June to shore up its balance sheet. Steel producer Kobe Steel surged up 9.14% and Sumitomo Metal Industries soared 7.02% after Nomura Holdings Inc. upgraded the outlook for the steel industry to " bullish" and raised its target on several key stocks.

In economic news, a final report from Japan's Economic and Social Research Institute showed that the leading index was revised down to 75 from 75.2 in February. In January, the index stood at 76.7. At the same time, the coincident index was also revised down to 86 from 86.8, falling from a reading of 88.6 in January.

After rising as much as 1.2% earlier in the day, the Australian market closed lower as losses by the two biggest miners, Rio Tinto and BHP Billiton, dragged down the benchmarks. The benchmark S&P/ASX200 index closed at 3,799, down 8 points or 0.2% and the All Ordinaries index also moved down 0.2% or 6 points to 3,722.

Despite a strong start, banking stocks closed mostly lower for the day. National Australia Bank moved down 0.41%, and Commonwealth Bank fell 1.35%, but Westpac Banking rose 0.20%.

Oil stocks bucked the declining trend. Woodside Petroleum rose 0.50% and Santos gained 2.31%, while Oil Search closed flat. Among retailers, Woolworths gained nearly 3%, Harvey Norman Holding rose 0.35% and David Jones added 2.33%.

The South Korean market finished a volatile session higher led, by strong gains in the banking sector amid continued support from foreign institutional investors. The benchmark KOSPI rose 7 points or 0.56% to 1,336 and volume was moderate at 556.19 million shares worth 5.82 trillion won (US$4.36 billion). Advancers outnumbered decliners by 492 to 337.

Banking stocks closed stronger following better-than-expected earnings from Citigroup. Korea Exchange Bank closed up 2.06%, Woori Finance soared 6.59% and KB Financial, the holding firm of Kookmin Bank rallied 4.05%.

Tech stock Hynix Semiconductor rose 1.04% as spot prices for DRAM chips showed a firm trend on the DRAMeXchange. LG Display gained 1.11% on improved prospects for the flat-panel industry.

However, market heavyweight Samsung Electronics slipped 0.84% on profit taking, LG Electronics fell 0.47%, shipbuilder Daewoo Shipbuilding declined 1.45%, Korean Air Line drifted down 0.74% and Telecom stock SK Telecom moved down 0.80%.

Hong Kong’s Hang Seng Index opened lower before recovering half an hour into trading. Thereafter, the index moved sideways for the rest of the session before closing up 149.64 points or 0.96% at 15,751.

Property stocks were higher across the board, with Henderson Land and Wharf Holdings showing particular strength. Most Hong Kong-based banks were lower, while mainland banks showed buying interest. Index heavyweight China Mobile advanced moderately. However, retailers and resource stocks showed weakness.

The Indian market fell into negative terrain in a volatile market after the European markets opened lower. The benchmark Sensex was last trading at 10,880, down 143 points or 1.30%, even as second-line stocks continued to outperform the benchmarks Sensex and Nifty.

Among the other markets in the region, China's Shanghai Composite index rose 2.14%, Hong Kong's Hang Seng index gained 0.96%, Singapore's STI Straits Times index fell 1.14% and Taiwan's TWII Weighed index closed up 0.46%.

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Crude oil futures are receding $2.79 to $47.54 a barrel after declining $1.91 or 3.7% to $50.33 a barrel in the week ended April 17th. Crude oil fell sharply on Monday and fell yet again on Tuesday, although more moderately to close below the key $50-a-barrel mark. Oil eased modestly on Wednesday following a bearish oil inventory report that showed a significant build in crude oil stockpiles.

Aided by some positive U.S. economic reports, crude oil advanced on Thursday. The commodity added to its gain on Friday to close above the $50-a-barrel level.

Gold futures are rising $7.90 to $875.80 a barrel, as demand for the precious metal is likely to increase in conjunction with the Akshaya Tritiya festival in India, where people buy gold and silver as a good omen on this occasion.

In the past week, gold declined $11.60 or 1.31% to $869.40.

On the currency front, the dollar fell against the yen in the week ended April 17, while it continued to rise against the euro. The dollar slipped 1.08% against the yen to 99.15 yen. On the other hand, the greenback rose 1.09% against the euro to end the week at $1.3044 a euro.

Currently, a dollar is trading at 98.40 yen and is valued at $1.2971 versus the euro.

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