US & World Daily Markets Financial Briefing 20-10-2010

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Stocks Posting Solid Gains In Mid-Morning

Stocks are up by moderate margins in mid-morning trading on Wednesday, as the markets are reacting positively to a deluge of upbeat earnings reports including ones from Boeing (BA) and Wells Fargo (WFC). Nonetheless, buying remains restrained ahead of the Federal Reserve's Beige Book report due out this afternoon.

The major averages have all seen choppy movement in recent dealing, holding on to solid gains. The Dow is up 74.17 points or 0.7 percent at 11,052.79, the Nasdaq is up by 10.00 points or 0.4 percent at 2,447.47 and the S&P 500 is up by 5.87 points or 0.5 percent at 1,171.77.

In earnings news, aircraft manufacturer Boeing Co. reported third quarter net income of $1.12 per share on revenues $17.0 billion, beating expectations for $1.05 per share and sales projections of $16.72 billion.

The company increased its earnings per share guidance for fiscal 2010 to range between $3.80 and $4.00 per share but trimmed its revenue range to between $64.5 billion and $65.5 billion. Street analysts expect earnings of $3.95 per share on revenues of $64.47 billion for the year.

Wells Fargo & Co. said its third quarter net income was $0.60 per share, coming in above analyst estimates which called for an EPS of $0.55. Total revenues came in at $20.88 billion, roughly in-line with estimates.

Morgan Stanley (MS) posted a third quarter loss including discontinued operations of $0.07 per share. Based on continuing operations, the company earned $0.05 per share. Net revenues were $6.78 billion for the quarter, topping projections for $6.44 billion.

After the markets closed for trading on Tuesday, internet search engine Yahoo! Inc. (YHOO) said that its third-quarter profit more than doubled from last year, due to hefty gain from the sale of HotJobs. Quarterly results also benefited from strong growth in advertising revenue, higher margins, and lower expenses. Looking ahead, the company forecast revenue outlook for the fourth quarter below the analyst expectations.

Hard disk drive maker Western Digital Corp. (WDC) said that its first-quarter profit declined 32 percent from last year, hurt by higher operating expenses as well as lower revenues. However, quarterly earnings came in ahead of the analyst expectations along with revenues.

At 2:00 p.m. ET, the Federal Reserve will release its Beige Book report, a compilation of economic conditions from each of the 12 Federal Reserve districts.

Sector News

Airline stocks are some of the day's strongest performers thus far, boosting the NYSE Arca Airline Index up by 2.3 percent.

The upward move in the sector comes after upbeat quarterly earnings from Delta Airlines (DAL). The firm reported an EPS of $1.10, well above the expected $0.94. The stock is up by 6.4 percent, reaching its highest intraday level in over two and a half months in earlier trading.

Commercial real estate, steel, gold and railroad stocks are also seeing notable gains, while banking and biotechnology stocks are under pressure.

The KBW Bank Index is down by 1.9 percent, while the NYSE Arca Biotechnology Index is down by 1.8 percent after news that component Amylin Pharmaceuticals' (AMLN) Bydureon drug could be delayed for another 12 to 24 months. Amylin has plunged by 50 percent on the news, accounting for most of the decline in the index.

Stocks Driven By Analyst Comments

Juniper Networks (JNPR) is higher after being upgraded at Oppenheimer from Perform to Outperform. The stock is up by 2.3 percent, bouncing off of its worst level in more than two weeks, set on Tuesday.

Carefusion (CFN) is also on the upside after being upgraded at Citigroup from Hold to Buy. Shares up by 2.1 percent, recovering from its lowest close in nearly a month, also set in the previous session.

Meanwhile, New York Times (NYT) is down following a downgrade at Argus from Buy to Hold based on industry prospects. The stock is down by 2.4 percent, slumping to its lowest intraday price in nearly a month in earlier trading.

Other Markets

Overseas, stock markets in the Asia-Pacific region ended mostly lower on Wednesday. Japan's benchmark Nikkei 225 Index slid by 1.7 percent, while Hong Kong's Hang Seng Index fell by 0.9 percent.

The major European markets are mixed. The French CAC 40 Index and the German DAX Index are both up by 0.2 percent, while the U.K.'s FTSE 100 Index is down by 0.1 percent.

In the bond markets, treasuries are modestly weaker. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.497 percent, posting a gain of 2.2 basis points.

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Early Signals Point To Marginally Higher Open For TSX

Bay Street stocks may edge up at open Wednesday as commodities prices clawed back some of the previous session's losses, amid a weakening U.S. dollar.

However, stock specific action may not be ruled out amid this earnings reports season, with Encana today reporting lower-than-estimated earnings.

On Tuesday, the S&P/TSX Composite Index lost 97.46 points or 0.77% to 12,570.55.

The price of crude oil moved back above $80 as traders await official crude oil inventories data from the EIA. Analysts expect crude oil inventories to increase by 2.1 million barrels and gasoline inventories to decrease by 1.2 million barrels. Crude for November was up $0.92 to $80.41 a barrel

The price of gold was trading marginally higher as the U.S. dollar trimmed its recent gains. Yesterday, gold witnessed its steepest fall in recent days after China surprisingly hiked its key lending rates, putting pressure on commodities prices. Gold plummeted to as low as $1,328.40, before settling at $1,336.00 an ounce. Gold for December was up $5.0 to $1,341.00 an oucne.

According to media reports, mining company BHP Billiton's proposed takeover of Canadian fertilizer maker Potash Corp. is likely to be blocked by Saskatchewan province as it believes the deal doesn't benefit the province.

In corporate news from Canada, natural gas producer EnCana Corp. reported improved third quarter net income at $569 million or $0.77 per share, up from $25 million or $0.03 per share in the previous year. The company declared a dividend of $0.20 per share and reduced its full year guidance for production by about 50 MMcfe/d to 3.315 Bcfe/d and capital investment by about $200 million to $4.8 billion. However excluding one-time items, earnings came in at $0.13 per share, compared to consensus estimates for earnings of $0.19 per share.

Colombia based oil and gas firm Ecopetrol S.A. said the credit rating agency Fitch Ratings has raised the company's rating outlook to 'Positive' from 'Stable' and maintained the long-term foreign and local currency ratings at 'BB+' and 'BBB-', respectively.

Metals mining company First Quantum Minerals said third quarter copper production declined from the prior year while gold production increased from the previous year. The company produced 76,600 tonnes of copper and 46,700 ounces of gold, compared to 93,486 tonnes and 43,357 tonnes respectively last year. The company guides production of 322,000 tonnes of copper and 195,000 ounces of gold in 2010. For 2011, the forecast is for 305,000 tonnes of copper and 210,000 ounces of gold.

Space hardware subsystems maker Com Dev International announced the winning of C$6 million contract for a commercial communications satellite. The contarct value could extend up to $23 million, the company noted.

Clean energy solutions provider Xebec Adsorption said it is temporarily reducing its global workforce by around 22% to reduce costs.

Airlines operators WestJet Airlines and American Airlines entered into an interline agreement, whereby American Airlines customers travelling to Canada and transferring to a WestJet flight can purchase a single ticket and check bags through to their final destination.

Alexza Pharmaceuticals said it has reacquired the U.S. and Canadian rights for AZ-004 from Biovail Laboratories International SRL, a wholly-owned subsidiary of Valeant Pharmaceuticals International

In economic news, Statistics Canada said wholesale sales were up 1.2% to C$44.5 billion in August, recording its largest gains since January 2010. The machinery, equipment and supplies subsector were major contributor to this growth. In volume terms, wholesale sales were up 0.9% in August

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European Markets Edge Higher On QE Hopes

The European markets are hovering in positive territory Wednesday morning, after the Bank of England was seen leaning towards extending its quantitative easing program.

In the commodities market, crude for November delivery is adding $0.85 to $80.34 a barrel. Traders await the official data on U.S. crude inventories from the Energy Information Administration, due out during trading hours today.

Meanwhile, the price of gold is edging up, recovering from its steep losses yesterday. Tuesday, gold plummeted to as low as $1,328.40, before settling at $1,336.00 an ounce. Gold for December delivery, the most actively traded contract, is adding $4.80 to $1,340.80 an ounce.

In economic news from the euro zone, the Bank of England left key interest rate unchanged and maintained the size of quantitative easing at GBP 200 billion by a split vote in October, the minutes of the meeting, held on October 6 and 7, revealed. Seven members of the Monetary Policy Committee voted in favor of the proposition to leave the key rate unchanged and maintain the size of quantitative easing, while two members sought an increase the size of the asset purchase program by GBP 50 billion to a total of GBP 250 billion and preferred to maintain the key rate. Meanwhile, one of the member preferred an increase in key rate by 25 basis points and to maintain the size of the asset purchase program at GBP 200 billion.

The U.K. posted a larger budget deficit, with its public sector net borrowing totaling 16.2 billion pounds in September, up from 15.5 billion pounds in the same month a year ago, the Office for National Statistics said. Economists had forecast net borrowing to come in at 14.3 billion pounds

Elsewhere, Dutch consumer confidence indicator unexpectedly improved in October from the preceding month, reaching its highest level since January. Economists had expected a reading of minus 16.

Among stocks, miner Rio Tinto is up nearly 2% after it said it will spend $3.1 billion to expand its iron ore operations in Western Australia.

BASF SE is up over 2% after raising its full-year outlook. The company forecast 2010 sales of about 63 billion euros and gross earnings of more than 8 billion euros.

ome Retail is losing nearly 4% after reporting a 3% decrease in its first half sales at 2.72 billion pounds. The company, however, maintained its interim dividend at 4.7 pence.

Sweden's second-largest telephone company by sales Tele2 AB is easing over 1% despite announcing that its third-quarter net income rose to 2.51 billion kronor from a net income of 1.75 billion kronor a year earlier. Analysts were expecting the company to report net income of 1.34 billion kronor.

Car interiors company Faurecia SA is shedding nearly 5% amid reports that a fund unit of JP Morgan Chase, One Equity Partners, is placing its 13% stake to institutional investors.

Sanofi-Aventis SA is easing over 0.50%. The company said it obtained authorization from U.S. competition regulators for its acquisition of Genzyme Corp.

The FTSE 100 is currently up 0.37%, the CAC 40 is gaining 0.54% and the DAX is adding 0.30%.

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Asian Stocks Decline After China's Rate Hike

Most Asian stocks declined on Wednesday, as investors fretted about China's surprise interest rate hike, the Bank of Canada's warning of a slowing economy and the foreclosure process at several large U.S. banks. However, crude futures rose modestly after tumbling $3.59 or 4.3% on the New York Mercantile Exchange overnight and gold price bounced back, as the dollar eased against the yen and the euro.

Japanese stocks fell sharply, dragging the Nikkei 225 average down by about 160 points or 1.65% to 9,382, a two-week closing low, as investors pulled money out of stocks following China's rate hike and the mortgage worries in the U.S. ahead of the G-20 Summit in November. The broader Topix lost 1.2% to close at 824.

Commodities trader Mitsubishi Corp fell 2.44%, gold producer Sumitomo Metal Mining declined 3.61%, automaker Toyota Motor Corp eased 1.3%, oil and gas explorer Inpex Corp tumbled 3.36% and Canon, the world's biggest camera maker, gave off nearly 2%.

The recent appreciation in the yen is a major negative for Japan's economy and there is a risk that the strong yen may prolong Japanese deflation, Bank of Japan Deputy Governor Kiyohiko Nishimura said on Wednesday.

South Korean stocks finished higher, ending a two-day losing streak, aided by firm buying in auto and metal stocks. The benchmark KOSPI closed up 13 points or 0.71% at 1,870. The local currency rose against the U.S. dollar.

Computer-memory chipmaker Hynix Semiconductor rallied 4.6% on a brokerage upgrade, heavyweight Samsung Industries added 0.54% and LG Electronics gained 1.5% following recent declines. In the auto space, Hyundai Motor advanced 3.23% and Kia Motors rose 1.69%, buoyed by the companies's brighter earnings outlook.

Financial stocks such as KB Financial and Hana Financial rose about 2% each as investors speculated that China's surprise rate hike would add more pressure on the Bank of Korea to raise interest rates.

The Australian market hit a two-week low, with materials and energy stocks leading the declines, after Wall Street posted its biggest loss in two months overnight and China's first interest rate hike in nearly three years stoked concerns that global economic growth will slow.

The benchmark S&P/ASX200 ended down 0.66% at 4,625 and the broader All Ordinaries fell by 0.69% to 4,694. Shares in television broadcaster Ten Network soared 9.57% on reports that billionaire James Packer is buying the company's shares.

Telstra eased 0.75% after the Federal Government reintroduced a bill which will force the telephone company to split its business into separate retail and wholesale operations. In the resources sector, big miner Rio Tinto, which has unveiled a $US3.1 billion investment plan to expand its Pilbara operations, declined 1.68%, its rival BHP Billiton shed 0.68% despite reporting strong production figures for September and Fortescue Metals Group lost 2.52%.

New Zealand shares ended weaker for the second time in three sessions, as China's surprise rate hike dent investor confidence in the global economic recovery. The benchmark NZX-50 shed 15 points or 0.46% to close at 3,243, with bellwether Telecom (down 1.46%) and Fletcher Building (down 0.85%) leading the losses.

PGG Wrightson fell 1.79% after the rural services firm said its finance subsidiary had secured a $100 million bank facility. On the flip side, fast-food chain operator Restaurant Brands advanced 2.38% after reporting a 50% rise in its first-half net profit. Shares of Sanford, the nation's largest publicly traded fishing company, soared 6.8% on the back of a profit upgrade.

China's Shanghai Composite average recouped an early loss to end 0.10% higher at a six-month high, with insurers such as China Life and Ping An leading the gains, on speculation the nation's interest-rate hike will help tame inflation and prevent an asset-price bubble. However, Hong's Hang Seng index closed 0.87% lower at 23,556, dragged down by property and commodity issues.

Elsewhere, Malaysia's KLSE eased 0.13% and Singapore's Straits Times fell 0.43%, while the Taiwan Weighted index rose 0.97%. India's 30-share Sensex is trading choppily in a narrow range with a negative bias.

On Wall Street, the major averages declined between 1.5% an 1.8% overnight, as the U.S. dollar strengthened in reaction to China's unexpected rate hike, its first in nearly three years. The markets declined despite some better-than-expected quarterly results from major firms such as Coca-Cola, as traders focused on soft iPad sales reported by Apple and Johnson & Johnson's revenue miss.

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Dollar Back On Defense As Housing Slump Continues

The dollar was unable to sustain its gains from the previous two sessions against most majors Wednesday morning in New York, after industry data signaled further weakness in the beleaguered US housing market.

U.S. mortgage applications fell last week as fixed interest rates on 15 ad 30 year mortgages rose for the first time in more than a month.

The Mortgage Bankers Association's (MBA) index of mortgage activity for the week ending October 15 decreased 10.5 percent on a seasonally adjusted basis from one week earlier.

Earlier this week, the Federal Reserve was reluctant to give details about the size and scope of an expected asset purchase plan, giving the dollar a boost.

Many traders were even questioning whether the Fed would go through with the plan, based on remarks from certain voting members indicating they won't make up their mind until the November 3 meeting.

However, this morning's housing data may have reminded traders that the economic outlook remains murky at best, at that the Fed must crank up the printing press because they cannot rely on an organic recovery.

The Fed releases its Beige Book, a monthly collection of anecdotal information on current economic conditions around the nation, at 2 pm ET.

The dollar eased more than a penny to $1.3840 versus the euro, sliding back toward an 8-month low of $1.4025 from last week.

The buck also leveled off versus the sterling, edging slightly lower to $1.5730. Still, the dollar remains well off its 8-month low of 1.6050.

With the Japanese unable to successfully devalue the yen. the dollar has slipped back to Y81.20, near last week's 15-year low of 80.86. A move below 79.80 would take the dollar to its lowest ever.

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