US & World Daily Markets Financial Briefing 21-09-2010

Stocks Seeing Lackluster Movement In Mid-Morning Trading

Stocks are experiencing choppy trading after a mixed open Tuesday morning, with traders awaiting the Federal Reserve's interest rate decision following this morning's better than expected news on housing starts.

The major averages have all moved sideways in recent dealing, lingering near the flat line. While the Dow is currently up 1.36 points at 10,754.98, the Nasdaq is down 0.82 points at 2,355.01 and the S&P 500 is down 0.56 points at 1,142.15.

Before the start of trading this morning, the Commerce Department said that housing starts surged up by 10.5 percent to an annual rate of 598,000 in August from the revised July estimate of 541,000.

Economists had expected starts to edge up to an annual rate of 550,000 from the 546,000 originally reported for the previous month.

Building permits, an indicator of future housing demand, increased by a more modest 1.8 percent to an annual rate of 569,000 in August from the July rate of 559,000. The increase exceeded the expectations of economists, who had expected building permits to inch up to 560,000.

The bigger than expected increase in building permits was largely due to a jump in authorizations for multi-family homes. On the other hand, permits for single-family homes fell by 1.2 percent in August, dropping to their lowest annual rate since April 2009.

"While the S&P's bounced on the data, single family permits dropping to 16 month lows is a not a precursor to a pick up in building of new homes," said Peter Boockvar, equity strategist at Miller Tabak

"With a still large overhang of existing homes for sale and in foreclosure, that is a good thing from an inventory perspective," he added. "With home ownership rates in a secular decline, however, the rise in multi-family building will likely be a long term trend."

Later on today, the Federal Reserve will release its post-meeting policy statement at 2:15 p.m. ET. Traders widely expect the central bank to leave interest rates unchanged while hinting at policy measures to support the feeble economic recovery.

In earnings news, AutoZone Inc. (AZO) said its fourth-quarter net income came in at $5.66 per share on net sales of $2.44 billion. The results were better than expected, with analysts forecasting earnings of $5.42 per share on revenues of $2.39 billion.

Meanwhile, ConAgra Foods Inc. (CAG) reported adjusted first-quarter net income of $0.34 per share, short of estimates for $0.39 per share for the quarter. The firm posted quarterly revenues of $2.82 billion also short of estimates, which called for sales of $2.98 billion.

In other news, consumer products maker Clorox Co. (CLX) agreed to sell its global auto-care business to private-equity firm Avista Capital Partners for about $780 million in cash.

Computer and printer maker Hewlett-Packard Co. (HPQ) also said that it has settled a lawsuit filed against its former chief executive officer Mark Hurd for breach of contract following Hurd's decision to join business software maker Oracle Corp. (ORCL) as co-president.

Terms of the settlement were not disclosed, although HP and Oracle said in a joint statement that "Mr. Hurd will adhere to his obligations to protect H.P.'s confidential information while fulfilling his responsibilities at Oracle."

Sector News

Airline stocks are posting strong gains in morning trading, driving the NYSE Arca Airline Index up by 1.9 percent. The upward move has lifted the index to its best intraday level in nearly three years.

Railroad and trucking stocks are also seeing solid gains on the day, further evident of the day's buying interest among transportation stocks.

Meanwhile, significant weakness is visible among gold stocks, with the NYSE Arca Gold Bugs Index sinking by 1.3 percent. The decline is dragging the index off of a nine-month closing high set on Monday, as the price of the precious metal is down by $3.60 to $1,277.20 an ounce.

Stocks Driven By Analyst Comments

Energy Transfer Equity (ETE) is trading higher after being upgraded at Morgan Keegan from Market Perform to Outperform. Shares are currently up by 1.4 percent after reaching their best intraday price in over three years.

Hartford Financial (HIG) is also on the upside after analysts at Barclays Capital raised their rating on shares from Overweight from Equalweight. The stock has gained 3.1 percent and is on target for a seven-week closing high.

Meanwhile, Mid-America Apartment Communities (MAA) is trading lower after Hilliard Lyons downgraded the stock from Buy to Neutral. The stock is currently down by 2 percent, pulling back off of the nearly four-year closing high set on Monday.

Other Markets

Overseas, stock markets in the Asia-Pacific region ended on a mixed note. Japan's benchmark Nikkei 225 Index fell by 0.3 percent, while Hong Kong's Hang Seng Index inched up 0.1 percent.

Meanwhile, the major European markets are seeing solid gains. The French CAC 40 Index and the German DAX Index are up by 0.6 percent and 0.4 percent, respectively, while the U.K.'s FTSE 100 Index is up by 0.2 percent.

In the bond markets, treasuries are showing modest gains. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.679 percent, posting a loss of 2.7 basis points.

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TSX May Edge Up Ahead Of FOMC

Toronto stocks are poised for a cautious start Tuesday as traders await the latest interest rate decision from the U.S. and the accompanying statement to get clues on the central bank's future actions to avert a double dip recession in the world's largest economy. Meanwhile, a marginal recovery in crude oil prices may help energy stocks gain.

Traders were also digesting a mixed batch of economic data from both sides of the border. While Canada reported a soft inflation for August, housing data from the U.S. came in much-better-than expected.

On Monday, the S&P/TSX Composite Index rose 69.95 points or 0.58% to 12,234.51, near its year high. The price of crude oil was recovering from its morning losses, with crude for November adding $0.13 to $76.32 a barrel.

Meanwhile the price of gold continued to hold on to its gains and hovering around its all-time high. Gold for December edged down $0.70 to $1,280.10 an ounce.

In the M&A patch, Australian miner BHP Billiton extended its all-cash tender offer to acquire all of the issued and outstanding common shares of Canadian fertilizer maker Potash Corp by 30 days to midnight of November 18.

In corporate news from Canada, beer brewer Molson Coors Brewing Co. said it has acquired a 51% controlling interest in a joint venture with the Hebei Si'hai Beer Company of China.

Molybdenum miner General Moly announced the appointment of Scott Roswell as Corporate Counsel and VP of Human Resources.

Mineral resources company Anaconda Mining said Dustin Angelo would assume the position of president and chief executive with immediate effect. Former President and CEO Lew Lawrick, would become the board chairman, replacing John McBride who would remain on the board.

Metal products company Sigma Industries reported a narrower first quarter net loss of C$936,042 or C$0.022 per share, compared to a net loss of C$1.5 million or C$0.034 per share in the year-ago quarter.

In economic news, Statistics Canada said consumer prices rose 1.7% in the twelve months to August, following a 1.8% increase in July. Excluding energy, the Consumer Price Index was up 1.4% in August. Overall, energy prices rose 5.0% between August 2009 and August 2010, following a 7.9% increase during the 12-month period to July.

Meanwhile, the Bank of Canada's core index advanced 1.6% in the 12 months to August, matching the rate of growth recorded in July. The Bank's target rate is 2%. The seasonally adjusted monthly core index posted no change in August, following a 0.1% increase in July.

From south of the border, the U.S. Commerce Department said that housing starts were up by 10.5% to an annual rate of 598,000 in August from the revised July estimate of 541,000. Economists were expecting starts to edge up to an annual rate of 550,000 from the 546,000 originally reported for the previous month.

Meanwhile, building permits, an indicator of future housing demand, increased by a more modest 1.8% to an annual rate of 569,000 in August from the July rate of 559,000, exceeding economists' expectations for an annual rate of 560,000.

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Asian Markets End Mostly Higher Ahead Of FOMC Decision

Asian markets open for trading on Tuesday ended mostly higher but well off the highs, as traders exercised caution ahead of key FOMC decision and policy pronouncement later in the day. Positive closing on Wall Street in the previous session that saw strong gains across all the averages lifted market sentiment. The weakening of the US dollar against the Japanese yen and the Australian dollar led to some profit taking, even as optimism about global economic recovery is strong. The markets in Australia, Japan and Indonesia slipped in to negative territory while the other markets ended with modest gains.

In Japan, the benchmark Nikkei 225 Index fell 23.98 points, or 0.3%, to 9602, while the broader Topix index of all First Section issues was down 2.15 points, or 0.3%, to 850.

On the economic front, data released by the Cabinet Office revealed that the leading index for July has been revised upward to a reading of 100 from the preliminary reading of 98.2, a tad short from the previous month's reading of 100.3. The data further noted that the reading for coincident indicator was revised up to 103 from 101.8. The index also stayed above June's 102.4. The lagging index came in at 87.4, up from 85.1 in June.

Trading companies ended in negative territory with modest losses on profit taking. Sumitomo Corp.  Itochu Corp. Toyota Tsusho Corp. Marubeni Corp, Mitsubishi Corp. and Sojitz Corp. ended lower while Mitsui & Co. managed to end in the positive with a modest gain.

Securities stocks also slipped with all the components Nomura Holdings, Matsui Securities, Daiwa Securities and Mizuho Securities ending lower with modest losses.

Mixed trading was witnessed among the real estate stocks. While Sumitomo Realty & Development, Heiwa Real Estate and Tokyu Land Corp. ended in positive territory, Mitsui Fudosan ended in negative territory with a modest loss. Mitsubishi Estate, however, managed to end unchanged from previous close.

Mixed trading was also witnessed among the automotive stocks. Toyota Motor Corp, Honda Motor Corp., Mazda Motor, Nissan Motor and Mitsubishi Motor ended in negative territory. However, Suzuki Motor Corp. and Isuzu Motors managed to end in positive territory with modest gains.

In Australia, the benchmark S&P/ASX200 Index declined 13.80 points, or 0.30%, and closed at 4,618 points, while the All-Ordinaries Index ended at 4,665, representing a loss of 12.20 points, or 0.26%.

On the economic front,minutes of the recently concluded Reserve Bank of Australia policy board meeting revealed that members of the board felt that a wait-and-watch stance was warranted for now given the fall in core inflation in the June quarter. But the central bank warned rates will have to go up again to keep inflation within target. "Members considered that it was likely that higher interest rates would be required, at some point, to ensure that inflation remained consistent with the medium-term target," the minutes said. "For the immediate decision, there had been no significant change in the overall outlook, with conditions looking a little stronger domestically than they had at the previous meeting, but looking a little weaker internationally."

Light sweet crude oil futures for October delivery ended at $74.19 a barrel in electronic trading, down $0.67 per barrel from previous close at $74.87 a barrel in New York on Monday.

Banking stocks ended in negative territory with marginal losses. ANZ Bank, which announced the commencement of operations in China from October 1, slipped 0.67%, National Australia Bank shed 0.39%, and Westpac Banking Corp. declined 0.47%. Investment banking company Macquarie Group ended in negative territory with a loss of 0.41%. However, Commonwealth Bank bucked the negative trend and ended higher with a gain of 0.08%.

Stocks of major retailers also ended in negative territory. David Jones remained unchanged from previous close. Harvey Norman slipped 0.26%, JB H-Fi Ltd lost 1.94%, Reject Shop fell 2.08%, Woolworths edged down 0.21% and Wesfarmers declined 0.98%.

Mixed trading was witnessed among oil stocks as well. Woodside Petroleum gained 0.34%, and Oil Search Ltd climbed 1.51%. However, Origin Energy slipped 0.69% and Santos Ltd ended in negative territory with a loss of 0.62%.

Mining and metals stocks also witnessed mixed trading. BHP Billiton edged down 0.15%, Fortescue Metals slipped 0.61%, Iluka Resources shed 0.49%, Macarthur Coal lost 0.17%, and Minara Resources fell 0.62%. However, Gindalbie Metals added 0.55%, Mincor Resources advanced 1.01%, Oz Minerals gained 1.03% and Rio Tinto was up 0.33%.

Positive global cues and relentless buying by foreign funds lifted the Indian market sharply higher to a fresh 32-month high on Tuesday. However, with profit taking emerging at higher levels, the indexes closed off the day's high. Having breached the crucial 20,000 mark for the first time since the economic meltdown of 2008 in early trading, the 30-share Sensex pared its initial gains to end up about 95 points or 0.48% at 20, 002, with only fourteen of its components edging higher. The broader Nifty rose to an intra-day high of 6,033 before finally ending up 29 points or 0.48% at 6,009.

Among the other major markets open for trading, China's Shanghai Composite Index ended in positive territory with a gain of 2.84 points or 0.11%, at 2,592, Taiwan's Weighted Index gained 9.44 points, or 0.12%, to close at 8,196, and Singapore's Strait Times Index advanced 14.41 points, or 0.47% to close at 3,095. However, Indonesia's Jakarta Composite Index bucked the trend and ended in negative territory with a loss of 5.95 points or 0.18% to close at 3,365.

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The major European markets are advancing strongly on Tuesday, carrying on the buying momentum witnessed yesterday. The French CAC 40 Index is rising 0.73% compared to a 0.60% advance by the German DAX Index and a more modest 0.55% gain by the U.K.’s FTSE 100 Index.

U.S. Economic Reports

The Commerce Department reported that housing starts surged up by 10.5 percent to an annual rate of 598,000 in August from the revised July estimate of 541,000. Economists had expected starts to edge up to an annual rate of 550,000 from the 546,000 originally reported for the previous month.

Building permits, an indicator of future housing demand, increased by a more modest 1.8 percent to an annual rate of 569,000 in August from the July rate of 559,000. The increase exceeded the expectations of economists, who had expected building permits to inch up to 560,000.

Stocks in Focus

Hewlett Packard, which is on a buying spree, is back in focus after it revealed yesterday after the markets closed that it has resolved its litigation with Mark Hurd regarding his employment at Oracle (ORCL). HP said Hurd will adhere to his obligations to protect HP’s confidential information.

AutoZone is also likely to be in focus after it announced that its fourth quarter net income rose to $5.66 per share from $4.43 per share last year. Net sales rose 9.5% to $2.4 billion. Analysts estimated earnings of $5.44 per share on revenues of $2.39 billion.

FactSet Research Systems may also see some activity after it reported that its fourth quarter earnings rose 12% to 83 cents per share from the year-ago’s 74 cents per share. Revenues climbed 8% to $168.2 million, ahead of the $167.33 million consensus estimate. For the fourth quarter, the company expects earnings of 83-85 cents per share on revenues of $169 million to $174 million. Analysts estimated revenues of $168.96 million.

ConAgra could react to its announcement that its first quarter adjusted earnings from continuing operations fell to 34 cents per share from 37 cents per share in the year-ago period. The consensus estimated called for earnings of 39 cents per share on revenues of $2.98 billion. The company lowered its estimate, now expecting 2011 adjusted earnings of $1.74 per share compared to the $1.90 per share consensus estimate, while for the second quarter it expects a year-over-year decline in earnings per share.

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Dollar Uncertain Ahead Of Fed Rate Decision

The dollar was mixed against other major currencies Tuesday morning in New York amid speculation the Federal Reserve may soon embark on another round of quantitative easing.

Policymakers from the Federal Reserve are meeting in Washington today, and are universally expected to keep interest rates near zero. The FOMC will likely discuss other ways to support the sluggish economy, including pumping more capital into the banking system.

While the National Bureau of Economic Research declared that the Great Recession ended in June 2009, stubborn weakness in the jobs and housing market has led to an anemic recovery.

The Commerce Department will release its report on housing starts and building permits for August at 8.30 a.m. ET. Economists expect housing starts to have increased to a seasonally adjusted annual rate of 550,000 for the month following the 546,000 reported for the previous month.

The dollar came under modest pressure versus the euro this morning, after a successful bond auction in Ireland eased sovereign debt fears. The buck slipped to $1.3148. The buck touched a 5-week low of 1.3159 on Friday.

The dollar edged slightly lower versus the yen, easing to Y85.30. The buck rebounded from a 15-year low of Y82.86 last week, when Japanese authorities stepped in the currency markets to devalue the surging yen.

Against the sterling, the dollar held near a weekly high of $1.5505.

U.K. public sector net borrowing, including financial interventions, increased to GBP 15.3 billion in August from GBP 13.5 billion recorded in the same period of last year, the Office for National Statistics said Tuesday.