US & World Daily Markets Financial Briefing 23-11-2010

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Stocks Down Sharply In Mid-Morning Trading

Stocks are posting steep losses in mid-morning trading on Tuesday, with flaring tensions between North and South Korea driving the selling pressure. In Europe, Ireland remains the headline concern amid the debt contagion plaguing the Eurozone.

The worries are eclipsing U.S. economic data, including a better than expected upward revision to third quarter GDP.

In recent dealing, the major averages have continued to bounce around near their worst levels. The Dow is currently down 139.56 points or 1.3 percent at 11,039.02, the Nasdaq is down 31.26 points or 1.2 percent at 2,500.76 and the S&P 500 is down 15.21 points or 1.3 percent at 1,182.63.

Stocks fell off a cliff at the open amid news that North Korea opened artillery fire on a South Korean island just off of the two countries' western border earlier. South Korea then retaliated, prompting an escalation in military tensions.

Additionally, a lack clarity about Ireland's expected debt bailout have further exacerbated concerns over European financial stability. Political analysts indicated that fallout from the deal could put Ireland's ruling coalition in danger.

On the U.S. economic front, the National Association of Realtors said existing home sales fell 2.2 percent to a seasonally adjusted annual rate of 4.43 million in October from 4.53 million in September. Economists had been expecting existing home sales to slip to an annual rate of 4.42 million.

Earlier, the Commerce Department reported that U.S. gross domestic product increased at an annual rate of 2.5 percent in the third quarter compared to the initially reported 2.0 percent growth. Economists had expected the pace of GDP growth to be revised up to 2.4 percent.

The upward revision reflected stronger than previously reported growth in consumer spending, exports, and state and local government spending.

In the afternoon, the Federal Reserve will release the minutes of its November 3rd Federal Open Market Committee meeting, during which it announced additional quantitative easing measures. The minutes, which traditionally feature economic commentary, are due out at 2:00 p.m. ET.

Sector News

Steel stocks are among the steepest decliners in the early going, dragging the NYSE Arca Steel Index down by 2.5 percent. Despite the drop, the index remains in a range.

Oil service stocks are also moving notably lower, with the Philadelphia Oil Service Sector index posting a 2.2 percent loss. The decline comes as the price of crude oil is down by $0.95 or 1.2 percent at $80.79 a barrel.

Considerable weakness is also visible among housing stocks, driving the Philadelphia Housing Sector Index down by 1.4 percent. With the slide, the index is on pace to end at its lowest level in three weeks.

 Airline, software, telecom and healthcare-related stocks are also retreating on the day, reflecting the day's broad-based selling.

Stocks Driven By Analyst Comments

Despite the sharp slide by the broader markets, MedAssets Inc. (MDAS) is trading higher after being upgraded to Outperform from Neutral by Robert Baird & Co. The stock has gained 5.2 percent, moving further off of last week's nearly eighteen-month closing low.

Meanwhile, Health Net (HNT) is trading lower after Stifel Nicolaus lowered their rating on the stock from Buy to Hold. Shares are down by 2.4 percent, on pace for a three-week closing low.

Arch Coal (ACI) is also under pressure after being downgraded by BB&T Capital Markets from Buy to Hold. The stock is down by 4 percent, slipping from the two-year closing high of $30.52 set yesterday.

Other Markets

In overseas trading, stock markets in the Asia-Pacific region ended on a sour note Tuesday. Hong Kong's Hang Seng Index fell by 2.7 percent and India's BSE 30 Index declined by 1.3 percent, while the Japanese markets were closed on the day.

The major European markets also remain under pressure. The German DAX Index is down by 1.5 percent, while the U.K.'s FTSE 100 Index and the French CAC 40 Index are down by 1.3 percent and 2.1 percent, respectively.

In the bond markets, treasuries are seeing moderate upside. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.733 percent, posting a loss of 8 basis points.

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TSX May Extend Losses At Open On Global Cues

Bay Street stocks are poised for a weak open Tuesday amid falling commodities prices and discouraging cues from the global equity markets.

Stocks across the globe fell as risk appetite waned amid escalating tension in the Korean peninsula after North Korea fired artillery shells at a South Korean island earlier today. Also growing concerns over the euro zone debt situation weighed on trader sentiment.

On Monday, the S&P/TSX Composite Index shed 27.32 points or 0.21% to 12,929.01.

The price of crude oil moved down near $80 even as tension escalated in Korean peninsula. Also, concerns over the euro zone debt situation continued to weigh on sentiment, with crude for January slipping $1.39 to $80.35 a barrel.

The price of gold was trading flat amid growing concerns over the euro zone debt situation. Gold for December edged up $2.90 to $1,360.70 an ounce.

In M&A news, Thailand's PTT Exploration forays into Canada's oil sands. Energy company Statoil ASA agreed to sell 40% of its interest in Alberta, Canada-based Kai Kos Dehseh oil sands project to Thailand's PTT Exploration and Production (PTTEP) for about $2.28 billion.

In corporate news from Canada, Potash Corp. said it would raise about $1 billion by selling 7 year and 30 year notes to fund its buyback plans.

Application life cycle management technology services provider MKS Inc. reported improved second-quarter net income of $2.40 million or $0.23 per share compared to $1.61 million or $0.16 per share reported a year ago. Analysts were expecting the company to report net earnings of $0.13 per share for the quarter.

Gold explorer Queenston Mining said it privately placed 3 million shares at C$6.70 to raise C$20.1 million. The stock closed Monday at C$5.750.

In economic news, Statistics Canada said consumer prices rose 2.4% year-over-year in October, with nearly half of the 0.5 percentage point increase caused by higher gasoline prices. Economists were expecting the consumer prices to rise 2.2% on an annual basis, following an unrevised 1.9% increase in September. Meanwhile, the Bank of Canada's core index, which the bank uses to measure inflation relative to its 2% target rate, advanced 1.8% in the 12 months to October, following a 1.5% rise in September.

In another report, the agency said retail sales rose 0.6% in current dollars to C$36.4 billion in September, moving up for a fourth straight month. Economists expected retail sales to rise 0.7%, following the revised 0.6% advance reported for August. Excluding auto sales, retail sales were up 0.4% from August.

 From the U.S., the Commerce Department said that third quarter gross domestic product increased at an annual rate of 2.5% compared to the initially reported 2.0% growth. Economists had expected the pace of GDP growth to be revised up to 2.4% .

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TUI bid rumour revived

Market Movers
FTSE 100 5,620.34 -1.06%
FTSE 250 10,699.29 -0.90%
techMARK 1,725.97 -0.89%

With the Dow Jones index expected to register a triple-digit fall when Wall Street opens, sentiment in London has dipped further.

Fears of debt contagion in the euro-zone are pushing the banks down, with Barclays, Standard Chartered and Lloyds Banking the hardest hit. Royal Bank of Scotland defies the trend, however, after UBS upgraded the stock to 'buy', the broker suggesting the bank can manage its £50bn Irish exposure.

The Korean situation is sapping demand for miners such as Vedanta, Kazakhmys and Antofagasta. Gold miners Randgold Resources and Fresnillo both defy the trend in the mining sector, however, as risk averse investors respond to increased tension in the east by pushing up the price of gold

The shelling of Yeonpyeong Island by North Korea is the fourth flare-up of tensions between North Korea and South Korea this year. In March, a South Korean corvette was sunk near the disputed border between the two counties, with a North Korean submarine suspected of being responsible for the act.

In May, South Korea suspended trade with its northern neighbour and banned North Korea’s ships from the waters around Seoul. Hostilities broke out again in October when troops exchanged fire across the border, ahead of the G20 summit meeting held in Seoul.

Aero-engine maker Rolls-Royce got a lift from news that a pair of A380 super-jumbos owned by Qantas will resume flights again on Saturday, three weeks after the airline’s entire fleet was grounded after an engine exploded mid-flight.

Holiday firm TUI Travel is another flying high, on revived speculation that its major shareholder, TUI, is preparing a bid.

Mitchells & Butlers' debt reduction programme has cut the pub group’s interest bill, helping boost full-year profit by 26%. Panmure Gordon downgraded the shares from “buy” to “hold”, even though it was impressed with current trading. Like many in the market it was disappointed that the group did not resume dividend payments. The broker had forecast a payment of 7.5p.

The M&B board said it will make a decision on dividend payments after monitoring the level of operating cash flow generation and capital investment opportunities for the business during 2011.

“We leave our 393p price target unchanged, but there is insufficient upside to retain our positive recommendation and we downgrade from Buy to Hold,” Panmure Gordon said.

Water Group Severn Trent posted a fall in profits in the six months to 30 September despite higher revenues, after facing a number of charges. The company, which serves 8m customers across England and Wales, said pre-tax profits fell to £101.1m from £208.2m the previous year on turnover that rose to £867.9m from £852.1m.

De La Rue’s underlying interim profits tumbled after the well-flagged problems at one of its paper production sites. That cost it £35m and the resignation of chief executive James Hussey. The firm says demand for banknotes was also weak generally in the past six months with revenues falling from £252m to £209m.

Emergency repair service provider Homeserve posted a 32% decline in half year pre-tax profit as it issued a confident outlook for the year. The boiler repair group said statutory pre-tax profit fell to £17.8m for the six months ended 30 September 2010 from £26.0m after including exceptional revenue of £10.2m.

Lower impairments and a much stronger investment portfolio were behind a sharp increase in half-year profit at mezzanine finance specialist Intermediate Capital. It posted a profit before tax of £105.1m for the six months ended 30 September compared with just £8.1m a year ago and £97.7m in the second half of the last financial year.

Blue-blood investment firm Caledonia Investments is taking a cautious view of short-term prospects for equity markets and intends to increase liquidity and focus more on income rather than capital growth.

Internet service provider TalkTalk is buoyant after Credit Suisse upgraded the stock from “neutral” to “outperform”.

Electrical component maker Laird is acquiring Cattron Group, which makes remote controls for cranes, agricultural machinery and other equipment, for $90m (£56.5m). The acquisition will allow Laird to expand its wireless ‘machine-to-machine’ offering while providing technology, product development and revenue synergies, Laird said.

A combination of a recovery in sales and cost-cutting helped industrial chain-maker Renold move into profit in the half year to September 30. Renold said it has begun discussions on the future of its Seclin facility in France that could result in the cessation of activities there. Chief executive Robert Davies told ShareCast that the manufacturing operations at the facility would be moved to the UK.

Oil and gas services provider Hamworthy has taken a 38% slump in first half profits on the chin and thinks it will meet expectations for the full year.

Shares in Intellego jumped after the training consultancy group said it had made a good start with its trial programme providing financial services products to a high street bank and other financial services groups.

Gold producer Goldplat is to increase its mining assets in Ghana through a deal worked out with Canadian mining firm Gulf Coast Resources (GCR). Fellow gold miner Shanta Gold has placed an order for two new 800 kilowatt ball mills for the New Luika gold mine. The company is paying $2.52m for the mills.

Shares in Renovo climbed after the biopharmaceutical reported a successful outcome in trials for the use of Juvista scar treatment on children.

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Indian Market Ends In Negative Territory

India's benchmark 30-share Sensex ended in negative territory on Tuesday but well off the lows on weak global cues and concerns about EU debt crisis. Exchange of fire between North Korea and South Korea also impacted market sentiment. Smart recovery in late trading session, however, limited the losses. The benchmark BSE sensex ended at 19,694.81, down 1.33% or 265.75 points, while the broader Nifty index ended at 5,934.75, down 75.25 points, or 1.25%.

Banks, realty and PSU stocks led the decline in the market. State Bank of India was down 3.28% followed by ICICI bank which shed 2.21%.

Hindalco, Sterlite, Tata Power and Tata Steel also ended in negative territory dragging the indices lower on weak global cues.

Reliance Industries, ITC and HDFC also slipped into negative territory.

In realty sector, Unitech declined 4.38%, followed by DB Realty, India Bulls Real Estate and Akruti City.

The major gainers in the market included pharmaceuticals and select automotive stocks. Among the gainers, Orchid Chemicals surged up 4.37% followed by Maruti Suzuki with a gain of 1.55%.

The Japanese market was closed for a holiday.

Among the other markets in the region, China's Shanghai Composite Index declined 1.94%, while the Hang Seng Index in Hong Kong plunged more than 600 points, or 2.67% on monetary tightening measures in mainland China. The other markets in the region ended in negative territory.

European markets were also trading in negative territory on concerns of contagion impact of debt crisis in countries like Portugal and Spain following Ireland's rescue efforts.

The futures in the US point to a weak opening on EU debt concerns even as traders await third quarter GDP data for cues on economy.

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Dollar Hits $1.35 Versus Euro Amid Doubts Over Ireland Rescue

The dollar extended yesterday's rally versus the euro on Tuesday, as traders were concerned about a lack clarity on Ireland's expected debt bailout.

Political fallout from the deal could put Ireland's ruling coalition in danger. Sinn Fein said Tuesday it would table a motion of no confidence in Irish Prime Minister Brian Cowen.

The safe haven buck also got a boost from tensions in Asia, where North Korea shelled a South Korean military post, killing two soldiers.

The news from across the Atlantic may overshadow a flurry of economic data from the US, including the preliminary estimate on third quarter GDP.

The dollar jumped to $1.3500 versus the euro, near last week's 2-month high of $1.3443. With the advance, the dollar moved well away from a 10-month low near $1.43 set earlier this month.

Eurozone private sector growth climbed to a three-month high in November boosted by both manufacturing and service sectors.

The flash composite output index rose to 55.4 from October's eight-month low of 53.8, Markit Economics said Tuesday.

The buck was steady versus the Sterling, holding at $1.5950. Despite low interest rates and stamp duty holiday, the British mortgage market remained subdued in October with approvals falling to a 19-month low.

The dollar gave back some of its overnight gains versus the yen, easing back to Y83.30 as of 8 am ET.

The Bureau of Economic Analysis will release its preliminary estimate of third quarter GDP report at 8:30 a.m. ET. Economists expect GDP growth for the quarter to be upwardly revised to 2.4% from earlier an earlier estimate of 2.0% provided last month.

At 10.00 a.m ET, the National Association of Realtors will release its report on existing home sales for October. Economists estimate existing home sales of 4.42 million for the month.

At 2.00 p.m ET, the Federal Reserve will release the minutes of its November 3rd Federal Open Market Committee meeting. After the meeting the Fed announced quantitative easing measures to extend $600 billion over the next few months.