US & World Daily Markets Financial Briefing 24-08-2009

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Following a move to the upside at the opening bell, stocks are seeing continued strength in mid-morning trading on Monday amid a pick up in global economic sentiment. The major averages are all in positive territory by solid margins, looking to build on last week’s four-day winning streak.

The strength in the markets is partly due comments from a number of central bankers over the weekend at Jackson Hole, Wyoming indicating that interest rates are likely to remain fixed for some time despite some signs of economic stabilization.

At the conference, Federal Reserve Chairman Ben Bernanke said, “Economic activity appears to be leveling out, both in the United States and abroad.” Bernanke also noted that the “prospects for a return to growth in the near term appear good.”

Some traders remain cautious, however, as economist Nouriel Roubini, who predicted the magnitude of the recent financial troubles, said that he sees a "big risk" of a double recession in an article for the Financial Times.

Roubini stated that the global economy might bottom out in the second half of the year and that the economies in the U.S and other European countries might witness "anemic" or "below trend" growth for at least a couple of years.

Automakers are also in focus today following the announcement by the U.S Administration that the popular "cash for clunkers" program will be drawn to a close today.

In corporate news, drug maker Warner Chilcott (WCRX) announced that it has agreed to acquire the prescription drug business of Procter & Gamble (PG) for an up-front cash payment of $3.1 billion. The transaction is expected to close by the end of the 2009 calendar year.

The major averages have seen some choppy movement in recent trading, holding near their best levels of the day. The Dow is currently up 64.77 at 9,570.73, the Nasdaq is up 13.45 at 2,034.35 and the S&P 500 is up 8.12 at 1,034.25.

Sector News

Airline stocks are turning in some of the day’s best performances, as reflected by the 3.8 percent gain being shown by the NYSE Arca Airline Index. With the advance, the index has climbed to its best intraday level in seven months.

Continental Airlines (CAL) is helping to lead the sector higher, with the airline currently posting a 7.5 percent gain. At its high for the session, Continental was at four-month intraday high.

Further, steel, gold and oil service stocks are also posting strong gains, leading the way higher in the resource sector.

The NYSE Arca Steel Index and the Philadelphia Oil Service Index are up by 2.3 percent and 1.8 percent, respectively, while the NYSE Arca Gold Bugs Index is posting a 1.6 percent gain.

The strength among resource stocks comes amid an increase in commodity prices on the NYMEX, where oil has jumped by $0.74 to $74.63 per barrel and gold has risen by $1.30 to $954.50 per ounce.

Banking, tobacco, semiconductor and electronic storage stocks are also posting strong gains, reflecting the day’s broad based buying interest.

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Bay Street Stocks Likely Headed To Positive Open

Toronto stocks could see early strength on Monday, following the lead of U.S. and European markets. Investors will ponder data showing Canadian retail sales unexpectedly rose once again in June.

Statistics Canada reported retail sales in current dollars rose 1.0% in June to $34.4 billion. Retail sales have risen in five of the last six months, following large drops at the end of 2008.

On the commodity front, crude oil prices are up $0.23 to $74.12 per barrel, while gold has dropped $0.40 to $954.30 per ounce and copper slipped 1.2 cents to $2.882.

In corporate news, Biovail Corp. announced an agreement to buy the U.S. and Canadian rights to develop and commercialize Santhera Pharmaceuticals Holding AG's JP-1730/fipamezole for the treatment of Dyskinesia in Parkinson's Disease.
 
Crescent Point Energy Corp. said it has entered into an arrangement agreement to complete the strategic Lower Shaunavon consolidation acquisition of Wave Energy. Wave shareholders will receive 0.21 of a Crescent Point share for each Wave share, or approximately C$7.28 per share.

Daylight Resources Trust said it has agreed to acquire all of the issued and outstanding class "A" common shares of Highpine Oil & Gas Limited. Highpine shareholders will receive 0.85 of a Daylight trust unit, or $7.00 in cash per share held.

On Friday, the S&P/TSX Composite Index rose 130.67 points, to 10,831.18, with gauges of all but one of the major sectors closing in the green.

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Asian Markets End Higher On Bernanke Comments

The Asian markets ended sharply higher on Monday following Wall Street gains on Friday, after Fed Chairman Ben Bernanke said that the "prospects for a return to growth in the near term appear good". Positive economic data on existing home sales and higher commodity prices lifted market sentiment.

In Japan, the benchmark Nikkei 225 Index ended at 10,581. representing a gain of 342.85 points, or 3.4%, while the broader Topix index of all first section stocks advanced 22.93 points, or 2.40%, to 970.

Most of the stocks ended in positive territory following better-than-expected home sales data in the U.S and strong trading across other markets in the Asian region.

Automakers gained on prospects of recovery in its largest export market, the U.S. Toyota Motor Corp., advanced 2.26%, Honda Motor rose 3.21%, Isuzu Motors surged up 8.42% and Hino Motors gained 4.99%.

Among exporters, Canon Inc. soared 6.29% following the weakening of the local currency against the U.S. Greenback.

Trading stocks advanced following rise in commodity prices in the International market on Friday. Mitsubishi Corp. advanced 3.85%, Sumitomo Corp. gained 3.28%, Toyota Tsusho Corp. surged up 4.68% and Mitsui & Co rose 2.45%.

Energy stocks advanced following rise in crude oil prices in the international market. Nippon Oil Corp. gained 2.26%, Showa Shell advanced 2.80% and Nippon Mining holdings rose 2.51%. Inpex Corp. surged up 5.42%$.
 
Bank stocks also ended in positive territory on increasing prospects of global recovery. Mitsubishi UFJ Financial Group gained 1.70%, Mizuho Financial rose 2.23%, Resona Holdings added 1.18% and Sumitomo Mitsui Financial advanced 1.74%.

In Australia, the benchmark S&P/ASX200 Index surged up 3.16% or 135.50 points to close at 4,426, while the All-Ordinaries Index ended at 4,434, representing a gain of 128.50 points, or 2.98%.

On the economic front, the Australian Bureau of Statistics revealed that New vehicle sales fell a seasonally adjusted 6.9% in July at 75,006 following a 5.2% percent monthly increase in June.

Positive closing on Wall Street on Friday following encouraging comments from Federal Reserve Governor Ben Bernanke and better-than-expected increase in home sales data in the U.S lifted market sentiment.

James Hardie Industries, suppliers of sidings for the homes in the U.S., surged up 6.89% following better-than-expected home sales data in the U.S.

Metals and mining stocks gained following rise in commodity prices in the international market. BHP Billiton advanced 4.29%, Rio Tinto rose 4.74%, Fortescue Metals gained 3.15%, Gindalbie Metals added 2.50% and Oz Minerals increased 3.18%.

Oil stocks advanced following surge in crude oil prices on expectation of higher demand. Woodside Petroleum gained 4.09%, Santos advanced 4.76%, Oil Search gained 2.84% and Origin Energy surged up 5.12%.

Gold stocks also ended in the positive territory. Lihir Gold gained 1.63%, Newcrest Mining rose 2.77% and Sino Gold Mining advanced 1.54%.

Banks also ended higher on increasing optimism about recovery. ANZ Bank gained 4.10%, Commonwealth Bank of Australia advanced 2.43%, National Australia Bank rose 3.89% and Westpac Banking climbed 4.35%.

WorleyParsons, the biggest engineering company in the country, declined 3.76%, after the company revealed that it expects lower profit for the full year due to delays in the projects.
 
In Hong Kong, the Hang Seng Index advanced 336.92 points, or 1.67% to close at 20,536, taking cues from Wall Street and other Asian markets on increasing confidence about global recovery prospects. Of the 42 components of the index, as many as 37 ended in positive territory.

In South Korea, the benchmark KOSPI Index rose to a 13-month high of 1,612, representing a gain of 31.24 points or 1.98%, following gains in Wall Street on Friday and upbeat comments about the global economy by Bernanke. Technology, automotive and bank stocks led the gains as institutional investors evinced buying interest on increasing confidence of global recovery.

Strong overseas cues following surprisingly good U.S. home sales data and reassuring comments from the U.S. Federal Reserve helped the Indian market end higher, led by realty, consumer durable, FMCG, capital goods and metal stocks. The benchmark BSE Sensex finished at 15,629, up 388 points or 2.55% from its previous close, and the S&P CNX Nifty climbed 114 points or 2.52% to 4,643.

Among the other major markets in the region, China's Shanghai Composite Index gained 1.10% or 32.66 points, to 2,993, Indonesia's Jakarta Composite Index rose 1.80% or 41.98 points to close at 2,376, Singapore's Strait Times Index gained 67.47 points, or 2.65% to close at 2,612 and Taiwan's Weighted Index surged up 183.45 points, or 2.76% to close at 6,838.

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The major European markets are trading higher on Monday, encouraged by the pervading optimism concerning a recovery. The French CAC 40 Index, the German DAX Index and the U.K. FTSE 100 Index are rising 0.60%, 0.62% and 0.47%, respectively. The major averages have extended their gains into a third straight session and are trading at new multi-month highs.

In corporate news, U.K. homebuilder Bovis Homes reported a pre-tax loss of 8.6 million pounds in the six months ended June, hurt by write downs and a decline in home prices. Revenues fell 18% to 149.3 million pounds. Reports suggest that HSBC may shortly launch its first European ETF.

On the economic front, Eurostat said euro zone industrial new orders increased 3.1% month-over-month in June after dropping 0.5% in May. Economists were looking for an increase of 1.7%. On an annual basis, industrial orders dipped 25.1% in June compared with a 30.3 decline in the previous month.

U.S. Economic Reports

The unfolding week's focus will be on the economic reports to confirm the thought that a recovery may materialize in the near future. The Conference Board's consumer confidence index, the Reuters/University of Michigan's consumer sentiment index, the weekly jobless claims report, Commerce Department's durable goods orders and new home sales reports for July, will be on the radar, as traders anxiously look for clues that can improve visibility on the economic outlook.

Additionally, traders may also pay attention to the S&P Case-Shiller house price index for June, the Bureau of Economic Analysis' preliminary second quarter GDP report and the personal income and outlays report for July. The results of the Treasury’s auction of 2-year notes, 5-year notes and 7-year notes, scheduled for Tuesday, Wednesday and Thursday, respectively may also have significance from the point of view of the markets.

Durable goods orders are likely to rebound, as the economy shows signs of bottoming out. An economic rebound will result in a recovery in orders, as manufacturers and retailers rush to restock and idled production comes back on line to keep pace with the increase in sales. Although consumer demand didn’t picked up much in July, fairly robust export orders and the demand created by the cash for clunkers program may contribute to order growth for the month.

New home sales for July are also expected to show an improvement, in line with the recent data points from the housing sector. That said, the extent to which the new homeowners tax credit is boosting sales will be an important issue to ponder due to the fact that if at all the incentive has had a significant effect on sales, we may see weakness after the credit expires in November.

Aided by higher rental income and transfer payments, personal income for July is expected to show modest growth. At the same time, personal spending may have received a boost from auto sales, which are likely to have offset bleak back-to-school sales. The savings rate may have ticked down, although it is expected to increase to 6% in 2010, as households repay debts.

Stocks in Focus

Procter-Gamble is likely to react to its announcement that it has agreed to sell is global pharma business to Warner Chilcott for an upfront cash payment of $3.1 billion. News Corp. could also be in focus after reports suggested that its Dow Jones division may be looking to sell its stock index business. The interested parties are speculated to include Bloomberg, Morgan Stanley’s unit MSCI and NYSE Euronext.

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Crude Oil Rises Above $74

Crude oil moved into positive territory on Monday, extending its gains from late last week. Prices are higher amid signs the global economy is on the road to recovery.

Light sweet crude for October delivery rose 52 cents to $74.41 per barrel. Oil reached as high as $74.81 earlier in the morning.

On Friday, crude for October delivery ended its first day as the front-month contract up $0.98 at $73.89 a barrel. The price of oil rose as high as $74.72 a barrel before giving back some ground.
 
The dollar remained steady against the euro and pound on Monday in New York after hitting near-term lows last week. Usually, commodities move opposite the dollar because of its hedge appeal.

There's no major economic data on the calendar for today. On Tuesday, traders will be treated to the S&P/Case-Shiller Home Price Index and a consumer confidence report.

Energy traders also looked ahead to Wednesday's Energy Department report. Last week's data showed U.S. commercial crude oil inventories decreased by 8.4 million barrels from the previous week.

Analysts expected to see a rise of about 1.1 million barrels for the week. Gasoline inventories decreased by 2.1 million barrels last week.

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