US & World Daily Markets Financial Briefing 26-05-2009

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Stocks May See Modest Weakness In Early Trading

After a mild pullback in the previous session, stocks are looking to extend recent weakness Tuesday morning ahead of key housing price and consumer confidence data due out later this morning. The major index futures are currently all in negative territory, with the Dow futures down 20 points.

Some of the downward momentum comes on the heels of the latest round of nuclear tests by North Korea and the almost certain prospect of auto icon General Motors entering insolvency this week.

The S&P/Case-Shiller home price index, which tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S., is scheduled to be released at 9 a.m. ET. Economists expect an 18.4 percent year-over-year decline in the 20-city composite house price index for March.

Additionally, the Conference Board is scheduled to release its consumer confidence report for May at about 10 a.m. ET. The report, which is based on a survey of 5,000 U.S. households, is expected to show that the consumer confidence index rose to 42 in May.

The U.N. Security Council strongly condemned North Korea's carrying out of its second nuclear test in defiance of international warnings and triggering a new crisis in the Korean peninsula.

The council said the nuclear test was a "clear violation" of existing council resolutions, and in an unanimous statement adopted just hours after Monday's nuclear test, its members decided to begin work immediately on a new resolution.
In corporate news, automaker General Motors may be placed in insolvency protection by the U.S. government this week.

Under the tentative insolvency plan, GM could receive just short of $30 billion in additional federal loans, pushing the government's investment in the automaker to nearly $45 billion. The capital injection is reportedly a starting point in discussions and could be modified.

Meanwhile, Canadian Auto Workers members voted in favor of a new cost-cutting deal with General Motors, a key condition for the automaker to receive billions in government loans from Canada and Ontario.

In other news, Rio Tinto, the Anglo-Australian mining group, agreed Tuesday to a 33-44 percent cut in iron ore prices with Japan's Nippon Steel Corp. for the contract year commencing April 1, 2009, which is reportedly the first price cut in seven years.

The price cuts reflect the worldwide slump in demand amid the economic recession. The Chinese are expected to drive an even harder bargain.

U.S. stocks closed Friday's quiet session little changed as traders hesitated to take positions ahead of the long Memorial Day weekend. Bargain hunting drove gains into the late afternoon, but the major averages pulled back into negative territory going into the close.

Despite the losses on Friday, the major averages managed to post modest gains for the week due largely to the rally seen last Monday. The Dow edged up 0.1 percent for the week, while the Nasdaq and the S&P 500 posted weekly gains of 0.7 percent and 0.5 percent, respectively.

In early commodities trading, crude oil futures are down $1.23 at $60.44 a barrel, while gold futures are also down, falling by $8.60 to $950.30 an ounce.
On the currency front, the U.S. dollar has gained some footing against the euro and is currently-trading at $1.3917. The dollar set a fresh five-month low against the currency on Friday.

Meanwhile, against the pound, the dollar also gained some traction, reaching $1.5861 after dropping to a seven-month low against the pound on Friday. The dollar has moved to 94.94 against the yen after testing its March lows against the currency ahead of the long weekend.

In overseas trading, stock markets across the Asia-Pacific region finished mostly lower on Tuesday. Japan's benchmark Nikkei 225 Index slipped 0.4 percent, while Hong Kong's Hang Seng Index fell 0.8 percent.

The major European markets are also seeing some weakness. The French CAC 40 Index and the German DAX Index are down by 1.2 and 1.3 percent, respectively, while the U.K.'s FTSE 100 Index is falling by 0.6 percent.

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Canadian Stocks May Head Lower As Commodities Decline

Toronto stocks could head lower on Tuesday morning after back-to-back sessions with modest gains as volume is expected to return to normal as U.S. traders get back to work. Lower commodity prices could drive resource stocks lower.

Crude oil has dropped more than 2% and touched below $60 per barrel on the NYMEX. Gold is down more than 1% and copper has down about 1.4%.

Earnings will take center-stage in the financial sector this week. Bank of Montreal reported second-quarter adjusted net income of C$518 million or $0.91 per share, compared with C$614 million or $1.19 per share a year ago.

In other corporate news, Denison Mines Corp. announced that it has entered into an agreement with a syndicate of investment dealers which have agreed to purchase, on a bought deal basis, 40 million common shares of Denison at a purchase price of C$2.05 per common share, for aggregate gross proceeds in the amount of C$82.0 million.

Biovail Corp. announced the settlement of proxy contest with founder and former chief executive officer Eugene Melnyk in connection with the annual and special meeting of shareholders to be held on May 28. Biovail said Melnyk agreed to attend the shareholders' meeting in person or by proxy for quorum purposes and to vote the 16.42 million common shares held by him and his holding company EM Holdings B.V. in favor of company's nominees and in favour of all other matters proposed by company.

Meanwhile, Canadian Auto Workers members voted in favor of a new cost-cutting deal with General Motors Corp. a key condition for the automaker to receive billions in government loans from Canada and Ontario.

On the economic front, Statistics Canada reported employment insurance claims rose 10.6% to 65,300 in March.

On Monday, the S&P/TSX Composite Index ended the day up 76.08 points or 0.76% at 10,069.50 points. Trading was far less than usual with U.S. traders away from their desks on Memorial Day.

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N Korea missile reports rattle Nikkei

The Nikkei fell, in thin trade, as reports about more short-range missile tests from North Korea weighed on buyer appetite.

The Nikkei 225 index closed 36 points lower at 9,310 in Tokyo.

There was also some caution as Wall Street re-opens later today following the holiday weekend.

Shares in Canon fell 1.6% to 3,170 yen on worries about softening demand from the US.

Elsewhere Nippon Telegraph & Telephone rose over 2% on news that it will buy Pacific Crossing.

Toyota Motor was up 0.8% after broker Merrill Lynch upgraded the carmaker to "buy" from "underperform". The broker cited sales prospects for hybrid cars.

The Hang Seng lost earlier gains, as jitters about N Korea dominated, although real estate remained in demand.

Shares in Sino Land surged over 8% after Citigroup raised its share price target to HK$9.62 from HK$6.15 on optimism about a pick up in the Hong Kong real estate market.

New World Development rallied 6% to HK$14.66 while Sun Hung Kai Properties rose 2.5% to HK$93.25.

Cnooc fell 3.6% while PetroChina dropped 0.4% as the price of US crude fell in electronic trade.

The Hang Seng fell 86 points to 17,035 in Hong Kong.

Retailers moved out of favour with shares in Li & Fung down 3.1% while Esprit lost 2%.

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Markets still in the red

European markets are still languishing in the red as geo-political fears take hold following the missile testing by North Korea

Across the markets, the French CAC is down 34 points to 3201 with the Nasdaq falling 53 points to 4865.

French foods group Danone is a major faller after it revealed plans to raise €3bn through a rights issue to reduce debt and fund acquisitions.

In a conference call with analysts today, chief operating officer Emmanuel Faber said the economic downturn will allow it to pick up struggling smaller rivals and also allow it to adjust its "financial structure to a context that is very different from 2007."

Carmaker Porsche fell on speculation that it could lose profits recorded from its holding of Volkswagen AG options.

Germany has denied press speculation that it was considering a possible break-up of the carmaker Opel. Fiat and two other suitors are in talks to buy the carmaker, which is owned by General Motors.

Although GM will make a decision on who buys the carmaker, if any, the German government also has a voice as it will be providing loan guarantees as part of any deal.

Arcandor AG fell on press rumours that its expected combination of department store divisions with Metro AG could be shelved.

On the economic front, Euro zone industrial new orders dropped 26.9% in March, which was still considerably less than the 34.2% fall seen in February.

INSEE, the French national statistics office, said consumer spending rose 0.7% in April against expectations of a 0.1% fall. Meanwhile, German GfK consumer sentiment index for June was unchanged from May at 2.5.

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Dollar spooked by UK downgrade

The dollar fell against major currencies Friday on concern that the US will lose its AAA credit rating.

The greenback fell to a five-month low against the euro, trading at $1.4008 in late afternoon trading. Sterling rose 0.4% to $1.5911 despite Standard & Poor's downgrade on its UK outlook to negative.

The ratings agency cited concern about the UK government's debt pile following its massive bank bailout programmes.

The dollar index, which measures the US currency against six others, fell to 80.045 on Friday from 80.554 the previous session.

Trading was light on the ground Friday ahead of the holiday weekend in the US and UK. A weak performance among US equities on Friday also chipped away at dollar appetite.

The dollar firmed against the Japanese yen, rising to 94.81 yen from 94.42 on Thursday.

Commodities

Crude inches towards $62 a barrel

Crude oil futures rose Friday on concern about a string of refinery problems in the US and Nigeria and as the dollar slumped to a five-month low against the euro.

Jitters that the US government could lose its AAA credit rating after Standard & Poor's downgraded its outlook on the UK to negative, also weighed on the dollar and pushed oil prices higher, analysts said.

Standard & Poor's said the move was because of concern about the UK government's debt pile following its massive bank bailout programmes.

Crude for July delivery settled up 62 cents at $61.67 a barrel on the New York Mercantile Exchange on Friday. Over the week the July contract was up over 8%.

US markets were closed for Memorial Day holiday on Monday but in electronic trading US crude July delivery was down by 39 cents to $61.27 at around 1700 in New York. Normal floor trading resumes Tuesday.

Among precious metals gold enjoyed plenty of interest on Friday as the dollar weakened. COMEX gold for June delivery settled up $7.70 at $958.90 an ounce after rising to a high of $963.10 an ounce earlier in the session.

Gold rose 3% over the week.

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