US & World Daily Markets Financial Briefing 27-09-2010

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Stocks Modestly Lower In Mid-Morning Trading

Stocks are showing modest weakness in mid-morning trading on Monday, as traders are taking some profits following last week's strong gains. Nonetheless, selling remains subdued amid the lack of significant economic news.

The major averages have all seen choppy movement recently as they linger just below the flat line. The Dow is currently down 18.51 points or 0.2 percent at 10,841.75, the Nasdaq is down 5.62 points or 0.2 percent at 2,375.60 and the S&P 500 is down 2.13 points or 0.2 percent at 1,146.54.

In M&A news, discount retail giant Wal-Mart (WMT) revealed a bid to acquire South African Massmart Holdings Ltd. for roughly $4.25 billion or $21.13 per share. Massmart is a leading African retailer of general merchandise, home improvement equipment and supplies.

Southwest Airlines Co. (LUV) also announced that it entered an agreement to acquire AirTran Holdings Inc. (AAI) for approximately $1.4 billion, including debt.

Additionally, Anglo-Dutch consumer products maker Unilever PLC (UL) announced a definitive deal to acquire U.S.-based Alberto-Culver Co. (ACV) for $3.7 billion in cash. Unilever expects the acquisition to be accretive to earnings in the first full year, excluding restructuring costs.

In earnings news, Cal-Maine Foods Inc.'s (CALM) reported first-quarter net income of $4.76 million or $0.20 per share compared with a loss of $3.83 million or $0.16 per share in the same period last year. On average, analysts expected loss per share of $0.07 for the quarter.

Cal-Maine reported net sales for the quarter of $190.4 million, just above expectations for $190.08 million.

Sector News

Electronic storage stocks are among the markets worst performers in the early going, with the NYSE Arca Disk Drive Index posting a 1.6 percent loss. Within the sector, NetApp, Inc. (NTAP) is down by 1.1 percent, falling from a nine year closing high set in the previous session.

Commercial real estate and housing stocks are also seeing moderate weakness, with the Morgan Stanley REIT Index and the Philadelphia Housing Sector Index down by 1 percent and 0.6 percent, respectively.

Banking, gold and tobacco stocks are also trading lower, while airline stocks are markedly higher after Southwest agreed to acquire AirTran. The NYSE Arca Airline Index is up by 2.3 percent and is on pace for a fresh two and a half year closing high.

Stocks Driven By Analyst Comments

Online advertiser ValueClick (VCLK) is trading lower after being downgraded at Merriman from Buy to Neutral. The stock is down by 2.5 percent, slipping from its best closing level in more than two years.

Fair Isaac (FICO) is also under pressure after analysts at Northland Securities lowered their rating on the stock from Outperform to Market Perform. The stock is currently posting a loss of 3.9 percent, falling from Friday's five-month closing high.

On the other hand, DryShips (DRYS) is trading higher after Morgan Stanley upgraded the stock to Equalweight, citing an improved market for potential asset sales. The stock is up by 5.5 percent, setting a three-week intraday high.

Other Markets

Overseas, the major stock markets in the Asia-Pacific region ended on the upside. Japan's benchmark Nikkei 225 Index gained by 1.4 percent, while Hong Kong's Hang Seng index advanced by 1 percent.

Meanwhile, the major European markets are seeing modest losses. The French CAC 40 Index, the German DAX Index and the U.K.'s FTSE 100 Index are all down by roughly 0.3 percent.

In the bond markets, treasuries are moderately higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.542 percent, posting a loss of 7 basis points.

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Toronto Stocks Look To Rise Monday Morning

Canadian stocks will look to extend their strong gains from the previous session Monday morning in Toronto, but early signals are mixed as a rally in commodity prices paused in early dealing.

Rising gold and oil prices have helped Canadian stocks rise for five weeks out of the last six. On Friday, the S&P/TSX Composite Index advanced 103.07 points or 0.9% to 12,204.86, notching up a modest gain for the week.

Energy stocks look to proved support this morning, with Light sweet crude oil for November delivery presently quoted at $76.55 a barrel, up $0.06 a barrel from Friday.

Gold stocks will continue to shine, as bullion prices peaked above $1300 an ounce for the first time ever last week, and remain near that mark Monday morning, Analysts are saying $1500 gold is just around the corner, as investors continue to be spooked by the possibility of runaway inflation further up the road.

Stocks in the news this morning include Angiotech Pharma, which said that Boston Scientific Corp's three year follow up data from the Horizon -AMI trial of Taxus Express Paclitaxel-Eluting Stent recorded significant reductions in re-intervention at three years compared to bare-metal Stent in patients experiencing heart attack or acute myocardial infarction.

Boston is the corporate partner of Angiotech. The randomized study in 3006 patients worldwide showed that the paclitaxel-eluting stents were more efficient than bare metal stents.

In the mining sector, moly minerThompson Creek Metals Company Inc. announced that the Supreme Court of British Columbia has issued a final order to approve its acquisition of Terrane Metals Corp.

Forex Top Story

Dollar On The Ropes, Unable To Fight Back Monday Morning

The dollar failed to make up any ground versus Monday morning, following big losses in the previous week. With no first-tier economic data on tap from the US today, trading is expected to remain subdued.

Last week the Federal Reserve signaled it is prepared to bolster the economic recovery through quantitative easing measures. Interest rates are expected to remain near zero for an extended period, making the dollar less attractive.

The buck touched a fresh 5-month low of 1.3494 against the euro late last night, and was little changed from that mark approaching mid-morning.

The eurozone's leading economic indicator climbed 0.4% in August compared to July, the Conference Board said on Monday. This followed a 0.8% increase in July and a 0.5% rise in June.

"The [leading index] for the euro area suggests that the slowdown in economic activity should be moderating in the near-term," said Jean-Claude Manini, Conference Board senior economist for Europe.

The European Central Bank considered a rescue of Ireland before deciding not to, according to German daily Handelsblatt.

Against the sterling, the dollar hit 1.5845 -- its lowest since August 10.

The dollar stood still against the yen around Y84.20. The buck hit a 15-year low of 82.86 earlier this month, and has failed to rally despite an intervention from Japanese officials to devalue the yen.

Bank of Japan Governor Maasaki Shirakawa on Monday said the central bank "will pay close attention" to developments in currency markets and may have a second go at intervention.

"The Japanese government has made it clear that it will continue to pay due attention to developments in the foreign exchange markets, and will take decisive actions, including interventions, if it deems it necessary," he told business leaders in Osaka.

While there is little economic news for the markets to sink their teeth into today, later this week the focus should turn to the final reading on second quarter GDP, along with reports on jobless claims, consumer sentiment and manufacturing activity.

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Asian Markets End In Positive Territory

Asian markets open for trading on Monday, the first day of the fresh trading week, in positive territory with moderate gains, but off the day's high, on optimism about global economic recovery and expectations of quantitative easing measures from the Federal Reserve to support the economy. Positive closing on Wall Street in the previous session, driving the major averages to a four-month high, helped lift market sentiment across the region.

In Australia, the benchmark S&P/ASX200 Index surged up 73.40 points, or 1.59%, and closed at 4,675 points, while the All-Ordinaries Index ended at 4,722, representing a gain of 70.60 points, or 1.52%.

Banks led the gains in the market on optimism about sustaining global economic recovery. ANZ Bank gained 2.54%, Commonwealth Bank of Australia advanced 2.01%, National Australia Bank added 1.76% and Westpac Banking Corp was up 1.96%. Investment banking company Macquarie Group climbed 2.61%.

Mining and metal stocks also advanced on expectation of higher demand. BHP Billiton advanced 1.59%, Rio Tinto climbed 2.05%, Fortescue Metals gained 1.79%, Gindalbie Metals rose 2.81%, Iluka Resources surged up 4.78%, Macarthur Coal added 0.98%, Mincor Resources increased 2.30%, and Oz Minerals was higher by 2.48%. However, Murchison Metals bucked the trend and plunged 10.22%.

Oil-related stocks ended in positive territory. Woodside Petroleum added 0.79%, Santos Ltd advanced 1.33%, ROC Oil Ltd gained 1.25%, Oil Search Ltd rose 1.49% and Origin Energy climbed 1.81%.

Gold-related stocks, however, bucked the trend and ended in negative territory. Newcrest Mining was down 0.55% and Kingsgate Consolidated shed 0.50%.

Stocks of retailers also ended in positive territory. David Jones added 1.21%, Harvey Norman advanced 1.58%, JB Hi-Fi Ltd gained 0.79%, Reject Shop climbed 1.79%, Wesfarmers surged up 2.90% and Woolworths was higher by 1.59%.

In Japan, the benchmark Nikkei 225 Index gained 131.47 points, or 1.39%, to close at 9,603.14 while the broader Topix index of all First Section issues was up 10.89 points, or 1.30% to 849.

On the economic front, a report released by the Ministry of Finance revealed that Japan posted a merchandise trade surplus of 103.2 billion yen in August, down 37.5% on year, and well below the analysts' expectations for a 200 billion yen surplus, following a revised 802.0 billion yen surplus in July. The report revealed that exports were up 15.8% on year - again missing forecasts for a 19.0% increase following the 23.5% surge in the previous month. Imports jumped 17.9%, exceeding expectations for a 17.5% gain after collecting a revised 15.7% a month earlier. The adjusted merchandise trade balance showed a surplus of 589.7 billion yen, beating forecasts for a 522.1 billion yen surplus following the 594.8 billion yen surplus in July.

A statement released by the Bank of Japan revealed an index measuring corporate service prices in the country was down 1.1% on year in August, posting a score of 96.8. That was slightly better than forecasts for a 1.2% annual contraction following the revised 1.1% fall in July - which had an original reading of -1.2 percent on year. On a monthly basis, corporate service prices eased 0.4 percent following the revised 0.3 percent decline in July.

Electric machinery stocks led the gains in the market on optimism about sustaining global economic recovery and pick-up in global demand. Fanuc Ltd surged up 3.17%, Kyocera Corp. climbed 2.89%, Tokyo Electron gained 2.00%, Advantest Corp. rose 1.93%, Denso Corp. was higher by 2.90% and Mitsumi Electric Co., increased by 1.83%.

Exporters also ended in positive territory. Canon Inc. climbed 2.50%, Sony Corp. advanced 1.43%, Sharp Corp. gained 1.89% and Panasonic Corp. surged up 3.02%.

Automotive stocks also ended higher. Honda Motor Co., climbed 2.87%, Toyota Motor added 1.14%, Suzuki Motor Corp. advanced 1.05%, Nissan Motor Co. gained 2.44%, Isuzu Motors surged up 3.37%, Mazda Motors rose 2.02% and Mitsubishi Motors advanced 0.93%.

Trading companies ended in positive territory. Mitsubishi Corp. soared 3.24%, Mitsui & Co. Ltd climbed 3.31%, Sumitomo Corp. surged 3.10%, Itochu Corp. was up by 3.63% and Toyota Tsusho Corp. increased 1.45%.

The Indian market closed firm on Monday, extending its upward momentum for a fourth consecutive week, as encouraging reports on U.S. durable goods and new home sales eased concerns that the U.S. economic recovery is faltering. That said, the benchmarks pared their early gains, as profit taking crept in at higher levels. After climbing over a percent to a fresh 32-month high of 20,268 earlier in the session, the 30-share Sensex closed off the day's high at 20,117, up 72 points or 0.36%, with 19 of its components edging higher. Likewise, the broader Nifty shed most of its early gains to end higher by 17 points or 0.29% at 6,036.

Among the other markets in the region, China's Shanghai Composite Index gained 36.42 points, or 1.41%, to 2,628, Jakarta Composite Index in Indonesia surged up 70.41 points, or 2.07%, at 3,468, the Strait Times Index in Singapore advanced 20.78 points, or 0.67%, to close at 3,113, and Taiwan Weighted Index gained 24.92 points, or 0.31%, to close at 8,192.

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French Market Erases Early Gains

The French market erased early gains and is currently losing in afternoon trading Monday, as firm cues from Asia were overshadowed by the re-emergence of economic worries.

Crude for November delivery is trading higher by $0.26 at $76.75 per barrel and December gold is adding $1.6 at $1299.7 an ounce.

In economic news, data from the European Central Bank showed loans to Eurozone firms and households increased in August at the fastest pace since June 2009 and the growth in broad money supply improved more than expected. Total credit extended to euro area residents rose 2.2% annually, up from 1.8% increase in July.

Meanwhile, the eurozone's leading economic indicator climbed 0.4% in August compared to July, the Conference Board said. This followed a 0.8% increase in July and a 0.5% rise in June.

The latest survey from the Confederation of British Industry and PricewaterhouseCoopers LLP showed the UK financial services sector activity during three months to September improved at the fastest pace since June 2007. Around 37% of respondents said business volumes rose, while 9% said they fell during the period. The resulting balance of positive 28% was the most positive since June 2007.

House prices in England and Wales dropped for the third straight month in September, due to supply continuing to outstrip demand, survey results revealed. The average asking price for a home decreased 0.4% month-over-month to 157,600 pounds, reports said citing data from Hometrack. This represents the biggest recorded fall in house prices since March 2009 after a 0.3% fall in August.

The Swedish trade balance showed a shortfall of SEK 2.8 billion in August after recording a surplus of SEK 10.2 billion in July, Statistics Sweden said. Shipments in August climbed at a pace of 15% on an annual comparison to SEK 85.3 billion, while imports rose 27% to SEK 88.1 billion.

Chinese industrial profits leaped 55% in the first eight months of 2010 to 2.6 trillion yuan compared with the same period last year, the National Bureau of Statistics said.

After opening higher at 3,797, the CAC 40 has remained in positive territory for most of the session, but is currently losing 0.01%.

Grocery retailer Carrefour is losing 1.9%, reportedly on an analyst downgrade. Insurer Axa and drug maker Sanofi-Aventis are sliding 1.4% and 1%, respectively. The Wall Street Journal reported that Sanofi-Aventis is seeking additional funding to raise its offer for U.S. biotechnology company Genzyme.

Among lenders, Natixis and Credit Agricole are sliding 0.6% and 0.5%, respectively. However, BNP Paribas is adding 0.6% and Societe Generale is adding 0.01%.

Hotel group Accor is gaining 2.2%, thus leading the gainers on the index. Car maker Peugeot is adding 1.95% and Renault is rising 0.84%.

Beverages firm Pernod-Ricard is adding 1.8% and telecom equipment maker Alcatel Lucent is rising 1.4%. Cement giant Lafarge is up 1.3% and building materials maker Saint-Gobain is rising 1%.

Elsewhere in Europe, the UK's FTSE 100 is falling 0.13% and the German DAX is adding 0.01%.

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Southwest Airlines (LUV) is expected to be in focus after it announced a deal to buy AirTran Holdings (AAI), the parent of AirTran Holdings in a cash and stock deal for $7.69 per share or a total of $1.37 billion.

Allergan (AGN) could see some activity after Unilever (UL) announced that it would buy the former for $3.7 billion in cash. Separately, on Friday, Allergan announced that the FDA has approved OZURDEX 0.7 mg for the treatment of non-infectious ocular inflammation affecting the posterior segment of the eye.

Wal-Mart (WMT) may move in reaction to its announcement that it has made a preliminary, non-binding proposal to buy South Africa’s Massmart Holdings for 148 South African rand per share.

Cracker Barrel Old Country Store (CBRL) is likely to be in focus after it announced a 10% increase in its dividend to 22 cents per share.

U.S. Economic Reports

With recent economic reports generating some optimism regarding economic recovery, the markets now turn their attention to the unfolding week. The weekly jobless claims report, the Institute for Supply Management's manufacturing purchasing managers' index, the ISM-Chicago's manufacturing index, the Conference Board's consumer confidence report and the final report of the Reuters/University of Michigan's consumer sentiment survey are among the key economic reports of the unfolding week.

The S&P Case-Shiller house price index, the final second quarter GDP report, the Bureau of Economic Analysis' personal income and outlays report, the Commerce Department's construction spending report, a few Fed speeches and the Treasury auctions of 2-year, 5-year and 7-year notes round up the other economic events of the week.

The ISM's manufacturing index is expected to pull back from the previous month's levels, as the results of the regional manufacturing surveys suggest that the manufacturing sector is seeing some degree of stabilization, while the national manufacturing index remains elevated.

Economists expect the two consumer confidence readings of the week to send mixed signals. The Reuters/University of Michigan's survey is expected to show a modest improvement in consumer sentiment, while the Conference Board's survey is likely to show a slight deterioration in consumer confidence.

The FOMC's announcement last week that inflation is trending below levels that it considers consistent with the central bank's twin objectives of maximum employment and price stability shifts the market focus to the core personal consumption expenditure price index. The personal income and spending report is expected to show that the measure rose 0.1% in August, keeping the annual rate unchanged at 1.4%.

BMO Capital markets believes that sub-par economic growth will likely guide core inflation lower and the Fed on a path towards further quantitative easing. Personal spending should receive some support from the increase in average hourly earnings and the number of hours worked.

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