US & World Daily Markets Financial Briefing 30-06-2009

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Traders Could Seek Support of Economic Data to Help Extend Rally

The major U.S. index futures are pointing to a higher opening on Tuesday. Global cues are mixed, with the Asian markers closing on a mixed note, while the European averages are trading modestly lower. The commodity price rally is moderating, although volatility is not ruled out, given the supply and demand uncertainties. Additionally, markets are likely to react the consumer confidence and manufacturing data to be released shortly after the markets open.

Economic reports released from the rest of the region today seem to relay mixed message, confounding the economic outlook further. The few key reports to be released over the week should keep traders on tenterhook, while the truncated week could keep many traders away from their desk and consequently, trading action is likely to remain light for the rest of the week.

After a shaky start on Monday following two weeks’ of lackluster performance, the major averages advanced sharply after half an hour of trading. Following the initial spike, the major averages moved sideways, with the Dow Industrials, which had underperformed relative to the other major averages, recording a strong gain.

The Dow Industrials ended up 90.99 points or 1.08% at 8,529 and the S&P 500 Index finished at 927, representing a gain of 8.33 points or 0.91%. At the same time, the Nasdaq Composite advanced a more modest 5.84 points or 0.32% at 1,844.

Twenty-nine of the thirty Dow components ended the session higher, with only Alcoa bucking the uptrend. Bank of America (up 3.45%), DuPont (down 2.48%), Hewlett-Packard (up 3.64%), Merck (up 3.15%), Microsoft (up 2.18%) and Exxon Mobil (up 2.22%) were among the major gainers in the session.

Among the sector indexes, the KBW Bank Index rose 1.59% and the NYSE Arca Oil Index moved up 1.51%. The Dow Jones Utility Average gained 1.17% compared to a 1.22% advance by the NYSE Arca Software Index.

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Toronto stocks may see little-change at the open as commodity prices are close to the unchanged mark and U.S. futures are showing minimal direction. Investors will also mull over Canadian gross domestic product data that came in in-line with analysts' expectations.

Statistics Canada reported GDP declined 0.1% in the month of April from the previous month, after falling 0.3% in March. GDP also dropped 0.1% in February.

Crude oil prices are up 29 cents to $71.79 per barrel in electronic trading. Meanwhile, gold is flat at $940.60 and copper is up 1.65 cents to $2.3425.
 
In corporate news, JLL Partners announced it has made an offer to acquire Patheon at a price of US$2.00 cash per share.

Financial security company Genworth Financial announced Monday night that it has priced the initial public offering or IPO in Canada of 44.7 million common shares of its Canadian mortgage insurance subsidiary, Genworth MI Canada, at C$19.00 per share. The shares will trade on the TSX under the symbol "MIC.TO."

Bombardier Aerospace said that Porter Airlines of Toronto has placed a firm order for two Q400 NextGen turboprop airliners. Based on the list price for the Q400 aircraft, the order is valued at about US$54 million.

Currency, Commodity Futures

Crude oil futures are up $0.17 to $71.66 a barrel after rallying $2.33 to $71.49 a barrel on Monday. Oil has been supported by the falling dollar, as an increase in risk appetite, reflected by the rally in equity markets, is driving the dollar down.
Gold futures, which eased $0.30 to $940.70 in the previous session, are currently down $0.20 at $940.50 an ounce.

On the currency front, the U.S. dollar is trading at 96.005 yen after strengthening to 96.065 yen in the New York session on Monday. Currently, the greenback is valued at $1.4124 versus the euro.

In a research note on Monday, UBS lowered its forecast for the dollar. The firm now expects the dollar to end 2009 at 95 versus the yen compared to its earlier forecast of 100 yen. Similarly, the company expects the greenback to end the year at $1.30 versus the euro, weaker than the $1.20 it forecast earlier. In 2010, the firm predicts at least a 10%-15% decline in the value of the dollar versus an array of currencies.

The rationale behind the muted outlook for the dollar is that wary investors are likely to shun the currency due to the enormous U.S. fiscal and current account deficits. Even if the government succeeds in reducing deficits, it is likely to come at the expense of growth, which would again be dollar negative.

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The major Asian markets ended Tuesday’s session on a mixed note, with the Japanese, and the Australian markets recording gains in excess of 1.50%, while the Hong Kong, Chinese and Indian market came under pressure.

Japan’s Nikkei 225 average gap-opened higher and advanced steadily in the first hour of trading before moving sideways till the end of the session. The index ended up 174.97 points or 1.79% at 9,958.

Among the economic reports from Japan, household spending showed a 0.3% annual increase in May compared to the 1.5% decline expected by economists. However, a separate report showed that the unemployment rate rose to its highest level since September 2003.

Commodity stocks and trading houses advanced sharply, with the former receiving a shot in the arm from higher commodity prices, while the latter capitalized on the weaker yen. However, the financial space showed mixed sentiment.

Australia’s All Ordinaries rose on the commodity rally, with the other stocks also swept higher by the buying spree. After an initial sharp spike lifted the All Ordinaries, it began moving sideways before ending up 65.10 points or 1.68% at 3,848. Apart from the resource space, retailers also experienced significant strength after David Jones raised its guidance for the full year. Financial stocks also ended higher.

Hong Kong’s Hang Seng Index surrendered much of its early advantage and declined steadily throughout the session before dipping below the unchanged line in late trading. The index ended down 149.78 points or 0.81% at 18,379.

Thirty-one of the forty-two index components ended the session lower, with property stocks showing particular weakness following their recent gains. Domestic financial stocks were mostly lower, with the exception of index heavyweight HSBC Holdings, which notched up a moderate gain. However, mainland bank stocks showed strength. Utility stocks also came under selling pressure.

After seeing significant strength for much of the session, South Korea’s Kospi retreated in late trading. Nevertheless, buying interest that emerged thereafter helped the index move back into positive territory. At the close of trading, the index was up 1.62 points or 0.12% at 1,390, off the highs of 1,409.

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The major European averages have ignored a strong start and are currently showing weakness. The French CAC 40 Index and the U.K. FTSE 100 Index are receding 0.49% and 0.16%, respectively, while Germany’s DAX Index is trading down 0.12%.

In corporate news, Wolseley announced the resignation of its group CEO Chip Hornsby, effective immediately. The company appointed Ian Meakins to replace Hornsby. Music group HMV reported that its profit before tax for the year ended April 25th, 2009 rose to 61.3 million pounds from 52 million pounds last year. Adjusted profit from continuing operations rose to 11 pence per share from the year-ago’s 10.1 pence.

On the economic front, the GfK NOP reported that consumer confidence in the U.K. improved in June, with its consumer confidence index rising to –25 from –27 in the previous month. The increase was in line with expectations.

A report from Germany’s Federal Statistical Office revealed that Germany’s jobless rate was at 7.7% in May, the same pace as in the previous month. However, the May jobless rate was worse than the year-ago rate of 7.4%.

Eurozone annual inflation turned negative for the first time since the formation of the bloc, a Eurostat report showed. Consumer prices declined 0.1% annually in June after remaining unchanged in May. Economists were expecting an annual decrease of 0.2%.

The revised first quarter GDP report released by the U.K. Office of National Statistics showed that the U.K. economy contracted 2.4% in the first quarter from the fourth quarter of 2008, marking the largest decline since 1958. The GDP decline was bigger than the previous estimate of a 1.9% drop. Annually, the GDP declined 4.9%, revised down from a fall of 4.1% published last month.

U.S. Economic Reports

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 AM. Economists expect an 18.63% year-over-year decline in the 20-city composite house price index for April.

In March, house prices fell 18.70% year-over-year, which was slightly worse than the expected drop of 18.40%. On a month-over-month basis, house prices were down a more modest 2.17%. All 20 cities surveyed showed annual declines.

The Conference Board is scheduled to release its consumer confidence report for June at about 10 am 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 55.3 in June.

The consumer confidence index jumped 14 points in May to 54.9, while economists had expected a more modest improvement to 42.6. While the present conditions index rose to 28.9 in May from 25.5 in the previous month, the expectations index climbed 21.3 points to 72.3, marking the highest reading since December 2007.

The results of the Institute of Supply Management-Chicago's business survey for June are scheduled to be released at 9:45 AM ET. Economists expect the business barometer index based on the survey to come in at 39.

The business barometer index fell to 34.9 in May from 40.1 in the previous month, with weakness in new orders index and order backlog contributing to the decrease. While the news orders index slid 4.8 points to 37.3, the index of order backlogs fell 9.4 points to 26.3. The employment index weakened further, while the prices paid index continued to decline, suggesting broad deflation.

St. Louis Federal Reserve Bank President Jim Bullard is due to speak to the Global Interdependence Center at the Philadelphia Fed at 12 PM ET. Meanwhile, Kansas City Federal Reserve Bank President Thomas Hoenig is scheduled to give a speech to the New York University Stern School of Business on insolvency and the economic crisis in New York at 4:10 PM ET.

Also on tap is a speech by San Francisco Federal Reserve Bank President Janet Yellen, who is due to speak on the economy to the Commonwealth Club of California in San Francisco at 9 PM.

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Broadcom and Emulex are likely to be in focus after Broadcom said late Monday that it has raised its tender offer for all outstanding shares of Emulex to $11 per share from $9.25 per share. The new offer values Emulex at $912 million. Broadcom also said it will extend its tender offer for an additional 10 days to conform with the legal requirements. Meanwhile, Emulex asked its shareholders not to tender any shares pending the board’s recommendation.

Genworth may also in focus after it announced the pricing of the initial public offering of its Canadian mortgage insurance subsidiary. The 44.7 million shares were priced at C$19 per share and the offering is expected to generate net proceeds of US$635 million to US$730 million.

Cumulus Media is likely to react to its announcement that it has entered into an amendment to its senior secured credit facility, with the amendment providing the company with compliance relief from its principal financial covenants, including leverage and fixed charge rations, until March 31st, 2011. The amendment requires that the company maintain minimum liquidity and consolidated EBITDA levels through December 31st, 2010.

Associated Banc-Corp. is expected to see weakness after it announced that it may record a loss for its second quarter. The company based its guidance on its decision to record a provision for loan losses of $145 million to $160 million for its second quarter, while the company expects net charge offs at $60 million to $70 million.

Rambus could be in focus after it announced it has closed its previously announced public offering of $150 million aggregate principal amount of 5% convertible senior notes due 2014.

Maxim Integrated may move in reaction to its announcement that it has expanded its distribution agreement with TOMEN Electronics Group to include Japan, effective immediately. The companies already have a relationship in China, India and the ASEAN countries.

H&R Block moved higher in Monday’s after hours session after it reported that its fourth quarter net income per share rose 26% year-over-year to $2.09. The company’s revenues eased to $2.47 billion from $2.54 billion in the year-ago period. Analysts, on average, estimated earnings of $2.05 per share on revenues of $2.52 billion. The company expects 2010 earnings of $1.60-$1.80 per share compared to the $1.66 per share consensus estimate.

Apollo Group may also gain ground after it said its third quarter net revenues climbed 25.9% to $1.05 billion. The company’s net income also jumped to $1.26 per share from 85 cents per share last year. The consensus estimates had called for earnings of $1.12 per share on revenues of $1.04 billion.

Johnson & Johnson is likely to move to the upside after it announced that its subsidiary has been awarded $1.67 billion in a patent infringement lawsuit against Abbott Labs over its rheumatoid arthritis drug.

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