US & World Daily Markets Financial Briefing 30-09-2009

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Recovery Hopes May Strengthen After Job Losses Moderate

The major U.S. index futures are pointing to a higher opening on Wednesday, with sentiment improving further after the private sector employment report from ADP showed a moderation in the rate of decline in employment. Additionally, the upwardly revised GDP data for the second quarter should serve to increase optimism concerning recovery. Some of earnings news has been encouraging to enough to expect a healthy reporting season ahead. Traders may also stay tuned to the manufacturing survey results of the ISM-Chicago and the price of oil.

After seeing some strength in early trading on Tuesday, as traders relished a housing market report, the major U.S. averages receded shortly thereafter, hitting their intra-day lows by early afternoon trading. An unexpected drop in consumer confidence apparently sapped the buoyant sentiment. While some buying emerged in afternoon trading, helping to lift the major averages off their lows, they still ended the day modestly lower.

At the end of the session, the Dow Industrials was down 47.16 points or 0.48% at 9,742, the S&P 500 Index receded 6.70 points or 0.31% to 2,124 and the Nasdaq Composite Index was down 6.70 points or 0.31% at 2,124.

Twenty-six of the thirty Dow components ended the session lower, while Boeing (BA) (up 2.92%), JP Morgan Chase (JPM) (up 0.16%) and Coca-Cola (KO) (up 0.34%) bucked the downtrend. McDonald’s (MCD) ended unchanged. American Express (AXP) (down 1.22%), Caterpillar (CAT) (down 1.11%), Cisco Systems (CSCO) (up 1.31%), Chevron (CVX) (down 1.10%), Disney (DIS) (down 1.03%), Home Depot (HD) (down 1.58%), Intel (INTC) (down 1.32%) and 3M Co. (MMM) (down 1.43%) were among the biggest decliners in the session.

Among the sector indexes, the Philadelphia Semiconductor Index fell 1.43% and the NYSE Arca Disk Drive Index receded 1.15%, while the NYSE Arca Networking Index, the Dow Jones Transportation Average and the NYSE Arca Oil Index declined close to 1% each. On the other hand, the NYSE Arca Gold Bugs Index rose 3.16%.

Doubts over the sustainability of the much-anticipated recovery are likely to keep buying interest muted. The markets have run up sharply without any major correction since March, and it is believed that the sharp rebound in growth in the third quarter could give way for a period of soft economic conditions, as demand was pulled forward by various government programs, leading to the expending of disposable income.

FBR Capital Markets’ year-end target for the S&P 500 Index is at 1,075, with the firm expecting a potential sell-off in the last quarter of this year. That said, once an inflection point is reached in the labor market, the economy is likely to see a modest sustainable recovery coming into play. A pullback to the 925 levels cannot be ruled out, given the fact that the level represents a 38% retracement from the recent highs from its March lows. Weak consumer spending, rising interest rates and lofty profit expectations are expected to weigh on stocks

On the economic front, the S&P /Case-Shiller home price survey showed that house prices fell 13.3% year-over-year in July, although they increased 1.6% compared to the previous month. The monthly gain marked the third straight month of price growth. Eighteen of the twenty cities surveyed showed month-over-month increases. Notwithstanding the optimism relayed by the report, Peter Boockvar warned that the worst of the price declines in this cycle isn’t yet over notwithstanding the recent government-induced bounce.

However, on a negative note, the Conference Board said its consumer confidence index fell by 1.4 points to 53.1 in September. Economists expected a reading of 57 for the month. While the present situation index dropped by 2.7 points to 53.1, the expectations index fell by 0.5 points to 73.3. The deterioration in confidence reflected consumers’ concern over deteriorating labor market conditions.

While making a public appearance, Dallas Federal Reserve President Richard Fisher indicated that the Fed could tighten with an alacrity that, if needed, will be equal in speed and intensity to that with which it pursued monetary accommodation. Fisher believes that the economy will see a period of extended slow growth and inflation risks will remain low in the medium term.

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Canadian Stocks Look To Extend Modest Winning Streak

Canadian stocks will look to build on their gains from the previous two sessions Wednesday morning in Toronto, but early signals are pointing to a lackluster session as traders await GDP figures from both sides of the border.

Yesterday, the S&P/TSX composite index finished the session, up 56.27 points, or 0.5 percent, at 11,394.99. Gold stocks led the way as the price of gold remained near the $1000 mark even as the greenback firmed up.

Energy stocks could be in play after the price of oil jumped more than a dollar to $68 per barrel. In corporate news, HudBay Minerals Inc. said "several" employees were injured in protests in Guatemala at the company's Fenix project site.

Canadian Apartment Properties REIT appointed Richard Smith, formerly of MI Developments Inc., as chief financial officer, replacing the retired CFO Yazdi Bharucha. Canadian GDP is expected to rise 0.4% for July, compared to a 0.1% increase last month. In the U.S., final second-quarter GDP is expected to drop 1.2%, compared to a 1% drop last quarter.

In other Canadian economic news on the calendar, the industrial product price index is expected to rise 0.5% in August, compared to a 0.5% drop in July.

Meanwhile, the raw materials price index is expected to rise 0.3% in August, compared to a 3.8% drop in July. Both reports are due at 8:30 a.m. ET.

Crude Prices Edge Higher After Encouraging GDP Data

The price of crude moved slightly higher Wednesday morning in New York, as bargain hunters moved in following a recent dip below $66 a barrel.

Light sweet crude for November rose $0.57 at $67.55 ahead of the opening bell on Wall Street, having earlier challenged the $68.

Oil jumped well above $70 earlier this month as equities rose and the dollar weakened, but concerns about the US consumer and global economic weakness have weighed on oil over the last week.

However, traders were presented relatively upbeat news on the nation's economy this morning. While the Commerce Department released a report showing a continued decrease in gross domestic product in the second quarter, the pace of decline in economic activity was unexpectedly revised downward.

The report showed that GDP decreased at an annual rate of 0.7 percent in the second quarter compared to the preliminary estimate of a 1.0 percent decrease. Economists had been expecting the drop in GDP to be revised to show a steeper 1.2 percent decrease.

Energy traders will watch for the Energy Information Administration's inventory report at 10:30 a.m. ET. Last week's report showed crude oil inventories increased by 2.8 million barrels in the week ended September 18. Total motor gasoline inventories increased by 5.4 million barrels last week.

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Indian Market Rallies

Liquidity-driven rally on expectations of buoyant quarterly results from blue chip companies and a strong debut by Oil India on the stock exchanges lifted the Indian market sharply higher to a new 52-week high. An intra-day recovery in Asian stocks, firm European markets and higher U.S. stock futures also helped improve sentiment.

After a flat opening at 16,868, the BSE Sensex rose steadily to finish near the day's high. The Sensex jumped by 274 points or 1.63% to 17,127, its best closing since May 2008. Likewise, the S&P CNX Nifty closed at 5,084, up 77 points or 1.54%. On the BSE, the mid-cap and the small-cap indexes moved up around 0.95% each, underperforming large-caps. The market breadth was fairly positive, with 1598 gainers versus 1183 losers.

Sector-wise, banking stocks outperformed the broader market on hopes the central bank would hike banks' exposure limit on their held- to- maturity debt portfolio by 2-3 percent. Auto, capital goods, metal, realty and IT stocks followed, but FMCG and consumer durable stocks ended on a subdued note.

Among the top gainers, SBI jumped 5% and ICICI Bank rallied 4.63%, while Maruti Suzuki, Mahindra & Mahindra, Sterlite Industries and Wipro advanced over 3% each. Reliance Communication, DLF, BHEL, Larsen & Toubro, HDFC Bank, Reliance Industries, Hindalco, TCS, Jaiprakash Associates and Tata Steel were the other prominent gainers.

However, ONGC, ITC, Grasim Industries and Bharti Airtel ended in negative territory. An official announcement on the fate of a merger deal between Bharti and South Africa's MTN is expected later in the day.
 
Oil India closed at Rs.1,140.55 on its debut, a premium of 8.62% to its IPO price of Rs.1,050 per share. Reliance Industries rose 1.63% and Cairn India added 0.31%.

Larsen & Toubro advanced 2.15% on reports it plans to build nuclear power plants with generating capacity of 3,000 MW to 4,000 MW every year. Siemens edged up 0.61% after it bagged two orders worth Rs 360 crore from state-run Power Grid Corp for commissioning of power substations.

Aviation stocks ended mixed after pilots of state-run carrier Air India called off their four-day strike over cut in their performance-linked incentives and arrears on Wednesday morning following Centre's intervention. While Kingfisher ended down 0.62%, Jet Airways edged up 0.43% and Spice Jet added 0.28%

ABG Shipyard slipped 0.77% after it sought the consent of its shareholders to raise its borrowing limit to Rs 12,000-crore from Rs 7,500-crore. Amtek Auto closed unchanged after it raised an additional $75 million through the issue of foreign currency convertible bonds.

Strides Arcolab gained 3.31% on reports private equity firms Carlyle and 3i are holding preliminary discussions to take a minority stake in the drug-maker's injectables business. Parsvnath Developers surged up over 16% on reports it has raised $35 million via a qualified institutional share placement.

Allcargo Global Logistics gained 1.77% after its board approved splitting its equity shares of face value Rs.10 each into five shares of Rs.2 face value each. IDBI Bank added 2.66% on reports it has slashed interest rates on home and car loans by 25-50 basis points.

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After ending the previous session modestly lower, the European markets opened higher and are trading in positive territory. The French CAC 40 Index, the German DAX Index and the U.K.’s FTSE 100 Index are currently up 0.48%, 0.30% and 0.21%, respectively.

On the economic front, consumer confidence in the U.K. rose to its highest level in fourth years, a report released by the GfK Institute showed. In Germany, the Federal Labor Agency reported that German unemployment slid to 8.2% in September from 8.3% in the previous month, even as the number of people out of work rose by 10,000.

U.S. Economic News

The ADP National Employment report, which sheds light on non-farm private employment, showed that non-farm employment fell 254,000 in September compared to the previous month. The private sector was expected to have lost 240,000 jobs for September.

September’s rate was the smallest decline since July 2008. Employment in the service providing sector fell by 103,000 compared to the 151,000 decline witnessed in the goods producing sector. Manufacturing employment fell by 74,000, the same rate as in the previous month.

Preliminary estimates showed that the U.S. economy shrank at a 0.7% rate in the second quarter, revised from its previous estimate of 1% growth, but smaller than the 6.4% contraction in the first quarter. Economists had expected a sharper 1.4% GDP decline for the second quarter.

The upward revision reflects an upward revision to non-residential fixed investment. The GDP price index was up 0.5% in the second quarter, reversing the 1.4% decline in the first quarter. The GDP price index, excluding food and energy, was up 0.8%.

The results of the Institute of Supply Management-Chicago's business survey for September are scheduled to be released at 9:45 AM ET. Economists expect the business barometer index based on the survey to come in at 52.

The business barometer index rose to the break-even level of 50 in August from 43.4 in July. Economists had expected a more modest improvement to 48. The production index climbed about 10 points to 52.9 and the new orders index rose 4.5 points to 52.5, while the index of backlog orders surged up to 45.8 in August from 32.1 in July. The employment index indicated the twenty-first consecutive month of contraction, although it improved to 38.7 from 35.3. The prices paid index also rose, climbing 15 points to 50.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report at 10:30 AM ET.

The EIA's weekly oil inventory report for the week ended September 18th showed that crude oil stockpiles rose by 2.8 million barrels. Inventories were above the upper boundary of the average range for this time of the year.

Gasoline inventories increased by 5.4 million barrels, remaining above the upper limit of the average range. Meanwhile, distillate fuel stockpiles also rose, increasing by 3 million barrels, and were above the upper boundary of the average range. Refinery capacity utilization averaged 86.7% over the four weeks ended September 18th compared to 86.3% in the previous week and 79.5% in the year-ago period.

Atlanta Federal Reserve Bank President Dennis Lockhart is scheduled to speak on the U.S. economic outlook at the University of South Alabama in Mobile at 10:30 AM ET.

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Gannett could be in focus after it announced that it has priced its previously announced offering of senior notes due 2014 and 2017. The face value of the 2014 notes is $250 million, with an interest rate of 8.750%, while the 2017 note was priced at 98.465% of its face value. Meanwhile, Elan said it has priced its offering of $625 million worth of senior notes due 2016, with a coupon rate of 8.75% per annum, payable in arrears beginning April 15th, 2010.

Johnson & Johnson and Boston Scientific may react to their announcement that they have settled more than a dozen lawsuits involving intellectual property in the interventional cardiology arena. Boston Scientific has agreed to pay Johnson & Johnson $716 million, with the former noting that the payment will be made from existing cash on hand.

Darden Restaurants receded in Tuesday’s after hours session despite reporting that its first quarter net earnings per share from continuing operations increased 16% to 67 cents per share. Sales from continuing operations rose 2.3% to $1.73 billion. Analysts estimated earnings of 66 cents per share on revenues of $1.78 billion. The company reaffirmed its 2010 net earnings per share from continuing operations guidance in the range of a decline of 2% to a growth of 8%.

Borders Group is likely to see some activity after it announced that it has signed an agreement with Verizon to provide free Wi-Fi service in all of its more than 500 Borders stores nationwide. The company expects the service to be available by mid-October.

Nike could see some strength after it reported that its first quarter earnings were $1.94 per share, ahead of the year-ago’s $1.03 per share and the consensus estimate of 97 cents per share. Revenues declined 12% to $4.8 billion, slightly shy of the consensus estimate of $4.9 billion. The company said its expects overall revenues in 2010 to be lower, although it expects some improvement in the second half of the year.

Saks could come under pressure after it said it would offer $100 million in shares and the company intends to use the net proceeds from the offering to reduce borrowings under the its revolving credit facility and for general corporate purpose.

Micron Technology may also gain ground after it reported a loss of 10 cents per share for its fourth quarter, narrower than the loss of 45 cents per share last year. Revenues declined to $1.3 billion from $1.45 billion last year. Analysts estimated a loss of 19 cents per share on revenues of $1.27 billion.

Oracle may once again in the spotlight over an acquisition. This time around, the company has agreed to buy certain assets of financial reporting acceleration solutions provider HyperRoll. The company expects the deal to close later this year, but it failed to divulge the financial terms of the deal.

Nautilus is expected to react to its announcement that it is actively seeking buyers for substantially all of the assets, liabilities and ongoing operations of its commercial business, as it intends to focus its resources on its branded consumer business.

Jabil Circuit is likely to move in reaction to its announcement that its fourth quarter earnings declined to 3 cents per share from 30 cents per share last year. On an adjusted basis, the company reported earnings of 16 cents per share. Revenues fell 14% year-over-year to $2.8 billion. Analysts estimated earnings of 8 cents per share on revenues of $2.66 billion. The company expects adjusted earnings of 24-32 cents per share for the first quarter compared to the 18 cents per share consensus estimate. As a part of a restructuring exercise, the company said it would eliminate 4,500 positions compared to the 3,000 job cuts planned initially. Towards the action, the company expects to record a cash charge of $57.4 million.

Colonial Properties may move to the downside after it announced a public offering of 9 million shares. The company expects to use the net proceeds to repay debt owned under its revolving credit facility and for general corporate expenses.

Deere & Co. could be in focus after it announced that it would record an after-tax charge of $300 million for the impairment of the value of goodwill in the fourth quarter. The company clarified that the charge was not included its net income outlook of about $1.1 billion disclosed in the third quarter 10-Q filing.

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