US & World Daily Markets Financial Briefing 01-09-2010

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Stocks Staging Substantial Rally On Upbeat Manufacturing Data

Stocks are sharply higher in mid-morning trading on Wednesday, as marked improvements in manufacturing activity data in the U.S. and China have ignited hope of a continued global economic recovery. Better than expected GDP data from Australia has also helped to fuel the day's rally.

The major averages have moved roughly sideways in recent trading, hovering near their best levels of the day. The Dow is currently up 220.92 points or 2.2 percent at 10,235.64, the Nasdaq is up 55.45 points or 2.6 percent at 2,169.48 and the S&P 500 is up 25.61 points or 2.4 percent at 1,074.94.

A short time ago, the Institute for Supply Management reported that U.S. manufacturing activity in the month of August unexpectedly expanded at a faster pace. The ISM's index of activity in the manufacturing sector rose to 56.3 in August from 55.5 in July, with a reading above 50 indicating growth in the sector. The increase came as a surprise to economists, who had expected the index to fall to a reading of 52.9.

Initial gains came as traders looked to economic news from outside of the U.S., with data from China showing that manufacturing activity rose slightly in August, ending a two-month contraction. Markit Economics said the HSBC manufacturing purchasing managers' index came in at a seasonally adjusted 51.9, up from 49.4 in July. A reading above 50 indicates expansion.

Separately, the Australian Bureau of Statistics revealed that Australian GDP rose by 1.2 percent in the second quarter, compared to the 0.7 percent growth seen in the previous quarter. Economists had expected the economy to grow by 0.9 percent for the period.

Among the day's second tier economic data from the U.S., the Commerce Department said that construction spending fell by 1.0 percent in July following a revised 0.8 percent decrease in June. Economists had expected spending to decrease by 0.7 percent compared to the 0.1 percent increase originally reported for the previous month.

Earlier, Automatic Data Processing, Inc. (ADP) reported that private sector employment fell by 10,000 jobs in August following a downwardly revised increase of 37,000 jobs in July.

Economists had expected employment to increase by 13,000 jobs compared to the addition of 42,000 jobs originally reported for the previous month.

On the corporate front, shares of Burger King (BKC) has seen significant upside today following a report from the Wall Street Journal that the firm has discussed a buyout by private sector entities.

Sector News

Steel stocks are among the morning's strongest performers, with the NYSE Arca Steel Index posting a 4.9 percent gain. The upward move has helped the index to offset a part of its recent losses while setting a two-week in intraday high.

Oil service stocks are also markedly higher, driving the Philadelphia Oil Service Sector Index up by 4.5 percent as the price of oil is up by $1.24 to $73.16 a barrel.

Healthcare provider stocks are also seeing strong gains, resulting in a 4.2 percent gain by the Morgan Stanley Healthcare Provider Index, which is bouncing off of a thirteen-month closing low set in the previous session.

Electronic storage, semiconductor, railroad and defense stocks are also moving sharply higher on the day along with most other sectors. However, gold stocks are seeing some weakness amid the day's rise in risk appetite.

Stocks Driven By Analyst Comments

BioMarin Pharmaceutical Inc. (BMRN) is on the upside after analysts at Morgan Joseph boosted their rating on the stock from Hold to Buy. Shares are currently up by 3 percent, setting a three-week intraday high.

Garmin (GRMN) is also advancing after Wedbush raised its rating on the stock from Underperform to Neutral. The stock is up by 5 percent, rising to its best intraday price in two weeks.

On the other hand, Saks (SKS) is trading lower following a downgrade by JP Morgan Chase to Neutral from Overweight. The stock has lost 2.2 percent and is pulling back off of the three-week closing high set in the previous session.

Other Markets

Overseas, stock markets in the Asia-Pacific region saw a partial rebound from Tuesday's sell-off. Japan's benchmark Nikkei 225 Index gained 1.2 percent, while Hong Kong's Hang Seng Index rose by 0.4 percent.

The major European markets are also notably higher. The French CAC 40 Index is up by 3.2 percent while the German DAX Index and the U.K.'s FTSE 100 Index are both up by 2.1 percent.

In the bond markets, treasuries are seeing heavy selling. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.596 percent, posting a gain of 11.9 basis points.

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TSX Looks To Extend Gains At Open Wednesday

Toronto stocks may extend gains at open Wednesday amid recovery in commodities prices and encouraging cues from the global equity markets. Global stocks rose after Chinese manufacturing growth picked up and Australia said its economy expanded at its fastest pace in three years.

On Tuesday, the S&P/TSX Composite Index edged up 18.30 points or 0.15% to 11,913.86, extending gains for a fifth session.

The price of crude oil was recovering from its steep fall in the previous session after official data showed that China's purchasing managers' index rose to 51.7 in August from 51.2 in July. Meanwhile, Australia said its GDP grew a seasonally adjusted 1.2% in the second quarter 2010. Crude for October was up $0.89 to $72.81 a barrel.

The price of gold continued to advance towards its all-time high of $1,264.90 an ounce, hit in June. Gold for December gained $2.70 to $1,253.00 an ounce.

In corporate news from Canada, airplane maker Bombardier Inc. reported lower second quarter net income of $148 million or $0.08 per share, compared to $202 million or $0.11 per share for the same period last year. Analysts were expecting the company to report $0.08 per share this quarter. The company declared a quarterly dividend of C$0.025 per share. Separately, the company said it's subsidiary Bombardier Transportation has received $267 million order from the New Jersey Transit Corporation.

Reportedly, China is planning an anti-monopoly probe into Australian mining company BHP Billition's $130 per share unsolicited bid for fertilizer maker Potash Corp.

Convenience store operator Alimentation Couche-Tard today said it has increased its tender offer to acquire Casey's General Stores Inc. by $0.50 to $38.50 per share.

Oil and gas distributor Enbridge Inc. said its executive VP, Stephen Letwin would retire from his roles with Enbridge and its affiliate companies effective November 1, 2010.

Mineral resources company Anaconda Mining said it had acquired an additional 4.5 million shares of New Island Resources Inc, taking its total stake to about 49.97% on the latter.

Privately owned YS Mining Co. Inc. has announced a $15.60 million all-cash bid for precious metals explorer Tagish Lake Gold, at $0.12 per share.

Oil and natural gas explorer Cirrus Energy said it has appointed John Bell as interim vice president finance and chief financial officer.

In economic news from the U.S., payroll processor Automatic Data Processing said that private sector employment fell by 10,000 jobs in August following a downwardly revised increase of 37,000 jobs in July. Economists were expecting employment to increase by 13,000 jobs compared to the addition of 42,000 jobs originally reported for the previous month.

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Asian Markets End In Positive Territory

Asian markets ended Wednesday's trading session in positive territory following buoyant GDP numbers for the second quarter from Australia and slight improvement in China's manufacturing activity in August following two months of contraction. Except Shanghai market, all the other markets ended with modest gains led by resource, bank and retail stocks. Japanese market rebounded from yesterday's sharp losses as the local currency showed signs of stability in the trading session. Buying interest in select stocks on the first day of the month also lifted market sentiment.

In Japan, the benchmark Nikkei 225 Index advanced 102.96 points, or 1.2%, to 8927, while the broader Topix index of all First Section issues rose 6.73 points, or 0.8%, to 811.

Exporters posted modest gains as the local currency, the yen, showed signs of stability after having gained strength in the past few days. Canon Inc. gained 1.17%, Olympus Corp. surged 2.99% and Panasonic Corp advanced 0.99%.

Stocks of machinery companies also advanced on optimism about growth following China's economic data. Fanuc Ltd rose 2%, Kyocera Corp. advanced 1.92%, TDK Corp. added 0.80% and Mitsumi Electric Co. climbed 2.55%.

Shares of shipping transport companies also ended in positive territory. Kawasaki Kishen Kaisha gained 1.28%, Mitsui OSK Lines advanced 0.95% and Nippon Yusen rose 1.85%.

Real Estate companies also advanced into positive territory. Mitsubishi Estate Co. climbed 3.33%, Sumitomo Realty & Development gained 2.25%, Mitsui Fudosan rose 2.49%, Heiwa Real Estate was up 1.99% and Tokyu Land Corp. increased 1.51%.

In Australia, the benchmark S&P/ASX200 Index surged up 91.50 points, or 2.08%, and closed at 4,496 points, while the All-Ordinaries Index ended at 4,527, representing a gain of 88.00 points, or 1.98%.

On the economic front, a report released by the Australian Industry Group/Price WaterhouseCoopers revealed that activity in the country's manufacturing sector continued to expand in August, but at a slower pace than in July. The AIG /Price WaterhouseCoopers' Performance of Manufacturers index declined 2.7 points to a reading of 51.7, signaling the eighth straight month of expansion in the sector. Readings above 50.0 indicate expansion of activity in the surveyed sector.

Data released by the Australian Bureau of Statistics revealed that the economy grew 1.2% between April and June, almost twice as fast as the 0.7% expansion in the first three months of the year. Economists expected the economy to rise 0.9% in the latest quarter. The data further noted that the economy economy grew 3.3% on a year-over-year basis, again beating expectations for a 2.8% rise. The Bureau stated that the terms of trade rose 12.5% and real gross domestic income rose 4%. On the expenditure side, the main positive contributors to GDP were household final consumption expenditure and net exports. On the production side, construction and mining were the largest positive contributors.

Mining and metal stocks ended in positive territory on optimism about sustaining growth in the domestic economy. BHP Billiton gained 2.32%, Rio Tinto climbed 3.07%, Fortescue Metals surged up 5.13%, Gindalbie Metals rose 2.25%, Iluka Resources advanced 0.90%, Macarthur Coal was up 2.30%, Mincor Resources increased 4.05%, and Oz Minerals soared 4.05%.

Oil related stocks also ended higher. Woodside Petroleum gained 2.46%, Santos Ltd added 0.63%, ROC Oil climbed 4.17%, Oil Search Ltd advanced 0.68% and Origin Energy climbed 1.70%.

Banking stocks also advanced on buoyant economic data. ANZ Bank climbed 2.43%, Commonwealth Bank rose 2.01%, National Australia Bank gained 2.80% and Westpac Banking was up 3.00%. Investment banking company Macquarie Group ended in positive territory with a modest gain of 0.91%.

Retailers also gained on positive GDP data for the April-June quarter. David Jones added 1.01%, Harvey Norman advanced 1.16%, JB Hi-Fi gained 1.06%, Reject Shop climbed 2.12%, Wesfarmer rose 2.38% and Woolworths was up by 1.69%.

The Indian market rallied on Wednesday, joining its peers in Asia and Europe, after a slew of economic data eased worries about softening global growth. Amid broad-based buying, the benchmark 30-share Sensex ended up 235 points or 1.31% at 18,206, with 27 of its components closing firm. The 50-share Nifty rose by 69 points or 1.29% to 5,472.

Among the other major markets open for trading, China's Shanghai Composite Index ended in the negative territory with a loss of 15.92 points, or 0.60%, at 2,623. The other markets, however, ended in positive territory on optimism about economic recovery. Jakarta Composite Index in Indonesia rose 53.43 points, or 1.73%, to close at 3,135, Singapore's Strait Times Index gained 32.50 points, or 1.10%, to 2,983, and Taiwan's Weighted Index advanced 51.97 points, or 0.68%, to close at 7,668.

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The major European averages are rising sharply on Wednesday, with the French CAC 40 Index and the German DAX Index rising 1.88% and 0.97%, respectively, while the U.K.’s FTSE 100 Index is gaining 1.28%.

Emphasizing the slackness in consumer spending, the German Federal Statistical Office reported that German retail sales fell a seasonally adjusted 0.3% month-over-month in July in real terms. However, on a year-over-year basis, retail sales were up 0.8%.

U.S. Economic Reports

Individual automakers are scheduled to release their monthly U.S. sales results for August. The data will reveal the unit sales of domestically produced cars and light duty trucks, including sports utility vehicles and mini-vans, during the month.

In a report likely to add to recent concerns about the outlook for the labor market, payroll processor Automatic Data Processing said that employment unexpectedly showed a modest decrease in the month of August.

The report showed that private sector employment fell by 10,000 jobs in August following a downwardly revised increase of 37,000 jobs in July. Economists had expected employment to increase by 13,000 jobs compared to the addition of 42,000 jobs originally reported for the previous month.

The results of the manufacturing survey of the Institute for Supply Management, which are based on data compiled from purchasing and supply executives nationwide, are due out at 10 AM ET. Economists expect the index to show a reading of 52.9 for August.

The manufacturing index based on the national survey declined 0.7 points to 55.5 in July, while economists had expected a steeper 1.7-point decline. The new orders index fell by 5 points to 53.5 and the order backlog index slipped 2.5 points. However, on an encouraging note, the employment index rose a point to 58.6. That said, the fact that only 10 of the 18 industries surveyed reported growth is worrisome.

The Commerce Department's construction spending report to be released at 10 AM ET is expected to show a 0.7% decline in spending for July.

Construction spending rose 0.1% month-over-month in June. However, taking some sheen off the growth, May's reading was downwardly revised to show a 1% decline compared to the 0.2% drop estimated initially. The strength reflected a 1.5% jump in public construction spending, which benefited from government stimulus support. However, private construction spending edged down 0.6%.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended August 27th at 10:30 AM ET.

Crude oil stockpiles rose by 4.1 million barrels to 358.3 million barrels in the week ended August 20th. Inventories remained above the upper limit of the average range.

Gasoline inventories climbed by 2.3 million barrels, remaining above the upper limit of the average range. Distillate stockpiles also increased, rising by 1.8 million barrels and remaining above the upper boundary of the average range. Refinery capacity utilization averaged 87.7% over the four weeks ended August 20th compared to 90% in the previous week.

Dallas Federal Reserve Bank President Richard Fisher is due to speak about the U.S. economy before the Greater Houston Partnership at 12:30 PM ET.

Stocks in Focus

Procter & Gamble (PG) may be in focus after it announced a voluntary recall of a small number of bags of cat food from a specific lot of one of its dry cat food products due to potential salmonella exposure.

Dollar Thrifty (DTG) is expected to react to its announcement that it has upwardly revised its adjusted EBITDA guidance for 2010 by $40 million to $240 million to $260 million. The company attributed the optimism to solid operating performance in July and August and its revised outlook for fleet costs for the balance of 2010. However, the company said it maintains its previously announced revenue guidance.

Burger King Holdings (BKC) is also likely to be in focus after a Wall Street Journal report said the company is in talks with private equity players to take it private.

ABM industries (ABM) could be in focus after it reported that its third quarter adjusted earnings from continuing operations rose to 42 cents per share from 36 cents per share last year. However, revenues edged down 0.2% to $869 million. Analysts estimated earnings of 41 cents per share on revenues of $889.17 million.

Dun & Bradstreet (DNB) could react to its announcement that it has acquired privately held Dun & Bradstreet Australia Holdings, a member of the D&B Worlwide Network, for $205 million in cash. The company expects the deal to add $15 million to $20 million in revenues to the company but reduce earnings by 4-5 cents per share due to acquisition related charges. The company also said it remains comfortable with its current guidance range.

PerkinElmer (PKI) is also expected to be in focus after it said it has agreed to sell its illumination and detection solutions business to private equity firm Veritas Capital Fund III L.P. for $500 million in cash. The company also updated its guidance to give effect to the transaction and now expects third quarter non-GAAP earnings per share from continuing operations in the range of 27-29 cents.

Heinz (HNZ) is likely to be react to its announcement that its first quarter income from continuing operations rose to 75 cents per share from 68 cents per share last year, as sales rose to $2.48 billion from the year-ago’s $2.44 billion. Analysts estimated earnings of 73 cents per share on revenues of $2.53 billion. The company reaffirmed its 2011 guidance, which calls for sales growth of 3%-4% and earnings per share growth of 7%-10%.

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Dollar Falls As Global Stocks Push Higher

The dollar hit the skids versus the euro and most other majors on Wednesday as global equities snapped out of their recent funk.

Encouraging data from China helped drive Asian stocks sharply higher, and European shares followed suit, fueling increased risk appetite.

China's manufacturing activity picked up in August, and Australia's economy expanded at the fastest pace in three years, easing concerns about global demand for goods and resources.

In economic news from across the Atlantic, recovery in the Eurozone manufacturing sector slowed in August as all major nations in the bloc, except France, experienced a slowdown.

The dollar was hammered by the aussie, falling to a month and a half low of 0.9060. At the same time, the dollar fell to a ten-day low of $1.2800 against the euro, down more than a penny from yesterday's levels.

Still, the buck was stuck in the mud versus the yen, hovering just above a recent 15-year low of Y83.58. There was little movement versus the sterling, with the buck holding within a penny of yesterday's 6-week high of $1.5326.

Another round of key economic data from the US will keep traders busy today, including a closely-watched prelude to Friday's monthly jobs report from the Labor Department.

The ADP National Employment report, that sheds light on non-farm private employment in the country will be released at 8.15 a.m. ET. Economists expect that private employers added 13,000 jobs in August.

At 10.00 a.m. ET, the results of the manufacturing survey of the Institute for Supply Management for August will be tabled. Economists expect that the index to show a reading of 52.9 for August, lower than the 55.5 recorded for July.

The Commerce Department will release its report on construction spending for July at 10.00 a.m ET. Economists forecast that construction spending contracted 0.7% during the month, following a 0.1% increase in the previous month.

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