US & World Daily Markets Financial Briefing 02-02-2011

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Stocks Seeing Modest Weakness After Yesterday's Rally

Stocks are seeing modest weakness in early trading on Wednesday, as traders shrug off a better than expected report on private sector employment. The major averages are giving back some ground after ending the previous session sharply higher.

The early weakness in the markets comes in spite of the release of a report by payroll processor Automatic Data Processing, Inc. (ADP) showing that private sector employment increased by more than expected in the month of January.

ADP said private sector employment increased by 187,000 jobs in January following a downwardly revised increase of 247,000 jobs in December. Economists had expected employment to increase by about 145,000 jobs compared to the increase of 297,000 jobs originally reported for the previous month.

Peter Boockvar, equity strategist at Miller Tabak, noted, "There was nothing in the press release alluding to the bad weather being a factor in hiring."

"From a market perspective however, Friday's payroll figure always is more relevant and expectations are for a total non-farm gain of 143,000," he added.

With earnings season winding down, Mattel, Inc. (MAT) reported fourth quarter income of $0.89 per share, the same as the prior-year quarter. On average, analysts expected the company to report earnings of $0.86 per share.

Mattel said its net sales grew to $2.12 billion from $1.96 billion in the comparable period last year. Analysts estimated revenues of $2.09 billion.

Electronic Arts Inc. (ERTS) posted an adjusted third quarter profit of $0.59 per share on revenues of $1.05 billion. The results beat analyst forecasts for $0.57 per share on revenues of $1.44 billion. Fourth quarter earnings and revenue estimates were largely in-line with estimates.

Whirlpool Corp. (WHR) said its fourth-quarter net earnings were $2.11 per share, trailing projections for $2.26 for the quarter. The company reported sales of $5.04 billion, higher than the $4.84 billion forecast for the period.

Transportation stocks are seeing notable weakness in early trading, with trucking stocks posting particularly steep losses. C.H. Robinson (CHRW) helping to lead the sector lower after reporting weaker than expected fourth quarter earnings.

While moderate weakness is also visible among pharmaceutical, housing, and telecom stocks, most of the major sectors are showing only modest moves

The major averages moved off their lows for the young session but are currently still posting modest losses. The Dow is down 9.65 points or 0.1 percent at 12,030.51, the Nasdaq is down 5.09 points or 0.2 percent at 2,746.10 and the S&P 500 is down 4.08 points or 0.3 percent at 1,303.51.

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Early Signals Point To Higher Open For TSX

Bay Street stocks may open higher Wednesday amid flat commodities and an encouraging private sector employment report from the U.S., Canada's biggest trading partner.

However, the main index already gathered over 300 points in the past three sessions, and profit taking at higher levels may put an end to the winning streak.

Today's data from the U.S. revealed private sector employment increased by more than expected in January.

U.S. stock futures were pointing to a flat open amid ADP employment report.

On Tuesday, the S&P/TSX Composite Index advanced to a fresh 2-year peak of 13,712.62, gaining 160.63 points or 1.18 percent.

The price of crude oil was little changed Wednesday morning as traders await the official crude oil inventories report from the EIA, due out during the trading hours. Analysts expect crude inventories pile up by 2.5 million barrels and gasoline stocks to rise by 2 million barrels last week. Crude for March edged up $0.25 to $91.02 a barrel.

The price of gold was weaker amid a mixed U.S. dollar. Gold for April was down $3.20 to $1,337.10 an ounce.

In corporate news from Canada, diversified oil and gas firm Suncor Energy reported improved fourth quarter net earnings of C$1.35 billion or C$0.87 per share compared to C$457 million or C$0.29 per share in the year ago period.

Intermediate gold producer New Gold said it produced 124,445 ounces in the fourth quarter and sold 116,964 ounces, compared to106,475 in the same quarter a year earlier.

Mortgage insurer Genworth MI Canada reported lower fourth-quarter profits of $84 million or $0.80 per share, compared to $87 million, or $0.74 per share a year earlier.

Cable Television and internet services provider COGECO Inc. announced the appointment of Richard Lachance as Senior Vice President, Radio, Cogeco Diffusion Inc.

In economic news from south of the border, payroll processor Automatic Data Processing, Inc. (said private sector employment increased by 187,000 jobs in January following a downwardly revised increase of 247,000 jobs in December. Economists had expected employment to increase by about 145,000 jobs.

Meanwhile, rating agency Standard & Poor's cut its rating on Ireland by one notch to A-minus from A and warned that another downgrade may be coming soon.

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Stocks mark time

European stocks have been unable to build on early gains and are now mixed, as futures markets indicate that Wall Street is set for a subsued start ahead of the release of the jobs data from US payrolls processing firm ADP.

The Paris CAC is 14 points lower at 4,065 and the Frankfurt DAX is 2 points weaker at 7,182 but the Madrid IBEX makes progress, up 14 points at 10,982.

The OMX Stockholm 30 index is one of the worst performing European indices, down 19 points at 1,126, after white goods maker Electrolux reported a decline in fourth quarter earnings.

The Swedish firm said core earnings in the fourth quarter of 2010 dipped to SKr.1.71bn from SKr.2.0bn a year earlier. The market had been expecting core earnings of around SKr.1.78bn.

Pre-tax profit was SKr.925m versus market expectations of Skr.1.66bn.

"In the fourth quarter, we have seen continued price pressure in some of our large markets," president and chief executive Keith McLoughlin said.

The company will look to pass on raw material price rises on to customers this year.

In Spain, the country’s second biggest bank, Banco Bilbao Vizcaya Argentaria (BBVA), also disappointed the market with its trading update.

Fourth quarter net income of €939m was a sharp increase on €31m from a year earlier but trailed market forecasts of €963m.

Matrix Group reiterated its “sell” rating on the stock. “Although BBVA’s Q4 2010 results are in line with our expectations, the underlying trends are still weak. In our view, these weak trends should continue in coming quarters, particularly with respect to declining NII (due to higher costs of funding) and high loan losses for a prolonged period of time,” the finance group said.

“Net loan losses are in line with our estimate (and down a modest 6% quarter on quarter. However, it looks like there is a meaningful release of generic provisions included in this number. We are still searching for the exact amount, but the fact that total generic provisions have fallen to €2,382m from €3,089m in Q3 suggests a net release of some €250m,” Matrix added.

Matrix’s price target for the stock is €6.75.

Insulin maker Novo Nordisk also failed to meet market expectations. The Danish firm’s fourth quarter net income was DKr.3.95bn, versus expectations of DKr.4.27bn.

Swiss drugs maker Roche said second half net income dipped 30% from a year earlier to SFr.3.2bn, versus expectations of Sfr.3.78bn.

Nordea, the Swedish financial services group focused on the Nordic and Baltic region, saw fourth quarter net income jump 72% to €769m from €448m a year earlier. The result was ahead of consensus forecasts of €731m. Net loan losses dropped to 166m, the lowest level since the third quarter of 2008.

Elsewhere in Scandinavia, Norwegian green energy firm Renewable Energy saw fourth quarter earnings before interest, tax, depreciation and amortisation come in at NKr.1.8bn, ahead of market expectations of DKr.1.27bn, though the figure did include a one-off cancellation fee worth DKr.300m.

Italian lender UniCredit was wanted after Goldman Sachs added it to its “conviction buy” list. UniCredit, meanwhile, has given a boost to copper smelter Aurubis, lifting its rating of the stock to “buy” from “hold”.


CAC 40 - Risers
Cap Gemini (CAP) € 38.26 +2.64%
France Telecom (FTE) € 16.40 +1.45%
Societe Generale (GLE) € 48.51 +1.34%
Credit Agricole (ACA) € 11.06 +1.24%
Natixis SA (KN) € 3.98 +0.94%
Vivendi (VIV) € 21.18 +0.88%
Suez Environnement Company (SEV) € 15.54 +0.84%
BNP Paribas (BNP) € 57.06 +0.83%
Michelin (ML) € 54.80 +0.79%
Pernod Ricard (RI) € 70.46 +0.69%

CAC 40 - Fallers
Schneider Electric (SU) € 111.75 -2.61%
Renault (RNO) € 46.15 -2.57%
Peugeot (UG) € 29.59 -2.00%
Saint Gobain (SGO) € 41.90 -1.59%
PPR (PP) € 115.25 -1.24%
ArcelorMittal SA (MT) € 26.57 -1.12%
Unibail-Rodamco (UL) € 139.75 -1.06%
Vallourec (VK) € 79.50 -1.03%
Lafarge (LG) € 44.40 -0.97%
Accor (AC) € 33.72 -0.95%

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Indian Market Snaps 5-day Losing Streak; Ends Off Day's High

India's benchmark indexes Sensex and the Nifty rebounded from their five-month lows on Wednesday, as strong global cues amid some encouraging earnings reports and signs of growth in the U.S. and Europe bolstered sentiment.

With positive global manufacturing data raising expectations for stronger global growth this year and euro's gains against dollar adding to rupee strength, concerns over tepid portfolio inflows subsided to some extent, triggering short covering in Indian equities.

The Indian rupee strengthened against the dollar for a second consecutive day today, buoyed by a bounce back in local stocks coupled with strength in other Asian currencies amid easing concerns over Egypt.

However, after rising to a high of 18,306 early in the session, the BSE Sensex failed to hold onto the initial gains as investors took profits at higher levels. The 30-share Sensex ended up about 70 points or 0.38 percent, with only 13 of its components ending in the green. The 50-share Nifty posted a modest 0.27 percent gain.

The broader indexes such as the BSE mid-cap and small-cap, meanwhile, ended on a flat note, after giving up early gains. The market breadth on the BSE was slightly positive, with 1421 gainers versus 1382 decliners.

The intra-day sell-off following the sharp bounce back earlier in the day suggests a bearish outlook for Indian equities in the short-term, mainly because of renewed selling by foreign funds owing to inflation worries and better investment opportunities elsewhere in other high-growth markets.

After remaining net buyers to an extent of Rs.2,049.60 crore in December, foreign institutional investors sold shares worth Rs. 4,813.20 crore on a net basis in January, data shows.

Investors were also worried about the political fallout of former telecom minister A. Raja's arrest by the CBI in connection with the 2G spectrum scam.

In stock-specific action Bharti Airtel rose 2.75 percent despite reporting a bigger-than-expected 41 percent fall in its quarterly consolidated net profit, mainly due to one-time brand relaunch cost of Rs. 340 crore and a loss of Rs.151 crore on account of adverse foreign currency fluctuations.

Tata Motors, which led the decliners yesterday, climbed nearly 4 percent on bargain hunting. Heavyweight Reliance Industries advanced 2.88 percent after its recent underperformance.

Metal stocks such as Hindalco and Sterlite gained around 2 percent each, buoyed by higher base metal prices. Software exporters such as TCS and Wipro rose around 2 percent each, boosted by positive economic data out of the Untied States. However, Infosys closed marginally lower on management rejig reports.

DLF (up 2.85 percent), Hindustan Unilever (up 2.14 percent), ICICI Bank (up 1.54 percent), Jaiprakash Associates (up 1.44 percent) and ONGC (up 0.57 percent) were the other prominent gainers.

FMCG companies such as Dabur (up 0.70 percent) and Marico (up 1.08 percent), which reportedly suspended operations in Egypt temporally, closed firm as Egyptian concerns eased after President Hosni Mubarak said he would step down in September and U.S. President Barack Obama suggested that the orderly transition of power must begin straight away. Unitech rallied 5.11 percent after the company said its promoters have repaid Rs. 51 crore to creditors.

Hero Honda Motors plunged 5.27 percent on disappointing results. Maruti Suzuki ended down 2 percent after launching its luxurious car Kizashi. Bajaj Auto fell 2.30 percent despite reporting an 18 percent rise in its January vehicle sales.

Meanwhile, Finance Minister Pranab Mukherjee said today that the government will manage the current volatility in crude prices caused by developments in the Middle East.

Elsewhere, the other Asian markets climbed higher on Wednesday, led by a 1.8 percent gain in Japan's Nikkei index, as signs of growth in the U.S. and Europe and some encouraging earnings reports increased investor appetite for riskier assets. The Chinese stock markets were shut for a week beginning today for the Lunar New Year holiday.

Copper prices climbed to a record high in London and crude prices recovered slightly after dropping in early Asian trading, as the safe-haven U.S. dollar fell to an almost three-months low against the euro on improving risk appetite. Overnight, the Dow Jones Industrial Average closed above the 12,000 mark for the first time in 30-months, helping lift investor sentiment across global markets.

European stocks edged higher Wednesday, extending the previous session's rally on rising optimism about global growth.

Trading in the U.S. index futures suggested that the Dow could rise 9 points at the opening bell later in the global day.

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Dollar Nearing Yearly Low Versus Sterling

The dollar was stuck in the mud on Wednesday, unable to pare much of its steep recent losses amid expectations of a wider interest rate gap between the U.S. and other major nations.

While central bankers abroad are growing keen on fighting inflation with tighter monetary policy, policy makers at the Federal Reserve are more inclined to keep interest rates near zero for an "extended period."

Eurozone producer prices rose at the fastest pace in more than two years due to higher energy prices, raising the region's inflationary woes.

The producer price index (PPI) rose 5.3% year-on-year in December following the 4.5% increase in November, latest data from Eurostat showed Wednesday. That was the highest rate since October 2008.

The dollar slipped to a fresh 3-month low of $1.6230 against the sterling this morning, and would hit a 13-month low if it falls to $1.6300.

The Bank of England's Andrew Sentance cautioned that interest rates should rise sooner than later in order to combat inflation. His remarks came amid the release of recent data showing the UK economy is picking up after a dismal fourth quarter.

The British construction sector recovered in January after poor weather conditions dampened activity in the previous month, a survey by Markit Economics showed Wednesday.

The dollar edged very slightly higher to $1.38 against the euro, after touching a 3-month low of $1.3861 late last night.

The dollar saw little movement against the yen, holding near yesterday's monthly low of Y81.30. Back in November, the dollar hit a 15-year low of Y80.22.

Looking at the economic calendar from the U.S., the ADP National Employment report, which sheds light on non-farm private employment, will be released at 8:15 a.m. ET. The report is a key prelude to Friday's Labor Department's employment report.

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