US & World Daily Markets Financial Briefing 02-11-2010

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Stocks Posting Solid Gains In Mid-Morning Trading

Stocks are seeing moderate upside in mid-morning trading on Tuesday, although the gains may be challenged by caution ahead of the midterm election results. The impending influx of market-moving news, including the Federal Reserve's anticipated quantitative easing announcement and Friday's jobs report, may also keep a lid on buying and selling in the equity markets.

The major averages have seen some downside in recent dealing, moving further off of their best levels of the day. Nonetheless, the Dow currently remains up 66.67 points or 0.6 percent at 11,191.29, the Nasdaq is up 16.42 points or 0.7 percent at 2,521.26 and the S&P 500 is up 7.12 points or 0.6 percent at 1,191.50.

While waiting on the forthcoming news, the markets may look to monthly sales numbers from individual automakers for the month of October, due out later today. With earnings season winding down, quarterly results have also garnered some market attention in the early going.

This morning, pharmaceutical giant Pfizer Inc. (PFE) reported adjusted third-quarter net income of $0.54 per share, which beat estimates by 3 cents, while its revenues missed forecasts despite a 39 percent increase. The drug maker's 2010 earnings and revenue forecasts were largely in-line with expectations.

MasterCard Inc. (MA) posted third quarter net income of $3.94 per share, firmly beating Wall Street projections, while its revenues just edged out estimates.

Oil giant BP Plc (BP) reported a sharp decline in its third-quarter profit after it took a $7.7 billion pre-tax charge related to the massive Gulf of Mexico oil spill.

After the markets closed for trading on Monday, Anadarko Petroleum Corp. (APC) reported a loss in its third quarter, with earnings and revenues missing Street estimates by a wide margin.

Overseas, the Reserve Bank of Australia unexpectedly raised its key interest rate by 25 basis points to 4.75 percent, effective November 3rd.

The bank concluded that the balance of risks had shifted to the point where an early, modest tightening of monetary policy was prudent, RBA Governor Glenn Stevens said in a statement.

Sector News

Health insurance stocks are among the market's best performers in the early going, driving the Morgan Stanley Healthcare Payor Index up by 2.8 percent. Within the sector, Humana (HUM) is seeing a gain of 4.1 percent and is on target for its best closing price in two and a half years.

Steel, tobacco, oil and defense stocks are also trading higher, further contributing to the early upside for the major averages. The NYSE Arca Tobacco Index is up by 1.7 percent, poised for yet another all-time closing high.

Gains among natural gas, networking and software stocks are proving to be more modest as some buying interest is restrained ahead of the week's major news.

Stocks Driven By Analyst Comments

DreamWorks Animation (DWA) is trading higher after being upgraded at Bank of America from Underperform to Neutral, while its price target was raised to $38 from $30. The stock is up by 0.4 percent after setting a fresh six-month intraday high.

Tidewater (TDW) is also elevated following an upgrade at Goldman Sachs from Sell to Neutral. Shares are currently up by 1.1 percent and also set a new six-month intraday high.

On the other hand, Aeropostale (ARO) is trading lower after being downgraded at Keybanc Capital Markets from Hold to Underweight. The stock is posting a loss of 2.4 percent, slipping to a one-month intraday low.

Other Markets

Overseas, stock markets in the Asia-Pacific region ended little changed on Tuesday. Japan's benchmark Nikkei 225 Index edged up by 0.1 percent, as did Hong Kong's Hang Seng Index.

Meanwhile, the major European markets are seeing strong gains. The U.K.'s FTSE 100 Index is up by 1.3 percent, while the German DAX Index is up by 0.9 percent and the French CAC 40 Index is up by 0.7 percent.

In the bond markets, treasuries are posting modest gains. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.590 percent, posting a loss of 3.8 basis points.

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Early Signals Point To Higher Open For TSX

Toronto stocks are poised for a higher open Tuesday amid firm commodities prices and strong cues from the global equity markets.

On Monday, the S&P/TSX Composite Index eased 11.43 points or 0.09% to 12,664.81 on late selling. The price of crude oil moved up Tuesday morning as traders await the outcome of FOMC meeting due out tomorrow. Crude for December was up $1.01 to $83.99 a barrel, near its three-week high.

The price of gold was moving higher as Federal Reserve officials gathered for a two-day meeting in Washington, at the conclusion of which they are expected to unveil more quantitative easing measures. Gold for December gained $7.40 to $1,358.00 an ounce.

Fertilizer maker Potash Corp. may be in play amid media reports that Investment Canada has tentatively approved BHP Billiton's hostile $130 per share take over bid.

In corporate news from Canada, diversified upstream oil and gas firm Talisman Energy reported improved third-quarter net income of C$121 million or C$0.12 per share, compared to C$30 million or C$0.03 per share last year. The company declared a semi-annual dividend of $0.125 per share.

Industrial electioneering company Ritchie Bros. Auctioneers reported third quarter net earnings of $13.48 million or $0.13 per share, up from $12.89 million or $0.12 per share last year. Analysts were expecting the company to report earnings of $0.09 per share this quarter.

Publishing and marketing services company Transcontinental Inc. said it acquired privately held Vortxt Interactive, to enhance its interactive marketing solutions.

Pulp maker Mercer International said it swung to profit in third quarter, reporting net income of EUR 46.1 million or EUR0.82 per share, compared to net loss of EUR14.1 million or EUR0.39 per share in the year ago quarter.

Mobile communications services provider Bridgewater Systems said its third-quarter net income doubled to $3.4 million or $0.13 per share and guides 2010 net income to be between $12 and $13.5 million.

Mineral explorer Terraco Gold said it would acquire Western Standard Metals in an all-share transaction, by way of a plan of arrangement. Western shareholders will receive 0.75 common shares of Terraco for each share held.

Resource stocks were leading Toronto's main index higher at open the Tuesday amid firm commodities prices. The S&P/TSX Composite Index added 27.80 points or 0.22% to 12,692.61.

The Diversified Metals Index rose 0.90%, with First Quantum Minerals and Equinox Minerals adding around 2% each. Among gold stocks, Alamos Gold, Eldorado Gold and Kirkland Lake Gold were up around 1% each.

In the oil patch, Celtic Exploration and Canadian Oil Sands Trust gained over 1% each. Diversified upstream oil and gas firm Talisman Energy edged up 0.75% after reporting improved third-quarter net income.

In the financial space, TD Bank and Bank of Montreal added nearly 1% each. In the IT space, MacDonald Dettwiler was up 0.75%, while blackberry maker Research In Motion gave in close to 1%.

Mobile communications services provider Bridgewater Systems soared over 7% after it said its third-quarter net income doubled.

Fertilizer maker Potash Corp. edged up nearly 0.50% amid media reports that Investment Canada has tentatively approved BHP Billiton's hostile $130 per share take over bid.

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European Markets Trade Cautiously Amid Manufacturing Data

The European stock markets are edging higher Tuesday morning after euro zone manufacturing activity improved by much more-than-expected in October. However, traders remain cautious ahead of Wednesday's FOMC meeting.

In the commodities market, crude for December delivery is up $0.32 to $83.27 a barrel. Meanwhile, the price of gold is moving higher, with gold for December delivery adding $7.60 to $1,358.20 an ounce.

In economic news, manufacturing activity in the euro zone improved more than initially estimated in October, survey results from Markit showed. The final Purchasing Managers' Index for October rose to 54.6 in October from September's eight-month low of 53.7. The flash estimate for October was 54.1.

Meantime, Germany's manufacturing sector expanded again in October, largely helped by strong new orders, survey data from Markit Economics showed. The seasonally adjusted Markit/BME Purchasing Managers' Index, a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy, rose to 56.6 in October from 55.1 in the previous month.

In an indication that construction will have less of a positive impact on UK's GDP compared to the previous quarter, the seasonally adjusted Markit/Chartered Institute of Purchasing & Supply construction Purchasing Managers' Index fell to 51.6 in October, the lowest reading in the current eight-month sequence of expansion. The expected reading was 53.

Among stocks, BP Plc is edging up over 1% after it said its profit fell 66% after taking a further pre-tax charge of $7.7 billion related to the Gulf of Mexico well disaster. Third-quarter net income dropped to $1.8 billion from $5.3 billion in the year-earlier period.

U.K's third-largest natural-gas producer BG Group Plc is adding over 2% after reporting a 12% jump in its third-quarter profits.

Basilea Pharmaceutica is up over 1%. The company said it has received a milestone payment of 5.5 million euros under its distribution agreement for Toctino, or alitretinoin, with Almirall, S.A.

Meanwhile, Spain's second-biggest bank Banco Bilbao Vizcaya Argentaria SA is shedding over 4% after it said it would buy a 24.90% stake in Turkiye Garanti Bankasi AS for $5.8 billion.

The FTSE 100 is currently up 0.89%, the CAC 40 is adding 0.73% and the DAX is up 0.40%.

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Indian Market Ends Volatile Session Unchanged

The Indian market closed a volatile session mostly unchanged on Tuesday after the Reserve Bank of India raised its key short-term policy rates by 25 basis points each, a day before a meeting of the U.S. Federal Reserve Meeting to consider additional quantitative easing.

Investors also eagerly await the results of U.S. mid-term elections today, the outcome of the Bank of England's policy committee meeting on Thursday and the the Bank of Japan's meet on November 5 for clues on foreign fund inflows into emerging markets.

After trading choppily in a range of 20,418-20,282, the 30-share BSE Sensex ended down about 10 points or 0.05%, while the broader Nifty closed up 0.02% at 6,119.

The BSE mid-cap index gained 0.45% and the small-cap index added 0.09%. The market breadth on the BSE was negative, with 1591 decliners versus 1375 gainers, in contract with a positive breadth in early trading.

The Reserve Bank of India today hiked the repo rate and the reverse repo rate by 25 basis points each in a bid to cool inflation. The cash reserve ratio, which determines the amount of funds that banks are required to set aside with the central bank, however, has been kept unchanged at 6%. RBI's last move was in September when it lifted the repo rate by a quarter point and the reverse repo by 50 basis points.

"Based purely on current growth and inflation trends, the Reserve Bank believes that the likelihood of further rate actions in the immediate future is relatively low," the central bank said in a statement. The central bank left its baseline real GDP growth projection for 2010-11 unchanged at 8.5%.

Banking stocks closed mostly higher, shrugging off the modest rate hike. SBI edged up 0.19%, HDFC Bank advanced marginally and Axis Bank advanced 0.98%, while ICICI Bank closed flat with a negative bias.

Realty stocks fell the most after the central bank tightened provisional norms on home loans. Indiabulls Real Estate plunged 5%, Unitech and DLF tumbled over 3% each and Sobha Developers ended down 2.12%. Orbit Corporation lost 2% on disappointing results.

In the auto sector, Ashok Leyland, Maruti Suzuki, Mahindra & Mahindra and Tata Motors fell between 0.20% and 1.41%, while Bajaj Auto rose 1.07% after reporting a 32% rise in its vehicle sales for October.

Cement stocks witnessed significant activity after the companies released healthy sales and production numbers for October. ACC climbed 4.20%, Ambuja Cements added 3.71% and UltraTech advanced 1.67%.

Software stocks closed on a mixed note. Infosys rose 0.83% and Wipro advanced 2.49%, but TCS ended down 0.48%. Jet Airways fell 1.12% after the airline said it launched forty-six new flights across the country effective Nov 1. Steel Strips Wheels declined 2.13% despite reporting higher gross sales for October.

 ABG Shipyard edged up 0.45% on securing an overseas order. Glaxosmithkline Consumer Healthcare added 0.98% after declaring its quarterly results.

Elsewhere, the other Asian markets ended on a mixed note Tuesday, as investors remained wary of expected quantitative easing by the U.S. Federal Reserve. There was a lack of consensus on the magnitude of additional stimulus measures or bond-buying program that the Fed may unveil to spur the economy.

However, European stocks posted modest gains in early trading and the U.S. index futures pointed to a positive start on Wall Street Tuesday morning.

Meanwhile, the Reserve Bank of Australia unexpectedly raised its key interest rate on Tuesday following its assessment that an early and modest tightening of monetary policy is prudent.

Separately, minutes from the Bank of Japan's monetary policy meeting on October 4.-5 released today revealed that some of the members of the central bank believed that further stimulus measures might do more harm than good.

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Dollar Mixed As U.S. Voters Head To Polls, Fed Preps QE Announcement

The dollar was mixed on Tuesday morning, as Americans lined up to vote in a midterm election that is shaping up to be a referendum on the policies of the Obama administration.

The markets have priced in a sweeping victory for the the Republicans, who will likely re-take the House of Representatives and trim the Democrats lead in the Senate.

Against this backdrop,the Federal Reserve is kicking off a two-day meeting today. While a decision to stand pat on interest rates is considered a foregone conclusion, few are certain about the size and scope of an expected second round of quantitative easing.

The dollar has fallen sharply of late amid speculation the Fed is prepping something along the lines of the $2 trillion spent on the first round of asset purchases back in 2009. However, recent hints about a more gradual and restrained approach this time around have helped the dollar stabilize a bit.

The dollar eased a bit versus the euro, having shown little direction over the past few days. The buck was trading near $1.3980, not far from October's 8-month low of $1.4150.

The dollar also drifted lower versus its Canadian counterpart, and was within a cent of parity approaching mid-morning. The pair exchanged at C$1.01, a 2-week low for the greenback.

On the flip side, the dollar gained on the sterling after the British construction sector showed its weakest growth in eight months, according to a survey. The buck rose a penny to $1.5985, an improvement from a recent 9-month low of $1.6106.

The dollar was also steady versus the yen, edging higher to Y80.95. In the process, the dollar stayed away from a record low of Y79.80, set back in 1995.

Some of the members of the Bank of Japan's monetary policy board believed that further stimulus measures might do more harm than good, minutes from the bank's October 4-5 meeting revealed on Tuesday.

However, some of the policy board members said that an unchecked rise from the yen would almost certainly weigh on the economy.

Elsewhere on the Pacific Rim, the Reserve Bank of Australia unexpectedly raised its key interest rate by 0.25 points to 4.75% on Tuesday, following its assessment that an early and modest tightening of monetary policy is prudent.

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