US & World Daily Markets Financial Briefing 05-10-2010

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Stocks In Rally Mode In Mid-Morning Trading

Stocks are notably higher in mid-morning trading on Tuesday, bouncing back from yesterday's weakness after a better than expected reading on service sector activity and central bank decisions in Japan and Australia.

The major averages have seen further upside in recent trading, rising to new highs for the session. The Dow is up 124.12 points or 1.2 percent at 10,875.39, the Nasdaq is up 38.45 points or 1.6 percent at 2,382.97 and the S&P 500 is up 15.89 points or 1.4 percent at 1,152.92.

Activity in the service sector expanded for the ninth consecutive month in September, according to a report released by the Institute for Supply Management a short time ago, with the data also showing that the pace of growth accelerated by much more than anticipated.

The ISM said its index of activity in the service sector rose to 53.2 in September from 51.5 in August, with a reading above 50 indicating growth in the sector. Economists had been expecting the index to edge up to a reading of 51.8.

Earlier, the Bank of Japan cut its benchmark interest rate to almost zero as it seeks to revive a faltering recovery. Under pressure from the government, the BOJ cut rates to 0.0-0.1 percent from 0.1 percent.

The central bank also unveiled a new asset purchase program to buy up government bonds and boost liquidity in the deflation-wracked economy.

As much as 5 trillion yen, or $60 billion, has been earmarked by the central bank to purchase government bonds, treasury bills and corporate bonds in an effort to weaken the local currency and improve liquidity in the world's third largest economy.

Separately, the Reserve Bank of Australia surprised analysts by holding its interest rate at 4.50 percent, contrary to expectations of a 25-basis point rate hike. However, the central bank cautioned about further hikes before the end of the year.

In corporate news, fertilizer producer Mosaic Co. (MOS) said that its first quarter profit nearly tripled from last year, mainly due to significantly higher potash sales and improved phosphate selling prices. However, the company's quarterly earnings came in below analysts' expectations.

Women's apparel retailer Talbots Inc. (TLB) reiterated its earnings outlook for the third quarter and fiscal year 2010 but lowered its forecast for sales growth for both periods. The company also projects 75 to 100 store closings by the end of 2013 as part of its three-year strategic plan.

Meanwhile, drugstore chain Walgreen Co. (WAG) announced that its comparable store sales in September saw 0.4 percent growth, while it also reported a 5.3 percent increase in total sales.

Sector News

Gold stocks are among the strongest performers in the early going, lifting the NYSE Arca Gold Bugs Index up by 3.3 percent. The upward move has lifted the index to an all-time intraday high.

The strength in the sector comes as the price of gold also moved to a fresh record high of $1,333.80 an ounce earlier. Gold is currently up by $15.10 at $1,331.90 an ounce.

Trucking stocks are also posting strong gains, with the Dow Jones Trucking Index up by 2.3 percent and on pace for its best close in two months.

Sizable gains are also being shown by banking stocks, driving the KBW Bank Index up by 1.8 percent, although it remains in a range as it recovers from recent weakness.

Oil service, railroad and internet stocks are also sharply higher, evident of the day's widespread buying.

Stocks Driven By Analyst Comments

MEMC Electronic Materials Inc. (WFR) is notably higher after being upgraded at RBC Capital Markets from Underperform to Sector Perform. The broker also raised its target from $9.50 to $12. The stock is up by 4 percent and on pace for a five-month closing high.

P.F. Chang's China Bistro, Inc. (PFCB) is also on the upside after an upgrade at Argus from Hold to Buy. Shares are currently up by 2.5 percent, poised for their best close in four and a half years.

On the other hand, Blackrock (BLK) is under pressure after being downgraded by analysts at Goldman Sachs from Buy to Neutral based on recent valuation. The stock is posting a 1.3 percent loss but remains in a range near last month's more than three-month closing high.

Other Markets

Overseas, stock markets in the Asia-Pacific region turned in a mixed performance on the central bank news. Japan's benchmark Nikkei 225 Index rose by 1.5 percent, while Australia's All Ordinaries Index fell by 0.4 percent.

Meanwhile, the major European markets are all up by varied margins, extending their earlier gains. The U.K.'s FTSE 100 Index and the German DAX Index are both up by 1.1 percent, while the French CAC 40 Index is up by 2 percent.

In the bond markets, treasuries have inched higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.469 percent, posting a loss of 1 basis point.

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Early Signals Point To A Higher Open For TSX

Toronto stocks may edge up at open Tuesday amid firm commodities prices after the Bank of Japan surprised markets by lowering its interest rates. Moreover, positive cues from the global equity markets might also lift trader sentiment.

On Monday, the S&P/TSX Composite Index lost 40.14 points or 0.32% to 12,322.94, extending losses for a third day.

The price of crude oil edged up amid supply disruptions in France's biggest oil port. Crude for November was up $0.75 to $82.22 a barrel.

The price of gold continued to hit record highs amid a weak U.S. dollar after the BoJ lowered its interest rate. Traders bet the Federal Reserve will follow closely behind with quantitative easing of its own, which could put more pressure on the greenback.

Gold for December advanced to record high of 1,332.10 an ounce, adding $15.30 over its previous close.

The conference board of Canada in its latest report said BHP Billiton's hostile takeover offer for Potash Corp. would reduce tax and royalty revenues for the province by at least $2 billion over the next 10 years.

In corporate news from Canada, insurance services provider Fairfax Financial Holdings said it had completed the public offering of its preferred shares for about $291 million.

Software solutions provider Constellation Software said it has received about EUR 5 million from Continental Automotive AG as settlement proceeds relating to the value of certain tangible net assets acquired earlier from Continental.

Pharmacy retailer The Jean Coutu Group reported improved second quarter net earnings of C$42.6 million or C$0.18 per share compared to C$14.9 million or C$0.07 per share last year. The company declared a quarterly dividend of $0.055 per share.

Airlines services provider Air Canada said it will commence Toronto city airport flights from February 2011.

Commercial real-estate company Brookfield Properties and Brookfield Homes Corp. said they would combine Brookfield Homes and the North American residential land and housing division of Brookfield Office Properties into Brookfield Residential Properties Inc.

Base metal miner Breakwater Resources said employees at its Chile mines gone on strike.

Mineral properties explorer Bolero Resources Tuesday said that it completed private placement of 4 million units for $1 million.

3D geometric technology solutions provider Intermap Technologies announced the appointment of Nigel Jackson, as its interim CFO, effective October 4, 2010.

Earlier today, the Bank of Japan unexpectedly lowered interest rates to effectively zero and opened door for more asset purchases, which is seen as a prelude for other major economies to move to more monetary easing measures.

Meanwhile, the Reserve Bank of Australia surprised by holding its interest rates at 4.50%, belying economists' expectations for a 25-basis point hike to 4.75%.

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German Market Rises

The German market is rising in afternoon trading Tuesday, tracking firm cues from most Asian markets and elsewhere in Europe. Surprise actions by central banks in Japan and Australia also impacted market sentiment.

Crude for November delivery is rising $0.62 at $82.09 and gold is higher by $12 at $1328.8.

In economic news, purchasing managers' index data from several European countries were reported. German service sector growth moderated in September, final report from Markit Economics said. The services business activity index dropped to a revised 54.9 from 57.2 in August. The economists had expected the flash estimate reading of 54.6 to be left unrevised.

In the U.K., Markit Economics said the CIPS services purchasing managers' index rose surprisingly to a seasonally adjusted 52.8 from 51.3 in August. Economists had forecast the index to fall to 51.0.

In a separate report, Markit Economics said French services sector activity growth eased to a six-month low in September. The Markit France services purchasing managers' index fell to 58.2 in September from 60.4 recorded in August. The reading was weaker than the expected figure of 58.8.

Growth of business activity in the Eurozone private sector slowed to a seven-month low at the end of the third quarter, survey data from Markit Economics showed. The final composite output index dropped to 54.1 in September from 56.2 in August. Meanwhile, Eurozone retail sales fell 0.4% in August from July, Eurostat said. Economists had expected retail sales to grow 0.2%, following a 0.1% rise in July.

The DAX opened higher at 6,205 and has been in the green for most of the session. The index is currently gaining 0.43%.

Chipmaker Infineon Technologies is leading the gainers by adding 2.1%. Healthcare firm Bayer is rising 1.6%.

Deutsche Bank is gaining 0.8% and Commerzbank is rising 0.3%. Sports goods giant Adidas and detergent maker Henkel are adding about 0.8% each.

Carmakers BMW and Daimler are adding 1.7% and 0.8%, respectively. Volkswagen is losing 1.4% and truck maker MAN is slipping 0.15%.

Diversified utility EON is declining 2.05% and peer RWE is sliding 1.3%. Steel producer ThyssenKrupp is declining 1.1%.

Elsewhere in Europe, the UK's FTSE 100 is rising 0.43% and the French CAC 40 is rising 1.19%.

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Mixed Trading Witnessed In Asian Markets

Mixed trading was witnessed among the Asian markets open for trading on Tuesday. The Chinese market was closed for a holiday. The markets in Australia, India, South Korea and Taiwan ended in negative territory, while the markets in HongKong, Indonesia, Japan and Singapore ended in positive territory with modest gains. The surprise decision by RBA to hold interest rates, and Bank of Japan's stimulus measures apart from reducing key interest rates impacted market sentiment across the region. The weakening of the yen following new measures helped Nikkei post gains while Australian market declined on RBA's disappointment. Weak closing on Wall Street in the previous session also impacted market sentiment in early trading.

In Australia, the benchmark S&P/ASX200 Index declined 18.40 points, or 0.40%, and closed at 4,610 points, while the All-Ordinaries Index ended at 4,661, representing a loss of 17.80 points, or 0.38%.

On the economic front, a report released by the ANZ revealed that the total number of job advertisements in the country rose by a seasonally adjusted 0.7% on month in September to 177,380. The statement further revealed that this is the fifth straight month of increases in the job advertisements. While Newspaper ads declined 1.9% on month, Internet job ads added 0.8%, the statement revealed.

The Reserve Bank of Australia surprised the market by keeping the interest rates unchanged at 4.5% fro the fifth straight month, belying market expectations for a 25 basis point increase to 4.75%. Commenting on the surprise decision, Glenn Stevens, RBA Governor said, "The current stance of monetary policy is delivering interest rates to borrowers close to their average of the past decade. The board regards this as appropriate for the time being. If economic conditions evolve as the board currently expects, it is likely that higher interest rates will be required, at some point, to ensure that inflation remains consistent with the medium-term target".

Separately, results of a new survey conducted by the Australian Industry Group in association with the Commonwealth Bank revealed that service sector activity in the country continued to decline in Septer at a faster pace than in August. The Australia Industry Group / Commonwealth Bank Australia services purchasing managers' index fell to a seasonally adjusted 45.6 from 47.5 in August. A reading above 50 indicates expansion while one below suggests contraction. This is the eighth time that the indicator has fallen below the no-change level of 50 in the past nine months. The latest fall in activity was led by the communication and finance & insurance sub-sectors. Personal & recreational services was the only sub-sector to expand in the month.

A report released by the Australian Bureau of Statistics revealed that retail sales rose a seasonally adjusted 0.3% in August, following a 0.7% increase in July and 0.3% rise in the month of June. Economists expected retail sales to rise 0.4% in August. In trend terms, which further smooth the seasonally adjusted data, retail sales rose 0.5% in August, following 0.5% increases in the preceding two months.

In a separate statement, the Australian Bureau of Statistics revealed that the country had a seasonally adjusted merchandise trade surplus of A$2.346 billion in August, slightly better than forecasts for a surplus of A$2.3 billion, following the revised A$1.743 billion surplus in July. The statement further noted that imports declined 5% on month, or A$1.211 billion, to A$22.365 billion, from A$23.576 billion in the previous month. Exports eased 2% on month or A$608 million to A$24.711 billion down from A$25.319 billion a month earlier. Banks ended the trading session in negative territory following RBA's decision to hold interest rates unchanged. ANZ Bank slipped 0.46%, Commonwealth Bank of Australia shed 0.56%, National Australia Bank edged down 0.31% and Westpac Banking Corp. declined 0.90%.

Mining and metal stocks also ended in negative territory. BHP Billiton slipped 1.25%, Rio Tinto fell 1.38%, Fortescue Metals lost 1.39%, Gindalbie Metals shed 0.54%, Macarthur Coal edged down 0.75%, Murchison Metals plunged 4.91%, Minara Resources declined 1.84% and Oz Minerals was down by 2.64%.

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In Japan, the benchmark Nikkei 225 Index The benchmark Nikkei 225 Index gained 137.70 points, or 1.5%, to 9519, while the broader Topix index of all First Section issues advanced 9.90 points, or 1.2%, to 833.

On the economic front, results of anew survey released by Markit Economics revealed that Japan's service sector activity continued to decline in September and also at a faster pace compared to the previous month. As per the report, the Nomura services purchasing managers' index fell to a seasonally adjusted 48.5 from 48.7 in August. A reading above 50 indicates expansion while one below suggests contraction. This is the fifth time in as many months that the indicator has fallen below the no-change level of 50. The survey further noted that new work received by Japanese service providers declined again in September, although the rate of decline was only modest, and the slowest in that period. Those respondents that reported a decline in new orders widely attributed this to lackluster client demand.

In a significant development, the Bank of Japan cut its benchmark interest rate to almost zero as it seeks to kick start a faltering recovery. Under pressure from the government, the BOJ cut rates to 0-0.1% from 0.1%. Rates had been frozen at 0.1% since December 2008 to encourage people to spend and counter falling prices. The central bank also unveiled a new asset purchase scheme to buy up government bonds and boost liquidity in the deflation-wracked economy. The move comes at a time when talks of the U.S. Federal Reserve implementing additional quantitative easing is gaining momentum, as the recovery in the world's largest economy faces the threat of slowing notably or even stalling.

 Large banks ended in positive territory following announcement from the Bank of Japan of fresh measures, including surprise rate cut, to support the economy. Sumitomo Mitsui Financial climbed 3.00%, Resona Holdings gained 1.99%, Mitsubishi UFJ Financial rose 2.36% and Mizuho Financial Group surged up 3.57%.

Electric machinery related stocks also surged higher on BOJ announcement and weakness in the local currency. Kyocera Corp. gained 2.84%, Fanuc Ltd rose 1.96%, Tokyo Electron climbed 3.99%, TDK Corp. added 1.69% and Mitsumi Electric Co. surged up 3.17%.

Exporters also ended in positive territory as yen weakened against the dollar. Canon Inc. added 0.38%, Sony Corp. gained 1.36%, and Panasonic Corp. climbed 1.89%.

Continued profit taking amid mixed Asian cues and a slightly disappointing report on India's service sector activity for September weighed on the Indian stock market Tuesday. However, the broader market witnessed significant activity ahead of the earnings season, with the BSE mid-cap and small-cap indexes up 0.78% and 1.14%, respectively. The market breadth was positive, with 1673 gaining shares versus 1291 declining ones.

After trading sideways in a range of 20561- 20,383, the benchmark 30-share Sensex ended down 68 points or 0.33% at 20,408, with 18 of its components ending in the red. The broader Nifty fell by 14 points or 0.22% to 6,146.

The market in China was closed for a holiday.

Among the other markets in the region, Jakarta Composite Index in Indonesia gained 22.20 points, or 0.62%, to 3,592 and the Strait Times Index in Singapore edged up 4.91 points, or 0.16%, to close at 3,162. However, Taiwan Weighted Index ended in negative territory with a loss of 45.67 points, or 0.55%, at 8,200.

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