US & World Daily Markets Financial Briefing 06-10-2010

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Stocks Mixed In Mid-Morning Trading

Stocks are on opposite sides of the unchanged mark in mid-morning trading on Wednesday, as the increased likelihood of quantitative easing from the Federal Reserve is keeping the markets afloat despite disappointing private sector jobs data.

The major averages have seen some downside in recent dealing, with more pronounced selling among tech stocks leading to a notable loss by the tech-heavy Nasdaq. The Nasdaq is down 15.25 points or 0.6 percent at 2,384.58 and the S&P 500 is down 1.23 points or 0.1 percent at 1,159.52, while the Dow is up 2.42 points or less than 0.1 percent at 10,947.14.

Before the start of trading, private payroll processor Automatic Data Processing Inc. (ADP) said that private sector employment fell by 39,000 jobs in September following a revised increase of 10,000 jobs in August.

The decrease came as a surprise to economists, who had expected employment to increase by about 18,000 jobs compared to the loss of 10,000 jobs originally reported for the previous month.

With the upward revision to the data for the previous month, the drop in jobs reported for September marks the first decrease in private sector employment reported by ADP since January.

However, ADP noted that the average monthly gain in employment over the seven previous months was a relatively modest 34,000, adding, "There simply is no momentum in employment."

In corporate news, restaurant operator Yum! Brands (YUM) reported third quarter adjusted earnings of $0.73 cents per share compared to $0.70 cents per share last year, while its total revenues rose 3 percent to $2.86 billion. The results were ahead of the consensus estimates.

Yum! also raised its full year 2010 adjusted earnings guidance to a range of $2.43-$2.48 per share, while analysts estimate earnings of $2.48 per share.

Additionally, discount wholesaler Costco (COST) said its fourth quarter net income rose to 97 cents per share on an 8 percent increase in net sales to $23.59 billion. Analysts estimated earnings of 95 cents per share on revenues of $24.22 billion.

Johnson & Johnson (JNJ) also announced that it has reached an agreement to buy all outstanding shares of Crucell (CRXL) it does not already own for about 1.75 billion euros in an all-cash offer. Johnson & Johnson currently owns 17.9 percent of Crucell's outstanding shares.

Sector News

Semiconductor stocks have come under pressure, pulling the Philadelphia Semiconductor Index down by 1.2 percent. The decline is taking the index further away from last week's two-month closing high after it challenged the mark during yesterday's rally.

Internet and electronic storage stocks are also notably lower, contributing to the notable decline by the tech-heavy Nasdaq.

On the other hand, gold and steel stocks are seeing moderate upside, helping to offset some of the aforementioned weakness. Among steel stocks, Rio Tinto (RTP) is up by 2 percent after setting a six-month intraday high in earlier trading.

Upside is also visible among trucking, tobacco and railroad stocks, further helping to keep the markets near the flat line.

Stocks Driven By Analyst Comments

Auto parts firm Titan International Inc. (TWI) is trading higher after being upgraded by analysts at Morgan Joseph from Hold to Buy. Shares are currently up by 5.1 percent and on pace for a two-year closing high.

Science and technology instrument maker Itron (ITRI) is also on the upside following an upgrade at Stifel Nicolaus from Sell to Hold. The stock is posting a 2.2 percent gain and poised for its best close in two months.

On the other hand, semiconductor maker Ceva (CEVA) is trading lower after a downgrade at the Benchmark Company from Buy to Hold. Shares are down by 3.7 percent, pulling back off of the all-time closing high set on Tuesday.

Other Markets

Overseas, stock markets in the Asia-Pacific region rallied on Wednesday. Japan's benchmark Nikkei 225 Index rose by 1.8 percent, while Hong Kong's Hang Seng Index gained 1.1 percent.

The major European markets are also seeing notable gains. The U.K.'s FTSE 100 Index, the German DAX Index and the French CAC 40 Index are all up by 0.9 percent.

In the bond markets, treasuries are showing strong gains. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.398 percent, posting a loss of 7.6 basis points.

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IMF Lifts 2010 Global Growth Outlook, Says Double-Dip Unlikely

The global economy is unlikely to face a double-dip recession and the recovery will be lead by emerging and developing economies, the International Monetary Fund said Wednesday.

Unveiling its latest world economic outlook, the Washington-based lender said the world economy would grow 4.8% this year, better than 4.6% predicted in July. However, global growth is seen slowing to 4.2% next year, though the possibility of a sharper slowdown has been ruled out. It had previously foreseen 4.3% growth for 2011.

WEO projections are that output of emerging and developing economies will expand at the rate of 7.1% and 6.4%, in 2010 and 2011 respectively. Advanced economies are forecast to grow 2.7% and 2.2%, respectively for these years, with some economies slowing noticeably during the second half of 2010 and the first half of 2011, followed by a reacceleration of activity.

IMF predicts 2.6% growth for the U.S. this year, before slowing to 2.2% next year. Mean while euro area will see growth around 1.7% in 2010 and 1.5% in 2011. China is projected to expand 10.5% in 2010, closely followed by India, which is expected to grow 9.7%. Chinese growth would ease to 9.6% next year, while India may see it at 8.4%.

The lender said though risks to the growth forecasts are mainly to the downside, the probability of a sharp global slowdown, including stagnation or contraction in advanced economies, still appears low.

The IMF report pointed out that the major economic challenge to the growth prospect was the high rate of unemployment. It estimates that there were more than 210 million unemployed people across the globe, representing an increase of more than 30 million since 2007. The reports said that three-fourths of the increase has occurred in advanced economies.

Moreover, the IMF said most advanced economies and a few emerging economies still face major adjustments to correct their balance sheets. "Monetary policy should stay highly supportive in most of the advanced economies and should be the first line of defense against any larger-than-projected weakening of activity as fiscal support diminishes."

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French Market Rises On Global Cues

The French market is rising in afternoon trading Wednesday, as a global rally in stocks on hopes of economic recovery boosted sentiment. Construction stocks, lenders and car manufacturers are witnessing the upside.

Crude for November delivery is lower by $0.35 at $82.47 per barrel ahead of the weekly inventory data from the U.S. and gold is adding $5.1 at $1345.4 an ounce.

In economic news, Germany's overall construction activity slightly increased to 49.9 in September from 48.5 in August, but the reading was still below the neutral 50.0 mark, a report by the Markit Economics showed. The seasonally adjusted construction purchasing managers' index was the highest for five months and above the long-run series average of 44.8.

German factory orders rose 3.4% month-on-month in August, recovering from a revised 1.6% decline recorded in July, the Federal Ministry of Economics and Technology said. Economists had forecast just a 0.9% rise.

Euro area gross domestic product grew 1% in the second quarter on a sequential basis, according to second estimates from Eurostat. This follows a 0.3% rise in the first quarter. Annually, economic growth was 1.9%, much faster than the 0.8% growth recorded in the previous quarter.

The British Retail Consortium said shop price inflation in Britain rose to a five-month high in September fueled by higher commodity prices. Shop prices were 1.9% higher than a year ago, up from the 1.7% increase in August.

The CAC 40 index opened at 3,751 and moved in a range of 3,747-3,780. The index is currently gaining 0.87%.

Among construction-related stocks, cement giant Lafarge is gaining 3.1% and building materials maker Saint-Gobain is adding 2.6%. Heavy construction firms Vinci is rising 1% and Bouygues is adding 0.3%. Schneider Electric is up 2.8%.

Lender Societe Generale is rising 2.8% and BNP Paribas is adding 2%. Credit Agricole and Natixis are adding 0.9% and 0.6%, respectively.

Car manufacturers Peugeot and Renault are rising 1.4% and 0.7%, respectively.

Those making notable gains include hotel group Accor, beverages firm Pernod-Ricard, insurer Axa, engineering group Alstom and telecom equipment maker Alcatel Lucent.

Electric utility EDF is losing 2.3% and Airbus maker EADS is falling 1.3%. Department stores operator PPR and real estate investment trust Unibail-Rodamco are down about 1% each.

Elsewhere in Europe, the UK's FTSE 100 is gaining 0.66% and the German DAX is adding 0.65%.

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Indian Market Ends Off Day's High

The Indian market rose notably on Wednesday, as risk appetite returned into global equities on hopes of further quantitative easing by the U.S. Federal Reserve at its November policy meeting following the Bank of Japan's surprise move yesterday to reinstate zero interest rates and provide stimulus to the economy.

However, profit booking at higher levels dragged the Nifty below 6,200 mark. After rising to a high of 20,670 in early trading, the 30-share Sensex pared most of its gains to end up 135 points or 0.66% at 20,543, with 20 of its components ending in the green. The 50-share Nifty rose by 41 points or 0.66% to 6,186.

The broader market outperformed large-caps for second straight session, with the BSE mid-cap and small-cap indexes up 1.10% and 0.75%, respectively. The market breadth was positive on the BSE, with 1788 advances versus 1202 declines.

Among index heavyweights, Jaiprakash Associates, Sterlite Industries, Hindalco Industries, Reliance Industries, Jindal Steel, Tata Steel, Hero Honda Motors, Larsen & Toubro and Maruti Suzuki were among the prominent gainers.

On the flip side, Mahindra & Mahindra, Hindustan Unilever, SBI, Cipla, Reliance Communication, Bharti Airtel, ONGC, ACC, ITC and Tata Power ended in the red with modest losses.

With the 3.95-crore share initial public offering of Oberoi Realty opening for subscription today, its peers such as Peninsula Land, HDIL, Orbit Corp, Unitech and Indiabulls Real Estate rose between 1% and 8%.

Metal stocks such as Jindal Steel, NALCO, NMDC, Hindalco, Sterlite and Hindustan Zinc rose by 2%-6%, tracking firmer base metal prices on the LME Tuesday. Tata Steel rose 1.38% on reports that it is in talks with Japan's Nippon Steel Corp to build a steel plant in India.

In the oil/gas sector, heavyweight Reliance Industries advanced 2% after crude futures climbed to a five-month high of $83.33 a barrel in Asian trading Wednesday. In the financial sector, HDFC Bank (up 0.23%) and ICICI Bank (up 0.10%) posted modest gains after they raised their base rates.

Several mid-cap banking stocks such as Union Bank of India, Federal Bank, Bank of Baroda, Canara Bank and Bank of India rallied between 1% and 4% on expectations of pick-up in credit offtake.

Eros International Media and Career Point Infosystems closed up 8.57% and 103%, respectively, on listing. State-run telecom equipment manufacturer ITI climbed 7.56% after the government extended the preferred vendor status to the state-owned telecom equipment manufacturer for another two years.

Shipping Corporation of India rallied 14% on divestment-related news. Other shipping stocks such as Essar Shipping, GE Shipping and Mercator Liners rose by 2%-4%, buoyed by a rise in shipping freight rates.

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COX and Kings advanced 3.72% after the RBI hiked the FII investment limit in the company. Confidence Petroleum India rallied 4.18% after it received board approval to raise Rs.500 crore via various modes.

Reliance Mediaworks fell 5% on profit taking after climbing 37% in the previous session on the buzz of Disney picking a stake in the company. Sadbhav Engineering eased 0.92% after it received board approval for a stock-split proposal.

Glenmark Pharmaceuticals rose 1.48% after its unit signed an in-licensing agreement with Italian biotechnology company Lay Line Genomics to commercialize antibody 'BXL1H5'

Hindustan Dorr-Oliver (up 12.75%), Shree Renuka Sugar (up 0.35%), Tantia Constructions (up 2.12%) and Western India Shipyard (up 7.70%) closed firm on winning new orders. Kirloskar Brothers pared early gains to end 0.18% higher on the back of a bulk deal on the BSE.

Ample monsoon rains this year boosted fertilizer stocks. Nagarjuna Fertilizer climbed nearly 9%, Chambal rallied 3.77% and National Fertilizers jumped 5.75%.

Elsewhere, the other Asian stock markets rallied Wednesday after a report showing surprisingly strong growth in the U.S. service sector, firm oil and metal prices and a weaker dollar boosted investor risk appetite for emerging-market assets ahead of Friday's U.S. jobs data. Gold prices extended overnight gains to hit a record high in Asian trading Wednesday due to the dollar's weakness.

European stocks also rose on Wednesday ahead of BOE and ECB's interest rate decisions due Thursday and the Dow futures pointed to a firm start on Wall Street following yesterday's scintillating rally.

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