US & World Daily Markets Financial Briefing 08-09-2010

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Stocks Show Notable Upward Move In Morning Trading

Stocks have moved mostly higher and are partly offsetting yesterday's losses in mid-morning trading on Wednesday, with today's solid bond offering in Portugal easing some fears about the state of European financials.

The major averages have seen further upside in the past few minutes, reaching new highs for the session. The Dow is currently up 75.64 points or 0.7 percent at 10,416.33, the Nasdaq is up 19.66 points or 0.9 percent at 2,228.55 and the S&P 500 is up 8.98 points or 0.8 percent at 1,100.82.

Earlier this morning, the Portuguese government successfully auctioned just over 1 billion euros worth of three and ten-year bonds, with the sales drawing solid demand, much to the relief of investors.

Traders now await the Federal Reserve's Beige Book report, scheduled for a 2:00 p.m. ET release. The language describing economic conditions in the 12 Federal Reserve districts in the report will come under considerable scrutiny, as traders continue to scramble to determine the direction of the U.S. economy.

At 3:00 p.m. ET, the Federal Reserve will release a separate report on consumer credit in July. Economists expect that consumer credit declined by $5.25 billion during the month following a $1.3 billion contraction in the previous month.

In corporate news, British telecom giant Vodafone Plc confirmed that it has agreed to sell its entire 3.2 percent interest in China Mobile for 4.3 billion pounds, or $6.6 billion. Vodafone will continue its commercial and technology cooperation with China Mobile.

Packaged food company General Mills Inc. said it expects its first-quarter results to be in line with its expectations and also reaffirmed its fiscal 2011 adjusted earnings forecast.

Meanwhile, network specialist Ciena Corp. reported a wider third quarter net loss, as higher expenses offset strong growth in revenues mainly on the acquisition of the Metro Ethernet Networks business of Nortel Networks.

Looking ahead, Ciena expects up to 5 percent sequential growth in fourth-quarter revenues but added that it remains cautious in the face of continuing macroeconomic uncertainties.

Fresh meat and packaged meat products company Smithfield Foods Inc. reported a first quarter profit compared with a year-ago loss, reflecting higher prices in a favorable business environment. Total sales rose 7 percent year-over-year but came in below analysts' forecast. The Smithfield, Virginia-based company also maintained its positive outlook for fiscal 2011.

Sector News

Banking stocks are among the morning's best performers, with the Kbw Bank Index up by 1.8 percent, eroding a portion of yesterday's losses. The index is moving back towards last week's three-week closing high.

Steel stocks are also seeing significant buying interest, resulting in a 1.7 percent advance by the NYSE Arca Steel Index. The upward move has the index on pace for a one-month closing high.

Trucking, oil service, housing and biotechnology stocks are also posting notable gains, while semiconductor stocks are seeing sharp losses. The Philadelphia Semiconductor Index is down by 1 percent, falling back towards a nine-month closing low set last month.

Stocks Driven By Analyst Comments

Despite the upside in the markets, Lexington Realty Trust is trading lower after being downgraded at Stifel Nicolaus from Buy to Hold. The stock has lost 1 percent, backing further off of last week's four-month closing high.

Meanwhile, Douglas Emmett is trading higher after analysts at Stifel Nicolaus raised their rating on the stock from Hold to Buy. The stock has gained 1.1 percent, inching back towards last week's four-month closing high.

K-Sea Transportation is also moving to the upside after RBC Capital Markets raised its rating from Underperform to Sector Perform. Shares are currently up by 2.7 percent but remain in a range near a recent historic low.

Other Markets

Overseas, stock markets in the Asia-Pacific region ended mostly lower on Wednesday. Japan's benchmark Nikkei 225 Index sank by 2.2 percent, while Hong Kong's Hang Seng Index slid by 1.5 percent.

Meanwhile, the major European markets are up by varied margins. The French CAC 40 Index is up by 0.9 percent, while the German DAX Index and the U.K.'s FTSE 100 Index are up by 0.8 percent and 0.4 percent, respectively.

In the bond markets, treasuries are moderately lower. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.652 percent, posting a gain of 4.3 basis points.

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TSX May Struggle For Direction Amid Mixed Cues; BoC Hikes Rate

Toronto stocks may struggle on Wednesday after the Bank of Canada raised its key lending rate despite signs the nation's recovery is losing steam. Mixed cues from the global equity markets and weak energy prices may weigh on trader sentiment.

The BoC hiked its overnight rates by 0.25% to 1.00% and said the global economic recovery is proceeding but remains uneven, balancing strong activity in emerging market economies with weak growth in some advanced economies.

The Canadian dollar moved sharply higher against its major rivals following the BoC's decision.

On Tuesday, the S&P/TSX Composite Index shed 42.94 points or 0.35% to 12,101.96, snapping its 8-day winning streak.

The price of crude oil was falling for a third day as traders turned cautious ahead of weekly inventories report from the API. Crude for October edged down $0.04 to $74.05 a barrel

Gold stocks may continue to be in play amid rising bullion prices and increased M&A activity in the sector. The price of gold was holding onto its recent gains, with gold for December delivery easing $1.80 to $1,257.50 an ounce.

In corporate news from Canada, Eldorado Gold said it will not proceed with its earlier announced C$3.4 billion acquisition plan of Andean Resources. Last week, Goldcorp countered with a sweetened offer to buy Andean for C$3.60 billion.

Gold producer Anatolia Minerals Development and Australia based Avoca Resources Ltd announced that they will be merged to form a new company Alacer Gold Corp. Avoca shareholder will receive 0.4453 Anatolia common shares for each ordinary share held.

Gold miner Iamgold said that Stephen Letwin has been appointed as president and chief executive of the company effective November 1, 2010. Most recently, Letwin served as executive vice president, Gas Transportation & International with Enbridge Inc.

Integrated oil firm Suncor Energy said it would sell some properties in UK offshore North Sea to an affiliate of Dana Petroleum PLC for about $390 million.

Oil industry services provider Bronco Energy said it would be acquired by Legacy Oil And Gas in exchange of 0.0182 of a Legacy common share for each Bronco common share held

Independent power producer Pristine Power Inc. said it would acquire its 50% interest in the Savona and 150 Mile House EnPower waste heat recovery plants from ENMAX Green Power Inc. for C$17.0 billion.

Mineral explorer Mirabela Nickel said it would raise a maximum of $165 million by placing new shares to institutional investors.

In economic news, Statistics Canada said that the building permits issued by the municipalities fell 3.3% to C$6.4 billion in July from the previous month. Building permits in non-residential sector were down 4.3% to C$2.90 billion in July and value of residential permits dipped 2.4% to C$3.5 billion.

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Asian Markets Slip On Concerns About Europe

Asian markets open for trading on Wednesday ended in negative territory taking cues from Wall Street where the major averages ended lower amid fresh concerns about the health of European banks following flaws in recent bank stress tests. Resource stocks and banks were the major declines in the market amid concerns that the new government in Australia might revisit the resources tax. The strengthening of the yen against the dollar sank Japanese markets lower while the other markets also ended in negative territory.

In Japan, the benchmark Nikkei 225 Index declined 201.40 points, or 2.18%, to 9,025.while the broader Topix index of all First Section issues was down 13.93 points, or 1.67% to 821.

On the economic front, a report released by the Cabinet Office revealed that core machinery orders jumped a seasonally adjusted 8.8% in July compared to the previous month. That was sharply higher than analyst expectations for a 2.0% monthly increase following the 1.6% gain in June. Government orders eased 1.3% on month, while overseas orders added 2.6% and agency orders fell 1.8%. Private sector orders collected 6.4 percent on month. The report further noted that, on an annual basis, core machinery orders surged 15.9% - again topping forecasts for an 8.1% gain after shedding 2.2% in the previous month.

A report released by the Ministry of Finance revealed that Japan posted a current account surplus of 1.6759 trillion yen in July, up 26.1% on year. That beat expectations for a surplus of 1.534 trillion yen after showing a surplus of 1.0471 trillion yen in June. The report further added that Imports rose 15.7% on year to 4.747 trillion yen, while exports added an annual 24.7% to 5.663 trillion yen. The trade surplus was 916.1 billion yen, up 110.0% on year.

Light sweet crude oil futures for October delivery ended at $73.89 a barrel in electronic trading, down $0.20 per barrel from previous close at $74.09 a barrel in New York on Tuesday.

All the 33 sectors in the index witnessed declines. Traders adopted a cautious approach and remained in the sidelines awaiting more cues on global economic recovery. The major decliners included stocks of consumer finance, glass and ceramics and securities apart from exporters..

In Australia, the benchmark S&P/ASX200 Index eclined 36.00 points, or 0.79%, and closed at 4,537 points, while the All-Ordinaries Index ended at 4,578, representing a loss of 34.70 points, or 0.75%.

On the economic front, a statement released by the Australian Bureau of Statistics revealed that the value of home loan commitments in the country increased 0.7% in July from June. The Bureau further noted that the number of loan commitments for new, owner-occupied dwellings increased a seasonally adjusted 1.7%. Commitments for purchases of new dwellings increased in number by 1.5%. The value of commitments for investment housing declined 2.3%.

Banks led the decline following weak cues from European and US markets in the previous session. ANZ Bank slipped 1.14%, Commonwealth Bank of Australia shed 1.09%, National Australia Bank lost 1.84% and Westpac Banking was down 1.43%. Investment banker Macquarie Group declined 1.25%.

Mining and metal stocks also ended in negative territory. BHP Billiton shed 1.34%, Rio Tinto slipped 1.22%, Fortescue Metals lost 1.01%, Gindalbie Metals fell 1.08%, Macarthur Coal was down 2.01%, Murchison Metals plunged 2.71%, and Mincor Resources declined 1.39%.

Oil related stocks also ended weaker. Woodside Petroleum declined 1.43%, Santos Ltd slipped 0.58%, Oil Search Ltd shed 0.67% and Origin Energy was down 1.48%.

The Indian market cut its early loss and ended a volatile session on a flat note Wednesday, thanks to some selective buying in telecom, information technology, realty, healthcare and metal stocks. The 30-share BSE Sensex swung in both directions before ending up 22 points or 0.12% at 18,667, with 18 of its components edging higher. After witnessing wild swings, the broader Nifty closed almost flat at 5,608.

Among the other major markets open for trading, China's Shanghai Composite Index slipped 3.07 points, or 0.11%, to 2,695, Singapore's Strait Times Index declined 24.67 points, or 0.81%, to 3,011, and Taiwan's Weighted Index ended in negative territory with a loss of 33.09 points, or 0.42%, at 7,851. The market in Indonesia was closed for a public holiday.

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The major European markets are advancing on Wednesday, with the French CAC 40 Index and the German DAX Index rising 0.51% and 0.35%, respectively, while the U.K.’s FTSE 100 Index is gaining 0.21%.

German Statistical office Destatis said exports increased 18.7% from a year earlier, markedly slower than the 28.4% rise in the prior month. Import growth also slowed to 24.9% from 31.4%. A trade surplus of 13.5 billion euros was recorded, slightly higher than expectations for a 13 billion euro surplus. A surplus of 14.2 billion euros was recorded in June.

Meanwhile, German industrial production edged up 0.1% month-over-month in July, according to a report released by the German Federal Ministry of Economics and Technology. Economists had expected a bigger 1% increase.

At the same time, U.K. industrial output rose 0.3% month-over-month in July following a 0.5% increase in the previous month. Manufacturing output also rose by a similar magnitude, leading to an annual growth of 4.9%, the fastest rate of increase in 16 years.

U.S. Economic Reports

The Federal Reserve is due to release its Beige Book, a compilation of anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts, at 2 PM ET. The report is normally released about two weeks before the monetary policy meeting is held.

The Fed is also expected to release its monthly consumer credit report at 3 PM ET. Consumer credit for July is likely to show a decline of $5.25 billion.

In June, consumer credit fell at an annual rate of 0.70% to $2.42 trillion, with a 2.4%rise in non-revolving credit partly offsetting a 6.5% drop in revolving credit.

Stocks in Focus

Medco Health (MHS) could be in focus after it announced that it has agreed to sell $500 million aggregate principal amount of 2.750% senior notes and $500 million 4.125% senior notes, both due September 15th, 2020. The company said it intends to use the net proceeds from the offering for general corporate purposes, including repayment of borrowings under its senior unsecured credit facility. Another stock that could move in reaction to an offering is UDR (UDR), which said it would sell 13.5 million shares in an underwritten public offering. Meanwhile, NiSource (NI) announced that it has commenced a public offering of up to $400 million of its common stock.

Bristol-Myers (BMY) is likely to react to its announcement that it has signed a definitive agreement to buy Zymogenetics (ZGEN) for $9.75 per share in cash. The total deal value is $885 million or $735 million net of cash acquired.

Comtech (CMTL) could see some activity after it announced that it has terminated its merger agreement with CPI International (CPII). Comtech noted that the termination is by mutual agreement and has been approved by the boards of both companies. Comtech received a $15 million termination fee from CPI.

Forest Labs (FRX) could also be in focus after it said the FDA’s anti-infective Drugs Advisory Committee voted 21-0 in favor of approving its bactericide ceftaroline fosamil for the treatment of community-acquired pneumonia and voted 18-0 in favor of approval for complicated skin and skin structure infections.

Pep Boys (PBY) is likely to move in reaction to its announcement that its second quarter earnings rose to 20 cents per share from 15 cents per share last year. Sales rose 3.3% to $504.9 million. Analysts estimated earnings of 19 cents per share on revenues of $504.50 million.

Altera Corp. (ALTR) could move to the upside after it raised its third quarter sequential revenue growth guidance to 10%-14% from its previous forecast for 4%-8% growth. The company expects all four of its vertical markets to see sequential growth.

Phillips-Van Heusen (PVH) may also see some buying interest after it raised its earning and revenue guidance for 2010. The company expects non-GAAP earnings of $3.70-$3.80 per share on revenues of $4.44 billion to $4.47 billion. Analysts estimate earnings of $3.62 per share on revenues of $4.38 billion. The company also reported that its second quarter earnings rose to 72 cents per share from 60 cents per share in the year-ago period. Revenues climbed to $1.10 billion from $529.3 million last year.

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Dollar Mixed After Portugal Conducts Successful Bond Auction

The dollar was mixed Wednesday morning in New York after a successful bond auction in Portugal eased renewed fears about European sovereign debt.

However, economic data from Germany showed some weakening again after a strong second quarter.

Germany's exports rose at a slower pace in July compared to June, while imports also decreased, official figures showed on Wednesday.

Meanwhile, President Barack Obama is headed to the Rust Belt this morning and is expected to announce incentives to get small businesses to spend and hire.

The Fed's Beige Book, a compilation of anecdotal information about the US economy, is due out this afternoon.

The dollar touched a fresh 15-year low of Y83.33 versus the yen overnight, but steadied to 83.80 in early dealing this morning.

Japanese officials have been unable to talk down the surging yen, which is expected to hurt the nation's export driven economy.

The buck hit a weekly high of 1.2665 versus the euro, then leveled off to 1.2720.

Portugal's cost of borrowing rose, but the debt-ridden nation managed a successful bond auction this morning. Yields rose for the 661 million euro bonds due in 2013 and 378 million euro bonds due in 2021.

The dollar dropped to a nine-day low of 1.5493 against the sterling.

U.K. manufacturing output rose for a third month, lifting the annual growth to a near 16-year high in July.

US mortgage application volume dropped slightly last week despite a notable increase in new home purchase demand, industry data revealed Wednesday morning.

Refinancing activity declined from levels near record highs, causing the Mortgage Bankers Association's Market Composite Index to drop for the first time in six weeks.

Overall mortgage applications decreased 1.5 percent on a seasonally adjusted basis from one week earlier.

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