US & World Daily Markets Financial Briefing 10-11-2010

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Stocks are seeing moderate weakness in mid-morning trading on Wednesday, although selling pressure has remained relatively subdued. The major averages have moved firmly into negative territory, pulling back further off their recent highs.

While the major averages have moved off their worst levels of the day in the past few minutes, they remain in the red. The Dow is down 60.93 points or 0.5 percent at 11,285.82, the Nasdaq is down 12.44 points 0.5 percent at 2,550.54 and the S&P 500 is down 6.12 points or 0.5 percent at 1,207.28.

Profit taking is contributing to the weakness in the markets, with traders cashing in on the strength seen in recent weeks. Nonetheless, the release of upbeat economic data may be helping to limit the downside.

Before the start of trading, the Labor Department said jobless claims fell to 435,000 in the week ended November 6th from the previous week's revised figure of 459,000. Economists had expected jobless claims to slip to 450,000 from the 457,000 originally reported for the previous week.

The less volatile four-week moving average also slipped to 446,500 from the previous week's revised average of 456,500, falling to its lowest level since September of 2008.

A separate report from the Commerce Department showed that the U.S. trade deficit narrowed by much more than expected in the month of September, as the value of exports rose and the value of imports fell.

The report showed that the trade deficit narrowed to $44.0 billion in September from a revised $46.5 billion in August. Economists had been expecting the size of the deficit to edge down to $46.2 billion from the $46.3 billion originally reported for the previous month.

Paul Dales, U.S. economist at Capital Economics, noted that the narrower deficit in September may contribute to a small upward revision to third quarter GDP growth, as the initial estimate reflected the assumption that the trade deficit was unchanged in September.

In economic data from overseas, China's General Administration of Customs said the country's trade surplus soared to $27.2 billion in October compared to $16.9 billion in September. Analysts had forecast a surplus of $25 billion.

The People’s Bank of China subsequently announced a 50 basis point increase in its reserve ratio, a move that forces banks to set aside more reserves in an effort to control the flow of new money.

On the earnings front, auto giant General Motors reported a $2 billion profit in the third quarter compared to a loss of $908 million in the year-ago quarter. The results come as the company prepares for public stock offering next week.

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Canadian stocks may open lower Wednesday as commodities prices were leveling off from their recent highs. Commodities eased as worries resurfaced over demand growth in China, after its central bank ordered banks to increase their reserves to curb lending.

U.S stock futures were pointing to a marginally higher open amid weekly jobless claims data that came in better-than expected.

On Tuesday, the S&P/TSX Composite Index lost 135.85 points or 1.04% to 12,916.63.

The price of crude oil edged up as traders await the official crude oil inventories data from the EIA, due out later during trading hours today. Tuesday after the market hours, the API said crude oil inventories fell 7.4 million barrels and gasoline stocks dipped by 3.5 million barrels in the week ended November 05. Analysts were expecting crude oil inventories to increase by 1.4 million barrels last week. Crude for January delivery added $0.26 to $87.61 a barrel.

The price of gold was leveling off after hitting a fresh record high in the previous session amid a mixed U.S. dollar. Gold for December was down $7.40 to $1,402.70 an ounce.

In corporate news from Canada, metals mining company Quadra FNX Mining (QUX.TO) reported improved third-quarter net earnings of $37.2 million or $0.19 per share from $14.7 million or $0.15 per share in the same quarter last year. On an adjusted basis, earnings were $42.0 million or $0.22 per basic share, compared to $21.4 million or $0.22 per basic share last year.

Base-metals miner First Quantum Minerals (FM.TO) slipped in to the red in third quarter, reporting net loss of $136.7 million or $1.70 per share compared to a net earnings of $148.6 million or $1.50 per share last year. However excluding impairment, derivatives and acquisition costs, net earnings were $129.7 million or $1.62 per share compared to $164.2 million or $2.10 per share last year.

Mining industry services provider Atna Resources (ATN.TO) said it would, on a bought deal basis, place 13.35 million of its units at C$0.60 per unit for gross proceeds of C$8.01 million.

Gold miner Jaguar Mining Inc. (JAG.TO) slipped into the red in third quarter, reporting net loss of $3.8 million or $0.05 per share, compared to net income of $6.91 million or $0.09 per share last year.

China focused silver miner Silvercorp Metals (SVM.TO) reported higher second-quarter net income of $12.5 million or $0.08 per share, compared to $8.9 million or $0.05 per share a year ago. Excluding items, adjusted net earnings for the latest quarter were $14.7 million or $0.09 per share.

 Interactive technology solutions provider SMART Technologies (SMA.TO) reported lower second quarter net income of $44.3 million or $0.38 per share from $56.7 million or $0.33 per share in the year ago period. However on an adjusted basis, net income increased to $38.7 million or $0.33 per share from $20.2 million $0.12 per share last year. Analysts were expecting the company to earn $0.24 per share in the quarter.

Commercial forest plantation operator Sino-Forest (TRE.TO) reported higher third-quarter net income of $118.04 million from $105.62 million last year. On a per share basis, earnings remained unchanged at $0.47.

Oil and gas industry services provider Savanna Energy Services (SVY.TO) swung to profit in third quarter, reporting net earnings of $1.21 million or $0.02 per share, versus a loss of $4.54 million or $0.06 per share for the same period last year. Analysts were expecting the company to report earnings of $0.03 per share this quarter.

Energy sector focused investment trust Baytex Energy Trust (BTE_UN.TO) reported higher Funds From Operations of C$112.79 million or C$0.97 per unit from C$88.81 million or C$0.80 per unit in the previous year.

Hydrogen generation products maker Hydrogenics Corp. (HYG.TO) reported third quarter net loss of $2.08 million or $0.47 per share, narrower than $5.44 million or $1.47 per share last year.

Rainmaker Entertainment (RNK.TO) turned to profit in third quarter, reporting net earnings of C$0.70 million or $0.04 per share compared to a loss of C$0.93 million or $0.05 per share in the same quarter last year.

In economic news, Statistics Canada said trade deficit rose to C$2.5 billion in September from C$1.5 billion in August, as exports dropped 1.7% to C$33.06 billion from a revised C$33.65 billion Automotive products, other consumer goods as well as industrial goods and materials were the main factors behind the decline. Exports to the U.S. fell 3.6% to C$23.9 billion, their lowest level since November 2009.

From south of the border, the U.S. Labor Department said initial jobless claims were down by 24,000 to 435,000 in the week ended November 06. Economists had expected the figure to come in at 450,000.

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The French market is declining in afternoon trading Wednesday, led by lenders. Sentiment was impacted by economic reports from China that dampened Asian markets and apprehensions about European debt crisis.

Crude for January delivery is trading down $0.26 at $87.09 per barrel and gold is losing $13.4 at $1396.7 an ounce.

In economic news, industrial output in France edged up 0.1% in September from August, according to a report from the statistical office Insee. Economists had expected it to grow 0.5% after staying flat in August.

German wholesale price index rose 7.7% year-on-year in October, faster than a 7.6% rise in the previous month, the Federal Statistical Office said. A year earlier, wholesale prices were down 7%.

The Bank of England said in its latest quarterly Inflation Report that British consumer price inflation is expected to stay above the 2% target throughout 2011 given the forthcoming rise in value added tax and continuing increases in import prices.

Meanwhile, China's central bank decided to raise banks' reserve requirement ratio by 50 basis points, effective from November 16, the fourth hike this year. Separate data showed that China's net crude imports fell to 16.1 million metric tons in October from a record 22.9 million tons in September.

The CAC 40 opened lower at 3,901 and has been trading in a range of 3,915- 3,933. The index is currently losing 0.73%.

Lender Natixis is losing 8.6% after reporting unimpressive results. Credit Agricole is slipping 3%. Societe Generale and BNP Paribas are losing 1.2% and 0.7%, respectively.

Among carmakers Renault is down 2.1% and Peugeot is slipping 1%.

Those making notable losses include tire and rubber company Michelin, utility GDF Suez, metal fabrication company Valourec, dairy products maker Danone, drugmaker Sanofi-Aventis and hotel group Accor.

Water utility Veolia Environnement is adding 2.6% and electric utility EDF is gaining 2.3%. Heavy construction firms Bouygues and Vinci are advancing 2% and 1.3%, respectively. Airplane maker EADS is rising 1.5%.

Elsewhere in Europe, the UK's FTSE 100 is losing 0.64% and the German DAX is dropping 0.42%.

Across Asia/Pacific, most major markets closed in the red. Australia's All Ordinaries lost 0.86% and China's Shanghai Composite Index retreated 0.63%. Hong Kong's Hang Seng and India's BSE Sensex lost 0.85% and 0.27%, respectively. However, Japan's Nikkei 225 gained 1.4%.

In the U.S., futures point to a slightly higher open on Wall Street. In the previous session, the Dow fell 0.5%, the Nasdaq slid 0.7% and the S&P 500 declined 0.8%.

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The Indian market ended a range-bound session modestly lower on Wednesday due to tepid global cues. While frontline indexes such as the Sensex and Nifty eased modestly due to profit taking at higher levels, retail participation was seen in mid-cap and small-cap stocks. The BSE mid-cap and small-cap indexes ended up 0.3% and 0.79%, respectively. The broader Nifty ended down 26 points or 0.41% at 6,276.

After moving choppily in a narrow range of 20,971- 20,850, the 30-share BSE Sensex finally ended down about 60 points or 0.27% at 20,876, with 19 of its components edging lower. Among the prominent decliners, ICICI Bank, Sterlite, ACC, Hindustan Unilever, Hindalco, BHEL, SBI and Cipla lost between 1% and 2%. Bharti Airtel fell 1.77%, as its second-quarter consolidated net profit fell 27%, lagging estimates.

Sector-wise, selling was seen in banks, metals, construction, consumer goods and pharma stocks, while energy, IT and auto stocks witnessed stock-specific buying, limiting the downside. Tata Motors rose 2.45% on forecast-beating July-September quarter earnings. Mahindra & Mahindra (up 3.05%), Infosys (up 1.01%), Wipro (up 0.80%), ONGC (up 0.71%) and Maruti Suzuki (up 0.31%) were the other prominent gainers.

Newly-listed Coal India ended down 1.07% on profit taking following good listing gains. Jet Airways advanced 1.66% on a hectic volume. Astra Microwave Products rallied 4.39% after its board approved a 1:2 bonus issue.

Tyre manufacturers like MRF, Apollo, CEAT and JK Tyre & Industries rose by 1%-3.5% on the buzz they may hike product prices. Similarly, sugar stocks saw widespread gains after raw sugar futures vaulted to a 30-year high in London on Tuesday. Nestle India tumbled 4.15% on a brokerage downgrade.

Elsewhere, most Asian stocks fell on Wednesday, as oil and metal prices declined on the back of weak Chinese import data and a stronger dollar. Renewed credit concerns over European sovereign debt and caution ahead of the release of a slew of data from China due tomorrow, including inflation, producer prices and retail sales, also prompted investors to lock in some gains after last week's rally.

However, Japan's Nikkei average rose 1.4% to end at its highest level in more than four months, as the yen's retreat against higher-yielding currencies lifted exporter shares and banking stocks gained on a Financial Times report that major Asian banks will be ''exempted from a planned new global regulatory regime.''

Likewise, South Korea's KOSPI average rose 1.05% to almost a three-year high, boosted by continued buying by foreign funds and New Zealand's benchmark NZX-50 closed 0.35% higher.

China's Shanghai Composite, which tracks both A and B shares, ended down 0.63%, dragged down by banks and property developers, as investors awaited October inflation data. Also, reports suggested that China's central bank has ordered some lenders to increase their reserve requirements by 50 basis points in an attempt to ward off the risk of stronger inflation and curb rapid credit growth.

European stocks fell from a two-year high, dragged down by miners, while the U.S. index futures fluctuated.

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Among bond insurers, Ambac Financial (ABK) said its third quarter net income fell to 25 cents per share from $7.58 per share last year. The recent quarter’s results were impacted by significantly reduced mark-to-market gains in the credit portfolio. Total revenues fell to $361.16 billion from last year’s $2.69 billion. The company filed for Chapter 11 bank-ruptcy protection earlier this week following its failure to meet interest payment commitment on its debentures.

MBIA, Inc. (MBI) reported a third quarter loss of $1.06 per share compared to a loss of $3.50 per share last year, with the recent quarter’s loss reflecting a $492 million pre-tax loss on the fair value of insured credit derivatives.

International Gaming Technology (IGT) said its fourth quarter adjusted income from continuing operations came in at 18 cents per share, flat with last year. Revenues fell to $496 million from $512.3 million in the year-ago period. Analysts estimated a profit of 19 cents per share on revenues of $488.16 million.

Weight Watchers International (WTW) reported third quarter earnings of 59 cents per share, which included a charge of 5 cents per share, on revenues of $330.6 million. The company’s adjusted earnings fell to 59 cents per share from last year’s 67 cents per share. Analysts estimated earnings of 64 cents per share on revenues of $327.41 million. The company tightened its full year earnings guidance to a range of $2.42-$2.47 per share from a range of $2.35-$2.50 per share, to reflect the 5 cents per share charge recorded in the third quarter. The consensus estimates call for earnings of $2.47 per share.

Lions Gate Entertainment (LGF) reported a net loss of 22 cents per share for its second quarter compared to net income of 27 cents per share last year. Revenues rose 25% to $456.3 million. Analysts estimated a loss of 11 cents per share on revenues of $414.85 million.

Other Corporate News

Allstate (ALL) could see some strength after it announced that its board has approved a dividend of 20 cents per share and a $1 billion share buyback

Brightpoint (CELL) may also see some activity after it said its board has approved the increase of its previously announced share buyback program by an additional $25 million.

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