US & World Daily Markets Financial Briefing 10-12-2010

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Stocks Seeing Modest Strength In Early Trading

While buying interest remains relatively subdued, stocks are seeing modest strength in early trading on Friday. The major averages are currently all in positive territory after ending the previous session on opposite sides of the unchanged line.

The choppy trading extends a recent lackluster trend on Wall Street, with traders expressing some uncertainty about the near-term outlook for the markets amid lingering concerns about the pace of the economic recovery going forward.

In economic news, Commerce Department reported that the trade deficit narrowed to $38.7 billion in October from a revised $44.6 billion in September. Economists had expected the deficit to widen to $44.5 billion from the $44.0 billion originally reported for the previous month.

The narrower deficit reflected a significant increase in exports, which surged up by 3.2 percent, as well as a modest decrease in imports, which slipped by 0.5 percent.

Peter Boockvar, equity strategist at Miller Tabak, noted that the much narrower than expected trade deficit may raise fourth quarter GDP estimates by 0.4 to 0.5 percentage points.

At 9:55 a.m. ET, traders will be presented with a preliminary report on the Reuters/University of Michigan's consumer sentiment survey for December. Economists expect the consumer sentiment index to edge slightly higher to 72.5 from a reading of 71.6 recorded in November.

In news altering the market landscape, Standard & Poor's announced a shuffle in the organization of the S&P 500.

Netflix Inc. (NFLX), Newfield Exploration (NFX) and F5 Networks Inc. (FFIV) are scheduled to move from the S&P MidCap 400 Index to the S&P 500, replacing Office Depot (ODP), New York Times (NYT) and Eastman Kodak (EK).

Cablevision Systems Corp. (CVC) is also joining the S&P 500 in place of King Pharmaceuticals Inc. (KG), which is being absorbed by Pfizer Inc. (PFE) in a takeover deal worth $3.6 billion.

Most of the major sectors are showing only modest moves, although considerable strength is visible in the healthcare provider sector. Tenet Healthcare (THC) is leading the sector higher after Community Health Systems (CYH) offered to acquire the hospital operator for about $3 billion.

While modest strength is also visible among defense, tobacco, and health insurance stocks, traders seem reluctant to continue buying stocks.

The major averages are currently posting modest gains, off their highs for the young session. The Dow is up 12.45 points or 0.1 percent at 11,382.51, the Nasdaq is up 4.47 points or 0.2 percent at 2,621.14 and the S&P 500 is up 2.80 points or 0.2 percent at 1,235.80.

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TSX Poised For Mixed Open

Bay Street stocks  may witness a mixed open Friday amid trade data from both sides of the border and falling gold prices.

While Canada said its trade deficit with the rest of the world narrowed to $1.7 billion in October, data from the U.S. revealed a sharply lower deficit in October.

Earlier today, China's said exports jumped 34.9% in November from the year-ago period, beating economists expectations for a 22.4% increase.

In its latest effort to curb inflation, China today ordered its banks to increase their minimum reserves by 0.5% of deposits.

U.S. stock futures were pointing to a higher open.

On Thursday, the S&P/TSX Composite Index snapped its 2-day losing streak to edge up 14.94 points or 0.11% to 13,166.94.

The price of crude oil edged up Friday morning after the OPEC and the International Energy Administration upped their oil demand forecast. In its latest monthly report, the IEA nudged up 2011 global oil product demand forecast by 260,000 barrels per day to 88.8 million barrels per day. Meanwhile, The OPEC in its Monthly Oil Market Report revised up its world oil demand growth forecast for 2010 by 200,000 barrels per day to 1.5 million barrels per day (mbd). OPEC left its 2011 demand growth forecast unchanged at 1.2 mbd.

Crude for January edged up $0.17 to $88.54 a barrel.

Meanwhile, the price of gold moved down, with gold for February losing $13.80 to $1,379.00 a barrel.

In corporate news from Canada, gold mining company Iamgold Corp. increased its annual dividend payment by 33% to $0.08 per share from $0.06 per share and said it would pay its dividend semi-annually. The company guides 2011 gold production to be in the range of between 1.1 million and 1.2 million ounces of gold at a cash cost of between $565 and $595 per ounce.

Communications services provider BCE Inc. hiked its annual dividend by 7.7% to C$1.97 per share for 2011. Further, the company guided fiscal 2010 adjusted earnings per share to be in the range of C$2.80 - C$2.85, up from the previous range of C$2.75-C$2.80 and maintained full-year revenue growth outlook of 2%-3%.

Harry Winston Diamond swung to profit in third quarter, reporting net income of $3.9 million or $0.05 per share compared to net loss of $0.2 million or breakeven per share in the year-ago quarter. Analysts were expecting the company to report earnings of $0.10 per share for the quarter.

Bio pharmaceutical company Bioniche Life Sciences said it would issue 10 million new common shares at a price of C$1.45 by short-form prospectus in all provinces of Canada and by public offering in Australia and New Zealand.

Security services provider Garda World Security reported an impressive growth in its third quarter net income at C$6.26 million or C$0.20 per share from C$1.38 million or C$0.04 per share last year.

In economic news, Statistics Canada said trade deficit with the world narrowed to C$1.7 billion in October from C$2.3 billion in September. Economists expected the deficit to narrow to C$2.0 billion. Exports rose 3.1% to C$33.8 billion in October, on the strength of industrial goods and materials, as exports of precious metals and copper ores reached record highs. Imports increased 1.2% to C$35.5 billion.

From across the border, the U.S. Commerce Department said that the trade deficit narrowed to $38.7 billion in October from a revised $44.6 billion in September. Economists had expected the deficit to widen to $44.5 billion from the $44.0 billion originally reported for the previous month.

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French Market Modestly Up

The French market is modestly up in afternoon trading Friday, as global economic worries diminished. Construction-related stocks  and carmakers are higher, while lenders are mixed.

In economic news, Germany's annual wholesale price inflation increased 7.8% in November, the highest annual rate since July 2008, a report by the Federal Statistical Office showed. The growth was faster than the 7.7% rise in the previous month. A year earlier, wholesale prices were down 3.2%.

British output price index rose at a slower annual pace of 3.9% in November compared with a 4% increase in October, the Office for National Statistics said Friday. Economists had forecast output prices to increase by 4%.

French manufacturing unexpectedly fell for the second consecutive month, as some sectors were paralyzed by widespread strikes, INSEE said. Manufacturing output volume fell 0.8% from the previous month, following a 0.1% drop in September. Economists had predicted a 0.4% increase.

Meanwhile, China's central bank Friday raised commercial banks' reserve requirement ratio by another 50 points. That was the sixth such rate hike this year and follows two increases in November. The measure is intended to curb inflationary pressures arising from commodity and property prices.

After opening higher at 3,870, the CAC 40 has been witnessing volatile trading, which saw the index dip into negative territory. The index is currently adding 0.10%.

Tire firm Michelin is leading the gainers adding 2.3%. Department stores operator PPR is up 2% and Machinery & equipment firm Alstom is adding 1.8%.

Builders Vinci and Bouygues are moderately up and building products maker Saint-Gobain is rising modestly.

Carmakers Renault and Peugeot are adding 1.6% and 1.5% respectively.

Among banks, Credit Agricole is gaining 0.9% and BNP Paribas is slightly up. Societe Generale and Natixis are lower.

Insurer Axa is falling 1%. Cement giant Lafarge, chipmaker STMicroelectronics, oil and gas firm Total and media company Vivendi are moderately down.

Elsewhere in Europe, the FTSE 100 is adding 0.06% and the German DAX is gaining 0.60%.

Across Asia/Pacific, major markets ended on a mixed note. Australia's All Ordinaries rose 0.05%, China's Shanghai Composite Index added 1.07% and India's BSE Sensex gained 1.4%. However, Hong Kong's Hang Seng slipped 0.04% and Japan's Nikkei 225 lost 0.72%.

In the U.S., futures point to a higher open on Wall Street. In the previous session, the Dow edged down less than a tenth of a percent, while the Nasdaq climbed 0.3% and the S&P 500 rose 0.4%.

Crude for January delivery is adding $0.34 at $88.71 per barrel and February gold is down $3.3 at $1389.5 an ounce.

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Indian Market Rebounds On Short Covering, IIP Data

Positive industrial output report for October along with significant short covering following recent sell-off helped the Indian market snap a three-day fall on Friday. With a late-session rally lifting shares further across all sectors, the benchmark indexes closed near the day's high, shrugging off lackluster global cues.

In the 30-share Sensex pack, heavyweights such as ICICI Bank (up 5.71%), Reliance Industries (up 4%), Wipro (up 3%), Reliance Communication (up 2.98%), Hindalco (up 2.34%), Tata Steel (up 2.28%) and SBI (up 1.87%) were the prominent gainers.

However, Bharti Airtel ended down 2.27% after telecommunications minister Kapil Sibal announced the setting up of a one-man committee comprising of a retired Supreme Court judge to examine appropriateness of procedures (adopted) by DoT in the issuance of licenses and allocation of spectrum during the period 2001-2009.

Tata Motors shed nearly 2%, a day after it offered a 4-year manufacturer's warranty on its Nano cars. Bajaj Auto (down 2.65%), HDFC Bank (down 0.82%), Cipla (down 0.78%), HDFC (down 0.55%), DLF (down 0.19%) and Infosys (down 0.13%) also ended in the red.

The BSE Sensex ended up 267 points or 1.39% at 19,509, while the broader Nifty climbed 91 points or 1.58% to 5,857. The BSE mid-cap and small-cap indexes rose over 2% each and gaining shares outpaced declining ones in the ratio of 2:1.

Scam-hit LIC Housing Finance climbed 3.52%, snapping a five-day fall. Battered stocks (facing allegations of share price manipulation) like Ruchi Soya and KS Oils jumped by 10%-20%.

S Kumars Nationwide soared nearly 9% after its subsidiary Reid & Taylor (India) filed its Draft Red Herring Prospectus (DRHP) with market regulator SEBI for its upcoming initial public offering.

Tata Elxsi (up 5.48%) and Pratibha Industries (up 4.10%) rallied on fund buying. Nagarjuna Construction (up 4.84%) and Kalpataru Power Transmission (up 7.30%) climbed on winning new orders.

After two disappointing months, India's industrial output clawed back to the double-digit growth in October, with the IIP index rising 10.8% versus expectations for an 8.8% increase, boosted by improved performance of the sectors such as ship building, power equipment and generators along with a lower base effect, official data released today showed.

The industrial production, which had risen to a dizzying 15.2% in July, dipped sharply to 6.91% in August and further to 4.4% in September. However, the upbeat IIP data increased expectations of further monetary tightening in the upcoming policy review meet on December 16.

On the global front, the other Asian markets closed mostly lower on Friday on rate hike concerns stemming from China, while European stocks  were mixed in early trading and the Dow futures were little changed ahead of U.S. economic reports due later in the day on international trade, import and export prices and consumer sentiment.

However, China's benchmark Shanghai Composite index rose a little over a percent after data showing record exports and imports in November offset policy tightening worries ahead of inflation data due on Saturday.

Chinese exports surged up 34.9% year-over-year in November from October's 22.9% rise and well past expectations for a 23.6% increase, while imports climbed 37.7%, pulling down the trade surplus to $22.9 billion for November from $27.2 billion in the previous month.

However, the surge in shipments is likely to increase pressure on Beijing to allow a faster rise in the value of the yuan, while the large surplus will likely add to the already substantial money supply in the country, giving way to inflationary pressures, analysts said.

Strong Chinese export and import figures along with a decline in U.S. Treasury yields helped the euro won some reprieve against the dollar. Likewise, crude futures gained modestly in Asian deals ahead of a OPEC meet tomorrow.

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Dollar Softens Slightly Ahead Of Data Deluge

The dollar saw little movement against most major currencies Friday morning, but drifted lower versus the sterling ahead of a deluge of data related to the struggling United States economy.

Speculation that China will tighten monetary policy to cool down its robust economy has dampened risk appetite, giving the dollar a measure of support versus the euro.

Europe's lingering sovereign debt problems are also driving interest in the dollar. While Ireland and Greece have been bailed out, if the crisis spreads to larger Spain, the European Union may be fractured.

Ireland will start tapping its bailing fund early in 2011.

The dollar was steady near $1.3250 against the euro, having bounced around that mark for the past week.

Against the sterling, the dollar dipped to a 3-week low of $1.5861. The buck has drifted gradually lower in December amid hopes that the UK economy is in better shape than once feared.

UK's construction output volume increased 3.2% in the three months ended in October compared to the previous three months period, a report by the Office for National Statistics showed on Friday

The dollar was also slightly weaker versus the yen, easing to Y83.50. The buck has been unable to sustain any significant momentum in moving away from a recent 15-year low of 80.22.

The Commerce Department will table its report on trade gap data for October at 8.30 a.m. ET. Economists predict that the trade gap widened to $44.4 billion for the month from $44.0 billion reported for the previous month.

Another report detailing the export and import price indices for November will also be tabled by the Commerce Department at 8.30 a.m. ET.

At 9.55 a.m. ET, traders will be presented with a preliminary report of the Reuters/University of Michigan's consumer sentiment survey for November. Economists predict that the consumer sentiment index edged slightly higher to 72 for the month from 71.6 reported for the previous month.

At 2.00 p.m ET, the Treasury Department will table its Treasury Budget for November, which might provide clues about the budgetary trends and thrusts of the fiscal policy. Economists predict a a deficit of $134 billion for November.

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