US & World Daily Markets Financial Briefing 11-01-2011

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Stocks See Initial Strength On Upbeat Earnings News

After turning in a mixed performance in the previous session, stocks have moved mostly higher in early trading on Tuesday. The major averages have all moved to the upside after ending Monday's trading on opposite sides of the unchanged line.

The early strength in the markets is partly in reaction to quarterly results from aluminum giant Alcoa (AA), which reported better than expected fourth quarter earnings after the close of trading on Monday. The release of Alcoa's quarterly results is widely seen as the unofficial start of the earnings season.

Alcoa posted earnings of $0.24 per share, above analyst expectations for $0.19 per share. Revenue for the fourth quarter totaled $5.7 billion, up from $5.4 billion in the same period last year and higher than forecast for revenues of $5.68 billion.

Housing stocks have shown a strong move to the upside in early trading, driving the Philadelphia Housing Sector Index up by 1.8 percent. Lennar (LEN) has helped to lead the sector higher after reporting better than expected quarterly results.

Lennar reported fourth-quarter earnings of $0.17 per share, well above expectations for earnings of $0.02 per share. Total revenues declined to $860.12 million from $913.74 million in the prior-year quarter but still exceeded estimates of $759.62 million.

Oil service, gold, and banking stocks are also seeing notable strength, while most of the other major sectors are showing more modest upward moves.

Amid the day's limited flow of economic news, traders will be presented with a wholesale inventories report for November, slated for release by the Commerce Department at 10:00 a.m. ET.

Economists expect the report to show a 1 percent increase in inventories after a 1.9 percent increase recorded for October.

The major averages have moved well off their highs for the young session but are currently holding on to modest gains. The Dow is up 45.86 points or 0.4 percent at 11,683.31, the Nasdaq is up 9.12 points or 0.3 percent at 2,716.92 and the S&P 500 is up 4.99 points or 0.4 percent at 1,274.74.

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TSX Surges On Commodities, Earnings Optimism

Canadian stocks moved up Tuesday morning on earnings optimism after Alcoa Inc. beat consensus estimates. Commodities prices recovered from recent fall as euro zone worries appeared to have subsided after Japan pledged to buy European debt.

The S&P/TSX Composite Index rose 140.47 points or 1.06% to 13,385.59, after shedding nearly 200 points in the past five sessions.

The price of crude oil moved up near $90 Tuesday morning, recovering from a 3-week low for a second day. Crude for February was up $0.64 to $89.89 a barrel.

In the oil patch, Pacific Rubiales Energy, Imperial Oil and Nexen Inc. were up around 3% each.

Natural gas and oil firm Daylight Energy edged up 0.10%. The company said that it would spend $250 million on capital expenditure during 2011 and declared that its first quarter of 2011 monthly cash dividend to shareholders will be maintained at its fourth quarter 2010 level of C$0.05 per share per month.

Talisman Energy rose 2%. The diversified upstream oil and gas firmannounced $4 billion capital spending for 2011 and said it expects 5% - 10% production growth.

The price of gold pared early trading gains, with gold for February edging down $0.20 to $1,373.90 an ounce.

Among gold stocks, Centerra Gold advanced close to 4% and White Tiger Gold gained over 14%.

In the base-metals space, First Quantum Minerals added over 4% and Teck Resources was up close to 3%.

Taseko Mines soared over 15%.

Among financial stocks, Bank of Montreal edged up 0.60% after it said it would buy Hong Kong-based Lloyd George Management that has about $6 billion in assets under management.

Scotiabank and RBC gained over 1% each.

Among IT plays, BlackBerry maker Research In Motion moved up 1%. The company has agreed to filter out pornographic content on its smartphones in Indonesia.

Media and entertainment company Corus Entertainment was up over 1% even after reporting lower first-quarter net income of C$46.22 million or C$0.56 per share compared to C$73.91 million or C$0.91 per share last year.

Industrial valves maker Velan Inc. added close to 5%. The company yesterday reported lower third quarter profits of C$5.8 million or C$0.26 per share, compared with C$7.6 million or C$0.34 per share last year. The company declared a quarterly dividend of C$0.08 per share, payable on March 31, 2011 to all shareholders of record as at March 15, 2011.

Purepoint Uranium Group said it signed a deal with Cameco Corp. for the Smart Lake uranium project in the Athabasca Basin, which would enable it to gain 35% ownership interest in the project by spending $1.9 million by 2013. Purepoint gained close to 4% and Cameco was up 1.50%.

In economic news, Canada Mortgage and Housing Corp. said the nation's housing starts fell 13.5%, recording its biggest fall since April 2009, to 171,500 at a seasonally adjusted annual pace in December. Economists were expecting housing starts to come in at 178,000.

From south of the border, the U.S. Commerce Department said wholesale inventories edged down by 0.2% in November following a downwardly revised 1.7% increase in October. Economists were expecting inventories to increase by about 1.0% compared to the 1.9% growth originally reported for the previous month. Meanwhile, wholesales rose by 1.9% in November after surging up by 2.6 % in the previous month.

Earlier today, Japanese Finance Minister Yoshihiko Noda announced that his country is "considering buying more than 20% of bonds" under a rescue fund to help Ireland.

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French Market Rises

The French market is on the rise in afternoon trading Tuesday, led by banks and construction stocks, as worries about Europe's sovereign debt eased with Japan joining China in offering support to tackle the crisis.

In economic news, the industrial confidence index in France climbed to 108 in December from 107 recorded in November, survey data released by the Bank of France revealed. The central bank said industrial activity increased slightly in December and it is expected to rise further in the coming months.

The Monster Employment Index for Europe remained at 122 for the third consecutive month, Monster Worldwide Inc. said. Online job demand increased 22% year-on-year in December, reflecting a more robust European economy and greater confidence in hiring.

The British Chambers of Commerce's latest quarterly survey, covering over 5,600 business across the UK, suggested the economy grew between 0.4% and 0.5% in the December quarter, down from the 0.7% growth in the previous three months.

The CAC 40 index opened slightly higher at 3,822 and has been hovering in positive territory. The index is currently rising 0.97%.

Engineering group Alstom is surging 5.4%, reportedly on an analyst upgrade. EADS, the maker of Airbus, is adding 3.2%. Hotel group Accor is rising 3.2%.

Building materials maker Saint-Gobain is rising 3.1% and cement giant Lafarge is adding 2.4%. Builders Vinci and Bouygues are moderately higher.

Banks Societe Generale and Credit Agricole are advancing about 2.75% each. BNP Paribas is rising 1.8% and Natixis is gaining 1.1%.

Carmakers Peugeot and Renault are adding 3.5% and 3.3%, respectively.

Electric utility EDF and advertising firm Publicis Groupe are declining notably.

Elsewhere in Europe, the UK's FTSE 100 is gaining 1.20% and the German DAX is advancing 0.75%.

Across Asia/Pacific, major markets closed on opposite sides of the unchanged line. Australia's All Ordinaries slipped 0.08%, India's BSE Sensex dipped 0.14% and Japan's Nikkei 225 retreated 0.29%. However, China's Shanghai Composite Index and Hong Kong's Hang Seng gained about 0.5% and 1%, respectively.

In the U.S., futures point to a slightly higher open on Wall Street. In the previous session, the major averages all saw choppy movement late in the session, ending on opposite sides of the unchanged mark. While the Nasdaq rose 0.2%, the Dow fell 0.3% and the S&P 500 edged down 0.1%.

In commodities, crude for February delivery is adding $0.57 to $89.82 per barrel and gold is advancing $9.2 to $1383.3 a troy ounce.

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Indian Market Ends Volatile Session Modestly Lower

After five successive sessions of losses, the Indian market saw a firm opening on Tuesday due to short covering and bargain hunting, especially in battered-banking stocks. However, as the session progressed, the market turned volatile and subsequently faltered due to heavy selling in Realty and IT stocks. A surprise recovery towards the end of the session also proved short lived.

After moving in a range of 19,432-9,004, the benchmark 30-share Sensex closed down 28 points or 0.14% at 19,196, while the 50-share Nifty fell by 9 points or 0.15% to 5,754. With the earnings season about to start, cautious investors appear wary of keeping their long positions open, analysts said.

The BSE mid-cap and small-cap indexes also followed suit, ending down 0.67% and 0.87%, respectively. In the broader market, declining shares outpaced gainers in the ratio of 1.6:1 on the BSE.

Banking stocks saw a solid comeback on short covering after recent sharp losses on rate hike worries. SBI rose 2.51%, ICICI Bank gained 0.88% and Axis Bank rallied 3.30%, while HDFC Bank pared its early gains to end 0.39% lower. Mortgage lender HDFC rose a little over a percent.

In the auto sector, both Bajaj Auto (up 3.42%) and Hero Honda Motors (up 1.81%) closed firm amid reports that the Hero group is mulling entry into the three-wheeler market. However, Tata Motors fell 1.52% and Maruti Suzuki eased 0.29%.

Sugar stocks closed mixed after agriculture minister Sharad Pawar said that the government would start issuing permits for export of five lakh tonnes of sugar only after January 30. Bajaj Hindusthan slipped 0.38% and Balarampur Chini shed 0.80%, while Dhampur rose 2.20% and Shree Renuka added a percent.

Market heavyweight Reliance Industries fell 1.11% amid reports that it may buy British Petroleum's upstream oil and gas assets in the Far-East and Australia. Also, reports quoted S.K. Srivastava, director general at the Directorate General of Hydrocarbons, as saying that the company's D6 block in the Krishna-Godavari basin will achieve its peak production of 80 million metric standard cubic meters a day in 2012-13.

IT stocks closed mostly lower ahead of bellwether Infosys' results due on Thursday. Infosys fell 1.56% and TCS lost 2%, but Wipro gained a percent. Patni Computer Systems plunged nearly 4% after Nasdaq-listed iGate said it would launch an open offer to acquire an additional 20.6% stake in Patni on March 4.

Among realty stocks, DLF, D B Realty, Sobha Developers, HDIL and Unitech fell between 1% and 6.5%. Parsvnath Developers declined 1.44% after private equity firm SUN-Apollo agreed to invest Rs.100 crore for a 49.9% stake in a housing project at Ghaziabad, Uttar Pradesh.

Bharati Shipyard slumped 5% on a report in the Mint newspaper that Shipping Corp. of India was considering canceling a Rs.90-crore order to the company due to delays in construction. Lanco Infratech fell 1.43% after it secured debt financing for a 732-MW gas-based power project. Biocon lost 0.62% on saying that its experimental insulin drug did not meet the desired results in a study.

Goa Carbon added 0.67% despite reporting disappointing third-quarter results. Aurobindo Pharma posted a modest 0.29% gain after it signed a definitive agreement to divest majority stake in its Chinese joint venture. Educomp Solutions gained 2.33% after it formed a joint venture with Zeebo Inc. for wireless education . MIC Electronics rose 1.69% after the company sold its entire 68.26% stake in a step-down subsidiary to U.S.-based Saama Tech for $3 million.

Meanwhile, a high-level meeting convened by Prime Minister Manmohan Singh today to discuss ways to tackle food inflation, which touched a 23-month high in late December, ended inconclusively and the next meeting is likely on Wednesday or Thursday, media reports said.

Elsewhere, the other Asian markets closed mostly higher after a subdued start, European stocks gained modestly in early trading and the euro stabilized after falling to a fresh 4-month low against the dollar on Monday, as a pledge by Japan to buy eurozone sovereign bonds helped ease worries about funding issues in Europe.

Japan is planning to buy eurozone sovereign bonds to help the single currency region deal with its debt crisis, the nation's finance minister said on Tuesday. Reports quoted Yoshihiko Noda as saying that Japan will use its foreign exchange reserves to buy about 20% of bonds to be issued later this month under a special assistance program to help the Irish Republic.

The Dow futures also gained after Alcoa kicked off the earnings season with a fourth-quarter profit of $258 million, topping Wall Street estimates.

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Euro Stalls Versus Dollar Ahead Of Portugal Bond Auction

The euro failed to fight back against the dollar Tuesday morning, as news that the European Central Bank is buying government bonds fueled concerns that the region's debt crisis has reached a critical stage.

Japan and China have recently signaled plans to buy up European sovereign debt, hoping to avert a disaster that could threaten exports to lucrative European markets.

Having already bailed out Greece and Ireland to little effect, stronger members of the euro area are said to be seeking a similar rescue for weak sister Portugal.

Portuguese officials insisted this morning that a bail out is not necessary. Portugal will offer up to 1.25 billion euros of 5 and 10-year bonds Wednesday. The result of the auction could gauge confidence in the European Union's ability to handle the situation.

The euro was stuck at $1.2925 versus the dollar, after touching a 4-month low of $1.2873 earlier this week.

The single currency also wobbled versus the yen, holding at Y107.50. Last summer, the euro hit a 9-year low of Y105.41, and has since been unable to sustain any movement away from the mark.

On the flip side, the euro strengthened against the Swiss franc, improving to CHF 1.2620. The euro began the year at a record low of CHF 1.2400.

In economic news from the, U.S. wholesale inventories unexpectedly fell in November as wholesale sales beat forecasts.

The Commerce Department said wholesale inventories fell 0.2 percent to a seasonally adjusted $425.5 billion.

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