US & World Daily Markets Financial Briefing 11-02-2011

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Stocks Seeing Modest Weakness In Early Trading

With ongoing protests in Egypt adding to geopolitical concerns, stocks are seeing modest weakness in early trading on Friday. The major averages are all in negative territory after ending the previous session on opposite sides of the unchanged line.

Most of the major sectors have moved to the downside, although selling pressure has remained subdued. Modest weakness is visible among wireless, housing and defense stocks, while gold and airline stocks are moving to the upside.

Late on Thursday, Egyptian President Hosni Mubarak said that he would be passing some authority on to recently appointed Vice President Omar Suleiman, although he himself would remain in office until elections are held September.

The decision came as a surprise to most after numerous media outlets reported that Mubarak would be stepping down. Mubarak's decision riled protesters in Cairo's Tahrir Square, indicating a prolonging of civil unrest that has embroiled Egypt for the past two weeks.

Back in the U.S., the Commerce Department reported that the U.S. trade deficit widened to $40.6 billion in December from $38.3 billion in November. The wider deficit came in roughly in line with the expectations of economists, who had expected a deficit of $40.5 billion.

At the same time, the Treasury Department revealed that government-run housing refinance firms Fannie Mae and Freddie Mac would have their roles in the market reduced while leaving options for reform of the entities on the table for the Obama administration.

With earnings season winding down, Kraft Foods (KFT) reported adjusted fourth quarter net income of $0.46 per share, in-line with estimates. Net revenues for the fourth quarter increased 30 percent to $13.8 billion, topping forecasts for sales of $13.47 billion.

In the past few minutes, the major averages have bounced off their lows for the young session, but they remain in the red. The Dow is down 21.72 points or 0.2 percent at 12,207.57, the Nasdaq is down 5.44 points or 0.2 percent at 2,785.01 and the S&P 500 is down 2.86 points or 0.2 percent at 1,319.01.

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TSX May Open Mixed; Canada Swung To Trade Surplus

Canadian stocks may open mixed Friday amid weak cues from the global equity markets on escalating tensions in Egypt and firm commodities prices.

Traders were digesting a mixed batch of trade data from both sides of the border. While Canada unexpectedly recorded its first trade surplus in ten months in December, data from U.S. revealed trade deficit widened 5.9 percent.

U.S. stock futures were pointing to a sharply lower open.

On Thursday, the S&P/TSX Composite Index gained 56.27 points or 0.41 percent to 13,840.57, as commodities recovered in the latter part of the day.

The price of crude oil edged up Friday morning amid rising tensions in Egypt after Hosni Mubarak refused to step down, intensifying concerns over crude oil supply disruptions via Suez Canal. Crude for March edged up $0.13 to $86.86 a barrel.

The price of gold was extending its recent, with gold for April adding $6.0 to $1,368.50 an ounce.

In corporate news from Canada, telecommunications products and services provider Telus Corp. reported improved fourth quarter profits of $227 million compared to $156 million a year ago.

Real estate investment firm Brookfield Properties said funds from operations or FFO for the fourth quarter totaled $216 million, higher than $208 million a year ago. FFO to common shareholders was $204 million or $0.40 per share compared to $203 million or $0.40 per share a year earlier. Analysts were expecting the company to report earnings of $0.39 per share.

Metallurgical coal miner Western Coal Corp. reported lower third quarter net income of $20.4 million, or $0.07 per share, compared to $24 million or $0.10 per share in a year earlier.

Merchant banking company Clairvest Group reported improved third quarter net income of C$4.7 million or C$0.29 per share compared to C$2.3 million or C$0.14 per share reported a year ago.

Democratic Republic of Congo focused copper miner Katanga Mining reported fourth quarter net income of $214.3 million.

In economic news, Statistics Canada said the nation's trade balance with the world went from a deficit of C$115 million in November to a surplus of C$3.0 billion in December, the first trade surplus since February 2010. Economists expected a deficit of C$400 million in December.

Canada's merchandise exports rose 9.7 percent to $37.8 billion in December, led by a 16.5 percent gain in volumes of energy products. Export volumes, up 6.6 percent, increased in most sectors. Prices rose 2.9 percent. Both volumes and prices have risen in 8 of the past 12 months.

From south of the border, the U.S. Commerce Department said trade deficit widened 5.9 percent to $40.60 billion in December from $38.3 billion in November. The deficit came in roughly in line with the economists' expectations of $40.5 billion.

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French Market Declines

The French market is in negative territory in afternoon trading Friday, as concerns about Egypt dampened risk appetite. Banks and construction stocks are mostly lower.

In economic news, German annual inflation accelerated more than initially estimated in January, at its highest pace since October 2008, led by higher energy prices. Annual inflation came in at 2 percent in January, up from 1.7 percent in the prior month, final figures from the Federal Statistical Office said.

UK construction output declined 2.5 percent quarter-on-quarter in the final three months of last year compared to a revised 3.8 percent growth in the third quarter, the Office for the National Statistics said. The previous estimate for the third quarter showed a 4 percent increase in output.

Meanwhile, UK output prices rose by 4.8 percent in January from the previous year, following a 4.1 percent rise in the previous month. Economists were expecting it to accelerate to 4.4 percent.

The CAC 40 index opened lower at 4,081, compared to the previous close of 4,095 and ha sbeen below the flat line. The index is currently losing 0.44 percent.

Cosmetics giant Loreal is falling 4.7 percent, reportedly on a broker downgrade following results that came in below market projections.

Carmakers Renault and Peugeot are losing 2.7 percent and 1.1 percent, respectively.

Banks Credit Agricole, Natixis and BNP Paribas are losing between 1.6 percent and 0.4 percent. Societe Generale is up 0.4 percent.

Those falling notably include chipmaker STMicroelectronics, cement giant Lafarge and insurer Axa. Buiders Bouygueas and Vinci are losing 1.3 percent and 0.7 percent, respectively.

Total is down 0.3 percent after reporting lower profit in the fourth quarter.

Alcatel Lucent is surging 3.8 percent and Airbus maker EADS is adding 2 percent. Tire maker Michelin is rising 2.1 percent after reporting strong earnings in 2010.

Elsewhere in Europe, the UK's FTSE 100 is losing 0.08 percent and the German DAX is losing 0.04 percent.

Across Asia/Pacific, India's BSE Sensex climbed 1.5 percent, China's Shanghai Composite Index added 0.34 percent and Hong Kong's Hang Seng rose 0.53 percent. Australia's All Ordinaries lost 0.62 percent.

In the U.S., futures point to a lower open on Wall Street. In the previous session, the Dow edged down 0.1 percent, the Nasdaq inched up less than a tenth of a percent and the S&P 500 rose 0.1 percent.

In commodities, crude for March delivery is adding $0.51 to $87.24 per barrel and gold is rising $2.2 to $1364.7 a troy ounce.

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Indian Market Rebounds Despite Dip In IIP Numbers

The Indian market bounced back on Monday, shrugging off mixed global cues and data showing a drop in industrial production to a 20-month low in December. With short covering before the weekend supporting prices, the benchmark 30-share Sensex snapped a three-session loss to close 265 points or 1.52 percent higher at 17,729, while the 50-share Nifty rose by 84 points or 1.61 percent to 5,310.

Small-cap and mid-cap stocks outperformed their larger peers, with the BSE mid-cap and small-cap indexes rising around 3 percent each. In the broader market, gaining shares outpaced declining ones in the ratio of 3:1. Banking, consumer durable, auto, capital goods and realty stocks led the rebound, while IT stocks were subdued.

Among the top gainers, Sterlite Industries, NTPC, SBI, Bajaj Auto, Tata Motors, HDFC, Larsen & Toubro, ICICI Bank, Reliance Infrastructure and Jaiprakash Associates climbed between 3 percent and 7 percent.

On the other hand, Hindalco lost 2.27 percent, Tata Power declined 1.59 percent, Bharti Airtel eased 1.08 percent, Hindustan Unilever shed 1.03 percent and Tata Steel ended down 0.79 percent. Infosys, BHEL, ITC and TCS also ended in the red with modest losses.

Reliance Anil Dhirubhai Ambani Group stocks such as Reliance MediaWorks, Reliance Capital and Reliance Infrastructure rose between 2 percent and 5 percent. Educomp Solutions rallied 6 percent on strong Q3 earnings. Aptech jumped over 10 percent on reports that it will form a strategic global alliance with Microsoft. Moser Baer India fell 2.77 percent on posting a Rs.115.69-crore loss for the third quarter ended December.

Because of a high base effect last year, India's industrial output grew at its slowest pace in almost two years in December, rising just 1.6 percent from a year earlier, versus November's upwardly revised 3.6 percent expansion and a whopping 18.6 percent rise in December 2009, government data released today showed.

Finance Minister Pranab Mukherjeee said the data was 'disappointing but on expected lines'. The monthly numbers did not reflect the correct picture, he added. Analysts said the low numbers will not have any major influence on the RBI's hawkish tone and tougher monetary policy stance.

Elsewhere, with risk aversion making a comeback due to prolonged crisis in the Middle East, the other Asian markets closed on a mixed note Friday, European stocks drifted lower in early trading and the Dow futures signaled losses on Wall Street later in the global day.

Base metal prices were mixed in Shanghai and crude futures were firm above $87 a barrel, while the safe-haven dollar rose against major currencies amid the turmoil in Egypt, persistent worries over Europe's debt crisis and signs of improvement in the U.S. economic outlook.

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Dollar Strengthens As Egypt Crisis Intensifies

The dollar rallied versus other major currencies on Friday, after Egyptian president Hosni Mubarak shocked most observers by refusing to vacate office despite weeks of civil unrest centered in Cairo.

Protesters have been demanding that the longtime leader step down immediately, but Mubarak says he will remain in power until his term is up in September.

While the nation's army is now backing the president, a peaceful solution is now in question, giving the safe haven dollar a measure of support.

The dollar rose to a weekly high of $1.3507 before hitting technical resistance against the euro. With the advance, the buck was near its highest since mid-January.

Gains were more pronounced against the sterling, with the dollar improving to a 2-week high of $1.5962, compared to $1.61 last night. Traders shrugged off further evidence of inflationary pressures in the U.K.

Driven by higher fuel prices, U.K. output price inflation for all manufactured products rose to 4.8% from a downwardly revised 4.1% in December, data published by the Office for National Statistics revealed Friday.

Earlier this week, the Bank of England kept interest rates at 0.5 percent despite concerns about rising prices.

The dollar continued to gain on the yen this morning, rising to Y83.65 -- its highest since before Christmas.

Looking at today's economic news from the U.S., trade balance data for December will be released at 8:30 a.m. ET. Economists estimate that the trade gap widened to $40.5 billion in the month from a trade deficit of $38.3 billion in November.

The preliminary report of the Reuters/University of Michigan's consumer sentiment survey for February is scheduled to be released at 9.55 a.m. ET. The consumer sentiment index is expected to increase to 75 from January's 74.2.

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