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

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Stocks Regain Ground But Remain Mostly Negative

After moving sharply lower at the open, stocks continue to see considerable weakness in mid-morning trading on Thursday. While the major averages have not seen much follow-through on their initial downward move, they remain stuck in the red.

The major averages have recently moved well off their worst levels of the day but currently continue to post notable losses. The Dow is down 83.74 points or 0.7 percent at 11,273.30, the Nasdaq is down 33.23 points or 1.3 percent at 2,545.55 and the S&P 500 is down 8.54 points or 0.7 percent at 1,210.17.

Much of the weakness on the day is due to disappointing guidance from technology bellwether Cisco Systems (CSCO), which has offset some of the recent optimism about the economic outlook and inspired traders to do some profit taking.

After the close of trading on Wednesday, Cisco reported first quarter adjusted earnings that rose to $0.42 per share from $0.36 per share in the year-ago quarter, as its revenues rose 19.2 percent to $10.75 billion. Analysts had expected earnings of $0.40 per share on revenues of $10.74 billion.

Looking ahead, however, Cisco CEO John Chamber said the company expects its full year net sales to increase by about 9 to 12 percent compared to analyst expectations for a 12.9 percent increase. Shares of Cisco are subsequently down by 15.3 percent after setting a two-month intraday low.

The weakness in the markets also comes as traders keep an eye on the G20 summit of world leaders in South Korea. There are concerns that divisions regarding currency valuations could prevent the leaders from reaching a broad agreement on global economic cooperation.

While most stocks are moving to the downside, shares of Viacom (VIA) are bucking the downtrend after the entertainment content company reported better than expected third quarter adjusted earnings and announced plans to sell its Harmonix gaming unit.

Sector News

Networking stocks are posting particularly steep losses following the news from Cisco, with the NYSE Arca Networking Index down by 3.4 percent. The loss by the index comes after it ended the previous session at a three-year closing high.

While Cisco is leading the sector lower, Alcatel-Lucent (ALU) and Anixter International (AXE) are also posting notable losses, falling by 4.4 percent and 2.8 percent, respectively.

Most other technology-related stocks have also come under pressure in morning trading, with significant weakness visible among computer hardware stocks. The NYSE Arca Computer Hardware Index is down by 2 percent, pulling back further off the ten-year closing high it set on Monday.

Outside of the tech sector, defense, airline, and banking stocks are also posting notable losses. Most of the other major sectors have also moved to the downside.

Stocks Driven By Analyst Comments

Shares of Jabil Circuit (JBL) are seeing notable weakness in mid-morning trading, with the electronic manufacturing services provider currently down by 7.8 percent. At its low for the session, Jabil was at its worst intraday level in well over a month.

The loss by Jabil comes after Citigroup downgraded its rating on the company's stock to Hold from Buy. Citigroup said that the company is leveraged to lower growth at Cisco.

Dick's Sporting Goods (DKS) is also under pressure after Longbow downgraded its rating on the sporting goods retailer to Neutral from Buy. Shares of Dick's are currently down by 1.4 percent, pulling back further off the well over two-year closing high set on Monday.

On the other hand, shares of 99 Cents Only Stores (NDN) are currently up by 3.2 percent after Deutsche Bank upgraded its rating on the discount retailer to Buy from Hold. With the gain, 99 Cents is moving further off last Friday's fourth-month closing low.

Other Markets

In overseas trading, stock markets in the Asia-Pacific region turned in another mixed performance on Thursday. While Japan's benchmark Nikkei 225 Index and Hong Kong's Hang Seng Index rose by 0.3 percent and 0.8 percent, respectively, South Korea's Kospi Index plunged by 2.7 percent.

The major European markets have also turned mixed on the day. Germany's DAX Index is currently up by 0.1 percent, while the U.K.'s FTSE 100 Index is down by 0.1 percent and the French CAC 40 Index is down by 0.5 percent.

The bond markets are closed due to the Veterans Day holiday.

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TSX Poised For Weak Open - Canadian Commentary

Bay Street stocks may open lower Thursday as traders fret over the inflation situation in China, the largest commodity consuming nation. Moreover, cues from the global equity markets were mixed, with most Asian stocks ending lower and European shares lingering in the red amid euro zone debt worries.

Today's data from China revealed that inflation soared to a 2-year high and above the government's annual target of 3%. Inflation in China surged to 4.4% year-over-year in October from 3.6% in September. The data could put pressure on the China's Central Bank to resort to further monetary tightening measures that might have a negative impact on the commodities prices, analysts opined.

On Wednesday, the S&P/TSX Composite Index edged up 26.01 points or 0.20% to 12,942.64.

The price of crude oil moved up to a fresh 2-year peak as U.S. crude oil inventories declined last week. Meanwhile, the OPEC in its latest report released today revised up its estimate for global oil demand growth in the current year by 190,000 barrels a day, as it expects world economy to expand at a faster pace than previously expected. Crude for January edged up $0.07 to $88.36 a barrel.

The price of gold bounced back above $1,400 amid a mixed U.S. dollar. Gold for December was up $8.90 to $1,408.20 an ounce.

In corporate news from Canada, power producer BORALEX INC. posted sharp rise in third-quarter earnings that beat Street estimates. Net earnings came in at C$27.09 million compared to C$0.69 million prior year, while net earnings per Class A share surged to C$0.69 from C$0.02 year ago. Analysts were expecting the company to report loss of C$0.05 per share for the quarter.

Independent power producer Atlantic Power Corp. reported a narrower third quarter loss of $0.44 million or $0.01 per share compared to $15.80 million or $0.26 per share in the same quarter last year. Lower interest expenses and the absence of foreign exchange loss helped the company perform better.

Coal producer SouthGobi Energy Resources swung to profit in third quarter, reporting net income of $27.49 million or $0.15 per share, compared to a net loss of $23.78 million or $0.17 per share in the year-ago period.

Precious metals miner Greystar Resources reported third-quarter loss of C$9.81 million, compared to a loss of C$7.83 million last year. However, loss per share was C$0.12, compared to loss per share of C$0.15 in the year-ago quarter.

Mining services company Orbit Garant Drilling reported first quarter net earnings of C$2.2 million or C$0.07 per share, lower than C$2.5 million or C$0.08 per share last year.

Lender C.A. Bancorp Inc. said it would use up to C$31 million of its available cash to buyback shares under a "Dutch Auction", with offer prices ranging from C$1.80 to C$2.10 per share. The offer will be for up to approximately 65% of the total number of issued and outstanding shares.

Investment firm Onex Corp. reported a narrower third quarter net loss of C$44 million or C$0.37 per share from a loss of C$180 million or C$1.48 per share last year.

Asset management company Sprott Inc. reported higher third quarter net income of C$9.6 million or C$0.06 per share, compared to C$5.5 million or C$0.04 per share in the prior year quarter.

Caterpillar equipment dealer Finning International reported nearly three-fold rise in third quarter profit to C$61 million or C$0.36 per share from C$21.7 million or C$0.13 per share a year ago. The company approved a quarterly dividend at C$0.12 per common share. Analysts were expecting the company to report earnings of C$0.29 per share.

Industrial valves making company Velan Inc. announced Wednesday that it received several important new nuclear contracts from China in October for a total of approximately C$61 million.

Restaurants operator Tim Hortons Inc. reported higher third quarter net income of C$73.83 million or C$0.42 per share compared to C$61.18 million or C$0.34 per share last year.

Shopper Marketing company Pareto Corp. reported third quarter net earnings of $1.8 million or $0.048 per share, up from $1.5 million or $0.034 per share a year earlier.

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Financials drag index lower

Market Movers
techMARK 1,751.49 -0.55%
FTSE 100 5,801.71 -0.26%
FTSE 250 10,913.56 -0.74%

An early three-digit loss on Wall Street has the Footsie near its worst levels of the day, with financials the biggest fallers.

Insurers Aviva, L&G and Standard Life are deep in the red, as are and RBS and Barclays on fears about Irish debt.

Metal heavyweights are limiting the deficit though. Most are still higher, as they have been all day. Antofagasta, Kazakhmys, Xstrata, Fresnillo and Rio Tinto are in demand, as is oil major BP.

Iron specialist Ferrexpo is the best performer. Cash is pouring in, output is at record levels and the prospects rosy for 2010 and 2011, the company said.

Indian miner Vedanta posted a sharp rise in profits in the six months to September 30 as it tapped into the recovery in commodity prices with record production of a number of metals. Pre-tax profits were up to $1.11bn (£690m) from $605m over the same period the previous year on revenues that soared to $4.58bn from $2.98bn.

Kazakhstan-based mining leviathan Eurasian National Resources (ENRC) said production is expected to remain at full capacity in the final quarter of the year. “Revenue and cost growth is broadly in line with our expectations. Cost management remains a priority for the group in order to maintain our advantageous cost position,” said Felix Vulis, chief executive officer of ENRC.

Telecoms titan BT is another good performer after it bumped up adjusted profit before tax by 13% during the second quarter and increased earnings forecasts for the full-year.

Cost cutting helped earnings before interest, tax, depreciation and amortisation (EBITDA), adjusted for one off charges, add 3% to £1.45bn, taking the six-month total to £2.85bn. That was enough for the company to increase its prediction for full-year adjusted EBITDA to around £5.8bn.

But shares are subdued overall. Yule Catto is among the stocks helping to dampen sentiment. A mixed trading update sparked a negative reaction from investors.

Within Polymer Chemicals, monomer prices continued to rise, the group said, but at at a lower rate than the first half. The business continued to recover these increases in its end markets. Volumes remained robust in most segments, it added, though the weak volumes in the low margin compound business persisted.

Real estate giant Land Securities built underlying profit up by 6% during the first half – excluding valuation gains of £314m – and businesses are now more willing to commit to new space than even the company expected. Revenue profit grew to £135.9m in the six months ended 30 September, up from £128.4m the year before, though that jumps to £455.3m including the revaluation compared with a £4.6m loss last time.

Electricity generator International Power said expected 2010 spreads and load factors in its merchant markets remain in line with the guidance given in August

Newsagent chain WH Smith saw lower sales in its High Street and Travel divisions in the period between 1 September and 6 November, though this is in line with expectations as the company has been focusing on margins rather than sales. Total sales were down by 2% compared with the same period the previous year. Like-for-like sales in the travel division, which includes shops in railway stations and airports, were down by 1%. High Street like-for-like sales fell by 4%.

Private equity house 3i ramped up investment and swung into profit during the first half. Profit before tax came in at £54m for the six months ended 30 September compared with a £57 loss in 2009, helped by a much smaller exchange rate hit. The net portfolio return rose by £4m to £236m.

AMEC, the provider engineering and project management services to the oil & gas and other sectors, said trading has been towards the top end of expectations this year as all three divisions stay busy.

Restaurant Group, owner of the Garfunkel's chains, said it is trading in line with management expectations despite the tough economic backdrop and is confident of meeting full year targets.

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Indian Market Ends Sharply Lower On Profit Taking

The Indian market fell sharply on Thursday on the back of profit taking in financial, IT, oil & gas, consumer goods, telecom and construction-related shares following a mixed bag of corporate earnings and negative European cues.

The market fell even as data showed that food inflation eased to a one-year low, soothing fears of further interest rate hikes. Government data released today showed that food inflation for the week ended October 30 declined for the fourth successive week to 12.30% from 12.85% in the previous week on lower prices of potatoes, vegetables and pulses.

After trading little changed in early trading, the BSE Sensex fell sharply in the afternoon to end down 287 points or 1.37% at 20,589, with 25 of it components edging lower. Likewise, intensive selling in heavyweight stocks dragged the broader Nifty down by about 80 points or 1.30% to 6,194.

The BSE mid-cap and small-cap indexes outperformed the frontline indexes, declining 1.12% and 0.47%, respectively. In the broader market, losing shares outpaced gaining ones by 1696 to 1288 shares.

In the 30-share Sensex pack, DLF led the decliners with a 4.41% loss after the property developer posted a 5% drop in its September-quarter consolidated net profit. Bharti Airtel fell 3.26%, a day after the nation's biggest wireless telecom operator reported disappointing results. Its rival Reliance Communication ended down 1.81%.

Tata Motors declined nearly 2% after the automaker asked its Nano customers to get safety devices and features fitted in the vehicle free of cost. Jaiprakash Associates tumbled 3.28% amid reports that the company will sell shares in its Jaiprakash Power Ventures unit next year.

Cipla (down 3.22%), BHEL (down 2.66%), TCS (down 2.49%), ONGC (down 2.11%), HDFC (down 1.76%), ACC (down 1.65%), HDFC Bank (down 1.64%) and Hindustan Unilever (down 1.61%) also ended sharply lower.

On the flip side, Hindalco Industries advanced 2.62% on a brokerage upgrade. Tata Power (up 1.47%), Reliance Infrastructure (up 1.16%), Mahindra & Mahindra (up 1%) and Hero Honda Motor (up 0.12%) also bucked the downward trend to end in the green.

Hindustan Copper (down 1.26%), ONGC (down 2.11%) and Shipping Corporation of India (down 2.09%) closed weak on divestment-related reports. Tata Steel ended down 1% ahead of its results due tomorrow. Ranbaxy Laboratories fell 3.18% despite the drug firm nearly tripling its third-quarter net profit. Apollo Tyres plunged 6.51% on sluggish results.

IndusInd Bank rallied 3.54% and Lupin rose 2.22% after MSCI Inc., a leading provider of investment decision support tools worldwide, added these stocks in the MSCI Global Standard Index.

Elsewhere, the markets in Japan, China, Australia and Hong Kong advanced on Thursday, as an encouraging drop in U.S. jobless claims, robust Chinese economic data on industrial output and retail sales and a move by Moody's Investors Service to increase China's debt rating boosted demand for higher-yielding assets.

However, South Korea's KOSPI average fell 2.70% on heavy late-session selling by foreign investors on the last day of options expiry.

The impact of China's overnight reserve ratio hike was limited, while traders kept an eye on the ongoing Group of 20 meeting in Seoul, which winds up Friday. Crude futures rose above $88 a barrel to hit a new two-year high, copper prices hit a record high and gold prices edged up, as the dollar's recent rebound paused.

Chinese inflation accelerated to its highest level in more than two years in October, the government said, raising the prospects for more tightening moves from Beijing to restore normal economic conditions.

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Crude Hovers Near $89; OPEC Ups Forecast

The price of crude oil moved up Thursday morning as traders hoped for faster demand recovery.

Light Sweet Crude Oil (WTI) futures for January delivery were up $0.45 to $88.74 a barrel. Yesterday, oil rose to a fresh 2-year high after the EIA said that U.S. crude oil inventories unexpectedly fell last week.

Wednesday during trading hours, the EIA revealed U.S. crude oil inventories fell 3.3 million barrels and gasoline stocks dipped by 1.90 million barrels in the week ended November 05. Analysts were expecting crude oil inventories to increase by 1.5 million barrels, while gasoline inventories to decrease by 1.0 million barrels, last week.

The OPEC in its latest report released today revised up its estimate for global oil demand growth in the current year by 190,000 barrels a day, as it expects world economy to expand at a faster pace than previously expected. The cartel also made a slight upward revision to world oil demand growth in 2011, which is now forecast at 1.2 million barrels a day.

Today's data from China revealed that inflation soared to a 2-year high and above the government's annual target of 3%. Inflation in China soared to 4.4% in October from 3.6% in September.

Meanwhile, the U.S. dollar was trading mixed Thursday morning. The greenback continued to move higher versus the euro, while trading flat against sterling. The buck was edging down versus the Swiss Franc and hovering near its one-month high against the yen.

With a light economic calendar today, traders will look to the equity and currency markets to get clues.

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