US & World Daily Markets Financial Briefing 14-01-2011

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Stocks Posting Modest Losses In Early Trading

With traders digesting a slew of U.S. economic data as well as an increase in China's reserve requirement ratio, stocks are seeing modest weakness in early trading on Friday. The major averages are just below the unchanged line, adding to the slim losses posted in the previous session.

The early weakness is partly due to news that the Bank of China unexpectedly raised its bank reserve requirements by 50 basis points, effective January 20th, to limit inflation amid the country's runaway growth. Nonetheless, selling pressure has remained relatively subdued.

Back in the U.S., a report released a short time ago the Federal Reserve said industrial production increased by 0.8 percent in December following a downwardly revised 0.3 percent increase in November. Industrial production had been expected to increase by about 0.5 percent.

Additionally, the Federal Reserve said that the capacity utilization rate rose to 76.0 percent in December from an upwardly revised 75.4 percent in November. Economists had expected the capacity utilization rate to increase to 75.6 percent.

Earlier, the Labor Department said its consumer price index rose by 0.5 percent in December after edging up by an unrevised 0.1 percent in November. Economists had expected the index to increase by a slightly more modest 0.4 percent.

At the same time, the core consumer price index, which excludes a 4.6 percent jump in energy prices and a modest increase in foods prices, edged up by 0.1 percent in December, matching the increase seen in the previous month and coming in line with economist estimates.

Meanwhile, the Commerce Department reported that retail sales increased by 0.6 percent in December following an unrevised 0.8 percent increase in November. Economists had been expecting sales to show a somewhat more significant increase of about 0.8 percent.

Excluding a 1.1 percent increase in sales by motor vehicle and parts dealers, retail sales rose by 0.5 percent in December compared to a 1.0 percent increase in the previous month. Ex-auto sales had been expected to increase by 0.7 percent.

Shortly, Reuters and the University of Michigan will release the results of their consumer sentiment survey for January at 9:55 a.m. ET. The consumer sentiment index is expected to increase to 75.5 from December's reading of 74.5.

Shortly afterward, the Commerce Department will release its business inventories report for November at 10:00 a.m. ET. The report is expected to show a 0.7 percent increase in inventories.

Gold stocks are seeing early weakness, extending a recent downward move amid a steep drop by the price of the precious metal. While most weakness is also visible among software and biotech stocks, banking stocks are moving to the upside on the day.

The major averages have moved off their lows for the young session but currently remain in the red. The Dow is down 18.96 points or 0.2 percent at 11,712.94, the Nasdaq is down 4.05 points or 0.2 percent at 2,731.24 and the S&P 500 is down 0.40 points or less than a tenth of a percent at 1,283.36.

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French Market Slips

The French market is declining in afternoon trading Friday, reflecting weak cues from Asia and lower commodity prices. Banks are mostly lower, while construction stocks and car manufacturers are trading higher.

In economic news, Eurozone inflation accelerated to 2.2% in December from 1.9% recorded in November, statistical office Eurostat confirmed. December's inflation rate is the highest since October 2008, when consumer prices rose 3.2%.

UK output price annual inflation increased to 4.2% in December from a revised 4.1% in November, the Office for National Statistics said. Input price annual inflation accelerated to 12.5% in December from 9.2% in November.

The CAC 40 index opened lower at 3,961 and has been seeing volatile trading. The index is currently losing 0.32%.

Luxury goods firm LVMH is losing 1.9% and chipmaker STMicroelectronics is losing 1.65%. Dairy giant Danone is slipping 1.5%.

Those making notable losses include Scheneider Electric, drugmaker Sanofi-Aventis, chemicals firm Air Liquide and brewer Pernod-Ricard.

Among banks, Credit Agricole, BNP Paribas and Societe Generale are falling, while Natixis is gaining 0.2%.

Carmakers Renault and Peugeot are up about 0.3%.

Computer & consulting firm Cap Gemini, Airbus maker EADS, hotel group Accor, building materials maker Saint-Gobain and cement giant Lafarge are seeing notable upside. Builders Vinci and Bouygues are moderately higher.

Elsewhere in Europe, the UK's FTSE 100 is slipping 0.72% and the German DAX is losing 0.61%.

Across Asia/Pacific, markets had a mixed close. Japan's Nikkei 225 lost 0.86%, India's BSE Sensex retreated 1.68% and China's Shanghai Composite Index slipped 1.31%. However, Australia's All Ordinaries and Hong Kong's Hang Seng managed to close in positive territory, up 0.14% and 0.18%, respectively.

In the U.S., futures point to a lower open on Wall Street. In the previous session, the Dow fell 0.2%, the Nasdaq edged down 0.1% and the S&P 500 slipped 0.2%.

In commodities, crude for February delivery is sliding $0.96 to $90.44 per barrel and gold is declining $22.7 to $1364.3 a troy ounce.

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Sell-off Continues; India's Sensex Down 1.7%

Erasing mid-session gains, the Indian market fell sharply for a second day in a row on Friday, weighed by continued selling by foreign funds amid inflation worries and a mixed bag of corporate earnings.

The benchmark BSE Sensex recovered its early loss today when it shot up by over 600 points from the day's low in the afternoon on emergence of fresh buying in battered heavyweight shares. However, the recovery proved short-lived and the benchmark faltered again late in the session before ending down a whopping 322 points or 1.68% at 18,860. The 50-share Nifty lost almost 100 points or 1.7% to close at 5.655.

In the 30-share Sensex pack, only 5 stocks ended in positive territory. Tata Power advanced 2.11%, Wipro gained 1.77%, Jindal Steel added 0.31%, Mahindra & Mahindra edged up 0.13% and Hindustan Unilever ended up 0.10%.

Tata Motors, which said its global sales increased by 21% in December, led the decliners with a 4.62% loss. Private sector lender HDFC Bank tumbled 4.16%, copper producer Sterlite fell 3.45%, two-wheeler manufacturer Bajaj Auto declined 3%, car maker Maruti Suzuki shed 2.88% and property developer DLF eased 2.30%. Mortgage lender HDFC fell nearly 4% despite posting better-than-expected Q3 earnings on higher loan disbursal.

The broader market also saw weakness and the BSE mid-cap and small-cap indexes lost over a percent each. Declining shares outpaced gainers in the ratio of 2.25:1 on the BSE.

State-run SAIL plunged 6.68% on disappointing Q3 results. Jet Airways tumbled 4% on reports that it will add 49 aircraft over the next five years. Zee Entertainment Enterprises slumped nearly 10% after its board approved a scheme of amalgamation between group companies.

Amara Raja Batteries added a percent on announcing a special dividend. PVR gained 0.88% after it reportedly proposed to invest up to Rs.125 crore through its arm PVR Pictures in FY12 to up its distribution activities and production of Bollywood movies.

State Bank of Bikaner & Jaipur eased 1.43% after the state-owned lender increased its base rate by 25 basis points. Maytas Infra, which has been rechristened IL&FS Engineering and Construction Company, ended down 0.43%. Balaji Telefilms lost a percent after it received board approval to sell three divisions.

Tata Coffee hit the 20% upper circuit limit after it signed a pact with U.S.-based Starbucks Coffee International, Inc., to source and roast coffee beans. Kansai Nerolac Paints rose 0.67% on divesting its 49% stake in an unlisted subsidiary for a consideration of Rs.25.72 crore. Newspaper publisher Hindustan Media Ventures gained a percent on reporting a 169% rise in quarterly net profit.

In economic news, India's annual rate of inflation based on wholesale prices rose to 8.43% in December on higher food prices versus 7.48% in the previous month and expectations for an 8.35% rise, government data released today showed. However, the price rise was already discounted in the past few sessions.

The current level of food inflation is not acceptable, finance minister Pranab Mukherjee said today, reacting to the December numbers.

In a statement released late evening yesterday, the government said that an increase in agricultural productivity is the only lasting solution to check food price inflation. It announced a slew of anti-inflation measures and set up an inter-ministerial group, under Kaushik Basu, the Chief Economic Advisor to the finance ministry, to build an 'institutional machinery' that can read warning signals and recommend appropriate fiscal and monetary measures to tackle runaway prices in future.

Elsewhere, the other Asian markets closed mostly lower on Friday, oil and copper prices fell and European stocks retreated for a second day, while the euro hit a one-month high against the dollar after data showed German consumer inflation accelerated to its highest level in more than two years.

The Dow futures fluctuated ahead of data on retail sales, industrial production and consumer confidence that might shed more light on the health of the world's largest economy. Late in the evening, the People's Bank of China said it has raised banks' reserve requirement ratio by 50 basis points, effective January 20. It was the seventh such rate hike since 2010.

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Dollar Mixed Ahead Of Retail Sales, Inflation

The dollar was looking for direction versus other major currencies Friday morning in New York, ahead of government figures on retail sales and inflation for December.

Stocks were lower in global markets this morning and US futures lagged, boosting safe haven demand for the buck.

For the seventh time in a calendar year, China's central bank is attempting to get a handle on rising prices by raising the amount of money banks must keep on reserve.

China's inflation rate hit 5.1 in November, its highest in more than two years.

The dollar steadied near $1.3350 against the euro, having touched a monthly low near $1.3450 in overnight action. Only five days ago the dollar was sitting at a 4-month high of 1.2873.

European Central Bank President Jean-Clause Trichet signaled yesterday that policy makers are becoming concerned with inflation in the euro area, setting the stage for interest rate hikes.

The buck paused near yesterday's monthly low of $1.5883 versus the sterling.

The dollar battled back to C$0.9975 against its Canadian counterpart, having dropped more than a cent below parity to its lowest in two years earlier this week.

The dollar pared some of its modest weekly losses against the yen this morning, improving slightly to Y82.90.

An onslaught of economic data from the US starts at 8:30 am ET, with the release of retail sales figures for December. Economists estimate a 0.8% increase in retail sales and a 0.7% climb in retail sales excluding autos.

At the same time, the government will reveal its latest figures on inflation. The consensus estimates call for a 0.4% increase in the consumer price index, while the core consumer price index that excludes food and energy is likely to have risen 0.1%

The industrial production report of the Federal Reserve is due out at 9:15 AM ET. Economists estimate 0.5% growth in industrial production for December, while capacity utilization is expected to come in at 75.6%.

The preliminary report of the Reuters/University of Michigan's consumer sentiment survey for January is scheduled to be released at 9.55 AM ET. The consumer sentiment index is expected to increase to 75 from December's 74.5.

The Commerce Department is scheduled to release its business inventories report for November at 10 AM ET. The report summarizes the results from the monthly retail trade, wholesale trade and factory goods orders surveys. The report is expected to show a 0.7% increase in business inventories for the month.

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