US & World Daily Markets Financial Briefing 16-11-2010

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Stocks Moving Sharply Lower In Mid-Morning Trading

Stocks are seeing considerable weakness in morning trading on Tuesday amid concerns regarding the state of Irish finances and the prospect of an interest rate hike in China. Meanwhile, the day's mixed economic news out of the U.S. may be limiting the pullback.

The major averages have seen further downside in recent trading, falling to new lows for the session. The Dow is down 133.66 points or 1.2 percent at 11,068.31, the Nasdaq is down 26.90 points or 1.1 percent at 2,486.92 and the S&P 500 is down 13.11 points or 1.1 percent at 1,184.64.

The weakness in the markets is partly due to recent indications that China will once again attempt to taper its robust growth via a rate hike, slowing down the flow of cash in the world's second largest economy.

Meanwhile, a slew of concerns regarding the health of Irish banks and the state of the country's coffers have also generated some selling pressure. European finance ministers are meeting in Brussels today and are expected to discuss plans to bail out Ireland if called upon to do so.

In U.S. economic news, the National Association of Home Builders said its homebuilder confidence index rose to 16 in November from a downwardly revised 15 in October. Economists had been expecting the index to edge down to 15 from the reading of 16 originally reported for the previous month.

Earlier, the Labor Department said its producer price index rose by 0.4 percent in October, matching the increases seen in each of the two previous months. Economists had been expecting the index to increase by a more significant 0.8 percent.

Excluding a jump in energy prices as well as a modest drop in foods prices, the core producer price index fell by 0.6 percent in October after edging up by 0.1 percent in September. The drop came as a surprise to economists, who had expected core prices to increase by 0.1 percent.

Meanwhile, the Federal Reserve said that industrial production was unchanged in October after falling by 0.2 percent in September. Economists had been expecting production to increase by 0.3 percent.

In earnings news, Dow component Wal-Mart (WMT) reported third-quarter net income of $0.95 per share, topping estimates for earnings of $0.90 per share. Sales came in at $101.2 billion, short of consensus estimates for $102.43 billion for the quarter.

Wal-Mart also forecast fourth quarter earnings of $1.29 to $.133 per share, above the $1.28 per share mark forecast on Wall Street.

Home improvement retailer and Dow component Home Depot Inc. (HD) posted third-quarter earnings of $0.51 per share, just above the $0.48 per share estimates for the period. Quarterly sales totaled $16.6 billion, above the $16.59 billion expected for the quarter.

Steel stocks are among the market's steepest decliners in the early going, with the NYSE Arca Steel Index posting a loss of 2.5 percent. The index is moving further off of the six-month closing high set earlier this month amid concerns about Chinese demand.

Commercial real estate stocks are also under pressure, resulting in a 2.2 percent pullback by the Morgan Stanley REIT Index. With the decline, the index has slumped to a six-week intraday low after reaching its best level since 2008 earlier this month.

Notable weakness is also visible among gold, banking, natural gas and defense stocks, along with telecommunications, housing and utilities stocks. Most sector indices are backing off of their best levels since 2008 as profit taking continues following the recent run-up in most market segments.

Stocks Driven By Analyst Comments

Eaton Vance (EV) is trading lower after being downgraded at Ticonderoga from Neutral to Sell. The stock is down by 1.3 percent, slipping to a two-week intraday low.

Joy Global (JOYG) is also under pressure following a downgrade at Sterne Agee from Buy to Neutral based on recent valuation. The stock is posting a loss of 2.5 percent, falling from its best closing level since mid-2008.

On the other hand, Brocade (BRCD) is trading higher after an upgrade at JMP Securities to Market Outperform. Shares are currently up by 2.3 percent, bouncing off of the five-week closing low set yesterday.

Other Markets

In overseas trading, stock markets in the Asia-Pacific region ended mostly lower on Tuesday. Japan's benchmark Nikkei 225 Index fell by 0.3 percent, while Hong Kong's Hang Seng Index declined by 1.4 percent.

The major European markets are also seeing notable losses. While the German DAX Index is down by 1.1 percent, the U.K.'s FTSE 100 Index and the French CAC 40 Index are both down by 1.7 percent.

In the bond markets, treasuries are slightly higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.902 percent, posting a loss of less than one basis point.

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TSX Poised For Weak Opening

Bay Street stocks are poised for a lower open Tuesday amid falling commodities and weak cues from the global equity markets.

Equities across the globe suffered losses amid worries over the monetary tightening measures by China, one of the largest commodities consumer, and renewed concerns over the debt situation in some euro zone nations.

On Monday, the S&P/TSX Composite Index eased 13.82 points or 0.11% to 12,735.41.

The price of crude oil moved down amid weak cues from the global equity markets. Crude for December was down $1.33 to $83.55 a barrel.

The price of gold moved back below $1,360 as the U.S. dollar remained firm versus a basket of currencies. Gold for December moved down $9.80 to $1,355.70 an ounce.

In corporate news from Canada, multi-channel retailer Sears Canada reported lower third-quarter net earnings of C$18.5 million or C$0.17 per share compared to C$47.1 million or C$0.44 per share in the same quarter last year.

Oil and natural gas firm Petrobank Energy reported lower third quarter net profits of $27.8 million or $0.25 per share, compared to $54.80 million or $0.56 per share a year ago. Analysts were expecting the company to report earnings of $0.33 per share this quarter.

Railway equipments maker Global Railway Industries said it swung to profit on one-time gains of sale of share capital of GBI USA Holdings Inc and the assets of Bach-Simpson Corp. Net profit came in at C$18.04 million or C$1.18 per share compared with loss of C$0.53 million or C$0.04 per share last year. On a continuing operations basis, net loss was C$1.5 million or C$0.10 per share compared with net loss of C$1.6 million or C$0.11 per share a year earlier.

Base-metals miner Crowflight Minerals posted a wider third quarter net loss of C$14 million or C$0.02 per share compared to C$2.9 million or C$0.01 per share prior year. However, total metal revenue increased to C$8.5 million from C$2.3 million last year.

Preclinical service company LAB Research reported third quarter loss of C$2.64 million or C$0.05 per share, compared to C$1.7 million or C$0.09 per share last year.

Electronics manufacturing services company Adeptron Technologies reported a wider third quarter net loss $2.42 million or $0.02 per share compared with net loss of $1.03 million or $0.01 per share last year.

Metakaolin supplier Whitemud Resources said it is suspending operations with immediate effect as a result of the withdrawal of financing proposal by the Werklund Capital Corp. and added that its employees have been served notice of termination. The board will look for a buyer for the company. Yesterday, the stocks lost over 40%.

In economic news, Statistics Canada said manufacturing sales decreased 0.6% in September to C$45.1 billion. Economists expected manufacturing sales to slip 0.3%, following the 2.6% increase seen in August. Sales in the transportation equipment industry declined 7.5% in September to C$7.0 billion. Motor vehicle industry sales fell 10.4% to $3.6 billion.

From the U.S., the Labor Department said its producer price index rose by 0.4% in October, matching the increases seen in each of the two previous months. Economists had been expecting the index to increase by a more significant 0.8%. Excluding the jump in energy prices as well as a modest drop in foods prices, the core producer price index fell by 0.6% in October after edging up by 0.1% in September. The drop came as a surprise to economists, who had expected core prices to increase by 0.1% .

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Market Movers
techMARK 1,739.60 -0.53%
FTSE 100 5,743.08 -1.33%
FTSE 250 10,812.62 -1.01%

Footsie retreated further over the lunch time session with mining stocks largely responsible for the decline, as metal prices pull back on fears that China will act to cool down its economy in the interests of reining in inflation.

Antofagasta, Kazakhymys, Fresnillo, Xstrata and Rio Tinto are the major fallers among the big names of the mining sector while mid-cap operators Hochschild and Petropavlovsk also get blasted.

It's another hefty day for company results. Profits soared at luxury fashion label Burberry in the six months to 30 September as sales of non-clothing items such as handbags jumped and the company extended its reach in emerging markets such as China and Brazil.

Adjusted revenues (stripping out Burberry’s discontinued Spanish business) were up by 21% from the same period the previous year to £641m. Adjusted pre-tax profits soared by 49% to £129m.

Packaging group Rexam is enjoying a rare spell in the spotlight, sitting atop the Footsie leaderboard. The company is trading on track in both beverage cans and plastics, with cost savings coming through as planned and capacity being added in South America.

Big employers looking for swanky new offices in central London have pushed occupancy rates at real estate giant British Land higher during the first half and net asset value is up over 4%. Panmure Gordon reiterated its “buy” recommendation after a “very predictable” yet “positive” set of results, but the market was possibly expecting more and has marked the shares down.

Chip designer Arm is a strong performer after a stunning set of results from German chip group Infineon, where fiscal fourth-quarter earnings rose to €390m from €11m last year as revenue soared 55% to €942m.

Taylor Wimpey has been busy. The housebuilder is fully sold for 2010 and expects full-year profit to be at the top end of expectations, it’s got a news finance director and has agreed a revised £950m credit facility with its banks. The group has performed well in the UK and trading is stable despite the economic uncertainty, in line with forecasts since the interim results at the beginning of August.

The squeeze on public sector spending has already affected telecoms group Cable & Wireless Worldwide, with revenues down by 1.6% in the last six months. Turnover came in at £1.12bn, against £1.14bn, in the half-year to September, though the largely-UK focused telecoms group, which demerged from Cable & Wireless Communications in March, lifted pre-tax profits from £22m to £53m. Underlying operating profits rose by 4.4% to £214m.

Internet services group TalkTalk reported a 12.4% increase in half year revenue as it reiterated its full year guidance of 6-8% revenue growth. The UK's second biggest broadband company said pre-tax profit increased to £70m for the 6 months to 30 September 2010 compared to £68m the same time a year before.

A strong recovery in advertising helped bring about a sharp rise in revenues at broadcaster ITV in the third quarter, though growth in ad sales are seen slowing in the fourth quarter. Group revenues climbed by 11% from the same period last year to £1.456bn, with advertising revenues climbing by 16%. Ad revenues are currently forecast to be up by 10% in the fourth quarter.

No-frills airline easyJet said full year profit surged nearly threefold on rising consumer demand and cheaper fuel. The group also announced it would pay its first dividend in 2012.

Shareholders in pubs groups Enterprise Inns and Punch Taverns might be forgiven for heading out for a stiff drink later today as both shares are sharply lower.

Enterprise slipped back into the red last year but says its trading steadied sufficiently in the last six months that a dividend is a possibility in the future. At least one broker was optimistically suggesting the divi could be restored with the current set of results. The debt-laden group, which owns over 6,800 pubs, posted a pre-tax loss of £31m in the year to September, against an £11m profit last time. Net debt at the year-end was £3.3bn compared to £3.7bn at the beginning of the financial year.

Punch, meanwhile, is to part company with its finance director, Phil Dutton. He will step down from the board next month and leave the group in March.

Sales have continued rising and margins have been maintained since JD Sports Fashion’s last update in September, the trendy sportswear retailer said today.

Sportingbet’s time as a bid stock was brief after Swedish online gaming group pulled out of talks with its UK counterpart. Having shot up yesterday as news of the talks leaked out, the shares are almost back down to where they were at the end of last week.

Premier Oil, yesterday’s stock on talk the Koreans are lining up a bid, is on course to meet full-year production targets, though bad weather has held up further exploration in the potentially lucrative North Sea Catcher field.

Another bid stock in the oil sector, oil field services provider Wellstream, continues to trade in line with expectations, although there’s no more news on any takeover.

Price comparison website Moneysupermarket.com said trading in the first few weeks of the fourth quarter has been strong with revenues still more than 10% ahead of the same period last year.

Fashion retailer French Connection has seen sales from its own stores fall slightly short of expectations in the 15 weeks to 13 November, but this has been offset by further growth in sales of its clothes to other stores.

Shares in Vectura moved higher after the respiratory inhaler developer announced higher revenues, sharply narrower losses and positive data from a Phase II clinical study of a treatment for Parkinson’s disease.

European shares have taken their cue from Wall Street, which had a late panic attack yesterday, and are in full retreat. US stocks are predicted to open lower today, so there is not likely to be any boost to sentiment from that quarter, while European sovereign debt fears continue to nag away at confidence, though there was some uplifting news on that front from Germany.

German investor confidence rose for the first time in seven months in November, according to the ZEW Centre for European Economic Research. The index rose to +1.8 from -7.2 in October, much better than expected.

The CAC in Paris is down 62 at 3,801. The Dax in Frankfurt is down 57 at 6,732 while the IBEX in Madrid has shed 146 at 10,203.

The growing row in Europe over Ireland's refusal to hand over monetary control to the EU and IMF is making the headlines across the continent.

Other cash-strapped countries fear that that the crisis will engulf Portugal and Spain. The Spanish central bank governor, Miguel Angel Ordonez went as far as to call on the Irish government to halt the panic in bond markets and take the "proper decision" of activating the EU-IMF bail-out mechanism.

Companies making progress include Infineon Technologies after the German chip maker's fourth-quarter profit surged and it proposed its maiden dividend. Profits of €390m screamed past analysts’ expectations of €216m. Other tech stocks rose in sympathy.

Infineon’s former parent company, Siemens, was among those heading lower. Also on the slide in Germany is steelmaker ThyssenKrupp, after a trade magazine quoted chief executive officer Ekkehard Schulz as saying that, if the worst came to the worst, the company could have to close one of its steel blast furnaces to comply with Germany’s goals to cut carbon-dioxide output.

European car sales fell for the seventh month in succession, slowing to 1.06m units in October from 1.27m the year before. That prompted a bout of selling in car makers such as BMW and Daimler .

It’s not been a good day for computer game makers. French titan Ubisoft Entertainment posted a first-half loss of €89.8m, prompting Deutsche Bank to cut its rating on the stock from “buy” to “hold” while Natixis has downgraded the stock to “reduce” from “buy”. Smaller rival Bigben Interactive has been downgraded to “add” from “buy” by Gilbert Dupont.

CAC 40 - Risers
Alcatel-Lucent (ALU) € 2.19 +0.97%
Carrefour (CA) € 38.08 +0.33%
EDF (EDF) € 32.76 +0.24%
PPR (PP) € 116.65 +0.21%
ST Microelectronics (STM) € 6.46 +0.11%

CAC 40 - Fallers
ArcelorMittal SA (MT) € 24.52 -3.86%
Lagardere SCA (MMB) € 30.25 -3.06%
Vivendi (VIV) € 19.92 -2.81%
Technip (TEC) € 61.61 -2.69%
Credit Agricole (ACA) € 11.22 -2.65%
AXA (CS) € 13.19 -2.62%
Societe Generale (GLE) € 41.56 -2.44%
Alstom (ALO) € 32.97 -2.35%
Vallourec (VK) € 74.73 -2.33%
Schneider Electric (SU) € 102.90 -2.28%

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Indian Market Tumbles On Eurozone, China Worries

Concerns over the deepening Irish debt crisis and speculation that China will raise interest rates dragged global equities sharply lower on Tuesday. The Indian market was no exception, with the benchmark 30-share Sensex falling about 450 points or 2.2% to 19,865. Twenty nine of its components declined.

However, telecom operator Bharti Airtel bucked the downward trend to end 1.16% higher on a brokerage upgrade.

Frenzied profit taking sparked by a heavy sell-off in the Chinese markets on rate hike concerns and fears that foreign funds may close positions before the year-end dragged the broader Nifty index down by about 133 points or 2.17% to 5,989.

Metal stocks led the declines, as base metal prices eased and the dollar index rebounded, drawing strength from higher U.S. bond yields and a vulnerable euro. Also, many Chinese newspapers have reported that the government will impose price control in commodities to curb inflation. Tata Steel, NMDC, Nalco, Hindustan Zinc, SAIL, JSW Steel, Hindalco and Sterlite lost between 2% and 5.5%.

In the oil/gas sector, heavyweight Reliance Industries fell 2.24%, as oil prices fell to near $84 a barrel in Asian trading ahead of a report from the U.S. Department of Energy on oil and fuel stockpiles.

Among high-beta realty stocks, HDIL, DLF, Indiabulls Real Estate, Orbit Corp and Unitech ended down between 2% and 6.5%.

Jaiprakash Associates (down 4.57%), Reliance Communication (down 3.72%), Tata Motors (down 3.65%), Larsen & Toubro (down 3.53%), Reliance Infrastructure (down 3.45%), Tata Power (down 2.91%) and ITC (down 2.83%) were the other prominent decliners. In the banking sector, SBI fell 2.61%, ICICI Bank ended down 1.71% and HDFC Bank slipped 0.67%.

Besides, several mid-cap and small-cap stocks ended sharply lower, as investors took profits ahead of the Eid Al-Adha holiday on Wednesday. Among the top decliners, Ambuja Cement, IRB Infra, Tech Mahindra, Indiabulls Finance, Hindustan Oil, Oriental Bank of Commerce, Hindustan Construction, Yes Bank, National Fertilizer and Rashtriya Chemicals fell by 4%-8%. The BSE mid-cap and small-cap indexes ended down 2.15% and 2.92%, respectively.

Mahindra Satyam plunged nearly 12% on disappointing results. Hindustan Copper lost 4% ahead of its upcoming follow-on public offering later this month. SKS Microfinance plunged almost 12% on reports that the government will set up a regulatory mechanism for the micro finance sector.

Shipping stocks fell after the Baltic Dry Index, which tracks the cost of shipping key commodities, fell over 2% in London on Monday. GE Shipping fell 3%, Essar Shipping declined 2.76%, Mercator Lines slumped 6.43% and Shipping Corporation of India ended down 3.68%.

SpiceJet slumped 4.20% after media baron Media baron Kalanithi Maran took over the chairmanship of the budget airline. FMCG player Dabur India tumbled 4% after it agreed to buy U.S.-based personal care firm Namaste Laboratories LLC and its three subsidiaries for $100 million. Gravita India soared 66% on its debut versus its initial public offering price of Rs.125 per share.

Elsewhere, China's benchmark Shanghai Composite, which tracks both A and B shares, ended 4% lower at a one-month low today amid lingering jitters over further monetary tightening measures after South Korea's central bank raised its key interest rate by a quarter percentage point to 2.5 percent, in a bid to curb mounting inflationary pressure.

Japan's Nikkei ended down 0.31%, Hong Kong's Hang Seng declined 1.39% and South Korea's KOSPI fell 0.77%, while the markets in Australia, Malaysia and Taiwan ended in positive territory with modest gains.

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Euro On Edge As Finance Ministers Talk Ireland

The price of crude oil moved down below $84 Tuesday morning amid falling equities and a firm dollar.

Light Sweet Crude Oil (WTI) futures for December delivery were down $1.09 to $83.79 a barrel. Yesterday, oil revered early gains to end flat amid worries over further monetary tightening measures by China, one of the largest energy consumers.

Meanwhile, the U.S. dollar continued to hover near its 7-week high versus the euro and around its 2-week high against sterling. The buck continued to trade firm against the Swiss Franc and bounced back above its one-month high versus the yen.

Today, traders will look to the report on Producer Price Index, industrial output and NAHB Housing Market Index to get clues for trading. Economists expect the headline index to rise by 0.8% and the core producer price index to show 0.1% growth for the month following 0.4% and 0.1% growth in the previous month respectively. Industrial production is estimated to record 0.3% growth in October.

After the markets close today, the API will release its crude oil inventories data. Analysts expect crude oil inventories to have increased by 400,000 barrels, while gasoline stocks are expected to dip by 1.6 million barrels last week.

The euro was mixed on Tuesday after data showed inflation in the Eurozone accelerated to the highest level in nearly two years last month, driven by a sharp increase in energy prices.

Inflation rose to 1.9% in October from 1.8% in September, the revised report released by Eurostat showed on Tuesday. The rate was in line with economists forecast and was unrevised from the flash estimate.

However, with Ireland disputing reports that it will seek emergency help from its EU neighbors to cope with pressures from the bond markets, the euro has tailed off against the dollar this week.

EU finance ministers are meeting in Brussels this week to discuss Ireland's debt problems. Ireland has been encouraged to accept aid, but insists the problem is related to liquidity for its banks rather than sovereign debt.

The euro eased to $1.3600 versus the dollar, staying near yesterday's 7-week low of $1.3560. In October, the euro reached a 10-month high near $1.4300.

US producer prices rose by much less than expected due in part to a drop in auto prices.

The Labor Department said its producer price index rose by 0.4 percent in October, matching the increases seen in each of the two previous months. Economists had been expecting the index to increase by a more significant 0.8 percent.

The euro rose to 0.8519 versus the sterling, paring some of its recent losses.

UK Consumer price annual inflation rose to 3.2% in October from 3.1%, figures from the Office for National Statistics showed today. Bank of England Governor Mervyn King said the rise in price was largely due to temporary factors.

The euro remained stuck in neutral versus the yen, holding around Y113. The pair has bounced back and forth around that mark for most of the last two months.

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