US & World Daily Markets Financial Briefing 20-01-2011

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Stocks Adding To Yesterday's Losses In Early Trading

After seeing notable weakness in the previous session, stocks are seeing further downside in early trading on Thursday. The major averages have all fallen into negative territory, pulling back further off the multi-year closing highs set earlier this week.

The early weakness in the markets comes in spite of the release of a report from the Labor Department showing a bigger than expected drop in weekly jobless claims, which pulled back near the two-year low set in late December.

The report showed that initial jobless claims fell to 404,000 from the previous week's revised figure of 441,000. Economists had been expecting jobless claims to slip to 420,000 from the 445,000 originally reported for the previous week.

Peter Boockvar, equity strategist at Miller Tabak, said, "Bottom line, the story (song) remains the same in that the pace of firings continue to trend lower, albeit slowly, while the level of hirings relative to the monthly rise in the labor force continues to be below historical recoveries."

In earnings news, Morgan Stanley (MS) reported fourth quarter earnings of $0.43 per share, above forecasts for $0.35 per share. Net revenues for the quarter totaled $7.8 billion compared to $6.8 billion last year and expectations of $7.35 billion.

Southwest Airlines (LUV) said its fourth quarter net income was $0.18 per share and $0.15 per share on an adjusted basis. Analysts expected earnings of $0.16 per share. Revenues came in at $3.11 billion, just above estimates for $3.08 billion.

After the markets closed for trading on Wednesday, online auctioneer eBay (EBAY) reported a 59 percent drop in its fourth-quarter profit, mainly due to the absence of a hefty gain from the sale of Skype recorded in the year ago period. Still, the company's earnings beat expectations.

Looking ahead, eBay's forecast for the fourth quarter was in line with the analysts' expectations, while fiscal year 2011 results are expected to come in ahead of Street consensus.

Gold stocks are turning in some of the market's worst performances in early trading, moving back to the downside along with the price of the precious metal. The NYSE Arca Gold Bugs Index has fallen 2.8 percent to its worst intraday level in over two months.

Most of the other major sectors have also moved to the downside, with railroad, electronic storage, and networking stocks posting significant losses.

The major averages have bounced off their lows for the young session in the past few minutes but remain in the red. The Dow is down 29.29 points or 0.2 percent to 11,796.00, the Nasdaq is down 21.73 points or 0.8 percent at 2,703.63 and the S&P 500 is down 5.72 points or 0.5 percent at 1,276.20.

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TSX May Extend Losses As Commodities Slip On China GDP

Bay Street stocks may extend losses Thursday morning as commodities leveled off as China's fourth quarter economic growth raised speculation of further monetary tightening measures from Beijing.

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

On Wednesday, the S&P/TSX Composite Index lost 120.16 points or 0.89% to 13,439.04, after surging nearly 1% to hit a fresh 28-month high Tuesday.

The price of crude oil slipped below $91 as traders await the official weekly U.S. crude oil inventories data from the EIA, due out later during the session. Crude for March was down $0.82 to $90.99 a barrel.

The price of gold moved down on China's GDP data, with gold for February plummeted $22.30 to $1,347.90 an ounce.

In corporate news from Canada, technology innovation and licensing company Wi-Lan Inc. said it signed a memorandum of understanding with Atheros Communications Inc. to dismiss all litigations between the two companies.

Canada's third largest bank Scotiabank said it issued $995 million of covered bonds in its first sale of the securities in Australia.

Geospatial-enabled products company Intermap Technologies said it reduced an additional 30% in headcount, which would result in an approximately $4.1 million of personnel related expenses. Yesterday, the stock shed over 12%.

Construction and infrastructure development company Aecon Group said Scott Balfour will be stepping down as its President and Director, effective January 31, to pursue other opportunities and John Beck, Aecon's Chairman and CEO will assume the roles of President and Director.

Minerals property explorer Western Standard Metals said it needs necessary regulatory approvals to merge with Terraco Gold Corp.

Nicaragua focused oil and gas explorer Norwood Resources said that its board of directors has assigned the company into bankruptcy.

In economic news, Statistics Canada said wholesale sales rose by 1.2% to a new 2-year high of C$45.7 billion in November, led by higher sales in the equipment and machinery sector. Economists were looking for wholesale sales to rise 0.4%. In volume terms, wholesale sales were up 1.3% in November.

From south of the border, the U.S Labor Department said that initial jobless claims fell to 404,000 in the week ended January 15 from the previous week's revised figure of 441,000. Economists were expecting jobless claims to slip to 420,000 from the 445,000 originally reported for the previous week.

Earlier today, China said its gross domestic product expanded 9.8% in the fourth quarter from a year earlier,. This was faster than the third quarter's 9.6% increase, suggesting that growth in the world's second largest economy has remained robust despite recent monetary tightening measures.

Last week, China's central bank asked state-owned banks to set aside an additional 0.5% of deposits as reserves, its seventh rise in a year to curb inflation.

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French Market Trading Flat

The French market reversed much of the early losses and is presently trading flat Thursday afternoon with a modest gain of 0.04%. Weak cues from Asian market and concerns about fresh monetary tightening measures from China impacted market sentiment.

In economic news, a report released by the Confederation of British Industry in its January Quarterly Industrial Trends revealed that British manufacturing output and orders growth picked up over the last three months. As per the report, nearly 32% of respondents reported an increase in output over the past three months, while 16% registered decline, giving a balance of plus 16%. In October, the balance was plus 9%. The improvement was driven primarily by growth in export orders.

Data released by the Federal Statistical Office in Germany revealed that German producer price inflation rose to 5.3% in December from 4.4% in November. Economists had forecast an increase to 4.9%. On a monthly basis, the producer price index rose 0.7%, faster than a 0.2% increase in the previous month, while the index was forecast to rise 0.5%. On an average, factory gate prices for German industrial products grew 1.6% in 2010 compared to 2009, when prices were down 4.2%.

Releasing the latest monthly bulletin, the European Central Bank stated that the Eurozone inflation rate could temporarily increase further in the next few months, reflecting commodity price developments. The ECB said inflation rate is likely to stay slightly above its 2% target in the near-term before moderating again towards the end of the year. Eurozone annual inflation in December breached the European Central Bank's target for the first time in more than two years. The harmonized consumer price index rose 2.2% year-on-year following the 1.9% increase in November.

The CAC 40 index opened slightly weaker at 3,973 compared to the previous close at 3,977 and witnessed volatile trading amid alternate bouts of buying and selling. The index currently turned positive with a modest gain of 0.04%.

Financials are trading in the green leading the revival. Credit Agricole is up 2.80% and BNP Paribas is adding more than 1.20%. Societe Generale and Natixis are also gaining more than 1% each.

Among the major losers, Technip is down more than 4%, while Peuguot is losing 2.44%.

STMicroelectronics is shedding more than 3% and tire maker Michelin is down about 1.30%.

Elsewhere in Europe, the FTSE 100 in the UK is losing 1.13% and the DAX-30 index in Germany is losing around 0.72%.

Across Asia/Pacific,all the major markets, except the Indian market, ended in the red following weak Wall Street cues. China's faster pace of economic growth and concerns about more monetary tightening measures impacted market sentiment.

In the U.S., futures point to a tepid start with slightly negative bias ahead of key economic data related to existing home sales, jobless claims and crude oil inventory.

In commodities, crude for February delivery is losing $0.82 to $90.04 per barrel and gold is trading at $1,370 per troy ounce.

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Indian Market Shrugs Off Weak Global Cues

After a rally on Wednesday and some consolidation in the previous session, the Indian market clawed its way back to finish with modest gains on Thursday, shrugging off extremely weak global cues.

After hovering in negative territory for most of the day, the benchmark 30-share Sensex witnessed a sudden surge in late trading before paring some gains and ending up 68 points or 0.36% at 19,047, with 17 of its stocks advancing. The Sensex had fallen as much as 184 points or nearly a percent early in the session.

Likewise, the 50-share Nifty recouped all its early loss to end 21 points or 0.36% higher at 5,712.

While it is hard to pinpoint a reason for the sudden surge, a decline in food inflation for a second consecutive week and the retreat in global commodity prices, which augur well for the Indian economy could have spurred short covering near support levels.

With Yes Bank (up 1.20%) and Kotak Mahindra Bank (up 1.51%) reporting strong Q3 earnings, banking stocks led the bounce back followed by IT, consumer durable and metal stocks. A few stocks from the healthcare and power sectors also edged higher, while oil/gas and FMCG stocks came under selling pressure.

Mid-cap and small-cap stocks closed barely changed and in the broader market, the breadth was slightly negative, with 1416 decliners versus 1332 gainers.

Among heavyweights, ICICI Bank (up 2.67%), HDFC Bank (up 2.33%), Reliance Communication (up 1.72%), TCS (up 1.53%), HDFC (up 1.50%), Mahindra & Mahindra (up 1.24%), Infosys (up 1.14%) and SBI (up 1.04%) were the top gainers.

On the other side, Maruti Suzuki, Tata Steel, Sterlite Industries, Bharti Airtel, Reliance Industries, Bajaj Auto, ONGC and ITC led the decliners, ending down between 0.66% and 2.16%.

TVS Motor (up 0.98%) and Zee News (up 7.58%) advanced on strong quarterly earnings. Biocon fell 2% despite reporting a 25% rise in its third-quarter net profit. Torrent Pharmaceuticals plunged over 6% on posting lower net profit in the third quarter. Peninsula Land fell 2% on disappointing results.

Rolta India rose 2.46% after the company sold its 50% stake in Shaw Rolta to its joint venture partner Stone & Webster Inc for $35.5 million. FDC rallied 3.27% after it proposed to consider a share buy back along with its third-quarter results on January 27. Sintex Industries gained 1.43% on bargain hunting, snapping a five-day fall.

SKS Microfinance climbed 3.84% after the central bank released its Malegam committee report on the microfinance sector. KEC International added 0.38% on winning three new orders worth Rs 379 crore.

State-run oil companies such as BPCL, HPCL, Gail India and ONGC fell between 2% and 3% after Sudini Jaipal Reddy replaced Murli Deora as the oil minister following a Cabinet reshuffle announced on Wednesday evening.

Telecom stocks such as Bharti Airtel and Idea Cellular closed subdued on apprehensions that the implementations of the much- awaited mobile number portability (MNP) from Thursday could force a churning in the telecom sector and pressurize average revenues per user and margins in the short-term.

Meanwhile, government data released today showed that India's annual food inflation eased for a second consecutive week after climbing to a 23-week high of 18.32% in late December, offering some respite to consumers and the central bank, which has been grappling with high inflation, surging inflows of foreign capital and volatility of industrial output.

The weekly food inflation, based on wholesale prices, fell to 15.52 percent for the week ending January 8 from 16.91% in the preceding week, even as the prices of onions and vegetables continued to rule high, data released by the commerce and industry ministry revealed.

Elsewhere, the other Asian markets fell across the board on Thursday as fresh worries about China reining in growth, disappointing quarterly earnings from companies such as Goldman Sachs and Wells Fargo and a report showing declining housing starts in the U.S. spurred risk aversion.

China's Shanghai Composite led the declines, losing nearly 3%, after strong Chinese GDP data raised concerns about Beijing tightening monetary policy further to rein in inflation and curb speculative demand on housing.

European shares lost ground, pressured by mining stocks, the Dow futures were barely changed and crude prices dropped for a third day in New York, while the dollar gained against 15 of its 16 major counterparts ahead of jobs data due later in the day.

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Dollar Looking For Direction Ahead Of Data Deluge

The dollar paused versus other majors on Thursday, as Wall Street braced for a slew of economic data including the latest on the sluggish jobs market.

Earlier this week the dollar tumbled to its lowest in two months versus the euro and sterling, as its European counterparts were supported by successful bond sales and talk of inflation across the Atlantic.

Eurozone inflation rate could temporarily increase further in the next few months, reflecting commodity price developments, the European Central Bank said Thursday.

In its latest monthly bulletin, the ECB said inflation rate is likely to stay slightly above its 2% target in the near-term before moderating again towards the end of the year.

The buck was stable this morning, but has been able to pare only a small fraction of its recent losses.

Choppy trading left the dollar at $1.35 versus the euro, near an 8-week low of of $1.3537 set on Wednesday. Less than two weeks ago, the dollar was at a 4-month peak of $1.2873, but has since drifted gradually lower.

The Financial Times Deutschland reported Euro zone nations may allow Greece and Ireland to write off some of their debt burden using the European Financial Stability Facility (EFSF).

Meanwhile, the dollar was stuck near $1.60 against the sterling compared to a 2-month low of $1.6059 on Tuesday.

The dollar edged slightly higher versus its Canadian counterpart, coming within a hair of parity.

There was little movement against the yen this morning, with the buck holding at Y82.25. The dollar has lost ground over the past week, dropping toward November's 15-year low of Y80.22.

In economic news from Asia, China's economy was full steam ahead in the fourth quarter, raising speculation of further monetary tightening measures from Beijing.

Earlier today, China said its gross domestic product expanded 9.8% in the fourth quarter from a year earlier, faster than the third quarter's 9.6% increase.

Looking at today's economic calendar from the US, the Labor Department will release its customary jobless claims report for the week ended January 15th at 8:30 a.m. ET. Economists expect claims have declined to 420,000 from 445,000 reported for the previous week.

At 10.00 a.m. ET, the National Association of Realtors is scheduled to release its report on existing home sales for December.

Economists estimate existing home sales of 4.90 million for the month, slightly higher than a seasonally adjusted annual rate of 4.68 million units reported for the previous month.

The Conference Board will release a report on the U.S. leading index for December at 10.00 a.m.ET. The consensus estimate calls for a 0.6% increase in the leading indicators index for the month.

The results of the Philadelphia Federal Reserve's manufacturing survey are due out at 10.00 a.m. ET. Economists expect the diffusion index of current activity to show a reading of 20 for January.

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