US & World Daily Markets Financial Briefing 21-10-2010

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Stocks Seeing Strong Gains In Mid-Morning

Stocks are up by notable margins in mid-morning trading on Thursday, driven higher by upbeat earnings reports and news from the Philadelphia Federal Reserve that showed slow but steady growth in the area's manufacturing sector. The markets are also looking to the Conference Board's economic indicators index, which rose in-line with estimates.

The major averages have all seen choppy movement in recent dealing as they linger near their session highs. The Dow is up 96.23 points or 0.9 percent at 11,204.20, the Nasdaq is up by 22.11 points or 0.9 percent at 2,479.66 and the S&P 500 is up by 10.03 points or 0.9 percent at 1,188.20.

A short time ago, the Federal Reserve Bank of Philadelphia reported a positive number for the first time in three months in its October manufacturing activity index. The positive 0.1 headline number, however, was short of economist expectations which forecast a reading of 1.7. Nonetheless, the number was an improvement from a negative 0.7 reading recorded in September.

The report also revealed most metrics in the index remained tepid, although employment showed signs of life.

At the same time, the Conference Board reported that its index of leading economic indicators saw a 0.3 percent increase in September, in-line with expectations. August's reading was downwardly revised to a 0.1 percent uptick from the 0.3 percent increase reported initially.

Aside from a deluge of earnings, the day's headline jobless claims number fueled earlier gains. The Labor Department's report showed a decline in claims for first-time unemployment benefits of 23,000 to 452,000 for the week ended October 16th while economists expected the figure to come in at 455,000.

The report is a positive sign for the labor market, although the data continues to be taken with a grain of salt, amid no consistent downward or upward trend in recent months.

In earnings news, global shipping firm United Parcel Service Inc. (UPS) announced third quarter net income of $0.99 per share, marking a surged of 81 percent over the same period last year. Adjusted net income was $0.93 per share. On average, analysts projected the company to report earnings of $0.88 per share.

Total revenue grew to $12.19 billion from $11.15 billion in the prior year quarter, but fell short of expectations which called for revenues of $12.38 billion. The company raised its full-year 2010 guidance, based on the projections of retailers and economists before the peak holiday season.

Among Dow components reporting this morning, AT&T Inc.'s (T) adjusted third-quarter net income came in at $0.55 per share, in-line with estimates which called for an EPS of $0.55 for the quarter. The firm recorded total revenues of $31.58 billion, beating expectations for $31.23 billion for the quarter.

Fast food giant McDonald's Corp. (MCD), farm & construction machinery manufacturer Caterpillar Inc. (CAT) and insurance firm Travelers (TRV) all beat profit and revenue expectations, further boosting sentiment in the markets.

Sector News

Internet stocks are some of the morning's strongest performers following strong quarterly earnings from online auctioneer eBay Inc. (EBAY). The NYSE Arca Internet Index is up by 1.7 percent and on pace for a fresh nine-year high.

After the close of trading on Wednesday, eBay said that its third-quarter profit increased by 23 percent from last year, helped mainly by strong growth in its online payment service PayPal, and lower operating expenses. Adjusted quarterly earnings came in ahead of the analyst expectations, as did revenue.

Owing to the upcoming holiday season, the company forecast fourth-quarter earnings outlook above the Street consensus, and raised its earnings target for the full year 2010.

eBay is up by 8 percent and looking to close at its best price in over two years.

Defense stocks are also seeing notable gains, with the Philadelphia Defense Sector Index posting a gain of 1.5 percent. Banking, airline, electronic storage and housing stocks are also up by significant margins.

On the other hand, railroad stocks are seeing heavy selling, driving the Dow Jones Railroads Index down by 1.2 percent.

Stocks Driven By Analyst Comments

Patterson-UTI (PTEN) is higher after being upgraded at RBC Capital Markets from Sector Perform to Outperform. The broker also raised its price target on the stock from $23 to $27. Shares are currently up by 1.2 percent, setting a two-year intraday high in earlier trading.

National Instruments (NATI) is also on the upside following an upgrade at Stifel Nicolaus from Hold to Buy. The stock is up by 3 percent, setting a five and a half month intraday high in earlier trading.

Meanwhile, Tesoro is lower after analysts at RBC Capital Markets lowered their rating on the stock from Outperform to Sector Perform. The stock is posting a loss of 3.7 percent, setting its lowest intraday price in two weeks.

Other Markets

Overseas, stock markets in the Asia-Pacific region ended mostly higher on Wednesday. Hong Kong's Hang Seng Index advanced by 0.4 percent, while Japan's benchmark Nikkei 225 Index bucked the uptrend, inching down by 0.1 percent.

The major European markets are seeing strong gains. The French CAC 40 Index and the German DAX Index are up by 1.3 percent and 1 percent, respectively, while the U.K.'s FTSE 100 Index is up by 0.7 percent.

In the bond markets, treasuries are modestly lower. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.502 percent, posting a gain of 3.2 basis points.

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TSX May Open Mixed Amid Earnings Reports

Toronto stock may open mixed Thursday amid a slew of earnings reports and positive cues from the global markets. Meanwhile, commodities prices were leveling off from recent gains and may weigh on the resource-heavy main index.

Traders might also turn cautious ahead of the weekend meeting of Group of 20 finance and central bank chiefs in South Korea, which will focus on curbing trade imbalances, greater flexibility in exchange rates and reforming the IMF.

On Wednesday, the S&P/TSX Composite Index recovered most of its previous session's losses, adding 79.36 points or 0.63 % to 12,649.92, to move back near its 2-year peak.

The price of crude oil was moving down , with crude for December delivery slipping $0.69 to $81.85 a barrel. Wednesday during trading hours, the EIA said U.S. crude inventories moved up by a marginal 700,000 barrels in the week ended October 15. Gasoline inventories were up for the first time in four weeks, increasing by 1.2 million barrels. Analysts were expecting crude oil inventories to increase by 2.1 million barrels and gasoline inventories to decrease by 1.2 million barrels.

The price of gold eased Thursday morning, with gold for December delivery slipping $5.00 to $1,339.20 an ounce.

In corporate news from Canada, Thompson Creek Metals said it acquired Terrane Metals Corp., by way of a plan of arrangement, in exchange of C$0.90 in cash and 0.052 of its share for each share of the latter.

Merchant banking company Pinetree Capital said it acquired ownership of 3.57 million common shares and 3.57 million common share purchase warrants of Canadian Arrow Mines Ltd. Separately, the company said it acquired ownership of 1 million common shares and 1 million common share purchase warrants of Virgin Metals Inc.

Contract drilling services provider Precision Drilling Corp.reported lower third-quarter net earnings of C$61.08 million or C$0.21 per share compared to C$71.7 million or C$0.25 per share last year. However, due to increase in drilling activity both in Canada and in the U.S., revenue increased to C$359.15 million this quarter from C$253.34 million a year ago.

Copper and zinc producer Boliden AB reported improved third quarter net income of SEK 910 million from SEK 684 million last year.

Leather apparels and accessories company Danier Leather reported a narrower first quarter loss of $2.85 million or $0.62 per share, compared to $3.44 million or $0.58 per share in the same quarter last year.

Media company Score Media swung to profit in fourth quarter, reporting net income of C$1.10 million compared to a loss of C$0.68 million a year ago.

In economic news, Statistics Canada said the composite leading index edged down 0.1% in September, recording its first decrease since April 2009, with the housing index continuing to post the largest declines.

From south of the border, the U.S. Labor Department said new claims for jobless benefits fell to 452,000 in the week ended, a decrease of 23,000 from the previous week's revised figure of 475,000. Economists were expecting claims to fall to 455,000 from the previously reported figure of 462,000. Meanwhile, the number of people receiving continuous benefits dropped 9,000 to 4.44 million in the week ended October 9. Economists forecast continuing claims to fall to 4.41 million from the 4.40 million initially reported.

Earlier today, China said its economy grew at a slower pace, recording 9.6% year-on-year growth in July-September quarter, down from 10.3% in the second quarter.

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European Markets Firm Amid Earnings Flow

The European markets are moving higher Thursday morning amid a slew of corporate earnings reports, with traders overlooking a latest report showing that British economy is struggling to recover strongly from an 18-month recession.

In the commodities market, crude for December delivery is easing $0.19 to $82.35 a barrel. Yesterday during trading hours, the Energy Information Administration said U.S. crude inventories moved up by a marginal 700,000 barrels in the week ended October 15. Gasoline inventories were up for the first time in four weeks, increasing by 1.2 million barrels. Analysts were expecting crude oil inventories to increase by 2.1 million barrels and gasoline inventories to decrease by 1.2 million barrels.

Meanwhile, the price of gold continued to move up for a second session. Tuesday, gold plummeted to an intraday low of $1,328.40 after China surprisingly hiked its key interest rates. Gold for December delivery, the most actively traded contract, is adding $2.40 to $1,346.60 an ounce.

In economic news, private sector growth in the euro zone decelerated in October due to a slowdown in the service sector. The Markit eurozone composite PMI fell to 53.4 from 54.1 in September, marking a 12-month low. Economists had forecast a score of 53.7. While, the manufacturing PMI rose to 54.1 from 53.7, the services PMI slid to 53.2 from 54.1, an eight-month low.

UK's retail sales volume, including automotive fuel, decreased 0.2% in September from August, data from the Office for National Statistics showed. Economists were expecting a 0.3% rise in September. Food and non-food stores both increased by 0.1%.

Meanwhile, growth of the German private sector accelerated during October, with both manufacturing and services sector expanding at a stronger pace. The Flash Germany Composite Output Index posted 56, compared to September's 54.7, Markit Economics said. The flash manufacturing PMI rose to a two-month high of 56.1 in October, up from 55.1 in September. Economists had forecast a decline to 54.6. The PMI for the country's services sector climbed to 56.6 from September's 54.9, defying economists' expectation for no change. Services activity increased for a fifteenth consecutive month.

Swiss economic expectations diminished significantly in October, a survey by the Center for European Economic Research revealed. The Credit Suisse - ZEW economic sentiment indicator dropped by 22.4 points to minus 27.5. The indicator for the assessment of the current economic situation in Switzerland, however, gained 4 points and is now hovering at the 45 mark.

Switzerland's trade surplus rose to CHF 1.7 billion in September from CHF 0.57 billion recorded in August, the Federal Customs Administration said. Economists had expected the trade surplus to rise to CHF 1.2 billion.

Elsewhere, French manufacturers' sentiment strengthened in October, survey data from the statistical office Insee showed. The confidence index rose to 102 from 99 in September. The index stayed above the expected level of 98 and the long-term average of 100. Meanwhile, a flash report from Markit Economics revealed French private sector expansion slowed in October with the headline composite output index dropping to 55.3 from 58.1 in September, recording its lowest reading in 13 months. Economists were looking for a reading of 55.5.

Among stocks, British Airways is gaining nearly 3% after its U.S. peer Delta Air Lines reported strong earnings.

Vodka maker Pernod-Ricard is gaining around 5%. The company said it organic sales advanced 10% in the quarter ended September, beating consensus estimates for a growth of 4.5%.

Yogurt maker Danone is strengthening around 5% after reporting a 15% jump in its third quarter sales at 4.35 billion euros, beating consensus estimates for sales of 4.24 billion-euros. Colt Group S.A. (COLT.L) said in its Interim Management Statement for the third quarter ended 30 September 2010 that revenue was EUR 392.7 million, down 1.8% from EUR 400.1 million last year, due to lower Voice revenue. The stock is edging up 0.5%

On the negative side, Swiss banking giant Credit Suisse Group (CS) is slipping close to 4% after reporting a 74% decline in third-quarter profit. Third-quarter net income attributable to shareholders slumped to CHF 609 million from CHF 2.35 billion in the prior year period and CHF 1.59 billion in the previous quarter. Earnings per share declined to CHF 0.48 from last year's CHF 1.81 and the previous quarter's CHF 1.15.

Switzerland-based drug manufacturer Novartis AG (NVS) is edging down even after reporting a 10% jump in its third quarter net income at $2.319 billion from $2.112 billion in the prior year period. Earnings per share was $0.99, versus $0.93 in the same period prior year.

Actelion Ltd. is erasing over 4% after reporting a 3% decline in net income at CHF 105.3 million. Analysts expected profit of CHF 107 million.

The FTSE 100 is currently up 0.67%, the CAC 40 is gaining 0.88% and the DAX is adding 0.80%.

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Asian Markets End Nervous Session Mixed

Asian markets ended Thursday's session on a mixed note despite the encouraging lead from Wall Street overnight. Stocks in the region started on an upbeat note, tracking the positive U.S. lead. However, the momentum dropped off mid-way through, as traders mulled data out of China that raised the scepter of a potential slowdown in global growth.

A lack of clarity amid skepticism over a potential slowdown in the global recovery continued to keep a lid on buying, while the trends in the currency markets also continued to impact sentiment. In the Asian session, the dollar weakened against the yen, lifting the Japanese unit to its 15-year high. Among commodities, oil saw a small retreat following yesterday's strong gain, while gold was moving almost steady.

On Wednesday, U.S. stocks rebounded, as traders hunted for bargains following the previous session's sharp retreat despite the visibility on the economic environment remaining poor. Instead, they chose to focus on positive earnings from companies such as Boeing (BA).

A slew of data released by China showed that the terrific pace at which the nation's economy may be growing is set for a slowdown. China's GDP for the third quarter rose 9.6% year-over-year, a slowdown from the 10.3% rate for the second quarter and 11.9% for the first quarter. Industrial production was up 13.3% in September, while investment in fixed assets climbed 24% in the January to September period. Retail sales growth was 18.8% for September

On the inflation front, consumer price growth quickened to 3.6% in September, justifying the stray tightening measures the government has been adopting recently. However, producer prices grew at a steady rate of 4.3%.

Despite most data coming in line with expectations, Chinese investors fretted over the slowdown in growth and sold off stocks. The Chinese Shanghai Composite Index reversed course and settled down 20.42 points or 0.68% at 2,984.

Japan's Nikkei 225 showed considerable degree of volatility in the morning before trading mostly lower in the afternoon session, when it moved sideways with a modest loss. The index closed down 5.12 points or 0.05% at 9,377, representing a 2-week low. Along with fears of a slowdown following the release of the Chinese GDP report, the rebound in the value of the yen also hurt sentiment.

The dollar is likely to be weighed down by expectations that the Japanese government may steer clear of any intervention ahead of the 2-day G-20 meeting that is scheduled to begin tomorrow.

Financial, construction, electric industrial, heavy machinery and defensive pharma, telecom and utility stocks showed weakness. Auto and technology stocks saw mixed sentiment.

Among individual stocks, Central Japan Railways and Mizuho Securities declined the most. On the other hand, Sumitomo Osaka rallied over 5% and Nitto Boseki moved up 4.57%.

Japan's Ministry of Economy, Trade and Industry released its index of all industry activity for August, which showed a 0.4% decline, in line with expectations. In July, the index had risen by 1%.

Australia's All Ordinaries opened higher and spiked sharply in early trading. However, the index witnessed some volatility thereafter, gradually paring back most of its losses over the course of the session. At the close of trading, the index was up 1.90 points or 0.04% at 4,696.

Consumer staple, material, healthcare and industrial stocks saw a modest to moderate bounce, while energy stocks retreated sharply. Big miners Rio Tinto and BHP Billiton saw some buying interest, while the four major banks retreated in today's session.

Hong Kong's Hang Seng Index, which opened higher, survived a mid-session collapse and recovered in the afternoon, closing up 92.98 points or 0.39% at 23,650. Despite the weakness in the mainland market, China-related stocks, barring some select stocks, and financial stocks held their ground, helping to offset the weakness among property and utility stocks.

South Korea's Kospi also experienced high degree of volatility and decisively moved into positive territory only in late trading. The index closed up 4.25 points or 0.23% at 1,875. Foreign institutional buyers bought technology firms, helping the market overcome the early weakness.

Showing a marked deviation from the trend in the region, India's Sensex was trading solidly higher and was gaining more than 1.80%, as a report showing a slowdown in food price inflation encouraged traders to buy stocks.

Among the other markets from the region, the Indonesian Jakarta Composite Index and the New Zealand's NZ 50 Index rose modestly, while the Singaporean Straits Times Index slid about 0.50%.

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Dollar Back Near 8-Month Low Versus Euro

The dollar drifted lower versus a basket a other currencies Thursday morning in New York, ahead of the latest information regarding the sluggish jobs market.

After seeing a modest relief rally earlier in the week, the buck has slipped back toward its year yearly lows on renewed speculation the Federal Reserve is preparing to fire up the printing press.

A relatively upbeat view of the economy came from the Fed's Beige Book yesterday, but but the central is still likely to support the recovery with another round of quantitative easing at its meeting in less than two weeks.

The magnitude of the new asset purchase plan has not been detailed, keeping some traders on the sidelines in hopes of more clues.

The Labor Department will release its customary jobless claims report for the week ended October 16th at 8:30 a.m. ET. Economists expect a decline in claims to 455,000 from 462,000 reported for the previous week.

In economic news from overseas, China's gross domestic product grew 9.6 percent from the same period a year earlier, the National Bureau of Statistics said on Thursday. The robust growth beat expectation despite tightening measures taken by Beijing.

The dollar edged down versus the euro, hitting $1.4025. With the loss, the buck was near last week's 8-month low of $1.4050.

The buck swung wildly versus the yen overnight, but was little changed from yesterday's levels approaching 8 am ET. The dollar fetched 81.05, having hit a new 15-year low of 80.83 on Wednesday.

Meanwhile, the buck slipped to within two cents of parity with the loonie, easing to C$1.0170 versus its Canadian counterpart.

The dollar remained stable versus the Swiss franc. After hitting a record low last week, the dollar has improved to 0.9620.

At 10.00 a.m ET, the Conference Board will table its report on the U.S. leading index for September . The consensus estimate calls for a 0.3% increase in the leading indicators index for the month, following similar increase in the previous month.

At about the same time, the results of the Philadelphia Federal Reserve's manufacturing survey will also be released. Economists expect the diffusion index of current activity to show a reading of 1.4 for October.

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