US & World Daily Markets Financial Briefing 22-12-2010

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Stocks Showing A Lack Of Direction In Early Trading

With traders largely shrugging off the final estimate on third quarter GDP, stocks are showing a lack of direction in early trading on Wednesday. The major averages are lingering near the unchanged line after ending the previous session at their best closing levels in well over two years.

Before the start of trading, the Commerce Department released a report showing that third quarter GDP increased faster than previously estimated, although the pace of growth in the quarter was not upwardly revised by quite as much as economists had anticipated.

The report showed that gross domestic product increased at an annual rate of 2.6 percent in the third quarter compared to the previously reported 2.5 percent growth. Economists had been expecting the pace of growth to be upwardly revised to about 2.8 percent.

Despite the smaller than expected upward revision, the GDP growth in the third quarter still reflects a notable acceleration from the 1.7 percent growth seen in the second quarter and marks the fifth consecutive quarter of growth.

The data is largely seen as old news, however, with traders looking ahead to reports on economic activity in the fourth quarter and beyond.

At 10:00 a.m. ET, the National Association of Realtors will release its report on existing home sales for November. Economists estimate the rate of existing home sales to move up to 4.65 million from a rate of 4.43 million in October.

In corporate news, Walgreen (WAG) said its first-quarter net earnings came in at $0.62 per share, above analyst expectations for earnings of $0.54 per share. Sales improved 6.0 percent to $17.34 billion, edging out forecasts for revenues of $17.30 billion.

After the markets closed for trading on Tuesday, Nike Inc. (NKE) said that its second quarter profit rose 22 percent from last year, helped by higher revenue and an improved gross margin. The company's quarterly earnings per share also came in above forecasts.

While most of the major sectors are showing only modest moves, banking stocks are seeing early strength, extending a recent upward move. On the other hand, Xilinx (XLNX) is leading the semiconductor sector lower after cuttings its third quarter guidance.

The major averages have moved to the upside in the past few minutes and are currently posting modest gains. The Dow is up 8.02 points or 0.1 percent at 11,541.18, the Nasdaq is up 3.61 points or 0.1 percent at 2,671.22 and the S&P 500 is up 1.75 points or 0.1 percent at 1,256.35.

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TSX Poised For Mixed Open

Toronto stocks may edge up at open Wednesday amid firm energy prices. However, lingering worries over the euro zone debt situation and profit taking at higher levels may cap gains. The main index settled at a 28-month high in the previous session.

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

On Tuesday, the S&P/TSX Composite Index advanced to a fresh 2-year peak of 13,365.15, adding 171.87 points or 1.30%.

The price of crude oil moved up above $90 amid hopes of demand recovery after recent data revealed a bigger-than-expected draw in crude oil inventories. Today during trading hours the EIA will publish its weekly U.S. crude oil inventories report. Analysts expect crude oil inventories to move down by 3.4 million barrels and gasoline stocks to move up by 1.5 million barrels.

Crude for February was up $0.39 to $$90.21 a barrel.

The price of gold was steady near $1,390 amid a mixed U.S. dollar. Gold for February edged up $0.20 to $1,389.00 an ounce.

In corporate news from Canada, oil major Niko Resources said it would acquire certain interest from Sonde Resources Corp. for about $87.5 million.

Sears Canada announced the appointment of Sharon Driscoll as Senior VP and CFO. Ms. Driscoll has held her current position with the company as Senior VP - Finance, since November 2008.

Agricultural equipment manufacturer Buhler Industries reported lower fiscal 2010 profit at C$8.2 million or C$0.33 per share compared to C$14.4 million or C$0.57 per share a year ago.

Oil and gas firm Birch Lake Energy said it issued, through non-brokered private offering, 5 million units at C$0.20 per unit for gross proceeds of C$1 million.

In economic news from the U.S., the Commerce Department said gross domestic product increased at an annual rate of 2.6% in the third quarter compared to the previously reported 2.5% growth. Economists were expecting the pace of growth to be upwardly revised to about 2.8% .

Earlier today, Japan said its exports growth improved for the first time in nine months in November, rising 9.1% from a year ago.

Later during the day, the National Association of Realtors will release its report on existing home sales for November. Economists estimate existing home sales to come in at 4.65 million for the month.

Earlier today, Fitch Ratings said it placed Greece's sovereign foreign currency credit rating on review, citing the nation's debt crisis.

Yesterday, Moody's Investors Service warned it could downgrade Portugal's sovereign credit by a notch or two from A1, citing sluggish economic growth.

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French Market Slightly Lower

The French market is slightly lower in afternoon trading Wednesday, amid thin volume as many traders stayed away ahead of Christmas. Banks and construction stocks are mostly declining, while automakers are witnessing upside.

In economic news, German import prices rose 10% year-on-year in November, faster than the 9.2% increase in the previous month, statistical office Destatis said. That marks the highest import price inflation rate recorded in a decade, and was much higher than analyst expectations for a 9.3% rise.

The UK economy grew less than previously estimated in the three months through September, the Office for National Statistics said, citing lower than estimated growth in manufacturing, services and construction. Quarterly growth was revised down by 0.1 percentage points to 0.7%, belying expectations for the earlier estimate to be confirmed.

British house prices are likely to fall by around 2% next year, the Royal Institution of Chartered Surveyors said. However, the decrease in supply to the market is set to prevent the decline amounting to more than 5% next year. The RICS forecasts the number of housing transactions in 2011 at around 900,000.

Meanwhile, Greece received a fresh warning to its credit rating. Fitch Ratings placed Greece's BBB- rating on Rating Watch Negative, meaning a downgrade to "junk" status is likely.

The CAC 40 opened slightly lower at 3,923 and has been witnessing volatile trading. The index is currently losing 0.05%.

Telecom equipment maker Alcatel Lucent is losing 2.7%, thus leading the decliners. Chipmaker STMicroelectronics is retreating 1.1%.

Among banks, Societe Generale is losing 1.3%, BNP Paribas is dropping 1% and Credit Agricole is down 0.4%. However, Natixis is advancing 0.7%.

Building materials maker Saint-Gobain, builders Vinci as well as Bouygues and steel giant ArcelorMittal are witnessing downside.

Luxury goods conglomerate LVMH is up 2.2% after increasing its stake in Hermes International SA .

Carmaker Renault is up 1.7% and peer Peugeot is up 0.7%.

Suez Environnement and oil and gas services firm Technip are notably higher.

Elsewhere in Europe, the UK's FTSE 100 is adding 0.35% and the German DAX is gaining 0.02%.

Across Asia/Pacific, markets had a mixed outing. China's Shanghai Composite Index dropped 0.9%, India's BSE Sensex lost 0.22% and Japan's Nikkei 225 erased 0.23%. However, Australia's All Ordinaries added 0.15% and Hong Kong's Hang Seng rose 0.22%.

In the U.S., futures point to a mixed open on Wall Street. In the previous session, the Dow climbed 0.5%, the Nasdaq advanced 0.7% and the S&P 500 rose 0.6%.

In commodities, crude for February delivery is rising $0.33 to $90.15 per barrel and gold is advancing $0.5 to $1389.3 a troy ounce.

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Indian Market Snaps Three-day Winning Streak

After trading in positive territory for most of the day, the Indian market reversed its direction in the final hour of trading, as fluctuating European stocks and little change in U.S. index futures ahead of the Christmas break triggered late-session profit taking. Other markets in Asia also turned in a mixed performance on Wednesday, with key benchmark indexes in Japan and China ending down 0.23% and 0.90%, respectively.

Snapping a three-day rise, the benchmark 30-share Sensex ended down 45 points or 0.22% at 20,016, as investors moved to the sidelines ahead of key U.S. economic growth data today. Ratings agency Fitch's warning that it may lower Greece's credit rating to "junk" status also weighed on sentiment to some extent.

The 50-share Nifty also ended down 16 points or 0.27% at 5,984, but the BSE small-cap and mid-cap indexes posted modest gains. In the broader market, gaining shares outpaced declining ones by 1504 to 1395 shares on the BSE.

Among heavyweights, carmaker Maruti Suzuki led the decliners with a 2.11% loss. Reliance Infrastructure lost 1.74%, Hero Honda Motors fell 1.26% and Cipla ended down 0.93%. Market heavyweight Reliance Industries gave off 1.34% after announcing a JV with Russia's largest petrochemical company Sibur for the production of butyl rubber in India.

After a good start, several bank stocks lost ground to end on a mixed note. ICICI Bank shed 0.65% and HDFC Bank lost 1.51%, while SBI closed flat with a positive bias.

Software exporters such as TCS and Wipro lost about a percent each, as the Indian rupee gained against the greenback in early trading Wednesday due to persistent dollar-selling by exporters and banks.

On the positive side, shares of state-run oil marketing companies advanced amid reports about a potential diesel price hike by December-end. BPCL advanced 1.64%, HPCL gained 0.80% and IOC ended up 0.69%.

Telecom stocks also received good support. Bharti Airtel rallied 3.12%, Reliance Communication gained 0.7% and Idea Cellular added half a percent. Metal stocks such as Sterlite, Hindustan Zinc and Hindalco rose by 1%-2%, as base metal prices ticked slightly higher on the LME Wednesday morning.

Dr Reddy's Laboratories closed off the day's low at Rs.1,677.40, down about half a percent, on reports of gas leakage at its Bollaram facility in Hyderabad. Kesar Terminals & Infrastructure, the demerged storage unit of Kesar Enterprises, moved in a range of Rs.111-82 on its debut before closing at Rs.99.85.

Tata Chemicals rallied 3.58% after the company said it has forayed into branded pulses under its 'i-Shakti' brand. Ispat Industries climbed over 11% to Rs.23.60 after JSW Steel launched an open offer to buy an additional 20% stake in the ailing steelmaker at Rs.20.54 a share. Shares of the latter, meanwhile, ended down 0.75%.

Patni Computer Systems declined 2.19% on stake sale reports. Scam-hit Money Matters Financial Services was locked at the 5% lower circuit limit. Mahindra Satyam fell 2.39% on profit taking after climbing nearly 9% in the previous session.

Coal India, which is reportedly considering buying a 10-15% stake in an Australian mine owned by U.S. firm Peabody, closed up half a percent. State Bank of Travancore rose 2.44% on a rights issue proposal. Patel Engineering (up 3.74%) and Kavveri Telecom Products (up 1.24%) closed firm on winning new orders.

SRF climbed nearly 5% after it reportedly signed a JV pact with a Bangladeshi firm to set up a polyester film plant at an estimated cost of Rs 320 crore.

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Euro Softens Versus Dollar Despite Lackluster US Growth Figures

The euro remained on the defense against the dollar on Wednesday, even after official data showed the US economy grew slightly slower than expected in the third quarter.

Lingering concerns about sovereign debt on Europe's periphery continued to weigh on the single currency.

The euro weakened to $1.31, giving back its overnight gains in moving back toward a recent 3-month low near $1.2960.

The final reading on third quarter GDP showed the US economy grew a modest 2.6% from July through September.

The number was better than the 2.5% estimate given in November, but fell a bit short of economists expectations for 2.7% growth.

The GDP figures will likely overshadow the latest news on the beleaguered US housing market.

At 10.00 a.m. ET, the National Association of Realtors will release its report on existing home sales for November. Economists estimate existing home sales of 4.65 million for the month.

Simultaneously, the Federal House Finance Agency will release its house price index for the third quarter.

Earlier this morning, the Mortgage Bankers Association's Weekly Mortgage Applications Survey showed overall mortgage demand decreased 18.6 percent last week. Refinancing dropped sharply as interest rates edged higher.

The euro was able to hit a weekly high of 0.8510 against the sterling amid disappointing economic news from the UK.

Britain's economy expanded less than previously estimated as growth in the manufacturing, construction and services sectors was downwardly revised.

The Office for National Statistics on Wednesday lowered its economic growth estimate for the third quarter to 0.7% from the 0.8% growth estimated earlier.

Bank of England policy makers were conflicted about rates and bond purchases amid growing concerns about inflation, the minutes of their latest meeting revealed Wednesday.

The euro hit a 3-week low of Y109.40 against the yen, and a fresh record low of CHF 1.25 against the Swiss franc.

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