US & World Daily Markets Financial Briefing 25-01-2011

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Stocks moved lower at the start of trading on Tuesday, giving back some ground after turning in a strong performance in the previous session. The major averages have all moved to the downside, with the Dow pulling back off of Monday's well over two-year closing high.

The early weakness in the markets is partly due to a report showing that the U.K. economy unexpectedly contracted in the fourth quarter. U.K. gross domestic product fell 0.5 percent in the fourth quarter, with the decrease partly attributed to poor retail sales amid bad weather.

Traders are also digesting a report showing a notable decrease in U.S. home prices as well as another slew of earnings news from major firms such as Johnson & Johnson (JNJ), Verizon (VZ) and Travelers (TRV).

Networking stocks are seeing significant weakness in early trading, with Tellabs (TLAB) leading the sector lower after reporting weaker than expected fourth quarter earnings and providing disappointing first quarter guidance.

Electronic storage, telecom, and gold stocks are also seeing early weakness, although selling pressure has remained relatively subdued.

The major averages have moved off their lows for the young session in the past few minutes but remain in the red. The Dow is down 26.53 points or 0.2 percent at 11,953.99, the Nasdaq is down 13.18 points or 0.5 percent at 2,704.37 and the S&P 500 is down 3.90 points or 0.3 percent at 1,286.94.

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Tracking weak global equity markets and slumping commodities prices, Bay Street stocks moved lower Tuesday morning. Commodities resumed their slide after UK reported that its GDP fell unexpectedly in the fourth quarter of 2010.

Meanwhile, latest data revealed that Canada's inflation rose 2.4 percent in the 12 months to December, roughly in line with consensus estimates. The Bank of Canada's closely watched core index advanced 1.5 percent in the 12 months to December, leaving some room for the BoC to hold its rates steady.

The S&P/TSX Composite Index was down 55.16 points or 0.41 percent to 13,292.42, a day after snapping its three-day losing streak.

The price of crude oil slipped near a 2-month low amid speculation for a rise in supplies. Yesterday, Saudi Arabia's oil minister said that the OPEC producers' group may hike output to meet rising demand for crude oil in 2011. Crude for March was down $1.21 to $86.66 a barrel.

In the oil patch, Suncor Energy (SU.TO), Major Drilling (MDI.TO) and Canadian Natural Resources (CNQ.TO) were down around 2 percent each.

Colombia's state-run oil firm Ecopetrol S.A. (EC) said that it along with Canada's Talisman Energy (TLM.TO) completed the acquisition of British oil giant BP plc's (BP, BP.L) Colombian business, BP Exploration Co. (Colombia) Ltd., for $1.75 billion. Ecopetrol will own 51 percent of the new company, while Talisman will own the remaining 49 percent stake. Talisman's stock lost over 1 percent.

Bolivar Energy Corp. (BVR.V) shed close to 3 percent after it said it has bought a 32.5 percent stake in the Arrendajo block in Colombia from Pacific Rubiales Energy (PRE.TO) for nearly $10 million. Shares of Pacific Rubiales edged down 0.50 percent.

The price of gold plummeted to a 3-month low as its safe haven appeal continued to wane. Gold for February tumbled $17.9 to $1,326.60 an ounce.

Among gold stocks, Agnico-Eagle Mines (AEM.TO) lost 4 percent. Centerra Gold (CG.TO) and Kinross Gold (K.TO) were down around 2 percent each.

Lake Shore Gold (LSG.TO) slipped over 1 percent even after it said it expects its production to grow three-fold in 2011 to 140,000 ounces of gold and said it plans capital spending of $75 million.

In the base-metals space, Teck Resources (TCK_B.TO) and Thompson Creek Metals (TCM.TO) were down over 2 percent each.

Quadra FNX Mining (QUX.TO) lost close to 3 percent to C$13.49. Today, UBS cuts its price target on the stocks C$18 from C$20.

Meanwhile, Nautilus Minerals (NUS.TO) soared over 10 percent after it confirmed high grade gold mineralization in its Bismarck Sea project in Papua New Guinea.

Fertilizer makers, Potash Corp. (POT.TO) and Agrium Inc. (AGU.TO) lost around 2 percent each.

CN Rail (CNR.TO) eased 1 percent after reporting lower fourth quarter net income of C$503 million, or C$1.08 per diluted share, versus net income of C$582 million or C$1.23 per diluted share in a year ago period. Analysts were expecting the company to report C$1.09 per diluted share this quarter.

However, CN Rail's net income for full-year 2010 was C$2,104 million or C$4.48 per diluted share, compared with 2009 net income of C$1,854 million or C$3.92 per diluted share. The company's Board has declared a quarterly dividend of C$0.325 per common share and authorized a normal-course-issuer bid to purchase, for cancellation, up to 16.5 million, or 3.6 percent, of the common shares issued and outstanding.

Nuclear medicine supplier Nordion Inc. (NDN.TO) shed over 2 percent. The company said it signed a five-year agreement to supply Cobalt-60 to Sterigenics International for an undisclosed amount.

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Mixed trading is being witnessed among the major markets open for trading on Tuesday after economic data released in the UK revealed that the economy unexpectedly contracted in the fourth quarter impacted by cold weather conditions. Resurfacing of debt concerns also impacted market sentiment as plans to strengthen Spanish lenders by banks failed to yield the desired results. Mixed cues from Asian markets, and weakness in commodity prices also impacted market sentiment. While the markets in France and Germany are presently trading in the green with modest gains, the market in the UK is trading in the red with moderate losses.

On the economic front, preliminary estimates from the Office for National Statistics in the UK revealed that the gross domestic product fell 0.5% sequentially in the fourth quarter of 2010 following a 0.7% expansion in the third quarter. Economists had expected the growth rate to ease to 0.5%. This was the first contraction since the third quarter of 2009. The disruption was caused by bad weather in December, according to ONS data.

German consumer confidence is set to improve in February, contrary to expectations for a modest deterioration, as shoppers' willingness to make purchases was at its strongest level in four years, according to a new survey. Research group GfK said it was a further sign of domestic demand alleviating the German economy's overwhelming reliance on the export sector. The group's consumer climate index was forecast to rise to 5.7 next month from a revised 5.5 in the current month.

French consumer spending in December grew stronger than forecast, once again driven by strong rise in car purchases, the statistical office Insee reported earlier in the day. Consumer spending in manufactured goods rose 0.6% month-on-month in December, more than the 0.3% forecast by economists. However, it was slower than the 2.7% growth in November, revised from 2.8% reported initially.

In the UK the FTSE 100 opened at 5,896 compared to previous close at 5943. Weaker than expected Q4 GDP data impacted market sentiment. The market is presently down 0.35%, dragged down by commodities abd resource stocks.

British Airways is down more than 1.7%, Eurasian Natural is plunging more than 2.4% and Man group is down 2.30%.

Among the banks, Lloyds Banking Group is down more than 2% and Standard Chartered is losing more than 1.50%.

In Germany, the DAX index began trading at 7096 compared to the previous close at 7068. After initial setback on weaker than expected UK gdp data, the markets recovered and are presently trading in the green gaining 0.32%.

Automakers and technology stocks are trading higher. Infineon Technologies is gaining more than 3%, while automakers BMW and Daimler are gaining 1.6 per cent and 1.85 per cent respectively.

MAN Group is surging up more than 4%, and Linde is adding 1.80%.

In France, the CAC 40 index opened at 4049 compared to the previous close at 4033 in the previous session. Reacting negatively to the weak GDP data in the UK, the stocks slipped below the unchanged line for a brief period. However, it has recovered and the index is presently trading in the green with a modest gain of 0.09%.

Alcatel Lucent is leading the list of gainers with a gain in excess of 2.4%, followed by a gain of 2.20% for Renault. Among other automakers, Peugeut is gaining more than 2% and LVMH is up more than 2%.

Across Asia/Pacific, major markets closed on opposite sides of the unchanged line. Australia's All Ordinaries gained 0.43 percent, Japan's Nikkei 225 added 1.15 percent and Indonesia's Jakarta Composite Index surged up 87.85 points, or 2.53 percent.. However, China's Shanghai Composite Index and Hong Kong's Hang Seng retreated 0.7 percent and 0.05 percent, respectively.

In the U.S., futures point to a slightly weaker open on Wall Street. In the previous session, the Nasdaq ended in the green with moderate gains amid optimism about corporate earnings and economic recovery.

In commodities, crude for March delivery is declining $1.32 to $86.55 per barrel and February gold is losing $ to $1348.1 a troy ounce.

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The Indian market fell sharply to end near the day's low on Tuesday, as investors took profits at higher levels ahead of a national holiday tomorrow for Republic Day and in view of the expiry of near-month derivative contracts on Thursday.

After rising by 190 points to a high of 19,341 around noon, the benchmark BSE Sensex gradually pared gains and ended down 182 points or 0.95 percent lower at 18,969, with 20 of its stocks declining.

Hindustan Unilever (down 5.45 percent) led the decliners in the 30-share Sensex pack after the company said its quarterly net profit fell 2 percent from a year earlier impacted by high input costs.

Private sector lenders such as HDFC Bank and ICICI Bank fell between 3 percent and 4 percent, automakers such as Mahindra & Mahindra and Tata Motors ended down around 2 percent each, telecom operator Reliance Communication eased 1.37 percent, heavyweight Reliance Industries shed 1.29 percent and software exporter TCS eased 1.17 percent.

Bharti Airtel, Tata Steel, Hindalco Industries, Hero Honda Motors and NTPC closed in positive territory, rising by 1 percent and 2 percent. Larsen & Toubro edged up half a percent after the engineering & constructing giant signed a joint venture pact with Japan's Kobe Steel for manufacturing internal mixers and twin screw roller-head extruders for the tyre and rubber industry. BHEL, Wipro, Tata Power, Sterlite and HDFC also closed in the green with modest gains.

The 50-share Nifty shed 56 points or 0.97 percent to 5,687, while the BSE mid-cap and small-cap indexes lost around 0.4 percent each. In the broader market, declining shares outpaced gainers in the ratio of 1.4:1 on the BSE. Sector-wise, rate-sensitive banking, auto and realty stocks, and defensive healthcare and FMCG stocks bore the brunt of the selling.

In a bid to reign in the spiraling inflation, specially the food inflation which rose to a 23-week high of 18.32 percent in late December, the Reserve Bank of India on Tuesday hiked its short-term lending (repo rate) and borrowing rates (reverse repo rate ) by 25 basis points each, while keeping other rates such as cash reserve ratio and statutory liquidity ratio unchanged. The increase in rates shall come into force with immediate effect, the central bank said.

Also, the central bank revised its year-end inflation forecast upwards to 7 percent from the earlier 5.5 percent and scaled down GDP growth estimate for FY12, dampening investor sentiment to some extent. With inflation remaining uncomfortably high, economists and bankers warned that there could be another rate hike before the end of the current fiscal year.

Godrej Industries fell 2.31 percent after it received board approval to double the production capacity of its fatty acids plant at Valia in Gujarat at an investment of Rs.50 crore.

3i Infotech declined 2.54 percent on posting lackluster results. Karnataka Bank tumbled 3.35 percent on posting a modest 5 percent rise in quarterly net profit. Torrent Power eased 0.62 percent on disappointing earnings. D B Corp. rose nearly 3 percent on the buzz that it would hike advertising rates in March.

State-run oil marketing companies such as BPCL, HPCL and IOC rose between 2 percent and 5 percent owing to a steep fall in international crude prices in recent sessions. UltraTech Cement (up 0.22 percent), Shopper's Stop (up 1.48 percent) and Idea Cellular (up 3.25 percent) gained on robust earnings.

SKS Microfinance tumbled 3.25 percent on reporting a 38 percent fall in its quarterly net profit. Asian Paints slipped 0.85 percent after it decided to enhance its 14-year relationship with U.S.-based PPG Industries to accelerate growth of their non-decorative coatings businesses in India.

Elsewhere, the other Asian markets pared early gains and ended on a mixed note Tuesday, European stocks fluctuated and the Dow futures pointed to a weaker open on Wall Street, while the dollar was trading mixed against its major counterparts as the Fed begins its two-day policy meeting. Crude futures were weak, trading below $88 a barrel amid rising U.S. oil inventories.

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The euro rocketed higher versus the sterling on Tuesday, after official data showed the UK economy unexpectedly contracted amid one of the roughest winters in recent history.

While the UK's fourth quarter problems would normally be taken with a grain of salt given the horrendous travel conditions seen during the holiday shopping season, upcoming austerity measures mean the nation will have an exceedingly difficult time getting back to normal in 2011.

The euro jumped to GBP 0.8620, wiping out its losses from earlier in January.

However, the euro was unable to extend its recent gains against the dollar, staying within a penny of yesterday's 2-month high of $1.3686.

The single currency also leveled off against Japan's yen, easing to Y112 from a 2-month peak near Y112.60.

The dreadful GDP report from the UK dominated headlines this morning, and took some of the focus from the euro zone's lingering sovereign debt problems.

UK Gross domestic product fell 0.5 percent sequentially in the fourth quarter, well short of expectations for 0.5 percent growth.

Former Bank of England policy maker Danny Blanchflower told CNBC that the UK economy is in the process of double-dipping, just as consumer prices have risen on new taxes and rising prices at the pump.

In economic news from the US, home prices in 20 big cities were down sharply in November compared to the same month a year ago, according to a report released by Standard & Poor's on Tuesday.

The report showed that the S&P/Case-Shiller 20-City Composite Home Price Index fell at an annual rate of 1.6 percent in November compared to the 0.8 percent drop reported for October.

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