US & World Daily Markets Financial Briefing 26-10-2010

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Stocks Stage Recovery After Seeing Early Weakness

Stocks have shown a notable recovery over the course of morning trading on Tuesday after coming under pressure earlier in the session. The rebound was partly due to the release of a better than expected reading on consumer confidence.

The major averages have bounced well off their worst levels of the day and are currently lingering near the unchanged line. The Nasdaq is currently up 1.27 points or 0.1 percent at 2,492.12, while the Dow is down 0.99 points or less than 0.1 percent at 11,163.06 and the S&P 500 is down 1.00 points or 0.1 percent at 1,184.62.

Confidence among U.S. consumers improved by more than economists had been expecting in the month of October, according to a report released by the Conference Board, with the increase coming as consumers were less pessimistic about the outlook for the next six months.

The Conference Board said its consumer confidence index rose to 50.2 in October from a revised 48.6 in September. Economists had been expecting the index to edge up to 49.0 from the 48.5 originally reported for the previous month.

Earlier, a separate report showed that the S&P/Case-Shiller 20-City Composite Home Price Index rose at an annual rate of 1.7 percent in August compared to the 3.2 percent growth seen in July. Economists had expected the pace of price growth to slow to 2.1 percent.

S&P noted that home prices in 15 of the 20 metropolitan areas saw monthly decreases in August, with only Chicago, Detroit, Las Vegas, New York and Washington D.C. seeing monthly price growth.

In earnings news, Texas Instruments (TXN) said its third quarter earnings rose to $0.71 per share, as revenues jumped by 30 percent to $3.74 billion. Both figures topped analyst estimates.

For the fourth quarter, the company expects earnings to range from $0.59 to $0.67 per share on revenues of $3.36 billion to $3.64 billion. Analysts estimate earnings of $0.63 cents per share and revenues of $3.51 billion.

DuPont (DD) posted third quarter earnings of $0.40 per share on sales of $7 billion. On average, analysts expected the company to report earnings of $0.34 per share on revenues of $6.76 billion.

For full year 2010, the company forecast earnings of $3.10 per share compared to its earlier guidance of $2.90-$3.05 per share, while analysts estimate earnings of $3.04 per share.

Amgen (AMGN) reported third quarter adjusted earnings of $1.36 per share, ahead of the $1.27 per share consensus estimates. Revenue also beat estimates. Ford (F) also released third quarter profit and revenues results that topped Wall Street expectations.

In other corporate news, AIG (AIG) revealed that its CEO Robert Benmosche is being treated for cancer. Benmosche has taken many radical steps, including divestments and the repayment of treasury loans, to revive the company's stock price.

Sector News

Despite the turnaround by the broader markets, computer hardware stocks are seeing notable selling pressure after Lexmark (LXK) reported lower than expected third quarter revenues.

The NYSE Arca Computer Hardware Index is down by 1.6 percent after hitting a two-week intraday low, while Lexmark has fallen by 19.1 percent, setting a seven-week intraday low.

Steel, health insurance and telecom stocks are also seeing continued weakness. The steel sector is under pressure after U.S. Steel (X) and AK Steel (AKS) reported quarterly losses that surprised to the downside.

Meanwhile, oil service stocks are seeing notable strength after National Oilwell Varco (NOV) reported third quarter adjusted earnings of $0.97 per share, compared to $0.95 per share last year. The consensus estimate was for earnings of $0.90 per share.

The results sparked buying interest among oil service stocks, lifting the Philadelphia Oil Service Index up by 1 percent.

Stocks Driven By Analyst Comments

Blue Nile (NILE) is trading lower after a downgrade by MKM Partners from Buy to Neutral. The broker also lowered its price target on the stock from $57 to $42. The stock is down by 1.5 percent after slipping to its lowest intraday price in nearly two months in earlier trading.

Diamondrock Hospitality (DRH) is also under pressure after being downgraded at RBC Capital Markets from Outperform to Sector Perform. Shares are currently down by 1.8 percent after falling to a two-week intraday low earlier on.

On the other hand, Callon Petroleum (CPE) is trading higher after CapitalOne Southcoast boosted its rating on the stock from Neutral to Add and lifted its price target from $5 to $6. The stock is up by 0.4 percent, moving back towards the nearly two-month closing high set earlier this month.

Other Markets

Overseas, stock markets in the Asia-Pacific region ended mostly lower on Tuesday. Hong Kong's Hang Seng Index lost 0.1 percent and Japan's benchmark Nikkei 225 Index slid by 0.3 percent.

The major European markets are also seeing varied losses. The German DAX Index and the French CAC 40 Index are both down by 0.5 percent, while the U.K.'s FTSE 100 Index is down by 1.1 percent.

In the bond markets, treasuries are showing moderate weakness. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.607 percent, posting gain of 5.3 basis points.

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TSX Poised For Cautious Start Amid Earnings Flow

Toronto stocks are poised for a cautious start Tuesday amid mixed cues from the commodities and global equity markets, with traders bracing themselves for a slew of quarterly earnings reports due out this week, including Gold Corp., Barrick Gold and Potash Corp.

On Monday, the S&P/TSX Composite Index added 62.40 points or 0.50% to 12,663.58, to settle near its 2-year peak.

The price of crude oil edged down as traders await a slew of economic data due out from the U.S. later today. After the markets close today, the API will release its weekly report on U.S. crude oil inventories. Analysts expect crude oil inventories to rise by 1.5 million barrels and gasoline stocks to increase by 625,000 barrels last week. Crude for December was down $0.31 to $82.21 a barrel.

The price of gold moved down $6.10 to $1,332.80 an ounce.

Bank stocks may be in play after Swiss banking giant UBS AG said its investment banking unit suffered a loss of CHF 406 million, belying consensus estimates for a profit of CHF 182 million. However, the bank reported third quarter net profit attributable to shareholders of CHF 1.664 billion compared to CHF 2.005 billion in the second quarter, and a loss of CHF 564 million in the same period last year. Diluted earnings per share was CHF 0.43, versus a loss of CHF 0.15 in the prior year quarter

In corporate news from Canada, communications and media company Rogers Communications (RCI_B.TO) said it third-quarter net income slipped to C$370 million or C$0.64 per share from C$485 million or C$0.79 per share last year. On an adjusted basis, net income amounted to C$476 million or C$0.83 per share. Analysts were expecting the company to report earnings of C$0.79 per share this quarter.

Base-metals miner Inmet Mining Corp. (reported improved third quarter net income of $86.09 million or $1.53 per share, compared tp $61.55 million or $1.09 per share last year. Gross sales rose 30% to $313.35 million from $241.12 million in the previous year.

Food products maker CoolBrands International reported higher fourth quarter net income of C$1.63 million or C$0.03 per share compared to net income of C$29 thousand or breakeven per share last year.

Europe based mineral explorer Northland Resources S.A. announced the appointment of Matti Kinnunen to the board. Kinnunen joined Carnegie, a Scandinavian investment bank, in 1991 and subsequently held a number of senior positions in Carnegie's head office in Stockholm as well as in Finland, Norway, Denmark, Luxembourg, the United Kingdom and the U.S.

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Financial Stocks Drag European Markets Lower Tuesday Morning

European stocks are trading lower Tuesday morning led by financial stocks after Swiss banking giant UBS reported a loss for its investment banking division. Traders largely ignored better-than-expected third quarter growth reported by the Britain economy.

In the commodities market, crude for December delivery is edging down $0.04 to $82.48 a barrel ahead of a host of economic data from the U.S.

Meanwhile, the price of gold was marginally down, with gold for December delivery easing $2.30 to $1,336.60 an ounce.

In economic news from the euro zone, UK's gross domestic product rose 0.8% sequentially following 1.2% growth in the second quarter, the Office for National Statistics said. Economists were forecasting only for a 0.4% growth. On an annual basis, GDP climbed 2.8% during the period July to September, matching economists expectations.

An indicator of consumer morale among Germans was unchanged in November, data from market research group GfK revealed. The forward - looking consumer sentiment indicator, based on a survey of about 2,000 Germans, held steady at 4.9. Economists had forecast the indicator to rise to 5.1.

French consumer confidence rose to minus 34 in October, the statistical office Insee said. Economists were expecting it to fall to minus 37 from minus 35 in September.

In an attempt to bring inflation close to the 2% target, the Swedish central bank decided to raise its benchmark repo rate by 25 basis points to 1%. The central bank sees inflation at 1.1% this year and 1.9% in 2011

Among stocks, Swiss banking giant UBS AG reported third quarter net profit attributable to shareholders of CHF 1.664 billion compared to CHF 2.005 billion in the second quarter, and a loss of CHF 564 million in the same period last year. Diluted earnings per share was CHF 0.43, versus a loss of CHF 0.15 in the prior year quarter. However, it's investment banking unit suffered a loss of CHF 406 million, belying consensus estimates for a profit of CHF 182 million. The stock is shedding around 5%.

Arcelor Mittal is losing nearly 5% after reporting third quarter net income, based on IFRS basis, of $1.35 billion, compared to $910 million in the prior year period. Basic earnings per share was $0.89, versus $0.60 in the same period last year. However, the company said its outlook for the fourth quarter remains cautious as the expected higher input prices continue to work through the business and demand remains muted, though with some regional differences.

The world's largest maker of wind turbines Vestas Wind Systems A/S is slipping over 6% after reporting that its third quarter net income fell to 126 million euros from 165 million euros a year earlier.

ARM Holdings Plc reported third-quarter IFRS profit of GBP 14.8 million or 1.1 pence per share compared to GBP 6.89 million or 0.5 pence per share last year. The stock is surrendering nearly 6%.

Cairn Energy dwindled nearly 6% after it said it would write off the $185 million cost of two wells after they failed to make any commercial discoveries.

On the positive side, Germany's second-largest software maker Software AG is gaining close to 4% after reporting a 20% jump in its third-quarter profit and raising its forecast for the full year. Net income rose to 45.6 million euros from 38.1 million euros a year earlier, beating consensus estimates for a net profit of 38 million euros.

The FTSE 100 is currently down 0.84%, the CAC 40 is easing 0.78% and the DAX is slipping 0.28%.

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Indian Market Ends Volatile Session In The Red

The Indian market ended a choppy session modestly lower on Tuesday ahead of October series F&O settlement due on Thursday. Metal, banking, public sector and healthcare stocks bore the brunt of the selling, while stock-specific buying in the consumer durable, auto and FMCG sectors helped limit the downside.

The U.S. Federal Reserve's meeting next week and the upcoming policy review of the Reserve Bank of India on November 2 are the near-term triggers for the market, analysts said. The market is expected to show considerable degree of volatility in the next two sessions, as investors square off/roll over positions in the derivatives segment.

The 30-share BSE Sensex ended down 82 points or 0.40% at 20,221, with 17 of its components edging lower. The broader Nifty closed at 6,082, down 24 points or 0.39% and the BSE mid-cap index shed 0.42%, while the BSE small-cap index posted a modest 0.22% gain. In the broader market, declining shares outpaced gaining shares by 1557 to 1408 shares.

Top banks such as HDFC, ICICI Bank and SBI Bank ended down between 0.56% and 1.84% after market regulator SEBI spelt out disclosure norms for initial public offerings of insurance companies.

In the telecom sector, Idea Cellular fell 3% and Tata Teleservices declined 2.25% on disappointing results. Bharti Airtel (down 2.42%) and Reliance Communication (down 1.73%) also ended deep in the red.

Tata Steel fell 2.62% after the world's largest steelmaker ArcelorMittal warned of sluggish demand in the fourth quarter. Aluminum maker Hindalco gave off 1.56%. Copper producer Sterlite Industries declined marginally on posting a modest 5% rise in its September-quarter consolidated net profit.

Hindustan Unilever (down 2.21%), ONGC (down 1.62%), BHEL (down 1.40%), Jindal Steel (down 1.34%) and HDFC (down 1.30%) were the other prominent decliners.

On the flip side, car maker Maruti Suzuki rallied 3.59% ahead of its Q2 results on Saturday. Diversified business conglomerate ITC advanced 1.30%, infrastructure firm Jaiprakash Associates gained 1.04%, Reliance Infrastructure added 0.86%, property developer DLF rose by 0.79%, automaker Tata Motors added 0.61% and heavyweight Reliance Industries closed up 0.56%.

Spanco (down 2.60%) and Tech Mahindra (up 2.73%) ended mixed after Bharti Airtel chose these companies along with IBM to handle its African call centre operations.

Titan Industries soared 6.22% after its second-quarter profit rose 65% year-over-year. Dena Bank climbed 8.90% on strong results. Marico rose 2.03% on posting a 15% increase in its second-quarter consolidated net profit.

Tata Coffee slipped 0.49% on reporting a 13% rise in its quarterly consolidated net profit. United Phosphorus plunged 7.17% despite posting higher earnings. UltraTech Cement slipped 0.16% after its quarterly net profit fell 54% from a year earlier.

Elsewhere, Asian stocks snapped two days of gains on Tuesday, as the dollar edged up against the euro after a decline in the previous session, limiting the investment appeal of commodities. The yen remained strong at the upper-80 level against the dollar, pressuring Japanese exporters, ahead of the Bank of Japan's policy meeting on Thursday.

Meanwhile, some disagreement among economists concerning whether the Federal Reserve will initiate another round of quantitative easing at its November 2-3 meeting also weighed on sentiment to some extent.

Similarly, European stocks retreated and the U.S. index futures pointed to a sluggish start on Wall Street Tuesday after UBS AG and ArcelorMittal posted disappointing results.

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The dollar was mixed Tuesday morning, firming up against the yen while losing ground to the sterling ahead of another look at the struggling US housing market.

Measured against a basket of key majors, the dollar has been steady following the weekend's news that G20 finance ministers have agreed to smooth out trade imbalances and avoid currency manipulation.

Still, the dollar was under some pressure versus the sterling today, after data showed the UK economy grew 0.8 percent in the third quarter. The rate of expansion was doubled expectations.

Ratings agency Standard & Poor's on Tuesday revised up its outlook on the United Kingdom to stable from negative and affirmed the country's 'AAA/A-1+' sovereign credit ratings.

The UK government has made sweeping budget cuts since coming to office earlier this year, hoping to stave of bond vigilantes and get the nation's fiscal house in order.

"In our opinion, the Conservative/Liberal Democrat coalition government's policy objective to close the fiscal gap further underpins the ratings," Standard & Poor's credit analyst Trevor Cullinan said.

The dollar dropped to $1.5875 versus the sterling, edging closer to an 8-month low near $1.6050 set earlier this month.

On the flip side, the dollar gained on the yen, improving to Y81.25 from yesterday's 15-year low of Y80.40. A move below 79.40 would have taken the buck to its lowest ever.

Japan had a merchandise trade surplus of 797.008 billion yen in September, the Ministry of Finance said on Monday, up 54.0 percent on year from 517.63 billion yen in September 2009.

There was little movement for the dollar against the euro. The buck drifted slightly higher to $1.3925, staying away from October's 8-month low near $1.4150.

At 9 am ET, the S&P/Case-Shiller home price index, which tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S., is scheduled to be released. Economists expect a 2.1% year-over-year increase in the 20-city composite house price index for August. An hour from then, the Federal House Finance Agency-FHFA is set to release its house price index for August.

Consumer confidence figures from the Conference Board are due to be released at 10 am ET. The consensus estimate calls for a small increase in the index to 49 from September's 48.5. Consumer confidence has never really taken off after the recent economic slump and is remaining around depressed levels.

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