US & World Daily Markets Financial Briefing 27-01-2011

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Stocks Turning In Lackluster Performance In Early Trading

Stocks are showing a lack of direction in early trading on Thursday, as traders appear reluctant to make significant moves following the release of a muddled batch of economic data. While the Dow and the S&P 500 are lingering near the unchanged line, the Nasdaq has shown a notable upward move.

The choppy trading comes following the release of disappointing jobless claims and durable goods data that appears to have been distorted by bad weather and other factors. Another winter snowstorm in the New York area may also be impacting trading activity.

While most of the major sectors are showing only modest moves in early trading, notable strength is visible among internet, real estate, and semiconductor stocks. On the other hand, electronic storage and gold stocks are seeing early weakness.

The major averages are currently all in positive territory, with the Nasdaq posting a moderate gain. The Dow is up 0.68 points or less than a tenth of a percent at 11,986.12, the Nasdaq is up 9.49 points or 0.4 percent at 2,748.99 and the S&P 500 is up 0.61 points or 0.1 percent at 1,297.24.

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TSX May Extend Gains; Potash Profit Doubles

Early signals were pointing to a positive opening for Bay Street stocks Thursday. While Canadian fertilizer maker Potash Corp. said its quarterly profits more than doubled and raised its forecast, commodities were trading flat.

U.S. stock futures were pointing to a higher open. Yesterday, the Federal Reserve kept its benchmark interest rate near zero and maintained its $600 billion asset purchase plan. The Fed acknowledged the current pace of economic expansion is insufficient to reduce unemployment.

On Wednesday, the S&P/TSX Composite Index advanced 206.12 points or 1.55 percent to 13,465.75.

The price of crude oil moved down amid lingering worries over demand growth after the EIA said that U.S. crude oil inventories increased by 4.80 million barrels and gasoline stocks moved up by 2.4 million barrels in the week ended January 21. Crude for March eased $0.17 to $87.16 a barrel.

The price of gold was steady near its 3-month low for a second session Thursday morning amid a generally weak U.S. dollar. Gold for February edged up $1.70 to $1,334.70 an ounce.

In corporate news from Canada, fertilizer maker Potash Corp. reported improved fourth-quarter net income of $482.3 million or $1.61 per share, compared to $239.2 million or $0.79 per share last year. Profit excluding the $64.2 million takeover response cost was $1.77 per share. Analysts were expecting the company to report earnings of $1.68 per share.

Potash Corp. expects first-quarter net income to be in the range of $2.10-$2.70 per share (pre-split). Analysts expect the company to earn $2.24 per share. Full-year earnings is expected in the range of $8.40-$9.60 per share (pre-split), while post-split earnings is expected in a range of $2.80-$3.20 per share. Analysts expect the company to earn $8.89 per share.

Earlier today, Potash Corp. announced that its board has approved a three-for-one stock split of its common shares and said it would increase quarterly cash dividend from $0.10 per share to $0.21 per share on a pre-split basis.

Product life-cycle solutions provider Celestica Inc. reported lower fourth quarter net income of $25.6 million, or $0.11 per share compared to $31.1 million, or $0.13 per share in the year ago period. However, excluding certain items, earnings came in at $58.3 million or $0.26 per share, up from $49.5 million or $0.21 per share. Analysts were expecting earnings of $0.23 per share this quarter. Uranium One announced the appointment of Chris Sattler as CEO.

Financial services provider Cash Store Financial Services reported lower first quarter net income of C$3.4 million or C$0.19 per share compared to C$5.5 million or C$0.32 per share in the year ago period.

In economic news from south of the border, the U.S. Labor Department said applications for jobless benefits increased by 51,000 to 454,000 in the week ended January 22. Economists were expecting the claims to come in at 409,000.

Separately, the U.S. Commerce Department said durable goods orders fell by 2.5 percent in December following a revised 0.1 percent decrease in November. The decrease came as a surprise to economists, who had expected orders to increase by about 1.5 percent.

Earlier today, rating agency Standard & Poor's downgraded Japan's sovereign credit rating to AA- from AA, with the outlook on the rating seen as "stable," citing the country's soaring mountain of debt. The agency said Japan's debt dynamics were under pressure from various factors and that the debt ratio is likely to rise further than previously envisaged.

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European Markets Trading In Positive Territory

European markets are trading in positive territory Thursday afternoon on increasing optimism about global economic recovery. Solid gains in the US in the previous session and Fed's stance on quantitative easing coupled with better than expected corporate earnings and positive economic data in the region impacted market sentiment. The downgrading of Japan's sovereign credit rating and the weakening of the Japanese currency has been largely shrugged off by the market participants.

On the economic front, results of a survey released by the Confederation of British Industry revealed that retail sales in the UK increased in January, in line with retailers' expectations, but the growth rate eased. Around 61% of retailers said the volume of sales rise, while 24% reported a fall, the latest Distributive Trades Survey showed. The resulting balance of 37% was smaller than December's 56%. The balance for the three-month moving average was 45%, unchanged from the previous month.

A report released by the European Commission revealed that eurozone economic sentiment fell slightly in January, but continues to point to strong activity despite the bloc's debt woes. The Commission revealed that the economic sentiment indicator fell to 106.5 in January from a revised 106.6 in December, citing results of its latest monthly economic tendency survey. The decline defied economists' forecast for a slight increase to 106.7. It was the first decrease since May, when the series was revised.

A report released by statistical office Insee in France revealed that French consumer confidence declined for the second consecutive month in January, reflecting increased fears about economic developments. The sentiment indicator fell to 85 in January from 86 in December, citing results of its latest households' confidence survey. Households viewed their financial position worsened further in January. The corresponding indicator fell to minus 25 from minus 24. They become more pessimistic about their financial situation in the next 12 months, with the indicator falling to minus 21 from minus 19.

In the UK the FTSE 100 opened at 5,969, the same as previous close. After briefly dipping into the red, the markets recovered smartly and are presently trading in the green with modest gains. The index is presently up 0.23%.

Resource related stocks are leading the gains. Antofagasta, BHP Billiton and Anglo American are gaining between 0.5% to 1.5%.

British Airways is trading in the red, losing more than 1.5 per cent, while BAE Systems is down more than 1 per cent. Retail stores operator Next is losing more than 2%, while financials are trading mixed following Japan's sovereign credit rating being downgraded by S&P by a notch.

In Germany, the DAX index opened trading at 7093, sharply lower than previous close at 7127, but clawed back into the green on optimism about economic recovery. The index is presently gaining 0.45%.

Allianz is leading the gains with a smart gain in excess of 3.70%. Automakers BMW, Daimler and Volkswagen are trading in the green with gains ranging between 0.8% to 1.4%.

Merck is also trading in the green with a gain of 0.90%.

In France, the CAC 40 index opened slightly lower at 4,040 compared to previous close at 4,049 but managed to turn into green. The index is presently gaining 0.30%.

Financials are leading the gains in the market. Credit Agricole is advancing more than 1.70%, BNP Paribas is adding more than 1% and Societe Generale is surging up more than 2.40%.

Technip is making a smart gain of more than 3.50%.

Across Asia/Pacific, Asian markets open for trading on Thursday ended mixed. While the markets in Japan, China, Indonesia, Taiwan and South Korea ended in the green, the markets in Australia, Hong Kong, India, and Singapore ended in the red with modest losses.

In the U.S., futures point to a higher open on Wall Street. In the previous session, the major indices ended in positive territory with solid gains following Fed announcement.

In commodities, crude for March delivery is sliding $0.18 to $87.15 per barrel and February gold is trading at $1333 a troy ounce.

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Indian Market Ends Sharply Lower

Relentless selling across the board on account of the settlement of near-term derivative contracts dragged the Indian market sharply lower on Thursday. Inflation concerns also daunted investors as a modest rise in food inflation after two consecutive weeks of decline raised fears of another round of interest rate hike by the central bank before March.

Government data released today showed that India's annual food inflation for the week ended January 15 inched up marginally to 15.57 percent from 15.52 percent in the previous week, snapping a two-week decline. However, the fuel price index for the week edged down slightly to 10.87 percent from the 11.53 percent rise a week ago.

The benchmark BSE Sensex closed down 285 points or 1.50 percent near the day's low at 18,684, with 28 of its components declining. Tata Motors (up 2.48 percent) and TCS (up 0.62 percent) closed in the green.

Property developer DLF led the decliners with a 5.42 percent loss. Copper producer Sterlite plunged 5.28 percent after an arbitration panel said that the government has no-obligation to sell the remaining 49 percent stake in Balco.

Utility vehicles manufacturer Mahindra & Mahindra slumped 4.87 percent on a brokerage downgrade. Hindustan Unilever tumbled 3.78 percent, extending Tuesday's losses on weak Q3 results. Telecom operators such as Bharti Airtel and Reliance Communication fell between 3 percent and 4 percent on concerns that the recent roll-out of mobile number portability service will squeeze their margins.

Banking heavyweights such as HDFC Bank and ICICI Bank fell around 2 percent each. IT bellwether Infosys declined 1.81 percent, heavyweight Reliance Industries eased 1.62 percent, state-run oil explorer ONGC lost 1.58 percent and car maker Maruti Suzuki ended down 1.23 percent.

Drug maker Ranbaxy lost 4 percent after its president and chief financial officer Omesh Sethi quit the company. Hindustan Construction Company plunged 5.25 percent after its subsidiary Lavasa Corp sought six weeks' time to submit documents that were asked by the Environment Ministry.

Newly-listed Midvalley Entertainment rose to a high of Rs.76.50 before closing at Rs.58.05, down around 17 percent compared to its initial public offering price of Rs.70 a share. JSW Steel and Subex plunged around 5 percent each on disappointing Q3 results. Mangalam Cement fell 2.73 percent after it posted a Rs.2.53 crore net loss for the quarter ended December.

Meanwhile, Marico advanced 2.53 percent after the FMCG firm posted a 12 percent rise in its third-quarter consolidated net profit. R Systems International rallied 3.87 percent after it bought U.K.-based Computaris International for GBP 9 million.

Atlas Copco climbed 14 percent to Rs.2,129.65 after the company revised its delisting floor price to Rs 2,250 a share. Arvind added a percent and Heritage Foods gained 3.21 percent on strong quarterly earnings.

Elsewhere, the other Asian markets closed mostly higher on Thursday, as investors cheered a surprise jump in U.S. new home sales and the Fed's ultra-stimulative monetary policy helped cement hopes that the excess global liquidity would continue to flow into emerging economies. China's Shanghai Composite average closed up nearly 1.5 percent, even as property stocks tumbled after Beijing announced fresh measures to cool the real estate market.

However, European stocks fluctuated and the Dow futures were subdued, as Standard & Poor's cut its rating on Japan's sovereign debt.

Standard & Poor's downgraded Japan's sovereign credit rating to AA- from AA, with the outlook on the rating seen as "stable," citing the country's soaring mountain of debt. The agency said Japan's debt dynamics were under pressure from various factors and that the debt ratio is likely to rise further than previously envisaged. The move took currency markets by surprise and the yen plunged to a six-day low of 83.09 against the dollar.

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Dollar Falls Further Versus Euro, Gains On Yen

The dollar continued its downward spiral against the euro Thursday morning, as central banks on either side of the Atlantic appear set to take different approaches to monetary policy in 2011.

While the Federal Reserve in the U.S. has downplayed inflation and will likely maintain its massive asset purchase program, the European Central Bank has become more focused on rising prices in accord with their lone mandate to fight inflation.

That could mean the interest rate gap between the Euro zone and US could widen sooner than economists were expecting, boosting the euro's appeal.

In a unanimous decision Wednesday, the Fed kept its benchmark interest rate near zero and maintained its $600 billion asset purchase plan.

The dollar dropped to a new 2-month low of $1.3750 against the euro, having lost almost 9 cents over the past two and a half weeks.

There was little movement against other European majors, with the dollar holding at CHF 0.9430 against the Swiss franc and $1.5970 versus the sterling.

On the flip side, the dollar gained a bit of ground versus the yen after rating agency Standard & Poor's downgraded Japan's sovereign credit rating to AA-minus from AA, with the outlook on the rating seen as 'stable', citing the country's soaring debt.

The dollar jumped back to Y83, staying away from November's 15-year low of Y80.22.

The Commerce Department will release its durable goods orders report for December at 8:30 a.m. ET. Economists expect a 1.6% increase in the orders for the month following a 0.3% decline in the previous month.

At the same time, the Labor Department will release its jobless claims report for the week ended January 22. Economists expect claims to edge up to 409,000 for the week from 404,000 reported last week.

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