US & World Daily Markets Financial Briefing 27-10-2010

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Stocks Mostly Lower In Mid-Morning Trading

Stocks are largely on the downside in mid-morning trading on Wednesday even after a better than expected reading on new home sales. Traders have largely shrugged off the data ahead of next week's Federal Reserve meeting as well as the midterm elections.

The major averages are currently all in negative territory, although the Nasdaq is posting a relatively modest loss. The Nasdaq is down 6.70 points or 0.3 percent at 2,490.59, while the Dow is down 103.19 points or 0.9 percent at 11,066.27 and the S&P 500 is down 9.22 points or 0.8 percent at 1,176.42.

In a sign that the U.S. housing market may have hit bottom in recent months, the Commerce Department released a report showing that new home sales rose 6.6 percent to an annual rate of 307,000 in September from an annual rate of 288,000 in August. Economists had expected sales to show a more modest 3.8 percent increase to an annual rate of 299,000.

While new home sales remain at relatively low levels, the annual rate has moved well off the record low of 282,000 set in May. Nonetheless, the annual rate of new home sales in September is still 21.5 percent below the rate seen in the same month a year ago.

Earlier, the Commerce Department released a separate report showing that durable goods orders surged up by 3.3 percent in September following a revised 1.0 percent decrease in August. Economists had expected orders to increase by 1.8 percent compared to the 1.5 percent drop that had been reported for the previous month.

However, excluding a 15.7 percent jump in orders for transportation equipment, durable goods orders actually fell by 0.8 percent in September compared to a 1.9 percent increase in the previous month. The decrease surprised economists, who had expected ex-transportation orders to edge up by 0.2 percent.

In earnings news, Procter & Gamble Co. (PG) reported that its first-quarter net earnings declined to $1.02 per share from $1.06 per share in the same quarter last year. Analysts has expected the consumer products giant to earn $1.00 per share for the quarter.

P&G's net sales for the period came in at $20.12 billion, failing to meet expectations for $20.25 billion for the quarter.

Sprint Nextel Corp. (S) reported a third-quarter net loss of $0.30 per share slightly sharper than the expected loss of $0.28 per share for the quarter. Revenues came in at $8.15 billion, topping forecasts for $8.03 billion.

Transportation and logistics services firm C.H. Robinson Worldwide (CHRW) reported third quarter net income of $0.62 per share, just above expectations for $0.61 per share. Total revenue for the quarter rose 23.8 percent to $2.42 billion but still fell short of estimates for $2.48 billion.

Sector News

Gold stocks are among the morning's worst performers, dragging the NYSE Arca Gold Bugs Index down by 3 percent. The decline has the index on pace for its lowest close in six weeks.

Selling among gold stocks comes as the price of the precious metal is down by $10.50 to $1,328.10 an ounce. The price drop is partly due to strength in the value of the U.S. dollar.

Steel, railroad, natural gas and oil stocks are also under pressure, further weighing on the major averages. Notably, the NYSE Arca Steel Index is down by 2 percent and on pace for a monthly closing low.

On the other hand, strength among semiconductor stocks is helping to moderate the pullback by the tech-heavy Nasdaq index, with the Philadelphia Semiconductor Index up by 1.7 percent. The buying interest in the sector comes after Broadcom (BRCM) reported third quarter revenues above expectations.

Stocks Driven By Analyst Comments

Abbott Labs (ABT) is posting a notable loss after analysts at Argus dropped their rating on the stock from Buy to Hold. The stock is currently down by 2.3 percent, sinking to a six-week intraday low.

BJ Restaurants (BJRI) is also moving lower after Oppenheimer downgraded the stock from Outperform to Perform. Shares are currently down by 3.6 percent, pulling back off of the all-time closing high of $35.13 set yesterday.

Meanwhile, Motorola (MOT) is trading higher after being upgraded by MKM Partners from Neutral to Buy and seeing its price target raised from $7 to $10. The stock is up by 1.3 percent, moving further off of last week's seven-week closing low.

Other Markets

Overseas, stock markets in the Asia-Pacific region ended mostly lower on Wednesday. Hong Kong's Hang Seng Index lost 1.9 percent and India's BSE 30 sank by 1.1 percent, while Japan's benchmark Nikkei 225 Index bucked the downtrend, inching up by 0.1 percent.

The major European markets are also showing varied losses. The German DAX Index is down by 0.2 percent, while the U.K.'s FTSE 100 Index and the French CAC 40 Index are both down by 0.7 percent.

In the bond markets, treasuries are seeing moderate downside. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is trading at 2.698 percent, posting a gain of 6.2 basis points.

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TSX Looks To Open Lower; Teck Resources May Dip

Toronto stocks are poised for a mixed open Wednesday as traders digest the recent earnings reports from major companies, with discouraging cues from the commodities and global equity markets likely to weigh on trader sentiment.

On Tuesday, the S&P/TSX Composite Index added 21.10 points or 0.17% to 12,684.68, its fresh 2-year high.

The price of crude oil moved down Wednesday morning as traders await the official crude oil inventories data from the EIA due out during trading hours. Analysts expect crude oil inventories pile up by 700,000 barrels, while gasoline stocks are seen dropping 200,000 barrels in the week ended October 22. Crude for December was down $0.76 to $81.79 a barrel.

The price of gold eased back near $ 1,330 as the U.S dollar firmed up amid reports that a possible Federal Reserve quantitative easing measure that may be announced early November might disappoint markets. Gold for December was down $10.70 to $1,327.90 an ounce.

In corporate news from Canada, base-metals miner Teck Resources said it's third quarter net income dipped sharply to C$331 million or C$0.56 per share from C$609 million or C$1.07 per share in the prior-year quarter, hurt primarily by charges. However excluding one-time items, net income rose to C$467 million or C$0.79 per share from C$337 million or C$0.59 per share a year ago. Analysts were expecting the company to report adjusted earnings of C$0.89 per share.

Canadian stock market operator TMX Group Inc. reported improved third quarter net income of $50.8 million or $0.68 per share from $41.7 million or $0.56 per share in the year-ago period. The company declared a dividend of $0.40 on each common share.

Freight railroad company Canadian National Railway Co. said its third quarter net income increased 21% to C$556 million or C$1.19 per share from C$461 million or C$0.97 last year. Analysts were expecting the company to report earnings of C$1.13 per share.

Canada's second largest railroad operator Canadian Pacific Railway reported lower third-quarter net income of C$197.3 million or C$1.17 per share, compared to C$209.3 million or C$1.24 per share in the same quarter last year. However, adjusted earnings increased 27% to C$204.7 million or C$1.21 per share from C$160.9 million or C$0.95 per share in the year ago quarter.

Media and entertainment company Corus Entertainment reported a sharply lower fourth quarter net income of C$6.81 million or C$0.08 per share compared to C$18.73 million or C$0.23 per share last year.

Colombia-based independent oil & gas firm Ecopetrol S.A. reported improved third quarter net income of COL$ 1.702 billion or COL$ 42.06 per share, compared to COL$ 1.193 billion or COL$ 29.49 per share last year.

Technology consultancy company Carbon Friendly Solutions said it would acquire MicroCoal Inc., an energy company, in a cash and stock deal worth approximately $8 million.

Wood based panel maker Norbord Inc. reported a third-quarter a loss of $7 million or $0.16 per share, same as prior year.

Europe based mining company Northland Resources S.A. said it would sell it's non-ferrous projects in Sweden to Orex Minerals Inc. Northland will receive a total of $5 million in cash over two years, and $3.5 million worth of Orex shares to be issued over a period of four years.

Construction products and solutions provider Canam Group third-quarter net earnings declined to C$2.1 million or C$0.05 per share from C$4.4 million or C$0.10 per share for the same quarter in 2009.

In economic news from south of the border, the U.S. Commerce Department said that durable goods orders surged up by 3.3% in September following a revised 1.0% decrease in August. Economists were expecting orders to increase by 1.8% compared to the 1.5% drop that had been reported for the previous month.

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European Stocks Mixed Amid Earnings Reports

European stocks are struggling for direction Wednesday morning amid a batch of mixed earnings reports, with traders speculating that the Federal Reserve will take a more gradualist approach to quantitative easing.

In the commodities market, crude for December delivery is down $0.75 to $81.80 a barrel as traders await the official data on weekly U.S. crude oil inventories. Tuesday after the markets close, data from the API revealed a surprise pile up in U.S. crude oil inventories in the week ended October 22.

Meanwhile, the price of gold was marginally down, with gold for December delivery easing $3.40 to $1,335.20 an ounce. In economic news, euro zone M3 money supply growth slowed slightly to 1% in September from the previous year, the European Central Bank said. Economists were expecting it to rise 1.3% after increasing 1.1% in August.

Meanwhile, the euro zone's leading economic indicator climbed 0.3% in October from the previous month, the Conference Board said. This followed a 0.7% increase in August and a 0.9% rise in July.

French consumer spending increased 1.5% month-on-month in September after falling 1.6% in August, data from the statistical office Insee showed. Economists had expected a mere 0.4% rise for September.

Among stocks, software services provider SAP AG is losing around 4% even after it said its third quarter net profit, on IFRS basis, was up 21% to 501 million euros or 0.42 euro per share compared to 447 million euros or 0.38 euro per share in the last year quarter. Looking ahead, the company expects full-year 2010 non-IFRS software and software-related service revenue to increase in a range of 9% to 11% at constant currencies.

Renewable Energy is declining nearly 2% after reporting a third-quarter net loss of 896 million kroner, wider than 167.4 million kroner analysts had forecast. Beer maker Heineken is slipping nearly 3% after reporting lower revenues, excluding the effect of acquisitions.

Spain's second-biggest bank Banco Bilbao Vizcaya Argentaria SA is losing around 2% after it said its third quarter profit dropped 17% to 1.14 billion euros, however, narrower than the consensus estimates of 1.19 billion euros.

Soco International Plc is moving down over 6%. The company said it will plug and abandon a well in Democratic Republic of Congo after the main target area was found not to have hydrocarbons.

Meanwhile, Europe's largest semiconductor maker STMicroelectronics is gaining over 4% after it said its current sales would top consensus estimates on order backlog and rising demand for chips.

Germany's biggest lender Deutsche Bank is adding around 2%. The bank reported a third-quarter net loss of 1.2 billion euros after writing down the value of its existing stake in Deutsche Postbank AG. Analysts were expecting the bank to record a loss of 1.5 billion euro.

The FTSE 100 is currently down 0.35% and the CAC 40 is easing 0.29%, while the DAX is edging up 0.15%.

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Indian Market Ends Sharply Lower On Weak Global Cues

Weak global cues ahead of the release of U.S. GDP data on Friday and a crucial Federal Reserve meeting early next week dragged the Indian market steeply lower on Wednesday. With the earnings season not throwing any major surprises, investors are taking profits ahead of RBI's rate-setting meeting next week, analysts said.

Continued profit taking ahead of the expiry of near-month derivative contracts tomorrow and fears about the scenario of year-end selling by FIIs also weighed on sentiment to a certain extent. The 30-share BSE Sensex ended down 216 points or 1.07% at 20,005, with 22 of its components edging lower.

Reliance Communication (up 3.66%), Mahindra & Mahindra (up 1.63%) and Tata Steel (up 1.48%) bucked the downward trend to end sharply higher. Hindalco Industries, Sterlite, SBI and Tata Motors also added about half a percent each.

The broader Nifty fell by 69 points or 1.14% to 6,013 and the BSE mid-cap and small-cap indexes lost about 0.3% each. In the broader market, declining shares outpaced gaining ones by 1726 to 1212 shares. Sector-wise, realty, FMCG, banking and IT stocks bore the brunt of the selling.

NTPC, the most prominent loser in the Sensex pack, ended down 3.14% on disappointing results, mortgage lender HDFC lost 2.59%, car maker Maruti Suzuki declined 2.44%, private sector lender ICICI Bank gave off 2.23%, diversified business conglomerate ITC eased 2.19%, cement maker ACC ended down 2.16% and telecom giant Bharti Airtel lost 2.14%.

Tech Mahindra fell 2.14% on the buzz that BT Group Plc may reduce its stake in the Indian company. Its group firm Mahindra Satyam slipped 0.43%. Gujarat Alkalies plunged 5.83% on disappointing results. UltraTech Cement reversed its early loss to end up 0.21%.

Patni Computer Systems closed unchanged on reporting a 14% drop in its third-quarter consolidated net profit. Tata Motors closed 0.21% higher after Standard & Poor's Ratings Services raised the corporate credit rating of the company.

Shriram Transport Finance rallied 3.94% after its quarterly net profit rose 44% year-over-year. Bata India eased marginally despite posting a 58% rise in its quarterly net profit. SpiceJet rose 2.87% after media baron Kalanithi Maran and his unlisted aviation firm, Kal Airways Pvt Ltd , hiked stake in the budget airline.

Prestige Estate (up 3.93%), BS Transcomm (up 46%) and Gyscoal Alloys(up 12.68%) closed firm on the day one of listing.

Elsewhere, most Asian stocks declined on Wednesday, as doubts emerged about the extent and timing of Federal Reserve's second round of quantitative easing. The uncertainty over Fed's next move dragged commodity prices lower, as the dollar edged higher against major world currencies, curbing appetite for riskier assets. Also, investors were reluctant to make fresh purchases ahead of the upcoming U.S. mid-term congressional elections.

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Dollar Gains On Euro As Fed Reportedly Preps Gradual QE

The dollar continued to firm up versus the euro Wednesday morning amid indications that a second round of quantitative easing from the Federal Reserve will be smaller than the markets had come to expect.

Policy makers will make gradual bond purchases in support of the the fragile economy, a far cry from the "shock and awe" method adopted during the worst of the credit crisis, the Wall Street Journal reported this morning.

"The Federal Reserve is close to embarking on another round of monetary stimulus next week, against the backdrop of a weak economy and low inflation," the WSJ said.

However, the program of bond purchases worth a few hundred billion dollars over several months represents a measured approach in contrast to purchases of nearly $2 trillion it unveiled during the financial crisis, according the paper.

The dollar has been hammered in recent weeks as traders bet something bigger and bolder was in store from the Fed.

The buck improved to $1.3769 versus the euro, edging further away from a 9-month low of $1.4150 set earlier in October.

The dollar stabilized near $1.5825 against the sterling after coming under some pressure in recent days. The UK economy grew twice as fast as economists were predicting in the third quarter, data revealed yesterday.

Against the yen, the buck rose to a 2-week high of Y81.97 before easing back to 81.60. Last week, the dollar hit a 15-year low of 80.41, near its record low of 79.80 from back in 1995.

The Japanese central bank is expected to downgrade its growth outlook for this fiscal year and next on Thursday as uncertainty increases over the global economy.

In July, the BoJ had forecast that the economy to grow by 2.6% in the current fiscal year ending March 2011, although growth is expected to slow to a more modest 1.9% in the next fiscal year.

Mortgage demand snapped back last week as consumers looked to lock in attractive interest rates before they go up next year, industry data revealed Wednesday.

The Mortgage Bankers Association's weekly mortgage applications survey for the week ending October 22, showed that overall mortgage demand increased 3.2 percent on a seasonally adjusted basis from one week earlier.

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