US & World Daily Markets Financial Briefing 28-01-2011

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Major Averages Posting Modest Gains In Early Trading

Stocks are seeing modest strength in early trading on Friday, as traders react to a report showing continued U.S. economic growth in the final three months of 2010. Buying interest has remained relatively subdued, however, limiting the upside for the markets.

The modest strength in the markets comes after the Commerce Department released a report showing that the U.S. economy expanded for the sixth consecutive quarter in the fourth quarter, although the pace of growth was somewhat below economist estimates.

Semiconductor stocks are seeing notable strength in early trading, with KLA-Tencor (KLAC) leading the sector higher after reporting better than expected second quarter earnings. Most of the other major sectors are showing only modest moves.

While the Dow and the S&P 500 are currently posting modest gains, the Nasdaq is having an issue disseminating its indexes. The Dow is up 14.76 points or 0.1 percent at 12,004.59 and the S&P 500 is up 2.02 points or 0.2 percent at 1,301.56.

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TSX May Open Lower Amid Soft Commodities

Bay Street stocks are poised for a lower open Friday amid soft commodities prices and weak cues from the global equity markets.

Equity markets across the globe were mostly down. Most Asian markets ended lower, with Japan's Nikkei 225 index shedding over 1 percent after Standard & Poor's downgraded the sovereign credit rating to AA-minus from AA. Elsewhere, European stocks were mostly down, with London's FTSE slipping over 1 percent.

U.S. stock futures were pointing to a flat open. U.S. automaker Ford Motor Co. said its fourth-quarter profit fell 79 percent, with net income dropping to $190 million or $0.05 per share from $886 million or $0.25 per share a year earlier.

On Thursday, the S&P/TSX Composite Index shed 55.55 points or 0.41 percent to 13,410.20 amid weak commodities.

The price of crude oil was struggling near its 2-month low amid worries over demand growth. Crude for March edged up $0.44 to $86.08 a barrel.

The price of gold lingers below $1,320 even as the U.S. dollar remained weak following downbeat economic reports from the U.S. Yesterday, gold shed nearly $15 to hit a 4-month low.

Meanwhile, China's gold output was up 8.57 percent year-over-year at 340.88 tonnes in 2010, according to the latest data from China Gold Association. Gold for April was down $4.30 to $1,315.50 an ounce.

In corporate news from Canada, wealth management company AGF Management reported lower fourth quarter net income of C$30.9 million or C$0.34 per share compared to C$45.5 million or C$0.50 per share for the prior year.

Wood based panels maker posted full-year earnings of $17 million or $0.38 per share compared with a loss of $58 million or $1.35 per share a year ago.

In economic news, said 7,700 Canadians were added to non-farm payrolls in November.

Economists expected employers to add more than 10,000 to their payrolls. Manufacturing hiring snapped back, as factory payrolls were up 0.3 percent in November from the month before.

From south of the border, the U.S. Commerce Department said that U.S. gross domestic product increased at an annual rate of 3.2 percent in the fourth quarter following the 2.6 percent increase seen in the third quarter. Economists were expecting GDP to increase by about 3.5 percent.

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French Market Modestly Higher

The French market is modestly up in afternoon trading Friday, led by banks. Sentiment was influenced by weak cues from Asia ahead of the key growth data from the U.S.

In economic news, the GfK NOP Consumer Confidence Index, which gauges the mood of 2,000 Britons, fell 8 points over the month to -29, representing the lowest score in the index since March 2009. The group said the rise in the VAT sales tax rate in January was the single biggest factor for the slump.

The CAC 40 index opened at 4,045, compared to the prior close of 4,060. After languishing in negative territory in early trade, the index moved into positive territory and is currently adding 0.12 percent.

Lender Societe Generale is leading the gainers by adding 3.7 percent. Credit Agricole, BNP Paribas and Natixis are moving up between 2.4 percent and 1 percent.

Insurer Axa, Airbus maker EADS, grocery retailer Carrefour, tire firm Michelin and gas utility GDF Suez are seeing notable upside.

Carmaker Peugeot is up 0.6 percent, while Renault is down 0.75 percent.

Construction stocks are mostly lower. Steel producer Aperam is down 3 percent and ArcelorMittal is falling 0.8 percent. Saint-Gobain and Bouygues are lower. However, Lafarge is gaining 0.6 percent.

Elsewhere in Europe, the UK's FTSE 100 is losing 0.97 percent and the German DAX is gaining 0.19 percent.

Across Asia/Pacific, most major markets ended lower. Australia's All Ordinaries lost 0.70 percent, Hong Kong's Hang Seng slipped 0.68 percent and Japan's Nikkei 225 retreated 1.1 percent. However, China's Shanghai Composite Index gained 0.14 percent.

In the U.S., futures point to a slightly higher open on Wall Street. In the previous session, the Dow edged up less than a tenth of a percent, the Nasdaq moved up 0.6 percent and the S&P 500 rose 0.2 percent.

In commodities, crude for March delivery is adding $0.08 to $85.72 per barrel and February gold is slipping $3.1 to $1315.3 a troy ounce.

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No Respite For Indian Market

Renewed selling by foreign funds amid worries about soaring inflation and appealing investment opportunities elsewhere dragged the Indian market sharply lower for a second consecutive session on Friday. A weak global trend following Japan's credit rating downgrade and the International Monetary Fund's warning to advanced countries over their huge budget deficits also added to the sell-off.

After closing below their respective 200-day moving averages yesterday, the benchmark indexes Sensex and the Nifty lost about 2.5 percent each in the afternoon, indicating close to an oversold position.

However, both indexes saw some late recovery before ending down 1.54 percent and 1.64 percent at 18,396 and 5,512, respectively. The 30-share Sensex recovered around 160 points from its intra-day low, while the 50-share Nifty rebounded by about 50 points.

The broader indexes such as the BSE mid-cap and the small-cap fell by 2.66 percent and 3.59 percent, respectively, and the market breadth on the BSE was quite negative, with decliners outpacing gainers in the ratio of 3:1.

While there is likely to be a temporary bounce back from these levels in the intermediate term, bulls may lack the conviction to add fresh long positions, as there are problems on the macro front, brokerages said.

Other than just inflation and higher interest rates, 'valuation premium' of the Indian market versus its regional peers and the dollar's recent rally against major rivals on the back of improving outlook for the U.S. economy could prompt foreign investors reduce their weights on Indian investments.
However, according to some analysts, it is a buying opportunity as well, as worries about inflation and interest rates appear to be overblown, especially in the context of the recent downward trend in crude prices.

Crude futures for March delivery were last trading weak near two-month low below $86 a barrel in Asian trading on Friday amid lower risk appetite as global equities fell and the dollar gained ground ahead of U.S. GDP data for the fourth-quarter, which is expected to provide clues on future outlook for commodities. India, which is Asia's third-largest economy, imports 70 percent of its oil needs and any surge in global prices puts pressure on inflation.

In stock-specific action, metal, power, capital goods, auto, consumer durable and realty stocks bore the brunt of the selling, with their respective sectoral indexes ending down between 2 percent and 5 percent.

DLF (down 7.02 percent), Mahindra & Mahindra (down 4.93 percent), Hindalco (down 4.27 percent), Tata Motors (down 4.07 percent), BHEL (down 3.91 percent), Hero Honda Motors (down 3.86 percent), Jaiprakash Associates (down 3.53 percent), Maruti Suzuki (down 3.05 percent) and Reliance Industries (down 3.02 percent) were the prominent losers.

JSW Steel, Subex and SpiceJet fell between 7 percent and 9 percent on disappointing results. Shipping stocks such as Great Eastern, Shreyas and Mercator Lines plunged around 5 percent each, taking cues from low freight rates.

Meanwhile, ONGC (up 1.89 percent), Reliance Infrastructure (up 1.13 percent), Hindustan Unilever (up 0.54 percent) and Bharti Airtel (up 0.45 percent) bucked the downward trend to end notably higher. HDFC Bank, ITC, Cipla and ICICI Bank also closed in positive territory with modest gains.

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Dollar Wobbles Ahead Of Fourth Quarter GDP

The dollar was mixed Friday morning in New York ahead of today's closely watched fourth-quarter GDP data.

Easing concerns about the European debt situation have kept the dollar under pressure of late, and Wednesday's dovish comments from the Federal Reserve did nothing to spark a rebound.

The Fed maintained its record low interest rates and $600 billion asset purchase plan, just as it looks like the European Central Bank is setting the table for a rate hike in the coming months.

The dollar can be expected to further weaken against the the euro if the interest rate gap between the U.S. and euro zone widens.

The dollar was stuck near yesterday's 2-month low of $1.3757 versus the euro, having lost about nine cents over the past three weeks. Earlier in January, the dollar touched a 4-month peak of $1.2873.

The buck continued to wobble versus the sterling, bouncing back and froth near $1.5920.

Early losses took the dollar to Y82.20 versus the yen. The buck has been unable to sustain any movement away from November's 15-year low of Y80.22.

The Bureau of Economic Analysis will release its advance estimate of fourth quarter GDP at 8:30 a.m. ET. Economists expect GDP growth of 3.5% for the quarter.

The Labor Department will release its report on the employment cost index for the fourth quarter at 8:30 a.m. ET. Economists expect a 0.4% increase in the index for the fourth quarter.

The Reuters/University of Michigan's final report on the consumer sentiment index for January will be released at 9:55 AM ET. The consumer sentiment index is expected to be upwardly revised to 73 from the mid-month reading of 72.7.

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