World Daily Briefing (Friday, December 18, 2009)

The major U.S. index futures are pointing to a modestly higher opening on Friday. Some buying may emerge after the sell-off in the previous session, and traders may view a few better than expected earnings released by bellwether technology companies as a promising sign supporting expectations that growth momentum is picking. A report released from across the Atlantic showed that business confidence in Germany improved in December. Additionally, the commodity price rout appears to be stalling, boding well for commodity stocks. That said, trading volume is likely to be very light, as traders brace for the Christmas holidays.

After opening Thursday’s session sharply lower, weighed down by the dollar’s strength and data showing that jobless claims unexpectedly increased, U.S. stocks saw further weakness following the intensifying of economic uncertainties. The major averages continued to languish in negative territory to close with losses of over 1% each.

The Dow Industrials fell 132.86 points or 1.27% to 10,308 and the Nasdaq Composite Index receded 26.86 points or 1.22% to 2,180, while the S&P 500 Index declined 13.10 points or 1.18% to close at 1,096.

Twenty-eight of the Dow components closed the session lower, with Alcoa (AA), Bank of America (BAC),JP Morgan (JPM),Coca Cola (KO) and Travelers Co. (TRV) showing declines in excess of 2% each.

Among the sector indexes, the NYSE Arca Airline Index receded 2.16%, the NYSE Arca Gold Bugs Index tumbled 5.87% and the Dow Jones U.S. Basic Materials Index fell 2.43%. The NYSE Arca Biotechnology Index, the KBW Bank Index, theNYSE Arca Securities Broker/Dealer Index and the NYSE Arca Oil Index all ended down over 1.50%.

In the technology space, the Philadelphia Semiconductor Index declined 1.46%, the NYSE Arca SoftwareIndex fell 1.36%, the NYSE Arca Networking Index moved down 1.56% and the NYSE Arca Internet Index slipped 1.01%. On the other hand, the NYSE Arca Disk Drive Index gained 1.15%.

On the economic front, the Labor Department reported that weekly jobless claims rose to 480,000 in the week ended December 12th from 473,000 in the previous week. Meanwhile, continuing claim, calculated with a week’s lag, climbed 5,000 to 5.186 million in the week ended December 5th. Extended benefits as well as emergency employment compensation increased, suggesting a weak hiring environment.

Meanwhile, the Conference Board’s leading indicators index rose 0.9% month-over-month in November compared to the consensus estimate of 0.7% growth. The index has been showing increases for the eight consecutive months. Additionally, the coincident index, reflecting current conditions, increased 0.2% following an unchanged reading in October.

The results of the Philadelphia Fed’s manufacturing survey showed that conditions in the sector improved in December. The manufacturing index rose to 20.4 in December from 16.7 in November, reaching the highest level since November 2005. The new orders index fell to 6.5 from the previous month’s 14.8, while the order backlogs index rose to 0 in December from –5.4 in the previous month. The employment index moved into positive territory for the first time since May 2008, rising 6.8 points to 6.3. The inventories index also signaled some improvement from depressed levels. However, the 6-month outlook index declined 12 points to its lowest level since March.


Canadian, Commodities Markets
RIM, Energy Stocks Could Lead Rebound For TSX

Bay Street stocks could see early strength on Friday, following a notable decline in the previous session. A better-than-expected earnings report from Research In Motion and higher oil prices may provide a spark.

Crude oil has gained $1.23 to reach $73.91 per barrel in NYMEX trading. Gold edged up $1.60 to $1,105.10 and copper is little changed at $3.125.

RIM reported that its third-quarter net income increased to US$628.37 million or US$1.10 per share from US$396.30 million or US$0.69 per share last year. Analysts expected the company to report profit of US$1.04 per share.

In other corporate news, Patheon reported fourth quarter net income of US$4.6 million, compared to US$37.3 million last year. Earnings per share were US$0.036, compared to US$0.394 in the prior year quarter.

Royal Gold agreed to acquire International Royalty Corp. in a cash and stock deal worth about C$749 million.

Enerflex Systems Income Fund raised its offer to acquire Toromont Industries Ltd. to $14.25 per unit or about $315.6 million.

On the economic front, wholesale sales climbed by 0.3% in the month of October, compared to a revised gain of 0.1% in the prior month. Analysts expected a 0.1% increase.

The S&P/TSX Composite Index dropped 163.98 points to finish at 11,374.80, falling away from Wednesday's two-week closing high.

Commodity, Currency Markets

Crude oil futures are trading up $1.38 at $74.03 a barrel after rising $0.40 to $72.65 a barrel in Thursday’s session. Gold futures, which slipped $28.80 to $1,107.40 a barrel in the previous session, are trading up $1 at $1,108.40.

On the currency front, the U.S. dollar is trading at 90.395 yen compared to the 89.9652 yen it fetched at the close of New York trading on Thursday. Against the euro, the greenback is currently valued at $1.4340.


Asia Markets
The markets across Asia ended in negative territory on Friday on fresh concerns about sustaining the global economic recovery after mixed economic data and sharply lower closing on Wall Street in the previous session amid the strengthening of the dollar against the euro to a 3-month high. A draft proposal from global watchdog on banking regulations to meet the capital adequacy norms also impacted the banking stocks.

In Japan, the benchmark Nikkei 225 Index ended down 21.75 points, or 0.21%, to 10,142.05, while thebroader Topix index of all First Section issues lost 2.69 points, or 0.30%, to 894

On the economic front, the Bank of Japan maintained its key interest rate near zero as it took a 'wait and watch stance' after introducing fund-supplying measures in the first week of December. The central bankalso said it would not tolerate the annual change in consumer prices remaining at zero percent or below. In an unanimous vote, the Policy Board of the central bank, led by Governor Masaaki Shirakawa decided to leave its uncollateralized overnight call rate unchanged at 0.1%, in line with economists' expectations. The last change in the rate was a 0.1% cut in interest rates in December 2008.

Banking stocks declined after Basel Committee on Banking Supervision on Thursday published draft proposal on tougher capital rules that should be implemented by 2012. Sumitomo Mitsui Financial slumped 4.86%, Mitsubishi UFJ Financial slipped 0.43%, Mizuho Financial fell 2.72% and The Chiba Bank lost 1.05%. However, Resona Holdings bucked the trend and ended in positive territory with a gain of 0.41%.

Trading companies and other resource stocks also ended in negative territory following weakness in commodity prices, including gold, in the international market. Mitsubishi Corp. slumped 3.82%, Mitsui & Co. declined 2.50%, Toyota Tsusho Corp fell 1.76%, Itochu Corp. lost 2.09%, Marubeni Corp. shed 1.58% andSumitomo Corp., slipped 0.44%.

Automotive stocks also ended in negative territory following strength in the local currency against the dollar. Toyota Motor slipped 0.52%, Suzuki Motor declined 2.05%, Nissan Motor Co. fell 1.49% and Mitsubishi Motors lost 0.77%. However, Honda Motor managed to buck the trend and ended in the green with a gain of 0.66%.

Metal stocks ended mixed. Sumitomo Metal Mining slumped 3.06%, Sumitomo Electric Industries fell 1.44%, Toho Zinc Ltd lost 1.38% and Mitsubishi Materials Corp. shed 1.81%. However, Sumco Corp. gained 2.51% and Fujikura Ltd advanced 1.12%.

Shipping stocks ended in positive territory. Kawasaki Kisen Kaisha advanced 1.20%, Nippon Yusen rose 2.17% and Mitsui OSK Lines gained 1.48%.

In Australia, the benchmark S&P/ASX200 Index declined 19.80 points, or 0.42% to close at 4,650, while the All-Ordinaries Index ended at 4,672, representing a loss of 17.70 points, or 0.38%.

Telecom company Telstra declined 3.38% on huge volume after the telecom major revealed that it expects little or no growth in sales revenue for the full financial year 2009-10 citing strong competition and strength in local currency as the primary reasons.

National Australia Bank, which announced a deal to buy AXA Asian Pacific's local assets, declined 2.48%.ANZ Bank also ended in negative territory with a loss of 1.11% after the bank revealed that it expects drop in provision for doubtful debts in the year 2010 and further drop in provisions for the subsequent year. The stock slipped 1.11%. However, the other two banks ended in positive territory with marginal gains.Commonwealth Bank of Australia climbed 1.50% and Westpac Banking added 0.60%.

Gold stocks ended in negative territory on lower bullion prices. Lihir Gold slumped 4.59%, Medusa Miningplunged 6.48% and Newcrest Mining fell 3.04%.

Oil related stocks ended in positive territory following spurt in crude oil prices in the international market. Woodside Petroleum rose 1.97%, Santos Ltd added 0.36%, Oil Search Ltd climbed 1.94% and Origin Energy gained 2.18%.

Mining and metals related stocks also ended in negative territory. Rio Tinto declined 0.78% after announcing that it has contracted out some of the mining operations for the first time to a third party. Rival company BHP Billiton declined 1.91%. Mount Gibson, an iron ore minor, dropped 1.01% after the company revealed that operations cannot be resumed until next week due to the impact of Tropical Cyclone in the region. Among other metals and mining stocks, Fortescue Metals declined 1.62%, Mincor Resources lost 2.51%, Murchison Metals fell 2.39% and Oz Minerals shed 2.16%.

Retail stocks also ended mixed. JB Hi-Fi Ltd gained 2.01%, Wesfarmers added 0.41% and Woolworths advanced 1.01%. However, David Jones slumped 3.49% and Harvey Norman slipped 0.71%.

In Hong Kong, the Hang Seng Index ended in negative territory for the fourth successive day with a loss of 171.75 points, or 0.80%, at 21,176, dragged down by major banks on concerns that they may have to raise fresh capital or set aside a large amount of the profits for meeting the stringent capital adequacy norms insisted by watchdog for global banking. China-related stocks and resource stocks also ended in negative territory.

In South Korea, the KOSPI Index ended flat with a minor loss of 0.80 points, or 0.05% at 1,647, having recovered most of the early losses on the back of weak closing on Wall Street in the previous session. The strengthening of the local currency Won against the US dollar in afternoon session lifted the market sentiment with technology stocks leading the recovery. Samsung Electronics gained 1.05% and Hynix Semiconductor climbed 2.61%. Financial stocks ended weaker taking cues from US market where the financial stocks ended in negative territory in the previous session.

After outperforming the global markets in the past two sessions, the Indian market succumbed to selling pressure on Friday, weighed by weak Asian cues, rate hike worries and fears over FII outflows ahead of the year-end. The Sensex finished at 16,720, down 174 points or 1.03% and the S&P CNX Nifty fell 54 points or 1.07% to 4,988.

Among other major markets in the region, China's Shanghai Composite Index slumped 65.19 points, or 2.05%, to close at 3,114, and Singapore's Strait Times Index declined 10.68 points, or 0.38%, to close at 2803. However, Taiwan's Weighted Index managed to end in positive territory with a gain of 11.46 points, or 0.15%, to close at 7,754.




European Markets
After opening Friday’s session modestly higher, the major European averages saw some early strength, as a rebound in commodity prices supported sentiment, helping to offset some of the weakness in the financial space. Currently, the indexes have turned mixed. While the French CAC 40 Index is moving down 0.12%, the German DAX Index and the U.K.’s FTSE 100Index are rising 0.66% and 0.35%, respectively.

On the economic front, the Munich-based Ifo Institute for Economic Research reported that business confidence improved further in December. The business confidence index rose to 94.7 in December from 93.9 in the previous month, rising above the expected reading of 94.5. While the current conditions index rose 1.4 points to 90.5, the expectations index edged up 0.2 points to 99.1.

Commenting on the report, Dankse Bank noted that the pace of slowdown is not a cause for concern as long as no other indicators than ZEW fall back. That said, the firm warned of a double dip recession if consumption fails to pick up early next year.

GfK NOP’s survey revealed that consumer confidence in the U.K. worsened for the second straight month. The consumer confidence index came in at –19 in December compared to –17 in November. Despite the decline during the month, the annual moving average improved to –25.

Meanwhile, Eurostat reported that the euro area’s trade surplus rose to a seasonally adjusted 6.3 billion euros in October compared to a revised surplus of 4.3 billion euros for the previous month. Economists had expected a surplus of 5.7 billion euros. On a monthly basis, exports edged down 0.2% compared to a steeper 2.2% drop in imports.

French statistical office INSEE’s business confidence survey showed that the French business confidence indicator fell to 89 in December from 90 in November. Economists had expected a reading of 90. Manufacturers’ own-company production outlook deteriorated in December, with the corresponding index falling to –7 from –4 in the previous month, while the general production outlook worsened, with the corresponding index slipping to –11 in December from –9 in November.


Stocks in Focus
Oracle could gain ground after it announced that its second quarter earnings rose to 29 cents per share from 25 cents per share in the year-ago period. On an adjusted basis, the company reported earnings of 39 cents per share, ahead of the 36 cents per share consensus estimate. Revenues were up 4% year-over-year to $5.9 billion, also exceeding the mean analysts’ estimate of $5.7 billion. The company also said it expects the European Union to approve its $7.4 billion purchase of Sun Microsystem (JAVA).

Research In Motion could also move to the upside after it said its third quarter earnings rose to $1.10 per share on revenues of $3.92 billion. Analysts, on average, estimated earnings of $1.04 per share on revenues of $3.8 billion. The company added 4.4 million new subscribers, while it shipped 10.1 million Blackberrys. For the fourth quarter, the company estimates earnings of $1.23-$1.31 per share on revenues of $4.2 billion to $4.4 billion, better than the consensus estimates, which call for earnings of $1.12 per share on revenues of $4.11 billion.

Meanwhile, Palm receded in Thursday’s after hours session despite its non-GAAP net loss per share for the second quarter narrowing to 37 cents per share from 73 cents per share last year. Analysts estimated a narrower loss of 32 cents per share. The company reported non-GAAP adjusted revenues of $302 million, ahead of the $266.17 million consensus estimate. Shipments fell 5% sequentially to 783,000 smartphone units.

Take-Two Interactive could move higher after activist inventor Carl Icahn revealed in a regulatory filing that he has picked up an 11.3% stake in the company. Icahn seems to have suggested that shares of Take-Two are under-valued and he is ready to hold talks with the company’s management. Separately, the company reported a loss of 28 cents per share for its fourth quarter compared to a loss of 20 cents per share in the year-ago period. On an adjusted basis, the company reported earnings of 9 cents per share on revenues of $43.3 million, down 6% year-over-year. The company reaffirmed its guidance for the first quarter and the full year.

Textron could be in focus after it said it is in talks with a large customer over the cancellations of $1.1 billion worth orders for its Cessna jests. The company expects these cancellations will reduce backlog by a total of $1.7 billion in the fourth quarter. However, the company said these cancellations are not expected to have a material impact on planned deliveries through 2012.

Darden Restaurants is expected to move to the downside after it announced that its second quarter net earnings per share remained flat at 43 cents per share, although earnings edged up modestly. Revenues declined 2% to $1.64 billion. Analysts estimated earnings of 42 cents per share on revenues of $1.65 billion. For 2010, the company estimates earnings of $2.65-$2.76 per share, which represented a narrowing of its earlier guidance range of $2.59-$2.85 per share compared to the $2.75 per share consensus estimate.

Nike may move higher after it said its second quarter revenues fell 4% to $4.6 billion. The company’s earnings per share decreased 5% to 76 cents per share. Analysts estimate earnings of 71 cents per share on revenues of $4.40 billion.

Beckman Coulter is expected to be in focus after it said it estimates 2010 earnings of $4.40 to $4.55 per share, up 63 to 68 cents per share from in last year. The outlook is below the $4.56 per share consensus estimate. The company also said it expects recurring revenues to rise 7%, excluding the lab-based diagnostics business it acquired from Olympus.

Quicksilver is likely to see some activity after it said it reported a fourth quarter net loss of 1 cent per share compared to a loss of 1 cent per share in the year-ago period. Loss from continuing operations widened to 12 cents per share from the year-ago’s 11 cents per share, while it posted an adjusted profit of 2 cents per share from continuing operations. Consolidated net revenues fell 11% to $538.7 million. The company expects first quarter revenues to decline 7% and it estimates a loss of 12-15 cents per share for the quarter.

Pfizer could be in focus after it announced that the FDA has approved SPIRIVA handihaler, which is used for reduction of exacerbations in patients with chronic obstructive pulmonary disease-COPD. The inhaler had already been approved as a once-daily maintenance treatment for breathing problems associated with COPD. SPIRIVA has been jointly promoted by Boehringer Ingelheim and Pfizer.