Global Markets Overview - 11/07/2011
From Morrison Securities Ltd
U.S. Stocks
U.S. stocks capped their first weekly loss since September with a drop on Friday, as Europe's sovereign-debt problems overshadowed a small gain in U.S. employment. The Dow Jones Industrial Average shed 61.23 points, or 0.51%, to 11983.24, and snapped a streak of five weekly gains. The Standard & Poor's 500-stock index shed 7.92 points, or 0.63%, to 1253.23, ending its own weekly winning streak at four.
The technology-oriented Nasdaq Composite lost 11.82 points, or 0.44%, to 2686.15. Major indexes slumped early and then pared losses after a senior Greek socialist lawmaker signaled support for embattled Prime Minister George Papandreou. The Greek headlines helped stocks finish above session lows, but a meeting of the Group of 20 large economies ended without new pledges of support for the euro-zone rescue plan. In addition, Italy asked for international supervision of its austerity program, which kept traders on the defensive.
Financial stocks led the way lower. The S&P 500's financial components lost 1.4%. Bank of America was the steepest blue-chip decliner, shedding 6.1%.
Traders largely shrugged off the U.S. government's broadest snapshot of the labor market, which showed modest job creation in October and upward revisions to previous months' tallies. The gains made only a small dent in the unemployment rate, which edged down to 9% from 9.1% in September.
This week, many major retailers are due to post their latest quarterly reports, including Macy's Inc. (M) and Ralph Lauren Corp. (RL) on Wednesday as well as Kohl's Corp. (KSS) and Nordstrom Inc. (JWN) on Thursday. Retailers turned in generally solid sales results for October, but with enough shortfalls to raise questions about momentum going into the holiday season. The September trade balance as well as the October import and export price indexes will be released Thursday.
Last month, the Commerce Department reported the U.S. trade deficit narrowed to $45.61 billion in August from a revised $45.63 billion in July though the U.S. trade deficit with China hit a new record. Meanwhile, the Labor Department reported U.S. import prices rose in September amid higher petroleum and food costs.
Following the initial public offerings of Groupon Inc. (GRPN) and Rentech Nitrogen Partners LP (RNF), November is showing signs of a slight pickup in the IPO market with offerings expected this week from data security company Imperva Inc., biotech firm NewLink Genetics Corp. and others.
European Stock Markets
European stock markets fell on Friday after the Group of 20 nations offered little help to the struggling euro zone and as a parliamentary vote of confidence loomed in Greece.
The Stoxx Europe 600 index dropped 1% to end at 239.76. For the week, the index declined 3.7%. France's CAC-40 index fell 2.3% to 3,123.55, as telecom-equipment maker Alcatel-Lucent slumped 17.1%. The company reported third-quarter revenue dropped 6.8% to EUR3.8 billion ($5.3 billion).
Alcatel-Lucent also said that revenue will be weaker than initially planned in the fourth quarter due to market uncertainties, as management lowered its forecast for adjusted operating margin to around 4% of 2011 sales. In Germany, the DAX 30 index fell 2.7% to 5,966.16, as shares of Commerzbank AG sank 6.3%.
The bank swung to a third-quarter net loss of EUR687 million from a profit of EUR113 million in the same period a year ago. Commerzbank took a EUR798 million write-down on the value of its holdings of Greek sovereign bonds. Investors remained fixated on Greece, where Prime Minister George Papandreou is facing a parliamentary vote of confidence on Friday night.
Papandreou agreed on Thursday to abandon a plan to hold a referendum on Greece's latest bailout deal with the European Union, bowing to pressure from other euro-zone nations and members of his own party.
In France, the Group of 20 summit of large economies ended with little progress made on helping Europe address its sovereign debt crisis. One positive step that came out of the G-20 was news that Italy--whose borrowing costs have been rising sharply--asked the International Monetary Fund to monitor its implementation of fiscal reforms. In Milan, the FTSE MIB index slumped 2.7% to 15,346.55.
The U.K.'s FTSE 100 index slipped 0.3% to 5,527.16. Shares of Royal Bank of Scotland Group PLC rose 1.3%. The bank, which is majority-owned by the U.K. government, swung to a third-quarter profit of GBP1.23 billion--buoyed by a substantial accounting gain--from a loss of GBP1.15 billion in the same period a year ago.
Operating profit, however, fell to GBP267 million from GBP726 million. Mining firm Anglo American PLC slipped 0.8%, reversing gains. The firm said it will acquire the Oppenheimer family's 40% interest in diamond company De Beers for $5.1 billion. The deal will increase Anglo American's current 45% stake in De Beers to up to 85%. In the airline sector, International Consolidated Airlines Group shares dropped 6.8%.
The parent of British Airways reported that third-quarter adjusted operating profit dropped to EUR363 million from EUR528 million. IAG also said it has agreed in principle to buy British Midland Ltd. from Deutsche Lufthansa AG, shares of which slipped 3.1% in Frankfurt. In Paris, shares of building-materials firm Lafarge SA rose 0.5%. It reported a 10% drop in third-quarter net profit to EUR336 million and a 1% rise in sales to EUR4.21 billion. Lafarge also continues to see higher cement demand and maintained its estimate for market growth of 2% to 5% in 2011 from 2010.
Asian Stocks
Asia stocks rallied on Friday, with exporters and resource firms among the notable gainers, following a surprise interest-rate cut by the European Central Bank and after Greece shelved plans for a financial-bailout referendum. Hong Kong's Hang Seng Index rose 3.1% to 19842.79, while the Shanghai Composite gained 0.8% to 2528.29.
Japan's Nikkei Stock Average climbed 1.9% to 8801.40 after returning from a holiday, South Korea's Kospi advanced 3.1% to 1928.41, and India's Sensex rose 0.5%, to 17,562.61. Asian investors picked up on strong gains for European and U.S. markets made Thursday after Greece abandoned plans to put its latest bailout package to a popular vote. Also boosting sentiment was Europe's quarter-point cut to 1.25%, announced by the central bank's new president Mario Draghi.
The move took markets by surprise and indicated that the central bank will focus on supporting growth, even in the face of elevated inflation. Against this action to shore up the European economy, export-focused firms showed strength in the Tokyo session, with Sharp rising 4.4%, Toshiba climbing 3.2%, and Hitachi up 3.6%.
Many exporters in other markets also moved higher, with Li & Fung up 5% in Hong Kong, and LG Display advancing 8.1% in Seoul. But Tokyo-listed shares of Sony plunged 7.9% as investors took their first chance to react to results from late Wednesday, when the conglomerate swung to a second-quarter net loss and said losses could top $1 billion for the year. J.P. Morgan analysts cut the stock to neutral from overweight Friday.
Nissan Motor traded up 4.9% after the auto maker raised its outlook for the fiscal year in profit results posted Wednesday. Financials helped lead gains in Hong Kong, where Industrial & Commercial Bank of China traded up 3.3%, Bank of Communications added 6.6%, China Merchants Bank rose 6.3%, and China Life Insurance ended 7.3% higher. Resource stocks also advanced, helped by overnight gains in some commodities. In Hong Kong, Aluminium Corp. of China advanced 7.2%, and Cnooc closed up 5.1%. Among Tokyo-listed trading houses, Mitsui & Co. gained 2.7%, Mitsubishi rose 2.3%, and Itochu added 4.5%.
Commodities
Copper closed lower on the London Metal Exchange Friday, although other base metals ended the session mixed, as investors digested assorted data from a key U.S. labor report and were left unsatisfied by a lack of firm results out of the two-day G-20 meeting on Europe's debt crisis. LME three-month copper ended the session down 0.5% at $7,869 a metric ton, although nickel, lead and tin prices all closed higher on the day.
Base metal prices continue to be politically driven, as investors remain glued to developments in the euro zone, analysts said. Markets fluctuated after a monthly nonfarm payrolls report showed the U.S. economy added 80,000 jobs in October, falling short of a forecast of 100,000 new jobs.
While an unemployment rate of 9.0%, which is obtained from a separate survey, highlighted the persistent weakness of the country's labor market, payrolls data for the previous two months were revised upward, indicating the market had been in better shape in recent months than previously thought.
Still, Europe remained in focus as a meeting of the Group of 20 industrial and developing nations ended. Investors were frustrated with a lack of decisive action, with no G-20 country committing to help seed the euro zone's bailout fund, and the nations only resolving to continue talking about providing additional firepower through the International Monetary Fund.
Crude oil futures prices rose slightly Friday after a choppy day, with the market whipsawed by conflicting trends and data. Light, sweet crude for December delivery ended the day 19 cents, or 0.2%, higher at $94.26 a barrel on the New York Mercantile Exchange, after rising as high as $94.93 earlier in the session.
Brent crude on the ICE futures exchange ended the day $1.14, or 1.0%, higher at $111.97 a barrel. Taken in total, the various indicators provided little direction for the market one way or the other. Gold futures fell Friday as investors headed to the sidelines before a vote that could topple the Greek government and renew fears that the debt-laden country may soon default. But futures gained on the week, and may be poised for further strength as investorswarm to the yellow metal as an alternative asset because of the easy-money policies held by central banks on both sides of the Atlantic.
The most-actively traded gold contract, for December delivery, fell $9, or 0.5%, to settle at $1,756.10 a troy ounce on the Comex division of the New York Mercantile Exchange.
US wheat futures ended mixed, with nearby CBOT and MGEX contracts posting gains amid tight farmer selling. Lack of farmer sales, due to expectations of higher prices, is underpinning the market, analysts say.
Worries about the hard red winter crop also supportive, though rains forecast for the Southern Plains could boost crops. Poor export demand limiting upside. CBOT Dec wheat ended up 3/4c to $6.36 3/4 a bushel, with other contracts lower. KCBT Dec wheat was down 2c to $7.18; Dec. MGEX wheat was up 6 3/4c to $9.23 3/4. Cotton futures ended the week with a small bump, but the market remains rangebound, with scarce demand for US-grown fiber.
Cotton for December delivery ended 0.6% higher on the day at 98.74c a pound. Front-month futures have dropped 5.4% over the past week. Raw-sugar futures settled slightly lower as the market becomes increasingly confident about supply. March delivery on the ICE settles down 0.3% at 25.57c/lb.