Stock Market Update - Friday, August 27, 2010

Stock Market Update
Friday, August 27, 2010

Latest News Headlines:

U.S. Stocks Made Gains Friday

U.S. stocks soared Friday as investors searching for confidence were reassured by Federal Reserve Chairman Ben Bernanke's vow to do whatever it takes to revive the shaky economy.

Dow Jones	10,150.65	+164.84	(1.65%)
S&P 500	1,064.59	+17.37	(1.66%)
Nasdaq	2,153.63	+34.94	(1.65%)

Benchmark U.S. indexes rallied broadly on Friday. The Dow rose more than 164 points to 10,151. The Nasdaq Composite gained 1.65% to 2153, while the Standard & Poor's 500-share index rose 1.66% to 1064. Investors noted that the 1040 level had provided support for the measure earlier in the session. Materials led the S&P 500's recent climb, while safer consumer staples lagged.

U.S. indexes tracked a rally in European markets. The Stoxx Europe 600 index closed up 0.6%, while London's FTSE 100 rose 0.9% and Frankfurt's DAX climbed 0.7%.


A Large Number of US Banks are About To Fail

FDIC To Meet Tuesday On Winding Down Large, Failing Firms

U.S. regulators seeking to quickly implement changes to oversight of U.S. financial markets plan to meet Tuesday to discuss new authority to deal with large, failing financial firms.

The Federal Deposit Insurance Corp. has scheduled a four-hour, invitation-only roundtable to discuss a range of issues tied to how the government responds when firms starts to teeter. The meeting is expected to feature regulators, academics and representatives from the financial-services industry.

Among the topics to be discussed is how the government will treat a failing firm's creditors in the event the government has to step in, as well as "living wills" firms will have to produce that were mandated by the Dodd-Frank legislation.


US Consumer Sentiment Declines

The consumer mood darkened a bit at the end of August, according to a report released Friday. The Reuters/University of Michigan consumer sentiment index's final reading for August ticked down to 68.9 from a preliminary reading of 69.6, but was up from 67.8 final-July reading.

Economists surveyed by Dow Jones Newswires had expected the final August index to be relatively unchanged at 69.9. The final August current conditions index stood at 78.3 from an early-August reading of 78.3 and final-July index of 76.5. The expectations index stood at 62.9 from the preliminary 64.1 and end-July 62.3.

Consumers remain relatively morose because the economy and labor markets have not shown much strength this year. Real gross domestic product was revised Friday to show annualized growth of just 1.6% in the second quarter, down from 2.4% first reported. And jobless claims remain quite elevated, suggesting businesses are still laying off many workers.

Within the Michigan survey, the end-July one-year inflation expectations reading stood at 2.7% from 2.8% in early August, and the five-year inflation reading rose to 2.8% from 2.7%.


US Stocks Turn Negative As Bernanke Begins Speech, Ends Positive
Federal Reserve Chairman Ben Bernanke Friday said he's ready to do what it takes to support an economic recovery that's been losing steam, but stopped short of saying if the Fed will act.

US 2Q GDP Revised Down To 1.6% Growth From 2.4%

The U.S. economy grew a sluggish 1.6% in the second quarter and corporate profits nearly dried up, though the downward revision released by the Commerce Department Friday wasn't as bad as many had feared.

Growth of the gross domestic product, the value of all goods and services produced, beat Wall Street forecasts of a 1.3% gain for April to June, according to economists polled by Dow Jones Newswires. U.S. stocks opened higher on the better-than-expected report.

The 1.6% GDP growth stands in contrast to the government's initial growth estimate. Just a month ago, Commerce estimated the growth rate slowed to 2.4% after a 3.7% expansion in the first quarter.

Friday's report also showed that companies also barely managed to post profit gains, following several very profitable quarters. After-tax earnings edged up 0.1%, well off the previous quarter's gain of 11.4%. First-quarter profits were also revised down from the initial estimate of a 12.1% increase.

Year over year, profits remained up 37.7% higher, as companies have been cutting costs by trimming payrolls.

The latest sign that that growth is moderating follows a string of disappointing news on the economic front, raising concerns about the sustainability of the recovery going into year end. In July, new and existing home sales plunged, while durable goods orders rose less than expected.

On the positive side, Friday's report showed stronger-than-expected spending by consumers from April to June. The biggest component of GDP rose 2.0%, above the initial second-quarter estimate of 1.6%. Spending by Americans rose by 1.9% in the first three months of the year.

The weakness in the economy is also reflected in very low inflation pressures. The overall price index for personal consumption expenditures registered no gain in the second quarter, rather than the initial estimate for a 0.1% increase. That marked a sharp decline from the 2.1% rate during the first three months of the year.

The underlying inflation rate--which excludes volatile moves in food and energy prices and is closely watched by the Fed--increased by 1.1% in the April-to-June period, unrevised from the initial estimate. The index rose 1.2% in the first quarter.

Other inflation gauges within the government's report also remained benign. Gross domestic purchase prices edged up an unrevised 0.1%, following a 2.1% rise in the first quarter.

The chain-weighted GDP price index increased by 1.9%, revised up from 1.8% and above the 1.0% rate of the first quarter.

Slowing growth and a growing risk of deflation prompted the Federal Reserve to take action earlier this month, deciding to reinvest proceeds from maturing mortgage-backed securities into U.S. Treasurys to keep its balance sheet from shrinking. The move is aimed at kick-starting the economy by helping to keep borrowing costs low.

Fed Chairman Ben Bernanke could provide hints on what the central bank's next move might be later Friday, in a speech kicking off a gathering of the central bankers in Jackson Hole, Wyo.

Business spending on equipment and software also remained solid, though the second-quarter gain was trimmed to 17.6% from an initial estimate of 21.9% in the second quarter. First-quarter spending was revised down to a 7.8% rise from 20.4%.

The report also showed a rise in inventory being built up by companies, to $63.2 billion in the second quarter from $44.1 billion in the previous period. The inventory component added 0.63 percentage point to GDP, versus 2.64 percentage points in the first quarter.

Real final sales of domestic product, which is GDP less the change in private inventories, was revised down slightly to a 1.0% gain from an initial 1.3%. That is below the 1.1% gain in the first quarter.

Central bankers and academic experts are meeting at a critical juncture for the global economy. The recovery that started more than a year ago is running out of steam and the slowdown in the U.S., the world's largest economy, is of particular concern. Having slashed short-term interest close to zero, the Fed and several of its large foreign counterparts seem to have few options left to support their economies.

Bernanke said the Fed still has several options left to lift the economy, but added there are benefits and costs to each one. He said Fed officials have not agreed on what would be a trigger for further action.

US GDP Declines:
US Stock Futures Rise After Revision Of 2Q GDP; DJIA Up 65

US stock futures rose Friday morning after the Commerce Department's latest estimate of second-quarter economic growth came in at 1.6%, below the previous estimate but better than expected. Dow Jones Industrial Average futures rose 65 points to 10032. S&P 500 futures rose 7 points to 1,051.80. Nasdaq 100 futures rose 16.25.

U.S. second-quarter gross domestic product rose at an annualized seasonally adjusted rate of 1.6%, the Commerce Department said Friday. That revised estimate, while lower than initial estimate of 2.4% growth, was still above average expectations for a 1.3% gain among economists polled by Dow Jones Newswires.

The report also sent the broader financial markets higher, with the Dow Jones Industrial Average futures gaining 71 points to 10038 recently.

Wall Street braces for reports on consumer sentiment and Bernanke gives speech at Kansas City Fed symposium. US Stock Futures Gain Ahead Of 2Q GDP Report.

U.S. stock-index futures posted modest gains Friday, as investors awaited U.S. growth data and a speech by the chairman of the Federal Reserve for more clues on the state of the American economy.

Futures on the Dow Jones Industrial Average gained 24 points to 9991, and S&P 500 futures added 3.50 points to 1048.30. Nasdaq 100 futures rose 7.75 points to 1775.20.

On the deal front, meanwhile, the battle between Dell Inc. (DELL) and Hewlett-Packard Co. (HPQ) to acquire data-storage provider 3Par Inc. (PAR) took yet another turn.

Dell matched H-P's offer to buy 3Par for $27 a share, or about $1.8 billion, and 3Par accepted Dell's latest bid. Shares of 3Par rallied 10% in premarket trading.

"After the weak economic data on jobs and housing in recent weeks, there does seem to be an air of dread around markets at the moment, and it feels like it would take some outstanding positive news to shake this off," said David Jones, chief market strategist at IG Index, in a note to clients.

The first key event of the day is the release of second-quarter U.S. gross domestic product data at 8:30 a.m., EDT. Markets are bracing for a big downward revision of the 2.4% growth estimated in the first release.

That data will be followed by the University of Michigan's final reading for August consumer sentiment at 9:55 a.m., EDT.

Then, at 10 a.m., EDT, Federal Reserve Chairman Ben Bernanke is scheduled to deliver a speech at the Kansas City Fed's annual symposium in Jackson Hole, Wyo. The speech will focus on the economic outlook and the Fed's policy response.

"While we don't expect the chairman to brace the nation for a 'double dip,' he may warn that near-term growth could be insufficient to promote a sustained reduction in the country's 9.5% unemployment rate," said Neal Soss at Credit Suisse Group, in a note.

In earnings news, fine-jewelry firm Tiffany & Co. (TIF) reported a 19% increase in quarterly profit and said it's expecting fiscal-year earnings to come in higher than analysts' consensus estimate.

In the aerospace sector, Boeing Co. (BA) announced it will delay once again the delivery of the first 787 Dreamliner jet to the middle of the first quarter of 2011, citing delays in the availability of the engine.


US Dollar:

In the currency markets, the dollar index, which tracks the performance of the greenback against a basket of other major currencies, traded flat at 82.946.

The U.S. dollar gained 0.5% to 84.69 yen, as Japanese Prime Minister Naoto Kan told reporters that he was ready to take "decisive" action in currency markets when needed.

Petrolium Crude Oil:

OIL FUTURES: Nymex Crude Settles $1.81 Higher At $75.17/Bbl
Oil futures gained $1.81 cents to $75.12 a barrel in electronic trading. Crude futures were down after the GDP revision. Crude futures traded slightly lower Friday morning after an early rally on stronger-than-expected U.S. gross domestic product growth fizzled.

Investors were wary of driving prices too far in either direction ahead of a speech by Federal Reserve Chairman Ben Bernanke, scheduled for 10 a.m. EDT. His words will be closely scrutinized for clues to the Fed's beliefs about the strength of the economy, as well as any action the central bank might take to boost growth.

Light, sweet crude for October delivery traded 20 cents, or 0.3%, lower at $73.16 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded 19 cents, or 0.3%, higher at $75.21 a barrel.


Wheat Deficit Widens

The International Grains Council Thursday slashed its forecast for world wheat production and said the supply-demand deficit will widen this year as Russia's livestock industry boosts consumption to record levels.

But world wheat stocks at the end of 2010-11 are forecast to be at still comfortable levels, despite an 8 million metric tons decline to 184 million tons. This is down from 197 million tons in 2009-10, leaving inventories at their lowest level in two years.

Global wheat production in 2010-11 is expected to hit 644 million tons, the IGC said, down 7 million tons from its July estimate and 4.9% lower than last year.

World wheat consumption is expected to rise by 2 million tons compared with its previous forecast to a record 657 million tons due to surging consumption in Russia, leaving the market with a deficit of 13 million tons.


Coffee Futures Gap Up

Coffee futures rallied Friday, as tight supplies and the prospect of dry weather hurting next year's Brazilian crop helped the market recoup much of this week's losses.

Coffee for nearby September delivery on ICE Futures U.S. rose 7.10 cents, or 4.2%, to $1.7705 a pound. Most active December climbed 6.45 cents, or 3.7%, to $1.7885.

The futures market continues to find support from a dearth of top-quality arabica coffee beans in the marketplace. Though top-producer Brazil is on pace to harvest a record crop this year, global coffee demand is strengthening.

December coffee futures raced to a 13-year high of $1.8865 a pound Monday, led by speculative fund buying, and as coffee roasters fretted over inadequate supplies. Prices then dived to $1.6535 on Tuesday as they became too frothy and Brazil's possibly record-setting crop eased supply fears, but prices have since begun to claw their way back. Funds actively bought commodities Friday, which supported coffee.


Canadian Markets:

Toronto Stocks Higher At Midday On Broad Buying

Reassuring comments from the U.S. Federal Reserve Chairman sent the stock market sharply higher at midday Friday, with all sectors in positive territory.

At 11:45 a.m. EDT (1545 GMT), the S&P/TSX Composite Index was up 168.87 points, or 1.45%, at 11822.05. Advances led declines 843 to 407. Trading volume was 160.3 million shares. The S&P/TSX 60 Index was up 11.30 points, or 1.67%, to 688.71.

Canada April-June Budget Deficit C$7.23B Versus C$12.51B Year


Toronto Stocks Higher: Composite Index Up 0.4%
Share prices are higher in early trading Friday.

Toronto's composite index is up 48.34 points, or 0.4%, to 11704.32, with advances leading declines by 2 to 1.

Volume of 32.6 million shares after the first 15 minutes of the session is in line with Thursday's early volume of 34.4 million shares.


South America:

Mexico:

Mexico's Stocks Rise, Peso Weakens On US Data

Mexico's stocks were higher in volatile trading, while the peso extended its losses against the U.S. dollar Friday, after chip-maker Intel cut its sales guidance and a report showed a downward revision to U.S. gross domestic product that wasn't as bad as expected.

Mexico's benchmark IPC index of most-traded issues was trading 0.4% higher at 31353.31 points at 10:17 a.m. EDT. Volume was 28.4 million shares worth 673.4 million pesos ($51.5 million).

The peso extended its losses against the dollar after the GDP report as the steep downward revision raised doubts about Mexico's export led economic recovery. Mexico's GDP is widely expected to grow between 4% and 5% this year, following last year's brutal 6.5% contraction, on the back of manufactured goods exports to the U.S., the country's No.1 trading partner.

The peso was recently quoted in Mexico City trading at MXN13.0895 to the dollar, after closing at MXN13.0565 on Thursday.

Peru

Peru's 2Q GDP Up 10.1% On Rise In Domestic Demand - INEI

Peru's gross domestic product expanded by 10.1% in the second quarter compared with the same period the year before, the government said Friday.

Government agency INEI said the GDP growth reflects a 14.7% increase in domestic demand, and an increase in investments of 27.6%. Government spending rose 10.5% in the second quarter, while household consumption increased 6.3%, the government agency added. Construction sector activity increased 21.6%, while manufacturing sector activity rose 17.0%.

In the first quarter, GDP expanded by 6.3%.

Finance Minister Mercedes Araoz said Thursday the finance ministry expects to increase its forecast for full-year growth to 6.8% from 5.5%. Many private sector economists expect growth of more than 7.0% this year.

Brazil

Brazil Stocks Open Higher

Brazilian state-run bank Caixa Economica Federal announced Friday it will increase its capital by 2.5 billion Brazilian reals ($1.42 billion) after it received a capital injection from the National Treasury.

With the capital injection, the bank will increase its capacity to multiply its credit portfolio to BRL300 billion in the next few years. At the end of the firs half, the bank's credit portfolio totaled BRL86.9 billion, 58% higher than a year earlier.

Brazilian stocks opened higher Friday after U.S. second-quarter growth data came in above expectations. The benchmark Ibovespa stock index was 0.5% higher at 64187 points in early trade on the Brazilian Stock Exchange.

Investors are waiting for new information on the capital-raising plans of state-controlled oil company Petroleo Brasileiro SA (PBR, PETR4.BR), or Petrobras.

The bellwether stock was 1.0% higher at 25.95 Brazilian reals ($14.74). According to news reports, the government is mulling an $8.50 per barrel price in an oil-for-shares swap with the company, which is neutral to slightly negative for shareholders. Shares in miner Vale were 1.2% higher at BRL41.17 despite news that it will cut iron-ore prices by 10%.

The improved international mood helped the banks. Itau Unibanco SA (ITUB, ITUB4.BR) was 0.89% higher at BRL35.99.


Europe:

European stock markets ended a volatile session with gains Friday, lifted by better-than-expected U.S. growth data and Federal Reserve Chairman Ben Bernanke's promise to "strongly resist" deflation.

The Stoxx Europe 600 index rose 0.6% to finish at 251.24 points after dipping in and out of positive territory several times during the session. The index has fallen 1.6% so far this month.

European markets reacted positively after the U.S. Commerce Department cut its estimate for second-quarter gross domestic product growth to 1.6%--a sharp reduction from the previous estimate of 2.4%, but still not as bad as the 1.3% forecast of economists.

In the U.K., the FTSE 100 index rose 0.9% to 5,201.56 points and the French CAC 40 index advanced 0.9% to end at 3,507.44.

The German DAX 30 index gained 0.7% to 5,951.17 points.

EADS was another big faller Friday, dropping 3.2% in Paris after French newspaper Les Echos reported the group's Airbus unit has cut production forecasts for its A350 airliner to far below the targets set in 2007.

Production plans have been reduced for every year, with the aircraft maker now expecting to make 60 A350s in 2015, compared to the previous target of 83, the newspaper said.

The forecasts could be revised down even further if the A350 program suffers further delays, it added. U.S. rival Boeing was also in the news after it said it will delay the delivery of the first 787 Dreamliner aircraft until the middle of the first quarter of 2011. The company cited delays in the availability of engines from U.K. supplier Rolls-Royce Group, whose shares dropped 0.6% on the London Stock Exchange.

Some oil stocks came under pressure, with BP falling 1.5% and Tullow Oil dropping 3.8% after further reports of problems for the company in Uganda.

Dow Jones Newswires reported that the country's government has repossessed the Kingfisher oil field after exploration licenses expired. Tullow said earlier in the week it faced delays in Uganda because of a tax dispute between the government and its partner Heritage Oil.

In the financial sector, shares of Italian banking giant Intesa Sanpaolo fell 2%. The group said its second-quarter net profit soared to EUR1 billion from EUR513 million in the same period a year earlier, though the improvement was due to gains from the sale of a division.

In Spain, the IBEX-35 stock index ended up 1.4%, as shares of Ferrovial SA gained 2.9%.


Iran Bank Assets Withdrawn From Europe - Central Bank Chief

Iran's central bank chief said Friday that Iran has withdrawn the assets held by its banks in Europe to escape the latest round of international economic sanctions over its nuclear drive.

"The central bank...has transferred the [Iranian] banks' assets from Europe. Currently there is no problem in regards to blocking of assets of the Iranian banks by the European Union," Mahmoud Bahmani was quoted as telling the Fars news agency.

Leading Iranian banks have been specifically targeted by the international community, with the U.S. sanctioning Mellat, Melli, Saderat and Export Development Bank of Iran, accusing them of financing weapons proliferation.

The E.U. measures include a ban on the sale of equipment, technology and services to Iran's energy sector, hitting activities in refining, liquefied natural gas, exploration and production.

New investments in the energy sector are also banned.

The Iranian banking sector was also hit by restrictions, forcing any transactions over EUR40,000 to be authorized by EU governments before they can go ahead.


FTSE rises as UK GDP is revised up.

British gross domestic product expanded by an upwardly revised 1.2% in the second quarter, official data showed. The previous estimate put quarterly growth at 1.1%.

The UK economy grew by more than initially thought in the second quarter of 2010, boosted by a strong performance by the construction sector.

The economy grew by 1.2% in the quarter, the Office for National Statistics (ONS) said, revising up its initial estimate of 1.1% growth. That was the fastest rate of quarterly expansion recorded since the first three months of 2001.

But one area that suffered a big fall was air transport, which fell 11%.The first estimate of gross domestic product (GDP) is usually revised twice at monthly intervals.

U.K. engine supplier Rolls-Royce Group PLC (RYCEY, RR.LN) said it's working with Boeing to expedite delivery. Shares of Rolls-Royce dropped 1.6% in London.

In Spain, Iberia Lineas Aereas de Espana (IBLA.MC) said it swung to a higher-than-expected profit in the second quarter, as international business travel rebounded. Iberia and British Airways PLC (BAIRY, BAY.LN, TD-BAB) have agreed to merge.


Asian Pacific:

Asia stocks slip; cautious before Bernanke.

Asia shares were mixed Friday, while in Europe, the Stoxx Europe 600 index was flat in afternoon trading.

Authorities in Tokyo have been seeking to stem the rise of the Japanese yen, which hit a 15-year high versus the U.S. dollar earlier this week.





Market Summary:

Stocks:

U.S. stock-index futures posted modest gains Friday, as investors awaited U.S. growth data and a speech by the chairman of the Federal Reserve for more clues on the state of the American economy. The Dow fell 0.7% on Thursday--it has ended lower five of the past six trading days. The blue-chip index has fallen more than 4% so far this year.


World Market Snapshot:

Shanghai	2,610.74	+7.26 (0.28%)
Nikkei 225	8,991.06	+84.58 (0.95%)
Hang Seng Index	20,597.35	-14.71 (-0.07%)
TSEC	7,722.91	+33.17 (0.43%)
FTSE 100	5,163.66	+7.82 (0.15%)
DJ EURO STOXX 50	2,608.14	+1.25 (0.05%)
CAC 40	3,475.72	+0.69 (0.02%)
S&P TSX	11,653.18	+5.06 (0.04%)
S&P/ASX 200	4,370.10	+14.10 (0.32%)
BSE Sensex	17,998.41	-227.94 (-1.25%)

Commodities
Crude Oil	75.32	+ 0.20%
Natural Gas	3.65	- 4.35%
Gasoline	1.96	+ 0.36%
Heating Oil	2.05	+ 0.26%
Gold	1238.14	+ 0.12%
Silver	19.09	+ 0.85%
Copper	3.34	+ 1.18%
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Friday's US Economic Calendar:

8:30 AM GDP - Second Estimate. - US Commerce Department will supply a revised look at second-quarter gross domestic product.

9:55 AM U Michigan Consumer Sentiment -The University of Michigan will update its consumer sentiment index for August. Frontline Ltd. (FRO) and Tiffany & Co. (TIF) round out the week's earnings.