Evening Update

Stocks Edge Higher as Dubai Attempts to Restructure Debt

Stocks finished higher, reversing their earlier decline after Dubai World said it is in “constructive” talks with banks on restructuring a portion of its debt. Markets received further support earlier in the day when the United Arab Emirates’ (UAE) central bank said that it will provide support to banks in the region. That helped soothe concerns sparked when the quasi-government organization spooked investors by requesting a debt restructuring last week. Trading volume was also relatively light again today, which could have accentuated moves in the market. Other equity news centered on the beginning of the important holiday shopping season. Results for the Black Friday weekend started to come in, showing that more shoppers flocked to malls than last year, although they spent less on average, resulting in a small increase in overall spending. Other news was relatively light, headlined by affirmed guidance from UnitedHealth Group and a sharp drop in the first day of trading for Las Vegas Sands’ Macau unit. In economic news, a gauge of manufacturing activity in the Midwest unexpectedly increased, and Treasuries finished higher.

The Dow Jones Industrial Average gained 35 points (0.3%) to close at 10,345, the S&P 500 Index rose 4 points (0.4%) to 1,096, and the Nasdaq Composite inched up 6 points (0.3%) to 2,145. In relatively light volume, 1.3 billion shares were traded on the NYSE and 2.0 billion shares were traded on the Nasdaq. Crude oil was $1.23 higher at $77.28 per barrel, wholesale gasoline rose $0.06 to $2.01 per gallon, and the Bloomberg gold spot price increased $0.58 to $1,178.20 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was down 0.3% to 74.75.

With the “Black Friday” weekend—a key period for retailers’ sales—putting the holiday shopping period in focus on Wall Street, some data suggests that while more shoppers went out to stores this year, they spent less than last year. According to a National Retail Federation (NRF) survey, 195 million shoppers visited stores and websites over the weekend, 13% higher than the 172 million people who went last year. However, the NRF said average spending over the weekend dropped 8% to $343.31 per person from $372.57 a year ago. As a result, total spending reached an estimated $41.2 billion, up about 0.5% from a year ago, which the NRF said matched expectations. That was on top of a 3% increase last year, as sales were strong on Black Friday last year, only to wither later in the season, with holiday sales as a whole in 2008 falling 3%.

NRF President and CEO Tracy Mullin said, “Shoppers proved this weekend that they were willing to open their wallets for a bargain, heading out to take advantage of great deals on less expensive items like toys, small appliances and winter clothes.” She added that shoppers can continue to expect retailers to focus on low prices and bargains through the end of December. The NRF said it is maintaining its forecast that holiday sales as a whole in 2009 will decline 1% from last year, which would mark the first back-to-back drop since the group began tracking such figures in 1992.

Today, the focus on retailers continued with “Cyber Monday”—a day where shoppers generally flock to the internet to take advantage of discounts of merchandise online and free shipping promotions by some companies. The NRF cited a survey which showed 96.5 million Americans planned to shop online on Cyber Monday this year, up from 85 million last year. Online sales Thursday and Friday rose 11% to $913 million, according to data released yesterday by comScore, an Internet research firm. Online retailer Blue Nile (NILE $56) said in an interview that "Today looks to be our best Cyber Monday ever." The diamond seller added that it expects holiday season sales to post a “double-digit” increase. “We've exceeded our expectations, and I think what you're seeing is that consumers are coming online and seeing the convenience and the value." NILE shares ended lower.

Investors will receive a more complete sales picture this Thursday, when many of the nation's largest retailers report same-store sales results for the month of November.

In other equity news, UnitedHealth Group (UNH $29) announced that it will host its annual investor conference, where it will affirm its previous outlook for 2009 EPS of $3.15, and its 2010 outlook, which includes revenues of $88.5-89.5 billion, and earnings between $2.90-3.10 per share. Analysts are expecting the healthcare firm to post 2009 EPS of $3.16, with revenues and earnings for 2010 expected to be $89.4 billion and $3.08 per share, respectively. Shares were lower.

Elsewhere, Las Vegas Sands (LVS $15) fell solidly after shares in its Macau division dropped 10% in its first day of trading in Hong Kong, the fourth-worst debut in that market this year. The casino operator raised $2.5 billion in an initial public offering, less than the $3.3 billion it originally intended to raise for its operations in the Chinese enclave. Analysts attributed the negative performance in initial trading of Sands China to its high listing price, renewed aversion to leveraged entities, concerns about growth and saturation in Macau’s casino market, and potentially waning interest in new offerings after a string of recent IPOs, including one from rival Wynn Resorts (WYNN $63), whose Wynn Macau (WYNMF $1) listing in October has since fallen 5%.

Midwest manufacturing unexpectedly improves

The Chicago PMI (chart) unexpectedly increased, rising from 54.2 in October to 56.1 in November—a level above 50 depicts economic expansion. The expectation of economists surveyed by Bloomberg called for the index to decrease to 53.0. New orders gained from 61.4 in October to 62.8 this month, order backlog rose from 41.9 to 46.5, while employment improved from 38.3 to 41.9.

Treasuries were higher following the gauge of manufacturing activity in the Midwest. The yield on the 2-year fell 2 bps to 0.66%, the yield on the 10-year note lost 1 bp to 3.19% and the yield on the 30-year bond declined 1 bp to 4.19%.

Nationwide PMI report to be released tomorrow

A national look at manufacturing activity will come in the form of tomorrow’s release of the ISM Manufacturing Index, which is forecasted to retreat from 55.7 to 54.8 in November, giving back some of last month’s significant jump from the 52.6 reading in September. That would still indicate expansion in the manufacturing sector, albeit at a slower pace, as the 50.0 level represents the separation point between expansion and contraction.

The regional manufacturing reports already released for the month of November have painted a somewhat mixed picture, with the Empire index showing a larger-than-expected deterioration but the Philly index increasing more than had been forecasted, and this morning’s Chicago PMI also showing a surprising gain. These conflicting signals in regional data have cast some doubt over what the nationwide report will show tomorrow, but it is important to note that these purchasing manager indices can be somewhat unpredictable, as they are not constructed of hard data but merely a diffusion index that reflects the number of people saying conditions are better compared to the number saying conditions are worse. They also do not account for the size of the firm responding or the degree of better/worse conditions that the firm is expecting.

UAE central bank lends some support to soothe some Dubai debt concerns

The United Arab Emirates’ (UAE) central bank announced that it “stands behind” Dubai’s lenders, setting up a new liquidity facility for commercial banks. The UAE said on Sunday, “Central Bank has issued a notice to UAE banks and branches of foreign banks operating in the UAE, making available to them a special additional liquidity facility linked to their current accounts at the central bank, at the rate of 50 basis points above the 3 months EIBOR (Emirates interbank offered rate).” The support from the central bank helped limit some of the worries that surfaced last week to pressure financial markets across the globe, stemming from the announcement out of Dubai, one of the seven states that comprise the country of the United Arab Emirates, the capital of which is Abu Dhabi. The emirate announced that it would ask creditors of Dubai World—a privately-held holding company for the government of Dubai—to agree to a temporary “standstill” to delay repayment on some of the liabilities that the government has in the holding company’s fund, as an early step to restructuring its debt agreements. Dubai World holds about $59 billion of Dubai’s total $80 billion in debt reported on its balance sheet. Later in the day, Dubai World said it is in “constructive” preliminary talks with banks for a restructuring process on about $26 billion of debt.

However, the Dubai government said, “Creditors need to take part of the responsibility for their decision to lend to the companies,” according to a quote obtained by Reuters from a Dubai department of finance official. The official added that “It is correct that the government owns Dubai World, but the decision when it was set up was that it should receive financing based on the viability of its projects, not on government guarantees.” Markets fell 7% in today’s trading in Dubai, the market’s first reaction to the aforementioned news after being closed for a holiday.

Rating agency Moody's said today that the credit rating of the governments of Abu Dhabi and the United Arab Emirates should not be impacted by the developments. "The recently announced restructuring of Dubai World's liabilities is unlikely to threaten the credit quality of the government of Abu Dhabi and the federal government of the UAE," it said. “Overall macro-economic stability is protected by the country's strong net external creditor position that is bolstered by Abu Dhabi's accumulated oil wealth."

Eurozone CPI no longer falling, Canadian economy expands less than expected, India grows faster

Eurozone CPI showed the first increase in consumer prices in seven months, after increasing 0.6% from a year earlier in November, and compared to the 0.4% expectation of economists.

Elsewhere, Canada’s GDP showed a smaller-than-expected 0.4% increase in the September period, still marking its first expansion in four quarters. Economists had forecasted a 1.0% gain. Meanwhile, the 3Q decrease, initially reported at 3.4%, was revised to a 3.1% annualized fall. Canada’s central bank forecasts that the economy will contract 2.4% this year, before growing 3% next year.

India reported that its 3Q GDP rose 7.9% on a year-over-year basis, topping the 6.3% expansion that economists had expected. In other Asian economic news, Japanese industrial production rose 0.5% quarter-over-quarter in October, well below the 2.5% advance that had been expected.

Meanwhile, European officials traveled to China and attempted to convince the Asian nation to loosen the controls on its currency, which is pegged to the dollar. China characterized the pressure as unfair. “Some countries are now calling for yuan appreciation while imposing trade protectionism on China, which is unfair and actually limits China’s development,” Chinese Premier Wen Jiabao said. China pledged on Friday to maintain its “appropriately” loose monetary policy.