US & World Daily Markets Financial Briefing 02-02-2010

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Stocks Rally Following Pending Home Sales Report

Stocks have shown a strong upward move in mid-morning trading on Tuesday, shaking off a lackluster start after the National Association of Realtors reported that pending home sales stabilized in December. The major averages are all in positive territory, recovering further from last week's two-month lows.

NAR said pending home sales, a leading indicator of activity in the housing sector, rose by 1.0 percent in December following a revised 16.4 percent decrease in November. Economists had been expecting pending home sales to increase by about 1.1 percent.

Lawrence Yun, NAR chief economist, said, "There are easily understood swings in contract activity as buyers respond to a tax credit that was expiring and was then extended and expanded."

"These swings are masking the underlying trend, which is a broad improvement over year-ago levels," he added. "December activity was the fifth highest monthly tally in two years."

Earnings were in the limelight ahead of the report, as Hershey (HSY) reported adjusted fourth-quarter net income of $0.63 per share, topping expectations for $0.60 per share. Net sales rose to $1.41 billion from $1.38 billion in the fourth quarter of 2008 but fell just short of the estimated $1.42 billion.

United Parcel Service (UPS) said it earned $0.75 per share in the fourth quarter, edging out analyst estimates of $0.74 per share. Revenue totaled $12.38 billion, down from $12.70 billion in the comparable quarter last year but above estimates of $12.22 billion.

The markets are also keeping an eye on Paul Volcker, the head of the President's Economic Board, as he testifies on Capitol Hill regarding regulations to limit high-risk bank activities.

Meanwhile, Treasury Secretary Tim Geithner is fielding questions from the Senate Finance Committee regarding the 2011 budget.

Auto sales from major automakers for the month of January may also garner market attention as they are released over the course of the day.

The major averages have all seen substantial upside in recent trading, reaching new highs for the session. The Dow is currently up 70.43 at 10,255.96, the Nasdaq is up 11.32 at 2,182.52 and the S&P 500 is up 8.05 at 1,097.23.

Sector News

Benefiting from the pending home sales data, housing stocks are seeing a strong outing, driving the Philadelphia Housing Sector Index up by 4.5 percent. With the advance, the index continues to recover from the one-month low set in mid-January.

Along with the pending home sales report, the sector is also benefiting from strong results from component D.R. Horton (DHI). Shares of D.R. Horton are currently up 10.8 percent after reaching their best intraday level in over four months.

D.R. Horton recorded first-quarter net income of $0.56 per share compared a net loss of $0.20 per share in the same period last year. On average, analysts expected the company to report a loss of $0.14 per share for the quarter.

D.R. Horton said homebuilding revenue rose to $1.1 billion from $900.3 million last year, handily beating the projections for $960.15 million for the quarter.

Airline stocks are also on the rise, with the NYSE Arca Airline Index posting a gain of 2.6 percent. The index is continuing to recover from Friday's six week closing low.

Computer hardware, brokerage, steel and electronic storage stocks are also rebounding from last week's lows, while trucking have moved modestly lower on the day.

Stocks Driven By Analyst Comments

Thomson Reuters (TRI) is moving higher in mid-morning trading after an upgrade by RBC Capital Markets from Outperform to Top Pick. The broker also raised its target price on the stock from $41 to $43. Shares are currently up by 2.3 percent, setting a four-month intraday high.

Orbital Sciences (ORB) is also on the rise after being upgrade at Wells Fargo from Market Perform to Outperform. The stock has gained 3.8 percent, reaching an eight month intraday high in earlier trading.

On the other hand, Duke Realty (DRE) is moving to the downside following a downgrade by Stifel Nicolaus from Hold to Sell. The stock is down by 0.8 percent after falling to a one and a half month low in earlier dealing.

Bay Street Looks To Extend Rebound Tuesday

Following strong gains in the previous sessions, Canadian stocks are set to claw back more of last week's big losses, bolstered by rebounding gold and energy prices.

Arresting its three-day losing streak, the S&P/TSX Composite Index gathered 223.25 points or 2.01% to 11,317.55 on Monday.

Oil stocks may be in play, with February crude gaining $0.59 to $75.02 a barrel. Further, an encouraging earnings report from the country's largest oil firm, Suncor Energy may also help improve traders' sentiment. Europe's biggest oil firm, BP Plc also reported that it swung to profit in the fourth quarter 2009. However, it said that it expects the recovery from last recent recession to be 'slow and gradual.'

Gold stocks are likely to attract buyers after the price of bullion recovered from its 3-week low, hit last week. February gold was up $8.80 to $1,113.10 an ounce.

In corporate news, Suncor Energy swings to profit by reporting fourth quarter net earnings of C$0.29 per share, compared to a net loss of C$0.24 per share in the fourth quarter of 2008.

Computer security services provider Absolute Software posted second-quarter net loss of C$0.05 per share, narrower than C$0.32 per share in the prior year period.
 
Information services provider Xenos Group announced that approximately 9.5 million of its common shares had been validly deposited to the offer by Actuate on February 1.

Integrated oil firm Cenovus Energy recommended that its shareholders reject unsolicited offer made by TRC Capital Corp. The offer price of C$23.55 per common share represents about a 4.8% discount to the C$24.75 closing price for Cenovus's common shares on the Toronto Stock Exchange on January 27.

Toronto Stock Exchange operator TMX Group said a reduction in trading fees for 'penny stocks' would cost it about C$15 million a year.

Printing papers dealer Catalyst Paper Corp. announced that it will defer its $100-million rights issue, pending search for a new CEO.

Mineral property developer Calibre Mining Corp. announced that it has promoted Paulo Santos to Chief Financial Officer from previous position as Controller.

Candente Gold revealed the appointment of John Foulkes as Vice President of Corporate Development. Foulkes has over 10 years of experience managing Corporate Development and Investor Relations programs for Canadian and US public companies.

Commodity, Currency Markets

Crude oil futures are trading up $0.61 at $75.04 a barrel after advancing $1.54 to $74.43 a barrel on Monday. In the previous session, the black gold derived strength from positive manufacturing PMI reports from China, some European nations as well as the U.S. Additionally, reports of the closure of three of Shell’s pumping stations in Nigeria following terrorist attacks may have also lent support to prices.

The recent pullback is in line with analysts’ calls for a correction, especially after the sharp run up seen in most of 2009, which according to Commerzbank, can be explained only to some extent by an increase in demand and was largely due to a markedly increased investor interest. However, once the economic environment stabilizes, the prices of commodities are expected to recover significantly.

Gold futures are currently advancing $6.40 to $1,111.40. In the previous session, the precious metal jumped $21.20 to $1,105 an ounce.

On the currency front, the U.S. dollar is trading at 90.55 yen compared to the 90.6098 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is trading at $1.3942.

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Asian Markets End Mixed; Resource Stocks Gain

Mixed trading was witnessed among the markets in Asia on Tuesday amid concerns about global economic recovery despite the positive closing on Wall Street in the previous session. While the markets in Australia, Hong Kong, and Japan ended in positive territory, the markets in India, South Korea, Taiwan, Indonesia and China ended in negative territory.

In Japan, the benchmark Nikkei 225 Index rose 166.07 points, or 1.63%, to 10,371, while the broader Topix index of all First Section issues gained 14.21 points, or 1.58%, to 913.

On the economic front, a report released by Bank of Japan revealed that the monetary base in the country rose 4.9% year-over-year in January, to 98.067 trillion yen, following a 5.2% year-over-year increase in the previous month. The Bank further noted that bank notes in circulation declined 0.2% year-over-year and coins in circulation were down 0.7% year-over-year in January. Current account balance rose 43.4% year-over-year, that included a 38.2% increase in reserve balances, the bank stated.

In a separate report, the Ministry of Health, Labor an Welfare revealed that total cash earnings of employees working in Japanese establishments employing five or more employees declined 6.1% year-over-year to JPY 549,259 in December, following a 2.4% decline in the previous month. The report further noted that contractual cash earnings fell 0.7%, special cash earnings plunged 10.6%, scheduled cash earnings were down 0.9% and non-scheduled cash earnings edged down 0.1% year-over-year in December.
 
Automotive stocks ended in positive territory. Toyota Motor, which declined more than 15% in the past few trading sessions on recall of faulty vehicles, climbed 2.90% after the company announced details on repairs for its recalled vehicles in North America to fix faulty accelerator pedals. Among other automakers, Honda Motor gained 2.37%, Suzuki Motor rose 2.37%, Nissan Motor surged up 3.47%, Isuzu Motors soared 6.22% and Mitsubishi Motor increased 3.48%.

Trading companies also ended higher on weaker yen and higher commodity prices in the international market. Mitsubishi Corp. surged up 5.09%, Mitsui & Co., soared 5.80%, Sumitomo Corp. climbed 5.67%, Toyota Tsusho Corp. rose 2.50% and Itochu Corp. gained 3.05%.

Shipping stocks ended in positive territory. Kawasaki Kisen Kaisa surged up 6.25%, Nippon Yusen rose 4.25% and Mitsui OSK Lines gained 3.80%.

Oil stocks also advanced following higher crude oil prices. Showa Shell gained 3.12%, Nippon Oil Corp. surged up 6.21% and Nippon Mining Holdings soared 6.20%. Impex Corp, engaged in oil exploration, gained 2.92%.

Mixed trading was witnessed among bank stocks. Sumitomo Mitsui Financial added 0.37%, Mizuho Financial advanced 1.12% and Mitsubishi UFJ Financial rose 1.06%. However, Resona Holdings bucked the trend and ended in negative territory with a loss of 1.12%.

In Australia, the benchmark S&P/ASX 200 Index surged up 81.20 points, or 1.79% to close at 4,605, while the All-Ordinaries Index ended at 4,629, representing a gain of 84.00 points, or 1.85%.

On the economic front, contrary to market expectations, the Reserve Bank of Australia chose to keep the interest rates unchanged at 3.75% at the conclusion of its February policy meeting, after having hiked interest rates by 25 basis points in each of its previous three meetings. Commenting on the decision to hold the rates, Glenn Stevens, the RBA Governor noted that lenders across the country generally raised interest rates a little more than the benchmark rate in recent months and most loan rates had risen by nearly a percentage point.

Separately, results of a survey conducted by National Australia Bank revealed that business confidence in the country unexpectedly declined sharply in December. As per the survey results, NAB's Business Confidence Index declined by 8 points to 11 in the month from 19 reported for the previous month. The results, however noted that NAB's Business Conditions Index remained stable at 10.0 in December.

Metals and mining stocks led the gains on higher commodity prices including copper prices, in the international market. BHP Billiton gained 3.21%, Rio Tinto soared 5.34%, Fortescue Metals surged up 6.59%, Gindalbie Metals rose 5.46%, Iluka Resources added 0.61%, Macarthur Coal climbed 13.03% and Oz Minerals increased 2.88%.
 
Gold stocks soared on higher bullion prices in the international market. Lihir Gold surged up 5.17% and Newcrest Mining rose 2.46%.

Oil stocks also ended in positive territory. Woodside Petroleum rose 3.87%, Santos advanced 1.41%, Oil Search climbed 3.43% and Origin Energy gained 2.66%.

Retail stocks also gained, lifted by positive sentiment in the market. David Jones advanced 1.46%, Harvey Norman gained 1.06%, JB Hi-Fi Ltd rose 1.49%, Wesfarmers edged up 0.22% and Woolworths added 0.59%.

Mixed trading was witnessed among banking stocks after RBA unexpectedly decided to keep the interest rates unchanged at 3.75%. ANZ Bank added 0.41%, Commonwealth Bank of Australia advanced 1.08% and Westpac Banking gained 0.30%. However, National Australia Bank bucked the trend and ended in negative territory with a loss of 0.57%.

In Hong Kong, the Hang Seng Index ended in positive territory with a marginal gain of 28.43 points, or 0.14% at 20,272 on optimism about global economic recovery, taking cues from Wall Street where the major averages ended in positive territory following better than expected ISM data and positive earnings from Exxon Mobil. Higher commodity prices, including gold and oil, in the international market also lifted market sentiment. Property stocks, china-related resources stocks led the gains in the market.

In South Korea, the KOSPI Index ended in the negative territory with a loss of 10.63 points, or 0.66%, at 1,596, as traders preferred to lock in gains from automotive stocks which gained in the previous session amid concerns that Japanese automakers' recall might benefit domestic automakers. Profit taking from recent gains by traders amid concerns about sustaining global economic recovery, after the Reserve Bank of Australia surprised the market with holding the interest rates unchanged, also dragged the market lower. Traders look for more cues from the US for global economic recovery.
 
Continued selling by foreign funds, liquidity concerns ahead of the opening of NTPC's follow-on public offering on Wednesday, and an alert from global ratings firm Fitch against the government's burgeoning fiscal deficit dragged the Indian market sharply lower on Tuesday. The benchmark BSE Sensex opened firm at 16,368 and rose to as high as 16,526 before slipping into negative territory and ending down 193 points or 1.18% at 16,163, while the Nifty closed at 4,830, down 70 points or 1.42%.

Among other major markets open for trading in the region, Indonesia's Jakarta Composite Index declined 7.30 points, or 0.28% to close at 2,580, Taiwan's Weighted Index shed 95.06 points, or 1.26% to close at 7,430, Strait Times Index in Singapore fell 15.30 points, or 0.56%, to close at 2,721 and China's Shanghai Composite Index edged down 6.65 points, or 0.23%, to close at 2,935.

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After showing some volatility in the morning on Tuesday, the major European averages have moved firmly to the upside following two straight sessions of advances. The French CAC 40 Index and the German DAX Index are gaining 0.69% and 0.46%, respectively, while the U.K.’s FTSE 100 Index is moving down 0.17%.

In corporate news, oil giant BP (BP) reported fourth quarter replacement cost profit per ADS of $1.10 compared to 84 cents last year. Sales and other operating revenues climbed to $70.98 billion from the year-ago’s $61.48 billion. The company’s production rose 3% to 4.05 billion barrels of oil equivalents per day. Analysts estimated earnings of $1.51 per share on revenues of $56.34 billion.

On the economic front, the German Federal Statistical Office reported that Germany’s retail sales rose a seasonally and calendar adjusted 0.8% in real terms in December compared to the previous month. In November, retail sales slid a revised 1.1%. Economists had estimated a 0.9% increase for the recent month. On a year-over-year basis, retail sales declined 2.5%, the same rate as in the previous month.

A report released by CIPS/Markit showed that the U.K.’s construction purchasing managers’ index rose to 48.1 in January from 47.1 in the previous month. Economists had estimated a decline by the index to 47.

Separately, Eurostat said the euro area’s producer prices fell 2.9% year-over-year in December following a 4.4% decline in November. Economists had estimated a bigger 3% drop.

U.S. Economic Reports

Individual automakers are scheduled to release their monthly U.S. sales results for January. The data will reveal the unit sales of domestically produced cars and light duty trucks, including sports utility vehicles and mini-vans, during the month.

Data on Pending Home Sales, which is a leading indicator of housing market activity released by the National Association of Realtors, is due out at 10 AM ET. A pending sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale. The index is expected to show a 1.1% increase for December.

In November, the pending home sales index declined 16% month-over-month. Economists had expected a more modest decline of 2%. The decline was apparently the pay back phenomena from the first time homebuyers' credit, which motivated homebuyers to bring forward their purchases to meet the initial expiry deadline of November 30th. The stimulus measure has since been extended.

After showing decent gains in the past three months, the Northeast, Midwest and South showed sharp declines. On a year-over-year basis, the index rose 19.3%, although much of the increase was due to easier comparisons.

Treasury Secretary Timothy Geithner is due to testify before the Senate Finance Committee on the fiscal year 2011 budget at 10 AM ET. Around the same time, Paul Volcker, the Chair of the President's Economic Recovery Advisory Board, will testify on regulations to limit high-risk bank activities before the Senate Banking Committee in Washington.

Earnings

Entergy (ETR) reported fourth operational earnings of $1.75 per share compared to 99 cents per share last year. Analysts estimated earnings of $1.55 per share. The company reaffirmed its 2010 operational guidance in the range of $6.40-$7.20 per share compared to the consensus estimate of $6.70 per share.

Pepsi Bottling Group (PBG) reported fourth quarter comparable earnings per share of 59 cents per share on revenues of $2.92 billion. The consensus estimates had called for earnings of 43 cents per share on revenues of $3.82 billion.

D.R. Horton (DHI) said its first quarter homebuilding revenues rose to $1.11 billion from $900.3 million last year. The company reported net income of 56 cents per share compared to a loss of 20 cents per share last year. Analysts estimated a loss of 14 cents per share on revenues of $960.15 million.

Archer Daniels Midland Co.’s (ADM) second quarter net income attributable to ADM shareholders declined 2% to 88 cents per share. Net sales fell 5% to $15.9 billion. The consensus estimates had called for earnings of 72 cents per share on revenues of $16.54 billion.

Hershey (HSY) reported that its fourth quarter net sales rose to $1.41 billion from $1.38 billion last year, while analysts estimated revenues of $1.42 billion. The company’s earnings rose to 55 cents per share from 36 cents per share in the year-ago period. On an adjusted basis, the company reported earnings of 63 cents per share, ahead of the 60 cents per share consensus estimate. The company reaffirmed its 2010 net sales growth guidance of 3%-5% and its adjusted earnings per share growth guidance of 6%-8%.

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Barnes & Noble (BKS) may be in focus after the company revealed in a filing that activist investor Ron Burkle is seeking to raise the stake he and his affiliates are hold in the bookseller to 37%. This follows the company adopting a shareholder rights plan in the form of a poison pill to ward off the threat of a takeover after Burkle and his associates continued to amass a stake in the company late last year. Burkle has sought not to implement the poison pill, allowing him to acquire the 37% stake he intends to buy, and also preventing the Riggio family from building up further stake in the pretext of being the right holders.

Weyerhaeuser (WY) could see some activity after the company announced along with Mitsubishi that the two companies have signed an agreement to explore possibilities of collaborating with the biomass-to-energy business.

Continental Airlines (CAL) may move in reaction to its announcement that its January load factor rose 4 points year-over-year to 77.2%. Traffic and capacity increased 8.5% and 4%, respectively.

Thermo Fisher Scientific (TMO) is likely to react to its announcement that it has signed an agreement to buy Finland-based provider of tools for molecular analysis Finnzymes. The company generated revenues of $20 million in 2009.

Tupperware Brands (TUP) could gain ground after it reported that its first quarter sales rose 10% to $626 million. On an adjusted basis, the company reported non-GAAP earnings of $1.22 per share compared to 90 cents per share last year. Analysts estimated earnings of $1.04 per share on revenues of $615.15 million. The company raised its full year 2010 GAAP earnings guidance by 8 cents per share to $3.25-$3.35 per share, while on a non-GAAP basis, the company expects earnings of $3.41-$3.51 per share. The consensus estimates call for earnings of $3.43 per share last year.

Reinsurance Group of Australia (RGA) is also likely to see some activity after it reported that its fourth quarter operating income rose to $1.70 per share from $1.45 per share last year. Net premiums rose to $1.60 billion from last year’s $1.39 billion. Analysts estimated earnings of $1.58 per share on revenues of $1.80 billion.

Anadarko Petroleum (APC) could react to its announcement that its fourth quarter adjusted earnings were 4 cents per share on revenues of $2.41 billion, down from $2.93 billion last year. Analysts estimated earnings of 3 cents per share on revenues of $2.36 billion. Separately, the company announced an agreement with Western Gas Partners (WES) to sell its midstream assets in Southwest Wyoming to the latter for $254.4 million.

CIT (CIT) may see some activity after it announced that its President and CEO Alexander Mason will leave the company, effective February 26, 2010. The company also announced the appointment of Peter Jobin as the interim CEO.

Rent-A-Center (RCII) receded in Monday’s after hours session after it reported fourth quarter revenues of $672.9 million, down from $699.8 million last year. The company’s adjusted net earnings rose 40.4% to 66 cents per share. Analysts estimated earnings of 56 cents per share on revenues of $664.95 million. For the first quarter, the company expects total revenues of $692 million to $712 million, and for the full year, the company estimates revenues of $2.70 billion to $2.76 billion. The consensus estimates call for revenues of $709.30 million for the first quarter and $2.72 billion for the year.

Hologic (HOLX) could also be in the spotlight after it reported first quarter revenues of $412.4 million, down 3.9% from the year-ago period. The company’s net income declined to 10 cents per share from 15 cents per share last year. On a non-GAAP basis, the company reported adjusted net income of 29 cents per share, ahead of the 26 cents per share consensus estimate. For the second quarter, the company expects non-GAAP adjusted earnings of 29 cents per share on revenues of $410 million to $415 million. The company raised its 2010 revenue guidance to $1.64 billion to $1.655 billion, while it expects non-GAAP adjusted earnings of $1.16-$1.20 per share. Analysts estimate earnings of $1.18 per share on revenues of $1.65 billion for the year.

Plum Creek Timber (PCL) is also likely to see activity after it reported fourth quarter earnings of 17 cents per share on revenues of $258 million. This represents a decline from the year-ago earnings of 57 cents per share on revenues of $461 million. Analysts estimated revenues of $262.64 million for the quarter. For 2010, the company expects earnings of $1.25-$1.45 per share, and for the first quarter, the company estimates income from continuing operations of 34-39 cents per share. Analysts estimate earnings of $1.44 per share for the year and 14 cents per share for the first quarter. Analysts’ estimates typically exclude one-time items.

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