US & World Daily Markets Financial Briefing 02-07-2009

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Stocks Firmly In Negative Territory In Mid-Morning Trading

After a sharp pullback at the opening bell, stocks continue to show notable weakness in mid-morning trading on Thursday. The major averages are all firmly in negative territory after traders digested a batch of uninspiring employment statistics.

The early sell-off was largely prompted by the Labor Department's monthly employment report, which showed that employment fell by much more than expected in the month of June, pushing the unemployment rate up to a new twenty-five year high.

The report showed that non-farm payroll employment fell by 467,000 jobs in June following a revised decrease of 322,000 jobs in May. Economists had expected a decrease of about 365,000 jobs compared to the loss of 345,000 jobs originally reported for the previous month.

With the bigger than expected decrease in employment, the unemployment rate edged up to 9.5 percent in June from 9.4 percent in May. The increase lifted the unemployment rate to its highest level since August of 1983, although it was below economist estimates of 9.6 percent.

Separately, a report from the Commerce Department showed that orders for manufactured goods rose 1.2 percent in May following a downwardly revised 0.5 percent increase in April. Economists had expected orders to rise 0.9 percent compared to the 0.7 percent increase originally reported for the previous month.

At the same time, the Commerce Department said shipments of manufactured goods fell 0.9 percent in May, the tenth consecutive monthly decrease. This marks the longest streak of consecutive monthly decreases since the series was first published on a NAICS basis in 1992.

On the corporate front, healthcare company Myriad Genetics (MYGN) said after the markets closed that it has successfully completed the spin-off of Myriad Pharmaceuticals (MYRX) and would now operate as two independent companies.

Meanwhile, auto-parts supplier Lear Corporation (LEA) said that it has reached an agreement with lenders to restructure its debt and said it plans to file for Chapter 11 protection soon. In addition, the company said it had obtained $500 million in bankruptcy financing.

In other news, Walgreen Co. (WAG) said that its comparable store sales for the month of June increased 3.4 percent. Net sales for the month were $5.24 billion, up 9.0 percent from $4.80 billion for the same month in 2008.

The major indices have slowed their freefall in recent trading, but they currently remain firmly entrenched in negative territory. The Dow is currently down 174.58 at 8,329.48, the Nasdaq is down 44.81 at 1,800.91 and the S&P 500 is down 20.19 at 903.14.

Sector News

Some of the day’s worst performances are being turned in by resource stocks, with notable weakness visible among oil service, gold and steel stocks. The Philadelphia Oil Service Index is down by 4.3 percent on the day after hitting a two-month intraday low.

Further, the NYSE Arca Gold Bugs Index and the NYSE Arca Steel Index have dropped by 3.3 percent and 2.4 percent, respectively, although they remain stuck in their recent ranges.

The losses by resource stocks have largely been precipitated by a plunge in oil and gold prices on the NYMEX. Oil has fallen $2.34 to $66.97 a barrel, while gold has plummeted by $11.80 to $929.50 an ounce.

The NYSE Arca Biotechnology Index has also seen notable downside, falling by 2.8 percent on the day, continuing its move away from a four-month closing high set in late June.

The index is being led lower by shares of Illumina (ILMN), which have plunged by 10.7 percent after the company lowered its second quarter revenue guidance. With the decline, the stock has fallen to its worst intraday price in well over three months.

Healthcare provider, health insurance, defense and electronic storage stocks are also retreating by significant margins. Notably, the Philadelphia Defense Index has dipped by 3.4 percent, falling to its worst intraday level in over two months.

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Resource Stocks Could Drag TSX Lower In Early Trading

Canadian stocks could see weakness in early trading as commodities continued a downward move. A discouraging employment report may lead to some declines in both sides of the border.

Investors returned to their desks after taking Canada Day off yesterday. Volume still may be lighter than usual as U.S. traders will be off tomorrow in observance of Independence Day.

Crude oil prices are down more than 2% in electronic trading, dipping below the $68 per barrel mark. Gold is down $12.80 to $928.50 and copper has lost 5.5 cents to $2.2755 a pound.

In corporate news, oil and gas explorer Gastar Exploration Ltd. announced Thursday that it has agreed to sell its entire interest in petroleum exploration licenses in New South Wales, or NSW, Australia and the shares of Gastar Power Pty Ltd. to affiliates of Santos Ltd. for an aggregate amount of US$240 million.

Bombardier said Tuesday that it has signed a contract with the Toronto Transit Commission for the supply of 204 100% low-floor streetcars to replace the City of Toronto's aging fleet of vehicles.
 
Magna International could face a rival bid from Beijing Automotive Industry Holding Co. in its effort to aquire Opel, according to the Globe and Mail.

Across the border, a Labor Department report showed that non-farm payroll employment fell by 467,000 jobs in June following a revised decrease of 322,000 jobs in May. Economists had been expected a decrease of about 365,000 jobs compared to the loss of 345,000 jobs originally reported for the previous month.

A separate report showed initial claims fell to 614,000 from the previous week's revised figure of 630,000. Economists had been expecting claims to fall to 615,000 from the 627,000 originally reported for the previous week.

On Tuesday, the S&P/TSX Composite Index fell 101.86 points or 0.97% to end at 10,374.91. The decline snapped a five-session streak of gains.

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The major Asian markets closed Thursday’s session mostly lower, with Hong Kong’s Hang Seng Index and the Singaporean Straits Times leading the slide with over 1% decline. On the other hand, the Taiwanese Weighted Average, India’s Sensex and Indonesia’s Jakarta Composite Index closed higher.

Currency, Commodity Futures

Crude oil futures are trading down $1.18 at $68.13 a barrel after declining $0.58 to $69.31 a barrel on Wednesday, which saw the release of a mixed inventory report. The EIA said that crude oil stockpiles declined by 3.7 million barrels to 350.2 million barrels in the week ended June 26th. Inventories of crude oil remained above the upper end of the average range.

Gasoline inventories rose by 2.3 million barrels and were in the lower half of the average range, while distillate stockpiles climbed by 2.9 million barrels and were above the upper boundary of the average range. Refinery capacity utilization averaged 86.4% in the week ended June 26th compared to 86.3% in the previous week, although it is off significantly from 89.4% in the year-ago period.

There has been a pick up in the demand environment, with gasoline demand averaging 9.2 million barrels per day over the four-week period ended June 26th, up 0.9% from the same period last year. Distillate fuel demand was still week, falling 9.4% in the same period.

Gold futures, which rose $13.90 to $941.30 an ounce yesterday, are currently slipping $9.30 to $932 an ounce.

On the currency front, the U.S. dollar is trading at 96.33 yen compared to the 96.655 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is currently valued at $1.4046 versus yesterday’s $1.4142.

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The major European averages are moving to the downside on Thursday, with the French CAC 40 Index and the German DAX Index receding 0.68% and 1.84%, respectively, while the U.K.’s FTSE 100 Index is moving down 1.54%.

On the economic front, the eurozone's jobless rate came in at a seasonally adjusted 9.5% in May, up from a revised 9.3% in the preceding month, a report from Eurostat showed Thursday. Economists expected the rate to be 9.4%. This was the highest rate since May 1999. A year earlier, the jobless rate was 7.4%.

A separate report released by Eurostat showed that eurozone’s industrial producer prices dropped 5.8% year-over-year in May, compared with a 4.6% drop in the previous month. Economists had expected a decline of 5.6%. On a monthly basis, producer prices declined 0.2% in May after falling 0.9% in April.

As expected, the European Central Bank left its key interest rate unchanged at a record low of 1% for the second straight month. The ECB also retained its interest rate on marginal lending facility at 1.75% and the rate on deposit facility at 0.25%.

U.S. Economic Reports

A report released by the Labor Department said initial claims for unemployment benefits declined 16,000 to 614,000 in the week ended June 27 from the upwardly revised reading of 630,000 for the previous week. Economists expected a decline in claims to 615,000 from the initially estimated figure 627,000 for the previous week.

The 4-week moving average for initial claims, a statistic that flattens out week-to-week fluctuations in the data, declined 2,750 to 615,250. Continuing claims, which measure people receiving ongoing unemployment help, fell 53,000 in the week ended June 20th to 6.702 million.

The Labor Department also said non-farm payroll employment fell by 467,000 in June 345,000 jobs in May following a downwardly revised decrease of 322,000 jobs in May. Economists had expected a decrease of about 365,000 jobs compared to the decrease of 345,000 originally reported for the previous month.

The continued decrease in jobs reflected declines in employment in both the good-producing and service-providing sectors. While goods-producing sectors lost 223,000 jobs, service-providing sectors lost 244,000 jobs.

At the same time, the Labor Department said that the unemployment rate edged up slightly to 9.5% from 9.4% in May. The rate came in lower than the 9.6% rate expected by economists.

The Commerce Department is due to release its report on factory goods orders for May at 10 AM ET. Orders for manufactured goods are likely to have increased 0.9% in the month.

The durables goods orders report released last week showed an unexpected increase for May. Durables goods make up the bulk of the factory goods orders. In May, new orders for manufactured durable goods rose 1.8% month-over-month to $163.9 billion following an upwardly revised 1.8% increase in April. Economists had been looking for a 0.9% decline in durable goods orders for May compared to the originally reported 1.7% increase for April.

Machinery orders, which rose in three of the past four months, showed the biggest increase of 7.7%. However, shipments fell 2.1% and unfilled orders declined by 2%. Inventories at the end of the month were down 0.8%. Orders for non-defense capital goods excluding aircrafts, a key measure of capital spending, climbed 4.8% following a 2.9% increase in the previous month. Shipments of this category of goods edged up 0.3%.

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Walgreen is likely to move in reaction to its announcement that its June same store sales rose 3.4%. Total sales climbed 6% year-over-year.

Meanwhile, Xilinx may see some activity after it said its June quarter sales would be down 5% sequentially, which is a downward revision from its earlier guidance of a 4% sequential growth to a 4% sequential decline.

The company attributed the shortfall to supply constraints on certain Virtex-5 devices that are in high demand.

Continental Airlines may be in focus after it said its consolidated load factor was 84.8% in June, up 1.1 percentage points from June 2008. Traffic fell 6.5% year-over-year compared to a 7.8% decline in capacity.

Quest Software is likely to gain ground after Standard & Poor’s said the company would replace Wind River Systems in the S&P MidCap 400 Index after the close of trading on a date to be announced. Wind River is to be acquired by Intel.

AIG could also be in focus after it said it has completed the sales of its car insurance units to Zurich Financial Services Group by receiving $1.7 billion in cash and $200 million in euro-denominated capital notes.

As part of the agreement, Zurich Financial sold the regulated insurance business it acquired from AIG to Farmers Exchanges.

Myriad Genetics is likely to react to its announcement that it has completed the spin-off of Myriad Pharma, its molecular diagnostics business.

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