US & World Daily Markets Financial Briefing 03-02-2010

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Stocks Seeing Modest Weakness As Traders Shrug Off Upbeat Data

Stocks are down by modest margins in mid-morning trading on Wednesday, despite the day's better-than-expected news on private sector employment and service sector activity. The major averages are all in negative territory after starting the week with two straight rallies.

The Institute for Supply Management said its service sector index edged up to 50.5 in January from a downwardly revised 49.8 in December, with a reading above 50 indicating growth in the sector. Economists had expected the index to rise to 51.0 from the 50.1 originally reported for the previous month.

Earlier, payroll processor Automatic Data Processing (ADP) reported that non-farm private employment fell by 22,000 jobs for the month following a revised decrease of 61,000 jobs in December.

Economists had been expecting employment to decrease by about 30,000 jobs compared to the loss of 84,000 jobs originally reported for the previous month. The decrease also marked the smallest drop in jobs since employment began falling in February of 2008.

On the earnings front, drug maker Pfizer Inc. (PFE) reported adjusted fourth quarter net income of $0.49 per share, just short of the $0.50 per share forecast by analysts. Revenues for the quarter totaled $16.54 billion, up from $12.35 billion in the comparable quarter last year and above estimates of $15.88 billion.

Black & Decker Corp. (BDK) reported fourth quarter net earnings of $0.55 per share and adjusted earnings of $1.24 per share. On average, Wall Street analysts expected $0.77 per share. Sales came in at $1.3 billion, beating the projected $1.20 billion.

Cable operator Comcast Corp. (CMCSA) recorded fourth quarter net income of $0.33 per share, exceeding the $0.27 per share forecast for the quarter. Total revenues for the period were $9.07 billion, besting the $8.97 billion predicted for the quarter.

After the closing bell on Tuesday, media conglomerate News Corp. (NWS) reported a profit for the second quarter compared a net loss last year due to double-digit revenue growth at a majority of its business segments as well as the absence of hefty impairment and restructuring charges. The company also increased its quarterly dividend by 25 percent.

The major averages have seen some downside in recent trading and are near their lows of the session. The Dow is currently down 35.82 at 10,261.03, the Nasdaq is down 6.38 at 2,183.68 and the S&P 500 is down 6.28 at 1,097.04.

Sector News

Trucking stocks are some of the markets' worst morning performers, pulling the Dow Jones Trucking Index down by 3.3 percent. With the decline, the index fell to its worst intraday level in over six months in earlier trading.

The weakness in the sector comes after components Ryder System (R) and CH Robinson Worldwide Inc. (CHRW) reported weaker than expected quarterly earnings.

Commercial real estate and health insurance stocks are also markedly lower, with the Morgan Stanley Real Estate Index and the Morgan Stanley Healthcare Payor Index falling by 1.6 percent and 2.4, respectively. Despite the losses, the indices remain rangebound.

Banking, tobacco, utility and pharmaceutical stocks are also under pressure while computer hardware and railroad stocks are posting modest gains.

Stocks Driven By Analyst Comments

Monolithic Power (MPWR) is moving lower in mid-morning trading after being downgraded at Wedbush Morgan from Neutral to Underperform. The broker also lowered its target price on the stock from $28 to $18. The stock has lost 6.2 percent, dropping to a three-month low.

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TSX May Pause After Two-day Rally

Canadian stocks may pause for a breather Wednesday after the main index rallied nearly 3% in the past two sessions, recovering its previous week's losses.

Moreover, the price of crude oil has failed to move up convincingly after hitting a two-week high in the previous session, ahead of inventories data from the U.S. Also traders were digesting mixed clues form the earnings reports so far released from major oil firms, including Suncor and Imperial.

The S&P/TSX Composite Index ended higher for the second session Tuesday, adding 90.79 points or .0.80% to 11,408.34, levels not seen in the previous week.

The price of oil was hovering near its two-week high, up $0.13 to $77.36 a barrel, after hitting an intraday high above $78. The price of bullion was steady near its three-week high at $1,115 an ounce.

In corporate news, integrated oil firm Imperial Oil announced that its fourth-quarter net income fell to C$0.62 per share from C$0.76 per share for the same period of 2008.

Meanwhile, oil and natural gas distributor Enbridge Inc. said its fourth-quarter earnings applicable to common shareholders increased to C$0.80 per share from C$0.71 per share in the prior year period. Further, it announced a quarterly dividend increase of 15% to C$0.425 per common share effective March 1, 2010.
 
In brokerage updates, Goldman Sachs added Canadian Natural Resources to conviction buy list, while removing Suncor Energy from the list.

In M&A space, Maxam Opportunities Fund backed away from its to bid to acquire merchant banker C.A. Bancorp as the latter demanded $1.60 per share, against the $1.48 offer. On Tuesday, C.A. Bancorp stock closed at C$1.410.

In news bullish to potash miners, Russian based distributor Belarusian Potash said it has hiked potash prices in tandem with the recovery in demand.

Gold miner Iamgold Corp. announced plans to hike its gold output to about 1 million ounces in 2010 from the 0.93 million ounces in 2009, helped by new mine at Burkina Faso.

Semiconductor maker Mosaid Technologies announced plans to sell at least 1.25 million shares at C$21.65 a share.

Biotechnology company Labopharm said it got approval from the US FDA for its antidepressant, enabling it's release later this year.

Data mining software solutions provider Angoss Software reported fourth quarter net loss and comprehensive loss of C$0.01 per share, compared to net income of C$0.03 per share in the prior year.

From across the border, data released by Automatic Data Processing revealed that private sector employment in U.S. fell less than expected in January. Non-farm private employment dipped by 22,000 jobs in January, while economists were expecting it to fall by 30,000.

Commodity, Currency Markets

Crude oil futures are moving down $0.23 to $77 a barrel after advancing $2.80 to $77.23 a barrel on Tuesday. Gold futures, which gained $13 to $1,118 an ounce in the previous session, are trading down $5 to $1,113 an ounce.

On the currency front, the U.S. dollar is trading at 90.81 yen compared to the 90.38 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is currently valued at $1.3966.

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Asian Markets End Higher On Wall Street Gains

The markets across Asia ended in positive territory on Wednesday, taking cues from Wall Street where the major averages ended in positive territory for the second successive day, boosted by better than expected economic data on home sales and ISM data. Higher commodity prices and bargain hunting at lower levels on increasing optimism about global economic recovery also lifted market sentiment.

In Japan, the benchmark Nikkei 225 Index rose 33.24 points, or 0.3%, to 10,404 while the broader Topix index of all First Section issues added 2.86 points, or 0.3%, to 916.

Toyota Motor capped the gains in the overall market as traders sold-off the automakers stock amid increasing concerns about the impact of product recall on the sales and profits. The stocks plunged 3.81%. Traders preferred to switch from Toyota Motor to other major players in the automotive sector. Honda Motor Co gained 2.28%, Isuzu Motor advanced 2.44%, Mazda Motor climbed 2.48%, Mitsubishi Motor added 0.79% and Nissan Motor advanced 1.21%.

Trading companies ended in positive territory. Sumitomo Corp. gained 1.05%, Itochu Corp. advanced 1.27%, Toyota Tsusho Corp., added 0.57%, Marubeni Corp. rose 0.75% and Mitsubishi Corp. edged up 0.04%.

Retail stocks gained on increasing optimism about pick-up in demand and sustaining economic recovery. Isetan Mitsukoshi Holdings surged up 3.69%, J Front Retailing soared 6.31%, Takashimaya & Co climbed 3.70% and Seven & I Holdings advanced 0.85%. However, Fast Retailing bucked the trend and ended in negative territory with a loss of 3.13%.
 
Shipping stocks ended mixed as traders preferred to lock in gains following recent gains. While Nippon Yusen managed to end in positive territory with a gain of 2.82%, Mitsui OSK Lines slipped 0.17% and Kawasaki Kisen Kaisha declined 1.55%.

Banks ended in negative territory on profit taking. Resona Holdings declined 3.48%, Sumitomo Mitsui Financial declined 1.18%, Mitsubishi UFJ Financial shed 0.63% and Mizuho Financial lost 1.11%.

In Australia, the benchmark S&P/ASX 200 Index advanced 42.60 points, or 0.93% to close at 4,648, while the All-Ordinaries Index ended at 4,673, representing a gain of 44.40 points, or 0.96%.

On the economic front, a report released by the Australian Bureau of Statistics revealed that the country recorded a seasonally adjusted trade deficit of A$2.25 billion for December, following a revised A$1.7 billion deficit in the month of November. Economists expected the trade deficit to come in at A$2.4 billion for the month. The report further noted that exports during the month rose 4% to A$19.77 billion from A$19.03 billion reported in the previous month, while imports climbed 6% to A$22.02 billion from A$20.73 billion reported for November.

Separately, results of a survey conducted jointly by the Australian Industry Group and Commonwealth Bank of Australia revealed that activity in Australia's services sector declined in January. The AIG/Commonwealth Performance of Services Index, according to the report, declined 2.6 points to 47.4 in January from a reading of 50 in December. Readings below 50.0 indicate contraction in the sector.

News Corp., the media conglomerate, reported better than expected results for the second quarter before the market opened for trading and further stated that the company was emerging from the global recession with "renewed vigour and strength". The stock listed in the market surged up 5.39%.

Resource stocks led the gains in the market following rise in commodity prices including oil and gold. BHP Billiton rose 2.57%, Rio Tinto advanced 1.39%, Fortescue Metals surged up 6.18%, Gindalbie Metals added 1.04%, Iluka Resources edged up 0.61%, Minara Resources climbed 2.29%, and Oz Minerals increased 2.80%.

Gold stocks also ended in positive territory on higher bullion prices in the international market. Lihir Gold added 0.70% and Newcrest Mining climbed 2.33%.
 
Among oil stocks, Woodside Petroleum advanced 0.93%, Santos rose 2.00%, and Oil Search gained 1.29%. However, Origin Energy bucked the trend and ended in negative territory with a loss of 0.19%.

Bank stocks ended in negative territory. ANZ Bank slipped 0.55%, Commonwealth Bank of Australia shed 0.26%, National Australia Bank edged down 0.19% and Westpac Banking declined 0.55%.

In Hong Kong, the Hang Seng Index surged up 449.90 points, or 2.22%, to close at 20,722, taking cues from Wall Street where the major averages ended modestly higher in the previous session extending gains from Monday on better than expected economic data related to home sales. Sharp gains in mainland China, reversing losses from previous sessions, higher commodity prices in international market and gains across other markets in the region also lifted market sentiment. As many as 40 of the 42 components in the index ended in positive territory.

In South Korea, the KOSPI Index ended in positive territory with a gain of 19.21 points, or 1.20% at 1,615, taking cues from Wall Street where the major averages ended in positive territory for the second successive day on positive economic data. Increasing optimism about sustaining the global economic recovery and positive trading across other markets in the region also lifted market sentiment.

A slight rebound in risk appetite following a slew of upbeat global manufacturing reports and a positive report on the U.S housing market helped Indian equities rise sharply on Wednesday. Strong response to NTPC's follow-on public offering also offered some support. Metals, realty, consumer durable, capital goods and banking stocks led the recovery. The benchmark Sensex opened firm at 16,210 and rose steadily to a high of 16,553 before finishing at 16,496, up 333 points or 2.06%. Likewise, the Nifty rose by 102 points or 2.11% to 4,932.

Among other major markets open for trading in the region, Indonesia's Jakarta Composite Index gained 24.30 points, or 0.94% to close at 2,605, Taiwan's Weighted Index surged up 118.37 points, or 1.59% to close at 7,548, Strait Times Index in Singapore gained 43.97 points, or 1.62%, to close at 2,765 and China's Shanghai Composite Index climbed 69.12 points, or 2.36%, to close at 3,004.

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The major European markets are currently moving to the downside after showing some volatility early in the session. The French CAC 40 Index is rising 0.03%, while the German DAX Index and the U.K.’s FTSE 100 Index are moving down 0.23% and 0.14%.

On the economic front, Eurostat reported that the euro area’s retail sales remained unchanged in December compared to the previous month. In November, retail sales fell by 0.5%. Economists had estimated a 0.4% increase for the latest month.

Among the services PMIs released from Europe, the euro zone services purchasing managers’ index fell 0.5 points to 53.7 in January. Meanwhile, Germany’s services purchasing managers’ index edged down 0.5 points to 52.2 in January. The level of new work placed at German service providers was largely unchanged in January. Some firms blamed difficulties in stimulating client demand for the subdued growth in new work.

The CIPS/Market purchasing managers’ index reflecting activity in the U.K. services sector declined to 54.5 in January from 56.8 in December. Economists had estimated a more modest decline to 56.5.

At the same time, the Nationwide Building Society announced that its consumer confidence index rose to 73 in January from an upwardly revised score of 70 in December, beating economists' expectations for the index to stand at 70. However, consumers became more cautious about spending money during January, with the spending index plunging 12 points to 96. The percent of people who felt it was a good time to make a major purchase dropped to 32% in January from 35% in the prior month.

U.S. Economic Reports

The ADP National Employment report released earlier in the day showed that the non-farm private sector lost 22,000 jobs in January. Economists had a loss of 30,000 jobs for the month. The previous two months’ employment numbers were revised up to a show a decline of 61,000 jobs compared to the 84,000 job losses estimated earlier.

Employment in the service providing sector increased by 38,000, while the goods producing sector lost 60,000 jobs. The manufacturing sector lost 25,000 jobs, with the job losses in the sector dropping to the lowest since January 2008.

The ISM is scheduled to release the results of its non-manufacturing survey at 10 AM. The non-manufacturing index is likely to show a reading of 51 for January.

In December, non-manufacturing activity expanded, although at a slightly slower than expected rate. The non-manufacturing index rose 1.4 points to 50.1 in November, while economists had expected an improvement to 50.5. The business activity index climbed 4 points to 53.7, but the new orders index declined 3 points to 58.7 and the order backlogs index eased 0.5 points to 48. Although the employment index rose 2.4 points, it remained below the '50' cut off mark at 44.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended January 29th at 10:30 AM ET.

Crude oil stockpiles fell by 3.9 million barrels to 326.7 million barrels in the week ended January 22nd. Despite the decline, crude oil inventories remained above the upper limit of the average range.

Distillate fuel inventories rose by 0.4 million barrels, remaining above the upper boundary of the average range. Gasoline stockpiles also rose, advancing by 2 million barrels, and remained above the upper limit of the average range. Refinery capacity utilization averaged 79.5% over the four-weeks ended January 22nd compared to 80% in the previous week.

Federal Reserve Governor Kevin Warsh is scheduled to speak to the New York Association for Business Economics on regulatory reform at 1 PM ET.

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MetLife (MET) could be in focus after it reported fourth quarter earnings of 96 per share compared to 17 cents per share last year. The company’s premiums and other revenues climbed 14% to $9.3 billion. Analysts estimated earnings of 99 cents per share on revenues of $12.79 billion.

Meanwhile peer ACE (ACE) reported net income, excluding investment gains and losses, reported earnings of $2.01 per share compared to $1.80 per share in the year-ago period. The consensus estimates called for earnings of $1.93 per share.

Unum Group’s (UNM) net income, excluding investment gains and losses, were 66 cents per share compared to 63 cents per share last year. Total revenues fell to $2.50 billion from the year-ago’s $2.32 billion last year. The consensus estimates called for earnings of 66 cents per share on revenues of $2.57 billion.

NTELOS Holdings (NTLS) is likely to gain ground after Standard & Poor’s said the company would replace Chattem (CHTT) in the S&P SmallCap 600 Index. Chattem is to be acquired by Sanofi-Aventis (SNY) in a deal expected to be completed soon.

PNC Financial (PNC) may also see buying interest after it said it has reached an agreement with its banking regulators and the U.S. Treasury to allow it to repay $7.6 billion in TARP funding it received. The company also said it plans to offer $3 billion of its common stock and also announced its intention to offer senior notes to provide additional liquidity.

News Corp. (NWS) reported second quarter revenues rose 10% to $8.7 billion. The company’s adjusted earnings rose to 25 cents per share from 15 cents per share last year.

Earnings

Black & Decker (BDK) reported that its fourth quarter adjusted net earnings rose to $1.24 compared to 96 cents per share last year. Sales fell 6% year-over-year to $1.3 billion. Analysts estimated earnings of 77 cents per share on revenues of $1.20 billion.

International Rectifier (IRF) reported a fourth quarter loss of 24 cents per share compared to a loss of $4.25 per share last year. Earnings from continuing operations and before special items in the year-ago period were 21 cents per share. Net sales fell to $5.98 billion from the year-ago’s sales of $6.55 billion.

Pfizer (PFE) said its fourth quarter reported revenues rose 34% to $16.54 billion. The company’s adjusted earnings fell to 49 cents per share 65 cents per share last year. The consensus estimates called for earnings of 50 cents per share on revenues of $15.88 billion. For 2010, the company expects revenues of $67 billion to $69 billion and adjusted earnings of $2.10-$2.20 per share. Analysts estimate earnings of $2.27 per share on revenues of $67.47 billion.

Time Warner’s (TWX) fourth quarter revenues rose 2% to $7.3 billion, ahead of the $6.81 billion. The company reported adjusted earnings of 55 cents per share compared to 19 cents per share in the year-ago period. The company raised its regular dividend by 13.3% to $0.2125 per share. The company expects 2010 full year growth in adjusted income per share from continuing operations to be in the mid-teens.

Western Union (WU) said its fourth quarter revenues rose 2% to $1.3 billion. The company reported earnings of 32 cents per share compared to adjusted earnings of 37 cents per share last year. Analysts estimated earnings of 32 cents per share on revenues of $1.31 billion. For 2010, the company expects GAAP revenues to range from down 1% to up 2% and GAAP earnings of $1.29-$1.34 per share. The consensus estimates call for earnings of $1.40 per share on revenues of $5.38 billion, up 4%.

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