US & World Daily Markets Financial Briefing 03-09-2009

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Stocks Await Service Sector Data to Break Lackluster Phase

The major U.S. index futures are pointing to a higher opening, with the improvement reflecting the resurgence in the Chinese market, which advanced over 4%, and the rebound in commodity prices. The jobless claims report does not relay any kind of optimism on the job market, as claims, despite declining, were above expectations. That said, the downward revision to the previous week’s numbers may offer some solace. The stray M&A news trickling in should also encourage traders to some extent.

Although the previous two sessions’ declines places the major averages on track for a rebound, there has been no compelling reason for the markets to embark on an upbeat course. The markets may also closely watch the results of the ISM’s services sector survey.

After seeing significant volatility in Wednesday’s session, the major U.S. averages eventually closed modestly lower, as traders digested a few economic readings that essentially came in below expectations. Earlier in the day, most Asian markets declined, barring China, which rebounded, thereby recovering some of its lost ground.

The Dow Industrials ended down 29.93 points or 0.32% at 9,281 and the Nasdaq Composite Index fell 1.82 points or 0.09% to close at 1,967, while the S&P 500 was down 3.29 points or 0.33% at 995 at the close of trading.

Twenty-four of the thirty Dow components ended the session lower, with Bank of America (BAC) receding 1.09%, Disney (DIS) losing 1.09%, General Electric (GE) falling 1.05%, Intel (INTC) moving down 1.27%, JP Morgan Chase (JPM) dropping 1.94% and Merck (MRK) declining 1.91%. However, Coca-Cola (KO) rose 2.62%.

Among the sector indexes, the Dow Jones Utilities Average lost close to 1% and the Philadelphia Oil Service Index slipped 1.08%, while the Philadelphia Housing Sector Index declined 2.67%. The KBW Bank Index extended its declines, losing 2.27%, and the NYSE Arca Networking Index fell 1.23%. At the same time, the NYSE Arca Gold Bugs Index soared 9.31%. The NYSE Arca Airline Index rose 0.88% and the Dow Jones U.S. Basic Materials Average moved up 0.74%.

Technically, the Dow Industrials remain poised to test its August lows of 9,105. If the index is successful in holding support at this level, it could move sideways in a wide 9,105-9,660 range until visibility into the economic outlook improves. A violation of the August lows could take the index to the tops of the consolidation from the May to July period around 8,785.

On the economic front, the Labor Department said second quarter non-farm productivity was revised up 0.2 percentage points to an annual rate of 6.6% compared to the previous quarter. Annually, productivity is up 1.9%. The increase came despite a drop in output, and was aided by firms slashing the number of hours worked. Unit labor costs were down at a 5.9% sequential rate and were down 1.2% from a year-ago. Although the scenario does not bode well in the short-term, especially from the labor market perspective, in the long run it shores up the profitability of companies, which could facilitate hiring.

The minutes of the August FOMC meeting revealed that there hasn’t been any change to the Fed’s growth outlook, although the committee members believed that downside risks have considerably reduced. The members seem to concur that the nation will return to growth in the second half of 2009. The FOMC is resigned to the prospects of a very slow recovery, given the sad state of affairs in the labor market. The Fed also expects a significant slowing in core inflation. However, the fed did not shed much light into the timing or conditions for an exit from its unconventional policy strategies.

The factors goods orders report showed that orders for factory goods rose 1.3% month-over-month in June, although the increase was less than the 2.2% growth forecast by economists. Orders, excluding transportation, declined 0.7%. Shipments of factory goods remained unchanged, while inventories fell 0.7%.

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Bay Street Stocks Look To Rebound

Canadian stocks will look to rebound on Thursday as markets overseas are seeing modest strength. Bay Street's main index was little-changed yesterday after back-to-back sharp drops.

Resource stocks could lead the gainers as commodities are higher. Gold is up $4.50 to $983.00 per ounce after surging $22 yesterday. Crude oil has added 70 cents to $68.75 in electronic trading.

In corporate news, Wi-LAN reported that its third-quarter net loss was C$1.3m or C$0.01 per share, compared to a net loss of C$3.5m or C$0.04 per share last year. Pro forma earnings for the quarter were C$3.5m or C$0.04 per share, compared to pro forma earnings of C$495,000 or C$0.01 per share in the year ago quarter.

Ridley Inc. reported that its fourth-quarter net loss was US$8.4m or US$0.60 per share, compared to net earnings of US$1.2m or US$0.08 per share in the fourth quarter of fiscal 2008.
 
Pluspetrol Resources said that its unit, 1462627 Alberta, has extended the expiry time for its all-cash offer to acquire Petro Andina Resources to September 14.

Alimentation Couche-Tard said it looking to double its outlets in North America over the next several years, according to the National Post.

Across the border, the Labor Department reported jobless claims edged down to 570,000 from the previous week's revised figure of 574,000. Economists had been expecting jobless claims to slip to 564,000 from the 570,000 originally reported for the previous week.

Monthly job situation reports are due tomorrow from both the U.S. and Canada.

Gold Prices Near $1000

Gold prices moved higher again and continued to head toward $1,000 an ounce. A weaker U.S. dollar added to the metal's hedge value.

December-stamped gold rose to $984.80 per ounce, up $6.30 on the session. Prices reached as high as $989.50 earlier in the morning.

The greenback fell to an eight-day low against the British pound. The dollar remained slightly higher against the euro after giving back most of an early rally.
 
In economic news, the Labor Department reported jobless claims edged down to 570,000 from the previous week's revised figure of 574,000. Economists had been expecting jobless claims to slip to 564,000 from the 570,000 originally reported for the previous week. The Labor Department's monthly employment situation report is due tomorrow.

The ISM non-manufacturing index report is coming at 10 a.m. ET. A reading of 48.0 is expected for August, compared to 46.4 in July.

On Wednesday, gold closed at its best level in nearly three-months at $978.50 per ounce, up $22 on the session.

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Asian Markets End Higher; Gold, Mining Stocks Gain

Most of the Asian markets ended in the positive territory on Thursday , taking cues from the Chinese market, which surged up more than 4.5% and raised hopes that the third largest economy will sustain the growth momentum. However, the markets in Australia, Japan and India ended in the negatie territory amid thin trading as traders preferred to lock-in-gains and move to the sidelines awaiting direction.

In Japan, the benchmark Nikkei 225 Index ended at 10,215, representing a loss of 65.82 points, or 0.640%, while the broader Topix index of all first section stocks were down 7.04 points, or 0.74%, to 943.

Exporters and automakers led the declines after the local currency strengthened against the US dollar, as a stronger yen reduces the amount of realization of export proceeds in local currency and dents profit margins.

Among automakers, Suzuki Motor declined 3.20%, Honda Motor fell 2.41%, Isuzu Motors slumped 5.02%, Toyota Motor shed 1.79%, and Nissan Motor lost 2.50%. However, Mitsubishi Motor managed to end the session unchanged from previous close.

Shipping stocks also ended in negative territory, after Nomura Holdings revised the rating for Kawasaki Kisen, the third largest shipping line in the country. The stock declined 1.76%. Among others, Mitsui OSK Lines dropped 0.70% and Nippon Yusen fell 0.76%.

Financial stocks also ended weaker on concerns about the pace of economic recovery. Sumitomo Mitsui Financial fell 1.28%, Mizuho Financial lost 2.28%, Mitsubishi UFJ Financial declined 2.93% and Resona Holdings declined 1.11%.

Among oil stocks, Nippon Oil Corp fell 1.32%, Nippon Mining Holdings edged down 0.22% and Showa Shell slipped 0.73%.

Trading companies ended mixed. Mitsubishi Corp. gained 1.15%, Mitsui & Co., added 0.34%, and Sumitomo Corp. edged up 0.22%. However, Toyoto Tsusho Corp. ended in negative territory with a loss of 0.78%.

In Australia, the benchmark S&P/ASX200 Index declined 0.19% or 8.60 points to close at 4,430, while the All-Ordinaries Index ended at 4,433, representing a loss of 3.70 points, or 0.08%.

On the economic front, the Australian Bureau of Statistics announced that the country's trade deficit expanded more than expected in July, with the deficit being the largest reported since May 2008. The trade deficit was at a seasonally adjusted A$1.56 billion in July compared to a revised A$538 million deficit in the previous month. Economists were looking for a deficit of about A$880 million.

In a separate report, the Commonwealth bank of Australia and the Australia Industry Group revealed that the performance of services index, which is a measure of service industry activity, climbed 3.9 points on month to 48 in August.

Light sweet crude oil price for October delivery ended at $68.28 a barrel in electronic trading, up $0.23 from its previous close $68.05 a barrel in New York on Wednesday.

Gold stocks advanced on higher bullion prices, limiting the losses in the overall market. Lihir Gold surged up 7.19%, Newcrest Mining soared 7.67% and Sino Gold Mining climbed 10.69%.

Metals and mining stocks ended mixed. BHP Billiton edged up 0.16%, Fortescue Metals added 0.24%, Gindalbie Metals gained 0.61%, Iluka Resources rose 4.71% and Oz Minerals climbed 2.44%. However, Rio Tinto bucked the trend and lost 1.27%.

Oil stocks ended in the negative territory. Woodside Petroleum lost 1.71%, Santos fell 0.58%, Oil Search edged down 0.16% and Origin Energy shed 0.33%.
 
Banks also ended weaker. ANZ Bank slipped 0.14%, Commonwealth Bank of Australia declined 1.16%, National Australia Bank fell 2.30% and Westpac Banking edged down 0.12%.

In Hong Kong, the Hang Seng Index ended in positive territory with a gain of 239.68 points or 1.23% at 19,762, taking cues from mainland China, where the stock market surged more than 4.6%, raising hopes of recovery in the third largest economy at an early date. Of the 42 components in the index, as many as 40 stocks ended in the positive territory.

In South Korea, the benchmark KOSPI Index ended flat at 1,614, up 0.37 points, or 0.02% despite weak closing in Wall Street in the previous session. Positive trading in China and bargain hunting at lower levels by institutional investors helped the index offset the losses. Traders moved to the sidelines ahead of key economic data from the U.S on Friday.

The Indian market ended down for the 4th successive session despite positive cues from the rest of Asia and the European markets, as traders preferred to move to the sidelines ahead of key economic data in the U.S. tomorrow.. The BSE Sensex ended the session at 15,398, down 69 points or 0.45% and the S&P CNX Nifty fell 15 points or 0.32%.

Among the other major markets in the region, China's Shanghai Composite Index surged up 4.79% or 130.05 points, to 2,845, Indonesia's Jakarta Composite Index advanced 36.32 points, or 1.59% to close at 2,322, Singapore's Strait Times Index gained 28.43 points, or 1.11% to close at 2,598, and Taiwan's Weighted Index rose 0.92% or 64.88 points to 7,105.

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After opening sharply higher on Thursday following three sessions of losses, the European markets have pared back most of their gains. While the French CAC 40 Index and the German DAX Index are rising 0.17% and 0.31%, respectively, the U.K.’s FTSE 100 Index is trading up 0.19%.

In corporate news, French brewer Pernod Ricard said its net profits for the year rose to 945 million euros from 840 million euros in the previous year. Sales rose 9% year-over-year to 7.2 billion euros. The company waned of a tough a year ahead.

An economic report released by Eurostat showed that the euro zone’s retail sales fell 0.2% month-over-month in July. Annually, retail sales were down 1.8% compared to the 2% decline in June. Economists estimated 0.1% monthly growth, but a 2.2% annual drop.

Services PMIs compiled by Markit Economics showed that service activity in euro zone moved close to stabilization. The services purchasing managers’ index rose to 49.9 in August from 45.7 in July. Meanwhile, services activity in the U.K. expanded for the fourth consecutive month in August. The seasonally adjusted business activity index rose to a 2-year high of 54.1, exceeding the economists’ estimate of 54.

In a central bank decision, the European Central Bank announced today that it is maintaining its main refinancing operations rate at 1%. The marginal lending rate and the deposit rate were also maintained at 1.75% and 0.25%, respectively. The ECB has been maintaining rates at these levels since May of this year.

U.S. Economic Reports

While the Labor Department released a report on Thursday showing a modest decrease in first-time claims for unemployment benefits in the week ended August 29th, the decrease followed an upward revision to previous week's initial jobless claims.

The report showed that jobless claims edged down to 570,000 from the previous week's revised figure of 574,000. Economists had been expecting jobless claims to slip to 564,000 from the 570,000 originally reported for the previous week.

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 48 for August.

The non-manufacturing index fell to 46.4 in July from 47 in June. The business activity index declined 4 points to 42 and the new orders index moved down 0.5 points to 48.6, while the prices paid and the employment index dropped 1.9 points and 12.4 points, respectively.

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Ciena is likely to see some activity after it reported a third quarter loss of 5 cents per share on an adjusted basis. Sales declined 35% to $164.8 million. Analysts estimated a loss of 13 cents per share on revenues of $152.6 million. The company said it expects fourth quarter sales to be sequentially flat, while analysts estimate sales of $163.8 million.

ABM Industries could be in focus after the company reported that its third quarter earnings declined to 24 cents per share from 32 cents per share last year. On an adjusted basis, the company reported earnings from continuing operations of 36 cents per share compared with 31 cents per share last year. Revenues fell 6% to $870.6 million. Analysts estimated earnings of 35 cents per share on revenues of $896.1 million. For the full year, the company expects adjusted income from continuing operations of $1.25-$1.35 per share compared to the consensus estimate of $1.33 per share.

McMoran Exploration is likely to react to its announcement that it has lowered its production estimate for the third quarter to 210 million to 215 million cubic feet of natural gas equivalent per day from 220 mmcfe/day. At the same time, the company expects fourth quarter production to rise 33% to 215 mmcfe/day. The company attributed the reduced third quarter outlook to downtime at its Flatrock field and shut-ins related to facility repairs.

Grief may also see some activity after it reported that its third quarter earnings fell to 68 cents per share from $1.11 per share in the year-ago period. On an adjusted basis, the company reported earnings of 88 cents, ahead of the consensus estimate of 86 cents per share. Revenues fell 31% to $717.6 million. The company reduced its earnings guidance for the full year to $3.25-$3.50 per Class A share from its earlier estimate of $3.25-$3.75 per Class A share.

Homebuilder Hovnanian Enterprises (HOV) could see weakness after it reported a loss of $2.16 per share for its third quarter compared to a loss of $2.67 per share last year. The recent quarter’s results included pre-tax charges of $105.7 million related to a write down in the value of land and other assets. Revenues fell 45% to $387.1 million. The consensus estimates had called for a loss of $1.52 per share on revenues of $392.2 million.

FLIR Systems is likely to gain ground after it announced that it has secured a $4.9 million U.S. government foreign military sale order for the Columbian army and air force. The company noted that work on this order will be performed at its facility in Wilonville, Oregon and deliveries are expected to be completed in 2010.

Abbott Labs. could see weakness after it said it would acquire privately held vision care company Visiogen for $400 million in cash. Abbott Labs had initially forayed into the vision care segment with its acquisition of Advanced Medical Optics in February 2009. The company expects the deal to close in the fourth quarter.

Casella Waste ( moved higher in Wednesday’s after hours session despite reporting a loss of 11 cents per share for the first quarter compared to a profit of 8 cents per share last year. The recent quarter’s results included a charge of 2 cents per share. Revenues declined 14% year-over-year to $135.9 million, ahead of the consensus estimate of $132.1 million.

Agilent is likely to react to its announcement that it has decided to separate its Life Science and Chemical Analysis Group into two businesses, with the proposed splinter reflecting the growth opportunities of each business. The company also announced some executive changes in connection with the decision.

Sepracor is likely to see some strength after it announced that it has agreed to be acquired by DaiNippon Sumitomo for about $2.6 billion. The acquisition will be through a cash tender offer of $23 per share followed by a merger to acquire all remaining outstanding shares at the same price paid in the tender offer. The boards of both companies have approved the deal.

Among retailers, teen apparel retailer Hot Topic said its August same store sales fell 6.9%. Sports apparel retailer Zumeiz’s same store sales fell 12.1%. Costco said its same store sales for August fell 2%, reflecting lower gas prices and the stronger dollar. Department store Limited Brands’ same store sales fell 4%.

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